Q1 2021 Air Products and Chemicals Inc Earnings Call
Good morning, and welcome to air products and chemicals first quarter earnings release Conference 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 on reserves.
On today's call is Mr. Simon Moore, Vice President of Investor Relations.
Thank you Lee and good morning, everyone.
Welcome to air products first quarter 2021 earnings results teleconference. This is Simon Moore, Vice President of Investor Relations corporate relations and sustainability.
And I'm pleased to be joined today by safety and semi are 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 that can be found in our earnings release and on slide number two.
In addition throughout today's discussion we will refer to various financial measures unless we specifically state otherwise when we refer to earnings per share EBITDA EBITDA margin and our oce, both on a company wide and segment basis.
We are referring to our adjusted non-GAAP financial measures adjusted earnings per share adjusted EBITDA, adjusted EBITDA margin and return on capital employed rec.
Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our website and the relevant earnings release section now I'm pleased to turn the call over to safety.
Thank you Simon and good day to everyone.
We thank you for taking time from your busy schedule to be on our call today.
We are living at a time and then all humanity.
Significant challenges.
And most important and immediate one is the battle against the deadly virus that has already taken many lives and.
Continues to rise.
Average communities around the globe.
And they can only fight deadly and global buyers.
And once you get it and.
They unite.
And my more than 45 years in business and I have learned that our problems no matter how challenging and.
We saw it.
Stay focused.
And United working toward a common goal.
So it is and this spirit.
Working together as it cheap debt.
I want to acknowledge the United and extraordinary efforts on all of the talented committed and resilient people off air products around the world.
They work hard every day to provide critical products and services to our customers.
Our people.
Working and solidarity.
And determined way have made it possible for us to achieve our 750 facilities around the world.
Okay.
During this unprecedented crisis.
They are the ones, who are making it possible for us to deliver the good results we see this quarter.
And they like their boss, who are pushing forward.
Hello team and executing major world class projects to ensure our gross in the future.
They are the ones who through their actions every day.
Meaning to our highest purpose as a company we.
And we choose to help humanity move forward and a sustainable day and bring people together to help solve energy and environmental challenges.
Our people on.
The soul of our company on.
And I am very proud and Lasalle.
And your wisdom.
Now please turn to slide number three.
As always safety is the most important focus.
All of us at air products.
And some moral responsibility to keep our people safe.
And our goal will always be zero accidents and incidents.
Despite the challenging COVID-19 conditions.
And our team continues to focus on bookings safely.
Following strict protocols to help protect themselves.
The matters and our communities.
On slides four and five and six.
And again and see our goal.
Our management philosophy.
And our five point plan for moving forward.
These other principles.
And that they follow every day.
They drove our performance improvement and the pass.
And we'll continue to guide us in the future.
While we have accomplished a great ease and the past six years.
Cash roaming air products and delivering superior performance.
I always prefer to focus on the future.
Because.
I prefer the brands of the future.
So the history on the pass.
I have shared Audrey and jump if you tried to you before.
Which you can see highlighted on slide number seven.
And I would like to repeat them again.
Our dream up and futures to be the safest.
Most diverse and most profitable industrial gas company and award.
Our dream of the future is to be the largest American chemical company.
As measured by market capitalization.
Our dream of the future is to be the leader and <unk>.
Providing solutions to devotes significant energy and environmental challenges.
And we.
We believe air products has a higher purpose beyond delivering superior financial results.
Bringing people together to work together.
And deliver sustainable solutions that benefit our customers and our board.
This is what drives us every day.
Now please turn to slide number eight.
I'm proud to say that during the past 12 months, we have made significant progress and making these dreams a reality.
We have significantly improved our safety record.
Our margins remained highest and the industry.
We announced a new sustainability goals, including carbon intensity reduction and diversity goals.
These are consistent with our growth opportunities and our highest fitness.
He helped drive our market cap increased by improving our earning per share biogas, 10% on average over the last six years.
The positive EPS growth in 'twenty and 'twenty, despite the negative impact of COVID-19 pandemic.
We have continued to create and been projects that you have.
And customers and countries meet their growing needs for cleaner energy and environmental solutions.
Let me share a few of the examples of these large and important projects that demonstrate progress.
On our strategy.
The board's toward would escape LNG heat exchanger projects.
And the last year, including debt got tagged guys megawatt project.
And the project and Mexico would that be announced earlier this week.
These projects are already contributing to our bottom line as we continue to complete them.
Our customers.
We are executing and.
Gulf Coast ammonia project and the U S Gulf Coast.
I'm happy to quash, the hydrogen assets of our PBF customer and California and benefit.
These projects Saturday and enhance our hydrogel leadership position and.
And the United States.
We announced the $2 billion coal to methanol project.
Categorized as a national strategic project by the Indonesian government to support energy development and transition and reduce the country's reliance on fuel imports.
We also announced the innovative New York project and Saudi Arabia.
To provide the board with a roadmap.
To transition to a carbon free that is green hydrogen and.
And as resource of the future.
Now please turn to slide number nine.
We remain committed to delivering superior financial performance.
And as I said.
People also know they are supporting the higher purpose and the work they do every day.
Our industrial gas enterprise is critical to the success of dozen industries.
And the scope and complexity of our mega projects require talented people with a variety of other skills and backgrounds from different parts of the world.
Works together as one team.
We are proud to bring people from diverse backgrounds and experiences together.
And to collaborate and develop these innovative solutions for some of the most significant energy and environmental challenges and rewards.
That is our higher purpose and inspires our team and drives us every day.
Now please stay on this slide number 10.
Which highlights our key gasification projects.
We are committed to our gasification and the strategy and after showing exciting projects around the world.
We continue to see countries and large companies draw.
Driving to convict.
Low value and see the stock into high value products.
