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2026.10.05 | TB | Chemicals | Air Liquide Engineering & R&D Strategy

原标题：Air Liquide – Engineering Strategy, R&D Capabilities & Operational Execution

#chemicals

Third Bridge · 2026-10-05

Analyst-led • 18 Sep 2026

Companies: AI FR, APD US, LIN US, BAS DE

Romain Dorée (RD) Infrastructure Director, Europe at Suez SA

Georgia Beattie (GB) — Third Bridge Sector Analyst

Agenda

Key Insights

Introduction

GB [00:00:01]: Welcome to today's Third Bridge Interview entitled Air Liquide – Engineering Strategy, R&D Capabilities & Operational Execution. My name is Georgia Beattie, and I'm fortunate to be joined today by Romain Dorée, the former Director of Strategic Initiatives at Air Liquide.

Romain, before we start today's Interview, please state I agree or I disagree to the following statement: You understand the definition of material non-public information and agree not to disclose any such information, or any other information which is confidential, during this Interview.

RD [00:00:34]: I agree.

GB [00:00:35]: Thank you so much. If you would, could you please begin with a brief introduction to your background and your time at Air Liquide?

RD [00:00:44]: In fact, if I summarise, Air Liquide was almost my sole company. I started as a (inaudible 00.53) engineer in this company. I spent 22 years in that one. I was belonging to the engineering and construction department called E&C in the group Air Liquide. What is the role of E&C in Air Liquide is to support the business entities all over the world. You have two ways to grow. One is to acquire a company and the other one is to build greenfield project. For that, you need some capabilities internally, what is within E&C, Engineering and Construction. My role in E&C, I have different position. My main background is project management. I was leading a large project all over the world, Asia, Europe, Russia, where I spend extensive experience on different technologies, oxygen, nitrogen, carbon capture project. Also what is specific and worth to specify is that when you are having some operational activities in Air Liquide, they also propose you to move through to functional programmes. It means what they want to see if you are able to not only solve operational topics, but also to have a broader view and a larger view to have a step back on the topics and to be able to think and to summarise to have an executive view. In this role, I spent this role when I was back from Russia.

You sit in my seat as a Strategic Director, and specifically in that role, I was in charge of redefining a bit the strategy of the group, the main driver was to catch up Linde in terms of gross margin. My focus was more also on the engineering structure and related with the business activities. This is in a nutshell, my 22 years in Air Liquide and I left the group in May last year, so 16-17 months. That's it.

Questions

00:02:58] Where does Air Liquide excel in its portfolio vs key competitors such as Air Products and Chemicals or Linde?

RD [00:03:28]: For me, where they are very strong to me, and I think it's known by the market. First in electronics. They were very strong recently in capturing some wins. They signed EUR 0.5bn contract in the last six months, both in Asia and Americas. Healthcare also contrary to Linde specifically, and maybe you can deep dive on that topic. They have a more resilient market on that one. To be also clear, on low-carbon hydrogen, they are very able to get some deals and the two large electrolysers which are under construction in Europe are Air Liquide and Siemens. For me, this is on the techno topics, and their pricing power from the long-term on-site contract is very strong. Why? Maybe we can discuss also this difference with Linde. They have a very business-friendly approach, not much contractual. Sometimes it has some issues, but in general, they are pleasing the customer and then the customer is more eager to re-sign with them. For me, semiconductor AI is leading the show and they benefit that from electronics showing. Today, if I remember well, yes, the backlog is close to EUR 5bn or EUR 6bn, which is very solid to me.

GB [00:04:56]: Are those all areas where Air Liquide is excelling?

RD [00:05:07]: Yes. For me, this is the main differentiator because between us, it's oligopoly markets, in fact, we have a few players on gas industrial. You have AP, Linde and Air Liquide. They have very solid advantage in the market and gas industrial demand is increasing regularly, but yes, Air Liquide is making a difference for me in these three areas.

00:05:35] Where might Air Liquide be behind in its portfolio compared to competitors such as Air Products and Chemicals or Linde?

