Q2 2020 Earnings Call
Good morning, welcome to air products and chemicals second quarter earnings release call. Today's call is being recorded at the request of air products. Please note that this presentation and the comments made on behalf of air products are subject to copyright by air products and all rights are reserved beginning today's call is Mr. Smith, Vice president of Investor Relations.
Thank you land.
Turning everyone.
Welcome to air products second quarter 2020 earnings results teleconference. This.
Just to Simon Moore, Vice President Investor Relations.
We used to be joined today by say take a semi our chairman president and CEO.
Got crocco, our executive Vice President and Chief Financial Officer.
Sean Major our executive Vice President General Counsel and Secretary.
After our comments will be please take your questions.
Our earnings release and the slides for this call are available on our website at <unk> air products Dotcom.
This discussion contains forward looking statements. Please refer to the forward looking statement disclosure that can be found in our earnings release and on slide number two.
In addition throughout todays discussion, we will refer to various financial measures.
Unless we specifically state otherwise what we refer to earnings per share EBITDA EBITDA margin and ours see both on a companywide and segment basis, we're referring to our adjusted non-GAAP financial measures adjusted earnings per share adjusted EBITDA adjusted EBITDA margin and return on.
Capital employed reconciliations can be found on our website in the relevant earnings release section.
With a significant social and economic challenges. The world is currently facing from the Cobot 19 pandemic, we've restructured our call today to focus on the key information I believe is most important to our investors.
You can find our Q2 segments slides in the backup section, but we won't go through them in detail on the call today.
Also given the significant uncertainty that remains regarding the duration of the crisis the pace of recovery and the negative impact on the global economy Air products is not providing Q3 F. why 20 EPS guidance. In addition, we believe it is prudent to withdraw or that's why 20-F, Scott and capital expenditure guidance.
And therefore, we advise or investors that such guide to should no longer be relied upon.
We're not providing new Aflac 20 guidance at this time.
And like all of you we are conducting this call remotely. So during the Q you in a we will intentionally pause to help with any time delay and avoid two people speaking over each other we appreciate if you would do the same we also appreciate your patience.
Now I'll turn the call over to safety.
Thank you Simon.
Hi, good morning, everybody.
Particularly during these challenging times.
Thank you for taking charge from your busiest schedule.
We'll be on our call today.
Before we talk about the quarter.
I wanted to share some talks on the current situation.
Please turn to slide number three.
It should try texture.
I leadership individual.
Companies.
Is your deal during times of crisis.
Sure John D. going through a crisis.
One thing that none of us as experience you know lifestyle.
But I am delighted to report to you.
That get people at products.
Oh, demonstrating our culture.
Cataract surgery the war.
They are responding to the crisis.
Cheering sort off federal employees.
And Austria citizens around door.
They are responding passion.
All plants operating.
Sean we got the Trump provides our customers.
I told products that they need.
As they are responding.
Did that commitment.
Yeah education.
The move and products.
No matter what the challenges.
We are always being a leader commit to get to safety as our number one priority.
In managing just crisis.
Providing the right protective equipment and procedures to protect our people on the trunk lines.
New York <unk> quick.
George limit travel.
Transition many employees.
From all modes to minimize rich.
We are also permit.
Providing financial security for our people.
During this crisis.
We have not laid off any of our employees for their salaries.
<unk> board to maintain just approach I'd be not.
Sure.
Yes, just yet.
We have their strong financial position.
That's a strategic training our people and their families jewel jeez I usual times.
That product is looking up their old customers.
Question, I expect us to provide them products they need.
Right.
Like quality.
Focus on providing a shopping centers.
I am proud.
During this crisis.
We have challenge.
Well go about 750 plans, all breaking ground door I'd like to repeat.
Yep kept operating on about 7700 up to keep plants the wrong door.
Significant accomplishment during these times.
You provide products should be says and equipment.
Essential to basic human he needs.
Clothing medical oxygen.
These young floor.
And more I'm machines.
That's what forced freezing.
Hydrogen for energy.
Do they get a quick been pretty called to energy and medical needs.
We are proud to be identified as a critical industries like all the governments around the war.
I want to try and got people Ondansetron drawings.
Oh cheating on all fronts running.
Turning to our customers that product they need.
In addition, the unless the about people.
Working from home that's helped US maintain our business continue you would you like cheap didn't keep process is running.
Continuing to pursue new projects.
The TV of hydrogen plants acquisition that'd be announced in March and closed last week.
It products, it's also a link.
Looking got they're not communities.
I am proud of how genes have mobileye safely and quickly.
To meet increasing oxygen demand.
We are actively supporting many clubs facilities and establishment of critical.
Birdie hospitals.
Yeah, all she'll make financial contributions.
Donated critical P P and equipment and often challenge non topic organizations.
Dog meeting so many agents human needs during this crisis.
Aren't making a difference in people's lives.
It probably is also a leader in creating preserving shareholder value.
[laughter], who didn't management trash well there the last six years.
We now have that then your strong balance sheet.
Plenty of cash on hand to where does the current prices continue to pay dividends.
That's an attractive opportunities.
I would like to tank farm team for their commitment and dedication.
During these difficult times.
Yeah, It hogs watch.
Our resilient business model.
Allowed us.
There are 20 sports an object T R 24th consecutive quarter.
Yes on you.
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Despite the negative impact in the second quarter.
About six to eight cents, earning per share from <unk>.
Gene buyers.
Now please turn to slide number four.
Hi, I'm pleased that out cheese steak focus on bookings safety.
She's always important.
Particularly during these challenging times.
Now please go to slide number five.
Shows our goal which remains unchanged.
No.
Please go to a slide number six.
Our management philosophy.
We have included this is slide in the presentation.
I have made to our shareholders in the last six years.
It is at times like this.
That one can fully appreciate.
The value of following these key management philosophy.
I have pursued in my 50 years screen.
Yes.
Cash is changed.
Yes, the most important job of the C O <unk> food and capital allocation.
We have been focused on generating at present being cash.