They have identified gasification.
As the best day to use abundant.
Low value of resources like cold cuts.
Pet Coke and refinery bottoms and a sustainable manner.
And we are in the best position to work with them and help them deliver a better more sustainable solutions that benefit that economies and their people.
We do expect to announce the share of gasification projects in the future.
Now specifically I would like to give you an update on the two largest gasification projects.
And I discussed during our last earnings call.
First.
Our $12 billion acquisition update.
The jazz and gasify, it and power plant.
And from Saudi Aramco.
Since our last call with investors on November 11, 2020.
We have continued our discussions with Saudi Aramco.
To finalize all of the contracts and arranged debt financing and move towards financial close.
I am encouraged by the progress progress we have made in the last three months.
And I would especially like to tank, the Saudi Aramco very senior management.
On the positive steps they have taken.
To move this transaction forward.
The obviously still have work to do to bring a significant project to a final conclusion.
But I am.
More optimistic and.
And I was three months ago.
The second project, we discussed on the last and then call was low at.
We have reached an agreement to go on.
So with temporarily reduce.
And our fixed monthly fee.
During the time that the plant is shut down.
And do and has agreed to extend the length of the contract which improves RV channel.
Lou and did pay us debt reduced monthly fee for the months of October November and December.
We continue to believe that the plant will be restarted.
During this fiscal year.
Now please turn to slide number 11.
Which reflects our recently announced 12% dividend increase.
Raising our quarterly dividend to one and $5 per share or on.
And what rate of $6 a share.
This dividend increase is a reminder, that while we continue to develop our exciting growth opportunities.
We have significant cash flow.
Supports this substantial dividend increase.
The 39th consecutive year of increase for air products.
And finally the <unk>.
Slide number 12.
Shows our EBITDA margin as always my favorite and decide.
And that it shows that the margin is up over 1000 and talk for one.
1004 hundred basis points since 2014.
I am very proud of our team will continue to deliver EBITDA margins of nearly 40% and for the quarter. Despite the challenges facing us.
Now I would like to turn the call over to Mr. Scott Crocco, our executive Vice President and Chief Financial Officer.
Provide a financial overview.
Scott.
Thank you Stacey.
And as safety standard earlier, our company continued to demonstrate resilience.
Delivering both higher sales and EBITDA this quarter, despite the challenges of the pandemic.
Our business, which is about half on site continued to deliver stable cash flow in spite of the difficult conditions continuing around the world.
Now please turn to slide 13 for a brief discussion of our first quarter results.
Sales of $2 $4 billion were up 5% compared to prior year driven by.
Strong price.
Higher energy pass through and.
On a positive currency impact.
Price actions continue to be and area of focus for us and improved and all three regions.
This is the 14th consecutive quarter of year over year price gains.
Volume was relatively stable down 1%.
The additions of new plants acquisitions and increased sales of equipment activities were more than offset by COVID-19 impacts and the reduced luann contribution that safety you mentioned.
EBITDA of $932 million was up 3%.
As favorable price currency and equity affiliate income more than offset the impact of lower volume and higher cost primarily due to higher planned maintenance outages.
EBITDA margin declined about 100 basis points as lower volumes, including the lawn.
And higher costs, driven by increased planned maintenance and North America more than offset the positive price impact.
Operating income was 4% lower while EBITDA was higher compared to last year, largely due to depreciation on new plants, particularly the PBF hydrogen plants that we acquired last year.
COVID-19 continued to negatively impact our business.
We estimate the pandemic reduced overall sales by about 4% and EPS by about 10 to 15 six.
R. O C E was 250 basis points lower negatively impacted by the step up and the denominator from the additional $5 billion of debt.
Sequentially, the 3% weaker volume was driven primarily by seasonality low.
And one.
And lower sales of equipment activities.
However, sales were up overall sequentially as this lower volume was more than offset by favorable currency.
Higher energy pass through and positive price.
Now please turn to slide 14.
Our first quarter adjusted EPS of $2 12 was.
Was comparable to last year, despite the negative 10% to 15 and impact of COVID-19.
Volume was unfavorable 25 cents.
The negative impacts of Covid, 19, and low on more than offset the PBF acquisition and new plants.
Volume was nearly flat in sales, but unfavorable and EPS due to business mix.
Price net of variable costs contributed 17.
And with increases in all regions.
Cost was unfavorable <unk> <unk> as we executed planned maintenance projects and added new resources for future growth.
For this quarter, we also benefited from the settlement of a supply contract.
Currency and foreign exchange contributed six sets.
Primarily due to appreciation of the Chinese RMB and euro relative to the U S dollar.
Equity affiliate income added four cents due to strong underlying business results, while non controlling interest was also favorable force on lower profit in our consolidated joint ventures, primarily due to the one.
As a reminder, we consolidate 100% of launch and results given our 60% majority ownership of the joint venture.
And deduct our partners', 40% interest and the Noncontrolling interest line.
Interest expense was seven and unfavorable due to the cost associated with the additional $5 billion of debt.
The remaining five includes a favorable <unk> pension impact and a favorable once that impact from a lower tax rate.
The effective tax rate of 19, 3% was down 50 basis points from prior year.
We still expect our effective tax rate to be around 20% to 21% and fiscal year 'twenty one.
Now please turn to slide 15.
We continued to generate strong cash flow underscoring the stability of our business.
Over the last 12 months, we generated almost $2 6 billion of distributable cash flow or about <unk> 11, and I have said $11 50 per share.
From our EBITDA of over $3 $6 billion, we paid interest taxes and maintenance capital.
Note on maintenance Capex is a little higher than usual driven in part by spending on our new corporate headquarters.
From the distributable cash flow, we paid over 40% or over $1 $1 billion as dividends to our shareholders and still have about $1 4 billion available for high return industrial gas investments.
