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 Quarter 3 2020 Revenue Conference Call. [Operator Instructions] Today's conference is being recorded. I will 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 very much for joining our conference call this morning. Fabienne Lecorvaisier will present the third quarter revenue, and she is joined by François Jackow, Executive VP, Supervising Healthcare, Africa/Middle East and European hubs. And on the phone from Houston, Mike Graff, Executive VP, Supervising Americas and Asia hubs and the Electronics business line. They will both participate in the Q&A session. In the agenda, our next announcement are on February 10, next year for our full year 2020 results, and I am happy to announce on March 23, our sustainability day. Let me now hand you over to Fabienne.
Thank you, Aude. Good morning, everyone, and thank you for attending this Q3 2020 activity conference call. In line with what we told you at the end of Q2, signs of recovery have been confirmed in all regions, but with still very contracted basis and situations. Nevertheless, we managed in Q3 to preserve comparable sales at a level very close to last year, with a decrease limited to minus 0.9%. The deployment of a margin improvement plan has been pursued and our additional cost containment measures were maintained and they both delivered. The business development activity is still dynamic, but we see a clear refocus of our customers on the growing end market with more assigning and opportunities in developing economies and for energy transition. In this field, we are about to start 2 major projects for which I will give you more details. And just to make things clear upfront, the Q3 performance reinforces our confidence in our full year guidance. Let's now review the key figures on Slide 3. Q3 Gas & Services sales are only down minus 0.9%, having recovered the level of last year in most geographies which reduced the year-to-date gap to minus 2%. Engineering sales are slightly better, still at minus 24% of third-party sales contributing to consolidation, but only at minus 19% in total. Order intake year-to-date now reaches EUR 428 million to be compared to EUR 499 million last year, with clearly a better momentum after summer. Global Markets & Technologies are at the moment supported by high-tech sales in membranes, in particular, and biogas. There, the order intake is a record at EUR 485 million, 30% higher than in 2019 year-to-date. As a result, comparable group sales are also close to flat for Q3 at minus 0.9% and minus 2.4% year-to-date. In Q3, the negative ForEx impact on the energy pricing impact have amplified, respectively, at minus 3.7% and minus 1.5%, penalizing published sales. We are also recording a minus 2.6% large scope impact, resulting mainly from the divestitures of Fujian in 2019 and of Schülke & Mayr in Q3 2020. Therefore, our published sales are down 8.7%, showing a high gap to comparable sales. All regions are improving. America has been the only one still under last year, due in particular to the high proportion of Industrial Merchant business in North America. Europe still benefits from strong health care growth and from growth in Eastern Europe. Asia is very contrasted by -- driven by an impressive recovery in China, when Africa/Middle East is globally back to last year level. Let's now dig a little into details. I am on Slide 5. Americas first. Large industry volumes are slightly recovering despite the impact of the Hurricane Lora in the U.S. We also benefit from start-up and ramp-ups in Latin America. In Merchant, the improvement is progressive. We had the reinsuring months of July, a plateau in August and the better momentum in September. Gas sales are supported by better consumption markets and very solid pricing at plus 3.6%, while hardgoods sales are still significantly down. Health care sales are still strong in Latin America, driven by medical oxygen, but also recovering in the U.S. Electronics sales continued to be driven by equipment and installation. In Europe, we are back to positive. Large Industries volumes remain weak in France and Iberia, but improved elsewhere, in particular, in Central and Northern Europe and are growing in Russia and Turkey, with volumes to chemicals now close to 2019 levels. Merchant is much better than Q2, in particular, in Benelux and Northern Europe and is up in Eastern Europe with a good mix driven by cylinders now close to last year. Then health care is still very strong at plus 9.5%, driven by medical equipment sales and small acquisitions in home healthcare. Asia is very contrasted, driven by the dynamism of China. Large Industry is globally up, thanks to China, Korea and Australia. Merchant is the most contrasted with strong China, better Australia, but very low Japan and Southeast Asia. Cylinders are recovering quicker, while equipment and installation remains strongly down. Electronics continued to be a strong growth driver, above 10%, excluding equipment and installation, thanks to carrier gases and advanced materials. Africa/Middle East is flat, supported by positive Large Industries, recovering Merchants in the Middle East and India and strong health care throughout the zone. Let's now look at the various business line, starting on Slide 7. After a weak Q2 pull down by industrial market, the progressive recovery of Industrial Merchant is visible in all geographies. Most of the developing economies are back to growth, led by China. In major economies, we have contrasted situations, but volumes still remain so far on the last year's level. However, the pricing effect is still very solid at plus 2.6% globally and particularly strong in Americas despite relatively low demand, confirming the progress made by our teams in terms of pricing management. Large industries are back to 2019 level, driven once again by developing economies and despite diverse situations. Volumes in the existing unit and network are improving sequentially, both for oxygen and hydrogen and we still benefit from start-ups and ramp-ups. In terms of