Q2 2021 Air Products and Chemicals Inc Earnings Call
Please standby were about to begin.
Good morning, and welcome to the air products and chemicals second quarter earnings release Conference call. Today's conference is being recorded and second request of Air products. Please note that this presentation and the comments made on behalf of air products are subject to copyright by air products and all rights are reserved.
Beginning today's call is Mr. Simon Moore, Vice President of Investor Relations. Please go ahead Sir.
Thank you Rochelle and good.
Morning, everyone.
Welcome to air products second quarter 2021 earnings results teleconference.
This is Simon Moore, Vice President of Investor Relations corporate relations and sustainability I am pleased to be joined today by saying, Thank you Sami our chairman President and CEO.
Scott Crocco, our executive Vice President and Chief Financial Officer, and Sean Major our executive Vice President General Counsel and Secretary.
After our comments, we will be pleased to take your questions.
Our earnings release and the slides for this call are available on our website at air products Dotcom.
This discussion contains forward looking statements. Please refer to the forward looking statement disclosure that can be found in our earnings release and on slide number two.
In addition throughout today's discussion we will refer to various financial measures unless we specifically state otherwise when we refer to earnings per share EBITDA EBIT and margin the effective tax rate and our S. E. Both on a company wide and segment basis, we are referring to our adjusted non-GAAP financial measure.
And as adjusted earnings per share adjusted EBITDA, adjusted EBITDA margin adjusted effective tax rate and return on capital employed.
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 save me.
Thank you.
And good day to everyone.
We thank you for taking time from your very busy schedule to be on our call today.
Sure Scott.
I want to acknowledge that unite and extraordinary efforts of all of the talented committed and resilient people of air products and around the world.
They work hard every day to provide critical products and services to our customers.
Our people.
And solidarity and.
Determined and Bay and.
Maybe possible.
To achieve our 760 facilities.
And the board operating.
This unprecedented crisis.
And I want to particularly change our team worked through the very challenging severe winter storm and the U S Gulf Coast.
Our people.
Are the ones, who are making it possible.
For us to continue to deliver our near term business results.
And also.
Moving forward.
Develop.
And all three major world class projects.
Sure our growth and the future.
Our people are the bars, who make our higher pay for Sri and every day.
That is to help humanity more for ward and Anne.
Sustainable way and bring people together to help solve energy and environmental challenges.
Now please turn to slide number three.
As always.
<unk> is the most important focus for all of us at air products.
It is a motor and responsibility to keep our people safe.
And our goal will always be zero accidents and zero incidents.
Despite the challenging COVID-19 conditions.
And our team continues to focus on working safely.
And in and got strict protocols.
And protect themselves our customers and our communities.
I also want to emphasize that sustainability.
Is that he is at the core of our DNA and.
And it drives our growth opportunities.
And if you'll be issuing our annual sustainability report later this month and all.
Look forward to continuing this very important conversation with you.
Now please turn to slides four five and six.
You can again and see our goal.
Our management philosophy.
And our five point plan for moving forward.
These are the guiding principles that the photo every day.
And they.
Continue to guide us in the future.
Now please turn to slide number seven.
We remain committed.
Moving to delivering superior financial performance.
And as I said.
Our people also know they are supporting a higher purpose and the work they do every day.
Our industrial gas expertise in many areas is critical to the success of <unk>.
And as of industries.
And the scope and complexity of our Mega projects like why talented people.
A variety of skills and backgrounds from different parts of the world to work together as one team.
We are proud to bring people from diverse backgrounds and experiences together.
Right and develop innovative solutions for some of the most challenging energy and environmental.
<unk> and the award.
That is our highest purpose and it seems.
<unk> Pires, our team and drives us forward every day.
Now please turn to slide number eight.
Which highlights our gasification projects.
We are committed to our gasification and the strategy and.
Pursuing exciting projects around the world.
We continue to see countries and large companies.
Driving to convert.
Low value of feedstock into high value and.
<unk> products.
They have identified gasification as the best day.
To use abundant and low value of resources like coal pet Coke and refinery bottoms and a sustainable matter.
And we are and the best position to work with them and help them deliver a better more sustainable solutions that benefit their economies and their people.
Consistent with other strategy.
Yeah.
Pleased to have completed.
The acquisition of the remaining 50% sure about gasification technologies joint venture and China.
Note that this team will be 100% part of air products.
Confidence is food and make us even more successful to pursue and win new.
Gasification projects.
We do expect to announce additional regasification projects in the future.
Now specifically I would like to give you an update.
On the two large gasification projects, we try and have.
Discussed during our last two earnings calls.
Theirs.
Our $12 billion of acquisition.
And just adding gasify, it and power plant from Saudi Aramco.
We have continued to make significant progress.
Working with our partners and the lenders since our last update.
The team has worked hard to bring the project to the final stage of <unk>.
Financing.
Barring any unforeseen circumstances.
We expect this project to reach financial close in this fiscal year.
I also want to provide you an update on <unk>.
During our second quarter.
We continue to recognize and reduce monthly fee and there are interim agreement.
And our customers' plants are shut down.
But I am very pleased to announce that our customers.
Request that the startup of our facility.
And we are proceeding with the commissioning of our plan.
James our equipment has been idle for several quarters.
It will require a period of time to bring all four gagik buyers backhaul.
But for your information.
As of this morning.
Yeah first gasifier.
Plus online.
Making synthetic gas and.
Supplying.
Customer.
So we are encouraged by these day, but this development.
Now please turn to slide number nine.
Shows our EPS growth.
As you can see we have delivered greater than 10% annual.
EPS growth since 2014.
This city's presented by the recent external challenges.
