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

Good morning, ladies and gentlemen, and welcome to the Air Liquide Q1 2022 Revenue Conference Call. [Operator Instructions] I will now hand over to the Air Liquide. Please begin your meeting. They will be standing by.

Good morning, everyone. This is Aude Rodriguez, Head of Investor Relations. Thank you very much for attending the call today. Francois Jackow, Jerome Pelletan and Mike Graff will present the first quarter revenue and answer your questions. In the agenda, after the AGM next week, our next announcement is on July 27 for our half year 2023 results. Let me now hand you over to Francois.

Thank you very much, Aude, and good morning, everyone. It is my pleasure to be with you today and to share the highlights of the first quarter of 2023. As you can see on Slide 3, Q1 was a very strong start to the year with group comparable sales at plus 6% and even close to plus 7% for Gas & Services, so much above Q4 last year. Indeed, in Industrial Merchant, we continue to benefit from an effective pricing management plus 13% for Q1 in still an inflationary environment, while volumes turned globally positive. In spite of the semicon industry trends, we maintain also a double-digit sales growth in Electronics after a very strong performance last year. Healthcare is back as a strong growth driver in Q1 with sales up close to plus 8%. And Large Industries recovered significantly with sequential improvement in Europe and confirm our previous view that volumes bottomed out in Q4 last year. In terms of performance, cash flow is also very solid, progressing by a strong plus 12% compared to last year. To be noted that at EUR 91 million, efficiencies are also 18% above last year, which again demonstrates our focus on execution and performance. So you see overall a lot of positives in the execution and delivery in Q1. Considering the outlook only 3 months ago, our teams did an outstanding job delivering strong gains in a challenging environment. This is great. No question, but of course, only 1 quarter out of 4. So in the months to come, we will remain focused on cost and execution and keep the same discipline and determination as we must be prepared through the softening of this growth momentum over the rest of the year occurs. So to keep it short, a very strong start of the year, both in terms of top line growth and performance. Lastly, the investment backlog remains high at EUR 3.5 billion despite several start-ups this quarter, providing a very solid foundation for future growth. Beyond the performance, which remains the key focus of the group, I would like now to turn to Page 4 to outline some of the new developments in energy transition during Q1, which was again very active. Regarding decarbonization of our own assets and one of our customers, first, in the context of the renewal of a long-term contract, we will invest EUR 60 million in the electrification of 2 air separation units in China that were previously running on steam produce from coal. This alone will reduce CO2 emission by 370,000 tons per year of CO2. Also, in South Africa, together with Sasol, we have contracted a series of PPAs for a total of 480 megawatts of renewable electricity to supply the Secunda site. The expected impact for Air Liquide is an annual decrease of more than 850,000 tons of CO2 emissions. In Q1, our advanced technologies and innovation were also selected by customers to decarbonize their own assets. As an illustration, Verallia choose Air Liquide's oxy-combustion solution and signed a long-term contract, allowing them to reduce energy consumption and CO2 emissions by close to minus 20%. So going in the hydrogen value chain, we made 2 major announcements. First, upstream, the construction of an industrial-scale pilot plant for ammonia cracking into hydrogen in the port of Antwerp. If and when low carbon ammonia becomes widely available, we want to be ready to use it as an alternative low carbon source of hydrogen. Then downstream, we are creating a joint venture with TotalEnergies to develop a network of more than 100 hydrogen stations for heavy-duty vehicles on major European road corridors. The objective is, of course to accelerate and scale up the development of hydrogen mobility. All these developments and our performance this quarter show that we are well on track in our advanced plan, which is delivering performance today in a variety of environments and preparing the future. I stop here and ask Jerome to present our financial performance in more details. Jerome, please.

