Earnings Transcript for AI.PA - Q4 Fiscal Year 2021

Operator: Good morning, ladies and gentlemen, and welcome to the Air Liquide 2021 Results Conference Call. All participants are currently in listen mode only, until we conduct a question-and-answer session and instructions will be given at that time. I will now hand over to the Air Liquide team. Please begin your meeting, and I will be standing by.

Aude Rodriguez: Good morning, everyone. This is Aude Rodriguez, Head of Investor Relations. Thank you very much to be with us today. Benoit Potier and Jerome Pelletan will present the full year 2021 performance. For the Q&A session they will be joined by Francois Jackow, Executive VP, supervising Europe, Africa, Middle East and Healthcare hubs. And on the phone from Houston, Mike Graff, Executive VP, supervising Americas and Asian hubs and the Electronics business line. In the agenda, our next event is on March 22, our Capital Markets Day; and on April 27, our first quarter revenue announcement. Let me now hand you over to Benoit.

Benoit Potier: Thank you, Aude, and good morning, everyone. Thank you very much for attending this call. I’ll start immediately with Page 3 of our presentation. As you can see 2021 has been a year of strong profitable growth in a record inflationary environment, especially in the second half of the year. In terms of performance, we ticked all boxes in 2021 being able to deliver on growth, efficiency, pricing and signing; we will come back on each item. As we previously communicated to all of you over 2021, it has also been a year of key achievements in energy transition; I’ll come back to that later. And importantly, another year of very active business development with high level of signing and strong backlog, which positions us very well for future growth. On Page 4, starting with performance on the left, we recall the main characteristics of the environment in 2021. We faced an unprecedented spike in energy prices in the second half of the year with, for example, in Europe, natural gas price being multiplied by 5 between the first of July and the peak in December. Inflation has been firming up as well in all regions and COVID-19 pandemic is remained present in the background in all countries, lingering local lockdown, disturbing operations and the overall business environment. In such a context, we’ve managed to deliver strong results across all performance criteria, after resilient sales in 2020, they increased by plus 14% and plus 8% on a comparable basis in 2021 and we’re plus 6% above 2019. Despite the inflationary context, the operating income recurring margin improved gain by 70 basis points, excluding energy pass-through impact with a strong leverage on net profit growing at plus 13% on a recurring basis, excluding foreign exchange. Investment decisions have been high gain about €3 billion for the fourth consecutive year. Notably, thanks to the strong cash flow at 24% on sales. And Jerome will come back later on the details of the performance. On Slide 5, we highlight important key achievements in 2021, which position us well for the future. First, of course, the strong involvement of the team to supply medical oxygen to COVID-19 patients, liquid medical oxygen volumes increased by plus 50% in 2021 compared to 2019. Second is the announcement in March of ambitious sustainability objectives, first of its kind in our industry, including carbon neutrality by 2050 with key milestones one of them being to reduce by one-third our CO2 emissions in absolute value by 2035. We also announced social and societal objectives on Jerome will come back at the end of the presentation. The takeover the 16 ASUs of Sasol at its Secunda site in South Africa in June is another key achievement of the year. This takeover is combined with a joint commitment with the customer to reduce the CO2 emissions of these assets by 30% to 40% within the next 10 years, and it is progressing very well. Innovation has been supporting business development, especially focusing on energy transition by adapting our ASU to the use of renewable energy, for example, are working on new technologies to produce low carbon hydrogen. This has been possible, thanks to the outstanding commitment of the teams worldwide facing the challenges of COVID-19 and spike in energy price. If we now turn to Page 6, and focus on energy transition, in particular, we went through major steps and took major business positions in 2021. You have on the slide many examples of either signed projects, or MOUs, or partnerships on this slide, and I won’t come back to each of them. But as you know, Europe clearly is leading the way, especially for industrial projects, and this is the region where we have been able to achieve the most, this is the upper part of the slide. The U.S. are quickly catching up, but they are still not there on the map. And we’re winning many projects in hydrogen mobility in Asia. This is the yellow color on the slide. We’ve been awarded fundings among numerous projects, and these fundings will contribute to the development of these ambitious projects to reduce our carbon footprint, as well as the one of our customers. All these achievements demonstrate that Air Liquide is taking key positions, and this is essential for climate, and this is also key to prepare for future growth. We are engaging with key players, you have all the name on the slide, and partnering with market leaders. We will be pleased to explain in more details all these opportunities during our next CMD on March 22. On Slide 7, we propose for 2022 a dividend per share of €2.9, representing an increase of 5.5% in line with a recurring net profit growth, which would lead to a payout ratio about 50%, as you can see on the slide, and plus [X%] [ph] compounded annual growth rate of the dividend over 20 years, I think the number – Aude?

Aude Rodriguez: 7.7%.

Benoit Potier: 7.7%. Okay, thank you. In addition to that, the Board of Directors has decided to consider a new free share allocation for June 2022, all of which demonstrating our steadfast commitment to our shareholders. And I’ll let Jerome explain the 2021 performance. Jerome?