markets, we see chemicals recovering quicker, but we also had more positive signals in Europe at the end of September. Healthcare remains very strong, driven in particular by high medical equipment which more than tripled compared to last year in connection to the pandemic, of course. Home healthcare is also better than anticipated, thanks to diabetes and to a few small acquisitions. Medical gases are sustained in Europe and strongly recovered in the U.S., while Latin America and Middle East Africa continued to grow. Electronics benefiting from high loading of the semiconductor industry continues to be a strong growth driver. Growth is above 7% globally and above 10% in Asia, if we exclude equipment and installations. The mix has improved regularly with a 20% growth trend for advanced material over the last quarter. So to conclude on the activity analysis, we now have 3 business lines, which are back to positive in line with our expectations, Industrial Merchant, which is the most correlated to IP is the only one to remain on the last year. In terms of performance on slide 9. We continue to rely on our structured performance improvement plan on one hand. And on the additional cost containment plan on the other hand, which are both delivering. On Slide 10, the 3 pillars of our margin improvement plan continue to be very valid. Pricing remains very solid, thanks to the campaigns launched at the beginning of 2020 and to proactive management. The mix is also contributing, thanks to lower hard goods and equipment and installation sales in Merchant and Electronics as well as free of packaged gas in some countries and to the growth of advanced materials in electronics. Efficiencies reached EUR 311 million year-to-date, well aligned with the yearly objective above EUR 400 million, transversal project, a smart innovative operations and business support centers deployment continued despite the travel bans. Portfolio management was also pursued with ongoing divestitures and reorganization to focus on the most promising markets and activities as well as more bolt-on acquisition. Good news is that these efforts also translate in a very strong cash flow, close to 24% of sales and thanks to the high focus of the teams on collections, working capital remains well under control. The investment activity kept its high levels of Q2, although we saw our customers refocusing on growing end markets. The 12 months portfolio reached EUR 3 billion, with more opportunities in developing economies, including takeovers as well as for electronics, when in mature economies, the development focus is clearly with Energy transition. We decided EUR 790 million of new investments and decision year-to-date are now above EUR 2 billion. The investment backlog is also increasing accordingly at EUR 2 billion with more efficiency projects for close to EUR 1 billion of future sales. Just as a reminder, the Sasol project investment is not included in these numbers. I would like to take a few minutes to insist on 2 major projects, which are about to start as we see presented on Slide 12. First, the electrolyser in the Bécancour, Québec, which is our first large-scale production unit for 100% renewable hydrogen. This electrolyser relies on PEM technology and will use up to 20 megawatts of hydroelectricity to produce approximately 8-ton per days of green hydrogen, which makes it a first of its kind. This site, which has a liquefier will serve mobility on merchant market and will be the largest PEM unit in the world. This is a major step forward for the group, supported by our partnership with Hydrogenics. Second, a unique using Air Liquide's SMR-X technology will start-up in Q4, supplying hydrogen to Covestro's site in Antwerp. It recovers the heat from the excess steam co-produce which translates into lower feedstock consumption, and that's a result, 5% less CO2 emissions. On top part of the remaining CO2 emissions will be captured and reused as feedstock by Covestro for its own production in secular models. Also in the Antwerp heating, we are involved in a consortium with the port of Antwerp and other major industrial companies to deploy carbon capture at the port. We've closed borders due to transportation and sequestration, supported by public subsidies. This project confirms Air Liquide's willingness to remain at the forefront of the energy transition in the industry. And it is also the opportunity for me to announce that we will host a sustainability day on March 23, 2021, during which we will provide you with further details on Air Liquide's climate and hydrogen strategy and quantified objectives. In terms of contribution of start-ups and ramp-ups. On Page 13, we reached EUR 53 million in Q3. We now believe that for 2020, we will be at the top of our forecasted range with EUR 180 million contribution, thanks in particular to some projects being executed quicker than expected. For 2021, the contribution should be between EUR 320 million and EUR 350 million, despite further delays in customer's construction project. And thanks to the additional sales to Sasol, around EUR 100 million for the year. Regarding the Sasol project, we will be in a tolling model for a first phase, and we'll move to full energy management in the second phase after metering works have been completed, which can take around 18 months. In the second phase, sales will increase significantly with a limited impact on the profit contribution. So this ends our review. Let's now move to the outlook. As mentioned at the beginning and based on the Q3 recovery, we finally confirm our guidance. Given the recent rise of the pandemic, in particular in Western Europe, the pace of the recovery remains, of course, very uncertain. And our best estimate for the moment is to have Q4 broadly aligned with Q3. However, relying on the ability of our teams to ensure the continuity of operations and on our performance plans, we are confident in a further increase of our margins and on a broadly stable net profit. Thank you very much for your attention. I suggest that we now open the Q&A session.