This is a testament to the hard work of our people and.
And the stability of our business.
This year again, we expect to achieve nearly 10% EPS growth and challenging conditions.
And I did discuss our expectation for this year and more detail later in the call.
Now please turn to slide number 10.
And a reminder, that the share our earnings and.
And its growth that our investors.
Both our EPS and dividend.
That growth double digit since 2014.
While we continue to develop our exciting growth opportunities.
We have significant cash flow.
It supports our substantial dividend.
That's D have increased for the.
Last 39 consecutive years.
And finally slide number 11 shows our EBITDA margin.
As always my favorite slide.
And it shows that the margin is up over 1200 basis points since 2014.
Margin and margin is down slightly primarily due to the significantly higher energy pass through for natural gas.
It increases our sales, but it doesn't impact profits.
I'm very proud of our team, we delivered EBITDA margin over 37% for the quarter.
Despite the challenges of the pandemic and they've been there a storm that took effect in the U S Gulf Coast.
Now I would like to turn the call over to Mr. Scott Crocco our.
Executive Vice President and Chief Financial Officer to provide a financial review and Scott.
Thank you Sandy.
We continue to demonstrate the resilience of our company our business and most importantly, our people.
EPS increased despite the ongoing COVID-19 impact.
Lower earnings from the one.
And the extreme U S Gulf coast weather during the quarter.
Our business, which is about half onsite.
<unk> to deliver stable cash flow in spite of difficult conditions continuing around the world.
Now please turn to slide 12 for a brief discussion of our second quarter results.
Sales topped two and a half billion dollars up 13% compared to prior year, driven by strong prices higher energy pass through and favorable currencies.
Volume was flat.
And as the additions of new plants acquisitions and increased sales of equipment activities.
Offset by reduced Luann contributions COVID-19, and tax and the winter storm.
Prices were again up versus prior year with improvements in all three regions.
This is the 15th consecutive quarter of year over year pricing gains.
Overall prices were up 2% and total which represents a 5% increase for the merchant business.
COVID-19 continued to negatively impact our business.
We estimate the pandemic reduced overall sales by about 3% and EPS by about 10% to 15 cents.
The U S Gulf Coast Winter storm disrupted our customers.
Interfered with our operations and caused a sharp spike and local energy prices.
However, we were able to mitigate much of the negative impact through operational actions and contractual pass through to customers.
Our people worked tirelessly.
Overcoming these challenges during this time.
Restarting our plants quickly and restoring supply to our customers as they also recovered from the weather impacts.
I want to extend my sincere gratitude to our people for a job well done.
The adverse weather and addition to having a modest negative impact on sales and profits also reduced our margin.
Higher energy cost pass through primarily due to the storm decreased EBITDA margin by about 300 basis points this quarter.
As a reminder, this contractual pass through increase in sales, but not problems.
EBITDA of $934 million improved 5% and.
Favorable price currency and.
And equity affiliate income more than offset the negative impact of volume.
The winter storm and the U S and higher development costs.
Operating income was 2% 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.
Our oce was 320 basis points lower primarily due to the increase and the denominator from the additional $5 billion and debt.
Sequentially sales were up 5%, primarily driven by 4% higher energy cost pass through.
Price was up 1%, but volume was down 1% driven primarily by the lunar new year slowdown in Asia.
Now please turn to slide 13.
Our second quarter GAAP EPS was $2 13, which included two non-GAAP items.
A 12% gain on an exchange with a joint venture partner in Europe, and and <unk> loss from our facility closure.
Excluding the non-GAAP items in both periods, our second quarter adjusted EPS of $2 eight six was <unk> <unk> above last year. Despite the negative 10 to 15 and impact of COVID-19, 19, and lower and the wall and contribution.
Volume was unfavorable 19 cents.
The negative impacts of COVID-19, and one more than offset gains from the PBF acquisition as well as a number of small new plants, particularly in Asia.
Volume was flat and sales, but unfavorable in the EPS due to business mix.
It is important to recognize that as the 60% majority owner of the one joint venture and 100% of the negative impact from the one is included in this volume line because we consolidate the operating results.
However, this was partially offset by the positive impact reflected in the non controlling interest line is the net income shared by our partner is also reduced.
And in other words, the negative 19 volume overstates, the overall EPS impact to air products from the one.
Price and other variable costs contributed nine sets demonstrating the value we deliver to customer and includes the higher energy costs associated with the winter storm.
Cost was modestly unfavorable as we continue that new resources for future growth and incur additional development costs.
Currency and foreign exchange contributed <unk> <unk>.
Primarily due to appreciation of the Chinese RMB.
British pound and the South Korean won relative to the U S dollar.
Equity affiliate income added <unk> and strong underlying business results, while non controlling interest was also favorable <unk> and lower profits in our consolidated joint ventures, primarily one as I've mentioned previously.
Interest expense was <unk> <unk> unfavorable due to the costs associated with the additional $5 billion of debt.
The remaining four includes a favorable <unk> non operating income impact and a favorable once and impact from a lower tax rate.
The effective tax rate of 20% to 22% was 30 basis points lower than last year.
We still expect our effective tax rate to be around 20% to 21% and fiscal year 'twenty one.
Now please turn to slide 14.
The stability of our business allows us to continue to generate strong cash flow.
Over the last 12 months, we generated almost $2 6 billion of distributable cash flow.
Or about $11 60 per share.
From our EBITDA of almost $3 $7 billion, we paid interest taxes and maintenance capital.
Note that our maintenance capex and as a little higher than usual driven in part by spending on our new global headquarters.
From the distributable cash flow, we paid over 45% or almost $1 $2 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 enables us to continue to create shareholder value through increasing dividends and capital deployment.