Thank you, Francois, and good morning, everyone. So we'll now review our key figures in Slide 6. So as we said, group comparable sales have been strong in Q1; Gas & Services sales for the quarter have indeed shown a strong plus 6.7% increase versus last year, following a Q4 2022 at plus 4.5%, so a good sequential improvement. Engineering & Construction sales have decreased by minus 19% compared to a high base last year. Order intake has increased up plus 39% to EUR 366 million year-to-date with third-party sales representing above half of this. Global Markets & Technologies are up plus 3%, impacted by small divestiture with significant order intake at plus 12%. So overall, group sales are plus 6.2% on a comparable basis, while published sales are increasing at plus 4.2%. Impacting by energy effect turning at minus 2% with a limited significant scope effect of plus 0.1% and a ForEx effect of minus 0.1%. I'm now on Page 7. So all geographies are posting strong performance for the quarter to reach a plus 6.7% comparable growth for Gas & Services sales. So as we can see, the strong growth is driven by both Industrial Merchant and Electronics business line like in Q4 2022 also by an accelerating healthcare activity with a sequentially improving large industry compared to Q4. This highlights one more time the value of our global development strategy, capitalizing on the complementarity and right balance among our different business lines and geographies. I'm now on Slide 8 to comment our activity by geography. I will start with the Americas. We saw continued strength in the Americas at plus 9%, with a strong contribution of Merchant and Healthcare activities. Activity in large industry has been soft in Q1, impacted by turnaround in Mexico and in hydrogen in the U.S. On the positive side, the chemical activity has improved during the quarter and oxygen volumes are sequentially increasing in the Gulf Coast. Merchant sales has been very strong in Q1, driven by high pricing at plus 10%. On the volume standpoint, those were back to positive trends at plus 3% versus last year, driven by hardgoods, bulk and packaged gases, sustained by better demand, notably in fabrication and energy sectors. Healthcare sales have accelerated at plus 11%, supported by a price increase in proximity care in the U.S. with a good level of home care activity in Canada, especially in sleep apnea and Latin America. In Electronics, sales have been stable, sales in Equipment & Installation and Carrier Gas were strong, balancing software activity in Advanced Materials. Europe is back to a robust growth in Q1, boosted by Industrial Merchant and strong Healthcare with Large Industry progressively recovering. Large Industry sales are still negative at minus 4% on a year-on-year basis, but with strong sequential improvement after a very low Q4 2022. In the context of energy price decrease, Q1 demand in Large Industry has improved, especially in chemical and refining, where hydrogen volumes have recovered strongly, including in Germany and Benelux. Sales have also benefited from a start-up in Poland. In Merchant now, sales growth have been exceptionally high, sustained by the strong pricing close to plus 22%. Volumes that have been resilient all over 2022 have resisted again in Q1 2023 with growth in packaged gases, and this despite the liquid CO2 crisis in the U.K., supported by recovering automotive markets. Finally, Healthcare sales have gone up significantly, sustained by Home Healthcare sales, thanks to the development in diabetes and sleep apnea. Medical gases sales have also been strong, supported by price increase in the context of high inflation. Specialty Ingredients have been again dynamic. On Slide 9 now. Sales in APAC have been strong, sustained by Electronics in the region and by pricing in Industrial Merchant. In Large Industries, sales and volume remained impacted by low demand, notably in steel in Japan and Chemicals overall. Sales have also been impacted by customer air gases turnaround units, not only one in China that may last over the rest of the year. In Merchant, we have seen very strong growth of plus 11%. Volumes in China recovered in March after the beginning of the year impacted by another COVID-19 wave and Chinese New Year. Volumes are progressing in automotive, energy and food industry. Pricing in APAC has increased strongly at plus 10% -- plus 10%, sorry, with improvement since in all countries. Finally, Electronics sales are still very strong and above 10%. Carrier Gases, Specialty Materials, Equipment & Installations are progressing with double-digit growth. Sales are supported by Carrier Gases units ramp up and helium volume with high price. Growth has been strong in all countries, especially in China and in Singapore. Finally, growth in Africa and the Middle East is also robust on a comparable basis, especially in Large Industry and Healthcare. In Large Industries, sales have grown fast in air gases notably in Egypt and in South Africa. Merchant growth is solid, sustained by positive volume and plus 8% pricing effect that nearly offset the 2 small divestiture in Merchant in the Middle East done in 2022. Finally, Home Healthcare growth is supported by diabetes in Saudi Arabia and a small acquisition in South Africa. When we look at the activity by business line, and I am now on Page 10, we can see that, in Merchant first, we have seen continued strong growth. The very good point is that pricing has continued to stay strong at plus 10% overall in Q1 to address inflation. The other good news is that volumes have turned back to positive in all regions now. So overall, our end markets are well-oriented, notably automotive, fabrication, energy and technology, where we have seen robust volumes. In Large Industry, we have seen improving demand, especially in Europe after a low Q4 2022 in the context of reduced energy price and less volatility. Activity in the U.S. and Asia has been impacted by turnarounds. However, we are seeing solid positive contribution for start-up and ramp-up in Q1. By markets, while refunding has been mixed and still low, chemicals have improved notably in Europe and in the Americas. On Page 11, Electronic growth has again been robust on top of a high Q1 basis last year and after a strong Q4 2022. The activity has been supported by strong activity in Carrier Gases that benefited from ramp-ups, mainly in China and helium prices. Specialty Materials have been strong in Japan and Singapore with good pricing as well. Finally, Equipment & Installation were high in all regions. Healthcare has accelerated its growth versus last year after a good Q4, and this growth is well balanced between Home Healthcare and Medical Gases. I mean, we have seen high Medical Gases activity in all regions, especially in the U.S. and overall pricing increase versus Q1 2022. Home Healthcare has been strong, supported by sleep apnea in Canada and Europe, and we see pursued momentum in diabetes. On Page 12, we focus on margin improvement program initiative in a still very challenging inflationary environment, as you know. First component, high-end pricing has still been very strong at close to plus 13%, despite a high comparison basis in Q1 last year. I will come back in more detail on the next slide. Our efficiencies have delivered EUR 91 million in Q1, plus 18% versus Q1 2022 in a still challenging context due to inflation. Industrial efficiencies are rebounding and are expecting to ramp up progressively during the year as some project launch at the beginning of the year will deliver in a few months. In addition, our teams in procurement are focused on avoiding or passing through record inflation on our cost base, which is not visible in the efficiency, but still is a part of the performance in [indiscernible]. Finally, we have pursued our portfolio management strategy by executing 2 acquisitions in IM. We also announced one divestiture in large industry in Trinidad. On sustainability, the deployment of our decarbonization and ESG road map is progressing well. We indeed disclosed our new Scope 3 emissions objective, commitments in biodiversity, and new power purchase agreement in South Africa in Q1. So globally, we achieved a strong plus 10% of cash flow growth compared to last year, excluding FX and one exceptional indemnity payment received in Q1. As you can see on Page 13, our pricing actions in merchant have been, again, very impactful. Pricing efficiency has been well supported by smart pricing management, which is fully delivering now in all geographies. In this steel inflationary environment, pricing has benefited from a positive time lag effect and adapted energy indexation that contributed to the strong pricing this quarter. On Page 14, our 12 months portfolio of opportunity is still growing up to a very high level of EUR 3.4 billion. Over 40% of our portfolio is supported by energy transition projects that were located in Europe, but from now on, are benefiting from the U.S. Inflation Reduction Act momentum. Industrial and financial decision for the quarter averaged EUR 0.8 billion, boosted by new ASU projects in Europe, 1 carrier gas project in the U.S. and 5 on-site units in China. Finally, our investment backlog is [Technical Difficulty] representing EUR 1.3 billion of additional sales after full ramp-up. This backlog is well balanced and diversified between Large Industry and Electronics project, fully aligned with our advanced investment road map. It also includes a large number of energy transition projects under advanced discussion. On Page 15 now, start-up and ramp-up contribution averaged EUR 66 million in Q1. So for 2022, we confirm that the full year contribution should be in the range of EUR 300 million to EUR 330 million. To conclude on the basis of our very solid performance in Q1 2023, we are confident and we confirm our guidance for this year. I thank you for your attention.

