First quarter 2020: Sales growth of +1% confirming our solid business model and the mobilization of the Group in response to the Covid-19 pandemic

Commenting on 1^st quarter sales, Benoît Potier, Chairman and CEO of Air Liquide, stated:

« The first quarter of 2020 showed modest growth despite the gradual spread of Covid-19 around the world beginning in January and the implementation of business continuity plans by nearly all Group entities.

Sales reached 5.4 billion euros, of which 5.2 for Gas & Services, an increase of +1.1% on a comparable basis. The resilience of sales reflects the solid business model of the Group, characterized by the diversity of its markets and its geographies, as well as by the significant proportion of long-term contracts in its business portfolio. Gas & Services and Global Markets & Technologies progressed, while Engineering & Construction sales fell sharply, mainly reflecting the postponement of construction projects for third party clients to a later date.

In Gas & Services, which accounts for 96% of Group sales, growth was particularly strong in Healthcare (+10%) and Electronics. From a geographic perspective, Europe and the Americas continued to post sales growth, while the Asia-Pacific region was more penalized by the public health situation, particularly in China.

In the context of a global health emergency, the Group is mobilized. It is taking an active part in the international support effort, whether this entails supplying healthcare facilities with medical oxygen or ventilators, having committed to producing 10,000 ventilators in 50 days in France. In addition, a stepped-up cost containment program has been initiated to surpass the annual target of 400 million euros of efficiencies. In the 1^st quarter of 2020, 91 million euros of efficiencies were generated.

The cash flow is high, at more than 22% of sales. The Group has also strengthened its position in terms of liquidities with a 1 billion euro bond issue in March that was widely oversubscribed.

The quarter’s investment decisions remain high at more than 700 million euros. The total amount forecast for the year is maintained, as part of a highly targeted approach. These investments will contribute to future growth and to reinforcing the Group’s efficiency.

In terms of the health and economic environment, the most widely held hypothesis today is that the second quarter will be highly impacted by the crisis, followed by gradual relaxation of lockdown measures between the end of the second quarter and the beginning of the third quarter, depending on the continent. Assuming this hypothesis, and given our solid business model and the additional measures rolled out in 2020, Air Liquide is nonetheless confident in its ability to further increase its operating margin and to deliver net profit close to the 2019 level, at constant exchange rates. »

Group revenue for the 1^st quarter of 2020 totaled 5,370 million euros. Despite the public health crisis which considerably affected China, then Europe in mid-March, followed by the Americas and Middle East and Africa at the end of March, comparable sales were up +0.6% thanks to a strong business model. Gas & Services thus posted robust growth of +1.1%. Engineering & Construction (-44.0%) was impacted by the COVID-19 pandemic which notably led to the closure of the Chinese engineering and fabrication center and the postponement by a few months of several projects. Global Markets & Technologies maintained its excellent momentum and enjoyed dynamic growth of +13.6%. As the positive currency impact of +0.8% did not offset the major negative energy impact of -2.5% and the significant scope impact of -0.2%, Group revenue as published was down -1.3%.

Gas & Services revenue for the 1^st quarter of 2020 reached 5,191 million euros, representing comparable growth of +1.1%. Sales as published were down slightly by -0.9%, with the positive currency impact (+0.8%) failing to offset the negative energy and significant scope impacts, of -2.6% and -0.2% respectively.

• Gas & Services revenue in the Americas stood at 2,122 million euros and was up +1.3%, driven notably by Healthcare (+10.0%) and Large Industries (+2.7%), in particular hydrogen sales and cogeneration. Despite the public health crisis which impacted the region as of the end of March, Electronics sales were up +0.6% and Industrial Merchant sales were stable at -0.2%, with price impacts that remained high.
• Revenue in Europe totaled 1,791 million euros over the quarter, up +2.7%. Large Industries sales were down slightly by -0.6%. Industrial Merchant, which was down -2.7%, was the most affected by the public health crisis that hit the region in mid-March. Healthcare, which represented 39% of Gas & Services sales in Europe, has been playing a major role in the fight against COVID-19. Revenue for this business line increased by +10.8%, driven by strong sales of medical gases in March as well as medical hydroalcoholic gel produced by its subsidiary Schülke in Germany.
• Revenue in Asia Pacific reached 1,139 million euros, down -0.9%. This region suffered the greatest impact of the COVID-19 pandemic during the 1^st quarter, in particular in China where sales were down -2.5%. Large Industries (-2.1%) benefited from the resilience of its business model, whereas Industrial Merchant (-5.3%) was hit the hardest. Electronics momentum remained strong (+4.9%), with several unit start-ups and ramp-ups and despite an unfavorable comparison effect compared with high Equipment & Installation sales in 2019.
• Revenue in Middle East and Africa stood at 139 million euros, a decrease of -5.8%, particularly marked by a customer maintenance turnaround at a large hydrogen production unit in Saudi Arabia. To a lesser extent, Industrial Merchant also slowed due to lockdown measures taken in Persian Gulf countries and in South Africa, even though sales remained stable overall in Africa and strong in Egypt and India. The Healthcare activity continued to grow markedly, in particular in Saudi Arabia.

