H1 2022 Results: Strong performance in a complex environment and confirmed resilience of the business model

Commenting on the 1^st half of 2022, François Jackow, Chief Executive Officer of the Air Liquide Group, said:

“The Group delivered a very strong performance during the 1^st half of 2022. This is even more remarkable considering the particularly complex macroeconomic and geopolitical context. Revenue reached 14.2 billion euros, an increase of +7.7% on a comparable basis. As published, revenue was up +31%, reflecting the sharp increase in energy prices in particular. Growth was achieved across all activities: Gas & Services, which represents 96 % of revenue, Engineering & Construction and Global Markets & Technologies.

In Gas & Services, all geographies improved, driven mainly by Industrial Merchant and Electronics, which enjoyed strong growth particularly in Asia. In Industrial Merchant, value creation and dynamic price management allowed the Group to transfer the increase in costs, while in Large Industries, the increase in energy prices is contractually passed on to customers.

In this context, the Group’s operating margin improved again significantly by +50 basis points, excluding the energy impact. The Group also continues taking efficiency measures, notably through targeted industrial investments.

Recurring net profit^[1] reached 1.6 billion euros, an increase of +20.4% excluding the currency impact. Net profit (Group share) was 1.3 billion euros, an increase as published of +5.3% despite a non-recurring provision on our assets in Russia. Cash flow remained high at 23.5%^[2] of sales. The balance sheet is solid, with a net debt-to-equity ratio^[3] down again to 46%. Recurring ROCE^[4] continued to improve and reached 9.7% at the end of June, in line with the target of 10% by 2023.

The Group maintained a strong investment momentum, which is a guarantee of future growth and the expression of its commitment to fight climate change. With more than 40% of projects linked to the energy transition, 12-month investment opportunities are numerous and total 3.3 billion euros. Investment decisions were high and reached 1.8 billion euros this half-year. The project backlog, at 3 billion euros, remains high.

Given the strong performance in the 1^st half of 2022, combined with a more resilient business model and a clear strategic plan, as well as committed teams, whose dedication I commend, we are entering the second half of the year.

In 2022, assuming no significant economic disruption, Air Liquide is confident in its ability to further increase its operating margin and to deliver recurring net profit growth at constant exchange rates^[5].”

Highlights of the 1^st half 2022

Corporate:‌

• Implementation of a new governance within Air Liquide, in line with previous announcements. On June 1, François Jackow became the Group’s Chief Executive Officer, while Benoît Potier remains Chairman of the Board of Directors. François Jackow was also appointed Board Director of Air Liquide by the Group’s Shareholders during the General Meeting on May 4.

• Launch of ADVANCE, the new Air Liquide strategic plan for 2025, which places sustainable development at the heart of the Group’s strategy and combines financial and extra-financial performance.

• Mobilization of the Group to support victims of the war in Ukraine, notably through the Air Liquide Foundation.

• Sale of Industrial Merchant business located in the United Arab Emirates and Bahrain.

Sustainable Development:

• Validation by the Science Based Targets initiative (SBTi) of Air Liquide’s target to reduce scope 1 & 2 CO2 emissions by 2035 as qualified and aligned with climate science.

• Publication of Air Liquide’s first Sustainable Development Report, which sets out the Group’s ambitions for Sustainable Development and its 2021 extra-financial results.

• Attribution of “A-” rating by the CDP in both categories of climate change and water management. This rating recognizes the “Leadership Level” of the Group’s commitment to the environment.

• Signature of a long-term renewable energy Power Purchase Agreement (PPA) with Vattenfall in the Netherlands for offshore wind capacity of around 115 MW, currently under construction. This is the biggest PPA of its kind signed by Air Liquide in the world to date.

• Signature of a 10-year agreement with Shell Energy Europe Limited (SEEL) for the purchase of renewable energy to power industrial and medical gas production operations in the north east of Italy.

• In the United States, construction of Air Liquide’s largest biomethane production plant in the world.

Decarbonizing the industry:

• Selection of the Air Liquide and EQIOM project by the European Innovation Fund with the aim to transform the EQIOM plant near Dunkirk, France, into one of the first carbon-neutral cement plants in Europe.