Thank you very much, Jerome. So now we open the call for questions.

[Operator Instructions] The first question from Andrew Stott from UBS.

I had a couple, please. First one is on pricing, standout performance in Europe at 22% against roughly 10% in rest of the world. Can you just detail that in across geographies, across markets within Europe? Give us a sense of why there's that big gap between Europe and the rest of the world? Is it only due to energy component? Or are there other initiatives that are going on within the group? So that's the first question. Second one is pretty straightforward. I just wonder what you're seeing in the U.S. business right now, lot of data pointing to us a much softer U.S. economy. Just wondering particularly what your hard goods and cylinder businesses are seeing.

So let's talk about pricing. So as you have seen, pricing overall is strong in all the regions of the world and is especially strong in Europe. This is due to several factors. I think overall, we still are in an inflationary environment, which basically is supporting proactive pricing in the packaged gas, but also bulk indexation, as we discussed before. And what we have seen in Q1 is basically, I would say, harvesting the fruits of what we have done in the last year. Taking into account that clearly, I mean, the very strong and systematic contractual energy indexation that we have put in place is working and producing its effect. We see that indeed, energy price, the spot price is decreasing, but you have to keep in mind that the indices and the way we purchase and source energy is a mix of spot and forward pricing. So it does not fully reflect, I mean, the full scope of the decrease of the current energy prices in Europe. So clearly, you see that there is a time lag, which is helping overall, I mean, the pricing, in Europe, but in all the region of the world, I mean we continue our systematic also effort, I would say, in terms of smart pricing, making sure that we value fully, I mean, what we deliver to the customer and our teams are fully mobilized on that. When you go one level deeper in Europe, you see clearly that the bulk pricing is still very strong. Keep in mind that this is the one which is the most related with the energy prices. So as we will see and we'll continue to see hopefully energy prices going down, you will see some impact on the pricing, at least on the energy part on the bulk. But for the packaged gas, I would say the pricing is much more sticky relative to the energy prices because the energy component is much smaller. I think overall, I mean, the same trend applies to the other regions of the world. Air gas is still very active on the pricing, both in terms of price campaign. We have completed 1 in March this year, and we will continue our systematic review of our portfolio. This is true also for Asia and especially China where we have seen also positive pricing. So you see all in all, inflationary environment, of course, impact of energy, but all the systematic work that we have done on the structure of the pricing in Industrial Merchant is paying off and you see the results. Mike, do you want to comment on the U.S. overall situation and what we see?

