L'Air Liquide S.A. (AI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Air Liquide 2020 Results Conference Call. [Operator Instructions]. I will now hand over to the Air Liquide team. Please begin your meeting, and I will be standing by.

Good morning, everyone. This is Aude Rodriguez, Head of Investor Relations. Thank you very much for joining our conference call today. Benoît Potier and Fabienne Lecorvaisier will present the full year 2020 performance. For the Q&A session, we are joined by François Jackow, Executive VP supervising Europe, Africa, Middle East & Healthcare Hubs; and on the phone from Houston, Mike Graff, Executive VP supervising Americas & Asian Hubs and the Electronics business line. In the agenda, our next events are on March 23, our Sustainability Day; and on April 23, our third quarter revenue announcement. Let me now hand you over to Benoît.

Thank you, Aude. Good morning, everyone, and thank you very much for attending this call. Directly, Page 3 of our presentation, as you can see, 2020 has been an outstanding year in many aspects in the circumstances. We've been able to deliver a significant margin improvement and net profit growth in global crisis environment, thanks in particular to the agility of the teams to adapt to this lower activity level. 2020 brings a clear demonstration of the strengths of both our business model and our diversified portfolio with a mix of growth and resilience pillars, and I could also add the strengths brought by our wide geographical presence. This year has also accelerated the pre-COVID trends to the benefits of Air Liquide activities, being it in energy transition, healthcare or technologies, and I will come back on that later. Business development has been very active also this year despite the pandemic, and we see a clear acceleration of projects linked to energy transition, which positions us very well for future growth. So overall, an outstanding year in many aspects, thanks to the dedication and courage of our teams worldwide during what we can qualify as an unprecedented global sanitary and economic trends and prices. On Page 4, starting with performance, we have just recalled on the left of the graph of the different IP evolutions by regions, with a global IP drop of minus 5% for the full year 2020. Facing this situation, sales were more or less preserved at minus 1.3% on a comparable basis and minus 6.8% (sic) [ 6.5% ] taking foreign exchange and energy into account, very close to the '19 level on the comparable basis. The operating income recurring margin improved again by 80 basis points, excluding energy pass-through impact, reaching a record level of 18.5% for the group, with a strong leverage on net profit, growing by plus 8.6%, as published, and even by 4.4% on a recurring basis, excluding foreign exchange. Investment decisions have been high, again, this year, above EUR 3 billion. Notably, thanks to a strong cash flow, the net debt had been reduced, and the gearing ratio is now back below its 2015 level before the Airgas acquisition. And Fabienne will come back later on the details of the performance. On Slide 5, you can see the effect of worldwide recovery on our sales. This is Q4 sales. 3 regions out of 4 showing positive sales growth: Europe, Middle East, Africa and Asia Pacific. Starting with Europe growing at plus 4.3%, the Healthcare activities, representing close to 40% of the sales of the region, have remained fully mobilized to support hospitals during the COVID wave 2. Industrial activities also show a solid recovery in Western Europe with sales -- while sales are growing in Eastern Europe. Growth is also positive in Asia with 2 strong drivers, China and electronics. The rest of Asia is improving. In Americas, the recovery is continuing in the North for industrial activities, while Healthcare is mobilized to supply medical oxygen to hospitals. South America is growing. Africa/Middle East region is back to growth in Q4 for all activities. So clear recovery everywhere in Q4. The negative number in Americas is a significant improvement compared with Q3. If I now turn to Page 5, if we take a step back. The main outcome today from this global sanitary crisis is the acceleration of pre-COVID trends. The first one is the energy transition. 