Q3 2020 Air Products and Chemicals Inc Earnings Call
Good morning, welcome to air products and chemicals third quarter earnings release call. Today's call is being recorded at the request of air products. Please note that the 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., Simon Moore, Vice President of Investor Relations.
[music].
Thank you Lynn good morning, everyone welcome to Air Products' third quarter 2020 earnings results teleconference.
This is Simon Moore, Vice President of Investor Relations.
Pleased to be joined today by safety consuming our chairman President and CEO.
Scott Crocco, our executive Vice President and Chief Financial Officer, and Sean Major our executive Vice President General Counsel and Secretary.
After our comments, we will be pleased to take your questions.
Our earnings release and the slides for this call are available on our website at air products Dot com.
This discussion contains forward looking statements. Please refer to the forward looking statement disclosure it 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 when we refer to earnings per share EBITDA EBITDA margin Anoro 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.
Right.
Reconciliations can be found on our web site and the relevant earnings release section now I'm pleased to turn the call over to safety.
Thank you Simon.
Hi, good morning, everybody.
I was always returns you for taking time somebody else's your schedule.
Beyond our call today.
Before we talk about all the results this quarter.
Please turn to slide number tree.
As I said last quarter.
True character.
Leadership.
Tools and companies.
During times of crisis.
And Unfortunately this crisis continues at different levels.
Places around the war.
Number one priority has been.
I'm going to continue to be.
Saves me I'm going to think about people.
Yeah.
Okay, and that's what city protective equipment.
So to the poker protocols focused on the streets, we felt about people.
I want to turn gold employees.
Totally these procedures and working hard to serve our customers under challenging conditions.
In addition.
We mentioned last quarter.
Sure the peace of mind, just gone all your stress.
So in June.
Got you used to stuff.
No.
Everybody salaries.
Our people are doing a great job.
All about 750 plants running get all doors.
All of our corporate business functions are running smoothly.
Continue to again, they got projects around the award.
<unk> customers.
Hi, good results. Despite the significant parts is facing a war.
Oh robust.
Small.
It's cool.
Yes globally.
Oh, I'm, sorry, I'm, assuming a stable.
In addition.
And then turned our focus on pricing discipline.
Despite lower volumes.
You can see.
Our merchant businesses.
The improved pricing.
Oh.
Yes.
Oh business model supports.
Those are strong.
Insertion.
I'd be successfully accessed the deck markets in April.
Sure you already well exciting growth opportunities.
Thank you.
It continues to execute on all growth opportunities.
Moving to 7 billion dollar.
Carbon free hydrogen project, we announced in July and to build young coal to become a project.
You mean bank.
Oh you missed.
Makes sense successfully deployed.
What are your strong balance sheet and ongoing Josh.
Creates significant value for all shareholders.
Hi, Scott explain in more detail later.
The second goal for ourselves.
Two dogs aren't they.
To commit <unk> billion dollars projects.
And on 2022.
Youre actually two and a half years schedule.
No yeah.
Well, let you almost $60 million.
Great job business development teams are all divorce.
Bar.
Succeeding.
Well go.
Still have substantial capacity.
Projects.
Oh God, you're just continue our gross that.
Please now turn to slide number four.
I'm pleased that ought to stay focus on working safely through these challenging.
Yes.
Okay I dislike number.
She is the goal we set for ourselves in 2014.
I am proud to say that your dad products.
First and most profitable in industrial gas companies indoor.
Slide number six.
You know showed your many times before.
Junior to believe.
It's about 60.
Cash is king.
Who don't prudent capital allocation.
The most important drops.
Yes.
Slide number seven days on slide four strategy moving forward.
Emphasis on.
As a company.
Now please turn to slide number.
That you can see exciting.
You know they do carbon free hydrogen project.
Just a few weeks ago.
This is a unique warrant glass project.
Do you always carbon free oxygen.
Clark.
<unk> Green card hydrogen.
The global markets.
Yeah products Neil.
Oh, that's about $5 billion.
Oh screen ammonia from wind and solar power.
Saudi Arabia.
Yeah products.
All degree pneumonia.
And that's an additional $2 billion.
I don't think trust structure.
Oh, you ought to carbon free hydrogen.
Got it bus and truck depots and around the war.
Yes, and politics, so that all investments in the told talk project to be about 3.7 billion.
We expect if I'm not sure parents to exceed our previous commitments.
This project.
He's a tool game changer, <unk> carbon free hobbies and Mark.
Reach actually a whole which said.
Gross cigarettes, it can be in the next decade.
And we are positioning in politics.
To continue to be the leader in the hydrogen to space.
Oh, sorry on the slide number nine.
You can see another great project.
<unk> dollar investment in Indonesia.
Got you thought coal to Mexico.
Yeah products you take calls from back in the call I'm for like Medrano under long term onsite business model.
Once again.
Yes, no stranger expansion Hawk onsite business model.
I mean gosh.
Customers as long as stop.
That completes.
Providing products they need from that feed stocks that didn't happen.
[laughter] fundamental drivers.
Project.
The National Security.
Energy independence policies.
Women.
Indonesia.
Do you expect to do more projects like this in Indonesia.
Please turn to slide number 10.
Gadget application strategy.
Oh.
Yes couldn't junior tool in sport ones.
There are fundamental drivers, creating significant golf.
Those opportunities in Gadget protection.
Countries and large companies around the board.
And your to focus on Gadget education.
You too large abundant natural.
They have to produce 70 calls.
On sports ensuring fuels.
Energy in a sustainable manner.
We continue to make progress.
Important $12 billion concern gasification project.
For Saudi around.
Despite the current challenging times.
I'm very happy to report today.
We have no launch $7 billion financing.
<unk> for this project.
We expect to close the transaction you know October 2020 <unk>.
Scott you have some more to say about this thing in his portion.
As I'm sure investors and analysts didn't notice.
Anymore by carried project.
Our project leaves an old backlog.
Yes about arch coal gasification project in China.
Yes over your store investors over the past two years.
You can only do this project if you can get former friction.
