Tier 1 & 2 Gas Companies

Gas Company Sales Growth
% change YoY
  • Tier 1 gas companies
  • Tier 2 gas companies
,Tier 1 gas companies,Tier 2 gas companies 2015 Q1,9.7%,6.9% 2015 Q2,4.4%,3.2% 2015 Q3,8.4%,0.8% 2015 Q4,2.4%,-5.0% 2016 Q1,1.0%,-4.4% 2016 Q2,2.4%,-1.9% 2016 Q3,0.2%,0.0% 2016 Q4,2.8%,1.4% 2017 Q1,7.4%,10.4% 2017 Q2,5.7%,13.2% 2017 Q3,4.2%,14.7% 2017 Q4,4.3%,15.6% 2018 Q1,0.6%,12.1% 2018 Q2,2.5%,17.0% 2018 Q3,4.9%,16.3% 2018 Q4,5.3%,11.1% 2019 Q1,0.5%,14.4% 2019 Q2,-0.7%,10.3% 2019 Q3,-3.2%,5.1% 2019 Q4,-6.4%,10.9% 2020 Q1,-1.8%,4.1% 2020 Q2,-11.6%,-1.1%
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Gas Company Sales Growth
% change YoY
  • Sol
  • Iwatani
  • Yingde
  • Airwater
  • Hangyang
,Sol,Iwatani,Yingde,Airwater,Hangyang 2015 Q1,7.0%,8.8%,3.4%,12.9%,11.7% 2015 Q2,9.0%,3.8%,3.4%,0.0%,0.4% 2015 Q3,8.8%,-0.1%,1.9%,-4.3%,1.1% 2015 Q4,-0.3%,1.6%,1.9%,-5.3%,-23.7% 2016 Q1,4.4%,-0.5%,9.0%,-6.4%,-23.8% 2016 Q2,4.6%,-2.7%,9.0%,-3.3%,-16.5% 2016 Q3,3.6%,0.2%,3.5%,8.7%,-15.4% 2016 Q4,4.7%,1.2%,3.5%,6.3%,-1.5% 2017 Q1,7.6%,-1.6%,15.0%,-2.0%,22.7% 2017 Q2,5.2%,5.1%,15.0%,1.5%,42.3% 2017 Q3,9.0%,4.3%,28.4%,-6.5%,27.5% 2017 Q4,8.7%,5.2%,28.4%,-2.5%,30.5% 2018 Q1,10.7%,8.7%,19.3%,5.1%,22.5% 2018 Q2,11.6%,7.0%,19.3%,10.7%,29.2% 2018 Q3,8.9%,10.0%,30.7%,7.0%,32.0% 2018 Q4,9.4%,7.1%,30.7%,2.4%,7.3% 2019 Q1,7.1%,8.0%,21.5%,23.1%,13.9% 2019 Q2,9.5%,2.5%,21.5%,7.5%,8.4% 2019 Q3,8.9%,-3.4%,21.0%,16.9%,-16.5% 2019 Q4,17.0%,-1.2%,21.0%,6.2%,13.8% 2020 Q1,8.3%,0.0%,null,12.6%,0.2% 2020 Q2,null,-6.0%,null,-5.3%,16.9%
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Tier 2 gas companies typically have annual gas sales in a range of $0.5-2Bn (vs Tier 1 range of $8-24Bn). They range from specialised privately owned specialist gas companies to divisions of large quoted industrial conglomerates with a range of businesses. This analysis primarily focuses on those companies which provide regular quarterly or half yearly financials



Reported growth performance of Tier 2 gas companies is estimated to have trended down towards accelerated towards -1% in Q2 but remained ahead of underlying performance of Tier 1 companies with this premium growth helped by the contribution from return to growth in Chinese markets and the stability provided by significant healthcare business in companies like Sol

Weakening performance in the reported performance of both Tier 2 Japan based companies to be down -5% to -6%. For Air Water this is despite the positive impact of the recent acquisitions, specifically the Praxair east India and south-west Indian business of Linde businesses in 2019 which adds adds nearly 10% to its gases business. Iwatani’s gases performance appears to have been combined with an even weaker YoY performance for its gas related machinery business

