Q4 2020 Linde PLC Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 'twenty 'twenty One day earnings call. At this time all participant lines are in a listen only mode.
After the speaker's presentation, there will be a question and answer session day.
Ask a question during the session you will need to press Star and then one of your telephone.
Please be advised that today's conference maybe recorded if you require any further assistance. Please press star and then zero I would now like to hand, the conference over to your Speaker today, Mr. Juan Pablo <unk> head of Investor Relations, Sir you may begin.
Crystal Thank you and good morning, everyone and I appreciate it's heading our 2024th quarter earnings call and webcast.
I won't pin is head of Investor Relations and I'm joined this morning by Steve Angel, Chief Executive Officer, Matt White, Chief Financial Officer, and Sanjiv Lomba, Chief operating Officer Ted.
Today's presentation materials are available on our website at <unk> dot com in the investors section.
Please read the forward looking statement disclosure on page two of the slides and note that it applies to all statements made during this teleconference.
The reconciliations of the adjusted numbers are in the appendix of this presentation.
Steve Sanjiv, and Matt will now give an update on lindsey's fourth quarter performance and will then be available to answer questions Steve.
Thank you Juan.
The entire team responded exceptionally well in a year dominated by Covid.
Our frontline workers in particular deserve special recognition for what they accomplished.
And what they continue to do for our customers our patients and our communities.
Despite the challenges of Covid, our key safety metrics continue to trend positively.
We always say safety first here Lindy and.
And our people certainly walked the talk in 2020.
We ramped up our health care capabilities around the world.
We develop new protocols to treat COVID-19 patients in their homes.
He got needed capacity and overburdened hospitals.
Since March we have treated 90000, COVID-19 home care of patients and unfortunately that number continues to grow.
And we did that while caring for our existing base of some 1.6 million home care patients.
We kept our plants running reliably and maintain service to our customers.
We started up new plants in challenging circumstances with minimal delays.
With the help of virtual tools, we transitioned from central to distributed operations almost flawlessly.
Yeah.
In light of the inequalities in our society expose by COVID-19, we contributed an additional $1 5 million to our communities beyond our normal level of giving.
We demonstrated the resiliency of our business model.
We quickly adjusted cost structures in line with local market conditions.
We utilized our strong commercial terms and conditions to shield us from volume disruptions.
We capitalize on more resilient growth opportunities in healthcare electronics and food freezing.
We delivered strong financial performance for the full year.
Matt will provide more detail on the financials, but let me share a few highlights.
Yeah.
Ex FX, we delivered 13% earnings per share growth on minus 2% sales.
Our EBIT percent rose 260 basis points to 21 three per cent.
Gross operating cash flow grew 21% to 7.4 billion.
And the single most important metric to me return on capital grew 180 basis points to $13 four per cent.
We won significant projects, serving new semiconductor fabs.
The largest of which is yet to be announced.
And is not yet included in the $3 6 billion sale of gas backlog number you see in the presentation.
We won 36 small onsite projects in growing markets, such as pulp and paper.
Lithium ion batteries.
And precious metals.
We advanced our sustainability initiative.
We are the only chemical company in the World, who has been recognized in the World Dow Jones sustainability index for 18 consecutive years.
And MSCI.
Recently upgraded our ESG rating to an a rating.
This time last year, we announced a new greenhouse gas emission intensity reduction goal of 35 per cent by 2028.
At this point, we're nearly halfway to achieving this goal.
Yeah.
And we continue to to develop applications.
That enable our customers to address their environmental challenges.
We're currently working on several.
Carbon capture utilization and sequestration projects there.
We expect to come to fruition in the coming months.
We made progress on our clean hydrogen initiative.
We ramped up our JV with I T M to build pin proton exchange membrane electrolysis plants.
We formed a dozen partnerships with fuel cell electric vehicle manufacturers energy companies and renewable power producers.
We closed several important projects in China, South Korea and Germany.
Yeah.
We made significant progress on our diversity goals for women globally and minorities in the U S.
We conducted our second employee engagement survey.
And the results were very positive and improved year over year.
We maintain a strong compliance program, establishing a strong culture of compliance is a fundamental responsibility.
Of every leader in our company.
We didn't ring, a bell or anything.
But the merger integration is over thanks to the outstanding work of many people from both legacy companies.
In short we accomplished a great deal in 2020 and performed at an exceptional level.
Especially when considering the environment.
Now I've just made a lot of we statements and now I have one more.
We are well positioned for another outstanding year in 2021.
Now I'll turn it over to Sanjay to provide more details on the business trends and outlook.
Yes.
Thank you, Steve and good morning, everyone.
As Steve mentioned, we had a strong finish to a challenging year.
However, not all end markets have recovered at a growth rate had been quite varied.
The current uncertainty around the shape and speed of the economic recovery I'd like to walk through the current business condition. The key trends by end market that you can find on the next slide slide four.
This slide represents a global and key market sales, excluding engineering schools for the last quarter.
And the first point I'd like to make to you to hear is that our sales as well.
With 40% in resilient markets like healthcare electronics food and beverage.
And the other 60 per cent in cyclical end markets, such as metals manufacturing chemicals and refining.
Clearly the resilient end markets provided both stability and earnings accretion throughout the year.
These growth rates are more aligned with demographic and consumer trends.
And of course incremental application technology. This is especially true for our merchant and package supply modes.
In fact, our strategic focus towards developing an integrated supply niche book across all three supply lines.
Merchant and package enables us to efficiently serve all these customers.
In health care.
Which is about 20% of our sales we continue to make considerable investments around the world sales.
Patients in both hospitals and home.
We have expanded our medical red oxygen capacity.
We've introduced an inhaled nitric oxide alternative in the United States and Canada.
Provided the chassis gases for research and drug discovery and.
And of course increase the supply of dry ice production for the storage and transportation of vaccines.
Furthermore, we've been better per bed or home care organization.
To safely and reliably came from millions of high risk patients right through the spin done.
It is of course difficult to say how much longer will face these challenges, but I can see with some confidence that we will continue to do our part to support and care for our customers.
Moving on to food and beverage, which comprises 10% of global sales.
This end market includes production and distribution for both bulk products and retail.
Growth trends have been more prominent and bulk food freezing dry ice for transport and specific trends like oxygen for aquaculture Seo to her greenhouses.
I anticipate these trends will continue based on the rise of food delivery services.
Accretion of food production.
And of course, the growing demand for high quality ready to eat meals.