RD [00:05:51]: For me, my perception and what we saw, Air Liquide is very, to me, much risk averse. By the way, in my strategic initiative, I was leading also one stream, which was how Air Liquide is capturing what we call a next large project because, in fact, today, when you see the portfolio at my time, it was EUR 200m project. It was a very, very large project for Air Liquide. You go for AP, the project Neom in Saudi, it's a EUR 1bn project. AP is capable to sign, I was in Russia with Linde… Against Linde, and they were doing some LNG plants in Siberia or in the Arctic Sea, about also EUR 0.5bn. It shows also where they could have some very profitable deals, but by the risk management, they will withdraw from that deal because they think it's too risky for the company. For me, it's where they are a bit behind. It's the nature of the company. They want to, every year, give to the shareholder an increasing price to the shares and taking no risk on that at all. Second topic for me is they are also, I would say, the French company spirit. They were used to live in a quite comfortable environment. Today, they were still happy with that because they were able to give a good return to the shareholder. Employees were happy and the sales were increasing regularly. We cannot deny that, a lower sales per employee compared to Linde.

It has been slower for me to extract the same productivity and procurement discipline that Linde was imposing after the merger with Prax. For me, there is some levers to improve. After more debate, it's more my opinion, but you do what you want. On the green hydrogen, what I want to talk is the electrolyser that they signed in Europe, Linde position is very clear. As I say, the market today with the price we have on green hydrogen, it is not affordable. I will not spend any euro in proposal cost, business development on that one. It's not flying. Then Air Liquide is pushing, leading, influencing the market to that. This is where maybe you see the current environment in terms of energy price. Is the strategy the right one? Okay. At least I don't know, we have no crystal ball, but it is questionable to me.

00:08:43] You mentioned the difference in attitude towards customer contracts. How does that differ between Air Liquide and Linde, for example?

RD [00:08:59]: For me, you can see it both ways. You, as a customer, is more able to re-sign the contract with you. For me, to give you a very concrete example in Russia, we were on a steel plant. It was a similar type of contract, maybe EUR 50m-60m EPC contract and then you have your 15 or 20 years operating contract with a steelmaker. During the execution, for example, the customer has some duties, for example, to give you the energisation of the project. If you don't have that, you cannot do pre-commissioning and commissioning. Air Liquide were very keen to discuss with the customer how we can mitigate, bring some diesel generator to do the pre-commissioning. Linde was very clear, say, "Gentlemen, we have a duty in the contract, you have a milestone. 1st of November, you should bring the electricity. I warn you one month in advance notification. I am ready to start pre-commissioning. If you want me to meet my contractual commercial operation, you need to do that." First notification, second notification, third notification, notify from the customer, Linde demobilised completely the site. They left. They say, "No reply from the customer, I cannot commit my commercial operation, do it yourself." Then it was forcing the customer to react. In fact, they are much eager to or likely to apply the contractual clause of the contract because Air Liquide spirit is okay, it's not a contract. It's a kind of wedding.

You have a 20-year relationship on the long-term contract. Then please, business guy, contract guy, project guys use it in a way that you have this long-term vision. Linde say, "No, I have a contract. Every party is absolutely doing what they have to do." For me, sometimes Air Liquide is a bit weak on that one, and it go depending on how the customer is behaving. If the customer sees that you are a bit weak on that, they can play with that to limit their impact. I think Air Liquide realised it recently, and they are moving in the trend of Linde.

00:11:12] You mentioned that Linde's overall profit margins have been much higher compared to Air Liquide. Could you elaborate on the potential reasons behind this?

RD [00:11:24]: Yes, there are much analysis on Air Liquide side. Today, Air Liquide is 21-22% maximum and Linde is reaching the 30%. First, historically, there has always been being a gap between Air Liquide and Linde about the margin. In fact, to be clear, I think Air Liquide says historically, it was 3%, 4% of gap, okay? This is the risk profile of the company. We mentioned it. Linde wants to take some big deals with some big risk. It's not our DNA. This is my policy. I want to stick to it. I will not change it if I am not forced to do that. However, then there is a big but. Having 3-4% in the last 20 years, having now it double, it's a big shock for Air Liquide because it's not sustainable. There is a big pressure internally to close the gap. Will they close the gap? To me, no, never, because it's not their ambition, but they cannot accept that the gap is still increasing. The company is fully mobilised around that to understand first and to reduce the gap. Why they are not so… Again, we come to that. For me, when you have the merger Linde Prax, in fact, you took the best of the two worlds. The discipline and the strength of the German company with a techno. The E&C of Linde was very, very strong. Then Prax was quite agile in business development and very lean in terms of headcount and employee.

