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's Q3 2019 Revenue Conference Call. [Operator Instructions] I'll now hand over to the Air Liquide team. Please begin your meeting, and I'll 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. She is joined by Mike Graff, Executive VP, supervising Americas hub, the Electronics business line and more recently, Asian Hub; and by François Jackow, Executive VP supervising Africa, Middle East, Healthcare and more recently, European hub. They will both participate in the Q&A session. In the agenda, our next announcement is on February 11 next year for our full year 2019 results. Let me now hand you over to Fabienne.
Thank you. Good morning, everyone, and thank you very much for being with us this morning. Our Q3 activity has been mined by robust sales growth at plus 3.5%, both for the group and for Gas & Services in an environment, which became quite contrasted. We saw in particular a clear softening of some of our markets in September, and I will come back to that in a moment.We also pursued the deployment of our performance improvement plans, capitalizing on price and mix management, enhanced efficiencies as well as portfolio active management, and it shows in the level of the cash flow. At the same time, we continue to see numerous requests for proposal for customer new projects as shown by our very high investment portfolio and investment decision level. Starting by our various markets, we clearly saw contracts accentuating at the end of Q3, and we expect the trend to remain the same in Q4. Chemical market is now softer while oil and gas and, in particular, refining in Northern Europe remains strong. Steel markets, after several quarters of slowdown, seem now to stabilize at Eastern Europe. In terms of merchant markets, construction is decreasing while metal fabrication remains quite low. Energy and chemicals, Food & Pharma as well as Techno & Research continued to grow at a slightly slower pace than in Q2. In Electronics, the demand for integrated circuits is still robust while the equipment market is progressively coming back to historical level after the last 12 months bubble. Then health care markets need to be mentioned as the volume growth remains fundamentally strong, notably in home healthcare. Let's now look at our figures. I'm on Page 4. In this context, our sales growth remains robust at 3.5% for Gas & Services in Q3. In Engineering & Construction, as for Q2, we have a higher percentage of group projects, and therefore, consolidated sales, which are third-party sales only, are down 25% when total sales are close to plus 20%. Global Markets & Technologies sales growth is very high, close to 30%, supported by biogas expansion, take new series for LNG maritime transportation and sales to the [ expansion ] industry. In total, group sales up 3.5% on a comparable basis as well as for published numbers. So positive ForEx at plus 2.1%, and Tech Air scope impact at plus 0.6% being compensated by negative energy pricing. Looking a little deeper in the various activities. Large Industries at 3% is up by a number of turnarounds, but continue to grow, thanks to ramp-ups in Asia and, in a lesser extent, in Europe. Industrial Merchant is up a little bit more than 2%, supported in particular by a solid trend in all Europe, volume growth in Southeast Asia, Emirates, Egypt, India and South America. Health care in Europe and America has continued also to be above average. Electronics in Asia remains strong, even if as expected, equipment and installations, they show a significant decrease compared to extremely high levels in Q3 2018. For Gas & Services, base business remain resilient with 2% growth in Q3, while the contribution of start-up and ramp-ups and small M&A at plus 1.5% was slightly above expectations, thanks to a faster ramp-up of some electronic projects and despite small divestitures accounting for minus 0.4% in the quarter. The acquisition of Tech Air in the U.S. at the beginning of Q2, treated as a large perimeter effect, is also contributing 0.7% to global Gas & Services growth for the quarter. Let's now review the value geography, starting on Page 7. Growth in Large Industries in Americas has been penalized by several turnarounds in the Gulf Coast. Merchants remained resilient even if construction and metal fabrication continued softening, weighted on the Airgas volumes and, in particular, on the hardgoods sales. Volumes were, however, more robust in consumption markets, food and beverage, in particular, as well as in Canada and Latin America. Med gas sales were solid in the U.S. and home healthcare delivered strong growth in South America. Europe at plus 3% benefited again from a high demand for hydrogen for refining in the Benelux, while the demand from our chemical customers slowed in South Europe and Germany. Merchant remained well oriented at plus 4.6%, supported by pursued robust pricing effect and once again, the consumption market. Organic growth remained high in Healthcare and in particular, in home healthcare in Germany, Northern and Eastern Europe, thanks to the increase in the