[Operator Instructions] We'll now move to our first question over the phone, which comes from Martin Roediger from Kepler.
I have 3 questions. First question is on Page 13 of your handout. I'm a bit puzzled about the guidance for sales contribution from start-ups and ramp-up. Compared to the last conference call in Q2, you now expect the upper end of the previous EUR 150 million to EUR 180 million sales contribution range. So you figure for this year by between EUR 0 million and EUR 30 million. For next year, you lift your expectations from previously EUR 300 million to a range of EUR 320 million to EUR 350 million, which is an increase of EUR 20 million to EUR 50 million. But this figure for next year includes the acquisition of Sasol, which is EUR 100 million sales, and moreover, the chart implies that 1 start-up in the U.S. is postponed from Q4 this year to Q1 next year. So normally, your sales contribution forecast for 2021 should be clearly above EUR 400 million. What do I miss here? The second question is on pricing in Industrial Merchant in Asia, which was minus 0.5% in Q3. You say helium prices have stabilized in Q3. On a global level, helium prices contributed, however, 0.7% of pricing. So my question is, did helium prices drop in Asia? And staying with Industrial Merchant pricing, can you talk about the pricing situation in China? Did the price discipline among the competitors weaken? That would be strange because the comparable sales growth in China in Industrial Merchant was rather strong with plus 8.3% in Q3?
So I would start with the first question on sales contribution of start-up and ramp-up. So on one hand, we have projects being executed quicker in 2020. So those projects will not contribute as much in 2021 because they start earlier. On another end, we have a number of projects which are delayed due to the sanitary situation. It's mostly on our customer side, so some customers are late to start. When -- for Air Liquide, we are well aligned with what we were presenting at the end of Q2. So those projects will translate progressively to 2021, and we'll have -- from 2021 to 2022 and we'll have also some projects, which were forecasted for 2022, which are now delayed until 2023. So all that is translating to a few months later. And on top of that, we have more this year, so meaning less next year, but it's clear that if we put Sasol on the side now, the forecast we are giving to you now for 2021 is lower than last time. It's not lost. Its many delays. That will translate to the next year. Question on the pricing in Asia. And the contribution of helium. It's true that the helium pricing are still up to last year and stabilizing globally. However, they are a little bit under in Asia than they were last year. It's not the only reason where you have a slightly negative pricing in Asia. You know that in Asia, we have a price which is always more volatile than in the other zones. The pricing is positive in bulk and we have a little bit more pressure in packaged gas. I said that packaged gas is recovering quicker than bulk. This is true mainly for Europe. In Asia, it is the opposite. We have bulk recovering quicker than stronger pricing on bulk and weaker pricing in packaged gas. This is also very true in China, with a slight decrease on the helium pricing, but really a slight decrease and a little bit of pressure on the packaged gas price, which were pretty high last year. Mike, I don't know if you want to add something on the Asian pricing?
Sure. And just to add to what Fabienne already articulated. I think that bulk prices were in a pretty good place as we went through Q3 in China. I think, however, you have to recognize that there's multiple elements to the pricing here. I think Fabienne articulated well where we are with helium. And of course, in different parts of the world. And for different customers. With helium, you may have a midterm kind of contract price over a number of years. In some cases, it's -- it's more on a transactional basis. And so I think you'll see -- you see some softening in helium in some markets as result of that. But I think other driver that we can't lose sight of is for the Merchant business. You have the impact of a lag of costs associated with energy prices that are built into some of the pricing and some of the contracts. And so there's a bit of a lag, where early in the year, we saw a decline in some of the energy prices associated with that that are now fully in place as we move through the year. So there's a bit of a lag difference there that you wouldn't normally see and we see the upside when it goes the other way.
