L'Air Liquide Societe Anonyme pour l'Etude et l'Exploitation des Procedes Georges Claude SA
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L'Air Liquide Societe Anonyme pour l'Etude et l'Exploitation des Procedes Georges Claude SA
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Good morning, ladies and gentlemen, and welcome to the Air Liquide Q3 2018 Revenue Conference Call. Today's conference is being recorded. [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 for joining our conference call today. Fabienne Lecorvaisier will present the third quarter revenue, and Mike Graff will update you on business development. Guy Salzgeber is also with us and will participate in the Q&A session. In the agenda, our next announcements are on November 13 for our climate objectives; and on February 14 next year for our full year 2018 results.Let me know hand you over to Fabienne.
Thank you, and good morning, everyone. Thank you very much for being with us this morning. I will start with the highlights of the Q3 activities and performance, and then I will hand over to Mike Graff for a focus on business development, new project signings and opportunities. But maybe first, before you ask question on the subject, I would like to comment for a minute on the recent news.The announcement of the merger between Linde and Praxair is, of course, not a surprise. It has been around for now 2 years. Finally, what we see is that it's more portfolio combination and a real merger, meaning they really don't change on local positions. We are now going to be 2 coleaders far ahead of the competition. To be noted, during these last 2 years, Air Liquide moved ahead, we acquired and integrated Airgas, reinforcing our position in the U.S. on the [ offshore ] merchant. We launched NEOS [ underlying the teams ] along a customer-driven vision with our mission's objectives on the ID connected network organization. And we reinvented our innovation approach, leveraged our digital transformation and took a leading position in the hydrogen energy development. This move definitely raised our confidence in our ability to deliver profitable growth over the long term.Let's now come back to our Q2 performance. The trends we identified in H1 were confirmed with strong growth at the top of the NEOS range in all Gas & Services business lines. We also saw an improvement in Engineering as well as positive developments in Global Markets & Technologies. Efficiencies and synergies continue to be delivered in line with plans and the investment opportunities are ramping up. Let's look at sales evolution, I'm on Slide 4. Growth for Gas & Services is 5.2% on a comparable basis, slightly higher than for H1. In Engineering & Construction, sales continued to recover, and profits are breakeven for the quarter. Global Markets & Technologies at plus 23% are supported, in particular, by strong maritime activity and new biogas projects.For the group sales, we are up 6% on a comparable basis and 6.6% as published, benefiting from a softer negative ForEx headwind and from a positive energy pricing effect. In fact, in Q3, the global environment remained favorable with the same watch point as for Q2 regarding industrial production in Europe. Currencies are now more in line with last year priorities, even if we still expect a minus 4% negative effect for the full year. Conversely, energy pricing is becoming more positive, and we should be at plus 1% full year. Coming back to growth drivers. Americas are up 5%, supported, in particular, by higher growth in the U.S. and Canada. Developing economies at plus 11%, benefited from the dynamism of our business in China and Asia globally is at plus 6%. Overall, our business lines were strong and in the upper range of their NEOS' objectives.Similarly to what we saw in Q2, the base business, in other words, the loading of our existing capacities, generated more than 4% growth benefiting from well-oriented end markets and better pricing, and this is more than compensating for a slightly lower contribution from start-ups and ramp-ups.Let's now review the main geographies. Americas are 5%. Demand in Large Industries is strong throughout the region in oxygen, in particular, while the OCI methanol plant is ramping up on the Gulf Coast. In Industrial Merchant, most packaged gas end markets are very sound in the U.S. and Canada, and the pricing effect is increasing along with inflation. Healthcare growth is supported by medical gases in the U.S. and developments in Latin America. And gases and equipment sales are solid in Electronics in the U.S. Europe is up 3%, anchored by the divestiture of a noncore subsidiary in Electronics at the beginning of the year. Large Industries benefit from solid hydrogen demand in oil and gas in some part of West Europe as well as from cogeneration activity. We also finalized the takeover of the first unit in Kazakhstan.In merchant, the pricing effect is ramping up, while growth for packaged gas remains lower than for bulk in Western Europe. Conversely, Eastern Europe is showing double-digit growth. On Healthcare, it's also very solid, in particular, in Germany and Northern Europe. Asia is up 6%, driven by solid merchant on buoyant Electronics, more than compensating for lower Large Industries due to several customer turnarounds, notably in China. Merchant continues to be driven by strong volumes and pricing in China and by the recovery in Australia. Electronic sales are really strong for gases and even more for Equipment & Installation throughout the region and, in particular, in China, Korea and Singapore. Middle East and Africa is supported by the Sasol ramp up in South Africa and by strong activity in Egypt as well as by our Healthcare acquisition in Saudi. Now, starting on Page 10, a quick wrap up by business line. In merchant, we are in line with Q2 trends with most of our end markets well-oriented, in particular, in North America and for developing economies driven by strong China. The pricing effect is at 2.9% for the group to be compared with 1.9% in H1 and is now more in line with inflation. Large