Jerome Pelletan: Thanks, Benoit, and good morning, everyone. So, I suggest we now review the detail of our Q4 activity and full year performance. I’m on Page 9, coming back to the full year. Group sales have been strong in Q4, reflecting a very dynamic year overall on a comparable basis, meaning excluding ForEx, energy pricing pass-through and significant scope effects. Gas & Services sales for the year are showing a plus 7.3% increase versus last year following Q4 at plus 6.7%. Engineering & Construction sales have increased by plus 35% compared to a low base last year. Order intake has ramped up to reach €1.2 billion for the full year, mainly supported by energy transition project. Last, Global Markets & Technologies have also accelerated and are now showing about 18% comparable growth boosted by dynamic activity levels in our biogas activity. So, overall, comparable growth are up 8.2% for the full year, while published sales at plus 13.9% are impacted by a negative ForEx impact of minus 1.6%, and a small perimeter effect of minus 1.1%. It is balanced with a very significant impact of the spike in energy price effect at plus 8.4%, which is pass-through to our customer. It is important to highlight that this level of growth is built on the resilient performance in 2020, as our sales were almost flat last year despite the pandemic crisis. In regards to the market we addressed and I’m now on Page 10. The vast majority of our end markets are improved and reinvigorated strongly compared to last year. Steel and Chemicals are indeed solid with lower construction and automotive. This drove a positive impact across all geographies and our 4 business lines. As a consequence, I am now on Page 11. All geographies and business lines are posting very strong growth on a comparable basis versus last year to reach a plus 8% growth comparable year-on-year for group sales. This percentage doesn’t take into account the acquisition of the 16 ASU of Sasol in June 2021, reporting insignificant scope effects. Let’s now review the activity for each of our main geographies. My comments will be mainly related to Q4. I am now on Page 12. After a good Q3, Americas has seen a strong contribution for all business lines. Large Industry volumes have been strong in air gases. And underlying hydrogen demand was solid both being supported by start-up and ramp-up contribution in the U.S. and Latin America. In Merchant, gas sales and volume are growing with well-oriented industrial and services market, except low construction in the U.S., which impacts the level of recovery in the hardwood business. This coupled with customer portfolio refocus result in hardgoods volume in the U.S. below pre-COVID level. Pricing finally has been very strong with an acceleration at plus 7% versus last year in conjunction with the rising inflation. Electronic sales have also improved, thanks to very high E&I sales for large customers and strong specialty materials, Advanced Materials growing steadily. Health care activity is strong due to dynamic Medgas sales in Latin America, but also due to home health care recovery. In North America, medical gases are strongly supported by proximity care and COVID-19 volume in early Q4. In Europe now, we have seen an acceleration of growth in the last 4 quarters, we sell significantly above pre-COVID levels. Large Industry has been solid despite strong base effect last year with the one-off sales in Q4 2020 in Russia, benefiting from a continued strong underlying demand in steel and chemicals for air gases. Refining is catching up, and we have now new project contributions in Eastern Europe. In Merchant, all end markets are growing and have been well oriented with good bulk volume, in particular in Western Europe. Energy cost pack has been very well managed with a strong and record pricing effect at plus 10%. Finally, health care sales have remained robust, thanks to strong home health care, diabetes, sleep apnea and strong Specialty Ingredients, despite normalizing medical oxygen demand for COVID versus a high base last year together with exceptional equipment and respirator sold in Q4 2020. Asia is still contracted. I’m now on Page 13, with China continuing to show high momentum, while the rest of Asia is progressively improving. In Large Industry, China sales and volumes are still impacting by easing on energy control and planned maintenance turnaround in Q4, while sales are strong in Singapore and Japan for steel. In Merchant, we have seen a very strong China supported by volumes and an acceleration in pricing, especially in bulk with all end markets well indeed in particular, for packaged gas and on site. This is contributing to a plus 18% growth there while the rest of Asia is improving notably in Singapore. To be noted, an accelerating pricing effect at plus 2.6% overall for Asia. Finally, Electronics sales are strong with recurring sales up 10%, driven by strong carrier gas from the start-up and ramp-up of several units and advanced material over the region, partly offset by low equipment and installation sales compared to high base effect in Q4 2020. Finally, Africa-Middle East activity sales in Merchants are recovering progressively despite the continued impact of the pandemic. While healthcare is impacted by normalizing demand in medical gases versus acute COVID crisis in Q4 2020. Finally, again, Large Industry has continued to recover, thanks to higher loading at CFF. Sasol contribution is strong. And as a reminder, is accounted for insignificant perimeter. I am now on Page 14. In terms of business line and as a reminder, Industrial Merchant and to a lesser extent, Large Industry sales were the most impacted by COVID crisis in 2020 creating a rebound effect contrary to electronics and health care that we are still progressing last year. Large Industry has seen air gases benefiting from strong recovery in chemical and steel, while refining and ICO are improving well in Europe and catching up in the U.S. above 2019 level. In China, again, dual energy control has been softening, while several customers took the opportunity to perform turnarounds in Q4. To be noted, a significant contribution of the start-up and ramp-up, which is accelerating versus Q3. Finally, Electronics is pursuing strong growth, thanks to both Carrier Gases contribution supported by ramp-up in Asia as well as Specialty and Advanced Materials that benefited from strong volumes. E&I sales are stable versus a strong Q4 2020 base in Asia. In Page 15 now, in Merchant gases volume growth drivers are vigorous and all end markets have continued to recover rapidly, except construction in the U.S., which is slower. Pricing impact is very high and picking up a plus 7%, showing