• Memorandum of Understanding with Lhoist to decarbonize their lime production unit located in Réty, in the Hauts-de-France region, using Air Liquide’s proprietary Cryocap^TM carbon capture technology.

• Selection by the European Innovation Fund of the Kairos@C project, jointly developed by Air Liquide and BASF, with the objective to develop the world’s largest cross-border carbon capture and storage (CCS) value chain project around the port of Antwerp.

• Memorandum of Understanding signed with Eni to decarbonize hard-to-abate industries in the Mediterranean Basin.

• Agreement signed with Sogestran to develop shipping solutions for carbon management, as part of carbon capture and storage projects.

Low-carbon hydrogen:

• Support of the French government to the Air Liquide Normand’Hy project to produce renewable hydrogen on a large scale. This project will have an initial capacity of 200 MW and will contribute to the creation of a French and European low-carbon hydrogen industry, as well as to the decarbonization of the Normandy industrial basin.

• Creation of a joint venture with Siemens Energy dedicated to the series production of industrial scale renewable hydrogen electrolyzers in Europe. One of this joint venture’s first projects will be the Air Liquide Normand’Hy electrolyzer project.

• Memorandum of Understanding with CaetanoBus and Toyota Motor Europe to provide integrated hydrogen mobility solutions (development of infrastructure and fleets of light- and heavy-duty vehicles).

• Memorandum of Understanding signed with Airbus, Incheon Airport and Korean Air to study the use of hydrogen at Incheon International Airport.

• Plan with Groupe ADP to create the first engineering joint venture to accompany airports in their projects to integrate hydrogen in their infrastructure.

• Creation of a joint venture with Lotte Chemical, a major player in Korea, to develop the hydrogen supply chain for mobility markets in South Korea.

Electronics & Industry:‌

• Within the context of long-term contracts with two world leaders in semiconductors for the supply of ultra-high purity industrial gases in Japan, Air Liquide has begun a staged investment of more than 300 million euros in four state-of-the-art production plants.

• Signature of long-term agreements to supply a semiconductor manufacturing site in Arizona, United States. As part of this agreement, Air Liquide will invest nearly 60 million US dollars to build and operate onsite plants and systems.

• Long-term contract with EZZ Steel in Egypt, under which Air Liquide Egypt will invest around 80 million US dollars in building an Air Separation Unit (ASU). This ASU will reinforce the Group’s leadership in the Ain Sokhna industrial basin.

• Increased presence in India with an investment of around 40 million euros in a new ASU dedicated to Industrial Merchant activities, in the state of Uttar Pradesh in northern India.

Group revenue totaled 14,207 million euros in the 1^st half of 2022, a strong comparable growth of +7.7%. Sales were up +7.5% on a comparable basis during the 2^nd quarter of 2022 compared with the 2^nd quarter of 2021. Group revenue as published increased significantly by +31.0% during the 1^st half, with a very high energy impact of +16.8% as well as favorable currency (+5.8%) and significant scope (+0.7%) impacts.

This performance was delivered in a challenging context of exceptionally high energy prices, strong inflation, strain on supply chains and the war in Ukraine. The Group benefited from a solid business model and diversity of business reach in terms of geographies, businesses, end-markets and customers which ensured a resilient performance and allowed the Group to take advantage of all growth opportunities. Its core positioning in growth markets of the future (in particular the energy transition, Semiconductors and Healthcare) reinforces these attributes.

Gas & Services revenue amounted to 13,600 million euros during the 1^st half, representing an increase of +7.2% on a comparable basis. Sales as published for the 1^st half of 2022 showed extremely strong growth of +31.4%, with a very high energy impact at +17.6% as well as positive currency (+5.9%) and significant scope (+0.7%) impacts.

