The Western European industrial gas growth has been consistent over the last few years. On average the region has seen a growth of about five per cent to €11.5bn in 2005 but the industry leaders agree that some business segments have seen very diverse growth rates.

Healthcare, for example, is a sizeable business in the region and grows at an average rate of seven to nine per cent, says Klaus Schmieder, executive vice president and member of Air Liquide management board. \\$quot;On the other hand, if you look at the traditional businesses within the industrial customer area, the growth is more like two to three per cent.\\$quot;

However, a BOC source says it is difficult to predict growth because of the impact of rising energy prices in Europe, particularly in the food sector, adding that BOC has had to implement price increases to cover the escalating cost.

Health, hydrogen and food opportunities

West Europe is gradually turning its back to less growth-orientated markets such as the metal fabrication industry. Many of these traditional market segments have been relocated to other parts of the world, which has strengthened growth opportunities in areas such as metals and chemicals, healthcare, hydrogen and food.

According to Schmieder metals and chemicals had a great year in 2005. \\$quot;This positive trend is expected to continue in 2006 even though everyone is talking about the flattening of the curve. The situation in steel and chemical can be quite cyclical but what we have seen over the last couple of years is very encouraging,\\$quot; he affirmed.

\\$quot;The driver over the last three years within the metal industry was oxygen,\\$quot; says Stefan Messer, CEO at Messer Group. \\$quot;This was mainly due to the high price of electricity. Also, prime materials such as coke were more expensive, which increased demand for oxygen over other energies.\\$quot;

Both Messer and Schmieder agree that healthcare, and in particularly homecare, remains a significant growth area. Taking care of people at home is becoming increasingly popular. This segment grows due to the fact that the cost of health care centres is increasing, Schmieder explained, adding that the homecare is one of the major opportunities for the industry and for Air Liquide.

The second biggest growth opportunity in 2005 was clearly hydrogen. According to Schmieder there is a \\$quot;˜hydrogen wave\\$quot; in the refinery sector. \\$quot;Refineries need hydrogen for the desulphurisation of their fuel,\\$quot; Schmieder explained. \\$quot;This phenomenon started first in the US when refineries started to outsource hydrogen supply to industrial gas producers. The trend has now also arrived in Europe where Air Liquide has many hydrogen business opportunities, hydrogen plants and contracts with refineries in France, Spain and Italy.\\$quot;

The food sector is also rapidly becoming a more significant area of growth for the industrial gas companies. The European legislation is changing and food producers are now obligated to trace ingredients of their products all the way back from the source. \\$quot;We have seen a lot of growth in the food industry as the need for CO2 and nitrogen for freezing and transporting of fresh products continues to grow,\\$quot; Messer commented.

\\$quot;Both Messer and Schmieder agree that healthcare, and in particularly homecare, remains a significant growth area. Taking care of people at home is becoming increasingly popular and the segment grows due to the fact that the cost of health care centres is increasing.\\$quot;


Schmieder also says that food and its traceability in particular is an innovation for Air Liquide. \\$quot;Food is becoming more and more like a pharmacy product. There are some technologies we can offer to food producers in order for them to improve traceability.\\$quot;

At the same time Western Europe is continuing to face a significant burden arising from higher natural gas prices. Both men agree that natural gas price is a problem as it is the most important cost sector.

Schmieder said: \\$quot;50 per cent of our cost comes from energy so we have a strong focus on managing our energy supply situation, energy cost in manufacturing processing and optimizing our logistics in order to save fuel.

\\$quot;We have to go to the customer and convince them that we have to raise prices to recover our increased cost save. We have done this a number of times in 2005 and already in some countries this year.\\$quot;

Messer\\$quot;s West European manager, Adolf Walth also admits that Messer too has had problems because of the energy price increases. \\$quot;The biggest problem was the increase to our customers in France, where the legislation is unique and allows us to increase prices only once a year.\\$quot;

Walth also mentions petrol as the second cost driver in 2005. \\$quot;Our cost increased nearly 25 per cent and we have had to apply surcharges to our transport cost.\\$quot;

Air Liquide and Messer provide solid growth expectations

Messer believes that Western Europe has seen enough investments in the research activity. The company opened two new research centres last year in Austria and France, and is now concentrating on investing in new applications. \\$quot;The high temperature centre in Austria develops new oxygen driven burners. The centre in France is concentrated in the development of our customer\\$quot;s technology and applications in the food and environmental industries.\\$quot;

In 2006 Air Liquide is focusing on leveraging the benefits of its Messer acquisition in Germany. Schmieder says the company has been successful in securing most of the cost energies and has placed a new organisation in place in the country. \\$quot;The New Air Liquide has the opportunity to really focus on growth now. By combining ex market leader Messer\\$quot;s capabilities in Germany\\$quot;s industrial community and Air Liquide group\\$quot;s competence in technology will allow us to grow proportionally.\\$quot;