He did not based our cash on stream <unk> acquisitions or share buybacks.
I'd be saying okay.
I just want to spend that you have they can actually take care about people to continue to run our business said about customers.
Tribute to the definitely not all communities and create value for all shareholders.
Now please turn to slide number seven.
Features our long 10 business a strategy.
You have seen this many times before there's no change this a strategy I'd be give continue to pursue it adds a state.
On slide number eight.
I don't see our exciting God's vacation strategy.
The fundamental drivers, creating significant growth opportunities in gadget education remain.
Oh geez large companies around the world.
You need to focus on gadget vacation.
Our lives the abundant natural resources, they have to produce chemicals transportation fuels and energy in sustainable damage.
At this point I think it's appropriate.
For me to update you on are important to US dollar D jazz and project for Saudi Aramco.
Despite the current challenging times.
I'm happy to report that do you have now completed.
Discussions regarding but do you what did it egov documents.
These legal documents.
Being submitted to the lenders and he got advisor.
Therefore, we now expect to go to the market for the $7 billion project financing.
The end of May and be expect to close this transaction October of 2020.
Now please go to slide number one number nine fleets.
Summarizing that PBF hydrogen plants acquisition, we announced a few weeks ago.
Despite the and they said that unprecedented challenges in devoted these days.
Trout that you continue to win large onsite opportunities.
You have close on that purchase.
Five operating hydrogen plants in California, and data over four or 500000 $30 million.
Had started.
By the loan Jed hydrogen supply.
Three P.B.S. energy partners.
This project will have to be change in excess of the minimum requirements to be crazy previously shared with you.
And it's been B G through our Boggan volumes this year in 2020.
I'm proud of all cheap.
Did it can be to negotiate.
Hi, I'm close this need in less than 30 days.
This project is a long onsite growth strategy.
He got a strong balance sheet to acquire Oh and operate assets for customers and supply gadgets under long term contracts.
We are pleased to expand our strong relationship.
TBS.
In addition, the our gold King and many other opportunities around the world.
So that you know the main comprebem.
You know the ability to deploy ought to be of their capital.
Page significant shareholder value.
Now please turn to slide number 10.
Again, the hard work about cheap.
And the strength of our business model.
Our EBITDA margin remained over 40%.
As top.
Over 1500 basis points from early 2014.
No I would like to turn the call over to Mr., Scott Crocco, Our Vice President Executive Vice President and Chief Financial Officer.
By the financial overview.
Scott.
Thank you safety.
As safety stated earlier, our Companys financial position is very strong.
Our cash flow generation is very stable supported by our industry, leading onsite business, which represents more than half of our sales.
Additionally, our cash on hand, and limited dead provided an ability to access additional funding as needed.
We are confident that we have sufficient resources to meet all our capital deployment opportunities.
As you can see in slide 11, we have over $2 billion of cash on hand.
We also have an undrawn 2.3 billion dollar committed revolving credit facility available.
However, I don't anticipate any need to access these funds.
Meanwhile, our company's leverage is very low.
Net debt is about $1 billion and our net debt to EBITDA ratio is a low 0.3 times.
This allows us to increase that considerably.
While still maintaining our targeted a two debt rating.
Our dividend and capital investment plans remain unchanged.
We are committed to rewarding our investors by increasing the dividend and growing the company.
As shown in slide 12 Air products is delivered 38 consecutive years of dividend increase.
Through many periods of challenging economic conditions.
And we continue to believe that investing in high return projects will create more shareholder value over the long term than buying back shares.
We remain optimistic about our ability to the point significant capital into our exciting growth opportunities, including recent opportunities like the PBM asset acquisitions.
We also have about $1 billion of debt maturing by the end of 2021.
So we continue to evaluate the best tied to access the debt markets.
Now please turn to slide 13 for second quarter results.
Our sales and profits grew despite the unprecedented disruption due to cobot 19.
Constraining the stability of our onsite contracts and the geographic diversity of our merchant businesses.
Overall, cobot 19 negatively impacted volumes by about 1%.
Yes by 68 cents, primarily in the Asia merchant business.
The age of merchant business was down about 25% for about six weeks after the new lunar new year holiday.
But recovered in late March.
As expected our onsite business remained stable.
We also did not see much impact in Europe, where the Americas for the quarter.
Well, we did begin to see an impact right at the end of the corner.
They will provide some comments later regarding what we have seen so far in April.
Our team in Asia has worked hard managing through the crisis.
We are encouraged to see that business gradually return to normal by the end of the quarter.
I would like to thank our team for their focus on health.
Safety and serving our customers reliably.
Job very well done.
For the quarter sales grew modestly to $2.2 billion, a strong underlying sales were offset by 5% lower energy pass through.
And 2% unfavorable currency.
Primarily the Chinese RMB, the euro and the Korean won.
Volume and price improved in all three regions.
Volume increased 6% as new plants overall positive based business.
LNG activity acquisitions, and a short term contract in Asia more than overcame the negative impact of cobot 19.
And as I mentioned, our existing onsite business with stable.
Price was up 2% the 11th consecutive quarter of year over year price increase.
EBITDA reached almost $900 million up 8% with higher profits across all three regions.
EBITDA margin was they get over 40%.
Fourth consecutive quarter exceeding the 40% Mark up 260 basis points.
About 180 basis points of the improvement was from lower energy pass through with the rest primarily driven by higher price.
As a $2.04 was up 6% despite the negative six to eight cents impact of cobot 19 and unfavorable currency.
Sequentially sales and profits were down as a result of reduced activities due to the lunar new year holidays, and the cobot 19 impact.
Aro see a 13.5% continues to improve.
90 basis points over last year.
As Simon mentioned, we don't plan to review the individual segments in detail, but I would like to make some summary brief comments on their second quarter performance.
All three geographic regions delivered stronger results with volume.
Price EBITDA.
And EBITDA margin up in each region.
Asia is volume was up 6%, despite a negative 4% impact from called the 19.