Core reserves dedicated that entirely too specific project.
Yeah, not come through the conclusion.
Yes, like not happen.
Yes future.
It might happen basis, but it's not happening in the near future and as a result.
Moving this project from our backlog.
Yeah that get data occasion.
Our backlog drug knowledge is not.
Appropriate to count them.
Now please turn to slide number 11.
Hi, Thanks to the hard work a lot cheaper.
The strength of our business model.
Margins remain open 40%.
<unk> up 1700 basis points.
From an early 2014.
Now I'd like to turn the call Mr., Scott Crocco ought executive Vice President and Chief Financial Officer.
Fine dining short overview.
Scott.
Thank you Stacy.
As he 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.
We were able to complete a highly successful 5 billion dollar debt offering.
Which was enthusiastically received by investors and enables us to the point significant capital into high return projects.
Please turn to slide 12.
Where do you can see a summary of our April issuance.
<unk> point $8 billion and 1 billion euros.
Fixed rate debt.
Raising about $5 billion up cash in total.
We are committed to manage our debt balance to maintain our target 882 rating, while continuing to pursue our capital deployment strategy.
We plan to use this cash to repay about $1 billion a debt maturing between now and they end up 2021.
In the funded just they don't project as well as our other exciting growth project opportunities.
We have announced several strategic investments this quarter.
And we firmly believe that investing in high return projects will create more shareholder value that share buybacks.
We are committed to rewarding our investors by increasing the dividend and growing the company by deploying capital.
As shown in slide 13 air products since delivered 38 consecutive years of dividend increase.
Through many periods of challenging economic conditions.
Now please turn to slide 14 for a summary of our third quarter results.
Our teams around the world have worked very hard managing through this crisis.
We are encouraged to see that are businesses had been resilient under these challenging conditions.
I would like to thank our team for their focus on health.
Safety and serving our customers reliably.
Hey job very well done.
Despite the unprecedented disruption caused by cobot 19, our adjusted EBITDA of $880 million closely matched prior year end, but last quarter.
Supported by the stability of our businesses and the positive actions taken during this time.
Including price increases.
Cost management.
LNG project execution and acquisitions.
We delivered price improvement in all three regions.
Overall price was up 2%.
The 12 consecutive quarter of year over year price increase and.
And also increased 1% sequentially.
For the corner higher price nearly offset lower volume.
The 7% decline in sales was mainly the result of 4% lower energy pass through.
And 2% unfavorable currencies.
Ordinarily the Chinese RMB.
The Chilean peso Korean won and the euro.
Volume was unfavorable 3% as new plants.
Increased LNG activities and acquired assets only partially offset the negative impact due to cobot 19.
And the volume impact from planned maintenance outages.
Cobot 19 reduced overall sales by about 9%.
And lower merchant volumes about 40% primarily in Americas in Europe.
EBITDA margin reached 42.7%.
The fifth consecutive quarter exceeding 40%.
And up 260 basis points compared to prior year, and 240 basis points higher than last quarter.
About 140 basis points of the improvement versus prior year was from lower energy pass through.
With the rest, primarily driven by higher price and lower costs.
Cobot liking negatively impacted EPS by about 35 to 40 cents.
Yes, it's down 7%.
Despite consistent EBITDA due to higher depreciation on new plants, including the P.D. up hydrogen plants.
Additional interest expense from the new debt issuance and higher tax rate.
Although C 12.4%, it's down 30 basis points from prior year negatively impacted by about 80 basis points from the step up in the denominator from the additional $5 billion of debt.
Now please turn to slide that Pete.
Our third quarter adjusted EPS of $2. The once it was down 16 cents per share or 7%. Despite the negative 35 to 40 cents impact from Cobot 19.
Volume price and cost together were down by a modest five cents. Despite the negative cobot 19 impact.
Costs contributed four cents, primarily due to lower travel and reduced maintenance activities.
We are pleased with the overall positive cost this quarter, even as we continue to invest in the resources for future growth.
Currency and foreign exchange was five cents on favorable primarily due to the Chinese RMB <unk> peso Korean won and the euro.
Equity affiliate income was down two cents due to cope with my team.
The effective tax rate was 19.3% for the quarter up 70 basis points over last year and had a negative to send it back.
We continue to expect an effective tax rate of 20% to 21% in fiscal year 2020.
The additional team set reduction in other is primarily due to the higher interest expense associated with the additional $5 billion a dead.
Partially offset by lower pension costs.
Now please turn to slide 16.
We continue to generate strong operational cash flow.
As I mentioned, our EBITDA has held firm despite cobot 19 global pandemic again, demonstrating the quality of our business model.
Over the last 12 months, we generated about $2.7 billion or about $12 per share of distributable cash flow.
From this distributable cash flow, we paid almost 40% or over $1 billion as dividends to our shareholders and still have about $1.6 billion available for high return industrial gas investments.
This strong cash flow even in on certain times enables us to continue to create shareholder value <unk>, increasing dividends and capital deployment.
Now please turn to slide 17.
As I'm sure you will all remember in 2018, we said we saw significant potential for high value, creating capital deployment.
In fact, we communicated a five year target of committed $15 billion of new investments by the end of 2022.
I am pleased to say that today.
After less than three years, we have already been able to commit nearly $16 billion exceeding our original goal more than two years ahead of schedule.
We certainly took a significant step up this quarter, despite removing young qual.
Driven by the large Saudi Arabia, and Indonesia projects.
Slide number 18 provides additional details on the significant progress we made on our capital deployment this quarter.
As you can see we expect almost $18 billion of investment capacity available over the five year period from that's why 2018 through that's like 2022.
Our total capacity is expected to continue to grow as we increased EBITDA.
The $18 billion includes over $9 billion cash and additional debt capacity available today.
Almost $4 billion of investable cash flow between now and the end of that flight 22.
And almost $5 billion already spent.
We will continue to focus on managing our debt balance to maintain our current targeted a two rating.
Let's see if he said we continue to sign new projects. So our total project and emanate commitments has significantly increased to about 12, and a half billion dollars with about $11 billion remaining to spend on them.