The merger was bringing significant G&A savings. Then for me, yes, I said they took the best of the two. For me, Air Liquide is moving, but with the French culture and the European consensus, etc, it is taking a bit of time. This is where I think you have the main difference today.

00:13:37] How did Linde grow its margins after acquiring Praxair in October 2018?

RD [00:13:48]: First, immediately, when you acquire a company, you save some headcount, very simple. You had two clusters, one for Prax, one for Linde, but you have only one cluster and that is regionalisation. One, instead of two, once you obtained of two HR, etc. G&A reduction. It contributes to increasing your margin directly. First topic. After you have some synergies where Prax was in the basin, for example, when they are doing only oxygen and nitrogen. With the techno from Linde, you are bringing some carbon capture or ammonia and the customer was looking for that with other competitors, but now it's in-house competencies from Linde, so they were able to give this to the customer. Again, mass effect, regionalisation, including the presence on the basin with the customer and increasing the scope. I think after they were very, very much disciplined in all the cost cutting. I think it was really the main difference because when we compete against them, we see that the CAPEX are close by. There is a discipline in all that.

GB [00:15:02]: Does this mean that Air Liquide should be pursuing a similar acquisition strategy?

RD [00:15:11]: In terms of acquisition, I don't think there is an actor of the size of Prax that Air Liquide can acquire because in terms of antitrust, it will be very difficult. I'm not sure. It will not fly to me. However, they should pursue and I know what they are doing, these synergies, the cost synergies, the productivity, the CAPEX efficiency, which Linde was able to deliver the last three years. I think if I remember the figure, we were talking about EUR 1bn of one-time cost to Linde side. For me, and Prax also was a best-in-class operating discipline. The G&A was very low, the CAPEX synergy, etc. Acquisition-wise, I don't think there is a target size of Prax, but here or there. Recently, you've seen in South Korea, DIG was, I think they paid the price for it, but I think it was wise to do that. Big acquisition will be that. They will continue and then about risk-averse company, Airgas was a very big deal in 2016 and DIG was very recently integrated. No, I think, yes, you get my reply, I think.

00:16:43] If acquisition isn't the way to go, where does Air Liquide need to invest to catch up to Linde's profitability?

RD [00:16:51]: You are right, there is a direct consequence. For me, the near-term part for me is operational. This should bring on management on framing. You remember, there was the advanced plant of Air Liquide to improve. The first time, by the way, they commit on improving. They commit to the market, which was a very recent sign and they were never saying that before. It was every year, Mr Potier saying to the shareholders. "If the condition of the market remain stable, I commit to increase my yearly margin." Now they commit in that front, it was 100bps every year. Let's see. Now we see Elliott apparently pushing a bit the management. First, I see it in three years, three pillars. First one could be the back office and SG&A again and shared services consolidation.

Again, they have a ratio of the sales per employee compared to Linde. I know there are some procurement creating some business service centre in India, for example, to close the gap. Second topic is about the digitalisation first in the tools of everyone, but also of the plant. In Europe, Air Liquide has many plants, and they are now pushing to have unmanned plant and the same for the network operation. They are already having SIO, it was smart integrated office, something like that. It was okay. It is remote monitoring, predictive maintenance and network optimisation. In fact, they want to load the asset as Prax was doing with Linde, in fact. It was bringing a lot of value loading the asset and increasing your… Yes, you're right because in Europe now we saw that in chemical and steel, the assets are not very loaded due to the cost of energy and that the market is not very huge, but you need to optimise your cost and even more. Then last one, sorry, is the portfolio simplification, maybe pruning a subscale or dilutive country business unit rather than adding a new geography. It's being very selective. I can leave maybe some countries, Argentina, I can leave, for example, but I will put more efforts on, for example, Korea, it was a very good example. I think it will be the three levers I would see to catch up the profitability.

GB [00:19:34]: Are there any key projects that you think will determine the success of margin improvement?