The growth was driven by new plants, Yeah, a short term supply contract that we mentioned last quarter.
Almost two thirds of our Asia business is onsite, which remained stable as we expected.
We saw strong hydrogen volumes for the refining industry in the U.S. Gulf Coast.
Canada and Rotterdam.
Americas and Yeah me, a only began to see impacts from coded 19 during the last week of the quarter.
Americas EBITDA margin was up 540 basis points with about 350 of that from lower energy pass through.
Yeah Me, a EBITDA margin was up 90 basis points, primarily from higher price.
We also saw LNG driving profit improvement in our corporate segment.
Now please turn to slide 14.
Our second quarter gap E. T. S was $2.21, which includes two onetime items.
A 34 million dollar gain due to a property sale and a $14 million tax adjustment in India.
Combined contributed 18 cents vps.
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Our second quarter adjusted EPS of $2 enforced sets was up 12 cents per share were 6%.
Driven by strong operating performance.
Volume and price together contributed more than 30 cents. Despite the negative six to eight cents impact from Kogut 19.
Cost was unfavorable 17 cents due to our continued investment in resources to support our growth strategy, coupled with additional planned maintenance and life extension work needed in our facilities, mainly in North America as mentioned during our last quarter's call.
We do anticipate customers delaying planned outages in the second half of the year.
Currency and foreign exchange was five cents unfavorable.
Primarily due to the Chinese RMB.
The euro and the Korean won.
Equity affiliate income contributed three cents.
While a modestly higher tax rate subtracted to said.
The effective tax rate was 20.5 per cent for the quarter up 60 basis points over last year.
We continue to expect an effective tax rate of 20% to 21% in fiscal year 2020.
Now please turn to slide 15.
We continue to generate strong operational cash flow.
As I mentioned, our EBITDA was up 8%. Despite cobot 19 global pandemic again, demonstrating the quality of our business model.
Over the last 12 months, we generated about $2.7 billion were over $12 per share of distributable cash flow.
From this distributable cash flow, we paid almost 40% were over $1 billion as dividends to our shareholders and still have about $1.7 billion available for high return industrial gas investments.
This strong cash flow either in uncertain times enables us to continue to create shareholder value through increasing dividends and capital deployment.
Slide number 16 provides an update on our capital deployment progress.
As you can see we expect about $18 billion of investment capacity available over the five year period from F. White 2018.
Through that's why 2022.
Our total capacity is expected to continue to grow as we increased EBITDA.
The $18 billion includes about $10 billion of additional debt capacity available today.
Over $4 billion of investable cash flow between now and they end up at White 22.
And almost $4 billion already spent.
We will continue to focus on managing our debt balance to maintain our current targeted a two rating.
And as I mentioned earlier, we continue to evaluate the best tie in to access the debt market.
Let's see if he said we continue to sign new projects.
So our total project and M&A commitments are up to about $9 billion with about $8 billion remaining to spend on them.
So you can see we've already spent over 20%.
And already committed almost two thirds of our total available capacity.
We remain extremely confident in our ability to deploy this capacity in the onsite projects that will create significant long term shareholder value.
Please turn to slide number 17 for a summary of our perspective on coal good 19.
We are safely keeping our plants running.
And we are mobilize to meet our customers' needs, particularly for medical oxygen.
Our results this quarter demonstrates the resilience of our business model. Despite the impact from called did make Pete.
We've been seeing lower Americas and E N B, a merchant volumes in April and expect that to at least impact Q3.
We have seen customers delaying planned maintenance activities and we are monitoring for any potential delays that our projects.
The construction.
Looking forward, we are confident our strong financial position will support our future investment opportunities.
Now I'll provide some additional thoughts in the future I'll turn the call back over to safely.
Sure Scott.
We have now seen how it products performed during the month of January February and March of 2020.
I would like to add.
They did have a good month of March despite the evolving crisis in Europe.
The mix.
But I am sure our investors want to know what we are seeing as of today in the month of Heiko.
This is what I can shared with you.
First of all.
As I speak to you now.
Just about all of our 750 plants it on the go our operating.
The flying same short products to our customers.
Yeah, 52% of our sales.
Oh Gee, 62% of ourselves that sees our onsite business around the world is doing well and we expect dish to continue.
In Asia.
Our mission volumes happily chance to pre crisis levels.
And some product lines, but actually higher than last year.
In Europe.
Our merchant volumes are down about 25% in the month of area.
Although this seems to have improved slightly in the past week.
They may impact you know volumes in Europe.
Yes in our packaged gases business.
And that may cause.
Our merchant volumes are down about 15% in April.
And seem to be a stable over the last week.
Please note that do not have packaged gases business in the United States.
I'll do it is encouraging to see some improvement in the number of corporate 19 cases.
Slackening of victory in certain areas around the awards.
But the all need to realize that's significant uncertainty still exists regarding did you ration of this crisis.
Pay somebody comedy and didn't make any impact on the global economy.
Given this uncertainty.
Products is not providing fish codes.
Third quarter EPS guidance and believe it is proving to be draw or try and fiscal year 2020 bps and Catholics guidance.
Well I'd be are not providing guidance.
I've got to remind you of the framework.
You can use yourself to think about AD products business.
In this complicate the time.
To get that the stability of our onsite business around the award.
And that continues.
Automotive volumes in Asia.
Victories and about two thirds of our business.
And we don't expect much impact on this 52 to Christian of ourselves.
As we move for about you wouldn't get bounce or the.
For the other been chairs.
We choose our mixture business in generic on Europe.
They do I expect any impact in quoted a tree absolutely for years.
But given the level of uncertainty you are not in a position to quantify.
But one day to think about the potential impact.
His body assuming.
That that Mitch in volumes in these parts of divorce aligned <unk> industrial production.
So for example.
Oh, it's embedded costs on Europe merchant volumes.
They have to be reduced by 25% for a single quarter, because industrial production has dropped by about 25%.
Yes, what impact on it and potash standing for shared by about 30% to 55% their share.
