Prices were up +1.5% over the first six months of the year, driven mainly by Industrial Merchant where prices were up markedly +2.9%, notably thanks to pricing campaigns launched at the beginning of the year, in particular in the United States, coupled with the increase in helium prices. Prices were almost flat in Electronics and Healthcare.
Gas & Services Operating margin (a) H1 2019 H1 2020 energy impact
Americas 17.3% 18.7% 18.4%
Europe 19.0% 19.8% 18.8%
Asia-Pacific 19.7% 21.7% 21.2%
Middle East & Africa 15.7% 14.3% 13.9%
TOTAL 18.4% 19.6% 19.0%
(a) Operating income recurring / revenue as published
Operating income recurring in the Americas reached 744 million euros over the 1(st) half of 2020, an increase of +1.9%. Excluding the energy impact, the operating margin stood at 18.4%, representing a strong +110 basis point increase compared with the 1(st) half of 2019. The exceptional cost containment plan launched in response to the public health crisis was implemented rapidly and efficiently across the region, in particular at Airgas which generated the Group's strongest contribution. In addition to this, the efficiency plan was continued, and dynamic pricing management as well as favorable mix effects relating mainly to the significant decrease in hardgoods sales were observed. The combination of these effects were reflected in the marked increase in Industrial Merchant margins. While the efficiencies generate a recurrent decrease in costs, the exceptional measures introduced in response to the public health crisis are not sustainable over the long term.
Operating income recurring in Europe reached 680 million euros, a slight decrease of -1.1% compared with the 1(st) half of 2019. Excluding the energy impact, the operating margin was 18.8%, down just -20 basis points. The growth in Healthcare did not fully offset the slow-down in other activities, in particular in Large Industries which generates the highest margins. Moreover, the load rates of Large Industries production units, which were high in 2019, were impacted by erratic and slower customer demand which generated additional operational costs, without Take-or-Pay levels necessarily being reached. Moreover, European regulations limit the possibilities of introducing temporary measures aimed at adapting fixed costs to the weak activity level.
Operating income recurring in Asia-Pacific stood at 484 million euros, an increase of +2.3%. The operating margin excluding the energy impact reached 21.2%, a marked increase of +150 basis points. Exceptional cost containment measures were rapidly implemented in the region, in particular in China and Singapore. Moreover, the strong growth momentum of Carrier Gases and of Advanced Materials in Electronics combined with sales of Equipment & Installations lower than the high level of 2019, had a strong positive effect on margins. Finally, the 2019 sale of the Fujian Shenyuan units also contributed, to a lesser extent, to this improvement.
Operating income recurring for the Middle East and Africa region amounted to 39 million euros, representing a decrease of -18.9% compared with the 1(st) half of 2019. Excluding the energy impact, the operating margin was 13.9%, down -180 basis points due in particular to a customer maintenance turnaround in the 1(st) quarter at a major Large Industries hydrogen production unit in Saudi Arabia. During the 2(nd) quarter, the major decline in activity, mainly in Industrial Merchant across the entire region, also had an unfavorable impact on operating income.
Operating performance - divestitures -- Air Liquide announced in early March
it has entered into exclusive negotiations with French private equity firm
Hivest Capital Partners for the divestment of its subsidiary CRYOPDP that has
more than 250 employees in 12 countries. CRYOPDP provides global innovative
temperature-controlled logistics solutions to the Clinical Research and Cell &
Gene Therapy Communities. This decision illustrates Air Liquide's strategy to
regularly review its asset portfolio in order to focus on key businesses and
geographies so as to maximize its performances. -- Air Liquide announced early
April that it has entered into exclusive negotiations with EQT, a global
investment organization, for the potential sale of its subsidiary Schülke
& Mayr GmbH, a global leader in infection prevention and hygiene. This
potential sale illustrates Air Liquide's strategy to review its business
portfolio regularly and to focus on its core gases and healthcare businesses,
thereby enhancing Air Liquide's performance. -- Air Liquide closed the
divestiture of Czech Republic and Slovakia entities to Messer early-May. This
transaction illustrates Air Liquide's strategy to review regularly its asset
portfolio and focus its expansion in key regions in order to increase its
geographic density and therefore enhance performance.