Now, although the beverage market has been negatively impacted particularly by the closure of restaurants, especially in North America and the UK that business has partially recovered through diana's takeoff trends that we see along with increased Buffalo demand overall, we see this as a stable market with some upside when there is reached.
Restaurant dining.
Moving on to electronics.
Which is 10% of our sales.
We also considered this a resilient market since it tracked closely to consumer trends.
Other than industrial cycle.
And also because we supply critical products, such as high purity nitrogen and specialty gases and complex mixtures.
And these products enable our customers to make smaller and increasingly more powerful electronic devices irrespective of their technology platform.
This is of course, one of our fastest growing market.
Both from the Americas and Asia Pacific.
Our investments are made into these integrated circuitry memory display and solar.
Some recent examples of on site project wins include the recently announced Samsung win in South Korea.
And there are other tier one fabs in Taiwan, China, and Singapore as well.
In fact, this is a market where I expect that most project backlog opportunities in 2021.
And as we are of course pursuing actively in large number of projects that should result in an additional win or wins being announced this year itself.
Overall, the Brazilian end markets provides a healthy foundation for future growth.
Offering downside protection as evidenced by our financial performance during 2020.
Yeah.
Let me move on to the bottom half of this line slide four that.
That shows a cyclical market.
Some of those you can see our day noted in yellow.
Since they were negatively affected by the economic downturn, especially in Americas and EMEA.
While many of these markets are underpinned by fixed fee payments, such as onsite contracts in metals and chemicals will soon the rent abatements and manufacturing.
Gas volumes are how we're exposed to industrial growth trends.
Of course. This is also the part of our portfolio that will see the most leverage to recovery in the economy.
Medicine glass represents about 13% of assets.
Steel production has been increasing in China, but of course, a lot more volatile than developed markets like Europe and the U S.
She windows mills are linked to ultra production.
Quarter four saw some of the highest in 2020 due to catch up demand after pandemic production shutdowns and of course depletion of inventory and steel mills as well as end customers.
We're also seeing some recent trends in this space, including the efforts to Decarbonize steam production.
Such as the use of oxy field from Boston to reduce emissions and improve energy efficiency.
We also see recovery in flat steel from a rebound in auto production.
Of course, if we see any significant infrastructure stimulus spending the metals industry will definitely benefit.
We use schools continue to have confidence in our portfolio of high quality customer assets, which have successfully navigated economic headwinds for many decades.
Moving on to chemicals or refining that represents 19% of our sales globally.
And is well balanced across the different segments now.
Similar to metals, we have focused efforts on partnering with high quality assets and therefore, our customers are some of the lowest cost producers in the world.
Production activity for 2020 ended below pre pandemic levels.
But so far this year.
We've seen refining capacity.
Utilization trend up to low EPS in the U S.
Gulf Coast refining system is well integrated.
And still has some of the lowest cost feedstock in the world.
Our current chemicals and refining backlog of projects.
Leading global companies.
Protected with strong contractual term.
We recently announced and we signed a new project with one well in Hungary and of course, continuing to explore new opportunities as our customers growth to reduce their carbon footprint are.
A good example of this is the increasing trends in biofuel production, requiring additional hydrogen for hydro cheating and hydro processing.
So why is 2020 represented a challenging yield for these customers, we see upside potential heading into 2021.
Let me move on to manufacturing.
At 19% contains a variety of end markets, including aviation automotive Falcon paper and general manufacturing.
But also some growth markets like commercial spaceflight.
The overall trends have been down due to weaker general manufacturing as many small to medium size and manufacturing customers have to shut down operations for extended periods.
And while aviation has decreased with overall travel industry.
We continue to see strong growth in commercial spaceflight.
Albeit off a very small base.
In addition, we've seen often paper customers add more capacity.
Consumer retail demand, which has enabled more small onsite oxygen plant wins, especially true in Latin America, and northern Europe, but for most part manufacturing end markets correlates with industrial production and thus would be expected to move up or down with those trends.
So the overall gases business, we have a good balance of both resilience and cyclical end markets.
2020 as already demonstrated.
The downside protection and stability non business.
And while we remain somewhat cautious in our outlook.
We are well positioned to leverage any recovery in 2021.
Let me move on to engineering.
Our engineering segment represents approximately 10% of our consolidated sales.
It's a long cycle business, so quarterly trends don't quite provide the full story.
The last year was a culmination of a multi year growth trend for order intake.
Most of that primarily related to gas processing and petrochemical expansions.
So for 2021, we estimate a net decrease in the sale of equipment backflow from a law capital cycle spend.
However, as clean energy projects continue to develop.
<unk> steadily become a larger part of the engineering portfolio.
Irrespective of the near term outlook, we have a high degree of confidence in the sustainability of long term margins and cash generation in this business.
Driven by its captive sale of gas opportunity unrivaled technology portfolio and focus on higher quality engineering and services.
So let me wrap up by sharing some of my priorities for 2021.
On safety and compliance, which is always first and Linda we must maintain our best in class performance and a culture with continuous improvement across all our kpis.
For sustainability.
Further progress from the goals, we set last year.
In particular, our focus will be on the reduction of our greenhouse gas emissions intensity and of course, increasing gender diversity.
Yeah.
Price and cost management is a hallmark of Linda.
We will build upon the current best practices on pricing and productivity. While also remaining laser focused on cash management.
We will also remain quite nimble adjusting each local business to its environment for optimal results.
It always remaining prepared to capture any growth opportunities that fit our investment criteria.
I'm sure you've heard Steve say in the past <unk> is a truth serum for any capital intensive industry and I truly believe that.
We've instilled a culture and Linda the capsule isn't free.
We have to be good stewards of shareholder capital.
And to do so we need to continuously optimize our base capex, while also pursuing all good investment opportunities.
These projects acquisitions and day caps as well.
Our approach to growth remains disciplined.
We will pursue all growth opportunities that meet our investment criteria.
Double digit unlevered after tax IRR with reputable customers, who will have competitive assets.
And in regions, where we have confidence we can enforce our contracts.
For such opportunities that we target.
I'm confident we will win more than our fair share.
So as we continue to improve the numerator the after tax operating profit and maintain a long term and disciplined approach to investing.
Book to see <unk> continue to grow.
With that I'll now hand over to Matt who will take you through the financial results and guidance Matt.
Thanks Sanjiv.
Please turn to slide five for an overview of fourth quarter results.
Sales of $7.3 billion were 3% above last year and 6% higher sequentially.
Year over year gas volume trends have started to stabilize with an increase of 1% from 2019.