Slide number 15 provides additional details from our capital deployment.
As I said last quarter Air products continues to have substantial investment capacity remaining and available to deploy into high return projects consistent with our strategy.
As you can see we expect about $18 billion of investment and 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.
Over $2 billion of investable cash flow between now and the end of FY 'twenty two.
And over $6 billion already spent.
Additionally, we anticipate generating more cash and borrowing capacity as projects come on stream and contribute to the growth and our results.
And some of the spending and our backlog extends beyond FY 'twenty two.
We expect to reframe this potential for you later this year.
We continue to focus on managing our debt balance to maintain our current targeted a two range.
With a few smaller new projects signed and some coming on stream, our total project and M&A commitments remained about $12 7 billion.
With about $10 5 billion remaining to spend on them.
So you can see we've already spent over 35% and.
And I've already committed 95% of the capacity and sugar.
Now to begin the review of our business segment results I'll turn the call back over to Stacy.
Thank you Scott.
Now please turn to slide number 16.
For our Asia results.
Sales increased 6% compared to last year.
Favorable currency and price.
More than offset the V chip volume.
I think all in all countries added, 1%, which represents a 3% increase for the merchant business.
This was the 16th consecutive quarter of year on year price improvement.
Sequentially price was also positive but rounded to zero.
Volumes are down 2%.
As higher merchant volumes I'd like to repeat higher merchant volumes and new plants, partially offset the impact of the wind being shut down.
Mitch and volume improvement.
In the region has been encouraging.
Particularly in light of the strong rebound.
And do you expect that lunar new year slowdown.
But the recovery is not consistent across all product lines.
Additionally, we brought on stream and number of new smaller plants that contributed to our results.
EBITDA was similar to last year.
Strong price and and and.
Favorable currency helped offset.
And the impact of lower volumes.
EBITDA margin of 46, 4%.
She ended up 30 basis points lower than last year, primarily due primarily due to lower volume driven and volume.
Sales and profit sales down sequentially.
And I'm merely due to lunar new year now I would like to turn the call back to Scott.
Talk about genetic causes of yourself and Scott.
Thank you Sandy please turn to slide 17 for a review of our Americas results.
Sales increased 13% compared to last year, and strong price and significantly higher energy pass through more than offset lower volumes.
Volume was down 6%, primarily due to the continuing negative impact of COVID-19.
And the winter storm and the U S Gulf Coast.
Although there are signs of overall economic improvements and the U S. The operating results for U S refineries remained low.
The winter storm this quarter and further reduced the demand for hydrogen and the Gulf Coast. In addition to pressuring the merchant products.
We have also seen some transitory contractual reduction and our hydrogen business recently and some refineries are reconfiguring their operations to produce renewable fuels.
However, such production will use hydrogen once the process is completed.
The uses of hydrogen from renewable fuel per unit is in fact, four to five times more than conventional fuel.
Price was again better across most major product lines.
The 3% increase for the region was equivalent to a 7% increase and the merchant business.
This is the 11th consecutive quarter of year on and your price improvement.
Higher energy pass through increased sales by 15%.
The higher energy prices through the rest of the quarter were exacerbated by the record high prices during the winter storm, which much of this contractually passed through to customers.
EBITDA reached nearly $450 million, a 6% increase over last year as better price higher equity affiliate income and the PBS acquisition more than offset the volume shortfall, including the adverse impact of the winter storm.
EBITDA margin declined 310 basis points.
Higher energy pass through which increased sales, but not profit reduced margin by 650 basis points.
In other words margins were up over 300 basis points, excluding the energy cost pass through impact.
Compared to last quarter America's volumes increased 2% following the holiday season and can.
<unk> and a gradual COVID-19 recovery.
Price also improved 1%.
EBITDA improved double digits sequentially supported by improved volume and lower maintenance and higher equity affiliate income.
EBITDA margin was almost flat sequentially, which included a negative 450 basis point impact from higher energy pass through.
Now I'd like to turn the call back over to Simon to discuss our other statements channel.
Thank you Scott now please turn to slide 18 for a review of our Europe, Middle East and Africa region and results.
Our EMEA team delivered another set of outstanding results this quarter.
Sales and EBITDA, both improved nearly 20% versus last year.
Volume plus price was up 7%.
As volume grew 5%, principally due to acquisitions and higher onsite volumes, which more than overcame the adverse impact of COVID-19, predominantly and our packaged gas business.
Price increase for the 13th consecutive quarter and was higher across most major product lines and subregions.
And 2% price gain for the region corresponds to a 3% improvement for the merchant business.
Currencies were favorable and 9% primarily due to the strong euro and British pound.
EBITDA jumped, 17% and nearly $220 million supported by favorable price and volume currencies and equity affiliate income.
EBITDA margin dipped 50 basis points, primarily due to a negative 100 basis point impact from higher energy cost pass through.
EBITDA was down 2% compared to last quarter, primarily due to seasonally lower equity affiliate income while margin decreased 220 basis points, including a 70 basis point negative impact from higher energy cost pass through.
Now please turn to slide 19, global gases, which includes our non LNG sale of equipment businesses as well as central costs.
Sales increased due to higher sales of equipment project activity, but profit was lower due to business mix and higher product development spending.
Please turn to slide 'twenty, corporate which includes LNG and other businesses as well as our corporate costs.
Sales were higher this quarter driven by increased project activities as we continue to execute and multiple large LNG and other projects.
Profit dipped slightly on higher corporate costs.
Now to provide some additional thoughts I'll turn the call back over to safety.
Thank you Simon now please go to slide number 21.