Hanyang saw a strong rebound in Q2 to show its highest YoY growth in reported sales of gases and equipment since mid-2018

Latest results for Yingde and Sol were not available at the time of this review


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Tier 2 gas company operating margin % of sales

% of sales
  • Sol
  • AirWater
  • Iwatani
  • Hangyang
,Sol,AirWater,Iwatani,Hangyang 2015 Q1,9.3%,6.7%,5.5%,2.8% 2015 Q2,10.0%,6.5%,2.4%,3.5% 2015 Q3,9.8%,5.8%,5.1%,3.1% 2015 Q4,9.8%,8.9%,5.8%,1.9% 2016 Q1,10.9%,7.9%,5.1%,-2.8% 2016 Q2,11.2%,8.1%,1.7%,-2.0% 2016 Q3,11.9%,6.5%,5.6%,-7.4% 2016 Q4,11.9%,9.6%,3.9%,-1.9% 2017 Q1,8.9%,9.2%,4.6%,6.7% 2017 Q2,9.7%,7.9%,2.8%,8.1% 2017 Q3,10.7%,8.9%,7.1%,15.3% 2017 Q4,10.8%,12.6%,6.0%,17.3% 2018 Q1,11.7%,11.2%,5.9%,13.1% 2018 Q2,11.2%,8.2%,4.7%,14.8% 2018 Q3,11.9%,8.0%,5.6%,13.5% 2018 Q4,11.9%,10.7%,5.5%,11.7% 2019 Q1,10.0%,10.5%,7.7%,12.6% 2019 Q2,10.3%,11.1%,4.8%,8.3% 2019 Q3,11.7%,8.5%,6.2%,9.0% 2019 Q4,11.7%,11.1%,6.6%,7.4% 2020 Q1,null,8.2%,7.2%,9.8% 2020 Q2,null,9.7%,4.1%,13.9%
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Operating Margins at selected Tier 2 companies are lower than Tier 1 majors, although profitability of the leading Japanese Tier 2 companies is broadly comparable to TNS. 

Margins improved significantly at Hangyang in Q2 to its highest level since early-2018

Contrast swings in Japanese companies with a rise in Air Water, albeit still below its peaks of recent years, while Iwatani saw a decline in gases and machinery margin to its lowest rate since early 2017. However in both cases gases margins remain above operating margin for the groups