This strong cash flow, even in uncertain times and enables us to continue to create shareholder value through increasing dividends and capital deployment.
Slide number 16 provides additional details on our capital deployment.
We continue to have substantial investment capacity remaining.
As you can see we expect about $18 billion of investment capacity available over the five year period from FY <unk> through FY 'twenty two.
The $18 billion includes over $9 billion of cash and additional debt capacity available today.
$2 $5 billion of investable cash flow between now and they ended FY 'twenty two.
And about $6 billion already spent.
Additionally, we will generate more cash and borrowing capacity as projects come on stream.
And some other spending and our backlog extends beyond FY 'twenty two.
We expect to refrain and its potential for you later in 2021.
We will continue to focus on managing our debt balance to maintain our current targeted <unk> rating.
With a few new projects signed and some coming on stream, our total project and M&A commitments increased slightly to $12 7 billion with.
With about $11 billion remaining to spend on them.
So you can see we've already spent almost 35% and already committed 95% of the capacity we show here.
Now to begin the review of our business segment results I'll turn the call back over to sales.
Okay.
Thank you Scott.
Now please turn to slide number 17.
Our Asia results.
Compared to last year.
Currency price and energy pass through resulted in a 4% increase in sales despite weaker volumes.
Currency.
Favorable across most key countries contributed 6%.
All of that all price rose, 1% for the region.
This represents a 2% increase for merchant products.
I'd like to the non U that pricing was positive for Asia for the 16th consecutive quarter and.
And particularly a strong and Korea and Taiwan this quarter.
While they're down 4% with new plans more than offset by low iron while the merchant business remain stable.
Despite the impact of lower volumes strong price and favorable tendencies and kept our EBITDA.
EBITDA.
EBITDA relatively stable.
EBITDA margin and almost 48% was 240 basis points lower.
Primarily driven by lower volumes, mostly from the line.
Sequentially sales were up 1%.
Sabre that currencies more than offsetting the VK and volumes.
EBITDA increased 4%, primarily driven by lower costs.
I'd say very bad currency offset the negative impact of the care volumes.
Now I would like to turn the call back over to Scott, who talks about our Americas results.
Thank you Stacey.
Please turn to slide 18 for a review of our Americas results.
Sales were flat compared to last year.
Higher price and energy pass thru were offset by lower volumes.
Price was again better across all major product lines.
The 3% increase for the region was equivalent to 7% from merchant.
This is the 10th consecutive quarter of year on year price improvement.
Volume was down primarily due to the impact of COVID-19, but partially offset by the PBF acquisition.
EBITDA of $400 million was 2% below last year's level as better price and the PBF acquisition we're on.
<unk> set by the volume shortfall and higher maintenance costs.
For the quarter, although Americas planned maintenance was higher than last year. It is consistent with what we expect in Q2.
EBITDA margin dipped 90 basis points with a negative 80 basis point impact from higher energy pass through while the unfavorable cost impact was largely offset by other favorable factors, including price and acquisitions.
Now I'll make some comments on our sequential results.
Sales increased 2% as higher energy pass through and positive price overcame negative volume.
Price was up across all major product lines, while volume was weaker primarily due to seasonality.
EBITDA declined 3% as weaker volume was partially offset by better price.
Margin was down primarily on higher energy pass through which had about a 200 basis point impact.
Now I'd like to turn the call back over to Simon to discuss our other segments Simon.
Yeah.
Thank you Scott.
Now please turn to slide 19 for a review of our Europe Middle East and Africa region results.
Our EMEA team delivered outstanding results this quarter, both sales and profits grew double digits compared to both last year and last quarter.
Price volume and currency were all favorable and contributed to the 13% year on year sales growth.
Volumes grew 5%, principally due to acquisitions and higher onsite volumes, which offset the adverse impact of COVID-19, predominantly and our packaged gas business.
Price increased 3% for the region and 4% from merchant with improvement across most major product lines and subregions.
This is the 12th consecutive quarter of year on year price improvement.
Currencies were favorable 6%, primarily due to the euro strength versus the U S dollar.
EBITDA surged, 18% to more than $220 million supported by price increases favorable currency and acquisitions.
EBITDA margin improved 170 basis points.
Sequentially volume improvement was driven by a modest COVID-19 related recovery and our merchant business acquisitions and higher onsite volumes.
EBITDA was also up sequentially and margins remained about flat.
Now please turn to slide 20, global gases, which includes our non LNG sale of equipment business as well as central costs.
Sales increased due to higher sales of equipment projects activity.
<unk> was lower due to business mix and higher product development spending.
As mentioned earlier, we also benefited from the settlement of a supply contract, which offset the gains and project activities last year.
Please turn to slide 21, corporate which includes LNG and other businesses as well as our corporate costs.
Sales and profits were higher this quarter versus prior year, driven by LNG project activities as we continue to execute multiple large projects, including Golden pass and Mozambique, and the massive Qatar gas project also began to contribute this quarter.
Sales and profits were both down versus prior quarter, primarily due to timing of percent complete activity on the LNG projects.
We were excited to announce another new project earlier this week for the energy on Kosta Azula LNG export terminal and Ensenada, Mexico. This represents the force LNG project, we've announced and the last year.
Now to provide some additional thoughts I'll turn the call back over to safety.
Thank you Simon.
Now please go to slide number 22.
As we look forward.
Unfortunately, we do not expect the COVID-19 global crisis.
To moderate anytime soon.
This will continue to have a negative impact.
On the economies of most of the countries we operate.
We have confidence that the vaccine will help to reverse the course.
But the rollout is a student entity of stages and the peso vaccination is hard to predict.
As a result at.
We continue to find it very difficult.
And to make any other reason above projections about the course of economic activity around the world.
