Business Intelligence Financial - Air Liquide - Q1 2017
gasworld Business Intelligence provides you with the latest analysis of Air Liquide’s Q1 2017 earnings report.
Reported corporate sales growth increased by more than 38% YoY in Q1 2017 to €5.18bn. This was substantially driven by the full consolidation of the acquired Airgas business.
The Gases & Services sector accounted for over 95% of corporate sales, post-Airgas. Engineering & Construction sales and the Global Markets & Technologies units both accounted for under 2% of corporate sales.
Reported sales in Gases & Services were up by more than 42% in Q1. However, Engineering & Construction sales declined by 57% YoY (with order intake down sequentially, but up 46% YoY in Q1). Global Markets & Technologies increased again by nearly 20%, but with order intake down sequentially and YoY.
On the basis of business mix, corporate operating income is estimated to have risen in line with sales, despite the lower profitability of the acquired Airgas business. Cash flow was up by one third, with gearing decreasing.
Targeting ROCE over 10% in 5-6 years vs 7% in 2016.
Impact of cost savings and efficiency measures continue to rise YoY, with efficiency gains of over €65m in Q1, excluding Airgas. Operations and supply chain were the main contributors, along with higher savings from reorganisations
The Airgas integration is on track with $45m synergies in Q1, with a further $300M+ synergies scheduled to be completed by end-2018.
During Q1, Air Liquide entered into exclusive negotiations with Lincoln for sale of the company’s welding business.
Reported gases growth accelerated to over 40% in Q1. This rate of growth was largely driven by the major positive impact of the Airgas acquisition. Currency and energy cost pass-through both had a positive impact of around 3% in Q1, the most significant positive impact in two years. The energy cost pass-through impact was primarily driven by natural gas, with small positive impact also from power.
Underlying growth improved to nearly 4% in Q1. This was almost entirely driven by an acceleration in volume growth, which is estimated to have been at its highest level in four quarters. Price impact also rose slightly, although remaining modest, being driven by merchant pricing, but with negative impact from neon YoY in electronics.
Nearly half of underlying growth was driven by the Industrial Merchant sector, with one third from the Large Industries sector.
Two thirds of underlying growth was driven by increases in base business, with one third by start-ups and ramp-ups etc.
The underlying growth trend of recent years is above Air Liquide’s industry peers, with growth largely due to a significantly higher volume impact. On the other hand, price impact has been lower than the peer group average.
The Industrial Merchant sector was Air Liquide’s largest Gases & Services business, post-Airgas, representing nearly half of sales. Large Industries accounted for just over a quarter of sales with Healthcare representing 17% and Electronics 8%.
Industrial Merchant sales showed the highest YoY growth in Q1 reported sales, due to the Airgas acquisition nearly doubling sales.
The Large Industries sector accelerated again in Q1 to achieve its highest growth rate of recent years.
Healthcare growth remained in double digits at over 20%, with growth being aided by the additonal revenue gained from the Airgas acquisition.
Electronics growth continued to be weak in Q1, showing only modest growth YoY.
The Americas became the largest geographic region for Air Liquide, post-Airgas, accounting for over 40% of gases sales (36% USA). Europe now represents one third of sales, with Asia Pacific over 20% and the Middle East & Africa accounting for around 3% of revenue.
Reported sales more than doubled in the Americas in Q1, due to the Airgas acquisition.
European reported revenue growth accelerated again to nearly 6%, its highest rate since late 2012.
Asia Pacific reported growth also accelerated again to 6%, its highest growth since late 2015.
The small Middle East & Africa business recovered to show growth YoY in Q1, albeit below major regions.
The Asia Pacific accounts for around two thirds of electronics sales, with 20% in Americas and Europe closer to 10%.
Asia Pacific growth in Electronics slipped further to be marginally lower YoY in Q1, its weakest rate since mid-2012. Impacted by high E&I sales and neon prices in prior year.
Americas electronics growth also remained flat vs prior year in Q1.
Europe is now responsible for over 70% of Air Liquide’s Healthcare business, with the Americas representing most of the remainder. Asia Pacific accounts for around two thirds of electronics sales, the Americas 20% with Europe closer to 10%.
Asia Pacific growth in Electronics slipped further to be flat YoY, its lowest rate since 2013. Americas electronics growth also slipped significantly to be down 15% YoY. Carrier gases growth was up and advanced materials was again up 20%.
Growth in the large Europe Healthcare business was again just under 5% in Q4, but the Americas performance slipped back to be similar to European performance. Home healthcare up over 5%, hospital gases flat, dynamic hygiene and specialty ingredients.
The Asia Pacific business was dominated by Large Industries (37%) and Industrial Merchant (31%). The Electronics business was also important (27%), but Healthcare remained relatively small (4%).
The Industrial Merchant sector’s weak growth trend of last two years continued, with comparable sales slightly down YoY in Q1. Japanese growth was lower due to equipment, despite bulk volumes increasing. China bulk and cylinder growth was solid.
Large Industries growth accelerated again to 4.5% YoY, but below the trend of recent years. There was hydrogen growth in Singapore refining, as well as oxygen for Japanese steel. Australia experienced growth due to a start up, with China slower because of no new start-ups.
Electronics growth in the region slipped again to be slightly lower YoY, in Q1. This is in comparison to high growth in 2016 Q1, due to high neon price, dynamic advanced materials, robust carrier gases (ramp-ups in China, Singapore).
Overall performance in the region was boosted by growth of over 9% in the small Healthcare business.
Operating Margin continues to trend upwards in Europe and Asia Pacific. However, the Americas slipped significantly to be the lowest performing region, due to consolidation of low margin Airgas business. Middle East & Africa improved sharply, partly due to exceptional income.
Excluding energy impact, Europe was slightly down in 2016 while Asia Pacific was flat.
The company remain committed to target synergies from Airgas acquisition of $130m in 2017 (vs $45m in 2016) and $60-65m in following two years. This is initially as cost synergies but later growing revenue synergies.
Also, re-emphasising transition to NEOS, increased annual efficiency target from €250 to €300m p.a. which is equivalent to over 2.5% of cost base.
Air Liquide gases investment appears to be continuing to trend lower in Q1, towards its lowest level in recent years, both in absolute terms and relative to sales. This was after adjustments for the addition of capex in the acquired Airgas business
Acquisition spend for the company in Q1 stood at €70m, including Airgas bolt-ons.
Investment backlog was €2.0bn in Q1, down slightly vs end-2016 and sharply down vs end-2014. This reflects project start-ups, which more than offset €0.5bn new decisions – half of which were in Americas.
Portfolio of opportunities within 12 months down slightly at €2.1bn in Q1, mainly small/medium projects as large projects slower.
On the 6th July 2016, at its Capital Markets Day, Air Liquide announced the implementation of a customer-centric, profitable growth strategy ‘NEOS’, for the period 2016-2020.
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