2020 Financing
"A" CATEGORY FINANCIAL RATING CONFIRMED
Air Liquide is rated by two main rating agencies, Standard & Poor's and Moody's. The long-term rating from Standard & Poor's is "A-" and from Moody's is "A3". These are in line with the Group's strategy. Moreover, the short-term ratings are "A2" for Standard & Poor's and "P2" for Moody's. Standard & Poor's confirmed its ratings on July 24, 2020 and maintained its positive outlook. Moody's confirmed its ratings on July 7, 2020 and maintained its stable outlook.
DIVERSIFYING AND SECURING FINANCIAL SOURCES
As of December 31, 2020, Group financing through capital markets accounted for 93% of the Group's total debt, for a total amount of outstanding bonds of 11.3 billion euros including all types of bonds, and 0.2 billion euros of commercial paper.
The total amount of credit facilities was stable at 3.6 billion euros. The second one-year extension option was applied to this syndicated credit facility on November 6, 2020. The extension covers an unchanged amount of 2.5 billion euros and now matures in December 2025. Since 2019, this facility includes an indexation mechanism between its financial costs and three of the Group's CSR targets in the areas of carbon intensity, gender diversity, and safety.
The amount of total debt maturing in the next 12 months is 2.2 billion euros, an increase of 0.4 billion euros compared with December 31, 2019.
2020 ISSUES AND REDEMPTIONS
In March 2020, the Group issued a five-year private placement for an amount of 100 million euros.
In March 2020, under its EMTN program, the Group issued a public bond in two tranches of 500 million euros each, maturing in five and ten years.
Financing On March 26, 2020, Air Liquide successfully launched a EUR1 billion long term bond issuance. Proceeds from this issuance allowed the Group to refinance its June 2020 bond maturities in advance and will secure financing to support long term profitable growth. This issue will be rated << A- >> by Standard & Poor's and << A3 >> by Moody's.
In June 2020, two bond issues for a total amount of 500 million euros each were redeemed.
In December 2020, the last two bond issues held by Airgas, for 250 and 300 million US dollars (for a total equivalent of 448 million euros), were redeemed early. As of December 31, 2020, Airgas no longer held any bond debt.
At the end of 2020, outstanding bonds issued under the EMTN program amounted to 6.9 billion euros (nominal amount).
Net Debt by currency as of December 31
December 31, 2019 December 31, 2020
Euro 45% 47%
US Dollar 40% 40%
Chinese renminbi 0% 0%
Japense Yen 2% 2%
Other 13% 11%
TOTAL 100% 100%
Investments are generally funded in the currency in which the cash flows are generated, creating a natural currency hedge. In 2020, net debt decreased in terms of volume for all of the main currencies. The share of the euro increased whereas that of the US dollar declined, following the redemption of the bond debt held by Airgas, and due to the currency impact (appreciation of the euro against the US dollar).
CENTRALIZATION OF CASH AND FUNDING
Air Liquide Finance pools the cash balances of Group entities.
At December 31, 2020, Air Liquide Finance had granted to Group subsidiaries, directly or indirectly, the equivalent of 13.3 billion euros in loans and received 3.3 billion euros in excess cash as deposits from them. These transactions were denominated in 29 currencies (primarily the euro, US dollar, Japanese yen, Chinese renminbi and Singapore dollar). Approximately 400 subsidiaries are included in the Group cash pooling, directly or indirectly (including subsidiaries where cash pooling is carried out locally before being centralized at Air Liquide Finance).
DEBT MATURITY AND SCHEDULE
The average of the Group's debt maturity was 5.8 years at December 31, 2020, a decrease compared to December 31, 2019. Thanks to the generation of net cash flow in 2020, bond issues reached maturity or were redeemed early in 2020 without the need for refinancing.
The following chart shows the Group's debt maturity schedule. The single largest annual maturity represents approximately 11% of total debt.
CLOSURE OF THE NEOS PROGRAM
Due to the public health crisis and the unprecedented economic environment in 2020 which has had a major impact on sales growth as well as on costs and investment management, the Group believes that including 2020 results in the assessment of its medium-term performance is not relevant.