number of patients treated. Asia at plus 7% benefits from ramp-up effects in Large Industries in China as well as from start-ups and ramp-ups in Electronics throughout the zone. To be noted, Fujian in China contributed for 2 months in Q3 as the divestiture was finalized beginning of September. In Merchant in China, we saw a significant decrease in bulk pricing while cylinder volume growth remained high and pricing positive. Conversely, bulk and on-site was strong in Southeast Asia. Demand and pricing for helium also remained very high. For Electronics, sales growth remains double digit, excluding equipment and installations, well aligned with what we saw in H1, driven by carrier gases and advanced materials. Africa, Middle East and India to finish with benefits from steady Large Industry volumes and from growth in merchant in the Middle East, Egypt and India. A few words now about the business lines to complement the review, I'm on Page 9. Large Industries growth has been supported by refining in Benelux in hydrogen and by ramp-up effects in oxygen in Asia, Europe and Latin America, compensating for the slight softening of the chemical market. To be noted, the turnaround in the U.S. have penalized LI growth in Americas by 2%. In Merchant, despite the softening of some end markets, pricing management remains successful at plus 3.8% or 2.5% excluding helium. The decrease in our good sales in the U.S. in connection notably with a slowdown in the construction market is significantly hampering global sales. As in H1, Healthcare is pretty high despite a very modest contribution of bolt-on acquisitions. Home healthcare is up 7.5%, supported by the development of sleep apnea in Latin America and diabetes in Europe. Med gas is up 6.5% with the strongest growth in Germany, Benelux, U.S.A. and South America. In Electronics, carrier gases continued to progress double-digit helped by start-ups and ramp-ups, and advanced materials continued to grow strong in China, Korea and the U.S. Compared to a very high 2018 basis, equipment and installation decreased 9% worldwide and 16% in Asia, and this decrease will amplify significantly in Q4. So all in all, we continue to grow in all of our geographies and businesses, but at a more modest pace than in Q2 in an environment, which is now slightly more fragile. Nevertheless, we pursued our performance improvement plans to make sure that the slower growth in top line would not jeopardy our vertical ratios. As you've seen, the pricing management continues to be successful in merchant and the product mix also continued to be relative with less equipment and installation and hardgoods. Actually, Gas & Services sales growth, excluding equipment and installation in hardgoods, is above 4%. Thanks to the refocus of our sales force on strategy, we also have a stronger provision of packaged gas versus bulk in a number of countries. The customer portfolio in Industrial Merchant is also under review. Efficiencies are slightly above the expected trajectory for our objective of more than EUR 400 million for the full year. Actually, we are at EUR 310 million year-to-date, thanks to excellent progress at Airgas and to more transformation project in the Air Liquide network, notably in Europe. The savings linked to digitization projects are increasing, and we have started our European business support center in Lisbon. The deployment of the supply chain asset renewals in Asia and the mutualization of the oxygen sourcing and supply in home healthcare in Europe are also well advanced. Since the beginning of our newest plan, we have now delivered close to EUR 1 billion of cumulated efficiency. In terms of portfolio management, we have finalized the divestiture of the Fujian asset to the customer as well as the sale of 2 small nonstrategic businesses. We have also closed 21 acquisition projects since the beginning of 2019 in order to reinforce our local density in key areas, and we have 20 more under negotiation. Performance improvement shows also in the cash flow progression, which is above sales growth. At EUR 3.5 billion year-to-date, cash flow reached 21.1% of net sales. This has enabled us to finance EUR 1.8 billion of new industrial and financial CapEx representing 11% of sales, and to continue to reduce our gearing. We are now at 67% after adjustment for dividend seasonality versus 78% in September 2018 and 69% at the end of last year. As mentioned at the beginning, the confidence of our customers remains intact in terms of business development. Our 12 months portfolio of opportunities have increased again compared to the end of H1 and stands at EUR 2.8 billion, pretty diversified and well balanced between the geographies. Most of the opportunities are linked to chemical, oil and gas as well as electronics. In Q3, we decided EUR 983 million of new investments with major signings with key customers in Large Industries and Electronics. Investment decision reached EUR 2.7 billion since the beginning of the year, including the acquisition of Tech Air in the U.S. In fact, year-to-date, industrial decisions are approximately 20% higher than last