This is driven by contribution from the project backlog.
As most of our customers have started up as anticipated.
Organic volumes were stable with prior year.
As increases from electronics, and healthcare were mostly offset by slight declines in manufacturing and we're finding.
Sequentially volumes increased across all geographic segments and most end markets.
The engineering business drove a 1% decrease in sales from prior year.
As you know this is a longer cycle business. So quarterly trends are less indicative of overall conditions.
Currently <unk>.
Projects are being completed faster than order intake.
Thus, resulting in a slightly lower backlog of $4 $7 billion.
Which is about one and a half to two times annualized sales.
Despite the lower fourth quarter sales the team improved EBIT margin 110 basis points and ended the full year with margins above 15%.
Looking ahead, we expect engineering EBIT margins to average low double digit percent throughout the cycle.
Pricing remains healthy at 2% as most business units are keeping up with local inflation.
Proper contract management is an integral part of our operating model.
And therefore provides long term confidence in the ability to maintain positive pricing in any environment.
Foreign currency was a 2% tailwind as the U S dollar weakened against most currencies in APAC and EMEA at.
Although the Americas still has a headwind due to weaker Latin American currencies.
The combination of stable volumes.
Higher pricing and.
And strong productivity and cost management resulted in operating profit of $1.6 billion, which is 20% above last year.
The 22.2% margin is 320 basis points above 2019.
And represents our sixth consecutive quarter of expanding operating margins more than 200 basis points.
Earnings per share of $2 30 increased 22% from prior year and 7% sequentially.
The incremental growth rate versus operating profit is primarily due to the lower share count.
Operating cash flow of $2.4 billion was our highest quarter yet.
At 12% above last year, and 29% above the third quarter in fact, it represents another quarter, where the operating cash flow to EBIT DAU ratio exceeded 100%.
We had a strong finish in working capital, especially in the engineering segment.
But I'll speak more to that on the next slide.
Capex of $1 billion was 1% above last year and 30% higher sequentially.
As a reminder, project capex represents opportunities over $5 million in spend with returns supported by long term contracts.
These projects often take three or more years to build.
So spending patterns fluctuate from construction and delivery timing.
Therefore, a better indicator is the sale of gas project backlog, which stands at 3.6 billion similar to the third quarter.
Base Capex has increased from both periods, primarily due to quality growth investments that meet our return criteria.
But not all requirement to be included in the project backlog.
Example investments include small onsite.
Specialty gas plants high.
Our hydrogen mobility.
And expanding medical gas capacity.
Ultimately all capital decisions roll up to our Oc.
Which continues to trend in the right direction with Q4, ending at 13, 4%.
You can see a continual improvement from substantial earnings growth on a stable capital base.
As Sanjiv mentioned, we as management are stewards of shareholder capital. So this metric is the best way to define long term success in deploying that capital.
To build off that I'd like to spend some time reviewing the full year 'twenty 'twenty capital management on slide six.
Yes.
As you can see on the left side full year operating cash increased 21%.
Yeah.
This was driven by a combination of higher earnings.
Lower merger costs and better working capital management.
Cash from operations grew steadily over the two year period, despite the challenges related to the pandemic include.
Including the second and third quarters of 2020.
The right side represents how that capital was deployed.
Linda has a stable and predictable cash allocation approach irrespective of any short term disruptions around the world.
The underlying mandate is an a credit rating with a growing dividend each year.
In fact, just two weeks ago, we announced a 10% dividend increase for 'twenty 'twenty one.
To mark our 28th consecutive year of increasing dividends.
Yeah.
Our capital priority is to invest back into the business.
It can be for projects D caps or acquisitions, we view them equally under our consistent investment criteria.
All growth must meet a proper risk reward balance.
Because mistakes in this industry can result in long term losses that exceed the initial investment.
During $2023 $5 billion met our investment standards.
And I expect this number to increase over time.
Finally, any excess cash leftover after dividends and investments.
Is used for stock repurchases.
And you can see that number was $2.4 billion for 2020.
We recently approved a new $5 billion stock repurchase program, which further validates our confidence in the ability to generate significant excess cash flow.
The path to long term compound value generation.
Requires annual growth of earnings and cash flow with a consistent disciplined capital deployment model for both good and challenging years.
Furthermore, building local density in diverse end markets provides linda downside protection with significant leverage to growth cycles.
'twenty 'twenty validated the resilience of this model in a tough year.
And we look forward to demonstrating how we can perform in a recovery.
I'll now wrap up with guidance, which you can find on slide seven.
Yeah.
Initial EPS outlook for full year 2021 is.
Is $9.10 to $9 30.
This represents an 11% to 13% growth rate.
With an estimated 1% FX tailwind.
Excluding FX.
The 10% to 12% range assumes minimal economic benefit at the bottom end.
And a low single digit economic growth at the top end.
In other words and consistent with prior statements.
We have confidence we can grow EPS double digit percent with minimal help from the economy.
And while we don't provide revenue guidance I do want to mention from modeling purposes that effective January one we.
We have deep consolidated a 50% joint venture in the APAC segment.
Our ownership in economic interest remained the same.
However, we had some incremental shareholder rights that expired in December which both parties agreed not to renew.
The effect of this deconsolidation will be shown as a divestiture.
And we will reduce annualized sales of approximately $600 million at average O P margins.
Note this change will not affect EPS due to the proportional increase in equity income.
Stated simply this is merely an accounting change that will not impact our economic benefits.
Okay.
Turning to the first quarter, we are providing EPS guidance of $2 20.
To $2 and 25.
Or 16% to 19% growth rate, including an assumed 2% FX tailwind.
This range assumes a normal seasonal decline from the fourth quarter.
Including Chinese new year, and Brazilian Carnival.
At this point, we are not assuming any meaningful improvement in sequential volumes from Q4.
And while we started 2021 with a stronger january than anticipated.
We're not in a position to update guidance at this time.
Consistent with prior quarters, we believe it's prudent to remain cautious on the outlook as the pandemic evolves.
But rest assured if there is any economic upside we will capture more than our fair share as demonstrated by the second half of 2020.
And if the economy does improve more than our baseline assumptions, we will likely be at the upper end or above this guidance range.
I'll now like to turn the call over to Q&A.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key once again to ask a question. Please press star and then one now.
And our first question comes from Bob Court from Goldman Sachs. Your line is open.
Thank you very much good morning.
Yeah.
I wanted to ask.
A bit about the forward look into 'twenty 'twenty, one and.