• Gas & Services revenue in the Americas reached 5,017 million euros in the 1^st half of 2022, representing a very strong increase of +9.2% on a comparable basis. Large Industries was up +5.3%, driven by solid demand and the start-up of new units. The marked increase in prices contributed significantly to the high sales growth in Industrial Merchant (+11.6%). Healthcare revenue was up +2.2%, led by proximity care in the United States and Home Healthcare in Latin America, despite a decline in medical oxygen sales for the treatment of covid-19. Finally, all business segments within Electronics contributed to the particularly dynamic growth (+8.2%).
• Revenue in Europe was up +6.4% on a comparable basis during the 1^st half of 2022 and reached 5,424 million euros. This strong growth was contrasted across the business lines in a context of exceptionally high energy prices and the war in Ukraine. Growth accelerated in Industrial Merchant, driven by record price increases, and reached a particularly high of +22.9% in the 1^st half, offsetting the -7.4% decline in Large Industries sales. Despite a high basis of comparison due to the covid-19 pandemic in 2021, Healthcare sales were up +3.3%, driven by the momentum in Home Healthcare.
• Sales in Asia-Pacific were up +5.5% on a comparable basis in the 1^st half of 2022 and totaled 2,746 million euros, driven by particularly dynamic growth in the Electronics business (+15.8%). Covid-19 related lockdowns in China during the 2^nd quarter had an impact on demand in other business lines: Large Industries sales were stable (-0.2%) in the 1^st half, whereas Industrial Merchant sales were up +2.5%, driven by the acceleration in price increases during the half-year.
• Revenue in the Middle East and Africa totaled 413 million euros, representing a slight increase (+0.9%) on a comparable basis with the 1^st half of 2021. Volumes increased sharply in South Africa with the integration of the 16 Sasol air separation units whose sales were recognized as part of the significant scope impact, and hence excluded from comparable growth. Sales were stable over the half-year in Industrial Merchant, with business line growth offset by two small divestitures in the Middle East.

Large Industries sales were contrasted by region and overall were down slightly (-1.4%) on a comparable basis with the 1^st half of 2021: sales enjoyed sustained growth in the Americas, were stable in Asia, and were down in Europe. The Industrial Merchant business posted strong revenue growth of +12.7% in the 1^st half, driven by the acceleration of pricing over the half-year and by solid volumes. Electronics sales growth momentum was particularly dynamic, at +15.5%, with a strong contribution from all business segments. In Healthcare, despite a decline in medical oxygen volumes for the treatment of covid-19, revenue was up +2.3% driven by the strong development in Home Healthcare, notably in Europe, and in proximity care in the United States.

Consolidated revenue from Engineering & Construction totaled 221 million euros in the 1^st half of 2022, representing strong comparable growth of +29.0%. Order intake totaled 526 million euros, in line with the high level recorded in the 1^st half of 2021.

Global Markets & Technologies sales totaled 386 million euros in the 1^st half, representing marked comparable growth of +13.8%. The biogas business enjoyed strong momentum, benefiting from the ramp-up of new production units in Europe and the United States, the increase in sales prices relating to the spike in energy price, and equipment sales in the United States.

Efficiencies^[6] amounted to 167 million euros and represented a saving of 2.1% of the cost base. In a context of high inflation unfavorable to procurement efficiencies, the priority for the teams is to limit cost increases and transfer them to sales prices.

Group Operating Income Recurring (OIR) reached 2,286 million euros in the 1^st half of 2022, an increase of +17.4% and of +9.2% on a comparable basis, which is significantly higher than the comparable sales growth of +7.7%.

The operating margin (OIR to revenue ratio) stood at 16.1% as published, representing a -190 basis point decline compared with the 1^st half of 2021 due mainly to the sharp increase in energy costs which are contractually passed through to Large Industries customers. This therefore has a dilutive impact on the published margin (without impacting operating income in absolute value). Excluding the energy impact, the operating margin improved very significantly by +50 basis points compared with the 1^st half of 2021. This performance integrates the dilutive impact of strong inflation on costs other than energy costs and which is transferred to sales prices.