Unfortunately, as everybody knows the world continues to struggle with the COVID-19 pandemic.
With widespread vaccination that force some regions have been able to reduce the spread of the virus.
And while others are experiencing net increase in number of cases.
Against this backdrop.
And we take pride and ability to deliver consistent earnings and cash flow.
Our onsite business roughly half of our total sales.
Remained stable and off price continue to be strong.
We have also seen signs of improvement in merchant volumes.
As we look forward.
Although we are still see uncertainties ahead.
Our confidence and major economic economies around the world.
And is growing particularly in light of day, increasing pace of vaccination.
Therefore, we have resumed and providing EPS guidance this quarter.
As I mentioned earlier.
No one has asked us to restart our facilities.
And we expect jazz and to close during this fiscal year.
However, there remains some uncertainty to the exact timing of these events. Therefore, we are providing our EPS and capex guidance.
Excluding <unk>.
Kazan, and do and you get stuck.
And other boards.
At the start of the wind and the financial close of just and if.
And if they happen and within this fiscal year, they will be accretive to the guidance that I'm, giving.
Our quoted for quarter three of fiscal year 2021 hour.
Our earnings per share guidance is $2 and 30.
At $2.40 per share, which is up 14% to 19% over last year.
And the guidance for our fiscal year 2021 is $8 95 to $9.10.
729% over.
Last year.
We see our capex at approximately two and a half billions what issues.
Again, excluding Japan.
Meanwhile, we continue to execute.
All other projects, bringing them on the strength and finalizing agreements with our customers.
We are committed to the capital deployment strategy and to growing our pipeline of projects.
Please turn to slide number 22.
As always the success of our strategy.
Is rooted in the great team, we have at air products.
We believe strongly that our only sustainable long term competitive advantage.
Is the degree of commitment and motivation of our people.
The people who work hard every day to bring our strategy to life.
And I'm very proud to be working with this team.
Our deep commitment to sustainability.
Creates exciting growth opportunities driven by the energy transition to a lower carbon border.
Our gadget vacation cadbury capture and hydrogen growth platforms.
At the core of this transition.
In the past five years, our differentiated strategy and our core competencies and position air products to lead across these areas.
Now.
At this time, we are very pleased to answer any of your questions.
Thank you the question and answer session will be conducted electronically.
Would like to ask a question. Please press star followed by the day. One if you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment once again star one.
And our first question today will be from Kevin Mccarthy with vertical research partners. Please go ahead.
Good morning, <unk> wanted to get your updated thoughts on capital allocation. If you were to look out over the medium to longer term, let's say five years.
How would you expect to allocate capital among three buckets. The first one would be green hydrogen.
Gasification and a third traditional projects such as a S use and S M ours.
Yeah.
Well good morning, Kevin and thank.
Thank you for your question.
I see that.
We are focused on gasification.
Yeah.
And capture and hydrogen.
And obviously our <unk>.
And as my standard business.
We are we think that our underlying business.
This required and investment of approximately 500 to 700 $800 million, but all of these are smaller plants and generators and all of that to growth with the overall economy and the board.
And then in terms of the other three opportunities in terms of capital allocation.
I don't want to kind of prefer one over the other because it depends different parts of the world.
Obviously, we are not going to spend any money on significant gasification project.
And that some of the more developed a core gasification and for example, Europe or the U S. But there will be coal gasification projects in India, and Indonesia, and other and try and.
And cable and capture.
He is going to require a lot of capital and that will be very very prevalent.
And I foresee in Europe, and in the United States, specifically and.
And then obviously green hydrogen and.
Green hydrogen and Blue Hodges.
It will be all other divorce, so I would I would have the balance sheet and but since these are all megawatt projects.
For a year or two one of them might be higher than the other bond, but in the course of five to 10 years.
And you take all of the capital allocation I think that's our.
Most of the catheter and they'll go to carbon capture and hydrogen and then gasification.
Thank you for that and then.
Yes. Thanks, Thank you and secondly, if I may say fee you mentioned that some of your hydrogen customers are reconfiguring to produce renewable fuels.
How much of that do you expect to occur and and you know what.
What is the net benefit it sounds like.
The reconfigured refineries would consume a lot more hydrogen and so I'm just trying to get a sense of what that benefit could be to you over time.
But the benefit could actually and be very positive and the only caveat over here is that.
There is a lot of talk about this thing.
Is a lot of interest and it.
But you know I'm, a conservative person and I won't debate and see how many of these projects actually do materialize, but that.
I think.
Got nation and he was talking about the Americas the intensity of hydrogen.
<unk> per barrel of renewable diesel and Theres, just fair better ordinary diesel is almost 45 times. So it's easy.
Synergies and a major bay converted to renewable diesel demand for hydrogen it actually could go up.
But again I just don't want to get ahead of ourselves because there is a lot of.
Oh, but b and C. How many of these projects will actually materialize.
Thank you so much.
Thank you very much again.
And next I move to David Begleiter with Deutsche Bank.
Thank you good morning.
Good morning, David how are you now and well. Thank you safety just hundreds and once the financing is complete the project start up immediately and also How's your expected return on the project come down during the this period of discussion and negotiation.
Oh, you're talking about Japan, it yes, okay.
First of all.
If I may answer the second part of your question.
We had given some general guidance about the profitability of this project to the investors almost two years ago.
During the period of the negotiations and Sean that expectation is that still correct.
Secondly, the first part of your question.
Once we close on this thing.
The day, we close and next day.
We'll get a oh fixed fee.
And therefore, it should be accretive to our EPS.
Very good and just suddenly one day to day do you.
At the same level of earnings post this current restart as you had prior to the project going down and back I think last June.