Industries are more contracted with stronger demand in Americas and in a lesser extent in Europe, while Asia is impacted by turnaround. Globally, oxygen volumes are up 8% and hydrogen volumes are up 5%. Healthcare is showing 6% growth, supported by Home Healthcare, plus 8%, and solid Hygiene and Specialty Ingredients. To finish with, Electronics is up 9% for the quarter. Carrier gases sales are growing double digit in Asia, thanks to new contract and 9% globally. Equipment & Installation sales remained very high and are 25% up to last year.As mentioned, Engineering continues to recover and the level of the order intake, up 30% to last year, will drive positive performance in 2019. To be noted, the progression of the Global Markets & Technologies order intake is clearly supported by innovation and mainly driven by biogas projects and advanced technologies with the launch of a new generation of turbines.In terms of performance, year-to-date, we have been able to deliver EUR 254 million of efficiency, which is an 11% increase to last year. The group efficiency programs are progressively being deployed at Airgas, which contributes EUR 22 million to this amount. Industrial and logistics program represents 50% of the savings with an important part coming from merchant activities. We, therefore, confirm that we'll be, again, above the EUR 300 million objective for the full year. At Airgas, cumulative synergies resulting from the integration are now close to $275 million, and we can confirm that the initial $300 million objective will be achieved early 2019, which is more than 1 year ahead of plan. Cost synergies are already above the preacquisition target, and sales synergies continue to ramp up progressively. The cash performance is also very solid. Year-to-date, we have delivered more than EUR 3 billion of cash flow at 19.5% of sales, a 70 basis point improvement to last year. Net CapEx at EUR 1.7 billion are close to last year's number with more industrial CapEx and slightly less acquisitions since the beginning of the year. Net debt continues to decrease following the May peak due to the dividend payment, and we are back on the EUR 14 billion, while gearing remains under control and has lowered slightly at 78%. So to make it short, another very strong quarter for Air Liquide in all of our businesses. This is not, as we said at the beginning, the only good news, that business development continues to accelerate. And I will now hand over to Mike for focus on investment to give you some more color on our signings and opportunities.
Thanks, Fabienne. With the continued success of our business development activities, we've seen a high level of new business signed in the first 9 months of the year totaling EUR 1.9 billion at the end of September. This is a level we've not seen since 2013. If we focus on the main projects signed since January, 14 are above EUR 20 million of CapEx, including 3 projects that are above EUR 100 million. Seven of these projects are in Asia, primarily in Electronics, 4 in the Americas and 3 are in Europe. In total of these year-to-date signings represent a total capital investment above EUR 750 million. In general, we've seen a very high success rate in our existing large industry basins, especially on the Gulf Coast of the U.S., but also in Benelux and in Korea. In Electronics, all of the new business signed is aligned with key growth markets and supports our leading positions with Tier 1 customers. In line with the acceleration of our business development activity, our project backlog, which, as a reminder, is the aggregate total investment in projects above EUR 10 million that are under construction but not yet started, that backlog is now up to EUR 2.4 billion. This underpins the future annual sales contribution of roughly EUR 1 billion with new decisions clearly more than offsetting start-ups.There were limited major start-ups in the third quarter, 3 of a more modest size, including the one takeover in Kazakhstan that Fabienne mentioned. We project 10 new start-ups in the fourth quarter, the major ones will be located in Asia. In regard to Fujian, the plant is running and we have obtained our 2 final permits for safety and environment, which is clearly good news. However, the customer is still discussing the implementation of the signed contract, and therefore, we remain prudent on the commercial start-up date. Year-to-date, the contribution of start-ups and ramp-ups to sales growth stands at EUR 192 million, and we expect to reach around EUR 250 million in additional sales for full year 2018. If we turn to bidding activity on Slide 20, it is very dynamic. We see a strong increase of business development opportunities that could be awarded in the next 12 months, reaching a level of EUR 2.6 billion. This is 20% higher than a year ago, returning to a level we haven't seen since second half of 2015. In terms of size, roughly half are less than EUR 50 million with an average size of EUR 20 million. There are 6 opportunities in the EUR 100 million to EUR 200 million investment range as well. The smaller overall size of the average project in the portfolio, along with the large number of projects, reduces project risk and will yield a smoother growth trajectory for the future. As you can see in Slide 21, the portfolio is well aligned with the market trends we've discussed. A number of the business development opportunities are concentrated in the Americas with the share in Asia and the Middle East increasing as well, along with a slight decrease in Europe. Focusing on the end markets, Large Industries represents more than 60% of the opportunities driven primarily by the chemical and oil and gas sectors. Electronics opportunities comprised 15% of the portfolio. So to conclude, with continued strong growth and solid performance in the third quarter, we confirm our guidance for net profit growth for full year 2018. In addition, the business development opportunities are clearly increasing and will fuel future growth. Thank you for your attention, and we are happy to answer your questions.