So you can see we've already spent almost 30%.
And already committed about 90% of our total available capacity.
But to be clear.
We still have plenty of capacity available to the point in high return projects.
Some of this commitment spending will occur after 2022.
And our capacity will continue to increase its EBITDA increases.
Now to begin the review of our business segment results I'll turn the call back over to seek.
Thank you very much Scott.
I'm very pleased to say that our teams have done it.
Sure no job.
These are responding to the cool current crisis.
All.
Agents.
The strong pricing results.
Hi, Good you beat on margins this quarter.
In addition.
Our cost.
The control.
I'd be also brought new projects on the stream.
<unk> assets the chart added to our results.
Now please turn to slide number nine team.
Oh I enjoy results.
Our board third quarter, they're down there so.
Some negative impact from Colgate Nike.
And planned maintenance shutdowns from 12 on large facilities in China.
She is in Asia has a state totality focus.
Hi.
Like the rest of the regions.
Our mixture pricing.
<unk>.
4% in the quarter versus prior year.
I would like to emphasize.
That said gene.
Second quarter up year on year price improvement there Street.
Our goal for the region was down 2% versus prior to year, primarily due to I'm, sorry, the though Chris.
Adjusted EBITDA upward.
During a 50% plus top 100 basis points will that part you had been bike pricing.
Great good about cost.
Now I'd like you tend to call back to Scott.
Consummated cost results.
Thank you safety.
Thank you CP, Please turn to slide 20 for a review of our Americas results.
Americans strong pricing trend continued up 2% versus last year.
This is the eight consecutive quarter of year on year improvement.
[noise] price was better across most major product lines.
Sequentially price was up but rounded to zero.
Cobot 19 negatively impacted sales by approximately 8%, while lower energy pass through an unfavorable currency reduced sales by another 6% and 2% respectively.
Overall volumes were down 5% has the effect of cobot 19.
Which reduced merchant volumes by 50%.
Was partially offset by other growth, including the PBF hydrogen plant asset acquisition.
As expected the onsite business, which accounts for about two thirds of the region sales remained stable.
The merchant volumes in June did show some modest improvement.
EBITDA of $411 million was flat compared to last year.
The impact of lower volumes was offset by better price productivity and lower planned maintenance activities.
Some of which were delayed into the fourth quarter.
EBITDA margin approached 50%.
Up 550 basis points with energy pass through contributing about half of this increase.
Now I would like to turn the call back over deciding to discuss our other segments Simon.
Thank you Scott now please turn to slide 21 for a review of our Europe Middle East Africa region results.
Our and they have business continued to deliver strong price. Despite the challenging covert 19 related economic conditions in the region.
Price increased 3% with improvement across all major products and sub regions.
This is the 10th consecutive quarter of year on year price improvement.
Price was also up sequentially, but rounded to zero.
Volume was down 7% as the adverse effects of covert 19, and maintenance outages more than offset positive onsite business.
Merchant volumes were down about 20% with weaker demand from package gas customers.
For the quarter covert 19 lowered sales about 13%.
Sales were also negatively impacted by 6% from lower energy pass through and 3% from unfavorable currency.
EBITDA of $170 million was down 11% as the weaker volumes and unfavorable currency was only partially offset by strong price.
EBITDA margin of nearly 40% improved over 100 basis points as energy pass through contributed about 200 basis points.
Similar to the Americas results, we did see some modest recovery in Europe merchant volumes toward the ended the quarter.
Now please turn to slide 22, global gases, which includes our non LNG sales equipment businesses as well as central industrial gas costs.
Sales increased due to higher sale of equipment project activities, but profit as lower due to higher project development costs as we continue to invest to support future projects.
Please turn to slide 23, corporate which includes LNG in other businesses as well as our corporate costs.
Sales and profits were higher this quarter, driven by LNG project activity, including the Golden pass and Mozambique LNG projects.
Now to provide some additional thoughts on the future I'll turn the call back over to safely.
Hi, Tucson.
I do not me to tell any of you about the current crisis.
Yes, it can impact on the war and global economy.
You see and read about it every day.
The Kogas 19 recoveries ready mixed at onboard.
There's some air to goes back to normal activity.
So the good covering and some unfortunately seeing significant community, a spread and having to implement or reinstate the strictures.
We are clearly living and I'm certain times.
That makes it very difficult to make any reasonable projections for the future.
Therefore, we are not providing any guidance.
Our fourth quarter performance.
But I can tell you about what youre seeing so far in the month of July.
I love today, the 20 flip chip.
July.
52% of ourselves that he's our onsite business. He is doing well I mean, you expect yes to continue.
In Asia, our merchant volumes are centered on leathers I'd be saw in October quarter treat.
In Europe, our merchant volumes have been improving and are now down about 10%. So far in July there since last year.
And then that it cuts.
She's a great years and system 200, future economic recovery.
Mitch and volumes are down about 10, plus <unk> percent so far.
In July there since last year.
As a reminder.
Not happy <unk> Patrick's gadgets business, the United States.
Oh, okay.
We expect higher.
Fourth quarter.
As a number.
It varies by our customers that they from quarter to treat.
I would also like to at.
That.
Oh go.
Ah Colgate 19, I need so.
Impact on the water economy.
I do not see.
Or slow down.
On the demand for dog go into opportunities that make up projects around divorce.
During the quarter, but they'll get you guys indication cabin captured on all of that.
Therefore, the main contributors continue which would mean.
Very optimistic.
Prospects for future growth.
Products.
Now please turn to slide number 24.
No more than <unk>.
Our competitive advantage is the commitment and motivation.
Okay, great team be habits.
Yes.
Our business model and strong financial position.
Allow us to continue to execute our strategy.
So creates long term shareholder value.
[laughter] top priority is the on boarding drugs of aren't going to them. All so we are committed to increasing god dividend as we go full.
The projects in our backlog continue as expected.
I'd be continue to been significant projects to create long term shareholder value.
Most importantly.
There continues.
The tax or People's health, and safety and take Chan of their better center and their families.