Sure. Good to talk to everyone today. Specific to the U.S., we actually saw in the first quarter, clear strength and sequential growth on the Gulf Coast for large industries, as Jerome already pointed out. We had a number of turnarounds in the U.S. for the HyCO facilities, and there was softness in refining and metals as a result. But clear strength in chemicals clear growth in volumes for oxygen supporting chemicals. And then I think really specifically, ethylene oxide, which had been very, very soft in prior quarters began to come back as well. So we continue to see that strengthen. Specific to the merchant business in the quarter, we saw strength in pricing and volumes across all segments of the business. But very specifically, in the industrial side, if we look at manufacturing, metal fabrication and construction, there was strong growth in volumes, both from a hardgoods standpoint as well as in gas. And as we move to the second quarter and beyond, there's no doubt, Andrew, that we see a bit of a softening in the general indicators for manufacturing where some of those indicators have fallen below the 50% mark. At the same time for manufacturing, we are at a place where finished goods inventories for manufactured goods are very, very slim. So there's not a lot of buffer there as we look forward. In addition to that, we actually see continuing strength and growth in demand for tools, which is a good leading indicator for metal fabrication. We see a lot of strength and growth in any type of automated fabrication facilities. So for any one of the segments we have, there's a real demand for automation. And as a result, we see growth in that sector. And then finally, construction continues to be very, very strong, recognized when we talked about this before, whether it's the new semiconductor fabs that have been announced, whether it's LNG, whether it is growth in some of the chemical sectors where they are now rejuvenating some of the projects they had in plans or with the energy transition and the significant growth for renewables, for low carbon, even for battery manufacturer, all of this contributes. And just to put a mark around this, in the last 18 months, looking at the start of 2022 through where we are today, are roughly $2 trillion in new construction projects have been announced in the U.S.

The next question is from Alex Jones from Bank of America.

2, if I can. First, on the policy backdrop. So you mentioned how the IRA is starting to accelerate investment opportunities. Could you talk a little bit about what you're seeing in Europe and the Net-Zero Industry Act and the ongoing momentum has that translated into increased interest from customers? Or do they need to see more from policymakers to be confident? And then the second question, just on Electronics. You mentioned some softness in Advanced Materials in the U.S. Could you expand a bit on that and what you expect to see going forward given the sort of softness in the semiconductor end market currently?

So first question on Europe and what we see today. Overall, I would say that the energy transition projects in Europe are progressing well, very well, indeed. It's probably due to some external events, I would say, which are pushing the customer to make decisions and to actually accelerate projects. You've got the ETS on the carbon tax, which now is well established in the EUR 90, EUR 100 per ton range. We see also, I mean, a new decision to extend and to confirm the extension of the scope for ETS, driving some new segment in the industry to take position. We see also that there has been a lot of activities, including in the past few days, but the clarification of the rules for the hydrogen for the RFNBO regulation, the Rate 2, the Rate 3, still not everything is settled yet, but we see clearly an acceleration in those decisions, which is providing clarity for the -- for our customers. We see also that there is a strong push both at the European level and country by country for renewable and also the recognition of the role of nuclear, which is clarifying the situation. And again, making energy option more available and also more affordable. And I would say that, clearly, the IRA had -- I would say, positive effect in terms of momentum, and that was really a stimulus for many decision maker to accelerate the decision in Europe. So a good momentum going overall in the right decision. And projects, we have to keep in mind are, for many of them well advanced, several of the projects we are working on are targeting the 2025, 2026 startup with subsidies being already awarded. So of course, we have been talking a lot about IRA recently. Keep in mind that all the rules of the IRA are not set yet, they should come in the next few months. And when you look at the projects, I mean, many of those projects are only for start-up in 2027, 2028. So again, there has been a lot of focus on the IRA, but things are moving and moving overall in the right direction, I would say, in Europe. So that's for the situation in Europe, maybe Electronics, Mike?

Specific to Electronics, as you saw and Jerome spoke to, we saw double-digit growth in the quarter against the backdrop of everything we have seen in terms of the decline in the market and the softness in the market for semiconductors. I think that translates well into the reality of what we see in terms of the materials business. Logic demand softened a bit, but was fairly resilient as the demand for cloud computing servers, advanced computing technologies continue to be resilient or grow. The real decline in demand has to do with personal devices. It's about laptops, it's about tablets. It's about mobile phones. And as a result, there was some softening in demand for logic and probably an even more pronounced softening for memory, where you not only saw a softening in demand, but there was also destocking that occurred through the supply chain. Where we sit today, and you've probably seen in the last 3 or 4 weeks, while still the expectation is that 2022 will be soft in terms of semiconductors, there's actually improving forecasts as we look towards the second half of the year and certainly expectations that 2024 will be truly back onto a growth trajectory. So how this translates into when the recovery will occur is still a question mark, but it appears that we may have hit bottom or very close to bottom and things are starting to plateau. What we do know is that all of the semiconductor companies continue to announce new investments, new fabs. And that will clearly drive the growth and the expectations for the future, and we expect to see that recovery begin towards the end of this year and certainly into next year.