2020 clearly marks an acceleration of this trend. This means new opportunities for our Large Industry and GMT (sic) [ GM&T ] businesses through low-carbon hydrogen offers but also industry decarbonization projects, as an example. The second trend is the transformation of the health care system, which is reaching a new step, mostly with the development of digital, which enriches our value-based offer. Our Healthcare activity is fully aligned with these changes and integrates products, equipment, now digital and services. And as the COVID crisis was a sanitary crisis, I think there will be changes in the medical sector globally, and the need for digital will be increasing as we go. The third trend is the increasing stake of technologies, including digital. Technology is already a game changer in the 21st century. As one of our key drivers, I think it would benefit all our activities, and the scope is very large, from digital to low carbon to electronics with the specialty gases and the advanced materials, deep cryogenics but also quantum computing and so on. Our position in those markets is strong, and our portfolio in -- of investments demonstrate that very well. On Slide 7, indeed, in only 1 year between the end of '19 and the end of '20, we see a clear shift towards energy transition and electronics in our investment opportunities. This is very visible on the left part of the slide. We had a 61:39 splits that became 39:61. This is really a very interesting change. Energy transition represents now 44% of total opportunities compared with 25% in 2019. This trend drives the second shift towards Europe, where most of the projects linked to energy transition are currently located, and Asia, the main region of our semiconductor customers. These 2 regions now represent more than 70% of the total portfolio, as you can see in the right part of the slide, compared to less than 60% in 2019. In addition to these 2 major shifts, the total portfolio of opportunities, which are projects our development teams are actively working on, had been increasing up to EUR 3.1 billion in 2020 despite the difficult environment. A large part of these opportunities should turn into signing, showing that we are well positioned for future growth, leveraging of these new trends. On Slide 8, there's a focus on sustainability, which has also been reinforced in 2020. On the left, you can see the 4 topics of our next Sustainability Day on March 23: decarbonization, no doubt hydrogen ambition but also societal contribution and governance. On the right, we have illustrated the progress made related to our carbon intensity objectives and 2 KPIs on key topics for Air Liquide: safety and gender. On carbon intensity, with a carbon intensity at 4.4, we are at the level of the 2025 objective, which doesn't mean that there's no work to do in between now and 2025 because we are growing, so we are investing and keeping this intensity at 4.4 is a challenge. The employee lost-time frequency rate has improved in 2020 to reach the lowest rate of the last 20 years, and we will, of course, pursue our efforts. And in 2020, we reported 30% of women among managers compared to 29%, which is an improvement of 1 point, in 2019, and our objective is to reach 35% by 2025. We are convinced that sustainability is key for long-term performance on which we remain committed to our shareholders. On Slide 9, indeed, after a full dividend payment in 2020, which represents a plus 12% increase compared to 2019, we propose for 2021 a dividend per share of EUR 2.75, representing an increase of 1.9%, in line with the recurring net profit growth, which would lead to payout of 55%, as you can see on the slide, and a plus 7.8% compounded annual growth rate of the dividends over 20 years. In addition to that, the Board of Directors had decided to consider a new free share attribution for June 2022. The dividend payments represent a significant part of the allocation of the cash from operations, and we reinvest most of the remaining cash in the business to prepare future growth and performance, as shown on the next slide, Page 10, where we have an illustration on the management of our cash allocation. This is cash allocation based on 2018 to 2020. It is then based on 3 years, last 3 years. The shareholder remuneration represents 30% of cash allocation, most of it from dividends, of course, but we have also identified here the incremental dividend coming from free share at issues. The majority of the cash allocation goes to industrial CapEx, as you can see. And together with acquisitions, it is 60% that went to the business on average over the last 3 years. We have a very solid project portfolio, which continues to rise. Our main projects are all confirmed, and 2020 is showing a high rate of project signing, higher than our peers'. This prepares, of course, very well for future growth and performance. And the last point I'd like to make on this slide is that this is just the cash view, but it doesn't take into account the appreciation of the share after we have distributed a bonus share, which is something that, in terms of net worth perspective, you need to keep in mind. I will now let Fabienne explain the 2020 performance. Fabienne?