Our next question comes from Andrew Scott from UBS.
Just a quick couple for me. On Sasol, just wanted to understand the numbers with you Fabienne. So the EUR a 100 million for next year, how quickly do you then ramp up to the more than EUR 400 million you mentioned in the press release? Does that happen in year 2? Or did it happen on a multiyear basis? Also sticking with Sasol, you will book that as scope, I assume rather than organic? And then what are the margins attached to that revenue? Are they typical on-site margins or somewhat lower? As I'm looking at the purchase pricing, I'm thinking it's the latter. I'll stop there. I've got a second question on health care. But if you can just take the Sasol stuff first?
Okay. So I confirm the Sasol contribution will be accounted for as scope. So it will not be part of the comparable sales. For the contribution on margins, maybe I will hand over to François Jackow as he is supervising, as you know, Middle East and Africa.
Thank you very much, Fabienne. So regarding the contribution on the margin of this new deal, it's going to be similar to what we are doing in Large Industries business. Taking into account, I mean, some of the profile of the customer and the country. So it's going to be well in line with the profitability of the Large Industries business. Regarding the contribution to the sales. The first phase of the project is going to be, as mentioned by Fabienne without the energy contribution. This is due mostly to the fact that the units which are currently in place do not have the proper metering to be able to measure the energy consumption fully. This is done at certain battery limit, but not exactly at the battery limit of the scope that we are considering. So we have already launched a project to complete the metering of the units that we are taking over, depending on the execution rate and of course, assuming that we've got the confirmation from the competition authority at the end of the year. This will take between 1 year and 18 months, potentially 2 years, but we target for 18 months. So once we have that, there's going to be a step change. So it's not really a ramp-up. It's going to be a step change in the contract and in the sales.
Yes. If I may, as result on that, is that during the first Phase, the tolling period, you will have a higher-margin because sales are going to be much lower than in the second phase as published.
Yes. And just to be clear, it sounds like the second phase of step-up is probably only part of 2022. So mainly -- so should I see 2023, you're getting to that over EUR 400 million level? Would that be clear?
Yes. That's probably the time line to consider. We will update you as we go, of course and give you some visibility.
Sure. Thanks, François. And then, yes, just a quick follow-up on healthcare. I think you've ended up doing somewhat better than your initial expectations for the second half, at least so far. Do you put that down to this one-off sale that you mentioned in the press release? Or are you starting to reconsider the original guidance you gave for the second half?
François, you want to take that one?
Yes. Yes, of course. So regarding the healthcare performance on the top line, indeed, we had a good performance, which was boosted by equipment sale, which was exceptional equipment sales. We do see some of this stay, but probably to a lesser extent in Q4. Of course, depending on the overall market demand and sanitary situation. For the rest of the business, we are really, I mean, on the trend that we discussed before, namely, in some area, we have seen a clear recovery in the home care activity. You remember that we have seen some decrease in the number of new installations, mostly because people were not going to visit physicians. We have seen, I mean, an increase in recovery on that. For the medical gases for hospital, basically, we have seen a normalization of this in most of the region. Now we have to be cautious because with the second wave being present and ramping up in several geographies. We see this trend, I mean, shifting a little bit. We see already, I mean, in several locations, a significant increase in the oxygen demand for hospital, which may continue for some months.
We'll now take our next question from Tony Jones from Redburn.
Tony Jones at Redburn. I've got 3 really quick technical ones. So firstly, are you able to give some guidance on the absolute currency impact for Q4? And then also similarly for the bolt-on, 7 bolt-ons that you call out in the slide deck, could you give some indication of the sales perimeter impact from Merchants and Healthcare in 2021? And then just finally, turning back to the helium price. Do you see risk that prices start to drift downwards in 2021 on improved availability?