And therefore, we are not providing EPS guidance for capex guidance for a quarter or two or for our fiscal year 2021 at this time.
And you hope to outlook there'll be less uncertain and April and if so low.
Forward to provide and your guidance there.
However, I want to share with you why.
We are seeing so far this quarter that is and the month of January and as of today in February.
Representing about half of our sales are on site business has been stable and we expect this to continue.
With respect to our merchant business in.
In Asia, our merchant volumes are down slightly versus the other day there at the same time last year.
Which is before the virus crisis began.
So the volumes have reached almost pre crisis levels.
And Europe Yeah.
And after a decent start following the holiday season.
And continue to see a larger impact on our packaged gases business versus debt liquid bulk business.
In Americas merchant volumes remain down.
And I would like to remind you again that we do not have the packaged gas business in North America.
As we move forward we remain committed.
So executing our growth strategy.
Abiding systemic sustainable solutions to help the board meets its increasing needs for clean net energy.
Without a strong portfolio.
And we're able to meet customers and countries drive for cleaner and more sustainable solutions.
We see great opportunities ahead in gasification.
Padma and capture and hydrogen for mobility.
And we continue to develop and invest and stripe and strategic opportunity.
To drive our growth for decades to come.
As always.
Continued.
Success up and.
The continue I'm, sorry, and as always the continuous success of this strategy.
And is rooted in the commitment and motivation of the great team, we have at air products.
Our resilient and focused people understand the critical role they play.
And safely operating more than 750 facilities around the world.
Executing on this scale projects that support the economic and social development.
As air products.
And their book.
Together to deliver these solutions to our customers and to the war.
I am proud to say that.
And like many other companies.
We have not reduced staff.
Or a reduced the salary of our people.
During this pandemic.
Indeed, we have continued to strengthen our organization by adding the resources necessary to pursue.
Opportunities the habit stood by our people.
In closing today I would like the tank all of our dedicated and hardworking people around the world who continue to deliver despite these challenging times.
I am proud to be working with them every single day.
Now I'll be pleased to answer your questions.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
You're using a speaker phone. Please make sure your mute function is turned out to allow you said no to reach our equipment.
Please press star one to ask a question and we'll take our first question from Duffy Fischer with Barclays.
Yes, good morning, guys.
Two questions on two of your Big projects first one on the win with the renegotiation of the contract do the economics change at all once the plant is back up and running and and the second one is just around the AUM and on that one when should we see the groundbreaking.
By segment, so when should we see the solar and the wind farm Star when will we see the ammonia plant start and then when will we see the Elektra Wiser Star. If you think about that kind of what's the timing of those relative to each other and and maybe just a last one title on there have you already ordered long lead time equipment for the knee on project.
And good morning Duffy. Thank you for your question with respect you'll do and.
And we.
We as I said, we had negotiated a reduction on a fixed fee during the time to plans and shut down.
Luann has agreed to extend the contract. So once the plant comes back on stream, our overall return could be a little bit better than before.
The second thing is that with respect to New York.
We are finalizing the agreements and all of that you know how it is and doing pre engineering and all of that.
The hope to break ground on sometime in May June timeframe.
And we have ordered some of the long tail items or Vod and the process of doing that in a very in the next few days.
And great expect obviously, then everything to come on the stream as we go forward for the start up in 'twenty and 'twenty five.
Terrific. Thanks, guys.
You bet. Thank you.
And we'll take our next question from Kevin Mccarthy with vertical research partners.
Yes, good morning.
Safety as you consider.
Future projects and in China.
Based on your experience with flu on.
Do you anticipate increasing you know a sovereign and premium or your hurdle rate is as you evaluate future projects and then and a second question on volume.
Was the impact from Luann in the quarter and and thank you also mentioned and impact from lower sale of equipment affecting volume in the quarter. If you could quantify that as well it would be helpful. Thank you very much.
Thank you Kevin first of all I mean, you.
You are asking the question about Duan as they as its air.
And something that I mean line is this specific case, we have gone through that with you in terms of what has happened and we do have for other for other gasification projects in China. They are operating and there's no issue. It's been paid for the past few years and they continue to bank and continue.
And we do and the fact that we agreed to a decrease in bond debt.
And shut down.
And as a sign that we are trying to work with the customer because there is plenty of new opportunities. So there is no change in our view about investing in China. We have had a extra and experience we are having EBITDA margins of 48% and see significant opportunities that is the economy of the future and to ignore it.
It would be very shortsighted, and therefore could be continue to be committed committed to that country and the babies have been before with respect to exactly quantify and goes the two numbers that you wanted to do I Miss hesitant to do that because then people tell you exactly about other tenants and conditions of our contract the land and which.
Sales of equipment and that is not very large for us to do that and I hope you could give us a pass on debt.
Okay fair enough. Thank you.
Thank you thank you Kevin.
And we'll take our next question from Vincent Andrews with Morgan Stanley.
Thank you and and good morning, everyone. If I could just ask safety you know as we were about to go into a.
Period of time, where we're gonna start lapping lapping COVID-19. It sounds like you still have some concerns about you know what that impact could be and and so we shouldn't think of it as being.
And maybe a tailwind for for you and the coming quarters as we go through the the hardest parts of that is that correct or is there.
Some other things or risks that you see and the outlook. So that would be my first question. Thank you.
Yeah listen and good morning first of all thank you for your very tough food products.
Yeah.
A question.
I know that everybody is very optimistic wants to be optimistic all of us have been bouncing to be optimistic day back in the summer then the number of cases had cut down the number of deaths was down and then yourself on that.
I have no idea what he is going to add.
I hope that the vaccine and all of that we reported.
But the sales 4000 people a day are dying the number of cases theres no cash come down, but there's still days and 1000 cases, a day I don't know whether there will be another round of they'd be on other variant that so on so we don't want to get ahead of ourselves and I know that everybody and it.