now our ability to implement faster pricing campaign that quickly precipitates. Health care has been at the forefront of the pandemic fight and is still supported by slight medical gases growth despite a high comparable Q4 basis last year related to equipment sales and oxygen volumes in particular. Activity is also benefiting from the ramp-up of proximity care in the U.S. that were on hold during the crisis. We are also seeing an acceleration in home health care, particularly in Europe, sustained mainly by strong diabetes activity. On Page 16, this performance improvement is also very well demonstrated by operating margin being up 70 basis points for the group, and plus 80 basis points for gas and services excluding the impact of the energy price pass-through increase. Getting into the details we can see that purchases and other costs have been impacted by the increase in energy price and improvement of the activity while personnel expense have only very slightly increased. Depreciation is slightly up after the impact of start-up during the year compensated by drops mainly. This has resulted again in a published operating margin at 17.8%, which is translated in 19.2%, excluding the energy effect. Again, a significant plus 70 basis point increase, excluding the energy price impact after 80 basis points already achieved last year. This margin improvement shows the strength of our business model and our performance overall. All the more that we compare with high base effect last year, where we benefited from the full impact of the cost containment plan launched by the group during the peak of the COVID pandemic. This margin improvement is supported by a structured margin improvement plan that continues to deliver on Page 17. As you can see, IM pricing has significantly accelerated in all regions at a fast and a record pace. I will come back in more detail in the next slide. We have also exceeded our objective for efficiency to reach €430 million for the full year. Portfolio management has been pursued. We executed 6 divestitures and closed about 21 bolt-on acquisitions over the period with our continued focus on our profitable activity. As you can see on the slide, Page 18, our pricing action in Merchants have been very impactful and campaign executed in a very quick and efficient way, mainly in bulk and packaged gases leveraging on our escalation formula and surcharges to pass through the energy costs In Q4 only, Europe achieved a plus 10% year-on-year pricing impact, a record landmark. Francois may come back later as he was leading the effort, while the Americas delivered plus 7% and Asia plus 2.6%, mainly in China year-on-year. Let’s now quickly look at the bottom of the P&L. Net non-recurring operating expenses are close to last year level. As a reminder, 2020 was impacting by the capital gain linked to the divestiture of Schulke and negatively by the asset review portfolio as well as exceptional COVID cost. Net financial costs have also decreased following the progressive de-leverage. Cost of debt is decreasing versus 2020 down to 2.75%. Effective tax rate is at 25%, which is comparable to last year, excluding the non-recurring item of last year. As a result, net profit as published is up plus 5.6% and plus 8.9%, excluding ForEx. Now we talk about recurring net profit, excluding major exceptional items of 2020 is significantly up as well at plus 13.3%, excluding FX, in line with our guidance. On Page 20, as mentioned before cash flow has also been very strong and is up plus 9.1% at constant exchange rate at 24.5% to sales which is plus 40 basis points versus last year, if we exclude the energy effect and has allowed to well finance our industrial and financial CapEx at €3.4 billion, including the acquisition of the Sasol Acid Dilution Unit units for €480 million. Thanks to the effort on cash, working capital and debt management, we have managed to reduce our gearing net debt reduced to €10.4 billion and with our dividend payment at €1.3 billion and despite a €465 million unfavorable currency effect. On Page 21, we can see this improvement of the cash flow to sales for the last 20 years with a strong acceleration since 2016 at plus 8.5% in average for the last 5 years. The 12 months portfolio of opportunities remained at a very high level at €3.3 billion. I’m on Page 22, despite the good level of decision for the quarter, supported by energy transition projects and a high proportion of electronic project. Industrial and financial decisions for the year have been very strong at €3.6 billion, including €480 million for the acquisition of Sasol Air Separation Unit. Finally, our sales backlog is also strong and very diversified. It has increased slightly to €3.2 billion, representing €1.1 billion of additional sales after full ramp-up. On Page 23, with the Sasol takeover that started to precipitate in July 2021, the level of start-up and ramp-up has reached a very high number to close to €350 million contribution for the year 2021, slightly above our initial guidance. For 2022, the contribution should be in the range of €410 million to €435 million including Sasol impact at €135 million. On Page 24, those cumulative effects of very strong results and cash management are translating into a return on capital employed at 9.3%, recurring and as published at the end of December 2021. As you can see, we are very well on track to reach our objective to meet double-digit level by 2023 – 2024. On Page 25, since the announcement of our new sustainability objectives in March, including particular carbon neutrality by 2050, we have made significant progress. CO2 emissions are now managed similarly as financial KPIs through budget allocation and regular reporting. We will publish in addition, a first set of water objective in our registration document. Then in addition already 1 million people have been granted with access to oxygen in low- and middle-income countries. Finally, we have already 31% of women among managers in line to achieve 35% by 2025. As you can see, non-financial objectives are fully embedded in our global performance. Finally, to be noted also, all ESG rating agencies are positioning Air Liquide in the first quarter, and we have recently confirmed our range with CDP, both on CO2 and water. Finally, on Page 25, this is to conclude on the basis of our excellent performance in 2021 was setting up our guidance for next year. Taking the assumption that there will be no major economic disruption in 2022, we believe in our ability to continue to improve margin and to deliver a recurring net profit increase at constant FX compared to 2021. Thank you very much again for your attention, and we’ll now open the Q&A session.