And no I think we explained to you that the N V and renegotiated the contract.
Renegotiate it at that.
We have air structure for it if the plant is down but they get paid.
Structure for when the plant is up and running for it.
A period of time, and then we get back to full.
Yes.
Okay, and then for that.
The original contract.
So theres kind of three levels.
Thank you.
Thank you David.
And we'll move on to Vincent Andrews with Morgan Stanley.
Thank you and good morning.
Just wondering.
And I'm very well. Thank you I hope the same with you you mentioned that the purchase of the other 50% of the Chinese JV that you didn't own you made it sound like that was going to be sort of a trigger.
That would lead to the announcement of other gasification projects I'm. Just curious if you could elaborate on sort of what is the significance of owning that other 50% that therefore, maybe allows you to do some other projects.
And because then you don't have to consult and somebody else in terms of what we do and what we don't do.
And maybe because when you're at 50 50, and Joe Joint venture you have to Abbott consensus and you went to a different projects and different parts of the world and different people have different preferences, but then it is handed per cent or Denver and deciding on our own but they are going to do therefore, I think that is why I said that facilitate us in terms of getting additional products.
Thanks.
Okay, and if I could also ask you on the guidance for the back half of the year, maybe specific to the Americas.
Are you assuming any meaningful improvement.
And for your refinery customers and door for helium volumes.
Not particularly no neither on the other assuming that things would be the.
Approximately there might be some improvement but.
That is not the driver for the forecast.
They are taking a conservative approach there.
Very good thank you very much.
Thank you.
And we'll move on to Jeff Zekauskas with J P. Morgan.
Hi, good morning.
Good morning, Jeff.
Okay.
I was hoping you could clarify some of the dynamics and the Americas business.
And there was some kind of penalty from storm and.
And there was some order of magnitude benefit from the acquisitions that you've made.
If you look at the volume exclusive of the storm and the acquisitions what might have been during the quarter.
The volumes would have been down.
Yes.
We are extending to our hydrogen business jets right.
No I'm, referring to the consolidated volumes and the Americas that is what would they have been exclusive of acquisitions and exclusive of the store.
And I think our merchant business at.
Luxury and that business would have been kind of flat and.
And then on our hydrogen business would have been lower because as you know we have that some refineries to show the quantities, which was the question and shut down.
And then.
Out of the 100% volume some of the volume on the pipeline is not contracted long term. It is spot sales and the refineries considered and did a bit of operation being low and they have cut back on their spot sales so the hydrogen volumes without being low.
Especially on the golf course.
Okay.
The equity income and that division was $32 million and the quarter.
And maybe it was up $10 million year over year and $10 million sequentially why was the equity income so high and is that an unusual number.
And the equity income and show high Jeff because I explained at last time, because our equity affiliate, Inc. And in Americas is Mexico.
And Mexico, Unfortunately, because of COVID-19 the day.
And with oxygen.
Force phenomenon not just the way it is right now in India and debate is sport in Brazil, quite frankly that is why and how about competitors are having very good results because of that it's a very unfortunate situation, but I I mentioned last quarter that if you've already got that medical business right now and Mexico.
Jill India will make you and other money and we saw that benefit and our joint venture in Mexico.
Thank you so much.
Thank you.
Okay.
And we'll move on to Bob Court with Goldman Sachs.
Yes, good morning, it's Mike here sitting in for Bob.
Sorry, if I might go to Europe and good.
Good morning.
Our favorite slide number 11.
Notice that yes.
EBITDA margins have declined like three consecutive quarters.
And you seem to be gaining price so just channel.
And I'm trying to reconcile how you're gaining price losing margin. So how should I think about the margin going forward.
Well I think you true that you're on the right track and let's look at the causes number one the margin comes down and window and is shut down because one is a very very high margin business.
So that that that land by itself has a significant effect than it is now the second thing.
Is that it.
And then and.
Natural gas prices go up.
We ended up showing more sales because.
They are buying natural gas and then the customer reimburses us for that but it shows as higher sales.
But it doesn't affect the profit line.
Natural gas every dollar of natural gas going up effects, our sales by $350 million and media.
So it.
If natural gas prices continue to go up.
And our margins.
And for our hydrogen business looks lower because the profit doesn't change, but the sales go up. So those are the two effects that you need to think about true as we go forward if natural gas prices.
And come back to the levels day, there and go out and to starts up and Youre going to see our margins go up so I still feel very good about our margins and so you haven't seen a fundamental change and the profitability of our business.
Okay. Thanks for that color and just as a follow up and looking at Lou Ann.
When we think about commissioning is that a process that you would think about in terms of weeks or months and once that facility is back online and is there some type of a break in period that they have to run at reduced rates what can they ramp that Sylvia.
Fairly quick.
Well the thing is that you know the plan that has been shut down and you start DW and never know beach pumped books. They stepped from doesn't book, but as a nation and my comment.
As of this morning, they do have gone off the gadget price online so trying that product to our customers and I'm, hoping that the other three will come on the street and the next few months, we don't want to be too specific because of that.
And I'll be kind of stocked up and one Matt.
Can I have a failure and and then you have to re commission and I'll change the pump and all of that but overall, it's not going to take years.
Going to be a relatively short period of time.
Okay. Thank you.
Thank you.
And next we'll hear from John Mcnulty.
Multi with BMO capital markets.
Yeah. Thanks for taking my question and safety.
Good morning, and how are you doing these days good good yeah, and hopefully you are as well.
So I guess, a little bit of a follow up on Laura and I. You know this year has obviously been a lumpy year with it with the kind of not getting paid full out like the contract being.
Rejiggered, a little bit well, while it was down I guess is there a way to think about.
