Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs periodic reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the periodic review.

Periodic reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each periodic review on its website.

Scope completed the periodic review for Air Liquide S.A. and its financing subsidiary Air Liquide Finance S.A. (issuer ratings: A/Positive; short-term debt ratings: S-1; senior unsecured debt ratings: A) and its financing subsidiary Air Liquide US, L.L.C. (issuer rating: A/Positive; short-term rating: S-1) on 19 December 2024.
 
This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Air Liquide remains on track with its deleveraging path, demonstrating a debt-to-EBITDA ratio of 1.51x for the last twelve months as of June 2024. This ratio continues to strengthen the company's financial risk profile. The firm maintains a robust business risk profile, supported by a solid market position and stable profitability. The company’s significant market presence as the second-largest global producer of industrial gases is a key factor.

While there remains opportunity for further enhancement, particularly in closing the profitability gap with its peers, the company is progressing well toward its target of improving profitability. Air Liquide has demonstrated a notable achievement by recording a +100 basis points (bp) increase in its reported EBIT margin within the first nine months of 2024. This exceeds the annual target of +80bp for 2024, positioning the company ahead of schedule to meet its overall target of a +320bp improvement between 2022 and 2025. Such performance highlights the company’s over-delivery on margin expansion, demonstrating strong execution of its strategic objectives, with a particular focus on efficiency, pricing, and portfolio management, despite macroeconomic headwinds. This is supported by the company's robust business model featuring medium to long-term contracts with take-or-pay clauses and cost pass-through mechanisms.

Scope-adjusted debt/EBITDA currently stands at 1.51x, indicating that Scope’s forecasts from April 2024 have not materially changed following the release of the company’s half-year and nine-month 2024 results. Scope expects this ratio to remain stable at this level by the end of 2024 with a slight improvement to 1.4x in 2025. This positive trend is primarily driven by robust and stable cash generation. While operating and discretionary free cash flows are constrained by significant capital expenditure, which is inherent to Air Liquide’s business model but is elevated relative to the specialty chemicals sector, the backlog continues to grow, standing at EUR 4.2bn on September 2024, and the renewed focus on efficiencies is delivering above-target margins.

Scope estimates that the company will maintain a significant level of cash on its balance sheet each year, with a balance of EUR 1.8bn at June 2024. The company’s access to a diverse set of financing tools continues to ensure adequate liquidity coverage for upcoming borrowings.

As such, the Positive Outlook is maintained, with Scope expecting that Scope-adjusted debt/EBITDA will remain solid at 1.5x and below over the medium term, despite increased capex and higher pressure on free operating cash flow.

The methodologies applicable for the reviewed ratings (General Corporate Rating Methodology, 16 October 2023; Chemicals Rating Methodology, 16 April 2024) are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Ivan Castro Campos, Director
 
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