RD [00:19:40]: For me, first one, I mentioned it, you remember in the introduction, it was about electronics. Electronics, today, they have a backlog of EUR 5bn. If we have electronics plus energy transition because to be clear between ourselves, today, Air Liquide was not making big money on the traditional customers in France or Europe with Total, with Arcelor, with BASF. The market is going down. We have no levers to increase the margin impact. The main key project to detect that will be to continue signing electronics and delivering those projects because now they sign it. Now the time to market is very tense in electronic. They should be very diligent in delivering that. After it's a famous energy transition. They have two directions for that. The first one is carbon capture, the famous Cryocap technology. They have a couple of them in Europe that should start, by the way, soon. You have the green energy. You have one in France, the famous Normand'Hy project. They should start it, I hope, soon. After you have Netherlands with Elygator. Start-up delay for me are the single biggest margin risk in this industry since the new plant carry a fixed cost before to contract volumes. This is the first topic. Second, and if I remember well, the backlog of this electronics plus energy transition, they have 60-70 projects amounting EUR 5bn-6bn to be executed and delivered. Really the capability to deliver the margin will come from that.

GB [00:21:44]: What were the biggest risks to the company executing on this project?

RD [00:21:52]: I will reply to your question. The main risk is execution, in fact, is discipline and execution. Again, you come back to your customers late in giving you the actual plant. What do you do? Do you anticipate? Do you claim? Then how do you protect yourself? After your own capability to execute and to deliver that to master the document, to master the execution, which is a challenge in… Because it's a bit of new project. The second key project for me to this margin improvement is a landmark supply agreement such you remember, they have SK hynix Indiana semiconductor facility, which we watch very specifically for how efficiently the new capacity converts into margin, not just revenue. It will be a very important topic also. The last one is about Americas. They have a big footprint now with Airgas. The margin rose by 200bps in first semester. Air Liquide says this is the model, how can we replicate that in Europe and in Asia with different constraint about in energy costs. This is really here how they can replicate that. Yes, this is the main topic for me.

00:23:19] Which of Air Liquide's businesses or geographical regions do you think have been a drag on the company's profitability?

RD [00:23:31]: Definitely, first, for me, you have two perspectives. The first one is the geography and is related also to the business. Remember, you have a Large Industries, long-term contract I was mentioning and you have IM and electronics. For me, the Large Industry market, which was the historical big return of the group is the only business line to decline for the last 10 years or maybe five years. It reflects a softer industrial backdrop. Coming back to your question about geography, geographically, Europe has been the slower growth and more energy cost exposed region vs the Americas and Asia will contribute most, by the way, to the growth of H1. For me, Europe will be a very difficult condition country to risk. More broadly, Air Liquide flagged, you remember that release that the US hydrogen project pose, it was a large project with Exxon, Exxon Baytown, but okay, they said it has no impact, but it means that, again, their appetite for clean hydrogen CAPEX has an implicit margin dilutive impact where Air Products is completely far from that. I think there is a risk also that they are very dependent on how government subsidise and move on that topic because they are very pushed on that one. I am very confident on US because they are able. Asia also with electronics should continue booming. Europe is a difficult country, difficult geography.

00:25:34] How have the differences in Linde and Air Liquide's networks contributed to their margin gap?

RD [00:25:49]: Yes, that's a fair question. There have been a lot of benchmark and studies on that. For me, we say Air Liquide is very strong in electronics and healthcare, which are historically and in Air Liquide structurally higher margin. They will continue for me pushing for that, and they are a bit diversified, which is very good and less commoditised. However, the historical business, nitrogen, oxygen for chemical and steel plant is really now a commodity market. Specifically for the small plant, if you don't have a historical presence in the basin, in fact, you see other competitors coming, which are less expensive than you. I think the price discipline in Industrial Merchant should be very… I know they are pushing like hell the business developer and the sales guys to increase the price, to use every opportunity of inflation to pass it through the customer even more. After a second, you have all the efficiency and productivity programmes. It's a group programme. It will apply in all geographies and all the business line, electronics, Large Industry, IM. Here, I think there are still a way to improve compared specifically to Linde. After, it's a strategy also, it's a portfolio management. You were talking about acquisition, but is there possibilities that you divest low-return assets?

They are not loaded with BASF, for example, in some countries. Do I divest a bit of Large Industry and do I reinvest in electronics for healthcare energy transition? After it's capital discipline or buyback to give the final confidence to the market. For me, it will be where they would put the direction.

00:28:02] Which parts of Air Liquide's portfolio do you think would make the best divestiture candidates? How would the company go about evaluating this?