And how.
The total payout in fiscal 'twenty, one versus fiscal 'twenty, two will look out in terms of overall earnings contribution.
This growth 21, which is the one beauty and right now.
Fiscal 'twenty two right yes.
The charges next year.
But this year I mean.
Haven't made a lot of money and do and because in fact, the plant has been shut down for six months and now they are stuck and get up.
So I think that fiscal year 'twenty, two will be significantly better than 'twenty, one barring any.
Plant breakdown or anything.
Okay. So it should be back to kind of the 25 contribution or something and that range is that the right way to think about it.
I don't want I don't want to confirm that because it depends on how much we run and all of that but John.
The biggest issue over here.
Plus the fact that people thought that gasification is that the price that would be shut down forever.
And we always said that's not the case, we always said that this is due to changing management and so on and that has proven to be correct. So the fact is that the customer wants the plant's running the plant.
And that is viable it is going to produce products and know how much you saw profitability in 'twenty two I'm sure it's better than 'twenty, one, but it also depends on how big of Iran, and the plans and how many times you can keep the keep the gadget pies on the stream and all of that so I don't want to give you a definite prediction, obviously, they're going to give you a much more accurate prediction in October.
And to give you a.
Guidance for 2022.
Got it fair enough and then maybe just as a follow up you spoke to merchant business starting to pick up and seeing signs of the macro kind of having some pull there can you speak to what that means for for bidding activity around either the gasification side or some other traditional onsite business and you're starting to see increases and bidding activity or.
Demand and interest from from kind of the larger scale customers at this point and and how should we think about that and in terms of filling up the backlog and contract announcement as we look through the rest of this year.
John the demand for those kind of projects never slowed down during the COVID-19. It continue to be very strong. It continues to be a steady and strong and we are optimistic about are very optimistic about the deployment targets. Scott mentioned that you have almost 95% deliberate.
Two years in advance and we are very bullish on that do you see a lot of very large projects.
They are working on and Nokia and doors.
Their fruit as we go forward.
Got it thanks very much for the color.
Thank you John.
And we'll move on to Mike Harrison with Seaport Global Securities.
Hi, good morning.
Good morning, Mike how are you.
Doing well thanks Sophie.
Wanted to ask you about the Asia business. It sounds like you saw a strong recovery following the typical lunar new year shutdowns.
And I believe you said that markets are recovering at different rates or maybe that the recovery and it's been a little bit uneven. So can you give us a little bit more color on what you saw in Asia coming out of lunar new year.
Yeah.
That's a very good question and actually.
What I said was that the.
We saw a very strong recovery.
In China and other places after the lunar new year.
The thing that I said is that the recovery is not even across all product lines.
That specifically means that our <unk> business is coming on and strong our outbound business is coming is strong but that is not necessarily true about our helium business.
And that part of the board and that is because.
Yeah.
Some of our.
And because we have that.
As you know we are holding very true to our pricing strategy.
And as a result and might be losing some market share there.
Alright, and then within the electronics market.
It seems like that is set up to see very strong demand over the next couple of years.
But as I look at the on site facilities that youre going to be starting up in the coming years really just looks like the Samsung plant in Korea.
Can you talk about your activity within the electronics market and whether there are some additional on site opportunities that maybe arent listed there on that slide or that.
You plan to our books over the coming months or years.
The demand for electronics, and electronics onsite business for sure and high high purity nitrogen and very strong.
Participating in that you have borne and a lot of contract some of that we cannot announce because the customer doesn't want to announce it because they want to keep their plants.
And it kind of confidential, but we are not losing any market share in that area.
And do you have the propriety products, which are actually very competitive and we remain very bullish and that is.
Alright, Thank you very much.
Thank you.
And next we'll hear from Mike Sison with Wells Fargo.
Hey, guys good morning.
Hi, good morning, how are you.
And I was looking at your capital deployment scorecard and going back a couple of years and and.
And yes that that remaining to be spent is cash goes up every year, which is good and it shows that you are growing the business obviously, but.
What do you think we start to see that come down meeting that you have more meaningful projects coming in and.
And did you envision and that it actually gets to zero at some point.
So we're talking about our capital expenditure.
Yeah, the remaining to be spent line item.
That is going to grow my friend, it's not going to come down.
We're going to continue and eager to invest heavily for the next 10 15 years, because the opportunities are huge power.
Our financial capacity is there and.
We are not going to be buying shares maybe and maintain our dividend and increase it but we are not going to waste our money buying shares we are going to invest in heidrick and projects, which there are plenty of them for us and what we will do is that in and a few months, we're going to give you a plan for the next five years.
Used to say that we did in 2018.
In 2018, and he said between 18 and 23 do you need to spend about 15 billion, you're already ahead of that and yeah and a few months with you and give you a plan for 2024, a 10 year plan 2018 to 2028.
Got it and don't ask that question.
Yeah.
Right.
Yeah, and I understand.
Just I understand for 2022.
It's early to give specific guidance, but.
Do you think investors should be adding Suzanne and a lot back to their 22 out of 2022 outlook, particularly as he looked at the value of the company going forward.
Well, if everything goes fine and Orlando.
And thirdly successfully being and brand online and besides all of the final contracts and fat.
Finish the financing 2020 two will be a good year, because they're just an underlying and they'll be there compared to this year.
Got it I think it's a bad assumption.
And.
And we'll move on to Duffy Fisher with Barclays.
Yes, good morning Fellows.
Good morning.
Just a question last weekend and Wall Street Journal had an article talking about delays at the greater New home project and I get that your project can be separate from the city itself, but just wanted to see if you guys are seeing any of those types of delays as you're moving forward.