year. We had 5 more start-ups in Q3 in Large Industry and Electronics, and contribution of the start-up and ramp-ups, which is EUR 283 million year-to-date. The contribution will be lower in Q4, following the divestiture of the Fujian assets. However, thanks to a faster ramp-up than expected for some electronic projects, we are now confident that the full year contribution will be in the EUR 320 million range, above our initial expectations. Conversely, as mentioned before, this will result in a smaller contribution in 2020, around EUR 230 million, which will pick up again in 2021. Backlog is also higher than at the end of H1 at EUR 2.5 billion. So this is why what I wanted to share with you this morning about our Q3. Of course, the question you all have now is what's next? And in fact, if you look at our performance, it's the result of 4 main components. First, the end markets orientation. And there, we have diverse situation, as explained before, and we are constantly adapting and targeting the growing segments. Second, our resilience, supported by our business models and the diversity of our geographies, activities and end market, which is proven. Third, our performance improvement plans based on price and mix management, efficiencies and portfolio optimization, which, as you know, have significantly been reinforced.And to finish with our strong investment backlog, which is a key to future growth. So looking at these 4 elements, we are very confident that even in a softening environment, we can continue to deliver a very solid performance. And therefore, we, of course, confirm our outlook. So this is the end of our presentation, and I'm happy now to open the Q&A session.
[Operator Instructions] We'll now take our first question from Martin Roediger from Kepler Cheuvreux.
I would like to ask 3 questions. Number one is on Industrial Merchant in Americas where we see that prices are up by 4.7%, but volumes down by 3.6%. You mentioned the reasons for the weakness in construction, metal fabrication, hardgoods. My question is with demand being rather poor in Americas, especially in the U.S., how is it possible that prices are up so strongly? Is it because of the more disciplined approach by all the suppliers of industrial gas in that region? The second question is still also on Industrial Merchant. But here, I switch to Asia. It seems to me that the pricing power in Asia is fading in Industrial Merchant when they compare the 0.4% price effect in Q3 with the much stronger pricing in Q1 and Q2 of 1.4%, 1.5%. Is the price discipline among the players vanishing? Or is it just due to the high comparison base as pricing has been strong in China already 1 year ago? And the final question is on Engineering & Construction. I understand that the sales of third parties decreased, but the internal sales increased. I would like to know how much is already internal business in engineering business, so let's say, the contribution of that. And here, certainly more sales recently because sales is anyway eliminated in the consolidation. And B, if that shift towards more internal business continues, should we assume that you get rather quickly back to your historic average margins in that business?
Martin, maybe I will hand over to Mike for the question about Americas, and then I will take it to hardgoods Asia and E&C.
Okay. Thanks, Fabienne, and good morning, everyone. In the Americas, if you focus on the U.S. and Airgas, I think, first of all, a couple of points of clarification. The numbers actually from a growth standpoint in terms of Airgas are closer to 3.2% from a pricing standpoint. And so that gives you a sense. The other point that I would make, we see the growth of 1.1%, recognize that we also sold the Airgas safety services business, and as a result, that is not in the quarter numbers. So that 1.1% actually would be 1.7% if that were included. So that gives you a sense of the basic offset. As Fabienne mentioned, I think that certainly, in metal fab and in construction, we see some softening. And I think the majority of that is in hardgoods, slight softening in Airgas volumes in certain markets. At the same time, whether it's in research or more of the consumer-related businesses, whether that's Food & Pharma, we continue to see growth in terms of the actual volumes and related businesses. In terms of pricing, I think we continue to see strong pricing, recognizing, yes, there's discipline in our approach. I think Fabienne had addressed that on the last call. And also, we haven't seen a catastrophic reduction in any volumes. Things continue to remain strong. They're just not quite at the same level they were. And pricing is comprised of a number of different areas, which includes utilization rates. And I think utilization rates continue to be high in this current market, and a lot of these comparators are against a very strong Q3 of last year. So I think, overall, the pricing continues to be strong for a number of reasons, whether that's the approach, whether that's the fundamentals in the marketplace. And I think, in general, the markets continue to be solid.