Which is 3% to 4% about Anwar P S.
And finally previously change or slide number 18.
And these challenging times.
Our competitive advantage has always is the commitment and motivation of big weight change do you have I did products.
Our strong financial position.
And robust business model.
Allow us to continue to execute out a strategy.
To create long term shareholder value.
And to increase our Debbie.
As we have done for the past more than 30 years.
Projects in our backlog continue as expected.
And that continues to be significant opportunities to invest in projects in our core business.
Most importantly, there continue to protect.
Our cheetos health and safety and take Chan of database player undeveloped set off their sounds.
Let me end today by taking got 17000 people again.
Oh and their commitment and hard borge for demonstrating the true chat actor and products.
Our success yesterday today and tomorrow.
Depends on David dedication and commitment.
And I'm very proud to say that AD products team is demonstrating that through the fullest extent under the most extreme conditions.
We are trying to be are very proud to play a critical role.
Make a difference to the award during these challenging times.
I think our plants running and providing critical they need to industrial gases to keep people our lives.
This is our highest testers and products.
At U.S. listening today.
That does she mentioned there that you are all this crisis together.
And then come out of this thing together.
He had been together.
Stay safe.
Stay healthy.
And now be they'd be more than happy.
Answer any questions that you have.
Thank you and if he would like to ask a question. He second all by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Again, Please press star one to ask a question and we will take our first question from David Begleiter with Deutsche Bank.
Thank you good morning.
Safe and morning gave you.
Anja, then I'm, assuming it closes October how should we thinking about the earnings contribution in 2021.
But obviously you have given your guidance about the fact that for every dollar that be investors should expect approximately.
10 cents of operating profit.
So you can convince that to your P.S. impact cities or.
At this point I think that's the guidance I want to give you, but bunch theatrically close then be there'd be a little bit more specific.
Very good and just late last thing on your onsite business, what's your exposure as refineries were doing through operating rate.
Hi, why the stability of the onsite business.
They're not some downside risk every to see lower or crude runs by refineries.
No our onsite business as the I've always said you get that fixed monthly fee for running our plants are providing product to our customers. They are operating at had that person, 90% or 80% doesn't make much of the difference and you have seen that's fully demonstrates that during the second quarter.
There there was obviously it all the pressure on everybody around divorce than in China, and all of that so.
That doesn't affect us that much.
Thank you very much.
Thank you very much David.
And we'll take our next question, John Mcnulty with BMO capital markets.
Yeah. Good morning, Thanks for taking my question. So two questions on the on the backlog I guess, the first would be you have.
A lot of business coming in on the merchant front that you've listed in in your backlog for 2021, I guess can you give us some color as to your confidence in that though in that demand or that that business coming on and what the impact might be in terms of how we should be thinking about the earnings contribution in 2021.
So first of all good morning, John.
With all due respect John I would like to disagree with you in terms of the fact that most of those investments in our backlog already nurturing.
Yeah really ought not most of them are in.
Our onsite mother.
So.
As a result, I don't expect much of an initial did that.
As they come in I think they are milk, mostly onsite business your fixed fit the fccs.
Got it yeah, no adapt partly I mean, I see the I see the the big onsite ones I guess I was curious because you do have you do a four projects listed that our merchant I was curious what the what the the likelihood of those coming on and the impact might be.
Okay. Good come on and they are very small tens of the context of the thing and some of them actually replaces some older plants. So.
I don't expect that to be material that all John.
Got it got it Okay and then is it for the second question. The macro obviously, it's going to be a lot slower in the short term and that may have some impact on the ability for it but you know for new projects to get bit upon and things like that at the same time you just one the big PBF project or business I guess I'm one.
During how you're thinking about the onsite opportunities out there and if we should be thinking about the project backlog expanding as we kind of go throughout the year or or kind of staying level to maybe going down a bit how should we be thinking about that.
I think there should be thinking on that part of our business that it's the business normal and actually.
Yeah, the current crisis.
Might actually create opportunities that some of that people who've after deducting to self sum up did.
That kind of <unk>.
Industrial gas off plants that they own.
That they might be thinking about maybe divesting of goes and generating some cash so I actually think that dogs or the pace of but be have been doing it continue and maybe actually salary.
Great. Thanks, very much for the color be safe.
Thank you. Thank you very much on.
And we'll take our next question from Kevin Mccarthy with vertical research partners.
Yes, good morning safety and listening to your comments it sounds like your business in Asia.
He is recovering nicely or if that is the case would you expect earnings to improve sequentially and the fiscal third quarter in Asia.
Relative to what you just posted in the second quarter.
The first of all good morning, Kevin, Yes, I do.
Our business in Asia is doing fine.
Right now and as I said in my comments some of the product knowledge that actually higher than last year. So I do expect an improvement in Asia segment next quarter.
Okay. That's helpful Vitamin C. I don't body Yeah. Yeah go ahead.
Oh, sorry, sorry to interrupt up.
As a second question I was wondering if you could elaborate on the decision to discontinue your capital expenditure guidance as distinct from the earnings guidance.
It's like the year as half done I imagine a lot of these projects are already underway are there particular sources of uncertainty.
That have emerged now that you know my my call into question the fate of individual projects or what is the rationale there.
Kevin that is there anything by just one project, which is just that.
As I said, we expect that project to closing in October now if it closes on September 28, the capital expenditure it'd be too significant.
We'll be in 2009.
In our 2020 numbers if it closes on October 2nd it will be in Twentytwenty join do you want.
That is why you didn't have been too since we don't know exactly when the project is going to close that is why do you get through that guidance so that they don't.
Create an issue of typing said something and it becomes a few a bunch of equal to each back and forth and it was significantly change that it did that investment needs not $200 million. Its billions of dollars. So as a result that is why do you want it to shy away from computer make their capital expenditure kept.
That's the only been actor.
Understood. Thank you so much.
Thank you.
And we'll take our next question from Vincent Andrews with Morgan Stanley.
Thank you and good morning, everyone first if you could just clarify SAIFI a you know it at the end of your comments about how April was going and you talked about.