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Welding Companies

Reported Sales Growth by Company
  • Lincoln
  • ESAB
  • ITW
,Lincoln,ESAB,ITW 2015 Q1,-4.0%,1.8%,-6.6% 2015 Q2,-8.8%,-17.4%,-9.4% 2015 Q3,-9.9%,-18.8%,-13.7% 2015 Q4,-17.0%,-16.4%,-13.6% 2016 Q1,-16.3%,-9.3%,-10.0% 2016 Q2,-10.0%,-9.0%,-12.2% 2016 Q3,-12.0%,-8.4%,-8.9% 2016 Q4,-0.7%,-10.6%,-8.6% 2017 Q1,5.5%,3.6%,-0.6% 2017 Q2,5.8%,4.5%,2.9% 2017 Q3,17.9%,8.1%,4.8% 2017 Q4,32.5%,14.5%,7.4% 2018 Q1,30.4%,15.9%,9.4% 2018 Q2,26.0%,13.4%,14.3% 2018 Q3,10.1%,8.7%,9.4% 2018 Q4,-0.4%,14.9%,6.7% 2019 Q1,0.2%,5.1%,1.0% 2019 Q2,1.7%,5.7%,-4.2% 2019 Q3,-0.9%,2.9%,-3.0% 2019 Q4,-0.8%,-3.4%,-6.4% 2020 Q1,-7.5%,-6.2%,-12.8% 2020 Q2,-24.0%,-30.1%,-29.4%
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Underlying Sales Growth by Company
  • Lincoln
  • ESAB
  • ITW
,Lincoln,ESAB,ITW 2015 Q1,-0.5%,-6.4%,-3.3% 2015 Q2,-0.9%,-7.8%,-6.0% 2015 Q3,-9.7%,-4.4%,-10.3% 2015 Q4,-14.4%,-4.8%,-10.8% 2016 Q1,-15.0%,-1.9%,-8.5% 2016 Q2,-10.6%,-4.2%,-11.3% 2016 Q3,-8.6%,-5.8%,-8.5% 2016 Q4,-1.2%,-8.7%,-7.9% 2017 Q1,5.0%,1.1%,-0.3% 2017 Q2,5.8%,2.1%,3.3% 2017 Q3,5.6%,2.9%,3.9% 2017 Q4,10.0%,6.9%,6.1% 2018 Q1,9.4%,6.4%,7.6% 2018 Q2,9.3%,8.1%,13.3% 2018 Q3,7.5%,10.1%,10.3% 2018 Q4,1.6%,10.5%,7.6% 2019 Q1,8.1%,4.5%,2.8% 2019 Q2,-3.5%,3.7%,-2.4% 2019 Q3,-4.7%,-0.5%,-1.6% 2019 Q4,-3.5%,-1.5%,-3.7% 2020 Q1,-9.5%,-2.2%,-9.0% 2020 Q2,-24.8%,-24.5%,-24.9%
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Lincoln, ESAB and ITW are the three largest suppliers to the $22Bn global market for welding equipment and consumables – but in contrast with industrial gases the three leading companies only have around 30% share of the market. ESAB is part of Colfax group which has restructured to focus on fabrication technology (ESAB) and medical technology 

Lincoln has historic annual welding sales of over $3Bn. ESAB has around $2.2Bn and ITW Welding nearly $1.5Bn

Growth in reported welding sales for major companies fell sharply in Q2 to be down -25-30% YoY slowing steadily from peak growth in late 2017/early 2018

This pattern was also reflected in underlying sales growth with all three major welding companies again showing further deepening of negative performance in Q2 to be down -25%. ESAB indicated reducing rates of decline through the three months of Q2.

Lincoln showed greater decline in its Americas business (-30%) in Q2 than internationally (-21%) while in the latter case this was again partly offset by positive acquisition impact (+7%) in the four latest quarters – order rates improving through Q2 and into Q3. ITW indicates similar pattern with the decline in Americas greater than International business although in both cases smaller declines than Lincoln (-27% and -16% respectively). ESAB indicates developing regions (half of business) suffered smaller declines than developed – growth in China




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Welding operating margin by company %

%
  • Lincoln
  • ESAB
  • ITW
,Lincoln,ESAB,ITW 2015 Q1,14.3%,11.7%,26.9% 2015 Q2,14.9%,10.4%,26.1% 2015 Q3,15.1%,8.7%,24.7% 2015 Q4,15.5%,9.1%,22.5% 2016 Q1,13.7%,10.3%,23.9% 2016 Q2,13.9%,11.5%,25.1% 2016 Q3,14.4%,10.9%,26.3% 2016 Q4,15.0%,10.7%,24.4% 2017 Q1,14.0%,12.1%,27.6% 2017 Q2,14.0%,12.3%,27.3% 2017 Q3,12.2%,11.7%,26.5% 2017 Q4,12.1%,10.3%,26.5% 2018 Q1,12.8%,12.0%,27.7% 2018 Q2,14.1%,12.7%,29.3% 2018 Q3,14.0%,10.6%,28.3% 2018 Q4,13.0%,10.3%,26.8% 2019 Q1,12.9%,12.6%,28.1% 2019 Q2,14.1%,13.7%,28.9% 2019 Q3,12.3%,13.5%,28.1% 2019 Q4,12.4%,14.1%,25.3% 2020 Q1,12.6%,13.1%,29.3% 2020 Q2,10.7%,10.5%,21.5%
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Lincoln indicates pricing has been relatively flat recently compared with the significant increases seen 1-2 years ago