Thank you, Mike. Regarding the pricing in Asia, what we've seen in Q3 is really quite a change in situation in China. So in China, we continue to see volume growth, but the bulk pricing is more or less returning to normal. We had very high pricing effect in bulk in China all along last year. We mentioned that several time. This is now fading. We had a decrease of 4% in the bulk pricing in China. However, our growth in cylinders continues to be more than double digit with both volume and pricing. So it's true that in China, we had more large industry project starting up and ramping up, so there are more liquid volumes available, and therefore, the bulk pricing is going down.We also were affected in September, I think, by the 70-year anniversary and Golden Week. You know that during this period, the industry is dramatically slowing down in China. So we still have a positive pricing globally. This should continue in Q4. But we have a very high comparison with the bulk price last year. In terms of engineering, the sales to third-party stake is decreasing to the internal sales. We have a lot of projects signing right now. So we are using a lot of our own engineering capacities for the group projects, which is kind of good news. That's why we have a discrepancy between the publishers and contribution to the consolidation, which is only sales to third party and the total sales, which includes the sales for our group project to the group subsidiaries. In terms of margins, you know that we had a terrible [ E&C ] in 2016, 2017 with the dramatic reduction of the number of projects. At that time, we were experiencing losses. We were back to breakeven last year. We will be positive this year, but it will probably take 1 or 2 more years for us to come back to a regular margin, which is a little bit less than 10%. In terms of proportion, historically, we are 50% group project, 50% third-party projects. It's clear right now that we have more group projects. This remain like that in 2020 as we continue to sign a lot, in particular, in Large Industries.
We will now take our next question from Andrew Stott from UBS.
It was just coming back to pricing, but looking at the global, number one, just the U.S., given the comps were somewhat tougher, 3.8% looks pretty strong. I'm just wondering how much of that is helium. I think you said that was 25% of the Q2 number, Fabienne. So I just want to check in on that. Also, a broader question on the second half. When you look all the moving parts that you can see so far for the 4 months of the 6, how are you thinking about the operating margin?
So for the global pricing in industrial merchant or merchant only, we are 3.8%. There is a strong impact of helium, and this is going to continue into 2020. There are no questions, there are no new sources coming on stream next year for helium. And the Helium component is 1.3%. So excluding that, the merchant pricing effect is around 2.5%, to be very clear. What I said in my presentation regarding the margin is that we have accelerated our improvement plans for the performance so that even if the top line slows down, we still deliver the level of performance we expect and you expect. So we are very confident in our margin level -- efficiency level or margin level for the second part of the year. We have shown a step change in H1, and we have no intention to go back. However, you know that I'm not going to give you any more precise number than that.
We'll now take our next question from Tom Wrigglesworth from Citi.
To your presentation, just a couple of follow-ups from me. Firstly, on U.S. Large Industries, you talked about customer maintenance turnarounds. Could you identify kind of what impact that had on the growth rate?Secondly, on U.S. merchant, and following up from Mike's comments. Obviously, the volume declined there. Is that -- could it be the fact that hardgoods is more than the total volume decline and that there's growth in other areas? And I guess, obviously, we're seeing the macro data continued to deteriorate in the U.S. Should we read that as a further headwind for the fourth quarter as well from the merchant volume perspective? And then lastly, in Europe, I guess you've noted in Large Industries that activity was weaker in steel and chemicals, but we're still seeing actually relatively good merchant performance, I guess, on a volumes perspective. Again, going forward in Large Industries through the end of the year, are you expecting -- will that continue to -- will that slowdown and steel and chemicals continue to weigh on the fourth quarter?
Well, Mike, I'm afraid you will have to do most of the job and François will answer for Europe.