In 2006 Air Liquide is focusing on leveraging the benefits of its Messer acquisition in Germany. Schmieder says the company has been successful in securing most of the cost energies and has placed a new organisation in place in the country. \\$quot;The New Air Liquide has the opportunity to really focus on growth now. By combining ex market leader Messer\\$quot;s capabilities in Germany\\$quot;s industrial community and Air Liquide group\\$quot;s competence in technology will allow us to grow proportionally.\\$quot;

Air Liquide has also committed itself recently to become the supplier of all solar cell manufacturers in Germany. It will supply technical and speciality gases necessary in large volumes for the production of solar cells and modules. \\$quot;This deal will combine the customer relation of Air Liquide with particular competence of Messer in speciality gases. Messer was in the hospital healthcare business offering mainly oxygen but now we are able to offer customers the whole product range of Air Liquide,\\$quot; Schmieder said.

\\$quot;This enables us to leverage our growth opportunities that neither of us had before and is therefore the highlight of 2006,\\$quot; he proudly concluded.

Germany \\$quot;“ the world champion?

Germany continued to dominate the Western European region (in size) and appeared to exhibit a strong growth rate to reach 2.4bn in 2005. Schmieder, being German himself, naturally flags up the country as the \\$quot;˜world champion\\$quot; in export.

\\$quot;If we look at the steel and chemical as well as the high-end of manufacturing industry, machinery and equipment and technical appliances, the German economy is to a large extent pulled by the export business. This translates to growth opportunities.\\$quot;

At the same time Schmieder reminds that we have to realise that there is a large sector in the German economy \\$quot;“ small and medium size businesses \\$quot;“ which is focused only on the domestic market. \\$quot;This market is having a problem in particularly in the construction sector. If you look at those gas applications for cutting and welding, there we have less growth. In some instances we see our customers moving out of Germany to other places in Europe or Asia. So Germany is also experiencing relocation problems in these industries.

\\$quot;It\\$quot;s a mixture of growth and I think with the combination of Messer and Air Liquide we have an excellent opportunity to focus on the more advanced applications of the high-end customers in Germany.\\$quot;

Strong growth in Spain

Furthermore, the growth in Spain, Italy and France is strong whereas the growth in the UK is flat varying from nil to two per cent according to the BOC source. He said: \\$quot;There has been some growth year on year but looking at the overall growth, it\\$quot;s not a good picture. Although the Linde \\$quot;“ BOC deal will create some changes in the market.\\$quot;

Both Messer and Air Liquide agree that Spain is a country with good growth and marked €1.3bn in 2005. Walth says the country\\$quot;s economical situation grows faster compared to any other Western European country. \\$quot;Many industries in Spain have felt good growth.\\$quot;

Schmieder continues: \\$quot;You are talking about one to two per cent growth rate in Western Europe whereas the rate is three to four per cent in Spain. This growth is to a large extent because of the construction sector. Spain is in a construction boom, which is due to continue and as a larger player in the country we\\$quot;ll benefit from it.

Rest of the Western Europe is growing steadily at a rate of one to two per cent in the industrial sector and the industrial production is experiencing an issue with relocation to other areas. Schmieder says that Air Liquide, for example, is therefore focusing on healthcare across the region.

\\$quot;Every European country finds itself in a similar situation. Industrial activities deliver less growth and healthcare significantly more due to the
ageing population in the continent.\\$quot;

France restructured

The industrial gas marked in France was valued at €1.9bn last year compared to €1.8bn in 2004 and according to Walth all the industrial gas companies have the same problem in the country; they try to decrease prices for customers.

\\$quot;We have been investing in France for the last ten years and seen a good market development in the country. Food industry, through our three research centres where we develop new processes and applications, has been one of the drivers for Messer alongside steel and welding gas industries.\\$quot;

The company has also modernised many of its filling stations to 300-bar technology and this activity continues in 2006. Messer is also hoping to invest more in research and development in order to create more market in France.

Even though Air Liquide is focusing on growth and new opportunities (food, pharmacy and energy) in the industrial business, the main priority is to enhance productivity in France.

Schmieder says the company has launched an initiative in its industrial customer business to reorganise its business. \\$quot;We are having a discussion with our social partners to make sure that they understand and approve what we are doing. We told them that in result of the reorganisation some 330 positions will be eliminated.\\$quot;

\\$quot;Air Liquide France tries to observe those employees who will be affected by the reorganisation. This requires mobility as far as the employees are concerned but provided they have the mobility required the company doesn\\$quot;t have to lay off people,\\$quot; Schmieder concludes.