RD [00:28:16]: For me, definitely, I think electronics will be the key driver. We see that we have chips, small chips everywhere in our day-to-day life and the trend is increasing with the cars, with the phones, with even not mentioning AI. They will continue putting much more effort on that one. Historically, it's a step-up for them because electronics was still representing 3% or maybe 5% of their overall sales. Now we see that going from 5-9% or even 10%. You see you double the size for a CAC 40 company for a business line, which was not used to do that. Having the right trend before reinforcing it, making you have to deliver it and keeping the agility model of business of Prax, which is the model, is ultimately the model will be really the key driver. I'm sure they continue investing in electronics. On energy transition, I think they are very also pushing forward. Why? Because, in fact, what I told you, the historical market for nitrogen, oxygen is becoming a commodity market. Market in Europe is flat, even slowing down. The renewal of the contract with Total, Arcelor, BASF are very painful because the market is not there.

Being able to define a new business model for carbon capture, for hydrogen, for electronics is key in their capability to replicate their success story over the last 50 years. They must put this technology in front and put alongside the business model, which will make them revenue again, very predictable and very steady in the next year.

00:30:09] Air Products and Chemicals is coming up to the end of a large CAPEX cycle, and it has several new projects starting up. To what extent do you think that this will change the industrial gases market? What does it mean for Air Liquide?

RD [00:30:33]: That's a good question. In fact, yes, you're right. First, we should recognise that AP has a bit of difficulty recently. It is bad side of the very large project. It could be very high revenue, but it's also a big risk. When they committed the famous Neom project in Saudi Arabia, our AP, they were facing big difficulties, in fact, on the project because they started the project and they have absolutely no offtaker. Engaging the company on a EUR 2bn or EUR 3bn project when you have zero offtaker, it's a serious bet that they took. To me, when I was inside, AP was considered as a different animal, and it was not the target at all. It was more how can we go to deals like about maybe more than EUR 500m, EUR 600m, EUR 700m and how we structure ourselves to be able to capture this business and to deliver it rather than comparing to AP and the shareholder of AP is also a bit moving recently. They will still be, Air Liquide very be keen to pursue that their footprint is much more balanced across Europe, Americas, Asia, EMEA which is for me a diversity constraints, but historically, a margin drag also due to Europe assets, which are carry a more volatile energy cost. I'm not sure that AP is really… They have a look definitely to that, but I'm not sure AP is really something they are having a look to that.

00:32:36] How is the price of natural gas impacting Air Liquide's business in Europe?

RD [00:32:51]: Normally, the long-term contract in large industry, they are very much more inflate. You have two mechanisms in the contract. Also it's full… You pass it through, pass-through completely, then you have a very limited impact or you have escalation formula. That's right that Europe has structurally become the residual buyer in global LNG markets since losing the Russian pipeline after the war. The TTF prices are rocketing now the EUR 100 per MWh to rebuild the winter inventories. Then the famous debate between inflation and cost pass-through debate has become very tough in Europe. Air Liquide is cutting that two ways. The energy-intensive European assets face higher input costs, but the group's contract largely pass energy costs through the on-site customer. In fact, the P&L impact is more about volume demand elasticity and lag timing than a direct margin impact. It's really that the impact should be very limited. Air Liquide, by the way, like other peers is sourcing the LNG through a mix of long-term supply contract and spot hub purchase, largely a TTF index in Europe, which on-site customer contracts typically include energy cost pass-through clauses.

The exact sourcing splits are not public in a very granular detail, but I can tell you that the structural shift industry-wide has been away from oil-indexed pipeline-based contracts towards index LNG pricing, which increased exposure to global, by the way, not just European supply-demand swing, including Asia demand cycles. For me, you can have a small impact at least short term, but long term, normally, they are quite well-protected against that.

GB [00:35:04]: Is there anything else that the company can do, or has it done as much as it can in terms of protecting itself against that?

RD [00:35:12]: After the PPA, they are very keen. LNG is part of it, but what the plants are consuming more is electricity. For that, they are covered with normally a long PPA that they have and many available with renewable energy. Is it wind or solar energy and even nuclear, by the way, in France, which are considered as green energy. Normally, I think they are quite strong in protecting that.

00:35:42] What volume demand is Air Liquide seeing across the core heavy industries?