So indeed, we do expect Q2 for electronics to be still soft. But as you mentioned, I mean, the outlook for the rest of the year is much more positive than what was [Technical Difficulty]

Exactly.

The next question from Andreas Heine from Stifel.

I'd like to understand a little bit more the pricing in Industrial Merchants. This acceleration obviously is driven by the inflation trend you said, but quite a high portion is also the energy, especially in the merchant part. When that reverses, is it possible that pricing in IM can turn negative, for example, going into next year? Or is the part of not energy-related price increase is so strong that, that never will happen. And related to this strong price increase, is it fair to assume that if you look on what you have on the agenda is margin increase on average per year that this year 2023, given the success in the IM pricing, will be margin-wise show a stronger increase than the average target? And lastly, could you elaborate a little bit more on the pricing environment in Healthcare? Was it one step increase to offset the higher energy costs in last year? Or has the price environment in general change?

Thank you very much. So a few questions there. On the pricing, I will come back to the pricing for Industrial Merchant. Yes, indeed, as I already mentioned, I mean, the energy component is one component. But as we said before, we did a lot of efforts not only to cope with the exceptional increase in the energy, but also to structurally make sure that we have the proper indices to deal with the energy. As a matter of fact, if I'm taking Europe, we are removing and we have almost all the energy surcharges into our bulk contract. And we have transformed basically the contract to include the energy component fully into the contract. So you see that structurally, we have improved a lot of our contracts, not relying on the exceptional energy surcharges. So that should provide some stability in the pricing, taking into account that you know very well, energy is a large component in the bulk business, liquid CO2, for example, but also [indiscernible]. So as energy will decrease over time, as I mentioned, between the mix of sourcing between the spot and the forward sourcing that we have, depending on the country, we do expect the price, the energy component of the price to decrease. You may see some exceptional situation where maybe actually, you see a negative decrease in the pricing. But all in all, I would say that reflects only the cost, but the energy cost. I think what is very important is, structurally, we are very strong, both in packaged gas and in bulk business to maintain and to sustain all the other part of the inflation, which is taken into account in the pricing. So we do not expect at all these non-energy-related elements to decrease. We will maintain them, and they will continue to reflect the cost. So we are quite confident about the solidity of the pricing. This is true in Europe because the energy component was very strong, but it's the same in the U.S., for example, or in other parts of the world. So all in all, you see that that's good news in terms of margin and profitability. For the specific comment on those, you have to wait for the H1 announcement, of course, but you see already some positive elements. Now talking about the pricing for healthcare, clearly, that's something which is extremely positive. And I was just looking yesterday at the whole list of countries, and we see positive pricing in all the countries, where we have healthcare activity. I should say that for the past 10 years, I've never seen that. So that's a good sign. And this is true both for the home care activity and especially true for the med-gas activity. And as you know, well that given the structure of this business, we had contracts which we're providing for indexation when we were dealing with private hospitals and clinics in most of the countries of the world. But in many countries, when you are dealing with a public hospital, you could not include any kind of indexation or revision of the price. We have managed to actually come back to all the payers and to renegotiate that to apply whenever it's required some kind of surcharges to reflect the cost, but also to include in the current new tender and new bid provision for indexation or at least to reflect properly the cost of energy. I was in Spain last week, and that's just one example, where all the tenders and all the new contracts have been transformed. And today, they take into account, I mean, this kind of situation, so very strong pricing in med-gas overall, strong in Europe, very strong in our guess. Overall, it's 10% pricing for the med-gas globally. Next question, please?

The next question from Peter Clark for SGC.

I don't doubt your margin progression. But I'm just wondering on the pricing again, particularly in the Americas. On my calculation, it looks like sequentially, you were about flattish, certainly when comparing against 2020 pricing. So effectively on that, I'm just wondering where we go? And because I heard the comment that you had actually put a campaign in March, again, so I presume it's pretty selective. But just checking that sort of analysis is right that in the Americas already the IM price on a sequential basis again, Q4 is roughly flattish?

Peter, I will let Mike answer specifically on the U.S. Mike?

No. I think, Peter, we've continued to be able to go ahead and drive price. You saw that in the Airgas numbers with double-digit pricing. The effect is not only across, I would say, the general pricing in itself, but we've continued to go ahead and have a very surgical view given the underlying inflationary trends to go ahead and drive price in core sectors. If I look at volume growth as well, it underpins the ability to go ahead and continue to push price that we saw in the first quarter while retaining volume growth. So we've been able to go ahead and continue that. I think that the intent is, obviously, with the underlying inflationary prices is the energy softness that we see evolves to go ahead and recognize our other inflationary trends and to leverage that into our pricing. But that will be continuing as we move through the year.