Believe me us more than anybody else would love to be done with this COVID-19 and go back to our normal lives, but I'm responsible for giving investors a pal.
You are but we expect and I just don't want to run ahead of ourselves and tell everybody that everything is rosy.
On the part of the World, which is especially giving US problem is actually the United States of America.
And the volumes are down.
So I don't know how it will work out but is it does it have for the bedroom and then.
Other into better shape, but day, just the math you can accuse us of being conservative maybe the odd but.
We just wanted to have a balance units.
And that's that's fair enough and just as a follow up you know there was elevated planned maintenance expense this quarter and the prior quarter, how should we be thinking about that over the next couple of quarters or are you done with that or is there more to come.
And that's on I would say that you should see the numbers become bad debt and as we go forward.
Was there a lot of the higher maintenance was driven by that gets on to the shutdowns and all of that that's not on under our control and other pizza took advantage of the Covid thing to have turnarounds. So I'm, hoping that those numbers will look better as we go forward.
Okay. Thank you very much.
Thank you Vincent.
Okay.
And we'll take our next question from Bob Court with Goldman Sachs.
Okay.
Good morning saving.
Good morning, Bob how are you this morning.
Well thank you.
But it was a little confused in the commentary about COVID-19.
Punishing your U S business, where you note that you don't have a packaged gas business and yet that was the <unk>.
<unk> of Covid pressure in Europe. So is.
Is it something to do with the refining industry could you give us a little more color on what particular end markets, maybe causing you trouble from a COVID-19 standpoint, and the Americas.
Excuse me on.
We share a lot of helium to MRI machines, and two balloons and all of that.
People are not doing elective surgeries and the volumes are eating on these now.
And people are not having many parties and.
And the general activity is down so that is one thing.
And and also the volumes on all of that.
Hydrogen pipeline is down some of it is because of the decline that is being shut down.
But overall the activity keeping on not driving as much. So those are the things that has been causing trouble.
Thank you that's helpful and then when I ask on low end.
And maybe you're reluctant to provide the specifics, but do you have comfort in knowing exactly why they haven't restarted and that gives you the confidence that it happens sometime it would seem like coal gasification when oils rallied as much as it has may be more competitive.
Maybe a little more color there would be helpful.
Okay.
But it just actually landed on a lot of different you can.
Within this subset of all different cases about.
While I plan to shut down the reorganization and all of that and I don't want to publicly talk about debt because it has it has a reflection on the management of the company and I don't want to be negative on debt, but that the land situation did resolve itself. We are confident that that plant will restart and.
And the debt.
Arrangement that we have come to the comparably debt.
Company is accommodated and gossip accommodating them and they have a lot of new projects underway that we want to participate and so I'm not as worried about Atlanta as our investors seem to be but.
We need to wait and see and be report you. Let you know as of the time that we are reporting to you.
Perfect. Thanks.
Thank you.
And we'll take our next question from John Roberts with UBS.
Thanks, Cepheid <unk> and began starting up last quarter, I think where are they and the process of their ramp up.
They are still commissioning and the different units.
Of the facility and we are obviously theyre helping them.
I believe that I don't know the exact number but the almost close to 200 people, helping them Commission debt facility.
I'm not sure that crude has been officially introducing to scream and that's a question debt.
And it shouldn't be directed towards Saudi Aramco, but.
Overall, we have as I said and.
A large number of people working with the Saudi team and a very productive day to a start up the facility.
And then secondly, the refining industry is under a lot of pressure.
Are your refining customers generally at minimum take on their contracts and as they restructure here over the next several quarters from couple of years is there anything we need to look out for in terms of the integrity of their contracts.
How about the integrity of the contracts no debt.
Fact that our customers are not taking as much as they used to take before it is the fact as I told you the volume and our pipeline in the Gulf Coast is down, but it's fairly it's Adrian on I mean, it's different parts of the world is different than for example, and California. Our pipeline volumes are doing okay. So it depends on which region you are but there is no.
Question that overall people are not driving as much and therefore, it has an impact on the refining and the street that you know that the other than I.
Alright, thank you.
Thank you John.
Okay.
And we'll take our next question from Jeff Zekauskas with J P. Morgan.
Good morning, Seth.
Good morning, Oh on agent.
And I find them.
And in terms of Tucson.
And what's the issue and the negotiation that is why wasn't the deal closed earlier and.
What are the issues that you are trying to work out in order to check to get to a resolution and how long do you think at Mitek.
Well.
Net.
The things that we have to discuss his eyes on.
And you before Jeff.
One was the fact that when we initially and negotiated the contract.
And the Saudi Aramco.
We expect that a significantly higher interest rates for the seven $2 billion of debt debt do you have to finance.
Today because of the market condition. The actual interest rates are obviously lower than that.
So the issue that we have had to negotiate and negotiate the debt but.
It is how much of that saving goes each part.
And that's basically it.
And then assuming X amount of interest knowledge is lower and therefore day.
So who gets the benefit every day how much of it. So that was one issue in terms of negotiation and the second thing is debt deal trying to us and seven $2 billion of debt.
And that is not an easy task with other banks involved and all of that and debt at Sam's conditions and all of that so those are the two issues that we need to work out.
In terms of how long it takes I think I'm, hoping that <unk> done this thing by the and you know May June but it takes time and it is unpredictable and there is a lot of factors. This is a geopolitical thing.
Yeah.
And you have the banks changes every day, the view of Saudi Aramco changes and there was a day so.
And I'm, not pessimistic and I'm actually optimistic I think that they'll get this thing done at some point in time, but the issue those are the two issues that we're working on I think one of them we have worked on.
I think that you have and understanding of the senior management.