Profitability appears to have weakened across all three companies in Q2 as volumes have fallen sharply 

ITW continues appears to be highest margin performer on their reporting basis, significant higher than Lincoln and ESAB (after allowing for D&A component of EBITDA)

Lincoln continues to show significantly higher operating margins in its Americas business than internationally (14% vs 5% in Q2) but the latter rose while the former fell. Achieved $27m in cost saving benefits in Q2

ESAB reported aggressive cost flexing to limit the decline in margin and expects to see permanent savings of over $20m from these restructuring activities





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Engineering & Sale of equipment

Sales by Company
$M
  • Chart
  • AP
  • AL
  • Linde
,Chart,AP,AL,Linde 2015 Q1,205.1,149.0,191.1,721.4 2015 Q2,230.3,159.4,221.4,737.6 2015 Q3,224.0,168.8,236.5,703.0 2015 Q4,220.8,175.8,187.9,639.3 2016 Q1,153.8,149.6,133.9,613.4 2016 Q2,207.1,207.2,140.4,558.3 2016 Q3,163.9,207.2,113.4,706.3 2016 Q4,174.4,180.6,124.2,660.9 2017 Q1,164.1,239.9,56.4,690.1 2017 Q2,198.2,201.8,102.3,620.5 2017 Q3,202.7,183.2,87.7,698.2 2017 Q4,269.4,147.3,134.3,682.0 2018 Q1,244.1,123.3,104.4,663.0 2018 Q2,277.9,125.4,113.1,778.0 2018 Q3,272.2,124.1,121.8,635.0 2018 Q4,290.1,83.8,168.2,716.0 2019 Q1,281.0,76.2,106.0,636.0 2019 Q2,309.6,94.7,92.9,752.0 2019 Q3,357.8,124.6,90.0,641.0 2019 Q4,342.4,127.0,78.9,770.0 2020 Q1,321.1,133.1,57.8,608.0 2020 Q2,310.4,133.7,57.8,810.0
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Orders by Company
$M
  • Chart
  • AL
  • Linde
,Chart,AL,Linde 2015 Q1,159.5,287.3,302.4 2015 Q2,171.1,275.4,479.5 2015 Q3,192.9,185.7,436.3 2015 Q4,171.2,262.4,1475.2 2016 Q1,139.3,78.8,334.8 2016 Q2,210.3,57.2,440.6 2016 Q3,141.2,128.5,938.4 2016 Q4,124.0,155.5,723.5 2017 Q1,149.7,114.0,486.7 2017 Q2,192.6,244.2,784.4 2017 Q3,198.0,204.7,934.5 2017 Q4,247.8,265.0,495.9 2018 Q1,288.2,234.6,653.0 2018 Q2,316.4,302.4,1390.0 2018 Q3,263.8,249.4,1143.0 2018 Q4,273.3,175.2,646.0 2019 Q1,724.9,167.6,565.0 2019 Q2,322.0,260.9,581.0 2019 Q3,286.2,133.3,806.0 2019 Q4,343.5,375.6,1475.0 2020 Q1,304.3,92.2,392.0 2020 Q2,267.3,253.3,291.0
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Engineering & Equipment business makes varied contribution to top line across companies monitored. Accounts for around 10% of Linde plc group sales and 3% for each of AL group and AP group while Chart is a specialist engineering and equipment companies. 

Linde has a broad based Engineering activity with nearly 30% of business in air separation plants, one third in natural gas plants, over 15% in olefins and over 10% from hydrogen and syngas plants. Quarterly sales in range of $6-800m

AL engineering business primarily in air gases (60%) and Hyco but also conversion processes to produce syngas, synthetic natural gas, methanol, propylene, liquid fuels and biofuels. Quarterly sales under $100m

AP engineering business historic split indicates around half of sales in air gases (along with smaller sales of helium equipment) and half in LNG heat exchangers although this varies significantly in short term. Quarterly sales currently around $125m

Chart has 60% of its business in distribution and storage with around 40% from equipment for energy and chemicals market. Quarterly sales now around $300-350m