The first one on the currency impact, you know that we are always calculating our forecast, taking into account that the current rate will last until the end of the year. If it is the case for the full year, we should have a minus 2%, approximately ForEx impact and a minus 2% approximately as well Energy impact. So this is what we have for the full year right now, providing the situation is stabilized. So a guidance for bolt-on and small perimeter, you know that we continue our portfolio management actions with small divestitures and bolt-on acquisition. For the full year, it should approximately composite, I believe. And depending on the sales rate we have, we may be facing an acceleration of bolt-on in 2021 following the crisis and follow the announcement by Mr. Biden of potentially increasing the tax on capital gain in the U.S., but then we will still have a relatively significant large scope impact due to the divestiture of Schülke & Mayr in particular. Then the last 1 on helium pricing, do you expect price to decrease in 2021? Thanks to improved availability. So we have a huge -- still a huge helium pricing impact because we still compare to a period where the price has not completely going up. So next year, we'll have the comparison basis that is going to be far less favorable. Are the new sources going to come on stream in 2021? The initial forecast was end of 2021, in particular, for the Russian sources. And actually, we don't expect a significant contribution before 2022.
We'll now move on to our next question, which comes from Laurent Favre from Exane.
I've got 2 simple ones, please. The first one, Fabienne, is on temporary savings. I think in H1, you talked about the EUR 100 million of gains there, most of those being in Q2. Can you perhaps help us on the impact in Q3 and what you're thinking for full year or H2? And then the second question, a bit cheeky. I think you said for Q4 that you expected a similar performance as in Q3. Can you clarify if you were talking about, I guess, year-on-year or sequential development? So Q4 versus Q4 last year or Q4 versus Q3?
So for the temporary saving, the plan continued to deliver pretty strongly in Q3. It will soften in Q4 especially in biogas in the U.S., where we are out of furlough for a number of people. So we expect to be a little bit under 2x H1 for the full year. However, you need to remember that those savings are not sustainable. They are completely linked to the crisis and to the strong decrease of the activity. The good news is that on the side, we continue to deploy our efficiency plans and they continue to contribute at the level expected, which is an excellent performance from the team in the current context. So similar performance than in Q3. In Q4, we see a kind of plateau in the recovery. We said that in Merchant, we were half way. And we imagine that we stay halfway for a while, notably in the U.S. and in Europe. Maybe I'll ask Mike and François to comment on their anticipation of the Q4 activity. Mike, for U.S. and Asia?
Sure. Thanks, Fabienne. I think that the level of activity in Q4 will continue what we see in Q3. We've seen the continued evolution in most of the markets that we serve. On the industrial side, if I look at Asia and the Americas in general, I think that things have recovered back to 90% than normal, whether it's Large Industries, whether it's the industrial side of the Merchant business. And we continue to see very good growth in healthcare, as François mentioned earlier and also in electronics being very strong on a global nature. And we expect all of those trends to continue of improvement in the Merchant business and the continued growth in healthcare and electronics as we go through the fourth quarter. I think there will be certainly some comparables for specific business lines. As we look on a year-over-year basis, where things really spiked in certain areas in the fourth quarter of last year. But I think taken in the aggregate, it will be both sequential and continued improvement for those businesses.
So for Europe, we do expect to see some of the trends continuing. Basically, for Large Industries, we see a recovery. Clearly, we are probably now close to 90% on the air gases volume and close to last year volume on the hydrogen. This being said, we do expect that chemical will continue to recover. But I mean, depending on the product line at different rates. The refinery, we have seen kind of a plateau and it's highly dependent on the fuel consumption. So we do not expect a strong recovery there. For the steel industry, which has been weak for already sometime, we see actually in the past few weeks, some signs of recovery in Europe, this is the case in Germany, for example, or in France on the large steel mills. So I mean, there could be a slight rebound in this -- in Europe to be expected. For Industrial Merchant, overall, it's going to be highly, of course, dependent on the, I would say, the impact of the second wave on the economies. But overall, I mean, today, we have a recovery, which is, I would say, good in most of the countries with packaged gas and bulk business, being between minus 5% and minus 10% of the previous pre-COVID volumes. The market that we do expect to recover the most are the ones that are the most resilient. We do expect, I mean, to continue to see some of the markets in food, for example, or in some of the research to continue to grow. For healthcare to finish, probably we will have a softer growth than what we have seen. As I mentioned before, we do expect to see less sale of exceptional equipment. And we see a normalization on the hospital business and Healthcare. All that is, of course, highly dependent on the sanitary situation.
Our next question comes from Gunther Zechmann from Bernstein.
Just a couple of quick ones from my side, please. Firstly, could you share what the book-to-bill ratio in equipment and installation and the electronics businesses is at the moment, please? And then secondly, as we go into year-end, you're thinking about any book gains on Schülke. Is that something you can guide more closely on now, please?