Operator: So first question – thank you, Jerome. The first question is coming from Andrew Stott, UBS. Andrew?

Andrew Stott: Yeah, good morning, everybody. Thanks for taking my questions. First one is on pricing. You’ve obviously done a very strong job in Q4, but just wondering on the math here. So what was the exit number? If 7% is the average, what were you doing by the time you got to December 31st? Also, is there a surcharge within the 7%? Or are they price increases that fully negotiated, if you like. That’s the first question. Second question was on the dividend. I get the fact that it’s in line roughly with your reported net income, but given the cash flow performance is good, given the recurring net income growth is 13%. Just wondering why only 5.5% divi growth? Is that one eye on the bonus allocation in June? Or is there other thinking there?

Benoit Potier: Thank you, Andrew. As Europe was really making very good performance in pricing, we’ll ask Francois to answer the first question, and I’ll take the second one.

Francois Jackow: Thank you, Benoit. Good morning, everybody, and good morning, Andrew. Indeed, Europe was very strong in terms of pricing. Just as a reminder, how we started the year with 1% for the first quarter, then 1.7%, 2.2% and 10.4% pricing in IM for the last quarter. So clearly, the momentum was there. And when we are talking about pricing, we are talking about IM, of course, but mostly to catch up with the very strong energy increase. And there, this is mostly the bulk business, which has been impacted. Now keep in mind that for bulk, 60% around of the costs are related to energy. So for that, I mean, of course, we have a contract with index, not all of them, maybe in Europe, 60% of the contracts have an index. So we checked all the index to make sure that they are well applied that they are applied with no delay. And whenever that was the case that [hydro] [ph] index was not appropriate or was basically lagging. We came back to the customer with a very strong position and a legitimate position to cover our cost. So we changed and updated the index. That was a very good opportunity, thanks to the very strong action of the commercial team. So also, I would say, best of all the indices that we have in the different contracts, make sure that they are well aligned – and whenever the energy increase was not covered by the contract or with the index, we apply some temporary surcharges. We have well in mind that those are temporary measures. But in almost all the situation, we have managed also to negotiate with the customer new set of indices to make sure that we can carry on the fact that we will cover our cost. So all-in-all, a very strong momentum. We were not used to do that in Europe for sure. But you remember that we have been talking about this for now a few months, almost 2 years, trying to apply also what we have learned through the Airgas organization through training, through tools, but also the mindset, the incentive of sales force. And clearly, this has been paying off.

Benoit Potier: Thank you, Francois. And your second question about dividends.

Jerome Pelletan: Second question about dividends. The first parameter that we take into account is obviously the growth in net earnings. The second one is the payout. We have a payout of 55%, which is high, it’s okay, it’s reasonable, but it’s more on the high side. And third, because we have already said we would allocate a bonus share in June that would automatically translate into an increase in dividend of 10% the following year. So when we take everything into account, we think at this stage, that we have a fair way of returning cash to shareholders. But that being said, cash flow allocation, if cash flow grows, there will be more opportunities for both investments, but also return to shareholders, and I’m sure we’ll be talking about that during our Capital Markets Day.

Andrew Stott: Thank you.

Benoit Potier: Thank you very much. Next question?

Operator: The next question comes from the line of Martin Roediger from Kepler Cheuvreux. Please go ahead.

Martin Roediger: Yes, good morning, Benoit, Jerome, Francois and the whole team.

Benoit Potier: Good morning, Martin.

Martin Roediger: First of all, a clarification question on your guidance to expand the margin in 2022, is it correct that this guidance excludes the dilution from energy pass-through in Large Industries, but it includes the price hikes in Industrial Merchant to cover cost inflation? That’s my first question.

Benoit Potier: The answer is very simple, yes. It excludes energy and it includes any pass-through of inflation in Merchant.

Martin Roediger: Then a follow-up question to Andrew’s question. What is the time lag in Industrial Merchant to pass on the increased energy cost to customers, if there is any? And if there is any difference in the respective region? Just talked about Europe, but there are also inflationary tendencies in other regions.

Benoit Potier: Yes. Thank you. I think, we talked about Europe already. So I may ask Mike to make comments about what is so and still sees in the U.S., in particular, in Airgas, which is the number 1 operations we have in the world in Merchant. Mike?

Michael Graff: Yeah, thank, Benoit. And goof morning, everyone. Martin, specific to the question of timing for the liquid business, for the bulk business. There’s typically a bit of a time lag, might be on average about 3 months to fully capture all the energy increase that passes through. So you see that on a regular basis. On the packaged gases and hardgoods, that’s all driven primarily by pricing campaigns. So all that would evolve clearly with the price campaign, immediacy in terms of acting upon inflationary trends, energy, whatever the case may be. So that’s really how that evolves. And you will see that in each of the geographies that is a critical driver. The other critical driver, of course, on pricing is availability of product. I think what you’ve seen in Asia is a driver with those elements as well as the fact with the dual energy control in Asia, a bit of a decline in the amount of available byproduct liquid from a variety of facilities, which also helped to aid some of the pricing.

Benoit Potier: Okay. Thank you. Next question?

Operator: The next question comes from the line of Tony Jones from Redburn.