Let me end today like parenting, our 17000 employees around the board.
Dedication and commitment.
We are drivers for.
We are proud to play a critical role.
<unk> difference to divorce.
Challenging time.
To the future.
That is our highest surface at krotz.
All of Us <unk> products.
I understand together.
Like the difference.
Now please I answer your questions.
Thank you if he would like to ask a question. He said nobody pressing star one on your tell us.
If you're using any speakerphone. Please make sure your mute function is turned off to a larger citadel treater equipment.
Again, Please press star one to ask a question and I'll take our first question today from Vincent Andrews with Morgan Stanley.
Thank you and good morning, everyone or good afternoon against almost.
Do you want to understand or you know maybe starting in Europe to EBITDA percentage decline was a little bit more than any other regions is that just sort of the massive the of the lower margins in that in that region versus the other two or was there a mix issue or any any incremental color you can provide on that.
Good morning, Vincent Yeah. So if it is it's just the fact that there's a lower margins than to other parts of the work.
Yeah, I would like to ask Scott do you have any additional comments on that but Uh huh.
No nothing more we continue we did have oh.
Now into one facility, but there's nothing of the systemic issues or anything like that just as you mentioned that lower margin business will grow.
Okay, very good and just as a.
Good.
I'm talking.
That's right place, there's a lot of conversation about deactivation opportunities and I'm. Just wondering if that's still something that's a you know front of front of plates a b the opportunities. We all thought were big three months ago, maybe have come come gone as the financial markets recover.
<unk>.
No I think those opportunities I still does ensign, it's just that some of them take a long time starting to happen.
We don't see any slowdown on those and some of those said each applications a fundamental strategic decisions bug.
Some of our customers.
This thing bucket and non core business, it's not so much driven by colgate or cash flow issues.
Yeah I mean.
I'll be around call. It doesn't have any cash flowing through but they do a one to you know that's it off some of their noncore assets or other companies. So we continue to look at doors and just anything happens obviously the itself.
Okay very good thanks very much.
Thank you mentioned.
The nice thing.
And we'll take our next question from Sheehan Suntrust.
Thank you.
So you've exceeded your goal your prior goal for capital deployment or do you think that means that you should be more aggressive with the next target and when might meet when might we see that.
Well.
Actually declined to comment I'd take it.
If calm and [laughter]. The I've always said that you know if you do the math and take the projects that you haven't announced.
Calculate D.V. deltoid and then obviously our capacity goes up and saw and you can't come up with the fact that if other Kenny best 30, giving adults in total.
So just going to continue doing what they're doing gun there as I promise you asked on mix some better they'll give you another side, you've planned tens of but you're going to do for the what another five you to get not at the edge shoot, though a goal but opportunities out there as they are they significant.
And the not running out at capacity and so on that Matt that discard. He is doing is very appropriate yet, but he is on the you allow to use our current last two up money, though.
And I'm sure you have done done that's another thing investors have done the math and they say, though safety are going to spend $30 billion and I said, yeah, it's possible.
I'll be continues to be very optimistic thank you.
Now if the U.S. corporate tax rate is raised to 28% after the presidential election wouldn't impact might that have on your effective tax rate or what can you say maybe about any possible earnings impact you see from changing a tax policy.
Well you are there any scenario they impact it had been big number then down.
You can't just see those that.
And Oh, certainly to their knowledge that.
More than 60% of our business almost 70% of our businesses outside the United States.
And debts for.
Are you know the tax rate in the U.S. does affect of resolved, but it's not as.
Significant as if you had 100% about business in the U.S., but you had the baby Korea that parents find I mean, then it was added to use.
You saw how much a it benefited us be they beatty open about that so.
Thanks safety.
Thank you.
And our next question comes from Kevin Mccarthy with vertical research partners.
Good morning, I think he made a comment that customer plant maintenance activity is likely to have an impact on your earnings in the fiscal fourth quarter.
Can you elaborate on that in terms of the size of the impact and which regions.
You are seeing a that activity.
Yes, good money, Kevin that first of all that is a common between <unk> about Americas.
In the U.S., there's some plans as you know our maintenance shutdowns or 10 Bucks customers you can't take our planned down in this state that could pick some up that customers decide to say that's going to do that in the U.S. and Oh Cisco gets it caught and now they have decided to do it next quarter. So.
That comment is related to Amedicas only.
And the effect of that some of the God. They always be transparent be do that but he does not in the tree ought to effect.
Thank you for that safety and then as the second question I'd be very interested to hear your outlook on China as it relates to put central new projects, obviously, taking Y K out of the official budget for now.
The macro level it would seem that assumptions are rising between the U.S. in China. What are you seeing on the ground and how would you assess potential for meaningful new projects in the region over the next year or two.
But you don't see any significant change.
Global company to try and he's looking at us as a global company.
He invested more than $10 billion in China since 1988 in the last two easy to use that he had been dead.
Businesses, very local and debts for or at least up to now the so called patients between the two countries hasn't affected the cycle and good luck plenty of opportunities that youre pursuing.
The fact that'd be took tivicay out I'd be talking about that's where the last two years city invested that'd be suppose trusted method of the core location I don't want to do a big projects in China, you see another shoe the coke supply of cool so that don't read into that ASIC or opportunities in China has reduced or anything like that they'll be are clicking on projects.
In China has been working anybody else into it.
Good to hear thank you very much.
Thank you Sir.
Our next question from Steve Byrne with Bank of America.
And Sir your line is hoping you may have some yield.
Sorry about that.
Because some of the Japanese utilities have been testing ammonia as a feedstock blend for for power production and.
Just wanted to know if you had a view on the technical feasibility go back concept say versus a hydrogen blend in with natural gas it could could the ammonia actually reduce locks.
And do you see feasibility gets delivering.
Ammonia into the ER and Mark it from your Saudi project as opposed to.
You know the association requirements to sell hydrogen then pull a fuel cell rechargeable stations.
Thank you for your question number one technically just seasonal but with respect to us either very very clear then be announced that they don't project.