In context of obviously did a tremendous job in in 'twenty on a cost.
Our basis I think your operating profits condoms over $500 million in your sales are actually down almost 1 billion. So you had you.
We broke the calculator on the incremental margins.
How should we think about it going into 'twenty, one and what might underlie that earnings out, but that you guided us towards in terms of a sales evolution relative to an EBIT evolution and these our operating profit and do you see some of the expenses that maybe were diminished in 'twenty one back in in 'twenty, one as the world moves towards a more normal.
Business operating condition.
Okay. Thanks, Bob This is Steve Thanks for the question.
First of all I need to give a shout out to my daughter today. So the 30th birthday, So happy birthday Logan.
She only cares about the share price by the way she won't be listen I guess.
So Bob as we think about continuing to expand margins.
Obviously, that's in our sights that's built into our plans you know, we're giving a clearer guidance on double digit earnings growth and as Matt described even at the low end.
No real volume expectation and at the higher end, there's low single digit volume expectation. So obviously, we're going to lever up the EBIT quite a bit off of a pretty small volume assumption and they will lever that further through share buybacks and I didn't really go back and calculate the number but clearly it's going to be.
Other significant move that's the plan.
In terms of.
EBIT margin expansion and I think you know as Matt probably set a couple of times.
We don't really know what's going to happen. This year I mean, we we were looking at January obviously and the results are pretty encouraging.
You know one month doesn't make a quarter in one month, certainly doesn't make a year. So we certainly have to.
They are a little more cautious in terms of what could happen in the second half of the year.
And Bob This is Matt I'll, just add one thing to that as well I mean long range. We look at the equation of price productivity cost inflation to be an accretive component to.
So how we think about our earnings and our margins on a go forward basis. So this is beyond the merger. This is beyond anything like that we don't anticipate temporary cost savings that pop back or anything to that extent as we've discussed in prior calls. So we see this as a compound value opportunity as Steve mentioned and this doesn't assume.
Volume help at all at this stage on the organic obviously, we will have our backlog volume.
And then we'll just have to see what happens with the economy are you well, we'll take it quarter by quarter and will keep giving updates as they occur but January was better than what we expected and we'll just have to see how it plays out in the next two months and we will give you another update come our next call.
And can I ask a hydrogen question Youre building, the Pam electrolyze or in Luna.
And I assume some of that gets shoved into your pipeline network. How do you distinguish sales prices for green versus mingled hydrogen through that pipeline into your customer base.
Well I mean, we obviously anything coming off electrolyze or that volume that we're selling through the pipeline system to some existing chemical customers and we can identify those molecules that's not a problem. It's clearly at a at a premium a substantial premium.
And just while you're on that point talking about this project. This is kind of the Quintus quintessential industrial gas supply project, where we have multiple modes of supply and one targeted geography, which is in line.
So we have gas molecules going down the pipeline as we just discussed we have gas molecules that we'll be going into tube trailers to supply train stations to supply buses, where liquefy some of those molecules to distribute to trucking and general industry. So it really is a typical integrated supply system. It just happens to be around.
Green hydrogen this time and it's in a location, where we already have a strong presence to your point.
Terrific. Thanks, guys.
Thank you. Our next question comes from Nicola Tang from Exane BNP Paribas. Your line is open.
Hi, everyone. Thanks for taking my questions.
Well that's off a little bit about the black box look I think if I could easily you're flagging that I see about from like decline to 'twenty 'twenty, one just related to your capital cycle corrections, but you actually sound quite upbeat today thinking about the opportunities and if I look at your Capex guidance for 'twenty 'twenty, one it looks kind of flat versus 2020 sales.
I was wondering if you're actually seeing better project activity than you initially expected.
Or are you stepping up the base Capex, perhaps and then within the double digit EPS guidance could you kind of give us a scale of how much it's driven by new project startups.
And then sort of tagged on to this if I can squeeze it in.
Electronics again, it sounds like you're pretty upbeat there in terms of all pushing it to east.
Can I ask whether the current situation with the semiconductor chip, let's relax in.
Impacting you in any way with the plus 8% price and then the quota and also whether you think that this could drive an acceleration in your investments going forward.
Okay.
So backlog contribution two percents kind of I think the right number you should use kind of two on the top two on the bottom and that's really kind of been our ongoing rate we have a fairly strong capex startups a lineup of startups in 'twenty 'twenty, one and of course, it's during different times in Europe. So you don't get all the contributions in 2000.
21, you know they tend to roll over.
It's always difficult to talk about what you think a year end backlog number is going to be because it's really a function of you know what you've got in front of you that youre going to book and I certainly alluded to a very large project that we're looking forward to telling you more about in the not too distant future.
But you know what happens during the remainder of the year is kind of a function of a I'd say the pace of clean energy projects, maybe the pacing about electronics projects.
If demand comes back that generally provides projects for we see more project.
Activity more of our traditional industries like petrochemical and models, but that kind of we have to kind of wait and see you know there's not much going on obviously in that latter category at this point, it's more around electronics and clean energy. So the capex spend is pretty consistent again, you know we it doesn't move that much.
Unless the backlog really starts to drop in year over year over year, then you'd see that large project spend continued to drop the base Capex is more consistent.
There's lots of little growth opportunities inside of that I said, 36, 33 or 36 small on site that we booked.
'twenty 'twenty there we have a very strong focus on that we like those projects.
There's good opportunities in some of these markets that I'm, saying, Jim alluded to that we'll spend some capex against to capitalize on that growth.
So.
Yes, I do think stomach adoption from semiconductors will continue to be a very strong opportunity sanjeev talked about that in his comments as well.
It is how we work do they virtually it's the internet of things its chips that are going to go on everything, especially Ben and automobiles.
So you know semiconductor opportunity is going to be very strong we've been talking about this for two years, we're well positioned in places like South Korea, Taiwan, and China, which is really kind of the axis of where all the summit semiconductor Fabs had been build there is some new activity obviously the U S.
Trying to go more prime in terms of having a domestic semiconductor fabrication.
Okay.
Okay. Thank you and have your best day Logan.
Yeah.
Thank you. Our next question comes from David Begleiter from Deutsche Bank. Your line is open.
Thank you good morning.
Can you discuss how your refining and helium businesses have improved from a low.
The other pandemic.
Well.
I think in with with respect to helium I mean, it's down year over year.
We did see some sequential improvement from Q3 to Q4.
We'll kind of have to wait and see what what happens.