The next question from Charlie Webb.

Sorry, we're going to follow-up again a little bit on pricing, but maybe some slightly different angle to it. Just in terms of the pricing we've seen, I mean, can you help us understand across the board, I guess, in electronics as well, but obviously more so in merchant. How has been got the helium and rare earth gas kind of price effects, while we have this quite specific tightness in the market currently from supply availability? Just kind of what does that impact currently? And what do you expect for this year? When do you expect, if at all, for some relief there? And then maybe just second question, a little bit kind of back to Andrew's question around your pricing. How does your pricing compare to pace now? Has some of this pricing being a catch up to where peers have been? Or has this been very much a cohesive in line kind of industry price push? Just trying to gauge that and is everyone still very much on the same course?

Charlie, thank you very much. So indeed, we are focusing on pricing. We do understand this is a key topic and key contributor. So maybe to zoom in on helium situation, overall, you know that the helium supply is quite tight overall with the demand, which remained strong, both in IM and in Electronics. I will let Mike comment a little bit on the electronics, both in terms of volume and pricing. And overall, we see a very strong pricing for the helium across the board. This is true in all the regions and all the segments. We are sometime allocating volumes and it's also an opportunity for us to rebalance our portfolio in terms of application, in terms of spot contract or spot volume and also mid- and long-term contract. Overall, I mean, the pricing contribution to the IM pricing is still quite limited. It's in the range of 1% overall, a little bit more between 1% and 2% no more than that. So you see that it's a small contribution. It's a positive contribution, but it does not undermine at all the rest of the pricing for the bulk and especially the packaged gas. Mike, do you want to talk a little bit about helium for electronics?

Yes. So just briefly, I mean, I think clearly, with pricing, carrier gases follow a similar structural large industries. And when we look at the rest of electronics pricing, it's a lot of it right now is driven in the specialty materials looking at helium and other rare gases. And as we sit, I think helium accounts for roughly 1/3 of the pricing today. So I think that combination between helium and rare gases are really driving the price today?

Regarding your question about how do we stand compared to our competitors I think overall, what is driving us is to make sure that we reflect our cost, but I think also very importantly that we continue to deliver value to our customers and we differentiate ourselves. And as a matter of fact, this is a great time to do that. I was in the U.S. a few weeks ago visiting our Alpek, an application center. And clearly, we are overwhelmed by request from customers being in the metal fab application, in the food freezing application, in the combustion application. And that's really what is making the difference. So I think we should not stick on the pure pricing because I think long-term, it's too dangerous. We know that it's not something that would be solid enough. The way we are going to win in this business is to make sure that we deliver value and key application, especially in this time, now when our customers are facing challenges is really a key differentiator, and I think a very strong point for Air Liquide. Yes, go ahead.

I was going to say one last really quick follow-up. If we do get more meaningful deflation through the back half of the year, and I know maybe we're not seeing that fully yet. But if we do get that meaningful deflation, are you very confident then perhaps you accelerate that margin trajectory?

If we get more inflation or less inflation…

Deflation -- more deflation.

Deflation? Okay. Well, I think if we get the deflation again, we have -- we had, I would say, a solid and resilient business model. I think over the year 2022 and the past few months, we have made it even stronger. As I mentioned, we have reviewed systematically all our bulk customers, for example. We have worked really on all the packaged gas customer and pricing strategy and approach and so on. So I think overall, that if there is deflation, we will basically reflect the cost, but we will maintain basically the margin in absolute value. And you know very well that any kind of deflation, especially on the energy is going to improve drastically the margin ratio because there was a dilution of all the margin, especially in IM, where we do not reflect and we do not take into account for the energy impact, which is only taken care of and reported in large industry. So that will have a strong boost on the margin for sure.

And the next question from Chetan Udeshi from JPMorgan.

I just -- I wanted to come back to Mike's comments previously because I'm a bit confused because on one hand, Mike said some of the indicators have fallen below 50%, which we can also see. But then I'm not really sure if that's translating into weaker volumes in IM or not? Because it seemed like, Mike was suggesting things are actually not so bad because of construction and whatnot. So I'm just wanting to understand what do you see in general in terms of IM volumes, both in Europe and -- both in Europe and U.S. at this point?

Chetan, maybe I will let Mike comment on the U.S. part or the Americas, and I'll come back if needed on the rest.

