due to the climate of general uncertainty and worry and the increased use
of digital solutions, in particular for working from home. Against this
backdrop, the Group stepped up its awareness-raising actions for its
teams regarding issues such as fraud and the theft of personal and
confidential data. It was also necessary to adjust its connection
capacities and safety parameters to accommodate greater levels of
homeworking, while maintaining the efficiency of its major incident
detection and processing mechanism.
-- Customer risks: the pandemic increased the risk of the temporary or
permanent interruption to the business of certain customers which could
lead to late payments and /or payment defaults in the short term and to a
permanent decline in revenue in the longer term. The diversity of the
Group's sites, as well as the industries and sectors in which it works,
notably those where demand has increased significantly (healthcare,
pharmaceuticals) or which have demonstrated their resilience (food and
electronics), helps reduce its exposure to this risk.
-- Counterparty and liquidity risks: various prudential measures were taken
to strengthen the Group's short- and medium-term liquidity and thus
contribute to its resilience, with in particular a 1 billion euro bond
issue in March and the introduction of an additional cost reduction and
-- Regulatory and legal risks: in response to the pandemic, states have
modified several regulatory and legal provisions governing the manner in
which professional activities should be conducted using special purpose
mechanisms (laws or ordinances). The Group monitored these changes and,
where necessary, integrated them to its processes. Moreover, the pandemic,
with the urgent demand for medical supplies, the simplification of rules
governing procurement, and the closure of borders, exposes the Group in
certain regions to an increased risk of corruption. Since the beginning
of the crisis, the Group has strengthened awareness-raising measures for
its anti-corruption framework.
At the same time, the Group moved quickly to implement a crisis management mechanism that was both global (travel ban, digital protection, etc.) and local (contact with authorities to ensure that the Group's business was classed as essential to enable its operating continuity) while also facilitating the transfer of expertise between regions according to the trajectory of the pandemic.
As part of the Group's crisis management mechanism, the operational business continuity plans were activated, and remote working for teams implemented.
Nevertheless, the Group believes that the uncertainty surrounding the duration, scale and future trajectory of the pandemic (including the prospect of additional waves of infection and potential mutations in the virus), coupled with the pace at which lockdown measures are eased, make it difficult to predict the global impact on the economies of the Group's main markets and, as a result, on its financial situation.
Although this crisis increases the probability and the impact of the above-mentioned risk factors, it is not of a nature to call into question the scope and classification of these Group-specific risks as presented in the 2019 Universal Registration Document.
Nonetheless, other risks, which were unknown at the date of this document, could occur and have a negative effect on the Group's business.
This exceptional first half of the year once again demonstrates the Group's resilience in the face of this unprecedented health crisis. Sales for the half year totaled more than 10 billion euros, marking a limited decline of -3.2% on a comparable basis. This reflects the solid performance of Gas & Services, which represent 96% of revenue, and of Global Markets & Technologies.
Within Gas & Services, Electronics sales increased; Healthcare, at the frontline of the pandemic, posted strong growth. Large Industries showed resilience, whereas Industrial Merchant was more impacted. Geographically speaking, activity levels reflect the evolution of the pandemic. China has returned to levels of solid growth, signs of a recovery are appearing in Europe, whereas the situation in the Americas remains contrasted.
The Group's operating margin has climbed a further +50 basis points, excluding the energy impact. This was driven by the ongoing efficiency programs in the amount of 200 million euros, in line with the annual objective of more than 400 million euros, and by an additional cost containment plan launched in response to the crisis. The margin was also supported by the strength of the price policy and of the portfolio management.
Net profit improved by 1.8%. The cash flow to sales ratio was particularly high at 23.1%. The debt-to-equity ratio was down compared with its level at June 30, 2019.
As 12-month investment opportunities remained dynamic, industrial investment decisions for the first half were high, at 1.3 billion euros. These decisions, a third of which are climate-related projects, include innovation investments and customer asset takeover opportunities, leading to greater industrial and environmental efficiency.
Air Liquide is a key player of the climate and the energy transition with oxygen and hydrogen. Thanks to its presence across all business sectors, the Group has a major role to play in the current economic and societal transformation.
In a context of limited local lockdowns and progressive recovery during the second half of 2020, Air Liquide is confident in its ability to further increase its operating margin and to deliver net profit close to preceding year level, at constant exchange rates.
To be noted, 2020 net profit as published should increase provided that the schülke divestiture project is completed within the year. 2020 recurring net profit, meaning excluding the gain from schülke divestiture and exceptional and significant items that have no impact on the operating income recurring, should be close to 2019 recurring net profit at constant exchange rates.
Performance indicators used by the Group that are not directly defined in the financial statements have been prepared in accordance with the AMF position 2015-12 about alternative performance measures.
The performance indicators are the following:
Currency, energy and significant scope impacts
Comparable sales change and comparable operating income recurring change
Operating margin and operating margin excluding energy
Recurring net profit Group share
Net Profit Excluding IFRS16
Net Profit Recurring Excluding IFRS16
Return on Capital Employed (ROCE)
Definition of Currency, energy and significant scope impacts
Since industrial and medical gases are rarely exported, the impact of currency fluctuations on activity levels and results is limited to euro translation impacts with respect to the financial statements of subsidiaries located outside the euro zone. The currency effect is calculated based on the aggregates for the period converted at the exchange rate for the previous period.
In addition, the Group passes on variations in the cost of energy (electricity and natural gas) to its customers via indexed invoicing integrated into their medium and long-term contracts. This indexing can lead to significant variations in sales (mainly in the Large Industries Business Line) from one period to another depending on fluctuations in prices on the energy market.
An energy impact is calculated based on the sales of each of the main subsidiaries in Large Industries. Their consolidation allows the determination of the energy impact for the Group as a whole. The foreign exchange rate used is the average annual exchange rate for the year N-1. Thus, at the subsidiary level, the following formula provides the energy impact, calculated for natural gas and electricity respectively:
Energy impact =
Share of sales indexed to energy year (N-1) x (Average energy price in year (N) - Average energy price in year (N-1))
This indexation effect of electricity and natural gas does not impact the operating income recurring.
The significant scope effect corresponds to the impact on sales of all acquisitions or disposals of a significant size for the Group. These changes in scope of consolidation are determined:
for acquisitions during the period, by deducting from the aggregates for the period the contribution of the acquisition,
for acquisitions during the previous period, by deducting from the aggregates for the period the contribution of the acquisition between January 1 of the current period and the anniversary date of the acquisition,
for disposals during the period, by deducting from the aggregates for the previous period the contribution of the disposed entity as of the anniversary date of the disposal,
for disposals during the previous period, by deducting from the aggregates for the previous period the contribution of the disposed entity.
Calculation of performance indicators (Semester)
COMPARABLE SALES CHANGE AND COMPARABLE OPERATING INCOME RECURRING CHANGE
Comparable changes for sales and operating income recurring exclude the currency, energy and significant scope impacts described above.
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