Thank you, Benoît. Good morning, everyone. I suggest to review now in detail the Q4 activity and the full year performance. I'm on Page 12. Q4 has, in fact, shown a marked recovery compared to Q3 and even more to Q2. As mentioned by Benoît, we are back to growth at plus 2% on a comparable basis. And this growth is supported by higher demand than expected for medical as a consequence of the COVID wave 2 but also by stronger Large Industries compared to relatively low Q4 2019 by the pursued recovery of Industrial Merchant, even if we are still under last year's level, and by solid Electronics. Looking now at full year numbers on Page 13. This Q4 improvement results in sales which are quite stable for the full period on a comparable basis, meaning excluding ForEx, energy pricing variation and significant scope effects. Gas & services at minus 1.2% following Q4 at plus 1.6%. Engineering sales fully recovered in Q4 with major projects moving forward, even if the full year is still at minus 23% for third-party sales. To be noted, total sales, including group projects, are only at minus 9%. Order intake was also high in Q4, and we finished the year at EUR 820 million, a level very close to 2019. Global Markets & Technologies end the year at plus 6%, thanks to biogas development in particular, with a stronger order intake as well, close to EUR 600 million. Consequence, group sales at minus 1.3% reflect an outstanding resilience in the crisis context. Published sales are hampered by significant ForEx effect at minus 2% and energy price impact at minus 1.8%. Scope effect at minus 1.4% is mainly attributable to the divestiture of Schülke at the beginning of H2 and to the progressive deconsolidation of nonstrategic Japanese packaged gas distribution affiliates. Let's now look at the activity for each of our main geographies. My comments will be mainly related to Q4. After a very low Q2, Americas continued to improve sequentially. Volumes are higher in Large Industries, knowing that hydrogen volumes in the U.S. suffered from several turnarounds last year. In Industrial Merchant, South America continues to grow, while we see a clear sequential improvement in the U.S., supported by packaged gas for food and pharma as well as metal fabrication markets, which are doing a little better. Due to the wave 2 of the pandemic in the U.S. in particular, medical oxygen sales were also above expectations, and Electronics growth remained solid driven by carrier gases and equipment and installations. Europe is posting 4% growth in Q4, thanks in particular to Healthcare activities, still up by more than 8%, which, as mentioned by Benoît, represents 40% of the 2020 European business. Large Industries are clearly stronger in particular in Eastern Europe and were boosted by a one-off sale to a Russian customer. We also see signs of recovery in Western Europe notably for metals and chemicals, while refining remains low. Industrial Merchant, benefiting from solid pricing throughout the zone, is progressing double digits in Eastern Europe, while recovery continues in mature economies. Southwest in particular is back to slight growth. Asia continues to be pretty contrasted with China and electronics as main growth drivers. Large Industries also benefited from high hydrogen volumes in Korea and in Singapore. And merchant returned to growth in Q4, led by double-digit growth in China, even if Singapore and Japan remain under last year's level. In Electronics, equipment and installations are weaker, but carrier gases and advanced materials are still close to 10%. Africa and Middle East is also showing solid growth mainly driven by better Middle East and India in all businesses and high demand for medical oxygen throughout the zone and in particular in Egypt and North Africa. Looking now at the business line on Page 16. Industrial Merchant is the only one to remain slightly under 2019, but daily volumes pursued their recovery in Q4, and we also saw a slight improvement for hardgoods. The good news is that we were able to maintain solid pricing at plus 2.2%, even if the helium component is now reduced to 0.3% only. Food and pharma markets continued to grow. There is visible improvement for craftsmen and network and metal fabrication, but construction remains quite soft. In Large Industries, sales are increasing in all regions driven by better volumes and ramp-ups. The most difficult market remains refining, where food recovery is not expected before 2022. It is now improving even in mature economies, and we have signs of chemical recovery, notably for air gases, in Europe. Healthcare and Electronics are growing consistently with previous quarters. We expected a progressive slowdown in medical gases and equipment, which did not happen due to the COVID wave 2 and to the extension of oxygen high-flow treatments and by diabetes for the home health care sales in Europe. In Electronics, fluctuations from one quarter to another are mainly due to equipment and installation, which were, in particular, lower in Q4. However, the book-to-bill ratio is ramping up at 1.4 at year-end. Excluding equipment and installation, sales were strong at plus 7% in Q4 with high carrier gases, above 10%, thanks to new projects and more than 20% growth in China. To conclude the activity review, I would like to emphasize again the strength of our diversified portfolio, balance between growth and resilience activities as well as the solidity of the business model supported by long-lasting customer relationships. This strength as well as the alignment of the teams is also demonstrated by the performance improvement, I'm on Page 18, with margins being up 80 basis points for the group and 90 basis points for the Gas & Services, excluding the impact of the energy price decrease. Compared to published sales at minus 6.5%, purchases are down 11.7% globally and minus 9% if we exclude the Energy and gas sourcing. Personnel expenses are, of course, helped by divestitures, but that was down, excluding scope effect, with a 1.5% headcount reduction and slight average wages increase at plus 0.3% driven by developing economies. The decrease of other expenses includes a reduction for travel cost and transportation cost. Depreciations are flat with the effect of scope, contract renewals and drops compensating for startups. As a result, operating income recurring margin reached 18.5%, the highest ever for Air Liquide, a 120 basis point improvement to last year or 80 basis points adjusted for the energy pricing impact. Gas & Services margin stand at 20.4%, a 90 basis point progression, excluding Energy. This margin progression, on which I would like to come back, results from the combination of, first, the