Engineering & Construction
Engineering & Construction operating income recurring stood at -21 million euros for the 1(st) half of 2020, and reflected in particular the four-weeks closure of the Chinese manufacturing workshop and the postponement of several projects by a few months due to the COVID-19 pandemic.
Global Markets & Technologies
Operating income recurring for Global Markets & Technologies stood at 24 million euros with an operating margin at 9.8% for the 1(st) half of 2020, stable compared with 2019.
Research & Development and Corporate costs
Research & Development expenses and Corporate Costs totaled 137 million euros, down -8.1% compared with the 1(st) half of 2019 due to the rapid implementation of the exceptional cost containment plan launched in response to the COVID-19 pandemic.
Other operating income and expenses showed a net balance of -92 million euros. Nearly half of this related to exceptional expenses associated with the management of the COVID-19 public health crisis, and around a third to costs relating to realignment plans in various countries and activities.
The financial result was -216 million euros compared with -239 million euros in the 1(st) half of 2019, mainly due to a cost of net debt of -170 million euros, which was down -7.9% compared with the 1(st) half of 2019(3) . The average cost of net indebtedness was 2.9%, slightly lower than in 2019, due mainly to the decrease in emerging market-denominated debt which carries a higher cost.
Income tax expense stood at 381 million euros, a decrease of some -5 million euros compared with the 1(st) half of 2019. The effective tax rate reached 25.3%, almost flat compared with the 1(st) half of 2019 excluding the impact of the non-deductibility of the provision relating to the disposal of the Fujian Shenyuan units.
The share of profit of associates amounted to 0.5 million euros. The share of minority interests in net profit reached 46 million euros, a slight decline of -3.8% due to the slowdown of business at subsidiaries with minority shareholders, in particular in the Middle East.
Net profit -- Group share amounted to 1,078 million euros in the 1(st) half of 2020, an increase of +1.8% as published. Recurring net profit -- Group share(4) reached 1,113 million euros, a slight decrease of -1.1%. This excluded the impact of the provision relating to the 2019 disposal of the Fujian Shenyuan units and of exceptional expenses relating to the management of the COVID-19 public health crisis during the 1(st) half of 2020.
Despite the pandemic and the resulting significant decline in activity, net earnings per share were up +1.8% compared with the 1(st) half of 2019. These stood at 2.29 euros per share, in line with the improvement in net profit -- Group share. The average number of outstanding shares used for the calculation of net earnings per share as of June 30, 2020 was 471,411,633.
Change in the number of shares
H1 2019 (a) H1 2020
Average number of outstanding shares 471,254,166 471,411,633
(a) Adjusted following the free shares attribution in October 2019
(3) Compared with restated 1(st) half 2019 following changes in 2019 annual financial statements: financial costs before taxes linked to IFRS 16 are reclassified in other financial expenses whereas they were included in net finance costs on 30 june 2019.
(4) See reconciliation in appendix.
Change in Net debt
Cash flow from operating activities before changes in working capital amounted to 2,371 million euros in the 1(st) half of 2020, an increase of +1.0% despite a slowdown in activity, which demonstrates the resilience of the Group's business model. This corresponds to a high level of 23.1% of sales, a marked improvement of +170 basis points compared with the 1(st) half of 2019(5) .
Working capital requirement (WCR) was up 157 million euros compared with December 31, 2019, in particular due to the increase in inventories for the management of the public health crisis in Healthcare in Europe. The Group is keeping a close eye on the collection of trade receivables and the DSO (Days of Sales Outstanding) was relatively stable at the end of the 2(nd) quarter. The WCR excluding taxes to sales ratio improved to 5.0% from 5.8% at June 30, 2019. Net cash flow from operating activities after changes in working capital requirement amounted to 2,153 million euros, up markedly by +9.9% compared with the 1(st) half of 2019.
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