Tony Jones: Yes. Good morning, everybody. I’ve got 2. So the first one is on the project backlog. So it seems to me that the industrial gases industry should be benefiting from mid-cycle recovery. And then almost all of your end markets should be seeing a CapEx acceleration in response to the strong price inflation we see, so that translates to really good volume trends in the next couple of years. Is that reasonable? So any comments appreciated there. And I had a second question, which was just on the underlying economics. So operating profit increased by, I think, about €370 million year-on-year. You booked over €400 million of savings. And then, if I assume comparable growth generated nearly 10% underlying earnings growth, there was quite a big [€416 million] [ph] negative impact. Any detail on that basic math will be appreciated and what the cost headwind was? Thank you.

Benoit Potier: Okay. So the first question about the backlog. What we see in the backlog is a mix of projects that were decided, I would say, before the COVID and before the acceleration in the energy transition. So that’s one thing. When we look at the portfolio of opportunities and the decisions, there are more and more projects linked to the energy transition. So there will be an acceleration in CapEx. We see that. It is the fourth time in a row that we designed more than €3 billion. And I think, it should go on, but that’s good news because we have also the cash flow to invest. It will definitely translate into volume and sales growth for the years to come. I think you are familiar with most of those projects, the ones that are not yet visible are related to CO2 abatement. It will be an additional way of developing sales, service, introducing technologies into the market and probably develop something that was not existing before. So all in, it will translate into volume and sales growth for the years to come. The underlying economics, I would ask Jerome to actually take this question, Jerome?

Jerome Pelletan: Yeah. Thank you, Benoit. Thank you for your question, Tony. Basically, what we have said as a support to our improvement in operational performance is first, as we said, the pricing at plus 7%, and we say that, and it’s clearly written on the bottom line. Efficiency has been very significant as well, plus a total of €430 million, which as you know, compared to last year, where we had about €448 million. So we are on the top of our target. Target is €400 million. So it’s clearly something that has helped. And we are also monitoring our portfolio management by divesting the less profitable activity to reconfirm to go to an acquisition that are more core business and also more profitable, so all those actions are also working to drive the performance up. And in addition, we are slightly also working on the rest of the activity in order to make this performance better. So that’s where we stand today.

Tony Jones: Thank you very much. Thank you.

Benoit Potier: Thank you, Tony. Next question?

Operator: The next question comes from the line of Gunther Zechmann from Bernstein. Please go ahead.

Gunther Zechmann: Good morning. A couple of questions, please. Firstly, in the past, you gave a more quantitative guidance around how much margin expansion you expect. Can you please share your thoughts around comparable margin expansion in 2022? And how much of that is pricing that’s required to offset the cost increase that you expect this year? And then secondly, return on capital employed has improved quite significantly and isn’t too far off to your 2023, 2024 and they should not more than 10%. What are your expectations, if I can just push you on the previous question on CapEx a bit more? What do you expect in terms of CapEx for this and the next 2 years please? Thank you.

Benoit Potier: You take the first question, Jerome?

Jerome Pelletan: Yeah. So for the margin expansion guidance for 2022, we stick to what we have just said at the beginning of the presentation meaning that, of course, assuming no significant economic data disruption, we are confident in our ability to further increase our operating margins. So that’s something that we see during the last year as well and to deliver recurring net profit growth at constant exchange rate. So that’s – we stick on this guidance for now, and that’s where we stand. We will review our Capital Market Days, but that’s where we stand today. In terms of return on capital employed, yes, it is true that today, we are seeing a CapEx rate, which is around 15%. So we see clearly an acceleration on the CapEx side, which is supporting the return on capital, because we are extremely clear on the fact that we are taking projects which are profitable and are supporting our return on capital employed ambition. And we’ll come back again to Capital Market Day for other detail on capital allocation for the next years.

Benoit Potier: So a little bit of patience, and I think we’ll have occasions to come back to that. So thank you, Gunther. Next question?

Operator: The next question comes from the line of Laurent Favre of BNP Exane. Please go ahead.

Laurent Favre: Yes. Good morning, all. My first question is on pricing. Back to Andrew’s question, I was wondering if you could share the exit run rate in Merchant. I’m assuming it’s double-digit, but any quantification would be helpful. And the second part of the pricing question is in health care. Maybe that’s one for Francois. I was wondering if you could talk about the lag there in terms of getting pricing and whether or not the margin squeeze there is larger than in merchants. And then lastly, one for you, Benoit, I don’t know if it was wishful thinking. I think, I heard you mentioned buybacks in terms of the overall capital allocation piece that you would talk about at the Capital Markets Day. I just wanted to double check. Is that a way that you use? And if you can share more thoughts on this, it would be very helpful. Thank you.

Benoit Potier: Maybe I may ask Francois to answer the first question, and second, and I’ll take the third one. Francois?

Francois Jackow: Thank you very much. Good morning, Laurent. So regarding the pricing, as mentioned, I mean, the momentum and here, I’m talking about Europe, but this is true also in other regions of the world. The pricing was very strong in October, November, December. We have seen the same kind of pricing for the beginning of the year. Some actually of the action have not precipitated yet in December and just started in January, especially in some of the Western Europe countries. So for the time being, we do expect, I mean, this to continue. Of course, I mean, we watch very closely the energy price and we will make sure that we cover and recover our costs. So the pricing is going to be highly impacted, of course, by the inflation. The very good news is that we have the willingness, the ability, the tool to cover those costs whenever they happen. The second question is on health care. And if we focus on the pricing piece of the health care what we have seen overall is in line with what we are used to see in health care in terms of pricing. Overall, the pricing for the Med gas business globally has been positive, and the pricing for the Home Care business was slightly negative in Europe, and overall positive in the rest of the countries. That’s overall for the situation. The bulk of it, of course, is in Europe, where we typically don’t have the same kind of indices in the contracts for hospital. There again, we have been engaged into a negotiation with most of the hospital. And the good news is that we start to see in the new tender, which are coming in Western Europe, the inclusion of the increase of the energy price into new tender. So the prices are going up for medical gases for hospital.