[Operator Instructions] We can now take our first question from Theodora Joseph from Goldman Sachs.
So I've got 2. The first is in Industrial Merchant. So I know that you have very high pricing in Industrial Merchant. But when I look at the volumes by region, I see an improvement sequentially in Europe and APAC, but quite a steep decline in the Americas. So just wondering if this is something structural and if it's something that you can give color on. And my second question is on Electronics. I think we've seen quite weak commentary on Asia Electronics by some of the industry participants there. So just wondering you think it's a fair caution for the market on your electronic growth in coming quarters? Or is this something that we should not be worried about?
Well, thank you for your questions. Maybe I will start to answer for IM and hand over to Mike for Electronics. In Industrial Merchant, I would say that the pricing is better. I would not qualify it at high pricing though. We have a slight volume decrease in Americas, and you notice that in other zone, the global growth continues to improve. This is mainly due to 2 elements. First of all, we are developing portfolio management actions at Airgas, refocusing on the most active and profitable customers; and second, there was a slight slowdown in IM due to the oil sourcing issues with the BLM. This is quite exceptional event that we identified very well. Apart from that, the end markets continue to be very well oriented for our Industrial Merchant business in North America, as they were in Q2. It's even a little bit better in Canada, in particular, in metal fabrication. Worries about Electronics, Mike?
What we're seeing in Electronics, and you can see it in the numbers, we see actually continuing strength and continuing growth over the course of the 3 quarters of the year. Carrier gases are up 8.6%, and that's really primarily driven by Asia. China, Japan and Taiwan, all, saw significant increases in the quarter, and we expect those to continue. The Advanced Materials business continues to grow, we're in double digits for the quarter. All geographies in Asia saw a continuing ramp in the uptake of Advanced Materials, and we also saw the ramp of the enScribe molecules for laser use in the Electronics sector as well. And E&I continue to grow as well. That was up very significantly in the quarter. It's been strong throughout the year and again, driven by Asia. We continue to see new projects and new opportunities and growth specifically in Asia around Electronics, and we would expect that to continue.
We can now take our next question from Thomas Wrigglesworth from Citi.
Two questions, if I may. Firstly, with regards to, obviously, the concerns that have taken place specifically with China and the destocking that we're seeing today, is there any evidence that you're all seeing a softness in the fourth quarter with regards to where you might be exposed there either in cylinder or Industrial Merchant? Any insights there will be much appreciated. And secondly, on the Equipment & Installations in Electronics, could you just help me understand, where we are, obviously, 50% growth in the quarter, very, very strong. But is that now back to the level that we were, say, exiting 2016, and we should now -- and what should be our expectations for the Equipment & Installations component into 2019?
So regarding China. Our business in China remains very strong. That's been like that now for more than 2 years. What we've seen this quarter is slowdown in Large Industries. This is directly due to a certain number of customer turnarounds, most of them were planned, so this is not a surprise. Apart from that, merchant continues to be extremely strong in terms of volumes and in terms of pricing as well with double-digit growth. And Electronics is also, as Mike mentioned, continuing to develop. Here again, we have a very strong double-digit growth. We don't see any sign of slowdown in Q4. Some of the customer outage will continue until the end of November, but some will restart. And on the IM and Electronics side, everything continues to be well aligned. Your second question was about E&I. I think we are at a level, which is exceptionally high compared to our history, EUR 70 million-or-so just for the quarter. We have a book-to-bill ratio, which is at 1.4, which means that it will continue into Q4, and then we should see a slowdown at the beginning of next year and probably at least mid-2019. But then, we should have the continuous ramp up of the carrier gases.