Kind of where are you with purchasing long lead time equipment and when will we start to see that capital from Neil I'm actually rolling through your cash flow and your balance sheet.
First of all I don't want to make any comment about that you get and the home project because I don't know enough about it and that's not.
Something that we are involved.
And one thing that I can confirm is that our project.
Has nothing to do with it.
And the city is delayed or built or not it doesn't affect our project at all and via our self contained.
Moving to prepare cat and Deere.
And anything out on waters, we are going to produce our own power and.
And so we are totally self contained so that that any kind of an and.
Any issues with the city will not affect our approach.
And in terms of our project, we have placed orders for some other long tail items.
And we are making progress.
And in terms of cash flow. It is already spending money on that project right now.
Great. Thanks, and then maybe if we could jump to helium.
And I know there is notionally from new capacity coming online, but it seems like demand for helium is picking up strongly can you walk us through how you would view kind of the next one to three years, just supply demand and the helium market globally.
But that's one.
Thank you.
And you know and the number of sources of helium and all of that.
The biggest question about supply demand and helium.
It's not a secret it is what is going to happen to the project that the Russia and he's doing the so called and motor project.
That project did produce a lot of helio than it is online.
The issue is when is it going to be on line is it going to be 2000 Ah.
And end of 2021 to 2022 and 2023 at what rate that is in Siberia, and all of that so I don't want to make any predictions on that but.
That is the only other major project that is underway.
Great. Thank you guys.
Thank you.
And next we'll hear from John Roberts with UBS.
Thank you you mentioned, some temporary hydrogen headwinds and as those refiners reconfigured to biodiesel do the hydrogen contracts allow for suspension of volume if they have extended downtime to reconfigure.
Good morning, John.
Yeah.
No it does not allow for that.
Our contracts are true.
Take or pay.
So while tea products.
Contemplate different teams that doesn't affect our contracts Chuck.
Okay and then.
Could you give us a very short and quick update and the other three gasification projects do tie to Bang and Indonesia.
They are on schedule and on plan.
Okay. That's good.
Thank you.
Thank you.
And we'll move on to Steve Byrne with Bank of America.
Yes. Thank you.
I found your response to Kevin's all the capital allocation question interesting, where you highlighted carbon capture as being potentially the largest bucket and I wanted to just drill into that a little bit would you say that is potentially the largest because.
The interest in it.
From from customers that see it as a way to meet some carbon reduction target and a relatively inexpensive.
Inexpensive way.
Or would you say that you have something to bring its really somewhat differentiated in this and the capacity of either your technology or your access to these <unk>.
The other two rich streams coming out of the <unk> that you could you could target.
And.
Just anything that you might have to add on that perspective of any limitations to where you can sequester the C O two.
Well. Thank you for the question and also thank you for providing that should cause.
And you kind of that and answered the question by saying that the audit and their unique position, we are operating and the largest carbon capture facility and the world right now operational we have been running it for several years the captured a million tons a year of C. O. Two from there some of ours and they'd be at and Port Arthur.
So we know how to do this thing secondly is that you have many many <unk> S M and all that without C. O. Two therefore and C. O. Two is there that can be captured the other thing is the fact that there is significant focus on this because by capturing C. O two and you can make blue hydrogen and.
And therefore, the transition to the hydrogen economy can happen very quickly using hydrocarbons and.
And a lot of people are very interested and that people who make hydrocarbons are very interested in finding good day to produce hydrogen and capture the carbon and say here's the hydrogen and she is.
Almost is not as good as green hydrogen, but it is hydrogen with significantly reduced carbon footprint.
So that is why I am I think that there will be and other big investments in that area and we are very well positioned and.
With that our core competency with the plants that you have and at the board to be a major player on that that'd be tend to be a major player and that our goal is very simple gasification and put ourselves in a position that we are the majors.
The leading company for gasification and.
And you guys and vacation project and the project in the World probably air products and we'll do that the plan to be the lead it and blue hydrogen.
Which means and see what to capture and be plan to be the leader and green hydrogen, which you're already at the plant that you're building and Neil.
And and safety and just one on your and your.
You're all look for the fuel cell buses you've talked about this tour of U S cities and I just wanted to get your view on whether that opportunity is potentially more attractive and the U S. Because the cities and start with with green hydrogen bets.
Relatively less expensive than if it were sourced from natural gas and Europe at three times the price.
Is it the attraction starting grid.
Where do you see longer term the fuel cell buses in regions like Europe is potentially larger and that the.
Green hydrogen could be more comparably called comparably cost.
Price relative to gray.
But you are raising and excellent question. The issue is that in terms of the economics, you would expect that the U S and be ahead of Europe because of the cheap natural gas that you can convert and and all of that that you can capture the carbon and have blue hydrogen and all of that but then there is the fundamental element of the governor.
Interest and but we are finding out is that the governments in Europe, a lot more committed to green hydrogen.
And really committed to green hydrogen and not Blue day bonds Green and as a result, I think our hydrogen business.
Green hydrogen business, the biggest potential will be and Europe, rather than in the U S or any other parts of the world. That's the way. It is developing right now, but things can change and government policies can change I mean, if and the United States all of these states or at least the majority of the states.
Adopt the S. CFS plan that California has put in place.
And then you're going to see a boom in terms of hydrogen in the U S. But I don't know whether that happens or if that happens.
And but in Europe, we see that and then in Japan. They are going with the idea of taking a blue ammonium and putting and get into their power plants to reduce their carbon footprint and so there's different parts of the other doing different things, but you are delineating and gives a very logical economic thing, but and on top of that you have to put it.