You are not in the business upsetting ammonia.
We are setting.
Hard when tree heightened.
So they did you just technically it's easier to though not those are not applications that we are looking guy.
Because we don't think data as highly value I had it has hydrogen for mobility.
Ammonia up for US is just a transports.
Media.
Take care hydrogen gas.
From Saudi Arabia convicted to something that can be transport it.
So the all in the business offsetting hydrogen not ammonia they did it these screen or.
Who or anything like that that's not dog business.
And that's what your question, but yeah sure. Thank you.
Just a follow up on the Indonesia project.
Like the Saudi project. The there there's a component here, that's moving downstream into synthetic chemistry, and just wanted to hear your comfort level with that or what you do to mitigate that.
The risk of moving into a new unit operations there.
And would it be reasonable to assume that.
You do so because you're expecting maybe a a higher return on that investment.
Well first of all you're not getting into the mix on or business. If as you know very though the only thing that the added two out of school.
Yes, that's been got plans and all they can get plant.
The product is going to be sold by other people and the variations on that is the responsibility of other feet.
Intends up the unique operation of methanol, obviously people running methanol plants all of a divorce.
You did it didnt realize that be did not have that experienced directly and that is why do you made the strategic alignment haldor topsoe, who used to be in produce production of ammonia and methanol and all that and therefore be ought to using their technology that helps in that.
You can make bidding gosh to do that part of unique alterations without any just.
Thank you.
Thank you Sir.
And next Sir our next question will come from P.J. Juvekar with Citi.
Good morning savvy.
Hey, how are you doing my friend.
Good good so the question on your Green hydrogen project and so did Aimia you mentioned that opportunity is huge and you can keep repeating that project.
Then you observed is good day hydrogen once you cause greater hydrogen on the Gulf coast from natural gas.
And then you have the more polluting gasification.
I guess my question is if the hydrogen opportunities so big.
Then why type the capital in more polluting coal gasification.
Yeah feature you're asking an excellent question, but it is very much I don't want to all their simplified.
But it is like Chet then teco go by a car.
Some people like to abide logs choice and some people like to buy a density and some people like to buy a.
So you'll go camping.
Yeah for VR Dare to say if the market.
She put ought to glean some secret all going to say I don't care about you go to ambitions I, just wonder hydrogen because Oh boy did about solution in my own a specific city gaslog.
Getting the hydrogen and I don't yet how he sees me.
And some people might say no I've on Blue Eyed Division and some people say no I don't Coventry oxygen therefore be ought to largest sort of how did you need to award and therefore, we feel obligated to have all she options available and started to the market as I said he's just like.
Everybody wants to same thing and that's for as a result of that you don't want to kind of fat walking away from business by saying no be only set of carbon free hydrogen why not do other things because the automakers selling hydrogen and right now Greg hydrogen in California for mobility.
And it's very profitable motion and be continue doing that if the customers.
Demand so that he talks about it seems to be able to sell and spectrum.
Customers.
And they get thank God care.
Yeah.
You know, but I mean, yeah. Thanks, that's it.
Thanks for that color that's helpful.
Question on for Scott Scott can you go to sort of the merchant pricing in the quarter in different regions. Thank you.
Yeah sure Scott do you want to answer that.
Sure absolutely let me answer it both in terms of Ah.
Yeah, good merchandise on the segment as well as what we refer to as so called merchant on merchant so for the company overall pricing up.
2% and you know that that is all merchant because there's not really any pricing in their hands like this and so let me give you from a from a total company perspective, 2% and then Americas was 2% Europe was 3% in Asia was 2%. That's the total please let me I'll put it to you on any merchandised merchant basis.
Company want us for its roughly twice the way. It goes is 4% Merck's number two for the company.
By the Americas for for the M&A and worked for agent.
Hopefully that answers your question.
Thank you very much.
Thank you Peter.
Our next question will come from Mike with Wells Fargo.
Hey, guys nice quarter.
Thank you Mike.
I appreciate sort of the insight on the call that impact any P.S.C. on some of that cost. Some of that's volume can you maybe just frame.
What needs to happen to get all that back in yeah. I guess next year is is it possible to get that back next year, just kind of thinking through how to to be built some of that earnings power.
But the thing is that you know.
Your next year.
You know that do you have a costs under control so.
I'm not going to have any issues with costs.
Then our onsite business is going well and it will continue going though.
I need all becomes an issue of mixture involved.
You know that can make into pricing that is a principle that I've been talking about a call committed to that and you see that you're delivering a 4% price increases during the time that divorces basically shut down so.
Because they are talking about now China growing about 8% I had conversations with very high level person last night that was that predicting about 8% growth in China.
So I think that it'd be there and then you need to that kind of figured out how with Europe come out of this thing and how good the Americas come out of that so very much had to make sure that I mean, if you want to added rosy picture that there will be a vaccine and everything will be back to normal to try always the case.
And then we'll be doing great next year, plus the fact that in addition to that.
In terms of growth about E. T. S. Please don't forget that if we are able to close Jos FM, which can be announced the.
The fact that be or in the markets for the financing sometime in October then that will give us a significant boost in terms of E. P. S. In 2021.
Okay.
Got it and then just quick follow up you know.
You gave it Turkey European in Americas merchant for July.
You guys had better visibility than we do any thoughts on where you think it can go in August or September.
Well I don't know very go because it's just like they did in the last last Sunday had all results.
It goes a question are there other Americas seems to be on demand, but now we've been daughter, right, but I don't want to predict that but I corner honestly right now I don't see any recent bodies should get worse, but who knows.
Thank you can't predict.
Thank you.
And my next question comes from Duffy Fisher with Barclays.
Yes, good morning, guys.
Hi, Duffy how are you.
Good thing first question just on your $15 billion plus a commitment now I'm you know it's been a couple three for your journey. If you go back to the beginning of that how does it turned out different you know obviously, you probably had a preconceived notion of what that 15 billion dollar employed would look like.
What was different about it you know how old returns versus what maybe you thought originally geographic split versus original when youre kind of end markets versus original.