deployment of our structured plan for performance improvement based on pricing and mix, efficiencies and portfolio management, with an estimated contribution of approximately 60 basis points; and second, the crisis management, including cost containment and more favorable mix with less equipment and installation and hardgoods. I would like to focus on the structural part on Page 20 as it is really what is sustainable for the years to come. Pricing has been solid all along the year despite the economical difficulties. Helium component, which represented 30% of the pricing improvement in H1, is now under 15%, meaning that our teams continue to better manage prices through innovation and extended customer service. Efficiencies at EUR 441 million are also very high. And here, we need to insist on the efforts of our teams to continue to deploy our programs, procurement, plus innovative operations, business support centers all along the year, while learning from the new context to capitalize on more frugal ways of working. Portfolio management was pursued as well with 8 small divestitures on top of the Schülke sale and 23 bolt-on acquisition in merchants in particular in China and the U.S. and in home healthcare in Europe. We also reinforced our portfolio of technologies with 2 small acquisition, and around 10 small divestitures are ongoing as we speak. If we look now at the bottom of the P&L on Page 21. Our nonrecurring income and expenses include 2 major elements: the capital gain linked to the divestiture of Schülke, of course, but also the write-off and provision in connection with an in-depth review of our portfolio of assets. The objective of this review was to take into account the strategic inflections that we will embark into our new medium-term plan following the closure of NEOS and the COVID crisis. Exceptional COVID costs are less than EUR 50 million for the full year, plus EUR 15 million of severances. Financial expenses are down despite an exceptional one-off cost associated with the anticipated reimbursement of the remaining Airgas pre-acquisition notes. The consequence of the reduction of average cost of debt, now at 2.8%, a 20 basis point reduction to last year and to the decrease of the average debt level. The effective tax rate is particularly low due to the low tax rate applicable to the proceed of the Schülke sale. To finish with, net profit as published is up 8.6% and even 11.2% excluding the ForEx effect. On a recurring basis, meaning excluding the Airgas notes financial one-off, the Schülke divestiture, the impact of the asset review and the COVID cost, net profit is up 1.5% and 4.4% excluding ForEx, in line with our guidance. I'm now on Page 22. The quality of earnings also translates into a very strong cash flow at 24.1% of sales, another record high for Air Liquide, thanks to tight collection and inventory management as well as to some VAT deferred payments. We also have a nice improvement in the working capital requirement level. Industrial CapEx for year stand at EUR 2.6 billion, stable to last year. And the total net CapEx are, of course, lower due to less acquisition spending than last year and to the impact of the Schülke sale. We remind you also that we paid a full dividend in May 2020 as we decided to decline all of the French government-proposed subsidies. As a result, net debt at year-end is down EUR 1.7 billion with approximately EUR 1 billion decrease being linked to the ForEx and the Schülke divestiture and EUR 0.7 billion linked to the management of the operations. To be noted, and Benoît has stated it already, our gearing is back to the pre-Airgas acquisition level, meaning that we've been able to swallow the acquisition debt within 4 years. 2020 has also been characterized by a high number of investment opportunities already discussed, as shown in the 12 months portfolio, which is now reaching EUR 3.1 billion. In terms of decisions, we are pretty proud about our success rate with new contracts signed. Decision for the year accelerated in Q4 and reached EUR 3 billion with industrial decision at -- or above this level for the third consecutive year. Our backlog is increasing accordingly, and we'll deliver EUR 1 billion of additional sales after ramp-up. As a reminder, none of these figures include the Sasol project. In terms of start-ups and ramp-ups and despite the delay due to the COVID in particular in the first part of the year, we finally managed to deliver EUR 191 million, eventually not so far from the initial objective. For 2021, we expect a contribution around EUR 250 million with, on top, the additional sales resulting from the Sasol takeover in South Africa, which are estimated at the moment at EUR 100 million in a tolling mode but which depends on the actual closing date currently planned at the end of Q1. 2020 was also the last year of the NEOS plan and the time to evaluate our level of achievement before launching a new plan. However, 2020 has been a very specific year due to COVID in terms of sales evolution but also in terms of cost and investment management. And therefore, we believe it's not relevant to include 2020 numbers in the medium-term performance assessment. As a consequence, we decided to review the NEOS achievement at the end of 2019, and I'm on Page 25. Average sales growth at 6.5% was well aligned with the NEOS objective globally. And for the business lines, efficiency were over-delivered at EUR 1.1 billion over 3 years compared to an initial objective of EUR 900 million. Deleveraging was strong and recognized by Standard & Poor's by a positive outlook, while CapEx remained in the 10% to 12% range. In terms of return on capital employed, the objective is maintained, and double digit, obviously, remains our minimum target, but we realize that COVID crisis will last longer than initially expected and that we will lose more than 1 year in terms of net profit growth, while we decided nevertheless to accelerate investments in particular for energy transition. Therefore, we plan now to reach double digit in 2023, 2024 depending on the exact timing of the crisis exit. We will give you a more precise objective for the future during the 2022 Capital Market Day. Coming back to 2021, to conclude, we plan for a first half which will still be seriously impacted by the pandemic but also for a recovery in H2 while pursuing our efforts towards performance improvement and continuing to invest strongly in the markets of the future. In this context, we are confident in our ability to further increase margins and to deliver net profits. So this is what I wanted to share with you this morning. Thank you very much for your attention, and we will now open the Q&A session.

