The Air Liquide Board of Directors met on 29th July 2016, during which meeting the Board reviewed the consolidated financial statements for the first half of the year ending 30th June 2016.

The Board will no doubt have been delighted with the group’s Gas & Services business, having delivered solid operational performance against a first half of the year characterised by the game-changing acquisition of fellow Tier One player Airgas, Inc. and the related ramifications.

Such a major piece of business might otherwise have provided a backdrop of distraction, but this was certainly not the case as the group made the most of continued dynamism in the electronics market, higher volumes in its Large Industries business, and the ongoing rise of the healthcare business.

All of which came together to drive along first-half 2016 Gas & Services revenue of €7.6bn (total group revenue: €8.3bn/$9.2bn) and operating margin of 19.6%.

Airgas itself played a part in this too; the first-half results included €511m ($570m) of Airgas sales consolidated as of 23rd May 2016, the closing date of the company’s acquisition.

The Air Liquide Board will also likely have been impressed with the group’s continued competitiveness in efficiencies and cost containment, generating €143m in recurring efficiency gains during the first half of the year, in line with its forecasts for the year. Such efficiencies are expected to be boosted further in the second half of 2016 as the first synergies with Airgas are realised.

Surely less satisfying – and a concern going forward – will be the impact of still-low oil prices on the group’s engineering activities. To say that Engineering and Construction revenue of €254m ‘fell sharply’ is arguably something of an understatement; it almost halved compared to first-half 2015 revenues of €477m.

Engineering and Construction division revenues were adversely impacted by the slowdown in major projects related to energy, and by the low number of new projects – all of which are almost inextricably linked to the global crash in oil prices of recent years.


Since the price of oil began to plunge in earnest in summer 2014, related markets the world over have been plunged into similar turbulence themselves. Though a semblance of stability has been restored in the market in recent months and oil prices have gradually crept upwards, now trending around the mid-$40 per barrel range, there is still high uncertainty in the crude oil price outlook. Such prices per barrel are also still a far cry from the highs of $115 per barrel in June 2014, when the slump first began. This is a recovery that is both deep and protracted.

The effect of which is consequential hesitance – if not volatility – in energy, refining and metals projects. That, in turn, is creating headaches for companies planning investments and, ultimately, hitting the gases industry.

Linde notably fired a shot across the investment bows in December 2015, when it announced that it had adjusted its medium-term targets for 2017, tempering its expectations for Return on Capital Employed (ROCE) due to substantially changed overall conditions compared to October 2014 – when those targets were originally defined. A significant factor in this was a reduced contribution to operating profit from the group’s Engineering Division, affected as it was by the medium-term low oil price and the resulting investment hesitancy of its customers.

Now Air Liquide’s own engineering division has shown the first tangible signs of this plight too – a situation that could still have far to go if current indicators are anything to go by.

Supply disruptions from Nigeria to Canada are largely attributed to the 15% rise in the price of Brent crude that has been seen since the start of the year, but any glut in the market soon brings the situation sharply back into focus. Just a few days ago, global oil prices lost over a dollar per barrel within mere minutes of data emerging from the US Energy Information Administration (EIA) that showed an unexpected glut of oil in storage, for example.

And this precarious pendulum could yet swing further before the year is out. Iran is reported to have boosted crude production by 25% this year and aims to reach an eight-year high for daily output of up to four million barrels by the end of 2016; with this in mind, prices are expected to remain low as supply continues to outpace demand in 2016 and more crude is placed into storage.

I spoke to an analyst recently who was unsure whether we had reached the nadir now in global oil prices. His experience of speaking with participants in the oil space was that no-one really knows what the near-term is going to bring. “It looks and feels like we might have hit the low point, but we also thought that was the case a year ago,” he added.

So, what price for an oil bounce-back – should Air Liquide even care for depressed engineering revenues?

If my analyst friend’s view was ‘the farther from the wellhead the better’ then one might suggest that Air Liquide is in a pretty good place right now. The group has shown no sign of panic where its fallen engineering revenues are concerned and arguably has no reason to; it’s been an otherwise exciting, energising year for the company so far, epitomised by the game-changing capture of Airgas and continued robust efficiency gains. Sales in Gas & Services remain solid, with Large Industries revenue rising sharply in first-half 2016 in particular, experiencing growth across all geographic zones.

The prolonged recovery in oil prices and project activity is perhaps the only blot in the 2016 copybook. But with long-term projections still pointing to an upward trend in crude oil prices and end-users drilling down into the added value of each barrel downstream in the meantime, the question is whether this blot is simply a neglible price to pay right now.