At the thing that turned out different there you're asking an excellent question.
Hi.
Number one the hydrogen for mobility came sooner than my talk.
I talked to hydrogen for mobility TV to be more like twentytwenty treat twentytwenty before.
Fortunately, we've been able to put that project you're getting around out there.
And the other thing is that their so called acid buybacks ended up to be bigger than be taught.
Because you know I at the time be announced did I didn't expect us to do a $12 billion I said buyback from Saudi Aramco ditches and project.
So those are the two main things that has.
Was it little bit different.
And I'd be talk which has allowed us to be two and a half use ahead of schedule.
Great. Thank you and then just one follow up on new you own project or maybe two parts to it one when do you need to order your long lead time equipment for that project into what infrastructure needs to be put in place by the country.
Before you able to start doing what you need to do whether that's ports or electric power or you know Street, you know what do we need to see on the ground happened. There first before you start to put your capital winner.
First of all in terms of long lead items, she already talking to their people to people that second lien.
In terms of abuse to happen in Saudi Arabia, They just need to give us a piece of that.
That's it.
They are going to be self sufficient that youre going to build everything you are going to try and you're going to bend August desalination plant youre going to dump the Roche you're going to bounce the fourth into whole team. So we are not dependent on anything specific happening there.
Great. Thank you got any bad and myself sufficient thank you.
And we'll take our next question from Jeff Zekauskas with JP Morgan.
Thanks very much.
[laughter] Sophie. Thank you said that Neon project, we'll have four gigawatts of power.
Do you need four gigawatts of power to supply a 1.2 million tons of ammonia plant or for can you talk about though.
The point of that amount of power generation.
But yeah Youre asking me first of all the so called Israel did you say can be.
I see me a question that gets me to confidentiality and all of that.
Oh sure partners.
Well, obviously do not need four megawatts. So powered to produce 650 ton I'd say, Oh, so I guess.
That's very easy to calculate you know that every kilogram of hydrogen it requires approximately 60 kilowatts that can be calculated and then be say, 75% and that means you need to multiply by about two just to make sure that you have enough power to run your facilities and then it's not difficult to calculate how much.
Holiday at schuh needs or the ammonia plants. So you off obviously do not need for Nicholas Therefore, there are other plans for the access that I cannot talk to that.
So the so the economics of the project are complicated because there may be other dimensions to it other than hydrogen production.
Which would be a crazy to bodies.
Sizes.
So anything else with the an additive that it does affect.
Okay. Thank you so much I think I hope, you're well and Q.
Thank you very much.
And we'll take our next question from Jonas Oxgaard with Bernstein.
Hi, good morning.
Oh, Hey, how are you.
No. Thanks for sneaking in last minute here.
Question on the Capex. So you mentioned that some of the Capex in your backlog is gonna be spend pretty far in the future.
Can you give us a little bit more of a cadence of how much cash do you have available to spend.
Over the next two to three years.
Yeah, I wasn't right now Scott you're sitting on $6 billion of cat.
Not a little bit more than that.
And be do generate a lot of cash even after paying dividends and you said I'll use the slide so they have plenty of cash to do all of the projects you have talked about.
And you continue to pay dividends and increase the dividend.
Yeah, I guess more wondering about how much room, there is to sign up more projects with near term cash outlays.
Or is what you have now what do you mean, yeah for the next couple of years.
No no no no there's plenty of them.
Because we can always go on issue additional bonds because if you go goes up.
They have plenty of room the company right now.
Our.
Net debt.
It's about less than.
0.5, EBITDA so they have a lot of room.
I I think that's a very important point that to make that.
We are not constraint for additional gross and you should expect us to continue to announcement go projects as we go forward, we are not just slowing down.
Okay.
And I'm curious Daniel you put your backlog in the context of your target are you going Oh take the opportunity to update the target do you change the timeframe of it.
Right. Yeah next so maybe you could do that Nick Chalmette and give you another five you frame.
Okay. Thank you very much so that sort of that you have visibility to twentytwenty shakes or something like that.
Thank you.
Okay.
Any other questions.
And next well go to Chris Parkinson with credit Suisse.
Great. Thank you safety can you just further speak about the proposal for your HRS strategy and then also your technological positioning and just how it varies versus what others are now progressively proposing with their own projects as you know obviously in some cases at a much smaller scale you know certainly through the distribution.
To be integral to anybody strategy, but from your perspective, you know what makes your ultimately your valuation proposal different other than just the green asked but the fully green aspect of it.
Well the thing is that what makes it unique is the fact that they have come up with the practical solution that you can actually execute.
I mean people are talking about a lot of different theories, but you have come up with a very off taking green hydrogen.
And actually converting it to something that can be transported and deliver the.
True different mistakes I mean, they did it is in there.
Thanks words or ER.
Procure or Shanghai.
I mean that is the daddy's the innovation and they've done the fact that or is that.
Hydrogen Matt because if you didn't get stations on self sufficient that.
That means you're not going to court power from the great.
Which is not clean power.
And you're not going to require Pilar from degree Teranga compressors, because those compressors use a lot of power in order to points hydrogen into a truck you need to raise the pressure to about 10000 pounds per square inch that because a lot of compression showing somebody says that I'm going to connect to the great first of all that you called them out of mortgage brokerage on another electric.
Good day and second be at Great houses.
Our produce from that grid. So why did you have come up it is a unique thing that's.
We just don't touch anything related to carbon produce a hydrogen and put it in somebody's truck truck some people, putting a lot of value on that.
As I said before too I know that answer to another question. Some people might say no I don't Kid, how you make the hydrogen I just want you to make it somewhere else and then I want to conduct the buses in my city. So hydrogen because then.
There is no pollution in my city, but the fact that devoid is getting warmer that somebody else's problem.
Like that that is that why do you any yes.
You know project you said you have come up its something practical.
Four years from now you can actually deliver.
I think Jim carbon free.
Truck.
Renovate it is it's not a Chile subtract kick on video billing.