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Equipment & Engineering operating margin % of sales

  • Linde
  • Chart
  • AP
  • AL
,Linde,Chart,AP,AL 2015 Q1,7.2%,6.1%,-11.8%,11.9% 2015 Q2,6.9%,9.9%,-33.8%,11.9% 2015 Q3,7.1%,7.4%,-1.9%,5.6% 2015 Q4,5.7%,5.4%,-18.5%,5.6% 2016 Q1,6.5%,2.1%,-12.6%,4.2% 2016 Q2,6.6%,15.0%,-9.2%,4.2% 2016 Q3,7.3%,2.7%,14.5%,-2.6% 2016 Q4,9.2%,3.3%,5.5%,-2.6% 2017 Q1,6.9%,2.4%,10.5%,-3.8% 2017 Q2,6.2%,6.3%,14.9%,-3.8% 2017 Q3,7.5%,8.6%,7.2%,-9.4% 2017 Q4,10.5%,8.0%,7.1%,-9.4% 2018 Q1,9.2%,6.4%,11.8%,-8.2% 2018 Q2,10.0%,8.9%,19.6%,-8.2% 2018 Q3,10.9%,12.7%,28.5%,4.4% 2018 Q4,10.8%,9.4%,32.2%,4.4% 2019 Q1,12.3%,5.8%,31.9%,11.8% 2019 Q2,13.2%,9.3%,-16.6%,0.1% 2019 Q3,18.7%,9.0%,31.6%,6.3% 2019 Q4,12.1%,6.8%,33.0%,12.8% 2020 Q1,15.0%,8.4%,31.8%,-20.2% 2020 Q2,17.0%,13.5%,34.0%,-20.2%
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Reported equipment sales in Q2 were flat or higher sequentially for all companies except Chart which slipped marginally. Total equipment sales were significantly higher YoY in Linde and AP but flat in Chart and lower in AL partly driven by project timing and the balance of internal vs third party business 

Chart sales in distribution equipment were down YoY in Q2 but up in energy & chemicals

However these weaker patterns do not fully reflect the broader economic downturn since they are driven by earlier investment decisions. Engineering order intake appears to be continuing to move downward in Q2 although these are subject to significant short term seasonal fluctuation

Operating Margin performance has been erratic and show wide contrasts, , partly due to exceptional charges as restructuring programmes have been implemented and timing of major projects. Margins at Linde, Chart and AP have been trending up towards peak levels while AL has been trending down in recent years



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Pressure cylinder sales growth by company % change YoY

% change YoY
  • Worthington
  • Luxfer
,Worthington,Luxfer 2015 Q1,6.3%,-11.6% 2015 Q2,-4.8%,-4.9% 2015 Q3,-9.9%,-1.9% 2015 Q4,-20.4%,-11.8% 2016 Q1,-19.1%,1.2% 2016 Q2,-13.1%,-3.5% 2016 Q3,-8.5%,-10.2% 2016 Q4,-3.2%,-9.8% 2017 Q1,-1.1%,-8.0% 2017 Q2,5.9%,-7.4% 2017 Q3,31.5%,0.9% 2017 Q4,54.6%,6.0% 2018 Q1,48.9%,9.0% 2018 Q2,46.8%,7.9% 2018 Q3,11.3%,13.1% 2018 Q4,-2.1%,2.6% 2019 Q1,-1.6%,-1.5% 2019 Q2,-5.2%,-3.8% 2019 Q3,1.3%,-12.9% 2019 Q4,-1.5%,-5.9% 2020 Q1,-6.8%,-9.9% 2020 Q2,-12.2%,-13.3%
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Worthington group sales are nearly $4Bn of which over 30% in pressure cylinders. Cylinders business in 3 major sectors (Industrial including cryogenics over 50% of sales, Consumer Products nearly 40% and Oil and Gas Equipment). Has grown through acquisition with 13 completed in the last 6 years. 