Sure. I think, first of all, from a Large Industries standpoint in the U.S., we've just seen a lot of turnarounds on the Gulf Coast. We saw a number of turnarounds, both from a refining standpoint in terms of hydrogen demand and also on the chemical side. And I think some of that will continue as we go into the fourth quarter as well. So I think that's a clear driver of the numbers and the softening that we see. There is a bit of weakness in some of the oxygen volumes in metals from a steel standpoint as well as in certain chemical areas, but nothing overly pronounced. So it does -- certainly has an impact. I think that we've also got the underlying piece that the crude slate has lightened in the U.S. I think Benoît articulated that on our last call. And so the actual requirements or the hydrogen intensity to manage the upgrade of a different level of crude slate also has an impact as we look at that. So I think in general, that's where we are in the Gulf Coast. The continuation to Fabienne's point of very strong business development continues. We signed 2 major contracts again in the quarter. I think we've signed 9 new pieces of business on the Gulf Coast over the course of the last several years. So we continue to see good strength overall. In terms of the merchant markets themselves and some of the things that have evolved from that standpoint, I think it's a multifold situation. Specifically, if we look at manufacturing, you've got a situation where the automotive and the tiered supplier production volumes into automotive have really stabilized in the U.S. We still see the decline on Class A trucks and also in terms of heavy equipment. So think about construction, oil and gas and agriculture. Underlying all that, general manufacturing and fabrication continues to be strong. As mentioned in the construction piece, we've got a combination of things. In the midstream, the pipeline and the storage projects have not fully materialized as expected. They're sanctioned. They're just waiting for permitting in parts of the countries. So they're coming. The question is how soon will they get their permit. The new petrochemical projects are in sanction and permitting process as well. Some of those haven't gotten to the field yet. In terms of LNG terminal construction, that continues. New gas power plants to replace coal-fired power plants continues. So I think in looking at all that, we seriously see from a hardgoods standpoint kind of a single-digit decline in the numbers somewhat more pronounced in a couple of the markets. So that's the bigger driver. The gas volumes in these areas are flat to slightly soft, nowhere near the declines that we see in the hardgoods piece. Yet at the same time, if we look at food, if we look at beverage, if we look at retail, if we look at life sciences, we continue to see growth in those volumes. So that's kind of how it would compare as we think about where we are today and likely how that will evolve as we go through the fourth quarter.
Okay. And then in Europe, should we -- is this a sustained low level of activity? I guess I kind of think of Large Industries being relatively utilization rate immune from a steel and chemical perspective. So I'm kind of a little bit surprised to see that being pulled out in Large Industries.
So talking about Europe, this is true that the Large Industry is lower this quarter than the Industrial Merchant. Industrial Merchant is close to 5% at 4.6%, which is basically a combination of pricing and stable volumes. For Large Industry, we have seen overall growth of a little less than 1%, and this is quite specific and driven by indeed a slower demand on the steel industry. And this is true in some countries, mostly Germany and, to some extent, also Spain and Italy. But the main, actually, part of this softness is coming from Germany where the steel industry, of course, is mostly driven by the automotive industry. And several of the European steel players have actually announced adjustment of capacity in different sites. I should say that, fortunately, we are well positioned on many of those sites that will remain and keep the production. So that should be fine.But to your question about what do we see for Q4, probably this slow demand or slower demand for steel industry will remain in Q4. The good news is that, midterm, we see some very nice perspective in the steel industry in Europe. You remember that we have signed a contract with the ThyssenKrupp for hydrogen supply in Germany. And we have just announced 2 weeks ago another agreement to reduce CO2 emission with ArcelorMittal in one of their sites in Ghent in Belgium. Regarding chemicals, also, we have seen some softness in the demand side in Europe in Q3. That probably also will remain for Q4. The more positive trend that we see in Europe is definitely in refining and for hydrogen where we leverage our presence with many of the leading refineries, which are well positioned to capture opportunities in the change in the fuel demand and especially with the IMO and the maritime change of regulation. So we see a very good demand and an increasing demand. We are actually at historical high level in hydrogen sales on the Northern part of our network in Europe, and that should continue overall for Q4.
We will now take our next question from Charlie Webb from Morgan Stanley.