Thank you and then just a second question just there's there's also been a lot of chatter about carbon capture and people thought as a long way off but then again everybody thought about hydrogen as well.
You know if we just look at we know you have proven technology.
So we know there's a demand pet spectrum, that's evolving in the state of California, which could arguably apply to TBS and then also he different areas, which are already being explored in northwest Europe, just how should we thinking about their ears. These opportunities in terms of your own technology competitive positioning in India and is your enthusiasm up or down versus even just.
A few months ago.
'cause it appears there is clearly something here as well.
We are very very enthusiastic about kind of them capture.
We have a lot of projects in development and when the time comes we did announce the have beyond very excited about that because that is another significant solution. Because if you can capture cabin and kind of create you can't create who everything you can capture card.
When you can make blue Meccano, you can be like make blue or.
Urea your cat, Yeah, I mean that carbon capture is a.
Very very essential part of everything because no matter, how many new homes Vigo divorce.
Hi, This is 1.2 billion cars running around so cabin capture I'm, Dave and hydrocarbons are still going to be used and if you can find the vale capturing the C or two that can be a huge business. You have always said that I am be continuing to work on dad and develop the projects for that.
And I think the next two or three years, you can hear about us are coming down a bit real commercial proposals on that.
Thank you hope you're well.
Thank you Sir.
Our next question will come from David Begleiter, Firstly to think.
Hi, Thank you I'll see if he just Thunder then if something close is October in October or how should we thinking about the earnings ramp up in fiscal <unk> 21 from from Japan.
Well the just sand when it comes on it is Glen do I mean, if you close the close and then be get RBS C.
And do you have giving you some guidance you know how much capital if you're implying you know there.
Because it kind of bad debt Runoffs, Tom of 10 cents of operating income to download of investment.
And then you can calculate buddy effect will be.
Very good and Justin China, Yeah, I'm, sorry, I just tried in hybrid based.
Yep.
Your competitors has announced a couple of ammo use or with respect to China and hydrogen last week or so.
What's your strategy and should that be multiple players and winter is it for hydrogen in China going forward.
Well the thing is I don't want to make any comments about competitors aren't doing I mean day.
They should the answer that their bodies the difference between their name or you had.
Hi, Sean contract, then bodies or estimation on projects and the real project, but that's that's up to them I don't have any comments about that but in terms of arc prospects in the eye in China. The are working on many many many many opportunities in terms of supplying hydrogen the our building hydrogen fueling stations.
Yeah, most of them, our so called the grey hydrogen, but that is what Dave on the or not that.
In China, they are not yet to enthusiastic about.
Green hydrogen.
They seem to be a happy they are more focused on carbon capture and the so called at Blue Hardinge like they are there we are working and as I said these onto so probably the oldest spectrum. They actually had a lot of activity in terms of.
Hi Division fueling stations in China.
I think if you're counting the probably are working on hundred 20 project.
But you don't put out there and any time to do something you don't put out the pressure much.
Thank you very much.
Thank you Sir.
Our next question will come from John Roberts with you'd be at <unk>.
Thank you and I'll only ask one since we're going long here I think you said merchant volumes were down 10% in north <unk> in the Americas in EMEA in July where they down about 10% in June is well over a week plant towing here in terms of the improvement in merchant volumes.
Approximately that's correct statement.
Thank you all are you hearing dropped quite a bit.
Okay very good. Thank you and you sound well also so thank you very much. Thank you. Thank you Sir I appreciate that.
And our next question any other questions operator.
Our next question will come from popcorn with Goldman Sachs.
Oh.
Well the account appreciate your patient safety.
Oh, the other thing is actually going bad revealing that we wouldn't have ended the confidence comments you've got a question from you I'm sure it's difficult one but.
Getting myself ready for Oh boy.
[laughter] set up well yeah I wanted to ask you know in the coal gasification.
You guys did a good job of assembling technology.
You have to capital available yet the willingness to do it when we look at the screen hydrogen effort.
I mean I suppose also the your capital availability is is an advantage that sounds like you've got some electrolyzer technology that and advantage and you certainly shown a willingness to do it.
What I would also suspect there's a long list of others didn't want to break into this market. So.
What do you see is your secret sauce, what is your competitive advantage here is it the relationships is it the technologies at the capital give us a sense why air products is fit to win here.
Well.
Bob excellent question. The thing is that in order to make it at bringing about it projects like you know.
But you need number one.
You need to have dealing partner, who is going to give you.
Access.
Who location, which has the sun I'm doing.
That means you need to have access to the governor.
You need to units commenced the government. This is not something that you go down you buy a piece of property and tried to do so do something like that unique vast quantities.
That area and Youre going to be doing change and very sensitive areas on all that so that is the first part a and b to Vietnam I think we've been able to do that it's very difficult to come up with that.
Yeah, and if they dollar pacing in the broad that.
Might have those kind of capabilities, you haven't relationship and be able to commence the government.
And to support that's first the second thing is obviously.
Idea.
Of that how to do this thing now that you haven't announced it I guess everybody says, though I knew all about it you ought to be can come 32 ammonia, but I think that was about sold in the home project because they demonstrate that through the Saudi Arabia and government, which is really you know that looks youre talking about a practical problem you're not just talking about okay. If you make hydrogen gas.
And then b or daydreaming about the fact that someday somebody didn't build to ship to.
As they qualify them take into the market because its video solution there and then NFC approach.
And if they're thinking is that they have tied up there.
Largest and most credit book for user.
Uh huh.
Electrolyzers.
There is no other company in the World right now.
That can match the capacity assistant growth in making these stuff.
So and they have and I'll say, a as you know they have an exclusive arrangement with them. So that is the second thing.
And then that 13 is obviously.
The fact that they have been yeah.
Doing hydrogen fueling and we have more than 50 patents.
Did you expect to actually hydrogen fueling stations and how you put this is still in somebody's chunk at 10000 TSR.
And therefore, those are the competitive advantages that behalf.
But the most important thing is being the first starter and that is brought the has done so.
It's a little bit like education, because right now any country believe me any country.
For anybody.
Any varying divorce.