Luxfer has annual group sales of around $480m of which approximately half in Gas Cylinders division

Both companies saw further deepening of their previous negative performance in Q2 to show the weakest performance since late 2015. Worthington and Luxfer pressure cylinder sales were down by around        -12% in Q2 reflecting the impact of macro-economic trends and specific pressure on support equipment investment by gas companies. 

Luxfer indicated decline in key industrial markets higher than defence/first response/healthcare – seeing growth opportunities in alternative fuel products. Exited fire extinguisher business




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Pressure cylinder operating margins by company %

%
  • Worthington
  • Luxfer
,Worthington,Luxfer 2015 Q1,7.5%,2.2% 2015 Q2,4.1%,2.7% 2015 Q3,7.5%,5.1% 2015 Q4,6.3%,4.4% 2016 Q1,4.5%,5.1% 2016 Q2,5.9%,5.5% 2016 Q3,6.9%,5.5% 2016 Q4,5.8%,4.1% 2017 Q1,5.1%,6.3% 2017 Q2,8.0%,6.1% 2017 Q3,3.9%,4.2% 2017 Q4,8.2%,1.3% 2018 Q1,5.9%,6.9% 2018 Q2,7.0%,5.1% 2018 Q3,4.9%,6.8% 2018 Q4,5.0%,8.2% 2019 Q1,6.5%,5.3% 2019 Q2,7.5%,9.8% 2019 Q3,9.7%,9.2% 2019 Q4,5.4%,7.2% 2020 Q1,5.3%,9.3% 2020 Q2,7.7%,7.7%
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Both companies appear to show an underlying upward trend albeit at a slow rate with overall operating margins in both cases at just under 8%

Luxfer continuing action programme (and associated restructuring costs) to further reduce cost base – total cost of over $45m in 2018 to 2021 to achieve annual cost reduction of $24m 



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Electronic Materials Suppliers

Electronics Suppliers Growth
% change YoY
  • Versum
  • Entegris
  • AL
  • Merck
,Versum,Entegris,AL,Merck 2015 Q1,16.0%,5.0%,14.4%,null 2015 Q2,18.0%,0.0%,11.9%,null 2015 Q3,-9.0%,-1.0%,12.8%,null 2015 Q4,-4.0%,-1.3%,7.5%,null 2016 Q1,-9.8%,1.4%,13.4%,null 2016 Q2,-7.7%,8.0%,9.0%,null 2016 Q3,7.0%,9.8%,-0.5%,null 2016 Q4,10.0%,15.6%,-3.5%,null 2017 Q1,16.0%,18.9%,-0.4%,-0.9% 2017 Q2,19.8%,8.6%,1.2%,-3.2% 2017 Q3,19.0%,16.5%,7.2%,-1.5% 2017 Q4,22.0%,13.6%,7.4%,-1.2% 2018 Q1,26.0%,15.7%,5.7%,-4.0% 2018 Q2,20.4%,16.4%,7.6%,0.4% 2018 Q3,19.0%,15.3%,8.5%,3.4% 2018 Q4,3.0%,14.6%,17.7%,7.8% 2019 Q1,-4.0%,6.5%,13.7%,3.2% 2019 Q2,-7.0%,-1.1%,13.2%,-2.0% 2019 Q3,null,-1.1%,5.8%,-10.6% 2019 Q4,null,6.3%,0.0%,-16.6% 2020 Q1,null,5.4%,3.6%,-5.4% 2020 Q2,null,18.3%,0.5%,-13.7%
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Electronics Suppliers' Operating Margin
%
  • Versum
  • Entegris
  • Merck
,Versum,Entegris,Merck 2015 Q1,null,10.5%,null 2015 Q2,null,14.0%,null 2015 Q3,null,11.5%,null 2015 Q4,null,7.5%,null 2016 Q1,29.1%,11.1%,null 2016 Q2,27.8%,15.3%,null 2016 Q3,25.4%,11.7%,null 2016 Q4,29.2%,14.6%,null 2017 Q1,25.8%,16.0%,28.0% 2017 Q2,27.9%,18.0%,28.0% 2017 Q3,23.8%,17.6%,28.0% 2017 Q4,26.9%,20.3%,28.0% 2018 Q1,26.2%,21.4%,24.1% 2018 Q2,27.5%,19.6%,22.4% 2018 Q3,28.3%,17.1%,22.8% 2018 Q4,29.0%,17.8%,15.6% 2019 Q1,25.3%,12.1%,15.8% 2019 Q2,25.0%,14.5%,16.9% 2019 Q3,null,13.4%,16.8% 2019 Q4,null,19.7%,1.8% 2020 Q1,null,19.6%,12.9% 2020 Q2,null,21.1%,-3.7%
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A number of companies related to the electronics sector are monitored and can be considered indicative of ongoing demand for gases, electronic chemicals and equipment from electronics and related production while their other businesses are indicative of development of customer investment in this sector