Benoit Potier: Thank you, Francois. So on your third question, I don’t remember having mentioned buyback, to be honest. I just say return to shareholders. This is the broader question of capital allocation. And I think we’ll spend more time during the CMD on that topic. So I don’t want to start the discussion on that today. But I more broadly mentioned return to shareholders. Thank you, Laurent. Next question from Peter Clark, I guess.

Peter Clark: Yes. Good morning, everyone. Thank you. The first question is on the margin squeeze you’re suffering in Europe in the second half, because of the cost situation. I mean the reported numbed we have, obviously, the 520 basis points hit. You can play around with the numbers you gave, but it probably implies the underlying margin down 150 basis points, probably worse in Q4. When do you think you’ll catch that up? When do you think the margin in Europe will be starting moving positive again on an underlying basis? Following on from that, I guess, in Europe customers have never seen Air Liquide push of the Industrial Merchant price 10% plus. You mentioned that you’ve got strong tools to do that. Just wondering what the customer reaction is generally. And then in Americas, Jerome alluded to the fact that the construction is still weighing very heavily on hardgoods there’s some portfolio reorganization stuff going on there. You mentioned customers or something. Just what is going on with the hardgoods business? Thank you.

Benoit Potier: Francois is going to take near your questions set the hardgoods, and I will let Mike to make comments on that. Francois?

Francois Jackow: Thank you, Benoit. Good morning, Peter. So for the first question on the margin for Europe, let’s keep in mind that when we report Europe as a whole, we have a mix of industrial operation and health care. Health care is broadly 40% of our turnover in Europe. So that has a very significant weight overall. When we look at the industrial business, the margin has improved, okay. So most of the decreased – 10 basis points decrease in the Europe margin is coming from the health care operations. So all what we mentioned about the pricing, about the efficiency, but also about the cost management in the industrial operation is actually visible in the P&L. We do expect this to continue. Again, it’s quite an achievement, and that’s clear for the industrial operation. The reason for the decline in the health care operation is basically 3 things. The first one is, as I mentioned the price pressure in the home care operation mostly in France, by the way. And this is absolutely clear, but also to, I would say, comparison effect also, the first one is that you remember that we had last year for half of the year, Schülke, which had an exceptional start of the year, and due to the pandemic and the need for the products; and the second one is that we have exceptional sales of equipment, not only the 10,000 respirators that we mentioned, but overall, very strong sale of equipment that we don’t see today; so all that is explaining the decrease in the home care margin, a slight decrease. But overall, that’s why you see this for Europe. Regarding another question about the customer reaction and some of the action that we have taken, I think clearly, we never find a happy customer when we have to increase the price. It’s absolutely clear. But what we are seeing is, I would say, a very high level of understanding from the customer. Again, this is the fruit of what I mentioned before, which is not only increasing the price, but bringing the value to the customer. So whenever we can, we really work with the customer to find an added value solution. And in the current context, I think it’s obvious for many, many customers that they are very legitimate cost increase. We had to in some cases, go the hardware, I would say, and we had to cancel some of the contracts in IM. But overall, I think the relationship and the understanding of the customer is very good. When we look at the NPS and the customer satisfaction index, we have been able last year to increase that. Again, I think its proof of the quality of the interaction of the commercial team with our customers.

Benoit Potier: Thank you, Francois, and thank you, Peter, for asking this question about construction and the markets that are not yet at the level of 2019. So Mike, can you take this question on hardgoods and non-residential construction in the U.S.?

Michael Graff: Sure. Thanks, Benoit. And good morning, Peter. Specific to construction, clearly, that’s been the slowest to recover coming out of the pandemic. And you look at the forecast for 2022, we now see an uptick in expectations for construction. We begin to see the plans for major projects start to evolve. And we would expect that the construction part of the market will improve, especially in the second half of 2022. In terms of the hardgoods and gas sales, while clearly, that’s been a bit slower in the construction market. Actually, on a sequential basis we do see growth in construction quarter-to-quarter. I would also point out that we are seeing a significant uplift in industrial hardgood sales into metals and metal fabrication. In the fourth quarter, while clearly, we saw growth in gases and growth in industrial hardgoods into that sector. We clearly saw industrial hardgoods in that sector outpace the growth in gases, traditionally a good sign. The other thing I would say in regard to portfolio management of our hardgoods offer, there is a portion of our hardgoods solely related to safety hardgoods that has evolved over time and even more significantly over the last couple of years during COVID that has evolved away from being associated in any way to specific gas sales note that we are in the hardgoods business in order to support the needs of our gas customers. So whether it’s industrial or safety hardgoods, we want to sell in provide those products to those that are also buying our gases. So this particular segment evolved in a way that it was solely related to the sale of safety hardgoods and nothing else, and it’s become ever lower margin. And so we have looked at our portfolio and we have moved in such a way that we are no longer focused on that part of the business.

Peter Clark: Thank you. Very clear, everyone. Thank you.