As a result, the achievement of the financial objectives set out in the NEOS program initially planned to cover the 2016--2020 period was terminated early at the end of 2019, except for the ROCE target which had been set for a longer period of time. Over 2016--2019, all of the objectives were achieved.
The compound average annual growth rate (CAGR) of revenue(8) over the 2016--2019 period was +6.5% and +7.8% excluding the currency impact, of which +2% was related to the Airgas acquisition. This was in line with the target of +6% to +8% between 2016 and 2020 including the Airgas impact.
The initial target of 300 million US dollars in cumulated synergies relating to the Airgas acquisition was reached during the first quarter of 2019, one year before the initial date. Furthermore, in 2019, the Group raised its initial target of 300 million euros in efficiencies to 400 million euros. More than 1.1 billion euros in cumulated efficiencies were therefore achieved over 2017--2019, largely exceeding the initial target.
Air Liquide maintained its "A" rating for the entire period. The net debt-to-equity ratio, which was initially above 150% following the Airgas acquisition, stood at 64.0% at the end of 2019. This sharp reduction in debt was recognized by the Standard & Poors rating agency which published a positive outlook on the Group.
Moreover, the Group also maintained its level of investment at between 10% and 12% of sales during the period, in line with guidance.
The Group had set a ROCE target of more than 10% for 2021--2022, but the Covid-19 pandemic is very likely to have an impact of more than one year on net profit growth. Furthermore, in preparation for future growth, Air Liquide has decided to step up its investments despite the public health crisis, in particular those related to the energy transition. The Group therefore maintains its ROCE target of more than 10% and has rescheduled its achievement to 2023 or 2024, depending on when the Covid-19 crisis will end.
A new five-year company program should be announced during the first quarter of 2022 and will cover the 2021--2025 period, using 2021 as its reference year.
______________________ (8) See reconciliation in Appendix
2020 OUTLOOK
The Group was fully mobilized to serve its customers and patients in 2020, which was an out of the ordinary year, whilst being resolutely committed to the fight against covid-19.
The Group's performance was outstanding in this environment: sales resilience, significant margin improvement, net profit growth and investment decisions continued at a very high level. This performance illustrates the solidity of our business model. It also perfectly positions the Group for future growth and enables it to already benefit from the acceleration seen in healthcare, energy transition, and the increasing presence of technologies, in particular digital, in all sectors.
Over the full year, 2020 sales were practically stable on a comparable basis, with business back to growth in the fourth quarter. The Gas & Services sales, which account for 96% of Group revenue, held up well, as did Global Markets & Technologies which retained their momentum. On a comparable basis, business was supported by strong sales growth in Healthcare and Electronics. Geographically, the situation was extremely varied with Europe faring well, driven by demand in Healthcare, and a solid performance from the developing economies, particularly China, and Eastern European and Latin American countries.
The Group's operating margin improvement plan, combined with exceptional cost containment measures relating to the situation in 2020, resulted in a marked improvement in the margin of +80 bps excluding energy impact. The structural efficiencies stood at 441 million euros. Operating cash flows were high and the debt-to-equity ratio was reduced significantly. The Group's balance sheet confirms its strength.
The Group has achieved, as of 2019, the sales and efficiencies objectives of its NEOS 2020 company program. As for the ROCE of 10%+, it is maintained, with achievement by 2023-2024 to take into account the impact of the covid-19 crisis as well as the pro-active investment policy in the current favorable context. In 2020, investment decisions thus stood at the extremely high level of 3.2 billion euros, indicative of future growth.
In an environment marked by global recovery plans and commitment to energy transition, the Group still has numerous investment opportunities of which 44% are projects related to the fight against climate change, including the development of Hydrogen Energy.
In 2021, in a context of limited local lockdowns in the first half of the year and recovery in the second half, Air Liquide is confident in its ability to further increase its operating margin and to deliver recurring net profit(1) growth, at constant exchange rates.
(1) Recurring net profit: Excluding exceptional and significant items that have no impact on the operating income recurring. Excluding the impact of any US tax reform in 2021.
APPENDICES
Performance indicators
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.
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