Entegris is a US headquartered $1.6Bn global business providing products and services to semiconductor and other advanced manufacturing markets. 3 major business segments each around one third of business – Specialty Chemicals & Advanced Materials, Microcontamination Control and Advanced Materials Handling

Versum was formerly Air Products’ Electronics Materials business and was spun off in 2016 as a specialty materials supplier to the semiconductor industry. Three quarters of its $1.2Bn business were in Materials (Advanced and Process) with the rest in Delivery Systems & Materials. 

In 2019 Versum was acquired by Merck Performance Materials (part of Merck group), previously a $2Bn + business within Merck corporation supplying display solutions (60%), semiconductor solutions (25%) and surface solutions (15%) – combined sales of Merck business in this sector is now $3Bn annually



Q2 saw a widening difference between the growth performance of the monitored companies with Entegris accelerating to its highest growth rate in recent years at +18% YoY while Merck indicate renewed weakening of its YoY growth performance to -14%. For comparison AL’s Electronics business continues to run at modest or flat growth in recent quarters

In the case of Merck the underlying decline of -17% YoY in performance materials in the previous quarter was again transformed into significant reported growth of +38% by the contribution from acquisitions (particularly Versum in 2019). Sales reductions of over -20% YoY in Display Solutions and Surface Solutions were again significantly offset by underlying growth in Semiconductor Solutions where Versum was also a major addition. Significant falls were seen in all three geographic regions (Asia Pacific, US and Europe)

Entegris showed strong growth in its Microcontamination Controls business (+22%) while Specialty Chemicals and Engineered Materials business each showed growth of +15-20% YoY

Relative solid performance of Entegris (and AL) reflects the global semiconductor industry performance which appears to date to have only been relatively marginally impacted by Covid and the global downturn  

Entegris’ operating margin moved above its previous 20% peak in Q2. Merck’s reported margin slipped back into negative territory at -4% - previously underlying margin of the Merck Performance Materials and Versum both showed margins of up to 25%