Benoit Potier: Thank you, Mike; and thank you, Peter. Next question?

Operator: The next question comes from the line of Alex Jones with Bank of America. Please go ahead.

Alex Jones: Great. Thanks for taking my questions. Good morning. 2, if I may, please. The first on the Sasol takeover, you disclosed in the EBIT bridge that was roughly €30 million of inorganic EBIT contribution in the second half. So if I annualize that and compare it to the €480 million that you paid for the assets, I get to roughly a 10% post-tax return on capital. Is that the right way of thinking about that? And is that the return profile you expect for that acquisition going forward? That’s my first question. And then the second on carbon capture. You mentioned sort of carbon abatement projects, and you received EU funding for 2 of those in the fourth quarter. Could you talk a little bit about how you see that business in terms of carbon capture as a service versus just equipment sales and how your discussions with customers are evolving on the sort of choice between those 2? Thank you.

Benoit Potier: Thank you. Francois, can you take the first question, Sasol, I’ll take the second one.

Francois Jackow: Thank you. Good morning, Alex. So regarding Sasol, what we reported is the sales contribution. So that €70 million for 2021. It’s going to be around €135 million additional for next year in terms of contribution. So overall, I mean, we have not reported the specific profitability of the Sasol deal, be ensure that this deal is above the 10% threshold that you mentioned. This is very reasonable deal in term of profitability. But I think it’s also a demonstration of the value that we are bringing to the customer, first, the safety of the operation but also the efficiency. We have already, I mean, started to bring some value. We have already started to invest, and we will invest more to make this plant more efficient, but also to reduce the capital footprint. So that’s for the Sasol project. Benoit?

Benoit Potier: Yes. Your second question, Alex, on the CCS. CCS is very interesting. As you know, we have technologies. We don’t have just the Cryocap who has a full bunch of technologies. Our business model, we clearly is to invest at our customer site, invest the Cryocap and all the equipment, and the other technologies there. And then to sign a long-term contract then to actually take the flue gas or the CO2 stream and capture it, and then orchestrate the sort of collection of the CO2 in an industrial area, together with other industrial companies, and then ask an oil and gas or equivalent company to actually take care of the sequestration. So that’s the building of a new supply chain from the capture, the transportation to the harbor, and then the shipment to the final field. This is something that is taking place, and you’re mentioning the 2 funds that we will be receiving from the European Commission, that are exactly focused on that. Those are consortia where we will collect the CO2 from different industries using Air Liquide technology in many cases, signing long-term contracts and then contracting with people that will be able to use or sequestrate the CO2. So that would be a recurring business, more or less like a Large Industry. And that will be a technology and service business with the operation in our hands. That’s the model we are pushing. And I must admit to make a link with the Sasol deal that the Sasol opportunity was the first of its kind where we could couple the supply of industrial gases with the reduction of CO2. It was not current capture, but at worse, the beginning of discussions, contractual discussions with the customer. And as a result of that we are able to deploy that strategy, in particular, in Europe. I think I cover your question, Alex.

Alex Jones: Thank you.

Benoit Potier: Next question?

Operator: The next question comes from the line of Chetan Udeshi from JPMorgan. Please go ahead.

Chetan Udeshi: Yeah. Hi, morning. A couple of questions. First is, I’m sorry, if I missed this, but I was just wondering, can you give us some color on how to think about the CapEx for 2022? I ‘m talking about more the industrial CapEx, which is, to some extent, more under control. And I think the second question was a bit more broader question. Can you remind us like what is the sort of total spending you guys have on energy? So this includes both gas and electricity as a group? And how is that roughly split between, say, the onsite business whether it’s a pass-through arrangement and how much of that is in the rest of the businesses, where maybe you have to raise prices to fully offset the inflation from time to time, just so we have that full picture with us. Thank you.

Benoit Potier: Thank you, Chetan. The CapEx for 2022, but not just limited to 2022 will be very much in line with what we have invested in the past 3, 4 years. We expect to see that CapEx increased slightly and progressively, because we have more opportunities and because the cash flow is also increasing, in any case, we have the opportunities for that, good opportunities. The spending on energy, it’s interesting. We spent last year about €6.5 billion worth of energy. This is about €2 billion more than the previous year. So from 2022 to 2021, we actually roughly had €2 billion more in energy. When you think about what it is, this is half of our operating income. So if we had not been able to pass through this energy, it would have had a significant impact on our P&L. So that’s – I think that gives you the context of how much energy we spend and how much it represents. There is no doubt that the vast majority is in Large Industry. I would say that probably two-third is in Large Industry. The second consume of energy is IM. But IM is probably one-fourth of Large Industry, altogether. And the 2 remainder businesses like Electronics and Health Care are not consuming a lot. Still, Electronics is consuming a little bit, a few hundred million. So altogether, this is €6.5 billion, and the vast majority is Large Industry. Large Industry has been covered because we have escalation formula. We talked extensively about IM and our ability to pass through this energy cost into our pricing. It is not over. I’d like to just stress that. We think we still have some energy increase to pass through to customers, in particular at the beginning of this year, so in the first half of this year. And we have, I think, Francois explained that we have the mechanisms and we have the mindset in place today in both the 3 regions, Americas, Europe, which was overdue and Asia Pacific, to be able to really manage this energy component in our pricing in the months to come. I hope I answer your question.