<unk> merchant volumes were down 25%.
Was that that that it'd be a 3% to 4% hit to E. P. S or a 34 cents hit to E. P. S. And then I have a real question.
Sure first of all good morning, good number up on but I said is that if the industrial production drops 25%.
And as the result of that.
Well lets you at Europe, and Americas dropped 25% that it's not the case as they see as I said.
A European volumes actually she didn't acres is down 25%, but in the U.S. only 15%, but I just wanted to give you some guidance that if both of those things dropped 25% for the quarter.
Then the impact for the quarter, if it'd be about 30% to 35%.
50 to 75 cents, which is.
3% to 4% about Totoki P.S. approximately 40.
So the if they effect will be 30 to 35 cents for that quarter.
Sure Okay interesting goes out 25%.
[music].
Okay. That's very helpful. And then if I could just ask on the on the merchant gas decided the equation there've been some reports in the U.S. a ended Europe about shortages of Seo too.
In the U.S. as a function of corn ethanol plants, not having co product production is that something that you're seeing and that the company is going to be able to Ah Ah <unk> be a a solution provider for that that missing Seo too.
Oh, what and just to put it in context.
She or to first of all your statement is absolutely correct.
But in terms of air products, she or two he's the 1% of ourselves into U.S.
And 5% of ourselves in Europe.
Europe doesn't have a problem now so in the U.S. It is a very very small part of our business.
So it's not going to have any kind of a material impact on our business and we're not going to be able to do something just.
The situation because it's such a small part for our for us.
Thank you very much.
Thank you.
And we'll take our next question from Mike Harrison with Seaport Global Securities.
Hi, good morning.
Good morning, like how are you doing.
Doing well hope I hope, you're well as a as well safety.
Yeah, I wanted to say that sounds.
Maybe maybe continuing on the question related to see or two shortages.
Just talking more broadly about your business can you talk about any supply chain or logistical issues that you may have encountered a as a result of cove. It any a any additional costs associated with.
Or shortages or availability or need to move product around a at higher costs are in less efficient ways than normal.
But related to see or two as I've said for us just fat, especially small business you haven't seen much of an impact on our business and do you haven't had to do anything significantly unusual.
I mean more more broadly speaking, though it when it comes to Lox Lin or argon or anything else.
So unlocks then are gone and all of that thanks to the outstanding as talks about people they get up in the morning. They go towards they obviously, the probably appropriate protective equipment like they have kept on about plants running part of our supply chain and.
We havent had any issues of fair not delivering to a customer or not be being able to meet customer demands I'm very proud of that.
And that you have checked out a company Ronnie and be have supplied products to all of our customers.
No shortages on no disruption.
Alright, and then the word to also asking about the impact of lower planned maintenance you mentioned that a couple times, that's that's customer maintenance and planned downtime.
What does that what does that mean to you guys in terms of your own maintenance costs and and are these discretionary maintenance projects or why why is there a decline.
Well then be [laughter] haven't flat like a hydrogen plant that is supplying getting refinery.
We obviously can only take all planned down for maintenance then they take their refinery, though because if you take off plants will make an incentive foundries operating done we've had created disruption for the refineries sobi coordinate our downtimes very very closely if it did refinery.
So if I'd be are saying is that some of the refineries might decide might be shy.
To move their maintenance to another quarter and as a result of that.
People would not take our planned down as a result of that do not have.
To do with the maintenance and therefore that might be a favorite above impact on our bottom line.
Understood. Thank you for clarifying.
Thank you Sir.
And we'll take our next question from Steve Byrne with Bank of America.
Yes, good morning, you're still getting 2% to 3% overall price in each of the regions, which is driven by merger and or less than half through your your revenue.
Given the in a couple of the regions now you're seeing a contraction or any of those merchant customers.
Asking you to renegotiate price are pushing back on on that you're so just a general question about your outlook for for pricing in this a slowdown.
Hi, good morning to see.
Excellent question, let me just be various specific.
And you're right there numbers that these are publishes for automotive business, but I can't give you an do you have been opened about this thing before.
Intensified price increases for our midstream business.
Year over year.
Medical I suppose up 6%.
Europe was up 5%.
Asia was up 6%.
So those are the facts in terms of the second quarter.
Now what is going to happen in the future.
The policy of not to comment on prices for the future engine because of the nature of our industry. So I.
You I'm sure you understand that about <unk> I wouldn't do that because it's not appropriate.
But those are the facts intangible, but do you have seen up to now.
Yeah, Scott you mentioned that out about of this available capital deployment capacity. This is 18 billion you've committed <unk>.
Thank you said two thirds of it.
That is a five year window that is fixed and you're now halfway through that five year window at what point do you kind of put that on a rolling five year forward basis, because your your future contribution to that is shrinking a and is this a lower ROI.
Doing anything to your outlook for gasification the of coal.
Yeah, I didn't answer that question and see.
Yeah, right do you have committed tutor they had another I almost a two and a half years to go to commit the idea of unfair.
And can jump, giving you a rolling five year, yes, we'd be to do that but do not do that now we didn't do that probably next year to give you a deal for the next five years after twentytwenty too.
And with respect to add the nature of the project makes on any has slowed down quite frankly, you don't see any.
The reason for the slowing down of those Mega project said the are very much attached to as a result of Ah Ah divider sitting at least at this stage. So if you continue to remain very optimistic about the there.
Robust nature of our fundamental strategy as you go forward and tens of focusing gun gasification catlin captured and hydrogen for mobility.
Thank you safety.
Thank you Ashley.
And there are no next question will come from Jefferies. The caucus JP Morgan.
Hi, good morning sick.
Hi, Good morning, Jeff how are you kidding.
Hi, good hot.
So as I understand air products.
Whether air products.
On slide volumes grow or they can track that piece of that business is irrelevant to year over year EBIT da tranches, excluding currency not quick [laughter].