At this time in and coming out of January during the quarter, you know, but if you kind of look at some of the elements of that you know there's a significant piece. That's electronics, obviously, that's going to do well I think the industrial volumes will kind of move as the industry recovers.
Balloons are clearly down have been down we will continue to be down and I don't have to explain why.
And then there's a piece of it for US. That's also Todd MRI that looks kind of stable to maybe maybe slightly up so it looks to me like there's going to be sequential improvement.
Not at a rapid pace, but certainly sequential improvement on volumes going forward.
I would say in terms of refinery volumes of what I look at is is hydrogen.
Clearly in Q4 were down something like 7% or so.
Year over year, so up a little bit from Q3.
And you know starting off in January I'm looking at like January versus December and I'm, seeing plus 8% kind of numbers on volume. So they are starting to improve I think you know what the drivers are behind there in markets clearly jet fuels very weak still.
Diesel has been strong gasoline weaker.
And one would have to expect as as you get deeper into the year and Covid gets behind us, particularly in places like the U S that you would see hydrogen volumes improve.
It should improve considerably we also have some new project startups that will augment that.
And then if you get into like liquid hydrogen volumes, which aren't necessarily tied to refining boson piece might go into Biofuels, that's a pretty that's on a pretty positive trend itself.
So that's kind of the status of our volume to the refining industry is still down year over year, but starting to see some improvement I would expect that to improve could improve quite a bit in the back half of the year.
Very good and just lastly on share buybacks, you announced a new $5 billion program last month, how should be thinking about the level of buybacks in 2021.
David Yes. This is Matt I can answer that.
So as you saw we did $2 4 billion.
In 2020, and so we're going to continue to to the suite the excess cash that we have in and we'll be buying back will our expectation is we'll be in the market every day.
And then where we see opportunities we may go heavier that's kind of how we normally play that out but the $5 billion program and we had to put an expiration date on it as required for Europe. So we just put something out there and kind of July of 2023, but we will continue to execute and use our excess cash and will be in the market daily.
Thank you.
Thank you. Our next question comes from Peter Clark from Society Generale. Your line is open.
Yes, good afternoon, everyone anytime a day well then just a quick question for you Steve to begin with on the return on capital you say, obviously, the most important metric Europe I think out of the 300 basis points now at 13, 4%.
Go back 10 years ago practice I hit a peak of 47 any reason with the platform you have now with him in the plc why we don't see that continue to go up to that level and then non from us interesting announcements.
With Approx World is the U D listed you're talking about the opportunities here and I know, it's relatively small in the context at Linde the plc, but the operating margin that looks sort of mid teens level for a clear need within the market just one thing Youll force.
Within the complex if you do on efficiency and productivity.
So an example of what you can do in a business like that thank you.
Sure Peter Thanks for the questions.
Yes, you are correct I remember those numbers as well as you do I didn't have to go look at them to know what we what we at Praxair once operated which was pushing 15 per cent I don't see any reason why this business can't do that as well.
Continue to grow you know earnings kind of a double digit range that obviously does a lot to drive the top line and being very efficient in terms of how we allocate capital.
Below the line and we continue to get a little better at that all the time.
Continuing the best and good return projects, you know again actually no I'm not going to call. It somebody told me a long time ago, you give him a number or a day, but don't give them a number at a day.
So that goes back to my junior days, but you know I I don't know when what year that is going to be but that's something that's clearly on our sites.
<unk> 30 per cent of our long term incentive is tied to return on capital. So it has the highest weighting in our LTI. So I'm not the only one to think that's an important metric I think you know we have thousands of people asking saying Gee smiling that we all know it's the same Apple ops is just is an example of our our view in terms of portfolio.
So optimization.
I don't like joint ventures normally speaking I think.
Especially for traditional industrial gas businesses.
And this was the case this company had a public float so you could imagine the distractions that go with having a small business.
Country like that with a public float.
And so by essentially eliminating the public float buying all those shares and being able to run that country just like any other country that we operate around the globe. We can focus on all the things that we know are important which is making that business better every day.
Price management efficiency, and there's quite a bit of opportunity.
And continue to grow cash flow being very prudent with capital working capital safety compliance. It's the same list for every country.
So I'm pretty confident that we're going to see a pretty nice step up in that case.
But there are other examples of that to that clearly was on our target list of places that we want to.
I'll say season control. So we can run them the way, we think they should be run.
Got it thank you.
Thank you. Our next question comes from Jeff Zekauskas from Jpmorgan. Your line is open.
Thanks very much.
Your cost of goods sold was down year over year in the fourth quarter and your revenues were up I don't know a couple of hundred million dollars.
Can you explain that.
And secondly, when you look across your divisions.
Which is the division, which is the geographic area with the most margin opportunity from here going forward.
All of them.
[laughter] I'm going to.
I I think.
I really I think Asia, certainly has some opportunities I know Sanjay would agree with that he made a lot of progress in a very short period of time, but he would see more going forward I think in EMEA I mean, certainly a 25 per cent EBIT, probably surprised some people with the quality of that performance, but we have more work to do there.
And you know, we've really kind of just been getting into you know running EMEA or the way that we know in industrial gas companies should be run they've made.
Excellent strides and I'm very proud of everything they've done their own price management on efficiencies.
But theres more continuous improvement that can take place there and they know that too.
So you know, maybe Asia, and EMEA, a day or a little more opportunity than the Americas, but no. One gets a pass no one gets to declare a victory.
And we think there's opportunity everywhere and just like I said <unk> you know, there's a bunch of those scattered around.
That we can continue to improve.
David Sorry, Jeff This is Matt I can try and help on the Cogs One day.
It's gonna be a couple of things as you can imagine clearly with the synergies.
The fixed costs, we were able to get out early in most regions. The variable costs tend to take a little more program, sometimes they take some capital and as we've been evolving on that we've got a better stride there.
So as you know the engineering business.
Runs most things through Cogs and they had a margin expansion they were running better so through some of their absorption.
As they were more efficient on how they executed projects and completed projects that would also have an effect on that given they run through inventory and Cogs on a per cent completion.
So a little bit of mix, but also a lot of the effort around the world to just improve the efficiencies across our whole cost stack, not just fixed cost, but variable costs as well.
So this is an area that we're going to continue to focus on.
You know when it's part of our productivity programs, which is part of our DNA.
Great. Thank you so much.
Thank you. Our next question comes from Duffy Fischer from Barclays. Your line is open.
Yes, good morning, guys and congrats on the good quarter.