Firstly, just kind of coming back to the margins. Clearly, there are a lot of measures in place for this year that kind of continue that momentum from the first half, whether it be the efficiencies, the portfolio shaping and obviously, the kind of very positive pricing. As we think about kind of the sustainability of that momentum into next year, should we start to think that it returns to a more normalized margin improvement like you've shown historically? Or do you think that some of these measures you're taking kind of continue and are sustainable into next year? That's kind of the first one. And then just secondly around, I guess, some of the kind of longer-term opportunities and what you're seeing in the CapEx cycles. Clearly, the backlog investment decisions are all kind of trending higher. Are you seeing any new kind of larger projects that are of interest starting to come under a radar? And where is that activity and where is that investment coming from? That would be helpful.
Okay. So back to margins. Well, all the plans we are deploying right now are sustainable. I mean we have a very structural transformation, which are ongoing now in various region of the group, and we are absolutely committed to continue in this direction. We have committed to return to -- return capital employed at 10% in 2021, 2022. It's obvious that if we want to reach this objective, we have, on one side, to continue to improve our margin at an accelerated pace and to work more on our portfolio on our capital employed, and we will do both. Now we try to give you a little bit more color on 2020 when we publish our 2019 full year at the beginning of February. In terms of long-term opportunities, you've seen that the portfolio of opportunities at EUR 2.8 billion is very high. It keeps increasing. What do we have in there? We have a number of significant projects in our main industrial basins, but not very huge one. It's a portfolio, which is pretty well balanced. And there what needs to be mentioned as well is that we continue to see a lot of opportunities in electronics. So the electronic projects are smaller projects, but it's also projects, which are delivering quicker, will be slower construction period than the large industry projects. So I would say that the portfolio is well balanced. The largest projects are probably some takeover projects, but you know that it takes time to conclude those projects, but we don't have a $1 billion project in the portfolio, certainly not.
I guess just kind of circling back, and I understand more color on the margin as we get the full year results. But clearly, you've got another EUR 400 million and so of efficiencies, so that kind of EUR 1.5 billion you're targeting accumulated by 2020. You've got -- of the ongoing portfolio -- I mean are there lots of other kind of portfolio trimming opportunities that you still see there in the business? And then perhaps just thinking about how pricing clearly at very good levels today. But do you still see a kind of continued positive effect on that into next year in a similar way to what we've seen this year? And is that just being driven by consolidation? Or is there any risk that some of this volume weakness or softening markets leads to also kind of, I guess, a softer price environment than what we've seen this year?
Regarding the portfolio, as I mentioned during the presentation, we have a number of divestitures ongoing. We also give more details on that at the end of H1. And we continue our bolt-on acquisition program, which has also contributed to the margin because of the synergies we can extract, the acquisition of Tech Air, for example. It's very contributive to the margin with a very high level of synergies. So the programs are ongoing. Same thing for the efficiencies. We committed for more than EUR 400 million this year, and that would be the case again next year. I think all the projects and plans are aligned with that.In terms of pricing and volumes, once again, it's a little bit early to talk about 2020. I think that pricing is, of course, driven by inflation. But as we explained many times, we have also done a lot of effort to reorganize and retrain our sales force to make sure that we better manage our pricing. The helium impact is going to remain there for at least the full year 2020. So we have a lot of good fundamentals to be able to continue to manage our prices. In terms of markets and volumes, I would really prefer to rediscuss that at the beginning of 2020.
We will now take our next question from Theodora Joseph from Goldman Sachs.
I'm coming -- just coming back to pricing again, I'm sorry about it. And I was just wondering is -- with the pricing actions that you've taken so far, you have actually recouped some of the cost inflation that you've seen in the merchant business. And also, for me, as I'm thinking about 2020 and 2021 onwards, what's kind of a good approach to think about the long-term sustainable pricing target that you have internally? And also, with the kind of pricing that you put through in the business, have you started to see customers push back, any volumes losses and if you actually start to see kind of customer pushing back on this? Is this -- are volumes losses something that you are able to accommodate? And then one last question just on the EUR 230 million in terms of contribution -- start-up contributions for next -- for the next year. Can you give an idea of actually how much of that is going to be from Large Industries versus Electronics?