Chetan Udeshi: Yeah, that’s useful. If I can squeeze one, as part of your Capital Markets Day and broader capital allocation, and I think you guys have talked about portfolio management as well. I was wondering, I mean, are you guys open minded to the ownership of some businesses which might not be – within the, let’s say, realm of industrial gases. And I’m sort of reminding myself here of your Seppic business, which is a health care [excipient and adjuvant] [ph] business or your Electronics molecules business where one may argue that if they were to be monetized, maybe the multiples could be higher than what you evaluate as a stock today. So just any comment on that topic. Thank you.

Benoit Potier: We are open minded people, of course, we’ve proved that. But I will let Jerome answer your question. He’s very well placed to that.

Jerome Pelletan: Thank you very much, Chetan, for your question. So you talk specifically – I will talk specifically about Seppic, Seppic is a key part of our business today. So it’s not that – we don’t have the intention to sell it. It’s really something that is part of health care strategy and special ingredients also, by the way, are having a significant margin, operational margin. So it contributed to the value of the group and contribute also to the acceleration of the operational margin improvement. So today, the situation is clear. We don’t want to sell it.

Benoit Potier: Thank you, Jerome. Clear. Next question?

Operator: The next question comes from the line of Georgina Fraser from Goldman Sachs. Please go ahead.

Georgina Fraser: Hi, good morning. Thank you for taking my question. It’s great to see such strong operating performance, and especially the pricing strength. I was just wondering if you could highlight if there are any parts of the portfolio where Air Liquide is actually more of a price taker and whether the current environment where you’ve got both inflationary pressure, but also very strong growth opportunities out there, we prompt to review for owning any assets where you do not dictate pricing.

Benoit Potier: This is – well, first of all, thank you for your comment, Georgina, about the strong performance. I think this is very true. I don’t think we have any part of the portfolio, which is not so strong as such. But in the pricing environment that we know I think the weakest part, and I think Francois has been very clear on that is the health care, because the health care world is regulated. We have tariffs, and it has been and I think it will remain difficult to re-pass through energy costs into the health care sector. We have discussions on a yearly basis with the authorities in different countries, but it takes time, and it’s not automatic in the discussion to have a recognition of a situation like the one we have in energy. So that is probably one weak point. Of course, on technology and E&C, I think, we have proven that we could go through a crisis. So this is not really weak at all. And the rest of the business is very strong. This is applicable to a Large Industry to Industrial – to Electronics, of course. And what we have proved with IM and the pricing in Q4, and it will go on is our ability to also act very significantly in IM. So that’s very reassuring for the future. And honestly, I’ve never – in my career in Air Liquide never seen such a spike in energy. This is incredible. That’s one thing. And the second thing, we also have to realize that this has affected Europe first. If we look at the other regions, I mean, the North America and Asia has been less affected by the spike in energy in natural gas, in particular, but also electricity. So we’ve proved our resilience, which leads me to say that we don’t have really any part of the portfolio, which is weak or not so strong, in particular related to the energy crisis. I hope, I cover your point, Georgina.

Georgina Fraser: Yes. Thank you very much.

Benoit Potier: Thank you. Next question, and probably the last question.

Operator: The next question comes from the line of Marc Bianchi from Cowen. Please go ahead.

Marc Bianchi: Thank you. Looking at the cash from operations, excluding working cap, it was very strong for the year, but when I solve for what the fourth quarter looks like, it seems to have inflected pretty significantly from the first 3 months, approximately €1.6 billion. It looks like I understand there’s some seasonality perhaps that falls off entering into 2022. But was there anything unusual in the fourth quarter that might be nonrecurring? Or is this maybe the run rate to be thinking about going forward?

Benoit Potier: Jerome?

Jerome Pelletan: Yeah. So as you said, the cash flow has been very strong because for the year for net profit at plus 8.9%, excluding FX, we have a cash flow from operating activity at plus 9%. So it’s a good translation into things. There is typically strong seasonality with a high level of cash flow into Q4, but when you look at the cash flow, when we compare to EBITDA, there is a similarity to EBITDA is also moving at plus 8.5%. So you see very much a cash conversion, which is totally aligned. We may have from time to time, as you say, in Q4 some seasonality. But we have this year a very strong parallel between EBITDA cash flow and operating – and net profit effect.

Marc Bianchi: Thank you very much. That’s all I had.

Benoit Potier: Okay. Thank you, Marc. And, I think, we’ve reached the end of this conference. So let me just briefly summarize. 2021 has been an excellent execution year, I would say, in particular, in volumes, we saw recovery post-COVID. In the cost management, we had to limit the sort of boom long of cost post-2020 related to PEX, the personal expenses, the G&A, cost of goods sold, and we had our program efficiency program well in place, and this is the reason why we could really post those good results. We had to absorb inflation and minimize the impact. We had, of course, to swallow €2 billion increase in energy costs, I mentioned that. We had to translate part or all of that into pricing. And we also had to develop and I’m thinking about CO2, hydrogen, energy transition and technologies, so all in excellent execution here. And, I would say, we are well prepared for the future, well positioned in the market, well equipped in technologies, in people with very good teams. So undoubtedly, we are preparing for a bright future. Thank you. Thank you all, and I think we will talk to some of you later in the day or during our road show today or tomorrow. Thank you very much.

Operator: Thank you for joining today’s call. You may now disconnect.