First question is just around the healthcare business, obviously last year was very volatile within health care, you know a lot of COVID-19 stuff, but a lot of other stuff that didn't happen in hospitals. So I was wondering if you could just walk us through what was the impact of health care on the volume price numbers for the Americas and for Europe, where it's sizable.
And then just a follow on when Covid fund that gets put back in the bottle.
Is there going to be a speed bump there where things are going to decline for a little bit before they can start growing again.
While while batch looking up that number I'll I'll kind of give some.
He has it but I'll just give some commentary on that.
You know clearly we had to ramp up a lot of health care capabilities around the world to fight Covid.
Unfortunately, that's not going to be behind us for a while.
I think we can we can see you can look at the pace of vaccinations in the advance of these.
New variants that I think it's very possible that these variants are going to outpace the world's ability to vaccinate the population and therefore, they're gonna be consuming a lot of option well well into 'twenty 'twenty, one and we might be talking about this again and this time in 2022.
So I don't think this is going away anytime soon.
You you correctly pointed out that while we're providing more oxygen to fight COVID-19 that there are people that are not having elective surgeries. They didn't go into hospitals hospitals are focused obviously on fighting this primary virus and so theres not as much oxygen that's being sold for more of the elective type or more of the non.
More of the traditional types of.
Activities.
I think.
Post COVID-19.
Obviously, the latter will come back I do think that our businesses like Lincare have clearly demonstrated to the government and large managed care operators. How important it is to have a very strong capable with a wide breadth of capabilities services nurses clinicians.
A whole works that can step in and be a very strong second line of defense for four hospitals and so I.
I I think in terms of pandemic preparedness going forward I think we're in a new world now with respect to our relationship with the government I feel very confident about that.
And so I think that's going to be a positive. So that's a I guess a silver lining if you will of this COVID-19. It gave us a chance to demonstrate what we could do on our homecare basis not just abroad.
Hospital basis, but you know it.
It might be this time next year before it really talking about a world after COVID-19 and of course as oxygen sub subsides, maybe to five specifically COVID-19 than the manufacturing side of the business. The industrial side of the business there'll be more volume is going that way I mean, I can talk about auction being up quite a bit I can also look at Argonne still being down.
And quite a bit.
Manufacturing has not come back yet and so you know there are trade offs obviously.
Yes.
Great. Thanks, and then maybe just one on cash flow.
You hit on a lot of it but you know EBITDA up $500 million roughly in the year op cash up $1 3 billion, how should we think about the ratio of our cash to EBITDA going forward.
Duffy Yeah, I can answer that so we've said.
Low eighty's, obviously, we've been doing better than that we finished mid eighties here. This year, we still did have in 'twenty 'twenty roughly a quarter of a billion dollars of cash related to merger outflows.
You recall about a year ago, we said, we expect that number to kind of declined down to about 202 hundred 50 million. So I think we were pretty close on that looking into 2021, maybe it will be 100 to 200 million and they'll start to just phase out.
By the end of next year or end of this year 2021, so I still and gunning for low Eighty's and we obviously internally we wanted to do better than that and we'd like to try and maintain these mid eighty's, where we can but in the 80 per cent houses, where we want to be in and obviously, there's seasonality patterns as you know to our cash flow Q fours are higher Q1.
<unk> tend to be lower.
But this is something we look to grind higher and improve on year on year out.
Great. Thanks Bill.
Thanks.
Thank you. Our next question comes from Vincent Andrews from Morgan Stanley. Your line is open.
Thank you and good morning, everyone maybe.
Maybe just to start off with you mentioned drove Sanjiv mentioned the renewable diesel opportunity I think that's what you're speaking about when you speak about.
Biofuel, how do you.
How do you think about that I presume, that's more of a merchant opportunities and it onsite opportunity, but I'm just thinking about that business being very reliant on government subsidy. So how do you think about servicing that industry and customer base.
Yeah.
Thanks Vince.
So let me kind of just elaborate on the point I made earlier on which is that we see.
Developing opportunity around the Biofuels, we see.
Some some regulatory pressure, there, which is kind of driving the demand.
Therefore, we see interest in kind of growing that piece now we don't see that as a merchant opportunity, we see that as an onsite opportunity. The hydrogen requirements are reasonably substantial we're looking at a number of projects at the moment, where we are working with folks who are looking at developing that flow to us. So we see that interest in the market we see the demand.
Coming through we see the interest.
Driven from from a couple of different governments, who are kind of providing some sponsorship for that governmental agencies that are providing sponsor for that in the U S. In particular, and we see that as an area where more hydrogen is needed because the process itself requires greater hydro processing and hydro treated.
Okay and as a follow up could we just get an update on the.
The trends in hard goods versus <unk>.
Packaged gas sales in the U S.
Yes al.
I'll take that.
If we look at the fourth quarter.
It's a flat to probably slightly up year over year on packaged gases in the United in the U S and.
So we kind of got back to to normal gas is a little stronger than hard goods.
In Q4 as I look at our January coming out of the blocks.
The trend is stronger so gas.
Gases looks in pretty good shape and and hard goods is.
It's still slightly negative at this point, but gasoline looks.
Stronger than what I saw in Q4, so what drives that agriculture is doing well automotive's had been strong.
Apparently a lot of people are buying a recreational vehicles, maybe some of you on the phone or buying them too.
And specialty gases continues to be strong.
Okay. Thanks very much.
Thank you. Our next question comes from Steve Byrne from Bank of America. Your line is open.
Sure.
Yes. Thank you.
I got to believe that you are among the largest electricity consumers.
That you operate in and I suspect that gives you significant negotiating power for Reed's.
In one of your slides you mentioned more than a third of the energy as low carbon.
Can you comment on you know the pricing that you're getting on that versus carbon based.
Energy sources and made me more broadly do you see this as giving you an advantage in green hydrogen like for example, this is.
24 megawatt electrical lines are that you're going to build in line with Germany.
I can only imagine the the the contract that youre going to get on the on the power or the electricity at just two to drive that electrolyze or has to be significantly different than any of ITM were we're bidding on a job on their own yep.
I think that that's a good point in that project specifically, there's two ways you can buy a power you can buy it off the grid and you can use your green certificates as part of.
This is all part of the renewable energy directive something like that I don't remember the name exactly.
And then also we can negotiate directly with.
With the utilities, which we have been doing.
I feel I feel very confident with where we're going to come out the way, we think about renewable energy. Obviously, we are a large user which gives us some advantages and being able to combine that to make.