So pricing again. Do we have a long-term sustainable target? Of course, our target is to be above inflation. It's also sustained by our efforts in terms of mix. I think as long as we see transportation costs increasing, at the time being, they are increasing quicker than inflation in many countries, it will be easier to pass price increase, but our long-term target is clearly to be above inflation through more innovation, more service and the better mix. We've not seen customer pushback for the moment. The elasticity of the market in terms of pricing is remaining quite good. So we are not worried in the short term. In terms of next year, contribution of start-up and ramp-up, the split is around 70% Large Industry and 30% Electronics. We have also a few merchant projects, but these -- the bulk of it will be between LI & Electronics.
We will now take our next question from Laurence Alexander from Jefferies.
Two questions. The review that you call out for some of the Industrial Merchant assets, is there any change in the scale of the review? Or are you becoming more aggressive on your criteria in that front?And then on cylinders, are you seeing any improvement in cylinder rental prices? Or is the price increases that you are reporting mostly tied just to the sale of gas?
So in terms of portfolio management, there is no change in scale. I think we have, however, tougher criteria than in the past, and we are reviewing it more proactively, and we will be considering selling the activities where we have a small market share, where we saw very little improvement over the last 5 years and where we don't see any potential in the next 5 years. So it's pretty simple said like that. But it means that the small divestiture program is going to last more than in 2019 in 2 or 3 years.In terms of pricing, it's, of course, both rentals and project pricing. It's a global effort.
And then can you just parse in China the comment around cylinder volumes being positive? Is it because your mix is less tied to industrial? Or is there something quirky going on there?
I think in China, in terms of packaged gas, we have developed a full network. You know that we continue also to develop a kind of Airgas side business model with the acquisition of small local distributors and the aggregation of those distributors. I think we are also pretty well positioned in some of the markets like Food & Pharma, Technology & Research, and that does help. But I confirm that we still have a double-digit growth for the cylinders in China, and we expect that to continue. Maybe, François, you wanted to add something on the cylinder pricing in Europe?
Yes. Thank you, Fabienne. Yes, just a comment for Europe regarding the RPU, the rental, which is holding very well. And this is true that, short term, we try to pass some of the price increase through the rentals. But our strategy really is, long term, to get higher rentals, RPUs, for innovation and services to the customer. And we have just launched in U.K., our new type of cylinder, which is called Qlixbi, which is really a breakthrough for welders. And with this kind of offer, you can definitely get a premium on the rentals. So that's the long-term or mid-term strategy to make sure that we bring value to the customer, and we are able to reflect that in the RPUs.
Our next question comes from Peter Clark from Societe Generale.
Mike, well done. You're right on the volumes of Airgas, they didn't seem to get worse. But I've just got a question that's going to follow up on Charlie's about the portfolio, I think, in terms of specifically the negotiations on the Gulf Coast. Just wondering whether they have slowed. I'm just wondering as well, I keep looking on the chart, the new projects coming on and the methanol project with Yuhuang, which obviously was very slow start. So just wondering what's happened with that one on the Gulf Coast as well.
Mike, do you want to answer this one?
Sure. So I think, Peter, the business development activity on the Gulf Coast continues. And I mentioned earlier, we've signed, just in the quarter, several additional projects. So I think the momentum continues, I think that -- and it's across the board. You see the developments in petrochemicals, whether that's olefins, polyolefins, whether that's in oxygen derivatives or anything else. I also think that, in general, we've -- we'll see the continuation on some projects. There's always a few that will float out there for a while, and some of those may be delayed or may not be delayed. But we have not seen anything significantly pushed out into a much later time frame for any of, I would say, our major customers who are contemplating newbuild. For those projects that are under a different level of development, sometimes you'll see those evolve in a slower pace depending on what's happening in markets and where they get their funding and those types of things. But in general, we continue to see good growth. I think you see that in the time line we show for major start-ups in 2019 and 2020. And with all the new signings we already have, that will continue on through 2023 easily.
Well, thank you, Mike. Maybe I can add that the portfolio is well balanced in terms of geographies. Now we are approximately, right now, 1/3 Americas, 1/3 Asia Pacific and 1/3 Europe. So it's not -- obviously, not only the Gulf Coast.
Okay. And in terms of Yuhuang, in terms of the project, the methanol project?