Thank you, Fabienne. So we will take the first question.

The next question comes from the line of Tom Wrigglesworth from Citigroup.

Tom Wrigglesworth from Citi. Two questions, if I may. The first question is around the recent developments and announcements you've made with regards to hydrogen, specifically the MoU with Siemens Energy. I'm kind of keen to understand in concept what Siemens is bringing versus what Air Liquide is bringing to that understanding, how that will play out in terms of commercial prospects. Will you share the economics of any projects that you participate in going forwards? And is there exclusivity? So that's kind of one set of questions. And the second one is clearly, on the outlook statement, you were talking about increasing operating margins. On Slide 19, you said you had 20 basis points of margin from kind of COVID effects. Is your assumption that those now kind of -- you kind of lose that and -- or it returns to normal and it's your structural drivers that pick up the rest of the margin improvement? Just your short thoughts there on the margin bridge.

I will take the first question and Fabienne the second. So this deal, this MoU, was announced after a few months of discussions. The situation is the following. We have all technologies, including CC, carbon capture, for all the hydrogen plants based on natural gas. We have taken a stake in Hydrogenics in North America to develop the renewable production of hydrogen. But we didn't have so far really any agreement in Europe, and Europe is the place where there are many projects. We -- they -- as you know, if we go into the details, there are several technologies on electrolyzers. And the PEM, the so-called PEM technology, proton exchange membrane, is the one that is promising because of the flexibility it gives to operate with renewable energy. So we're looking for a pretty strong partner able to bring scale for the very large-scale projects and bringing also a European base. If Air Liquide has know-how in the production and the operation, we don't have an extensive know-how in what is called the balance of plants. If you build the cells themselves, that's one thing, but an electrolyzer able to produce hydrogen reliably needs to have the balance of plant with all the electrical connections, the optimization, the consumption of energy and the like. And this is exactly what Siemens brings. We bring to the partnership, of course, our knowledge of the market, of the operations. Now you said -- are we going to share projects? Well, whenever Air Liquide has the lead to develop its own projects, of course nothing will change except that if we have a big scale based on renewable in Europe, we will naturally use the Siemens technology and the -- by the way, the technology that will be further improved together. If we are in small projects elsewhere in the world, we are free to use whatever we want. So it's not really an exclusivity. It has parts of the world and specific domains where we will be using Siemens. And of course, we think that joining forces at this point in time is important for the development of the large-scale projects. And I think this is a very promising partnership between 2 major European companies that have their own skills. And I think it will allow us to accelerate the development of clean hydrogen in particular in Europe. The second question, Fabienne, on the OIR margin.

Yes. We have tried, you've seen that in the slide, to sort out in the margin improvement what is due to our structured improvement plan and what is due to the very specific crisis cost cutting plan. We believe that there are 20 basis points in the improvement which are linked to the cost cutting that will not be sustainable over time. One example is the travel expenses, meeting costs, et cetera. When the situation comes back to normal, we will have to start again, maybe not in the same extent, but we will have to start again to make sure we maintain the cohesion of our teams worldwide. So if you start working on a bridge of the OIR-to-sales for 2021, it's obvious that we start with minus 20%. Then the performance improvement plan continues. The mutualization plans are progressively deployed, so we are very confident still in our capacity to increase margin by [Audio Gap] 2021 is now the plus 80, is the plus 60. And you should start from that to work on the future improvements. I hope this is clear.

The next question is from the line of Laurent Favre from Exane London.

It's regarding pricing. I was wondering if you could update us on pricing initiatives or campaigns in Europe and in the U.S. for this year. Have you done any? Are you planning any? And then separately within that, I think, Fabienne, you mentioned a slower impact of helium in the Q4 pricing. I think you mentioned 30 bps. I was wondering if you could talk about how you're thinking about this through 2021. Do you think that we will start to see already pressure from new capacity? Or with the recovery in IRMs and well, hopefully, parties in the summer, we could see helium tightening again.