Green hydrogen or may green hydrogen by using renewable power source in terms of just what you can get off the grid through electrolysis I think is important to being able to being able to produce and sell.
100% carbon free.
Hydrogen.
The pricing that we see I mean, we have a fairly sophisticated group of people because again, we buy a lot. We buy I think it's $3 billion last year, a power around the world. So we buy a lot of power, we're pretty sophisticated in terms of how we negotiate contracts.
What I've seen it's been on par with what we would normally get and so we're not looking to sacrifice economics to claim we have a higher percent renewable we want to accomplish both.
And I think we're up to 37% renewable now I think we were at 34. So 33, you made a couple of years ago. So we're making some progress the goal was to double the original number.
And if I remember right, that's like going from a $1 billion of renewable power purchases to about two.
So it is something that that we're focused on here and it's you know obviously if the ultimate goal is to peak carbon neutral by some date. Then then obviously true by either proactively contracted renewable power or just countries naturally green their grids, it's going to be an important part of how we ultimately get there.
And Steve you're a couple of years and then with this merger.
You mentioned productivity as a margin driver in all three segments.
Where would you say you are in you know what inning are you win in this vision that you you had about where this merger could get in terms of the structure and to improve the productivity of the of the merged entity where would you say you were at in that process.
Steve I'm going to jump in here because as sanjiv.
Just to give you.
A quick flavor of that and I'm going to try and cover that from two different aspects. So I think.
Stephen and I spend a lot of time talking about this this is something that we see are deeply embedded in our business. As I've described this previously on previous conversations we've had and the earnings flow thing I see the fact that we've got productivity and changed in the business at a level, where we've got to generate in different countries.
Hundreds of projects to make sure that they are actually delivering on a continuous basis and I think you heard Steve say this before every day, we look at our business as we kind of figure out how we can be better than we were yesterday. So it is a continuous program is something that's deeply entrenched in the business, it's something that embedded in the DNA of people who work.
In our business and we look at it every day it isn't a program that we run is something that we live and breathe. So that's kind of the cultural aspect of productivity if you like in Europe.
I can ask you later on but I feel that ETE agrees with my view that we've made substantial progress on this journey.
He was new to half the organization, if you will but the way they've embraced it and kind of move forward with it has been has been very very encouraging I'm going to give you a different slant on productivity as well one of the things that we drive that is sustainable productivity productivity that helps our <unk>.
Sustainability targets and ensuring that we're contributing to those goals that we set up and we do that through making sure. We've got sustainability initiatives again within the business on efficiency on energy management on managing emissions et cetera, which all of which is to contribute not just to the bottom line, which is very important for me, but also in fact.
The sustainability goals that we've set up as well and again I see theres a lot more work to be done, but we're really off to a great start in that space. So.
And I think we are well on our.
We on this journey.
Obviously, we can see a lot of.
A lot of benefit to handle it if you continue to keep the pace and momentum on this.
Just one more point to add to that saying you've covered a beautifully.
If you go back and look at.
Again <unk> history, if you go back and look at that 25 year history.
We grew earnings per share double digits over that 25 year times brand and that's through recessions is true we growth periods as through energy crisis commodity bust I mean, you name all of that and.
And we were able to do it not not because volume was just tremendously Shaw for 35 years. It was a factor, but clearly good price management and strong productivity and that's so we have we have a track record of knowing how to do this and the fact that we have now have a much larger organization that hasn't been at it quite so long.
<unk> is very encouraging.
I am very pleased and very proud of what really the whole organization has done in terms of grabbing onto productivity, but it's not a three year five year 10 year 25 year thing, it's something that you would do for the rest of your life.
Thank you.
Thank you. Our next question comes from P. J <unk> from Citi. Your line is open.
Yes. Thank you.
Steve You know on these calls you said before that green hydrogen costs are high and they need to come down by 50% to be competitive.
Your 24 megawatt sort of green hydrogen project in Louisiana.
What is the sensitivity of that project to price of Green hydrogen, which is likely to fall in the coming years and how do you plan for that for a project like that.
Well.
Obviously this project that it met our return criteria I mean, the cost are higher why because renewable power costs are still relatively high around the world they need to come down as we scale up so I'm kind of looking at as you get into bigger projects. So that's a factor and you know.
This is a relatively large Pam as I said is the largest one announced 24 megawatts.
So this is not where it's going to be 10 years from now in terms of cost. It's at kind of the early days in terms of producing projects of this size of the capex costs are higher the opex cost are higher so we know cost need to come down both of the whole electrolysis process, but also in the renewable power.
Renewable powers as a significant factor that so those costs are going to come down.
We clearly receive subsidies in this project in fact, most of these projects we do receive subsidies. So that clearly helps with these projects and thats probably important till the costs do come down so that green hydrogen and can't be competitive I'd say on its own.
With gray hydrogen, though there's always going to be some gap, but I think closing that gap is very important and obviously a carbon price says it's assigned to carbon molecules in the future will will help do that but this project works. Obviously you know we have negotiations that had been completed before we ever.
Made the announcement, so we know that the prices work, but theres certainly our sensitivities around the market price on all the non contracted piece like there would be with any merchant liquid.
Business and there are sensitivities around the input side on renewable power and we took very conservative assumptions going into this thinking that we probably were going to end up with a better a better deal that would help us.
When we finally conclude the power negotiation so.
That's how I'd answer that.
But you're right I've said, 50% is probably 60%.
Are we closer to the true okay.
Thank you and just a quick long term question on refining you know.
But I think he is on the wall. If you see announcements in California, what GM said recently.
Diesel and gasoline demand is going to go down.
By 2030 2035, so what is the future of the hydrogen business I'm, Ken those plants will be repurposed into making green hydrogen or something else. Yeah. I mean, I think the answer to your question is yes, they can be repurposed.
And unlike perhaps other industries you got to keep in mind. They use a lot of hydrogen today, you know that but it's gray hydrogen.
So dropping in blue hydrogen, which I think would probably be a very good solution for them and even green. If you look at Texas, there's lots of renewable power.
There's obviously lots of natural gas you are depleted all Reza reservoir, so I think blue or green can be substituted for Greg I think it would be very helpful to the refineries if they if the costs come down to enable that so there is some ability to do that and I think that's going to happen I think.
You know longer term, it's kind of like probably you know other industries in the past that have been haven't they've seen their better growth days, perhaps I'm not the official spokesman on what happens in the refining industry, but but what I think is you take a place like the U S. Gulf Coast, which you have very strong large scale.