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New technology companies

Sales by New Technology business
$M
  • Ballard
  • Plug Power
  • McPhy
  • Fuel Cell Energy
  • Hydrogenics/Cummins
,Ballard,Plug Power,McPhy,Fuel Cell Energy,Hydrogenics/Cummins 2015 Q1,9.3,9.8,1.0,null,null 2015 Q2,11.2,24.0,1.0,null,null 2015 Q3,16.0,31.4,1.1,null,null 2015 Q4,20.0,38.4,1.1,null,null 2016 Q1,16.3,15.3,1.2,28.6,null 2016 Q2,17.6,20.5,1.2,21.7,null 2016 Q3,20.6,17.6,2.9,24.5,null 2016 Q4,30.7,32.6,2.9,17.0,null 2017 Q1,22.6,15.2,3.0,20.4,8.7 2017 Q2,26.5,22.6,3.0,10.4,7.5 2017 Q3,31.9,61.4,2.5,47.9,12.1 2017 Q4,40.2,31.1,2.5,38.6,19.7 2018 Q1,20.1,26.4,1.9,20.8,8.1 2018 Q2,26.4,35.2,1.9,12.1,7.6 2018 Q3,21.6,57.4,2.4,17.9,7.8 2018 Q4,28.5,59.8,2.4,17.8,10.5 2019 Q1,16.0,21.6,2.3,9.2,8.1 2019 Q2,23.7,57.2,2.3,22.7,8.0 2019 Q3,24.8,57.4,3.8,11.0,9.0 2019 Q4,41.9,91.7,3.8,16.3,18.0 2020 Q1,24.0,40.8,2.9,18.9,10.0 2020 Q2,25.8,68.0,2.9,18.9,10.0
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Operating Margin for New Technology business
%
  • Ballard
  • Plug Power
  • McPhy
  • Fuel Cell Energy
  • Hydrogenics/Cummins
,Ballard,Plug Power,McPhy,Fuel Cell Energy,Hydrogenics/Cummins 2015 Q1,-77.6%,-129.9%,-283.3%,null,null 2015 Q2,-68.3%,-41.1%,-283.3%,null,null 2015 Q3,-28.3%,-39.0%,-209.5%,null,null 2015 Q4,-27.4%,-62.8%,-209.5%,null,null 2016 Q1,-59.7%,-84.5%,-231.8%,-44.5%,null 2016 Q2,-28.1%,-65.4%,-231.8%,-47.5%,null 2016 Q3,-18.3%,-75.5%,-73.6%,-48.2%,null 2016 Q4,1.2%,-36.6%,-73.6%,-64.3%,null 2017 Q1,-10.6%,-128.8%,-54.5%,-56.3%,-15.5% 2017 Q2,-3.4%,-124.2%,-54.5%,-138.3%,-61.1% 2017 Q3,-2.9%,-59.3%,-73.9%,-17.1%,-18.0% 2017 Q4,-1.6%,-56.9%,-73.9%,-14.4%,-2.5% 2018 Q1,-30.1%,-79.3%,-114.3%,-61.1%,-20.6% 2018 Q2,-11.9%,-65.2%,-114.3%,-119.5%,-36.8% 2018 Q3,-24.8%,-22.0%,-111.1%,-66.4%,-37.9% 2018 Q4,-21.9%,-21.6%,-111.1%,-85.7%,-28.2% 2019 Q1,-53.2%,-94.9%,-95.3%,-191.2%,-24.7% 2019 Q2,-19.4%,-20.9%,-95.3%,-4.7%,-437.5% 2019 Q3,-27.3%,-22.0%,-28.2%,-299.0%,-422.2% 2019 Q4,-17.7%,-8.2%,-28.2%,-19.3%,-283.3% 2020 Q1,-43.8%,-63.5%,-75.9%,-43.1%,-470.0% 2020 Q2,-33.3%,-38.7%,-75.9%,-43.1%,-420.0%
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Five companies who are active in fuel cell related technologies are monitored (Ballard, Plug Power, McPhy, Fuel Cell Energy and Hydrogenics) – although the specific mix of target technologies and end-uses varies between companies and over time. Combined annual sales of these five companies now exceed $500m p.a. 

It appears that reported sales across these companies were flat or rose sequentially in Q2 and were up over +10% YoY – however this reflects the continued swings in quarterly sales and growth seen in this emerging market

All companies continue to gain new contracts and add new products and services to their offerings which are intended to significantly enhance growth, with particular focus and China and US markets

High R&D spend of these companies typical of technology start-ups – combined spend of these companies has risen further and is estimated to be equivalent to over 20% of sales

All five companies monitored have continued to make significant operating losses in recent quarters and the trend towards underlying break-even position appears difficult to sustain

High stock market valuation of these companies relative to sales (at least 4 times) despite negative profitability reflects market perceptions of potential size of market and these businesses – typical of many new technology businesses in recent years. The acquisition of Hydrogenics by Cummins in 2019 appears to reflect these high valuations and also the impact of goodwill and large company overheads in such circumstances. AL retains a minority shareholding position in Hydrogenics reflecting continuing potential interest from industrial gas companies in this sector with implications for hydrogen growth 



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