So I will ask François to talk about the pricing environment in Europe. And Mike, if you could take U.S. but also helium because Airgas is a very strong distributor of helium in the U.S. So that will be interesting. First, François.

Thank you, Benoît. So regarding the pricing in Europe overall during the year, we have been able, in spite of the environment, to maintain reasonably good pricing. If you look at the full year, we are at 1.7% for Industrial Merchant, and we don't see really a degradation during the year. Maybe some kind of softening at the end of the year, but we stay in that kind of range. Of course, it's lower than what we have seen in the previous years. As we discussed before, this is a combined effect of the overall environment and also, to some extent, a slight decrease in the helium contribution, which was not very high anyway in Europe, but this is decreasing. What we see is our ability to maintain some positive pricing probably with a decrease during the year 2021. Of course, highly dependent on the economic situation but still in the range of 1% to 2%, probably closer to the 1% range than the upper 2%. However, we should keep in mind that this is a strong contribution. And due to the fact, again, of the cultural shift in Europe, we have launched several price increase campaign. We have a few which are planned that we will trigger when we think it's appropriate given the market situation. But again, this is, I think, relying strongly on the capacity of the team to manage the customer relationship and, at the end, to deliver value for the customer in the European environment.

Thank you. Mike?

Thanks, Benoît. Just to build on what François said, I think we saw continued strength, especially in the Americas, from a pricing standpoint throughout 2020. Recognize that before the impact of COVID, we had already embarked on a number of pricing campaigns, which played out through the entirety of the year. In addition, as we've talked about before, there was strength in helium pricing and a few other areas as well throughout the year. And as we entered the fourth quarter, we started to see the softening in helium pricing. I think the combination of some of the impacts of demand for helium, especially in the retail space, with the impacts of COVID, along with the expectation of new supply coming on, soften that pricing perspective a little bit. And we expect that trend to continue as we move into 2021. At this point, we have not announced a new pricing campaign for 2021, similar to what François said. Any campaign would be aligned with the economic circumstances in the markets as we see how things will evolve. I think the expectation, similar to what François talked about, certainly comes off the level it's been at. I'm thinking about 1% to 2% depending on the evolution in the markets and some of the key products that we sell and also any inflationary trends that we will see as things evolve as well. I think that, that will actually have an impact as we move through the year.

And maybe if I can follow up on pricing in Asia Pacific, where you've had a couple of quarters with a bit of pressure despite recovery in China. Can you maybe talk about the dynamics between China and the rest of Asia?

So I think in terms of Asia itself, I think pricing has been mitigated to some extent. As you know, the impact of COVID in Asia has been a little bit disjointed as you look at the impact in various countries. I think from a merchant standpoint, we see the very strong recovery in China. And I think in the rest of Asia, especially in Japan and Singapore, in the merchant business, it's still been fairly soft. So I think that the pricing fundamentals are a bit different there. There is, though, another key element, especially in China. There is a very strong comparator in pricing going back to the latter half of 2019, where there was shortage in argon, which drove pricing up significantly, which, once that equilibrated with the supply situation returning and meeting demand needs, that, that equilibrated more to a normal level. So I think you'll see a similar trend in Asia as we go through the year that we saw in 2020. I think the key there will be the full recovery of the merchant business to begin with in all sectors, and then the strength of the evolution of those markets as we move through 2021.

The next question comes from the line of Martin Roediger from Kepler Cheuvreux.

I have questions on Healthcare. I see that Healthcare, especially Europe, performed rather well. Would you agree that the demand for medical gases for COVID-19 patients overcompensated the demand for hospital gases for ordinary surgeries? So in other words, was Healthcare a net beneficiary of the COVID-19 pandemic? And as a follow-up to Healthcare, you mentioned in one of your slides an acceleration of value-based offering -- offers. Does this have also a positive effect on selling prices in Healthcare? Or did you benefit from mix effects?

Well, I think this question is very much linked to Europe. And François, you can easily take it.