RD [00:35:55]: It's a very painful topic. The demand is very low, in fact, in Europe. The demand for green product and willingness to pay, it's a very long debate in the company. We come to the question about the affordability of the market. The green or low-carbon product carry a heavy cost premium for green hydrogen. We are today, to be frank, the target of the customer is EUR 6 per kg or EUR 7. Today, we are almost at the double. We have really an issue. This only accretive to margin if customer are willing to pay for it, and Air Liquide is much more aware about that. Today in Europe, we benefit from EU carbon pricing. We benefit from ETS, which is rising. It's a big question about the premiums, what we were calling premiums, is the customer able to pay for it. They are very prudent on that one. The honest answer is demand and willingness to pay is still asymmetric to me and very project-specific. It's strongest when our customer has its own binding de-carbonation target or where carbon costs make green hydrogen genuinely more expensive, it's weaker where it's a nice to have. This is precisely why, by the way, Air Products pulled back from its own clean energy mega project because it's a useful cautionary signal for Air Liquide how we should size its own bets.

GB [00:37:49]: At the moment, in terms of long-term success of the green projects, you think that it will be based on EU regulations. Is that correct?

RD [00:38:00]: Yes. I need to be certainly clear, those projects today without financing or subsidies, they are not flying at all. If the mechanism is not pushing the customer to get that off what I was mentioning is the customer has not his own binding decarbonisation target in its roadmap, like cement plant, for example, where they are forced to do that, either they decarbonise or they shut down their asset in Europe. Then you can build the story, you have a strong solution development with the customer to decarbonise, but it will take a bit of time.

00:38:39] If there is more of a push towards decarbonisation and Air Liquide is more focused on green production, how well-positioned is the company for renewable energy PPAs [power purchase agreements]?

RD [00:38:53]: I think they are much more well-positioned for that, but first, we should acknowledge that the only green electrolyser, green hydrogen, which are now really moving is the one from Air Liquide and Siemens, the 200MW in France and 200MW in Israel that I was mentioning. Then in terms of PPA, which are feeding them, it's very long-term contract and the price of energy, I think, is very low. I remember, it was EUR 75 or EUR 80 per MW, so very well-positioned to me. For me, the trend is going that way. They are much positioned because first, they will have the plant running. You master your plant, you circle back with your engineering to fill the difficulties that you have and you improve normally your product in terms of competitiveness and robustness in terms of operation.

00:39:52] How does Air Liquide contract with E&C [engineering and construction] companies?

RD [00:40:02]: You mean how Air Liquide is contracting internally the E&C or how E&C is contracting today the market?

GB [00:40:22]: Internally to Air Liquide, how does the company go about that? How does it contract other companies for E&C?

RD [00:40:32]: Typically, Air Liquide is using EPC contracting for large plant, either through its in-house engineering capabilities. By the way, it's a historical strength from the industrial gas engineering heritage or through third-party EPC firms that you do from execution and construction phase. I would say the balance between the two are at least 75% you do your own engineering in-house and you subcontract portion of the work, which is from your strength. Why? If you have a large portfolio of medium-sized project, you are able to strengthen your execution. It means I am doing by myself. In fact, you master really yourself and do not depend on the EPC about the techno. They are very strong on that. They really master it their own competencies. You are very strong in terms of optimising the quantities, the operation and you can be very lean in the design, in the basic design process that you're issuing, whereas if you refer to your EPC style to Jacobs, to Technip, their focus is more the compliance to the performance of the plant than the competitiveness. For me, long term, and this is a better allocating investing in their own engineering company is to build their own competency. That's why you have today, it's 3,000 or 4,000 people working on that.

You have people dedicated to electronics, people dedicated to carbon capture for me, which is a big competitive advantage of Air Liquide compared to AP, for example, was to rely on larger EPC contractors. In general, the rationale to do that is to pass the risk to the EPC contractor, but those guys are not here to lose money. They will find some ways in your tendering to push back to you. When you are very contractual between each other, I think it's not going very well. For me, to summarise it, internally, the gas business of Air Liquide is contracting E&C internally and E&C is having in general, their own engineer to deliver the basic design package. They procure the main equipment to some known vendors and they subcontract the construction to local actors.

GB [00:43:16]: If Air Liquide were focused on bringing that all in-house, as you said, what would the timeline be for that? How much investment would be needed?

RD [00:43:27]: I think they are doing all this in line internally.

GB [00:43:32]: I thought you said only 75% was done mainly internally.

RD [00:43:36]: Yes, absolutely.