The real lever is and merchant merchant volumes and purchase price [laughter]. So in a world in which merchant volumes really moved down can you flex your cost structure down in order to occur in the effects to air products or it's difficult to flex or cost.
Correct.
Well, Jeff first of all you understand our business city that email.
Secondly, you're asking an excellent question.
In response to that piece that.
If.
They tried there for growth of AD products, which we are committed to 10% the U.S. growth.
He's not the merchant volumes going up and down.
Yes, the investment in new opportunities and new projects coming on stream.
That is what has been driven our business. If you look at Uh huh.
Past five years, you have de lever, we have a cumulative average growth rate up 15% on T.S.
That is driven it was driven some by the cost structure that'd be took out and medassets mode officials.
Have you done good that as we go forward the main driver.
It's going to be.
Are there new projects that you're thinking on stream and they are going to be significant can be accretive and that is why.
No matter what happens to our mission business I'm still very optimistic that you'd be able to grow our E. T S. 10% to you as we move for under long term.
And thank you for that in in gasification projects in China people gasify in order to produce ammonia.
And all and fuel.
And in the World that we live in today I don't know what people need more ammonia and methanol and feel that maybe they do if you want to be more independent in China.
So in a world and with oil prices are now say within a range of 25 to $40 a barrel could be to be conservative.
It's in the case that those projects in China don't make sense and when you look at your you know I say lawn. For example, you know how is that client fairing in a world where energy prices are down sharply.
Well, Jeff. This is the general discussion we have always had is that these projects are not driven by financial just driven by national security.
OID might be $2 at $10 or $20.
But called 3% shelf recall were just sitting in the ground is board seat.
So when you take that and compare that to chemicals. It is still pace to do that that is why we believe that add these projects will still continue.
And then other changes that do not tens of our gasification.
We sat and remember and I know you know this very well have you are not just talking about coal gasification.
You're talking about gasification not petcoke.
People are not going to be able to burn petcoke, 6% pet Coke is not going to be something that people are going to consume you'll have to compare that to something else I don't want to get to do that use yaggi vacation.
They have to bother them up the bearing the refinery is 6% and you cannot 72 ships because I'm I'm old Twentytwenty, then you'll have to guys. Your pie. So they gadgets education is not just coal right now the biggest gasification [noise].
Project that VR doing.
He has led to a billion dollar project in Japan that has nothing to do get the cold. It is the gasification off the bottom of the there of the refinery. So when do you talked about gasification. It's a combination of all of these things and that's probably be continue to remain optimistic that oil is $25 a $40 or.
Doctors.
Thanks very much.
Please take care.
Thank you very much if I appreciate that done by the time I've had a lot of Don to play Chess I'm sure you're doing the same thing [laughter] takes ethic pack.
[music].
And we'll take our next question from John Roberts with you'd be yes.
Thank you Im glad you all sound and pretty healthy.
Thank you Italian I hope you had a very healthy too.
Yes. Thank you European merchant is down 25% in April how much more than the 25% decline as packaged gas down how much less than the 25% decline as bulk liquid down.
Well I.
Approximately package that is down about 40% on liquid is on about 16% approximately.
Thank you and do you have any hydrogen customers operating below their contracted requirements and do you anticipate any of your hydrogen customer suspending operations temporarily.
We do not.
Yeah, I mean, I'm sure some of our oxygen customers might be operating below capacity, but we haven't seen a drop in you have not seen a dropping off on hydrogen volumes from our pipeline, but I didn't know into future that might be the case, but it doesn't affect us as we have discussed before.
Thank you.
Thank you.
And we'll take our next question from Bob Court with Goldman Sachs.
[laughter].
Good morning.
Good morning, Bob maybe you have them, maybe long talked about maybe doing asset acquisitions going it seems like it's limited Davies a include a component of that but this PBF was the first a meaningful one that was solely assets and not a gas supply in rolling in your project work.
But.
What does the pipeline look of other.
Asset acquisition opportunities and if you were handicapping as you suggest your next big capital project will be it in asset acquisition or a new gasification project.
[music].
Probably an asset acquisition.
And can you give us an update on why K is there any progress there at some point, we need to formalize a delay in your expectations of when that project will come on stream.
Yup the thing is it unfortunately as I mentioned I think on our January call.
Yeah, maybe they're supposed to have that big meetings on that thing in the month of sensitivity in China, but obviously that didn't happen.
At the issue.
That project has not changed you see the issue of called out occasion.
And youre going to add.
Kind of put a target for ourselves that by or the time that Vietnam and shelved resolved at the end of October <unk>.
We would give you a definite events at about that did that project is a go no go.
Got you irritated optimistic that that is going to be ideal project.
I do promise you that bite at the end of October if you could you give you a definite answer on that rather than just keeping it.
That being suspense.
Okay.
Perfect. Thank you.
Thank you.
Our next question will come from P.J. Juvekar with Citigroup.
Yes, good morning savvy.
Hey, PJ how are you doing.
I'm doing well.
Exactly right. He's all your onsite business on facility fees or is there some business maybe some old business that was struck at a certain operating rate below which take or pay begins to pick in.
I guess I'm, what I'm asking is.
Is there any cyclicality in your onsite business.
And no no no no material Suky should cyclicality, knowing that isn't as you have seen during 2008 and as we have demonstrated that in the last few months.
It's pretty robust business they'd be happy to structure feature.
Okay, and then you know when I look at your own.
Well I'll limit or what are the same store volume growth for air products overall.
And particularly in Asia, you know you give covered impact, but can you take out the impact of new project startups.
So just trying to go it's I'm store sales.
No. It's obviously the grow news related to new projects, but they have usually do not quantify that because then they'd be giving away too much information, but oh.
Obviously doing or.
January February and March merchant volumes in China vetted out.
Just like they are going to be down.
In this coming quarter in Europe, and the U.S.
But that they did have new projects coming on stream and as a result.
It made up for it.
Hi. This is my dog are saying that in answering the other question. That's the main growth driver for products is all of the works we have done in the past six use that new projects that are beginning to come on stream and that youre going to see a lot of that coming on to stay in in 2021, 20 to 23, which would put us in that.