Healthcare, which has played a major role in the fight against COVID-19, posted the strongest growth for the Group in the quarter (+9.9%). Electronics also enjoyed very solid growth of +3.6% (+9.8% excluding Equipment & Installations), driven by very dynamic sales in Carrier Gases and Advanced Materials. Industrial Merchant (-1.5%) was the most impacted by the public health crisis, in particular cylinder gas volumes, but price impacts (+3.0%) were supportive. Large Industries (-0.8%) saw increased hydrogen volumes for Refining but air gases volumes were down, with lower demand in the Steel sector and, to a lesser extent, in the Chemicals sector.

Engineering & Construction consolidated revenue stood at 52 million euros, impacted by the COVID-19 pandemic that led in particular to the one-month closure of the Chinese engineering center and the postponement by a few months of several projects.

Global Markets & Technologies revenue reached 127 million euros, marking a strong increase of +13.6%, even though several manufacturing sites are provisionally operating with reduced manpower. Momentum in Biogas remained strong, in particular with the start-up of biomethane production units in the United States and the United Kingdom. Order intake for Group projects and third-party customers totaled 209 million euros, up an impressive +64.2%, driven by major contracts for helium cryogenic refrigerators, and Turbo-Brayton LNG reliquefaction units.

The Group’s efficiency gains reached 91 million euros and represented an +18% increase compared with the 1^st quarter of 2019. This was mainly driven by the increased contribution from the Americas region. The annual objective which is now fixed at more than 400 million euros has been maintained for 2020. In response to the public health crisis, an additional program aiming at readjusting fixed costs has been set up within the geographies, with a specific attention given to receivables collection.

Cash flow from operating activities before changes in working capital requirements reached 1,196 million euros in the 1^st quarter, i.e. 22.3% of revenue. It allowed, in particular, the financing of net industrial capital expenditure, which totaled 714 million euros, in line with the mid-term strategic plan.

Industrial investment decisions reached 673 million euros, representing a significant increase of more than +40% compared with the 1^st quarter of 2019. Electronics reached a record level of investment and represented more than one third of decisions thanks to the signing of major projects in Asia. The 12-month portfolio of investment opportunities stood at 2.7 billion euros.

Due to the spread of COVID-19 and based on information available at the end of the 1^st quarter, around 25% of start-ups initially scheduled for 2020 are very likely to be delayed by two to six months. As a result, the additional contribution to sales expected for 2020 should range between 150 and 180 million euros, an amount which is lower than the 230 million euros contribution initially forecast.

At the end of the 1^st quarter 2020, the activity is recovering in China whereas Europe, Americas and Africa & Middle East are going through the critical phase of the public health crisis, for which the impact is expected to peak in the 2^nd quarter.

Indeed, for the 2^nd quarter, demand for air gases in Large Industries should weaken in the Steel sector, and to a lesser extent, in the Chemicals sector. Industrial Merchant should be the most impacted, in particular cylinder gas volumes, whereas Electronics should keep a steady pace. Healthcare teams will remain highly mobilized, notably to ensure supply of medical gases, ventilators, and hydroalcoholic gel to hospitals and patients. Once the containment period is over, a progressive recovery is expected, particularly driven by consumption markets, Electronics and Healthcare.

In terms of the health and economic environment, the most widely held hypothesis today is that the second quarter will be highly impacted by the crisis, followed by gradual relaxation of lockdown measures between the end of the second quarter and the beginning of the third quarter, depending on the continent. Assuming this hypothesis, and given our solid business model and the additional measures rolled out in 2020, Air Liquide is nonetheless confident in its ability to further increase its operating margin and to deliver net profit close to the 2019 level, at constant exchange rates.

To be noted, 2020 net profit as published should increase provided that the Schülke divestiture project is completed within the year. 2020 recurring net profit, meaning excluding the gain from Schülke divestiture and exceptional and significant items, should be close to 2019 recurring net profit at constant exchange rates.