GB [00:43:43]: If the company were looking to bring 100% internally, what would the timelines and costs for that be?

RD [00:43:51]: For me, it's more a capability to grow again a bit. In some geographies, sometimes for some permitting reason, it's good also to have some EPC contractor that you know very well. They will never go to 100% because for the reason I mentioned, permitting, for example, you need to give a bit of scope to some EPC companies, but okay, I say 75%, it could go to 85%. It could be quite a quick ramp-up. It's about more staffing some centres in E&C, which is not to me too much difficult. I don't see as a big headwind.

00:44:23] How else do you think Air Liquide could improve project execution? How would this translate into profit margins?

RD [00:44:43]: That's a very fair question. In fact, today, they can still improve. It's a CAPEX discipline. It's a procurement. In fact, today, when you have a new asset or new technology, you want to rely on the vendors you know. Vendor knows because it's secure, but at the end, you have no competitive bidding sometimes. Then you lose opportunities on the market. Second is they should not forget when you execute carbon capture project, it's not techno-driven. It's a project-driven. Don't miss all the fundamentals of a project execution, timing, cost, contract management. Sometimes, we are a bit too much engineers-focused, and we go too much in the detail of the techno topics. In general, to be frank, in 2019, I never saw a plant not doing the performance, it's super super rare, but I saw many projects out of time and out of delay and out of the budget. Okay, the ratio was not terrible. I think they were only over by 10% or 7% compared to the industry is not terrible, but really, the faster time to market in electronics is key. I can tell you the LDs they have on electronics plants are killing the project completely. For me, it's discipline and putting more opportunities on the table with procurement and construction capabilities.

00:46:22] What key equipment or supply chain constraints are currently affecting Air Liquide?

RD [00:46:28]: On the supply chain, you mean due to the topic that with Hormuz etc?

GB [00:46:40]: Yes, but any others as well. You mentioned delays in project execution at the moment. Is there anything to do with equipment or supply chain issues?

RD [00:46:52]: In fact, to be frank, yes, for sure, it has a bit of disruption due to that because Air Liquide has a cold box manufacturing centre in Ras Al Khaimah, close to Dubai. Directly, the barge where the cold boxes were offloaded has been blocked. They have to find some ways internally, but my history is not so much that the projects were late due to the supply chain itself. The disruption were reasonable. It's much more about discipline in engineering, procurement and that because if you double your time to do your basic engineering, don't count or expect one second to catch up in construction. It's even worse. It's being able to close a clear basic engineering package to start your construction on a very strong basis. It's where they need really to, I think, improve.

GB [00:47:56]: For plants that are already running, what often needs the most maintenance in terms of specific equipment failures?

RD [00:48:08]: For me, I think they had an issue because it was put at the Comex level that reliability was not at the level we mentioned, but my takeaway, in fact, there were nothing, in fact, structural in the analysis on the failure. It was more about, in fact, people not doing their job, missing or maybe a plant manager wanted to save too much on some spare parts. The day you have the issue, you don't have the spare parts, then you have to shut down your plant. For me, they can improve by being more disciplined on that one. The AI will also allow them to predict more this predictive maintenance. I know that, for example, if you want… AP, for example, is replacing older ASUs at two US sites, which is more efficient. It's a pattern actually, Air Liquide older European base. For me, not so much on that one to do. AI will help and the reliability will increase more. By the way, they put this at the Comex level. The new guy, David Prinselaar, who is heading that. They take it very seriously, loading their asset and making them deliver what they should do in terms of reliability.

00:49:42] How much of Air Liquide's European footprint do you think is old and in need of revamping?

RD [00:49:47]: I think for me, directionally, Europe is where Air Liquide legacy Large Industry assets are concentrated, first. Second, is where also the group has been most exposed to the post '22 energy shock, consistent with the Large Industry being one of the, by the way, large business line to decline in the business. Again, in H1, it was the case. For me, the footprint will be there definitely for green hydrogen. I think they will keep competitiveness on that one because it's a very recent asset, but for all the old one, already it has moved to Asia. In China, they have big facilities, Middle East also. They are quite well-positioned on that one. I don't see a big headwind on that one or a big disadvantage.

GB [00:50:52]: For the older sites compared to the newer sites, how much less energy intensive and efficient are the new sites?