Very efficient refineries.
They can use you know the story they can use a heavier sweep feedstocks. They they're very complex refineries. They can produce the pulse white suite of transportation fuels. They are heavily integrated with the.
The petrochemical industry at large in the U S. Gulf Coast. So I happen to think that you know if if people think they're going to turn into a dinosaur they'll probably be the last dinosaurs walking around or going to be down in the U S Gulf coast.
Great. Thank you for the color.
Okay.
Thank you. Our next question comes from John Mcnulty from BMO capital markets. Your line is open.
Yeah. Thanks for taking my question, Steve You had mentioned in I guess your opening remarks that you had a couple of projects that it sounded like you were close to closing on the carbon capture side. I guess can you can you help us to understand if if with all the green talk we've actually reached a tipping point when it comes to carbon capture and if so I guess how are you thinking about sizing the.
Opportunity as you look out say over the next three to five years.
I mean, there are several projects we have in our in our sites.
That we are close to closing where we need the C. O two for commercial purposes. So the customer has an incentive with the cost of C. O. Two emissions going up are they have an incentive to.
Have us capture that carbon and we have a use for it in terms of commercial whether it's for greenhouses, whether it's for to make dry ice ph control carbon carbonation beverages. All of those are are uses up C. O. Two so we have specific projects.
I think certainly help with the economics, where you have an end market use for for the C O two.
We have several projects like that we have others that we have worked on working on with say coal fire utilities that are looking at carbon capture we obviously have solutions around we.
We have multiple solutions around carbon capture but it can be.
Post combustion it can be pre combustion.
And.
I think for some of those to move forward, particularly in a place like the United States you need a more defined cost of carbon of C. O two.
But I think.
When that happens and you have to think that this administration is very determined to make that happen you will see.
Some of these projects move forward I don't think it's going to be as large as I look at it today I could be wrong.
As perhaps the straight hydrogen opportunities, but they can be significant too.
Got it thanks for the thanks for the color on that and then I guess just one question on pricing. So when we look at the trends regionally it seems like at.
At least the ones that Youre reporting Asia doesn't seem to have quite as robust of a of a maybe a pricing dynamic and I guess. The question is is that a function of the business mix that you have where you have some of these huge electronics applications, where maybe there's not a lot of merchant or package product.
Or is it or is it really just more to more competitive dynamic in those regions I guess, how should we be thinking about that.
So let me, let me jump into the Sun Sanjiv here.
Let me kind of give you a little bit of color on that.
The market in Asia Pacific as you might imagine is quite varied and.
The largest market in there for US is obviously China.
So the dynamic around pricing that we see is twofold. One obviously, we have many large onsite project. So obviously from a portfolio perspective, the opportunity around the merchant side pricing impact that we can fully bring to ban is a little bit more limited than potentially some of the other segments, but more importantly, I think.
In a market like China, where we've got some significant end user customers, which is where we focus our interest in energy.
But.
We would use the distributor model as well as to make sure that we've got our plants running at optimal levels and in 2020 in particular that became quite important. So we wanted to make sure that Jon was fully utilized and when you do that then the pricing impact actually does get moderated down a little bit do you seem that happened in 2020.
Is an area of focus.
Just as I talked about productivity the other piece that stays pricing as an area of focus every day and the guys in China. In particular noted we are watching that very carefully we review that and every every month at the <unk>.
And they do have a bit of a tough time around that so there is a lot of action happening in the marketplace around that which hopefully will reflect in the quarters ahead.
Great. Thanks, very much for the color.
Thank you.
And our last question comes from Laurence Alexander from Jefferies. Your line is open.
Good morning, two questions. One is what you see as a reasonable timeline for <unk>.
Blending of hydrogen into natural gas pipelines.
For heating applications, becoming material for Lindsay in Europe, or the U S.
And secondly.
With respect to acquisitions and how you think about the boundaries for the business model.
If we think about that kind of a forays that you've done into adjacencies.
Our strategic assets for health care electronic chemicals coach at.
Theres been no where do you see kind of.
Logical extensions of the business model.
I mean for example, like remote monitoring of industrial boilers or.
Would you ever engaging.
Vertical integrations with total production of ammonia or methanol just how do you see the boundaries.
<unk> for what you would look at in terms of either acquisitions or flexing the business model a bit.
No.
I I think.
As I think about that question Laurence.
There are so many uses for our basic core products C O two oxygen.
A rare gases all of our products that they become new uses and we talk about C. O. Two for greenhouse gases and of course, you have this little thing called cannabis, which is a growing marketplace draw.
Dry ice for Biopharma dry ice to carry back you know drives has been around a long time.
So there we continue to find good uses and applications new uses and applications in markets that are growing if you look at commercial space.
We're selling hydrogen we're selling oxygen we are selling nitrogen for as rocket propellants they call. It and what is used depends on the rocket in the platform in the company. We also sell sell rare gases that are used in and I'll call. It satellite mobility. So.
A lot of new markets that are developing that that consume our basic gas isn't as far as you know I don't like to stray too far away from our I'll call. It our core knitting.
Our business model is pretty good and.
We think we are pretty good at executing this business model. So you know history has shown us that you never want to lose sight of your strength and we won't do that but certainly any any opportunity. That's developing that we think are at <unk>.
Lends itself to an industrial gas approach model approach, we will certainly pursue.
We all like growth here, it's certainly.
That's not a problem.
So in terms of acquisitions I think that will will be you'll be seeing a lot more we will be doing a lot in the packaged gas space I think we will do it in the health care space I think those are natural day caps kind of come and go you can look at the same day cap for five years and nothing moves forward. So that's more opportunistic in my mind.
As far as blending hydrogen into natural gas I mean that is the clear intention of this.
Partnership that we formed with Sam and Italy, which is the largest natural gas operator in Europe.
And they're very committed to blending hydrogen and with their natural gas I have to go back and look I think it's probably at the 10% level, but even that if you did that across the entire world is a very significant amount. There are some limitations because you've got to start changing out burner equipment on the other end.
Compression might change out compression, depending on how high of a mix you can get up the hydrogen and.
Certain kind of metallurgy you'd have to take a closer look at it as hydrogen grows but it is a it is something that I think is getting closer to fruition.
Thank you.
Thank you and that does conclude our question and answer session for today's conference I'd now like to turn the call back over to Juan <unk> for any closing remarks.
Crystal. Thank you and thanks, everyone for participating have a great rest of your day and if you need anything else feel free to reach out take care.
Okay, Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
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