Thank you, Benoît. If I speak for the world first. Overall, Healthcare indeed had a very strong performance and -- because we were more than 8% growth overall. And within that, Europe was close to 10%. Europe has benefited indeed from a very strong demand for oxygen to treat the COVID patient. That was true in the first wave but even more so in the second wave as we have seen the development of the high-flow therapy, with a very strong demand for hospitals which we're treating COVID patients. So this has clearly contributed to the strength of med gas. You'll remember that med gas typically in Europe is flat or growing at 1% or 2%. In Southern part of Europe, for example, we were above 7% growth for the full year. So yes, it has compensated for those countries the drop in the classical oxygen demand for the hospital. However, if you move to other geographies, it's -- could be different. Overall for the Americas, the med gas demands was very strong and actually extremely strong in Latin America, in Brazil, especially, but this is true also in Canada, for example. And that, again, has highly compensated the drop of the oxygen in the hospital. However, in Asia, we have seen overall a negative impact on the medical oxygen because oxygen was not a generally used therapy to treat the COVID patients, and we have less patients going to the hospital and requiring oxygen. So overall, the growth of med gas -- oxygen and med gas in Asia was negative. Finally, if you look at Middle East and India, the growth was very, very strong and it still is today as we speak with a larger demand for medical oxygen. And in this case, we are talking about doubling or tripling the oxygen consumption for those countries. If now we talk about the value-based offer that you mentioned for home care, this is clearly a strategic direction that we are developing where we are adding value to the service we are providing to the patients but also to the payers, using and leveraging services and digital capabilities and transforming also the model where the payment, the reimbursement, is based on the outcome, not just on performing the service. This is getting a lot of traction, and that has been actually accelerated in the COVID environment where the classical services requiring physical presence were less possible in many geographies and boosted, I mean, the digital capabilities and the value of the remote services. So that's the direction which, especially in -- the most advanced countries in Western Europe especially is developing, and we enjoy a strong market position on those segments.

The next question comes from the line of Charlie Webb from Morgan Stanley.

Just one follow-up on the margins and one on Electronics. So just on the margins, Fabienne, can you just help clarify your earlier comments? Is it -- or am I right to understand that you're suggesting that the kind of core business, the underlying business, continues to deliver some sort of 50 basis points, 60 basis points of underlying margin improvement driven by the structural savings, the pricing and the portfolio and then we just net out that 20 basis points of temporary savings? Is that the right way to think about it? And then on Electronics, just obviously, a decent end to the year. Just if you could update us on the current trends you see as we head into 2021. Do you expect the strong demand you're seeing for carrier gases to continue and advanced materials into 2021? And where is the book-to-build as we think about E&I? Because obviously, that can be a bit more volatile. Just wondering where we are today on that as we look into 2021. That'd be great.

Okay. So Fabienne first. And Mike, can you take the second one? So first?

Yes. It's exactly what we are trying to tell you. The underlying improvement for 2020 is around 60 basis points, same as what we delivered in 2019 actually. So it's a very good performance in a crisis environment. And then we have 20 basis points, which is temporary, driven by the containment plan, and that is not sustainable over time. So your understanding is definitely the right one.

That, I think, clarifies the margin ratio point. Mike, what are the trends in the Electronics segment, particularly carrier gases and E&I?

Sure. I think that we went into 2020 with a clear expectation of continued growth from a digital perspective. And that was really expected to be driven by things like 5G introduction, further development of the Internet of Things and big data, artificial intelligence, augmented and virtual reality. And all of those trends were clearly evident as we moved through 2020 even despite the impact of COVID. On top of that, with the rapid evolution to a work-from-home-type environment that was driven by the impact of COVID, we also saw a significant increase in terms of demand for personal computers as well as for servers to manage data in the cloud. As a result, I think what we saw over the course of the year were PCs and servers were up 7% to 8%, internet of Things was up 20%, and the numbers for big data and artificial intelligence were up 40% and 50%. And I think that those drivers continue as we move forward into 2021 and beyond, and we saw in our own numbers. Fabienne already had explained the strength in the Electronics business over the year. Not only did we see very, very strong activity levels, especially in carrier gases and advanced materials, but aligned with that increase in the production for integrated circuits, we saw a very high level of business development. And Fabienne and Benoît referred to that already in their comments. So we not only see, I would say, the strength in activity levels as we move from 2020 into 2021 and beyond, but a significant uptick in terms of the level of announcements of new fabs to meet some of this demand and some of the things that will evolve. And in addition to that, towards the end of the year, a clear increase in what had been a soft environment for E&I as the book-to-bill ratio has gone back up to 1.4, which, in some respects, signifies that for some of the companies, they are now accelerating the buildout of the fabs that have already been constructed to go ahead and now fit them with equipment and get those facilities up and running. So I think you're going to continue to see those trends into 2021 and beyond, without a doubt. I think in the advanced materials space, the numbers were very strong throughout the year. As a matter of fact, over the last year, there was a very significant uptick in the demand for advanced materials, probably a little bit more than what the market actually showed in terms of production. And I think as we were in the midst of the fourth quarter of 2019, many of our customers that were about to start up new fabs built inventory in respect to go ahead and prepare for that. And then I think as things evolve with COVID, there was a concern among customers in their value chains and supply chains in general. And I think that they not only bought what they needed to go ahead and maintain a very high activity level but also to provide a bit of a cushion from an inventory standpoint. So I expect things will be reflecting that as we go through the coming quarters, but the very, very strong demand, I think, for digitization and next-gen technology is very pronounced, and it'll be very, very strong and continue to show that both with carrier gas investment and advanced materials as we move forward.