And uncle and Samsung, but you're going to do in terms of sharing of the profit.
But the debit is and the details of all of this has to be translated into actual contract language.
And the debt has to be a range. So that's what is taking time.
Okay and then Mike. Thank you for that my second question is I guess, a question of clarification to Scott.
Scott when you were reviewing the Americas business did you say that you thought the either the operating income or the EBITDA and the second quarter would look like the first.
And Scott would you please answer that I don't.
Happy to Scott Yeah, Yeah, Yeah.
Thanks, Jeff for the question I appreciate it and my comment there was regarding the maintenance spending and the safety mentioned these turns are driven by what our customers take care take turnarounds planned turnarounds and so it's a technical term here in the spending on that and the expense and will incur is kind of lumpy and my comment and there is.
For the second quarter would not be surprised if we see the same sort of level of maintenance that we saw on the first quarter.
Okay, great. Thank you so much.
Youre welcome.
Thank you Jay.
And we'll take our next question from P. J do you have the car with Citi.
Yes, good morning Savi.
Good morning P. J how are you this morning and.
Doing well doing well so question on low and you mentioned that you have three other gassy fires that are running and China. So I'm wondering what is the underlying issue with low one is it just is it looks like it's company specific and is it is it that is not profitable at current current coal price or is it the downstream processing to fewer.
And that is an issue.
Shed some light on that.
A P J I and all of them on behalf for other gasify gasification projects that are working and it is a specific issue related to land.
And that as much as people would like me to convert that into economic crews and I think it has to do and I need as I said I need to be careful because I don't want to say anything kind of that.
Implying that there is a little bit of a confusion with the management day, that's all but the state of <unk> has decided to consolidate all of the chemicals.
And let us into one facility they have new people and all of that and those people have said, we want to look at everything and look at our options and all of that that is more of a reason for keeping the plant shutdown that any anything to do economically and all of that but the fact that coal prices are higher and China significantly.
And the last few months because of the winter and the fact that the bit that the parent company and can sell coke.
You can't make a lot of debt you would have called argument, but it's just basically.
The new management is taking their time trying to assess their options.
Okay. Thank you for that and Okay, and then just quickly on.
Your EMEA.
You know you.
Do you have a packaged gases business is down and Europe would you say that post COVID-19 and that business would have the most upside and a recovery. Thank you.
Yes, it does yes.
Yes, it does but I have to say that our team and in Europe is doing a wonderful job and he's.
And also that they have produced at least last quarter, considering what's going on debt is very.
Very very good they have their act together, they keep pushing the pricing and they are doing a very good job but.
If COVID-19 goes away there is significant upside there yes, absolutely.
And we'll take our next question from David Begleiter with Deutsche Bank.
Good morning, and say Hey, how are you.
Hey, David how are you other than being buried until and and at.
32 inches of snow on the Pentagon.
How are you there and doing well thank you and see if you just understand how soon after the issues are resolved and and deals are completed the contract signed Kinder project come online.
And start up.
The day that you do the financial close via our online.
And then there's the refineries on line or not and they all did is it fixed PFC thing yes.
Other deals.
The day that you do the financial closing and.
And next day and you can see the benefit of the EPS on a bottom line.
Understood, So you need and moving forward.
For the announcements about the financial close yeah.
Great and just on potential new green hydrogen projects I know you're working on them is there a potential for another announcements this year on green hydrogen.
David.
I'm not going to go down and I have no idea I mean.
They are working on other projects and all of that but.
For me to be that specific would be would not be responsible on those things are very big projects.
They are volume.
We are working on other projects, but to be specific I can't do that you need to give me a pass on debt.
Understood. Thank you.
Thank you Dave.
And we'll take our next question from Mike Sison with Wells Fargo.
Hey, Stacy I'm, Barrett, and snow as well and Cleveland, but and <unk>.
And Kevin and Mike.
And I do and in terms of EPS growth you did a nice job in 'twenty and 'twenty.
And can you still generate some EPS growth from 'twenty, one and I know you can't give any specifics, but the model seems to be built to be you know to be able to do that on an annualized basis. So that has the growth algorithm changed at all on longer term in terms of what do you think you could do in terms of EPS growth.
No we still believe that on day average and the next five or six years as a deliberate about 10% of the same day that you had done and the last six years.
And my view hasn't changed on that debt is our goal and we didn't make that happen and it will.
And do our best and I get that.
Great no fundamental structural reason debt Yeah go ahead.
Yeah, just spend just any comments on 'twenty one in terms of your ability to grow.
And in 'twenty one.
If that.
Quite frankly, if COVID-19 subsides and rely on our stocks and be close on that.
Uh huh.
And the reason of all time.
And then the 10, 10%.
And increase should not be too much of a problem.
Hands.
Got it you are not giving any guidance not only because of COVID-19, but also because of these.
Two big things can have on effect so.
They just that needs to be a little bit patient to see how everything works out, but we obviously and all of them.
Very optimistic about the future of air products.
For sure that's why I bought a lot of changes in December as you know so.
I'm, Matt person on the I'm very optimistic but.
They have to give you a balanced picture here.
Got it thank you.
Thank you.
And we'll take our next question from Steve Byrne with Bank of America.
Yes, Thank you and safety you mentioned that your hydrogen pipeline on the U S. Gulf has has slowed but in California. It remains firm and there's just curious whether that is potentially a bit of and end market difference you have some of the refineries and <unk>.
Four and you are converting their hydro treaters and hydro crackers over to renewable diesel and and just wanted to hear your view on weather.
Whether there is a potential longer term opportunity here too to air products. If there is a kind of a.
And expansion of their renewable diesel opportunity global nationwide, rather than just California weather, whether the the net use of hydrogen.
<unk> per unit of diesel versus per unit of renewable diesel was meaningfully different.