RD [00:51:03]: On the historical technos, the gap was a bit limited because we come to commodity, but at least you can… When you talk about old, it's 10 years, 15 years or how you want to qualify that?

GB [00:51:17]: More of the older, more established sites. The initial sites that are still running.

RD [00:51:25]: Okay, understood. I would say for the maybe nitrogen air separation unit, it will be 8-10%. After for the green energy as they are new, it's difficult. We don't have benchmarks. I cannot predict something, but I think there are still many levers to do that.

00:52:04] In terms of Air Liquide's growth CAPEX, do you think the company will mainly be aiming to increase efficiency in its existing sites, or do you think there's a chance it will potentially be looking to expand into newer sites as well?

RD [00:52:21]: We come to the question between revamping and new project. In fact, first, E&C is more likely to do a greenfield project because it's easier. However, revamping is… I know they were developing a branch in E&C to deal about the revamping because revamp is… The time to market is definitely closer and it's bringing margin very closely in the result. The ramp-up is much more efficient. Now it was triggering a bit of very specific competencies because cutting a cold box, existing cold box and connecting it to other networks was requiring some competencies that were very rare in the market, in fact, and in Air Liquide. I would say it will be still a balance. I cannot give you any figures, sorry for that, but I think revamping was still specifically in Europe to counterbalance, in fact, the decline in terms of volumes.

00:53:33] What are 2-3 operational or strategic problems that Air Liquide's management could focus on to expand margins in the near term?

RD [00:53:50]: For me, I think and they were really following that, Linde was demonstrating that you are executing a merger about a very disciplined and very focused, you deliver it. First, it's what I was mentioning, it's the G&A and the optimisation. It's really that what the core and what they are doing, including the regionalisation, centralising a bit more also the decision. When you give to all the countries or regions the way to decide, then the capital allocation sometimes is not the right one because you need to make sure that you have an organisation that is able to prioritise the CAPEX investment. You can have a 12% return project. If your neighbour has 15%, let's give the priority of the CAPEX to the 15%. It's really the discipline, the centralisation that Linde today is able to do it very efficiently. The second one is the pricing discipline that worked very well… Worked quite well for Air Liquide, but the gap is… The American model is working well for Air Liquide today, and they need to replicate this to other geographies, okay? You have different constraints in terms of energy price, etc, but replicating this model, I think, will be a very strong that. You have this first semester, it was 200bps increase in Americas. It's the way they should do it in Asia and Europe.

We saw, by the way, Europe, we saw electronics were not possible in Germany. They are currently building a plant for electronics because Electronics Europe wants to be also less vulnerable in terms of those markets. I would say discipline in terms of execution and transforming, and second, replicating the model which are well working.

00:55:58] What should investors be looking at as key indicators that Air Liquide is improving its performance?

RD [00:56:07]: For me, related to the G&A savings, the sales per employee trends, I think it is a good proxy for execution discipline gap. You should really focus on that. After you have the QoQ progress on the margin target. Do we keep this trend? Is the management capable to be more ambitious on that one? Third one will be the ramp-up on the project backlog. You remember, we talked about EUR 5bn-6bn project backlog, mainly shared between electronics and carbon capture. First, will they deliver this project because now they signed some electronics project two years ago. Are they delivering as it was planned? After, a question about will Air Liquide adopt maybe strategy in terms of share buybacks? Will maybe give confidence. The last one, I was mentioning, you remember, Americas leading the show. What are the regional margin dispersion? Is Europe Asia catching up or not?

00:57:19] What do you think are the biggest headwinds that could potentially derail Air Liquide's progress?

RD [00:57:26]: For me, an energy price shock in Europe already maybe if the Middle East conflict is getting worse. We are already in a difficult situation and Europe is weighing quite a big in Air Liquide balance. The current transformation may be too modest compared to what we have to do.

00:57:49] What's your outlook for whether Air Liquide will be able to close the margin gap with Linde?

RD [00:57:58]: As I mentioned, yes, it will never come to the gap to the margin of Linde. The 30% for me are not reachable to be extremely clear. However, going from 2021-25, I still think it is still achievable. The mix shift towards electronics and healthcare the strong playbook in America may put the direction to close the gap. I'm sure they can do it, but now that will be at which speed they will do that.

GB [00:58:49]: We will now conclude the Interview. Thank you so much for your time today. This was a really good Interview.

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