That's really helpful. Just trying to clarify one thing on that. So obviously, we're seeing and hearing about some shortages in the semi industry, most notably, I guess, on automotive. Are you -- do you expect that book-to-bill on E&I that's at 1.4, do you expect that to continue to trend higher as we move into the first part of the year? Is that the sense you're seeing in terms of new Capex, new projects?

So I think there's 2 elements there. I think in terms of automotive, it's a bit of a different dynamic there. Recognize that automotive and industrial applications declined significantly for Electronics in the first half of the year. I mean obviously, we all saw what happened in the manufacturing space as a result of COVID. And I think what happened there was with that decline and, at the same time, that significant uptick in demand for PCs and servers, some of the analog and OSD manufacturers, that's opto, sensor and discretes, that serve both the automotive and industrial space were running foundries where they can shift production to some of the growth markets. And I think one of the things we've seen is automotive recovered very rapidly, probably more rapidly than expected, but that production that it shifted was already committed for the short term. And I expect that to resolve itself. And I think you will see the supply evolve to go ahead and meet demand everywhere and especially as we start to see further business development. In terms of book-to-bill, I think it's just a signification of where we are. Equipment needs to follow capital investment in the fabs themselves. So I think what we're seeing right now is an uptick, recognizing the number of fabs that are already built or about to be completed. And I think then this next generation of fabs that are already announced and committed will then follow with additional E&I, but it's got to follow that sequentially.

Fabienne, you wanted to add something on the E&I, maybe just a word?

Yes. No, I just wanted to remind that usually, book-to-bill takes 2 quarters to materialize into sales and that E&I were pretty high in Q1 2019 -- 2020, sorry, just for your models.

Next question comes from the line of Tony Jones from Redburn.

I've got 2 left. Firstly on refining. It looks like it continues to still be fairly weak. Could you update us based on your customer discussions, how that's going, particularly the U.S. and the Middle East? And then coming back to the partnerships that you set up in Europe and Americas for electrolyzers, how are you thinking about Asia? And are you exploring any arrangements with some of the low-cost Chinese producers?

The refining -- I mean, if you are interested in understanding what is happening more in detail in North America and Middle East, I'll ask both Mike and François to answer. But it is clear that refining suffered because of a lack of mobility last year due to COVID, and that's more a temporary situation. It's also clear, but we know that by heart, that the price of oil has an influence on how this refining sector is doing. But I'll make a more global comment. It is also obvious that last year was a sort of awareness by the oil and gas sector of the fact that the mix of the future in terms of energy is going to be different. And we've seen a lot of them starting thinking about how to adapt their assets to the new mix. And just as a comment, I would like to say that going from the situation we have today where the -- most of them are self-producing their hydrogen based on natural gas, we'll see, as we go, a shift towards cleaner production of hydrogen, outsourcing and carbon capture. So the refining sector is suffering from the temporary situation. But also, it has to undergo a significant transformation. It is highly visible in Europe. It is not yet visible with the same intensity in the U.S. And Asia in any case is in a different situation because there's not a lot of oil there. And so the question is, do they import oil forever or do they import clean products or cleaner products in the future? But I think it's interesting to just think about the refining in the oil and gas industry as an industry that will be deeply transformed in the years to come. Stop here, and I hand over to François and then Mike. François on Middle East and Mike on U.S.

Thank you, Benoît. So indeed for the Middle East, we have seen clearly in 2020 a pause in the overall activity in refining. First, a drop in the loading rate of the refineries both to meet the drop in the local demand but more important also to cope with the decrease in the export requirement both for gasoline, diesel and very much for jet fuels. We have seen also during the year a pause in the projects which were contemplated in the region. But clearly, the things are changing, and we see in the past few months at the end of the year and beginning of this year really the activity picking up again, to some extent the loading rate but it's more moderate, but clearly the projects, with a new dimension, as mentioned by Benoît: the carbon view and the carbon management view, which is a topic which was not so much present before but which is gaining momentum. So clearly, we see that we are probably at the beginning of also a shift in term of strategy for the refiners in the Middle East.