Chetan, just to be clear, we've continued to see good volumes and growth in volumes in the core industrial sectors. So we saw that in the first quarter. And we're looking towards the second quarter and beyond and looking at the various markets and some of the indicators. So volumes are strong in manufacturing. And as we look forward, we know that we have seen some of these indicators fall below 50%. So that could indicate softness to some extent. But we should also recognize, like I said, there is a very, very, very slim margin of manufactured goods inventory currently in stock. And so anything that changes any way, shape or form will have a direct impact. For the other markets, we see trends and indicators that are very strong. We see the demand for tools, which will be used then for metal fabrication as kind of a leading indicator for future opportunity. We see in terms of automated systems in almost every sector in very high demand. And they come off a small base, but you're looking at very significant double-digit growth for those as we move through the year. And then in construction, it's very clear with everything we've talked about before that there will be very strong demand in construction over time as those projects begin to come out of the ground. Now recognize that for those projects, you've got to go through all the engineering, all the planning and all the permitting to make that happen. So they will come on sequentially over time. So the point is, as we look at the second quarter, there may be some softness in manufacturing. But in the other sectors, we do see trends whether it's for the quarter or for the long-term that are significantly positive.

So Chetan, regarding Europe for the quarter, we see overall positive volume in IM, slightly positive. And if we start to look at this in more detail, both in terms of product and in terms of dynamic, we see that actually, the positive volume trend is softening in Europe. So March is a little less positive than January was. So that's something to watch. But when we go and look at where this is coming from, we see clearly that there is a difference between the bulk and the packaged gas. Bulk is indeed decreasing, so that's something that we have to watch carefully, of course. But we have to keep in mind that it could relate also to some industry where the impact of energy and energy prices, if energy is going down is going to be positive. But the very positive news is for Europe that we see that packaged gas is strongly up in terms of volumes, and this is being confirmed even at the end of the quarter. So that's for Europe, the dynamic to watch. And of course, volume is something that we will have to carefully monitor for the rest of the year. Now I would say in terms of trend, if I take the example of China, we are going in the opposite direction because January was actually pretty low, even negative in terms of volume, but we have seen a volume in Industrial Merchant in China, picking up in February and again, picking up in March. So the trend is quite positive in China in terms of volume again. And that's true for everything. In the current environment, we have to be cautious. That's why I mentioned that we have to be ready in case of volume decreasing, but the trend in China, the expected recovery is something that we have been seeing for the past 2 months.

And the next question from Jean-Luc Romain from CIC.

I had a question specifically on your projects related to carbon capture, the Cryocap projects. First, are you getting to the final investment decisions with your customers? And longer term, do you see the potential of carbon capture as kind of similar to what you envisioned for your growth in hydrogen in the next 10 years?

Thank you very much, Jean-Luc. As you pointed out, I mean, the Cryocap technology is in high demand currently, because it's a unique solutions to extract CO2 from flue gas and from processed gas. So we have a whole suite, basically of solutions depending on the concentration and the type of units. We are extremely active in making proposal, both for investment whenever we think it makes sense and for sale of technology and sale of equipment to different customers. So we have, as you know, I mean, already one operation, which is running on a commercial plant. We have 2 other projects, which are in the finalization and we do expect in the next few months, the investment decision. In Europe, we have several prospects in other parts of Europe, but also in Asia and in North America. So that's extremely active. I would say, this could be applied to hydrogen production, but also to several other type of processes of great interest today, and we should make announcement in that regard soon, is also in the cement industry, where a combination of oxygen for oxy-combustion plus Cryocap is an extremely competitive solution. So those are very active projects used in the next few months, hear more about, I mean, some project and project being executed. As a matter of fact, indeed, we do believe, and that's your second part of the question, that the carbon capture and management will be a significant part of the business. When you put all the numbers together, it's -- at this stage, likely to be smaller than the hydrogen business that we see. However, given the magnitude of CO2, which is being emitted and the fact that I would say, almost every day new industries are coming to us to capture CO2 because it's a readily available solution and it's the only solution for the hard to abate segment. This market can increase significantly. Again, you have to put that in perspective with what I mentioned in Europe about the cost of ETS, but also the extension of the scope of the ETS, but also, as we discussed with Mike, in the U.S., with the credit being given to carbon capture and sequestration through the IRA. So I think we are just at the beginning, a good start. A lot of prospects should be confirmed in the next few months.

The next question from Alex Stewart from Barclays.

Can I just clarify something you said earlier, I think you said that pricing in healthcare globally was 10% positive across both Med and home care? Your comparable revenue growth was up 7.5%. So can I produce from that, that volumes were down roughly 2.5% year-on-year. I just wanted to be clear that I had the math straight on that. And then secondly, you did 10% positive pricing in Asia merchants. Could you talk a little bit about the different big countries you serve and whether one or other is being more disciplined? So any color you can give on the divergence between countries within Asia would be really helpful?