We can now take our next question from Martin Roediger from Kepler Cheuvreux.
Two questions from my side. Just coming back to the Large Industries in Asia and the turnarounds you mentioned in the last contribution from ramp-ups, can you put a figure behind that? What was the impact from that? Why overall comparable sales growth was minus 1.2% in Q3 so that we can get a better grip on what we have to expect in Q4 and then beyond? And secondly, on Electronics in Europe, I know this is a rather small business for you. But I remember that in Q2, you had suffered substantially with strong negative comparable to sales growth because you have done a divestiture of a small electronics subsidiary. Now, in Q3, I don't see that anymore. It's up quite nicely. And I just want to -- was that -- how that comes since you have shown a strong rebound in comparable sales growth here in that area?
Okay. So on Large Industries in Asia, there are 2 components into play. The turnaround I mentioned, and you remember also that we sold 3 units in the north of China at the end of last year. So there is also a small perimeter effect. If we exclude that, the underlying growth of LI in Asia is 4%. So it remains solid. Yes, we had the divestiture of noncore Electronics subsidiary in Europe at the very beginning of the year, and that continues to impact. As I mentioned in my commentary, it impacts the growth of Europe by approximately 0.5%, 0.5%, and that will start to soften in Q4. But it is still there, and Electronics in Europe is still down in Q3 as it was in Q2.
[Operator Instructions] We can now take our next question from Andrew Stott from UBS.
First one was going back to the U.S. and Canada, I think you said when you bought Airgas that you felt the hardgoods business was just sort of lead indicator and, I guess, particularly so now in the absence of the Welding franchise. So I just wondered if you could tell us how that business has performed through the quarter and then in the early part of October? It sounds like there's no change, but I just wanted to see the trajectory there, if possible. Second question is on margins for the second half and also related to the sort of ways for next year the contribution from start-up. So the question on margin is, are you comfortable with consensus for roughly plus 50 bps in the second half? And on the Large Industries question, I think you said when we met Fabienne in September, the EUR 250 million, which is obviously your guidance for this year, will be a sort of broad number for next year. With Fujian slipping into next year, does that mean EUR 250 million goes up?
Okay, so let's start by the first question about U.S. and Canada and, in particular, hardgoods. Mike, do you want to take that one?
Sure. Clearly, we've continued to see significant growth in all sectors, especially in North America. But the manufacturing and metal fabrication operations have been very strong throughout the year and they continue to be strong in the third quarter. Order backlogs continue to remain very strong in that part of the business, and I think that we're going to continue to see the strength that we've seen throughout the year. Also, in the construction market, in terms of general contractor, we've actually seen an uptick in the third quarter. I think on the year-over-year comparator, earlier in the year, we were suffering a little bit from some of the big projects that it lapsed. They had been completed especially in the Gulf Coast and were in the start-up, and now we're starting to see new construction efforts and new growth in that regard as well. And then finally, even in the specialty construction markets, we're also seeing a lot of growth, and that's more in the sectors that support maybe the oil and gas efforts and the upstream and the midstream as well as a lot of infrastructure projects as well. So we see a continued trajectory of growth in the metal fab market. We see a continued trajectory of growth in the construction markets, in general, in North America. And that's continuing to be led by hardgoods growth. I think hardgoods growth was 9.3% in the quarter. So it's been very strong.
Thank you, Mike. So I will take the margin question, my favorite one, as you know. I'm not going to tell you if the consensus is right. That would be quite unusual. As you know, margin is not our leading indicator. However, we are committed to continuously improve our margins, nothing is going to deviate from that in H2. Concerning the start-up and ramp-up contribution for next year, when we discussed that last time, we already knew that the Fujian start-up was slipping a little bit by the end of 2018. Now, it's more likely to be the beginning of 2019. But at this stage, it does not change our estimate.
Okay, so EUR 250 million, Fabienne, for 2019 as well is a broad guidance. Is that correct?
It is the best forecast we can give you.
We can now take our next question from Neil Tyler from Redburn.
A couple from me, please. Firstly, within the pricing dynamic in Industrial Merchant, can you give us an indication within Americas, how much of that really reflects perhaps local currency weakening in some of the South American regions and offsetting the related inflation with that? And on balance, I suppose a follow-up to Andrew's question really, when you look at the first half versus the second half and the current exit rates on pricing, how that compares to the rate of cost inflation? Is the broad message that I think I'm interpreting from your statement that the cost recovery is better in the second half than it was in the first, but not yet fully recovering the rate of cost inflation, if we exclude the savings and synergies? That's the first question. And then the second one, your investment decisions, is the amount -- the number, the EUR 380 million in aggregate that you say is within the existing hubs, that's approximately 20% of the total year-to-date. Can you give us an indication of how the returns -- you would expect the returns on those projects to compare to your broad -- your broader sort of longer-term returns target, please?