And I have examples of these anybody in the what we're thinking about gadget education. They did he is a country. They they reach a company. They did it using chemicals giant to audit ixinity giant they pick up the phone and coated products and that gives you a significant advantage.
And we hope to be the same thing with respect to an over there do you have to take any took the all to be the same thing get hydrogen for mobility.
And don't underestimate and lot of other people wanted to do know wasn't has exceeded only long.
Yeah, Yeah, that's helpful in.
Is there meaningful differentiation in technology from Electrolyzers I know you mentioned type person crop and you get the alkaline does is that competitive or there are advantages or disadvantages should proton exchange or solid oxide or is that a stage gating part of the.
Of the process here or where do you think that's not something we're spending a bunch of time, if we're on the outside looking in.
But I think this is public information you know.
The people who have just acknowledging that doesn't grow it's been doing testing for 60 years, they have been doing it for making quoting and all that so.
They they acknowledge is very known and data manufacturing capacities that even though.
Obviously, Siemens is talking about get 10 technology.
We did look at that and decided.
That said yeah.
<unk> group as a better option for Russia at this stage now would that 10 technology developing something later on it might or might not not the other people are.
Smaller operation the research professors doing things, there's nobody the beaches are quite honestly credit.
Got it. Thanks, so much they'd be appreciate you are squeezing me in.
Thank you are absolutely Bob any time and hope it's always though did you on your family.
Okay.
Next question is there any.
Yes, Hi next question will come from Mike Harrison with Seaport Global.
Hi, good morning.
Learning right Oh, you're doing.
Doing well. Thank you SAIFI are generally we think about your merchant business is being more profitable when you have higher utilization rates yet.
You seem to have delivered really good margin performance here, even though you saw double digit merchant declines in the Americas and in Europe. So can you provide a little bit of detail or color on what actions you were taking to prevent the merchant decline from having a more pronounced impact on your margins.
[noise] pricing my friend.
Focus on pricing.
V., we are not focused on volumes go to focus on prices and if you lose market share it behooves my kitchen.
That is that is that philosophy that we announced about two and a half years ago, you know very well.
Andy if he said that looked at time of strong for us to increase prices on our products because they haven't increased prices for 10 years, our costs are going in golf, you're assuming another money on development, our cost of driving to truck stop drivers costs more operators costs more than all of that and therefore, they have been very focused on pricing and that is what is driving.
Thing and you can see the pricing I mean, when you look at the city of day industrial gas businesses in the last 10 years, there aren't that many places, but even under normal conch depot got 4% price increases every quarter.
Alright, and then maybe a question for Scott just ER the contribution of the PBF energy acquisition in the quarter from from a revenue standpoint in Americas.
Yeah, I didn't take that question because I don't think as Scott you answered that question, because we don't want to disclose that.
But might you can calculate that right. He told you is 530 million.
And we keep saying that the minimum thing is 10 cents for every dollar of capital.
So you can calculate that very easily though and you know our tax rate is about.
20%. So you can come to the conclusion and then they get allocated costs during the quarter for about a month and asked them to come up with minimal, but they don't want to go through the details of that because the.
They're not been to exactly talking about the profitability of that budget.
Understood I I think I was speaking more in terms of the revenue contribution just trying to break out what what was truly organic versus what was driven by an acquisition.
Well that's on your can make a good guess my friend, but that they cannot go there sorry about that you know could give us a break at least once in awhile okay.
Understood Thanks very much.
Thank you Mike.
Our next question, what kind of getting Laurence Alexander with Jefferies.
Good morning, Thanks for squeezing me in a just a quick question then.
On the return on capital on projects or their conversion rule of thumb. The 10 cents for every dollar of Capex.
That's been sort of an industry benchmark for several decades.
If you look at the size of the addressable markets that you're now have access to.
Your technology position your process know, how I'm, just everything you're bringing to the table to help make this whole possible.
When we look at the next wave of projects are not the market creation projects, but the next wave after that should we expect the return on capital.
Your products can get to go higher because of technology value in process know how.
Or should we or is there anything going on in the industry, where the 10 cents is a good rule of thumb for the next decade.
We are going to do better in that 10 cents.
Alright, then they think baby is going to be most often yes. Thank you.
Okay. Thanks.
Thank you sure.
And our last question will come from John Mcnulty with BMO capital markets.
Hey, SAIFI. Thanks for taking my question so.
You have a lot of future EBITDA coming on projects that are you know won't be won't be really materializing over the next to the next couple of years. It for its really more of a 23 to 25 kind of timeframe.
And it looks like a growing portion of your business is actually going to be tied into into joint ventures at least relative to to kind of pass the levels. So I guess I guess with that should we be thinking about how EBITDA flows through to your cash flows similarly on those joint ventures.
Or is there anything that may be holds back some of that cash so when we start trying to.
Compound things and look forward, we should we should maybe be hair cutting it a little bit how should we be thinking about that.
Hi, John you asked can get very very good question Kinda just make a comment not everything is going to come on stream 23, 20 before we are going to have a lot coming on stream and 2021 actually closer than any twentytwenty to be hatchery tie and several other project that come on stream. So this is going to be a continuous growth.
Sam Toby don't have it be called something there.
The other thing about the easy go up and the joint ventures, obviously, it depends and you don't have too many joint ventures, what's the joint ventures that do you have some of them be can consolidate some of them to cannot control.
And that they issue that becomes a very complex calculation on all that but that I don't think you want to take too much of a hair cut on baby dosh, because we could get most of it.
Got a perfect. Thanks for the thanks for the clarification.
Thank you very much John Fischer there.
And we currently have no further questions in the queue at this time the turn it back to our presenters for any additional or closing remarks.
Thank you.
So I would have in closing I would like to tank everybody for being on our call.
Thanks for listening to our presentation <unk>.
I appreciate your interest and we look forward to discussing got results with you again next quarter.
As I said earlier, we use a stay safe and healthy and looking forward to talking to you in three months all the best Thank you.
And that does conclude today's conference. Thank you for your participation you may now disconnect.
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