Right, Alex. So maybe I was not clear, I apologize. So the 10% that I gave was on med-gas only, okay? That's the pricing effect. So if we go back and we look at the sales growth for healthcare globally, we are close to 8%. And basically, it's the same number almost for home care and for the med-gas. But the situation is quite different because in med-gas, we are still in the volume trend that we described before, which is normalization and decreased volume overall after the COVID period. But this is being balanced with a very strong pricing, as I mentioned, okay? So slightly negative volume, very positive pricing. Okay? That's for the med-gas part. For the home care, overall, we have a mix of positive volume and positive pricing. So the pricing for the Home Healthcare is lower. Keep in mind that the energy content in the home care is much, much lower than in the med-gas. In the med-gas, it's similar to what we see in the bulk liquid oxygen, but the volume is still very strong, and that's the organic growth that we see in all the countries. So negative -- slightly negative volume and very positive pricing for med-gas and positive volume and positive pricing for home care globally, I hope it's clear. So next question -- Jerome, do you want to talk a little bit about Asia and the momentum that we see in the different countries?

Sure. So thank you very much, Alex. So overall, in IM in Asia, we have seen a rebound in March, as you know, [Technical Difficulty] very much depending on the [Technical Difficulty] soft beginning of the year, 0 COVID policy and Chinese New Year. We have seen volume peaking in March, plus 7% in March, and we have seen also pricing increase. So we guess that the price -- we have an acceleration pricing over the regions, slightly softer in China because the inflation is lower. But overall, the pricing has been firmed up, and we see that for the rest, at least for the second quarter. It might be depending very much on energy pass-through. But overall, we have seen this pricing and volume positive.

So just to be clear, in Asia merchant pricing, China was a little bit softer, but the other countries were offsetting that. Is that the right way to think about the regional spread?

We are not mention -- we are not disclosing by region, but what we can say is that it would be probably softer in China compared to the rest of the regions, in fact.

Okay. Thank you very much. I do believe this is the last question.

The next question from Gunther Zechmann from Bernstein.

Gunther Zechmann at Bernstein here. Coming back to pricing, you talked about bulk already, but could you talk about your packaged gas pricing approach compared to your competition place and how your approach is different, if everyone is just doing the same thing? And linked to that, packaged gas is one of the areas I suppose that, in the past, has seen more competitive pricing. Do you see a risk of that happening again?

All right. Mike, do you want to talk a little bit about the pricing, packaged gas in the U.S., and I will comment in Europe.

Sure, Gunther. So from a pricing standpoint on packaged gases, recognized that from a packaged gas standpoint, only 20% or less of what we look at in pricing there is touched by energy. And it's really the inflationary trends and a variety of other things that we have seen. So I think the underlying inflationary environment continues to drive the trends towards what we can do with further pricing. We do have a series of models, where we look at different regions, different perspectives. And it's a balance of molecules, it's rent. It's a variety of things that come into that package. So we are clearly continuing to drive price in that perspective. The market itself is something bigger, however, than just the few majors that play in this space, especially in the U.S. Roughly in the U.S. for packaged gases half the market are small independent distributors. So when we look at the competitive analysis of pricing in a market, it's not ourselves versus 1 or 2 other players. It's the multitude of players within that market. And so from a competitive standpoint, all of that comes into play as we go ahead and grow. And I think different players look at some things in different ways, but I think that there are some of those same levers for people to use.

Thank you, Mike. And I think for Europe, overall, it's the same. And again, I think the whole situation and also, I mean, our strategic direction gave us the opportunity to revisit, I mean, some of the fundamentals of the business, and we are extremely disciplined on applying them, as mentioned by Mike, about rentals of cylinders, about the value, about type of contract, about density, about making sure that you have a strong portfolio of customer. And I think when this is applied with discipline and determination, I think it produced great results that what we see today. So we will continue with that, which means that to answer your -- the second part of your question, we do not expect softening in terms of pricing in packaged gas. Keep in mind, and this is true for many of the things that we discussed that we had a strong comparison basis for last year. So of course, in terms of percent increase, I mean that may be lower, but the absolute value of the price will remain and will continue to increase. Should we see either cost increasing or opportunity to increase the value for our customers? That's where also, I mean, the efficiencies are extremely important in our business. You have seen that we have been able to deliver more efficiency than in the quarter last year. I think this is also the sign of the structural improvement that we are doing in our business, making sure that we streamline that we seek any industrial efficiency opportunities in spite of the inflationary environment. So I think with that, that should contribute to continue to strengthen the profitability of our business overall, including, of course, the packaged gas. So we will stop here. I think this concludes our session. Thank you very much for all your questions and your attention. Maybe just to summarize, I think the first quarter shows a very strong start of the year. It's clear, both in terms of top line growth and performance. And the investment portfolio is also extremely solid. In the months to come, we will remain, as you have seen, as you have heard, focused on the execution and delivery of our advanced program to achieve for sure our midterm objectives in terms of growth, in terms of return on the capital employed, in terms of CO2 emission and of course, value creation for our shareholders. I wish you a good day. Thank you very much.

That concludes the conference for today. Thank you for participating. You may all disconnect.