Eric Zhang: Great. Thank you.
Operator: And we will take our next question from John McNulty with BMO Capital Markets. Your line is open.
John McNulty: Thanks for taking my question. So I wanted to address the price versus cost kind of environment in APAC. I think we’ve seen the pricing moderate a little bit or at least decelerate. But I think, Matt, in your comments, you spoke to, a deflationary environment from a cost perspective. So I guess, can you help us to think about that balance and how to think about maybe pricing in the region as we push forward?
Matt White: Yes, John, sure. This is Matt. So you’re absolutely right. We always think about it in terms of a spread, because there’s different inflationary environments everywhere in the world. And our model is very, very local. So managing the spread is very important. And when you think about APAC, clearly China does make up a large portion of that segment. And as I mentioned, in China, you are seeing some deflationary conditions. And this is the primary reason why we talked about taking cost actions out several quarters ago, which we’ve been undertaking. So the dynamic we’re seeing in China, while volumes are flattish, like Sanjiv said, pricing is also flattish. And so costs are actually coming down. And that spread is still positive in that regard.
I think when you think about places like India or Australia, they’re following the model pretty closely. In a place like South Korea, you tend to have a little bit more electronics exposure. So there will be a little bit of an effect there of helium, more probably than other locations for us, given that. And helium is more of a globalized product. But as Sanjiv mentioned, at a consolidated level, it’s a low single digit for us. But South Korea will be disproportionately more impacted by that, given the larger electronics portfolio. So that’s the way I think I’d think about that, and hence why APAC is a little lower, but also the costs are a little lower. And that’s why the margins you notice are still expanding in APAC. And to me that’s really the key, is what are margins doing?
Because you can see inflation, you could see hyperinflation, you could see disinflation, and you could see deflation. The question is, how, as we have management, how are we managing that? And to me, the margin is what really is representative of how that’s being managed. And in APAC, right now it’s being managed, and the margin is still expanding.
John McNulty: Thanks very much for the call.
Operator: And we will take our next question from Steve Byrne with Bank of America. Your line is open.
Steve Byrne: Yes, thank you. I was just curious about your pipeline of targeted acquisitions, potentially increase your density even greater for your merchant and package gases businesses. Do you have more opportunities? And can you comment on geographically where that might exist without regulatory pushback?
Sanjiv Lamba: Steve, we are very committed to tuck-in acquisitions anywhere in the world. And to your point, network density is what guides that decision. For us to be able to bring a tuck-in acquisition, enhance our network density, and actually move that business forward is how we see a good growth opportunity. As you know, in the U.S., we have a track record of doing many of these. The last one that we did, which was large enough, I would argue is nexAir. It’s proven to be tremendously successful, looking really good as we integrate that business into Southeast U.S. And that’s a very attractive market in which to do that. So again, a good example where I think that acquisitions work really well for us. We look at that across the board.
So, we are obviously continuing to pursue such opportunities in the U.S. They are tuck-in acquisitions. We recognize that a very large acquisition is not doable for regular reasons, et cetera that you’ve mentioned. But we’re also looking for a similar model elsewhere in the world. And we will explore that in Asia, in Australia, China, in large parts of Eastern Europe, Middle East, and even Western Europe where we can get a tuck-in acquisition opportunity.
Steve Byrne: Thank you.
Operator: And we will take our next question from Michael Sison with Wells Fargo. Your line is open.
Unidentified Analyst: Hi there. This is [Abigail] on for Mike. So just in terms of your project intake, that’s obviously down a bit year-over-year and quarter-over-quarter. I was just wondering if you’re going to attribute that, to your focus on only taking on higher quality projects, or if there are other factors at play?
Sanjiv Lamba: So I’ll just go back and tell you that, when we think about our backlog today. And then, we look at order intake, the backlog we’ve got is about $8.3 billion. It’s currently under execution. We have a healthy order intake pipeline. I think engineering does just under $0.5 billion of order intake a quarter. That looks pretty much on track at the moment. Yes, we do take high quality projects. There’s no question on that. But we have a unique position in the fact that Linde’s engineering business is one of the leading engineering entities in gas processing. And in our space, we are the leader and therefore well sought after today, by customers who would like to continue to build on relationships that we’ve maintained with them over the past.
So I feel good about where we stand with the project intake as things stand. And if you look at the sale of gas backlog, I’ll just do the math for you over here, because I’ll kind of underpin that for you as well in terms of order intake. The sale of gas backlog at the moment, is about just under $5 billion. In the course of this year, we’ll start up anywhere between $1.5 billion to $2 billion of projects. So we will reduce that backlog between $1.5 billion to $2 billion. And my expectation is over the course of the next many months, we will add back into that backlog to make sure we end the year around that $5 billion mark. So again, that shows that there will be order intake coming in, which will be served by the engineering team over here, in the sale of gas backlog as well.
So overall, I feel pretty good about where we stand with that.
Unidentified Analyst: Okay. So you’re anticipating a higher order intake later on in the year, is what I’m hearing versus earlier in the year?
Sanjiv Lamba: So on the sale of gas backlog, as I said, we develop projects over a period of time. And we will start up about $1.5 billion to $2 billion of projects that are already being executed. And we expect to add back into the sale of gas backlog. And therefore, the order intake for engineering, around the same level to try and get very close to the $5 billion mark, by the end of the year. Does that clarify?