Okay, thank you. So on the Merchant pricing, within America, you saw that we have a pricing effect of 3.4%. North America, low in the 3%. So yes, we have a component coming from the inflation in South America and, in particular, in Argentina, but it's not the main part of it, obviously, as North America, low in the 3%. We are better recovering our cost. And our price effect is, I think, well in line with inflation in North America, still a bit behind inflation in Europe. So it's obvious that the pass-through is going to be better than what we had at the beginning of the year. I think we are not still completely in line with inflation, in particular, in Europe. Investment decision, Mike?
Sure. I mean in terms of investment decisions, as we talked about before with long-term goal of double-digit ROCE and a clear trajectory to get there, we continue to focus on the level of returns that will get us to a double-digit ROCE, in general, for the group, which means, whether it's a Large Industries investment, whether it's carrier gases and Electronics, we've got to have those double-digit returns if we're going to go ahead and succeed. So that's clearly where we're at, and we continue with that going forward.
Yes. I mean, just a follow-up. I fully understand the long-term goal. But within that component of the investment decisions, is it safe to say or safe to assume that the returns on those hub investments will be substantially above your long-term return?
Well, I think you know that when we invest in the business where we have a strong position, after full ramp-up and the transition of the source through the pipeline, yes, that's where we have the best return obviously.
We can now take our next question from Paul Walsh.
Mike, just a couple of questions from me. When I think about the backlogs that you have increased to EUR 2.4 billion and EUR 1 billion of sales in the pipeline, you're going to steer for EUR 250 million next year, which is your best guess. But I guess, 2 questions on the backlog. Given the number of pipeline opportunities, how big can that backlog get? And over what period would you anticipate delivering that EUR 1 billion in sales? So 2 separate questions. The EUR 2.4 billion, could that breach EUR 3 billion, for example, over coming quarters, given what you can see right now? And in terms of the EUR 1 billion that you've talked about, how quickly do we see those sales coming through i.e. should it be more or less EUR 250 million a year for the next 4 years? And then my second question is on GM&T where we've seen almost a doubling in order intake in that business. Can you talk about what that does for the growth dynamics in GM&T, where that's coming from? Is it the bio-methane business and the kind of margins that, that business or that new intake is generating because that is traditionally a relatively low-margin business? But are we to believe that the increased activity is at those lower margins? Or do we see better mix in that intake as well?
So maybe in terms of the backlog and where we see that growing to, clearly, there's a lot of strength right now in business development activity, and we see very solid growth whether that's in the Americas, whether that's in Asia, whether that's in the Middle East. And even though Europe was a little bit lower recognized that it's really driven primarily by the fact that the entire portfolio has grown. So as a percentage, it's a bit off. But in general, we see continued growth. I wouldn't forecast it will be a EUR 3 billion by the end of the year. I think the point is we continue to see significant business development opportunities. We continue to see all the dynamics of growth, and we don't see that slowing down. So whether that is a EUR 2.6 billion or EUR 2.8 million or whatever it is, the point is that it's very, very strong. In terms of realizing those revenues, typically for a Large Industries project, you're looking at a course of a 3-year horizon, for some of the Electronics investments maybe a 2-year horizon. So somewhere in the 2- to 3-year the range is probably where we should be thinking.
Understood. And just on that, Mike, because you see -- we see some of the -- your competitors signing some very, very large contracts, and it's just interesting to me that you've focused on some of the smaller opportunities and the hub opportunities as you've just talked about. Is there anything that's making you shy away from some of those really, really big potential contracts out there? Or is it -- it's on the radar but just you haven't found the right ones yet?
No, like I said in the commentary, we clearly are focused on the opportunities as they present themselves. We aren't just focused on a particular size project. It works out especially with where we are in the pipeline systems and a variety of other geographies that some of the smaller to midsize projects are clearly accretive in nature and real opportunity, especially when they align with our major customers and the Tier 1 players in Electronics. But again, there's a half a dozen major projects in the EUR 100 million to EUR 200 million range. So I think we are still very focused on the large projects as well.
Okay. And GM&T?