Excellent position.
Right No I agree, but it was just buy in times like I think you would be helpful.
Thank you.
And we'll take our next question from Chris Parkinson with Credit Suisse.
Great. Thank you.
Just a quick question on the recent PBF deal you know appears it's obviously came together fairly quickly but can you just address on.
How long you've been target you know that you were targeting these assets and then also just how should we thinking about the long term optionality or potential optionality in terms of carbon capture in California.
As was the potential to leverage a your pipeline network just any additional color there. Thank you.
Well. Thank you very much Chris that first of all the CBS.
You know if you have the I've known these people very though they had an excellent company of you have a very good relationship with Dan do you have been supplying them hydrogen for a long time showed the subject of that quoting that hydrogen plants. It has been discussed a in the last two or three years.
But it became Matt.
We made it a specific author to them and I can't say historically baby they made their specific alter to then.
In October at that time, they didn't want to they took say it's hard to take a look I did and then.
Finally in March we made it very if even more to specific offer they say they're interested in taking a look at it.
David requirement boys that is savvy can do that transaction and a speedy babyish, we said be Ken.
And as a result, they did their during the time that you did.
In terms of the other question that you had with respect to cabin capture opportunities.
I see in California that a significant incentives for if you can't captured cabin and obviously, we have a lot of S. C met 10 deployments and now they have you been motor seem to farmers in California that they do generate.
You are too and that's why it makes sense for rush to take a look at that that'd be can capture the shoe or two from these things and or do something good it but they did you say enhanced oil recovery or sequestration or whatever.
Capture some of that value. So yes, we are looking at that.
Okay.
And just also just could you just very quickly just hit on you know just in terms of end markets do you see any variance and current terms of merchant volumes, thus far I understand it's linked to tie d., but just any and markets worth highlighting and then just also a quick update possibly on not just your health care business and also nonmedical healing demand a will.
Be appreciated thank you.
Sure in terms of that market sectors, obviously, the oxygen demand for hospitals.
The demand has gone up.
We do not have a huge business on that into U.S., but do you do have a very big business at bid for hospitals into Spain and.
Hey, Chile.
And in some other parts of Europe.
So the demand for oxygen is obviously up because the situation at foods freezing demands has said relative they kept up a pretty well.
I see Daddy-o's there you see a reduction in demand is <unk> basic basic industries, and especially the smaller plant smelter industries that use.
Oxyfuel burners on all of that for all of the manufacture.
And in that same stuff you don't think easy on most of the helium goes with M. <unk> machines and death hasn't slowed down.
Thank you.
Thank you.
And we'll take our next question from Duffy Fisher with Barclays.
Yeah, good morning Fellas.
Good morning, Delphia, how are you doing.
Very good. Thanks first question is just can you help break out then decremental margin differential between the European business in the U.S. business, just because they're package here you don't so if we're putting different.
Declines in revenue based on IP from those two regions, how should we think about either like on an EBITDA per cent basis, or an EBIT percent basis differential in decremental margins.
<unk>.
You know you're asking me to give you a lot more detailed information that we usually.
Good to people, but.
Overall overall.
If you want to do the kind of calculation that you want to do.
Isn't that huge amounts of difference between March and then of course is higher than Europe, but it is not.
She bonnie's, 10% in another words, 40% there.
Yeah, not too different let me put adapted.
Okay Fair enough and then just the last one in the working capital line this quarter.
It seems like you eight about $200 million more in cash then you have historically in the second quarter.
What happened there and is that something we should think about repeating or it is that kind of a onetime thing that will end up going away.
Well, that's one non Daft question I would like to turn it over to Scott, who knows more about it than I do to answer that.
Scott would you like to take that question. Please.
Sure sure happy too in a Hello nothing.
First of all its not systemic.
There's nothing in there related to the cold the 19, what it is just some larger timing of some larger payments, particularly in our sales equipment business and some of those contracts. So that's nothing large and that's something we expect to continue.
Great. Thank you guys. Scott is saying is that it has it has nothing to do it actually physical inventory and songs just some of their accounts payable accounts receivable kind of it.
Okay, Great that's great. Thank you guys.
Thank you appreciate that they say about Duffy.
Okay.
Yes are there any other questions.
There are and we'll take our next question from Mike Sison with Wells Fargo.
And you may have if I miss her.
Oh, sorry about that hey, guys I'm glad that you all are safe.
Thank you thank you Mike.
Safe I think he you noted that Asia merchant, we covered in our bar was down you know for six weeks of them then sounds like maybe leak seven week eight things are covered get can you maybe walk us through.
You know kind of what happened when you talk to customers that allowed the the merchant business to recover and in in kind of seven eight weeks and.
Yes, those events sort of transpired here in Europe, and and the last do you think.
Yeah, we can be cover and that sort of similar time period.
Well I think that's one but I can say that obviously trying I did a great job in terms of beating the dead wires.
I mean, they they had a hot shutdown, which affected volumes on all of that significantly, but they took the pain and they contain dividers and then when they open opened open to society backdrop in their normal in Beijing and the volumes came back.
So he's sat in Europe and in the U.S.
And we actually sponsorship of lead the way they did.
And have a hard Chuck down and then open up the our society and respond should be changed to come back, but I. Just hope that you do the same thing that that they did in China.
Chinese did a great dropping containing thats why they see the started that did but.
You know there statistics in terms of the number of cases they haven't.
And right now the Chinese society is functioning normally and that is why our volumes are up.
And actually there are people who.
Argue that are actually this Chinese economy might that.
Benefit from Buddies going down because it's fair to Europe, and the U.S. have issues to deal with it and industrial production and so on a is down then China has to make up for that and also for they'd only be that showed that Chinese economy might actually become better then of course before.
But.
I mean, it all depends in terms of how we end up handling the situation in the U.S.N. in Europe and hobby come back from that.