Unidentified Analyst: Yes. That’s helpful. Thank you.
Operator: We will take our next question from Laurent Favre with BNP. Your line is open.
Laurent Favre: Yes. Good morning, guys. I just have one question left. On the H2 green steel side, I noticed it was just the ASU contract. I was wondering if there was any reason why you hadn’t been involved on the hydrogen supply in the first place. Is it by choice, or I guess by accident? And when we think about further green steel announcements, in particular in Europe, should we be assuming that you may have bigger exposure to those means than 150 million per unit? Thank you.
Sanjiv Lamba: Right. So on H2 green steel, the agreed scope that we wanted to do was the air separation. And we are very happy with having that opportunity to supply them. They are going to be probably one of the larger green steel projects, starting up in Europe probably earlier than most others. There are other projects that we are also pursuing. The scope depends on the agreement we have with the customer. And obviously, you know that we are very mindful about how we see electrolysis development. Obviously, renewable energy availability guides a lot of that, as does reliability and the capital intensity around those projects. So, we tend to pick and choose based on that. But there are projects that we are currently developing in Europe around steel that include supply of hydrogen. And in others, we stick to the industrial gas portion, which is air separation.
Laurent Favre: Thank you, Sanjay. And a follow-up on that, on the cutoff date for Q1 cash flow and working capital, there may be a size impact for us. Is it most of the $0.5 billion outflow you had in Q1?
Matt White: Yes, I’m sorry. Could you repeat that? It was the outflow in Q1 related to what?
Laurent Favre: Yes, on the cutoff date on Good Friday. I was just wondering if we should assume that most of the working capital outflow year-on-year is related to that timing, and we should see that $0.5 billion come back in the second quarter?
Matt White: Yes. So to your exact point, when you look at the face of the cash flow, the AR year-on-year is unfavorable, about $250 million. And the majority of that was associated with some of this timing impact. As you can imagine, Good Friday was a bank holiday in most jurisdictions, even Holy Thursday arguably in some in Latin America. And so that created a bit of a timing dynamic on the receivables. But when we monitored the first few weeks of April, we’ve definitely seen a rebound on that timing. And so, I would expect to get that back in Q2, as we mentioned, and should get back on track. So really, the AR was the only thing that stuck out, and it really was a function of this timing component. Because as you know, these are all contractual customers, these are contractual terms, and they obviously need to pay to continue to get supply.
Laurent Favre: Okay. Thank you.
Operator: And we will take our final question from Laurence Alexander with Jefferies. Your line is open.
Laurence Alexander: Good morning. Could you unpack two comments? So one, with respect to kind of the difference in pricing philosophy, particularly kind of in merchant, are you seeing that translate into share gains relative to competitors? Or just kind of like, what’s the practical impact of the difference in philosophy? And then the second is, with respect to the comment about sort of the number of elections this year. Do you get a sense for your customers that there is a pent-up project list where once there is political clarity, we should see projects, flow through to your backlog fairly quickly? Or is there more of a kind of the disruptions are longer reaching, because of, you know, people aren’t even in planning mode, given the kind of uncertainty around what longer-term policy directions will be? Just want to see exactly where you see the nervousness translating into how projects flow through to your backlog over the next, say, six to eight quarters?
Sanjiv Lamba: Let’s start with the project pipeline and its reflection on the backlog, Laurence. So I’ll distinguish this between traditional projects and clean energy projects. On the traditional projects, we see a lot of project activity continue. I would say that elections aren’t having a dramatic impact on timing. I think people are just being very intentional about the project that they wish to pursue. I have said that in India, we saw a little bit of a slowdown in the business, just given the ongoing elections, but that’s just around logistics and day-to-day business as opposed to decisions being made from a long-term perspective. So, we don’t really see any significant impact on the traditional side of our business related to elections or otherwise.
I think the natural trend over there is continuing. The pipeline is healthy. We’re looking at conversions. I mentioned earlier on in a response that I expect that we will get the backlog back up, to very close to $5 billion by the end of the year, which means that between now and then, there’s between $1.5 billion to $2 billion of new projects to be won. And that only happens when there is a strong pipeline that, you’ve been developing over a period of time. So, I feel it’s pretty much there. Clean energy, I also said I see momentum moderating. I see some of the hype going away. Again, less to do with elections. Obviously, some clarity is being sought on clean energy projects, particularly with IRA and 45V and so on and so forth. As you know, there is a very complex incentive and penalty structure in Europe.
So people are making sure they try and understand, and get a good handle on those before they make large investment decisions. That’s the factor that’s more at play than elections. As far as your question on pricing was concerned, I’m not sure I fully got it, but here is how I think about pricing. So we’ve said many times over that pricing, great proxy for it is globally weighted inflation. We track to that. There’s a correlation we built over a couple of decades, a high correlation, and we’re seeing that play out. Matt made a number of comments around what happens in disinflation versus deflation environments. In each of those, our philosophy is around making sure that not only are we tracking that globally weighted inflation. But we have actions in place that are constantly looking at converting the price increases that we manage right into our product pricing.