Regarding GM&T, what you need to understand is that in GM&T you have a variety of different type of businesses. A bit less than 50% of the GM&T business relies on order intake. So it's not all of the business. Now in the 50% of the business relying on order intake, you can find order intake for the space industry, for example, where you can have a 3 to 4 years delivery. That's very long contract on project that are spread over time, or you can have order intake regarding biogas unit, and that could be delivered in 1 year. So it's difficult out of the order intake to draw future growth. However, you've seen that since its creation, GM&T had growth between 10% and 30%. I can confirm that we still expect an average growth around 20% for the months to come, and the business remains very dynamic. In terms of profitability for GM&T, here again, there are very different businesses. Our advanced technology contract have a margin, which is more or less in line with the group average, when the much innovative investment like in hydrogen energy, for example, a variable margin is not low margin at all. So yes, again, it is a mix.
Okay, but generally speaking, is this -- should we assume a stable margin, Fabienne? Or does the increased business activity mean you get some operational gearing or leverage or better mix that drags it up? Or is it just safer to keep it relatively stable?
I think in GM&T, we are happy with the margin around 10%. And the objective is really to use most of the profitable business to finance more innovation and more active development in the business of tomorrow or 10 years from now. So the objective in GM&T is not to boost the margin of the group, obviously not. It's just to prepare our future.
We can now take our next question from Laurence Alexander from Jefferies.
Two quick questions. First, could you speak a little bit about the difference you're seeing in Industrial Merchant between nonresidential construction and industrial market in China and in North America? And can you give a characterization on how you're thinking about the backlog of acquisition target for the packaged gas business in the U.S.?
Okay. So in IM, the very detailed analysis that Mike shared with you for Americas by end market, we obviously doesn't have the same level of detail in China where we move through our business by region. But what is driving IM performance in China since the beginning of the year is not in the industrial market. I don't know, Mike, if you want to add something in Americas?
Yes. I guess, the only thing I would add is that I spoke to the construction activity that's underway. And from the industrial side, clearly, we see a lot of industrial growth in construction both in terms of the higher oil prices, and we saw that, that really ramp back up when oil prices increased. So in the upstream part of the business and in terms of not just the facilities but pipeline systems and also in the midstream, we continue to see a lot of strength there. With the next wave of chemical plants that are being built, we can see -- continue to see growth there, and we will see that in the coming years as well as that evolves. There is a lot of infrastructure spend in the more specialized areas, and that's more spread throughout the North America, especially throughout the U.S. So whether that's on the Gulf Coast, whether that's on the West Coast, whether that's in the North East, there are different programs and different projects. Where we see infrastructure projects and actually some of the technological applications that we have within Air Liquide that we can now leverage in Airgas are helping us to go ahead and deliver even better in those areas. So I think we see that growth. I wouldn't differentiate that we look at the nonresidential growth and we look at the industrial growth and we're comparing the 2, rather I would say we see a good trajectory for both at the moment.
In terms of acquisition, you know that bolt-on acquisition to extend our local presence remains a component of the growth strategy, so this is true for Airgas. Airgas continues to welcome small acquisition and to entertain a portfolio of independent players that could join the group one way or another. This is not the only place. We have programs in China. We have programs in Latin America. So you see bolt-on acquisition programs continued to be a component of the merchant development strategy.
We can now take our next question from Markus Mayer from Baader-Helvea.
Three remaining questions. First one is on the start-ups and periods of time where you have quite, in particular in China, you saw then -- also, the effect that start-ups have been delayed quite heavily. Do you see this risk as well for this year? That's my first question.The second question is on electronic gases, maybe you can shed some light what has structurally changed over the last years. In the past, electronic gases was highly typical and now it looks like that a part of the business is more large industry character like business as take-or-pay contracts? And maybe you can tell us what -- how many of these contracts have now such a take-or-pay structure? And then the last one is on the shortage or tightness of truck drivers in the U.S. Do you see higher personnel costs there? And how's the ability to pass on this higher cost to your customers?
Okay. So on the start-up and ramp-up delays, the only delay or uncertainty is related to Fujian. For the rest, we don't have any specific issues. Our Electronics business has evolved a lot for the last 10 to 5 years at least. You know that we have strongly reinforced our Advanced Materials activities, and we have taken an undisputed leading position in China with strongest market share with a Tier 1 player. So today, if you look at the Electronics business, 40% is carrier gas. So for carrier gas, we have medium-term contract, not as strong as large industry, from 8 to 10 years and for those contracts, most of the time we have got take-or-pays. The rest of the business, 20% specialty gases, 20% Advanced Materials and then E&I is not governed by long-term contract or take-or-pays. It's a different world. Shortage of drivers, maybe Mike this one is for you?