Got it and then just okay follow up thanks, just yep and just quick follow up and you think about the <unk>. It does the volume merchant declines in Europe in Americas, how much of that is driven by actual plant shutdowns meeting so shutdowns.
Kinda revert auto and aerospace and other areas is how quickly does that come back is that the bulk of the decline.
But that is obviously a good bulk cognitive decline are also dixie that consumers not consuming yourself and treat that I'm not producing that but I just like to add that you know beat felt an obligation <unk> as you know be never viewed in golf course comment on the current month.
They don't comment on things in the middle of the court.
But they decided to do that because of that focus that everybody has to be gave you the numbers as we see them in April.
We are not projecting that that those numbers. We will continue we don't know not projecting that at Europe. You go down 25%. Then next month. They just told you what do you see at this moment.
Because we don't know how you're going to proceed.
Next month, it's Europe, you size to open up some of that Ed you guys, because they feel more confident that 25% might become 10%. So a beach. The main reason that you didn't give your guidance just because they just don't know and not be don't want to get ahead of ourselves, but please say it takes a lot the set in the current.
Thanks, a bunch of B or C. Yeah, not projecting for you as they are not projecting that the U.S. mitcham volumes would be down 25%. They just gave you. An example of that I've told you exactly like we see as of right now.
Got it thank you.
Thank you very much.
Our next question will come from Jim Sheehan with Suntrust.
Thanks, Good morning, Oh seem on it you noted that you're you have the top priorities still have increasing your dividends and over the past or you know many years, you've increased at a 10% annual rate or you know cod pounds rate or would you expect your dividend increases here to be the similar to prior.
Yours or would you change or the amount of dividend increase given the uncertainty as the current environment.
Well the decision of hobby and increase their dividends and how much would increase it by is obviously the decision by our board of directors and AD Board considers all the different circumstances before we make that they make that recommendation by developing that I can tell you for sure is that we definitely are not decreasing.
Dividend.
And my intent is to recommend to the board to increase it then it.
The issue is just I thought percentage on that I cannot.
Kind of sad give you a number for that began to see how it is but you see our historical performance and they definitely are not going to decrease seven everything and the amount of increase he would like to increase I would like to increase it and the amount of increase will be something that our board will decide in January as we usually either.
Thank you very much.
Thank you.
Our next question comes from Jonas Oxgaard with Bernstein.
Well good morning savvy.
Hey, good morning, How're you doing these days.
Oh, no Dod although if your board, but yes, I have a couple of kids like Atlanta do they will keep your occupied [laughter].
[laughter] no I've never going to be chance I loved writing today.
[laughter] could escape.
Two questions. If you don't mind. The first one is on jobs on the so my understanding from your last quarter was that you expect the gasifiers to be up and running shortly.
And they have Hughes or obviously already running so how what happens to the project when they when everything is actually running but ownership is still with aramco.
Does the earnings that come in you pay off corporate debt or how should we think about that.
Well first of all.
I don't want to speak for uncle, but the Gasifiers I'm not drowning.
Yeah Yeah.
But they are the is it.
Again like any other D is that then be close.
Then de close the transaction.
They did the Gasifiers I was running on the hot or whether that be signing is running or not then aramco owes us the monthly fee.
That's the they'd works.
So that.
Upon the close up the transaction.
But that is this state of the ixinity be didn't get.
Monthly fee and therefore did that impact teller.
Yes.
Okay is that okay.
Yeah, that's ever get but it is he was running already right and they are owned by you still aren't they.
The issues are still owned by US and they are then you see it running they are being commissions.
Not yet supplying oxygen for production to that Ixinity yet.
Unless they are but no <unk>, but but but the important thing.
Is that the ought to getting to be FC pet or contract with.
Okay for the issue, we should be on 25, which makes it right.
Yeah. Okay perfect. Thank you then separate question Anthony you your reference helium demand being strong but.
Since we're not reducing pointing gas production.
And we're already and what looks like a global helium shortage or how do you see the helium supply demand evolving over the next year, if crude price stays where it is.
Well first of all helium demand.
There are two main drivers where he the on demand on main driver is obviously them out on machines.
Unfortunately, those seeing Jody and more demand and David before.
Then the other thing there are good for helium he's balloons.
Yes, they parties on all of that that is that flexibility and the demand and depending on the price that business goes up and down.
Yeah. So in terms of helium demand do you have not seen significant reduction on the demand.
And as you said the supplies are still tight.
But I would like to be excuse from making too many comments about ci them because yourself to see if they said sensitive subject considering that the market then all of that and I don't want to.
Get ahead of ourselves in making too many comments about that.
Okay. Thank you.
Thank you very much.
You should that.
And we'll take our Frac sand.
From whites Alexander with Jefferies.
Okay.
Okay, well them very very quickly carbon sequestration you'd have to skill sets due to sequestration component yourselves or is that something you need to do a JV on.
Yeah, I'm, sorry, you cut out in the middle of your questions would you please repeat that.
Sure. So on carbon sequestration is I'm, just very quickly on carbon sequestration, you mentioned earlier projects I'm your the pipelines.
Or do you have this does their products have to skill set to do the sequestration step themselves or is that something that would need to be outsourced or JV.
Well, if you're talking about the obviously you know how to capture the cabin and clean it up and all of that.
Then the question becomes if Josh if we are doing cat you ought to be just putting into pipeline and that it goes for you or if it is a question on she questioning it didn't know off like the sequestration, obviously belongs to some of the companies like Schlumberger Baker Hughes on all of that an obvious.
See those kind of situations you can be either using them as subcontractors or something like that.
I mean, you don't want to get too much into the details of that but you know the you know the system very though how E books, yes.
Yes.
Thank you very much.
Okay.
With that since that's supposed to find a question I would like to tank everybody for being on our call.
Thanks for listening to our presentation.
We appreciate your interest and look forward to discussion guard resolved with you next quarter.
And as I said earlier, please stay safe I stay healthy and all the best two out of you and thank you again.
And that does conclude today's conference. Thank you for your participation you may now disconnect.
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