Okay. The book-to-bill ratio in electronics at the end of Q3 is slightly above 1, 1.05 to be precise when we were at 0.94 at the end of Q2. So a slight increase, I would say, around 1. So E&I in electronics should stabilize sequentially per se. Capital gain of Schülke. Yes, we will record a capital gain on Schülke. However, with the end of the newest plan, we have engaged again in a review of our portfolio of assets, and it is very likely that we will record a certain number of provision linked to the evolution of the strategy and the destination of those assets. So our estimate at the moment is that the balance of the 2 is going to be marginal.
Our next question will come from Peter Clark from Societe Generale.
Two questions as well. On methanol one, you mentioned, obviously, it's been prune to delays. I'm writing thing, the thing is built now. So this thing is definitely going to come on in 2021 because we've been waiting, obviously, 4 years or something for it? And then on the postponement, you mentioned, obviously, mostly customers delaying things. But I'm just wondering what areas they're in? Are these small or large industry projects? Or are they elsewhere in the portfolio?
So I will take the second question first, and we'll hand over to Mike for the question on YCI methanol facility. On project, it's mostly Large Industries, and it's mostly linked to oil and gas end of the barrel, that kind of recycling project. In electronics, we are well aligned. And in chemicals, we are mostly well aligned. Then on the specific case of YCI, Mike?
Peter, on YCI, it's more a matter from their standpoint of some COVID delays and some other issues that pushed them into next year. Our facilities are up and ready to go. So it's just a matter of completing their facilities and being ready for start-up. We contractually protected throughout all this. So we're well positioned to go ahead and move forward once they're ready.
[Operator Instructions] Our next question comes from Jean-Luc Romain from CIC Market Solutions.
My question relates to the start-up of the hydrogen electrolyser in Québec next year. Do you already have customers for that? What will be the outlets for this hydrogen? And will it be accounted for in Large Industries or Industrial Merchant? How will it work?
So the big Bécancour electrolyser is clearly a large industry project. Managed by our Large Industries and engineering team. So it will be acquainted for Large Industries for the upstream production. And then the downstream is going to be in merchant and in hydrogen energy for the mobility part. So maybe, Mike, you want to add on the potential customers? Mike, are you with us?
Jean-Luc, so Fabienne Lecorvaisier said it well. I think it's a combination of things. The first one is that there's clear growing industrial needs that we need to continue to meet in the area that will be served by the hydrogen produced at Bécancour. But it's also going to go ahead and provide basically the start-up requirements as we begin to see mobility opportunities in Canada and in the northeast of the U.S. and we see that begin to grow and evolve into the future. So it will be multifaceted. It's the first state of the art PEM membrane system of its kind. We're working with Hydrogenics on this. We're proving this technology at the industrial scale. And we see true promise for this in the future. So I think we see this as a growth mechanism.
Our next question comes from Chetan Udeshi from JPMorgan.
Just a couple of questions from my side. The first question was on the Sasol project. As part of their own disclosures, they mentioned that they may have had to invest more than EUR 500 million in it for the -- over the next 15 years to modernize that plant. So can you give us some feel of what is your thinking on incremental CapEx that Air Liquide might have to invest in the future on top of EUR 450 million or so that you are spending to take over those ASUs? That's the first question. Second question. Do you have any view on -- in terms of the year-on-year progression in gases and services margin, in second half, should we expect similar to what we saw in the first half in terms of magnitude or is there a reason to believe it to be higher or lower?
Okay. So François, you take the first one for Sasol and I will come back for the margin management?
Yes. Thank you, Fabienne. So on Sasol, as we mentioned before, we are going to take over the existing facility. And convert that into a long-term over the fence contract. So we will bring the state-of-the-art in terms of technology and operation of the plant. Which is going to provide energy efficiency and which is, of course, going to contribute also to the reduction of the carbon footprint. You remember that we said that we want to reduce by at least 30%, the CO2 emission related to the oxygen production for this site. So how are we going to do that? We are going to bring, of course, the Air Liquide, the state of the art standard in terms of operation. We will review, I mean, how the plant is being operated. Renew equipment. Some of them are quite old and will benefit from the latest technology. We are also reviewing the process and the integration of the 16 units. The way they are operating. We'll put a lot of digital tools that we are using elsewhere in the world. We will use our remote monitoring capabilities, analysis, also the maintenance for predictive maintenance and for equipment check. So we will be changing some smaller pieces equipment, again, for efficiency, but also to convert some of the equipment, which today are using steam to be converted to use electricity. This will allow us to use more renewable electricity because that's one other lever that we are going to use supply renewable energy for the site. Finally, we will be also looking at larger equipment, potentially replacing some of the air separation units. Probably for bigger ones to benefit from the economies of scale, but also the latest technology. So we will have and we have today a road map for some investment over the years and over the life of the contract.