So there's no doubt, there's been lot of discussion about the shortage of drivers, especially in the U.S. today, but we have not had any problems in terms, ourselves, of finding drivers. We're seen as a value employer. We work hard to go ahead and develop long-term benefits for our drivers. We continue to go ahead and work at that and make sure we manage that in the right way. In terms of the pass-through of incremental costs, we clearly have driven pricing. And whether that's the various aspects of the cost drivers, including if it's increase in transportation cost, we do pass that through. So I think all that's in a good place.
[Operator Instructions] We can now take our next question from Chetan Udeshi from JPMorgan.
I just had a question around the visibility that you guys have, in general, in your businesses. I think Large Industries, one can agree that there's longer visibility but in terms of your Industrial Merchant business, can you just give us some sense of how long the visibility you guys normally have in this business? And the crux of the question is, we've seen all of these data points coming out of China, et cetera, suggesting a slowdown whereas you guys are still talking very bullishly on China demand. So just wanted to understand, how you guys take it into account what's happening on the ground? And how that translates into the visibility in the business?
You know that our Industrial Merchant is correlated to the industrial production in the various countries where we have business. For example, when we prepare our forecast or target, the first thing we look at is the industrial production forecast, and then we adapt our objectives or we amend our objectives based on the evolution of the industrial production. So that's how we work it out. Maybe Guy, you want to add something with the example of Europe maybe?
Yes, maybe just to illustrate a little bit how the merchant market sort of develops. Merchant market is a fundamentally very diversified market, okay, geographically, of course, but also from a business point of view, different products but also addressing a variety of -- a broad variety of markets. Typically, in Europe, today, we see a certain number of strong drivers that continuing the construction, okay, as -- in a similar way to what Mike also mentioned for Americas. We see also some activities, say, being substituting by others. We see a lot about the automotive industry that may be is less dynamic, that has prospective issues midterm or transforming itself. But at the same time, we see ourselves for that market also strongly growing in other parts of it, typically on the emission controls aspects of things. That is a very high and sensitive topic today. And therefore, for which we can bring specific offers and products in those markets. So fundamentally, the merchant market is a robust, resilient activity that has also a lot of capacity to introduce some innovations, on which we continuously work. And it is offering some compensations between the different subsegments. When we look at all our segments today, worldwide, they're all more or less green looking forward. So I think we have in front of us something that should continue to show strong robustness.
And maybe if I can follow up in terms of linearity of the growth through the Q3. I mean, have you seen any change in terms of maybe beginning of the quarter to end of the quarter or entering the Q4? Has there been a material change in terms of linearity of growth, especially in some of these emerging markets? And you mentioned the Chinese pricing being strong as well. So any sort of change there in linearity? Or do you think it was fairly stable through the quarter?
No, no. We saw underlying business in most of our countries, not all of our countries, which is really consistent with the Q2 trends. It continues to be very solid. We supplement, of course, those market trends by strategic actions. Guy mentioned innovation. It can be also bolt-on acquisitions. It can be customer-centric initiatives, to grow more direct to the final customer. So we can also influence growth by our own action, but we've not seen any sign of slowdown, even at the end of the quarter.
We can now take our next question from Peter Clark from Societe Generale.
Two questions. The first one, and I've heard everything you were saying to Andrew and Neil, and I recognize this is not a margin call, but just in terms of the mix effects that you're seeing in the first half, and you highlighted dragging on that margin increase we saw in the first half. So the equipment fails in electronics outages. And I guess, when I look at Q3, I'm looking at the Airgas on-site in Europe a bit softer. Just on mix, has there been a material change as we've you gone through the third quarter against what you're seeing in the first half, particularly bearing in mind you say the equipment is going to be strong in the fourth quarter as well? And then the second question is around you shared a number in the Gulf Coast investments with some of the smaller investments and, I guess, customers who don't want to be disclosed. Have you got a number you can share for the last few years, like from 2015, what you've won on the Gulf Coast in terms of investments and signed projects?
So regarding the margin and on the mix. It's true that part of what we had identified in H1 is still there and, in particular, the high level of Equipment & Installation and the fact that in Europe we still have stronger bulk activities and packaged gas activities. Regarding the turnaround, barring any specific incident and forecasted incidents, we shouldn't have more turnarounds in Q4 this year than what we had last year at the group level. Then it depends from one region to another. But globally, it should be more or less at the same level. To elaborate on our presence in the Gulf Coast?