The net profit (Group share) amounted to 1,305 million euros in the 1^st half of 2022, an increase of +5.3% as published. Excluding the exceptional provision on the Group’s industrial assets in Russia, which has no impact on cash, a provision for risks in the Engineering & Construction business, and an exceptional income from Air Liquide taking control of a joint venture in Asia-Pacific, recurring net profit (Group share)^[7] reached 1,551 million euros. It increased by +25.1% and +20.4% excluding the currency impact, which is significantly higher than the comparable sales growth of +7.7% over the half-year. Net earnings per share rose by +5.0% compared with the 1^st half of 2021, in line with the increase in net profit (Group share). These stood at 2.50 euros per share compared with 2.38 euros^[8] per share in the 1^st half of 2021.

Cash flow from operating activities before changes in net working capital amounted to 2,907 million euros during the 1^st half of 2022, representing a sharp increase of +17.1% and +11.5% excluding the currency impact. This corresponds to a high level of 20.5% of sales and 23.5% excluding the energy impact, and represents a +60 basis point improvement excluding the energy impact compared with the 1^st half of 2021.

Gross industrial capital expenditure amounted to 1,574 million euros, an increase of +9.4% compared with the 1^st half of 2021 and of +4.7% excluding the currency impact. This represented 12.7% of sales excluding the energy impact, reflecting dynamic project development activity. Financial investments stood at 54 million euros compared with 569 million euros for the 1^st half of 2021, including approximately 480 million euros for the acquisition of 16 Sasol air separation units in South Africa.

The net debt-to-equity ratio, adjusted for the seasonal effect of the dividend payment, stood at 46.0%, down sharply compared with 56.1% at the end of June 2021.

The return on capital employed after tax (ROCE) was 9.0% for the 1^st half of 2022. Recurring ROCE^[9] stood at 9.7%, an increase of +70 basis points compared with the 1^st half of 2021.

In the 1^st half of 2022, industrial and financial investment decisions totaled 1,796 million euros. This compares to 1,429 million euros during the 1^st half of 2021, excluding the acquisition of Sasol’s Air Separation Units (ASUs) in South Africa for approximately 480 million euros.

The investment backlog remained high at 3.0 billion euros.

The additional contribution to revenue of unit start-ups and ramp-ups totaled 213 million euros over the 1^st half of 2022. In 2022, the additional contribution to revenue of unit start-ups and ramp-ups is expected to be between 410 and 435 million euros.

The 12-month portfolio of investment opportunities stood at 3.3 billion euros at the end of June 2022. Projects related to the energy transition accounted for more than 40% of the portfolio. These notably included projects for renewable hydrogen production by water electrolysis, facilities for the capture of CO2 emitted by the Group’s or its customers’ units, as well as hydrogen mobility projects in Europe and Asia. The share of the Electronics business in the portfolio of opportunities increased and represented around 30%.

***

Air Liquide’s target to reduce its Scope 1 & 2 CO2 emissions by 2035 has been validated by the Science Based Targets initiative (SBTi) as qualified and aligned with climate science. The Group is the first in its industry to obtain validation from the Science Based Targets Initiative. This approval represents an important milestone towards the Group’s ambition to reach carbon neutrality by 2050.

As previously announced, a new governance has been implemented within Air Liquide. Since June 1, 2022, Benoît Potier remained Chairman of the Board of Directors and François Jackow, became Chief Executive Officer for the Group.

The Air Liquide Board of Directors met on July 27, 2022. During this meeting, the Board reviewed the condensed consolidated financial statements for the first half ending June 30, 2022. Limited review procedures were completed with respect to the condensed consolidated interim financial statements, and an unqualified review report is in the process of being issued by the statutory auditors.

Footnotes

1. ^{^} Excluding exceptional and significant transactions that have no impact on the operating income recurring.
2. ^{^} Cash Flow from Operations before changes in WCR on Sales excluding energy passthrough impact.
3. ^{^} Adjusted for dividend seasonality.
4. ^{^} Recurring ROCE based on Recurring Net Profit.
5. ^{^} Operating margin excluding energy passthrough impact. Recurring net profit excluding exceptional and significant transactions that have no impact on the operating income recurring, and excluding the impact of any US tax reform in 2022.
6. ^{^} See definition in the appendix. 
7. ^{^} See definition and reconciliation in the appendix
8. ^{^} Adjusted following the free share attribution in June 2022.
9. ^{^} See definition and reconciliation in the appendix.