The state you have a very good insight that's a very good observation and they don't want to talk about it too much because.
And that is really not our business but.
Fundamentally what you are saying all of the team that you are saying.
Correct.
And that can actually be and upsides for us yes.
I agree with all of your statements.
Okay and safety I remember a couple of years back you made a comment about.
The number of gasification projects that were being considered and and I believe it was just trying to and the number if I recall correctly it was <unk>.
More than 50.
And I just wonder whether there's a lot of those may have been you.
You know kind of idled or or reconsidered over this past year, given much lower crude oil and whether or not you're seeing any pickup in that activity and those discussions going forward now that we've seen a recovery in crude.
There are significant and number of core gasification projects and their consideration.
It's all day, and China, but also in India and Indonesia.
Other places where do you see the most activity.
And as we expected and I think with Covid everybody pulls back as you know very well in terms of catheter and expenditure on us on but as time goes by we do a we are optimistic about gasification and we have it very very strong position there.
And quite frankly, the Ark by far the market leader.
And if there is in other gasification projects and reward and.
With that you and 90% of that air products will get that so I think that we continue to be optimistic about that.
Okay. Thank you.
Thank you.
And we'll take our next question from John Mcnulty with BMO capital market.
Yeah. Thanks for taking my question.
So I guess the first one would just be on on <unk> and it sounds like when when you.
At least based on your discussion of kind of what the sticking points are it sounds like assuming that this thing does get to the finish line that debt. The overall profitability that you were expecting is pretty much on line with your original expectations is that fair or has anything else changed when you think about the the terms or anything like that.
First of all good morning, John.
And secondly.
And your statement is totally accurate that means that as soon as this thing is done.
Maybe and see that.
Impact on our bottom line kind.
Kind of.
In line and get what you would expect.
Got it perfect and then I guess with regard to the Americas I guess admittedly, we were a little bit confused on on the volume weakness where.
Youre kind of seeing the same declines as you saw kind of at the heat of Covid kind of in the in the June quarter. So I guess, why why haven't things gotten better or like when we look at the macro it looks like it has improved so I guess is it just a function of that.
The seasonality of refining and maybe that's kind of you know whatever it may be that if that's part of the reason to blame I guess I don't quite understand why why the Americas isn't getting at least from from quarter to quarter quarter to getting getting better at this point.
John and I provide you an answer and then I would like Scott to comment on that and if you go on spot debt.
The biggest impacts are maintenance costs and the second significant impact is lower heating on volumes and the tariff impact is set that debt.
And as I've, just slowed down a bit.
Those are and debt.
And fourth one is that.
The U S economy is still struggling and my son, and I mean, everybody is talking about these great rosy things, but on the ground, we don't see that yet.
So those are the four reasons.
Scott do you want to make any further comments.
No I agree with that and.
And just also point out like I said on the prepared remarks that.
There is some seasonality on a sequential basis, but as you've mentioned today for this end of line and economy, there's the COVID-19.
Helium situation channel.
And that's getting put to sleep.
And thanks very much for the color and all the different businesses were definitely but when and as there is improvement and the economy Covid and otherwise.
We expect to see a lumpy and OSP.
Since the restart and so forth as opposed to a steady increase.
Got it fair enough. Thanks, a lot guys.
Okay.
Thank you John.
Okay.
And we'll take our next question from Chris Parkinson with Credit Suisse.
Good morning, David it's great to hear you're doing well.
I just have two brief ones.
First as it pertains to the carbon capture opportunities do you just have a brief update on your perspective of addressable market you know any internal projects and also just anything on how you could potentially work with third parties, giving your Texas Tech expertise.
And that's first of all good morning, Chris Hope Yoga.
Krish the carbon capture opportunities.
On the being driven.
And that's it.
Teams broke even rosier than before because.
And one thing is capturing carbon to health and environment and all of that but there is a significant push right now as I talk to the investors and the last year and a half the last two years.
Bad debt transition to the hydrogen economy will be weighted hydrogen than blue hydrogen and being green hydrogen.
There is a significant demand now for so called Blue hydrogen.
And that people are thinking about making ammonia.
Where do you capture the seawell to debt and has generated then you'll make the hydrogen and.
And therefore, the ammonia and ice called Blue and then, especially in Japan and bus to take that ammonia and blow it directly into their boilers for.
For the power plants and that is how they were going to decarbonize.
There is significant and there is significant demand a lot of conversations about so called blue ammonia on who hydrogen and all of that.
We are working.
Working on CASM captured.
We continue to work on carbon capture and as I said do you do and time announce appropriate projects.
The meaningful size to show you that we are making progress on this thing.
You know this is something I've been talking to you about two four years and it.
Thanks for you know just like in low and Neil It takes five or six years to develop these projects. So we are working on them and hopefully if you're going to have some news for you and debt.
You used to come.
And we'll certainly look forward to that and the second very brief question just in the second half.
You know a lot of local media and India and Indonesia, our reporting that you were actively bidding on a lot of projects and the latter of which we've obviously already hurts and constructive news can.
Can you just.
Possibly speak to just the magnitude of those opportunities and the rough timeline given it seems like you've already bid and that's something we could potentially expect fiscal year 'twenty, one or it should be still be kind of more methodical and more balanced with our expectations on those fronts. Thank you very much.
Well, Chris Thank you Ben and I suppose the question Chris.
And one of the and.
He said on does and licenses that you learned from your past experience right.
And we have gotten a lot of hot hot and because of the announced jazz and before it wasn't done deal and now you see every quarter do you have to explain it.
So and Indonesia, we are obviously talking about gasification projects and Indonesia, but you had been telling and you'll be up and doing that for the past three and a half years I've met the minister is that is that four years ago.