So I think that, that project continues. I think that we expect to see that start up sometime into next year, and I don't think we have any other change on that at this point.
Our next question comes from Chetan Udeshi from JPMorgan.
My questions are not on pricing or margins. So the first question I have is just can you remind us what is your exposure to the oil and gas, the upstream part in the U.S.? Because I think from memory, I remember that in 2015, 2016 where we saw sort of a big slowdown, I think Airgas did see some sizable headwind from that. So just to remind ourselves what is the upstream exposure to U.S. oil and gas. The second question was you mentioned in the slide something around that there were 21 acquisitions. Just wanted to check how are those sort of reflected in the growth between like-for-like and scope and what will be the accounting methodology for the revenue that you might lose from Fujian going away from Q4?
Okay. So Mike, maybe you talk about oil and gas in the U.S., and I will answer for the acquisitions.
Well, in terms of oil and gas in the U.S., I think that a lot of this has to do with some of the equipment that goes into hydraulic fracturing as well as any utilization of nitrogen in that space for an energized frac. On the mechanical components, we certainly saw, with the rise in hydraulic fracturing, a significant uptick in manufacturing sectors in the U.S. I mean think about not just piping, but think about valves, pumps, compressors, railcars. And I think that, that has kind of stabilized. And as you look at pricing of $55 to $65 a barrel, we continue to see that as solid. We've also seen some consolidation, and so I think the spend there is fairly steady. In terms of a percentage, I'm not going to go ahead and try and project exactly what the percentage is. I would say that, that was one of the drivers of what we have seen over time, and it continues to be a component of the multitudes of what we have in terms of metal fabrication and manufacturing, recognizing that, that covers a broad spectrum of industries and evolution of what could be. On the oil well services piece, that clearly had slowed up in Canada where that had been fairly dominant several years ago. There's no change this year at all. It's just slower than it was previously on the energized frac. And I think we continue to see some level of oil well services, but no real change there dramatically.
Thank you, Mike. So in terms of acquisition, the bolt-on acquisition are included in the comparable growth. It's a lot of very small projects. So all in all, it was contributing to the growth of the quarter no more than 0.2%. But on another end, we are -- our divestitures, not including Fujian, I mean the small divestitures accounting for minus 0.6%. In the quarter, we have a balance of minus 0.4%, which is in fact hampered growth and not contributing to growth. It's mostly small distributors in industrial merchant, small actors in home healthcare. So it's more contributing in terms of synergies and in terms of margin improvement than in terms of top line most of the time. Fujian will be treated starting next year in 2020 in the large perimeter. So the divestiture of Fujian will be excluded from comparable growth.
[Operator Instructions] Our next question comes from Jean-Baptiste Rolland from Bank of America.
I have only one in relation to start-ups. So this year, you're going to achieve EUR 320 million, next year, EUR 230 million. And you mentioned that the start-ups will pick up again in 2021. What sort of -- at the same time, I just note that your backlog is at a pretty high level. So presumably, this is going to -- there could be some further accumulation in the backlog even more so that your start-ups are going to decline next year. But what sort of magnitude can we expect in 2021? Would you expect some record levels? Or would you expect just some numbers at the level of maybe around what you're going to achieve this year, i.e., around EUR 320 million? I appreciate any color you can give.
It's not yet in 2021 that we will see the peak, it will be more in 2022, 2023 because it's really in the last 12 -- 6 to 12 months that the number of signing has really increased. So in 2021, we should be more back to, I would say, normal level, around EUR 300 million or something like that. But it's a little bit early to say because we have, of course, estimates in terms of start-up date, but it's still evolving, as you can imagine, for a project that will start in 2 years.
There are no further questions over the phone.
So I think we'll be able to conclude just in time to let you join the BASF call. So thank you very much, everyone, for your questions. Just as a conclusion, you've seen that we continue to grow in all our geographies, that sales are robust even if the environment is a little bit more difficult. We have pursued our performance improvement plans, and we are very confident that they will continue to deliver, and that's why we more than confirm our outlook. So we'll be happy to talk to you again at the beginning of 2020. Thank you very much. Have a good day.
This concludes today's call. Thank you for your participation. You may now disconnect.