As I mentioned before, we continue to see very strong business development activity in the Americas, and basically that's driven in the Gulf Coast. And I think over the course of the last year, we've continued to sign a number of projects especially in the Airgas space as well as in hydrogen offtake, and that continues to grow favorably for us. So we've seen both investments and opportunities in terms of the Airgas space across both pipeline systems. We've continued to see some level of hydrogen opportunity as well. And also investment in terms of the infrastructure on the utility systems and a variety of things like that. So I think, in general, in all aspects, we've seen continued growth, and we continue to see that evolve. The size of the projects evolves from one point to another. But I think as we look forward, as I said before, over 40% of the new opportunities we see are in the U.S. and primarily all those around the Gulf Coast.
I was actually looking -- I was trying to get a feel for what you've signed from 2015 on the Gulf Coast because I realized some customers don't want to disclose and obviously you've been signing quite a few of these smaller incremental projects. So you've given us this EUR 200 million in 2018. Just wondering over the last few years, what sort of level of signatures there's been?
If you want numbers, we'll give you numbers. If you get the 5 years period, 2013 year-to-date, 2018, we have signed around EUR 900 million of investments in the U.S. And this is spread between 14 projects. Does that answer to your question?
Okay. I think so. I think so. I can always come back.
We can now take our next question from Francisco Rodríguez from Banco Sabadell.
I have 3 questions, actually. The first one would be just to confirm, if I'm not wrong, that your best guess for 2019 for start-up and ramp-up contribution would be EUR 250 million? That would be my first, let's say, clarification. The second one is regarding margins in your Engineering business, which are 10 points last year toward the beginning of this year. We spoke about probably having margins -- single-digit margins for 2019. I'm not sure if that's still the case. And the last question is regarding and -- well, the margin expected for next year in the sense that -- well, I'm quite impressed that consensus figures assume around 100 basis points, 90 to 100 basis points of increase in margins for next year, and I don't know if you have any comments to make for that, I would be quite happy to hear from you.
So coming back to start-up and ramp-up, EUR 250 million is our best estimate at the moment, and we will discuss that in February when we publish our full year. Regarding E&C, you know that the E&C business has been difficult. We've been losing money in H1. The objective is to be a little bit better than breakeven for H2, but we'll still be negative for the full year, and we said we would come back positive in 2019. However, it's certainly not going to be double digit. Mid-single digit would already be a good performance compared to what we had for the last 2 years. Then, margin in 2019, you know that we talk more extensively about the year to come when we publish in February. So I don't have comments at this stage. Thank you. So maybe one last question.
Certainly, we can now take our last question from Laurent Favre from Exane.
I promise it will be a quick one. On the Pemex, DCAP, it looks like there's a bit of a slippage in -- of about 3 months. I was just wondering what was driving that. And maybe more generally, Fabienne, you can talk about the DCAP environments. I think back when you announced the first Pemex deal, there was some expectation that the DCAP opportunity was actually materializing a bit fast and bit quicker than we assumed. We haven't seen a lot this year, so I'm just wondering, has there been any change in appetite for buyers or indeed sellers around that opportunity?
In terms of Pemex, it's just been pushed out by 3 months. The customer is not ready yet. Pemex is not ready yet for the additional hydrogen. We've already taken over the facility. It's ours. It's fully protected by the typical Large Industries contracts. We're just waiting for them to have the need for the hydrogen to start up the facility.
Maybe Guy, regarding another takeover which has happened over the period?
In terms of examples of DCAP, another one that is taking place there or just started in September is the one in Kazakhstan, in the national oil refinery -- national oil company called KMG, which is the core company over there to -- who's doing the refining. So we have one project that has started up in Pavlodar refinery, and we expect maybe possible others to come. So the trend is continuing. It sometimes takes a little longer than what we could expect. But fundamentally, I think this is a long-term trend that is pursuing.
And when we look at the -- sorry.
We have a certain number of takeover projects we are working on. It could take some time to materialize because the discussions with the customer may be quite long before they make the decision, but we have a bunch of them, in particular, in China. So if there are no further questions, I think we'll stop there. Thank you very much for your attention. Just as a quick conclusion, I think it's an excellent quarter for Air Liquide. We have a lot of good news. We have a strong activity, so good news for the short term in terms of performance. We are aligned on a very promising development activity, so good news for the medium and long term as well. Thank you very much. Have an excellent day, and we'll talk to you at the end of November on a very different subject with climate objective. Goodbye.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.