And but you haven't done anything that is and I'm sure they'll get the I've talked to people you have talked about the projects and all of that and we don't want to do anything again like a just and you come in and say Oh, we have signed a memorandum of understanding and all of that and then every quarter thereafter and explain why it didn't become a project. These projects are very complex it depends on.
On the actions of a lot of government agencies.
It it changes the course of some of the countries you had a significant impact on people, who import products now not going to be important, but it's very complex and they just don't want to get ahead of ourselves and that all of those reports I've seen all of those reports, but we just want to be responsible and even and mouse something.
And then B team is going to be a real projects that there has been just the.
Discussions.
And I hope you're very helpful from patients with Us Chris.
And certainly well thank you very much for the color. Thank you.
Thank you Sir.
And we'll take our next question from Jonathan Oxcart with Bernstein.
Hi, good morning, guys.
But how are you.
Living the Dream every day.
Hum.
Got it and you have to take a little bit.
Of course, I was going to pick a little bit more at the at the Luanda scab here.
So you mentioned that you have high confidence that it's going to restart but.
What happens if it doesn't.
Is that part of your negotiations and.
Is there a signed agreement with the new management there.
Yeah.
But if you're talking about but if the pie and never stops.
Yeah.
We have agreed with the reduced fee.
We will wait and other.
As long as it takes for a few quarters to see that as the Ria suddenly on that but if they come in and say, we're never going to stop this plan and that contract you can go to.
Net.
Go to court and debt.
Enforce our contract on a contract is very clear about what happens if there's customer shuts down. It is very clear it is very defendable and debt.
Very confident about the outcome of that.
But we didn't want to go to court and start and sourcing debt because we don't know what it costs them and I just never told us that they are tracking this thing down permanently and visiting a bunch of prematurely destroy our relationship with the customer so it's a matter of being patient and working with your customer.
Yeah.
It is a you.
And you know.
Next year that they sound like they haven't even started yet and they have sent US a letter that theyre going to mouth about Atlanta, and we go to court and.
And of course our contract.
Okay. Thank you Okay. A second question if you don't mind on hydrogen.
Your your competitors and and even companies who our guests arent vehicles that are competitors are approaching hydrogen and much more tentatively and I think you're one of your competitors inaugurated their first 20 megawatt Electra and either lost or this week.
But youre going from well I wonder if they see a real but close to zero two.
And so $1 three gigs and one fell swoop can you talk about the reason why you're so confident that you can you can do this mega project without baby step first and how are you different from the from the rest.
Our debt did they do on a different is the same team that gasification and everything and get us.
The main reason that youre doing and what Youre doing is that.
We want to be.
Competitive and put our customers and a competitive position to use green hydrogen.
You cannot do at small scale.
The escape that we are doing is that it's not as if you are taking a technological risk.
And these are not I mean, Budd I'd be doing at Neal we are building and.
Yeah.
And go about G and Apple Gigawatts up wind and solar that's known technologies, It's no big deal.
And then we are building.
650 tons, a day and extra realizes and everybody says Oh, My God Yao and Hao.
And how long would be doing that we are going to take turnkey all doors 'twenty and they go about things that you set them put them together.
So there is no risk and debt and then the ammonia plant we are building a million ton ammonia plants all of it and place.
So we are not taking any technological this what we are doing and is that we are creating a megawatt project. So that we get the benefit of the economy of scale.
That's number one and then the second thing is that all of these people who on announcing these different plans. The source of electricity is not green and be on creating a green source of electricity.
But the main thing is we are doing Mega project because that is how you number one make it economically feasible and.
Number two and less.
Somebody like us makes a commitment to make a big project.
People are not going to come debt I mean, you all buses.
In San Francisco, you are not going to go on and convert them to fuel cell vehicles.
You don't have an assurance that you didn't have to agree and hydrogen to put in and plus the point of comparison.
So then you'll know that somebody is you're spending $6 billion $7 billion don't get real structure, then you'll get the confidence that is that is the difference.
In terms of Bud and Bud Bud.
Let's see you are doing and what they are.
And it's not a day, it's another big technological and these studies being the first and being the people. The finished once we've developed the infrastructure I mean, I don't want to they make big comparisons yet but.
What is to making an electric car I mean, my God, and it's a motor and a gearbox side.
Let's look at debt, that's noise and look at them and say.
GM and Volkswagen on those guys took the decision that first and everybody said well. This is not going to work hard because it's no big deal G. M can do this any time.
And look at the dentist that gives them the Jama study.
It is significant advantage to be the first mover and you have to move on a bigger scale in order to make it economical.
For your customers to have confidence that you're going to have the products when they come to this day and fleet.
So that is that is what we are doing I have no comment about what our competitors are doing day.
I'm sure, they're very smart people and debt.
And you know people like yourself and your question them about what they are doing and what they are not doing and I don't want to make any comment on debt, but for sure. You know I Hope you know what day are doing and what we are doing east Gulf on escape Gulfport economic scale, and you'll have the opportunity and produce a real green hydrogen and not be.
And is toy teams at 10, and 20 tons a day.
And it really doesn't but besides that we are doing dose and as you are building a 30 day time that they plan on hydrogen in both auto and they'll make 30 times the parents hydrogen and other parts of the world. So that's not a big deal but the.
And the megawatt scale is the future.
Okay. So thank you.
Absolutely sure.
Thank you very much I appreciate that.
And there are currently no other questions on the queue at this time I would like to turn the call back over to safety for any additional remarks.
Well once.
And once again I would like to thank everybody for being on our call.
Thanks for listening to our presentation and thanks for your good questions. We appreciate your interest and we look forward to discussing our results with you again.
Next quarter.
As I said earlier, please stay safe and healthy and.
And all the best to all of you and your families.
And again.
And that does conclude today's conference. Thank you for your participation you may now disconnect.
And.
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