Thank you, François. So in terms of margin improvement, we told you at the end of H1 that we had 2 components in our margin improvement. One is the efficiency plan, the recurring one, the sustainable one. And second is, of course, the additional nonrecurring cost containment plan. So it's true that we said that the cost containment plan effect may soften in H2. On another end, the efficiency plan are ramping up. So I see no reason why the improvement should be lower in H2 that it has been in H1. Of course, we still have some uncertainty on the situation, as you know. And we are working on it.
Our next question comes from Laurence Alexander from Jefferies.
Could you give a sense for your regional split in biogas contracts now or -- and the -- how should we think about the cadence of green hydrogen and CCS projects over the next 3 to 5 years? Like what's currently in your pipeline?
Okay. So on biogas, we are developing a biogas project, mainly in the U.S. and in Europe. It's in the U.S. that we have the strongest growth at the moment with, in particular, 1 start-up of a new unit. In Europe, at the moment, it's mainly developing in U.K. with a fewer contract there. In terms of quantified ambition in terms of renewable hydrogen and carbon capture and storage project, our promise and commitment is that we will give you more precise objective during our sustainability day in March. It's complex to estimate the contribution in 3 years or 5 years from now of those different projects. But -- and we need a little more time. We have numbers, but we need a little more time to confirm them and we promise that we will give you numbers in March.
We'll now take our last question from Jean-Baptiste Rolland from Bank of America.
I don't want to preempt your sustainability date for 2021, but without necessarily asking about precise quantification, I just wanted to ask you what -- in terms of your strategy around electrolysis and I guess the project in Bécancour is related to that. Would you -- the electrolyser that you're putting in place is a PEM electrolyser. I'm quite curious what you think in terms of technology? Whether you would also be interested in alkaline at all or whether at this point in time, you believe that PEM is the right technology for the future, for scaling up, et cetera and that's where you are basically making your bets?
Okay. So first, in terms of hydrogen, clearly, our ambition is to master the full value chain. So secure access to renewable energy, produce renewable or low carbon hydrogen and supply it to customer is directly on-site and pipes or through a full supply chain including liquefaction, packaging, transformation, et cetera, to be used by our customer, in particular, to decarbonize their own process. So electrolyzes is not an objective, electrolyzes is one of the means that we need to use to get there. In terms of technology, I would say that it's still in the making. We are testing on a large-scale for the first time. We have not given up at all on the other technologies. We are testing them as well. For the moment, we believe PEM is promising, but it's still to be -- it's still to become confirmed, honestly. Mike, I don't know if you want to add something?
Sure. Thanks, Fabienne. Just to add what Fabienne said, I mean just recognize, I think we operate on the order of 40 electrolyzers in the world today, and many of them smaller scale and many of them alkaline in terms of what we do in different parts of the world. So we're familiar with that technology. The PEM technology brings a series of nuances from a technology perspective than an operability perspective that we think holds a lot of promise for the future as well. The footprint for the same amount of production, the ease of use in the fundamental nature of its design. You don't have a lot of liquid that you have to manage through the system. So you don't have pumps and a lot of auxiliary facilities that need to be managed. Even in terms of the frequency of power available as it shifts, or in terms of utilizing renewable power, which we all know if you use wind or use solar is not there 100% of the time. The PEM electrolyser is much more forgiving and it's operational. It's much easier to start-up and shut down. It will literally, will do that itself. And we think on the maintenance of it, it's much easier as well. But these are all things that we want to improve with the investment Bécancour working joint with Hydrogenics and we will continue to go ahead and work to master both technologies as we go forward.
Well, thank you, Mike. This was our last question. So we will end the conference call. Thank you again to you all for your participation and for your questions. You've seen that Q3 has been for Air Liquide, again, a good quarter, of course, taking into account the context in which we are evolving. The teams are really focused and motivated to continue to handle the situation in the best manner in Q4 whatever happens. And we'll talk to you again at the beginning of February, but we are very confident in the guidance that we shared with you. Have a nice day. Goodbye, everyone.
Ladies and gentlemen, this does conclude today's call. Thank you for your participation. You may now disconnect.