Lay out of the bed the government pressure these and I think for a project like the one the biggest potential.
And market would probably be Europe.
Okay. Thank you.
Thank you.
And next we'll hear from Marc Bianchi with Cowen.
Thank you.
First question relates to the guidance.
Just wanted to confirm how you are handling the COVID-19 impact that 10 to 15 cents that you cited for the past two quarters from.
The remainder of the year.
Well, we are expecting that the COVID-19 impact would be.
A little bit less in the U S because of the vaccination.
And and improvement in Europe, because of the vaccination, and then and China and the rest of the rest of Asia that the COVID-19 impact is not significant anyway.
Sure.
Kind of can see theres, some improvement and because of COVID-19 impact.
But it's still having in mind that there will be shocked.
Yes.
Great. Thanks for that and then I wanted to follow up on on the carbon capture.
It would appear that you.
And you responded to the earlier question discussing blue hydrogen, but it would appear there's quite an opportunity for stacking. Some of these carbon capture credits for renewable diesel and obviously theres a higher hydrogen content there that you mentioned.
Why aren't we seeing that occur right now you mentioned and Theres a lot of talk about projects that maybe things arent happening and I am curious what bottlenecks might exist and if that involves perhaps some takeaway capacity for <unk> that maybe needs to be built by someone else before those can move forward.
But let me just focus on making sure I understood your question correctly.
You were saying how come these are renewable diesel projects are not happening faster.
I think the main reason is that right now.
The only place that it makes sense to sell renewable diesel and Ste.
They'll be profitable is in California.
The people I mean valero when they are producing this thing and Texas. They don't sell it and takes us they sell it and California, because if they sell it and Texas they lose money.
Adjusted cost of the raw materials for making renewable diesel is.
Probably two and a half $3 a gallon.
So.
And so right now everybody is making teams.
And to go to California, and sell it and California.
And therefore people are sitting down and and saying how many how many how much capacity does California hat.
If you add all of these renewable diesels and four or five years and 8% of these are sold in California, other renewal Denver Dude.
People need to get themselves comfortable that this policy got cash.
Fortinet has and will be picked up by Oregon, and Colorado, and New York and all of that which I think it will be but until it is done I think you're not going to see a significant growth on this thing because people are going to say well how am I going to that and what was once you sell it.
Hum.
And just following on to the other part of the question related to carbon capture opportunity is there a bit of a chicken and egg problem there were.
The infrastructure and might not be and place to take the captured carbon to wherever it is gonna be stored are sequestered.
And how do you see the market sorting that out.
But you are very right. Because then people are talking about captured and cap.
If we can capture cabinet for you any day anywhere there is a plan, which puts out C O two out of and ASMR or chemicals unit, we know how to capture that.
That's the easy part the question is that what do you do once you have captured it.
You need to have a place to see question.
And the biggest question is that there is it possible to sequestration. There is it possible that there is enough space to do that that is the biggest that that is the major question.
And that will come into play in terms of how many of these projects can you do there can be done and all day.
Yeah.
Thank you very much David.
Thank you.
And well move on to Stephen Richardson with Evercore ISI.
Hi, Good morning, just want to come back quickly on why and if you might I just want to confirm what we're hearing this morning, which is that.
When you are fully through commissioning and when you're running the before gas fires and I. Appreciate this products run at a very very high utilization rate historically, but safety is what you are saying that.
And whenever you hit that run rate will be contribution be substantially similar from the way and that's what it's been historically, meaning there hasnt been any change to the commercial terms or the economics from air products perspective.
Well that is that the question that I tried to and I said before that when we renegotiate that Oh reconsider.
Yeah.
And the arrangements with you and.
And I don't want to go through all of the details because the customer doesn't want us to disclose that and he said that they have come up with three stages one is.
When the plant is shutdown what Davita GAAP.
The second thing is that when the plant is up on stream.
What did he kept put assistant periods of time and then we go back to the original contract.
Do not want to represent to you that if the comps on a stream and that percentage in 2020 true we will make as much money to 'twenty five cent as we did in 2019, it will be less than that how much less than that I cannot disclose it.
But there is a there is a period of time.
And have agreed to reduce our fee.
And to help the customer and then you could buy.
And then the overall return on the project is just as good if not better because the customer and has agreed to extend the term of the contract which means that our return on capital for the length of the contract is still intact.
Okay. Thank you yeah, that's clear thank you and.
And follow up safety, if I, if I may I mean, you've been through obviously a lot of conversations over the last two to three quarters, both on design and Luann and it's clearly taken a lot of the markets focus I was wondering if you could maybe just talk a little bit about lessons learned about how youll talk about projects going forward.
The the way and what you are thinking about products and the backlog and kind of the best way to communicate these variability, which and which will come up from time to time with the market and your investors going forward.
Well the one lesson that I have been all my life.
And it's not yesterday is that you always need to tell people the truth.
And at the time that you are talking to them.
And therefore, maybe overdid it maybe it causes that and.
Could have been handled differently, but I believe you had the rights day in November of 2000 and at 'twenty I was very concerned about the land and I was very concerned about.
And and I told the investors now.
Now I did explain to them put the caveat and then there's some people didn't and listened to us that look I don't think these are this is what I know right now, but this doesn't mean the standard of the world. This doesn't mean that it's the end of gasification and it doesn't mean that we're not going to do just that but some people took it like that and all the stock got hit by $50.
But quite honestly, if I had to do it again.
Always tell the investors what we know at the time that you were talking to you and.
This should be transparent, but I think maybe we can do a better job.
We can always do a better job, maybe if you can do a better job and putting it in the right context, not to kind of create pad, but one other thing that I am sure. The investors appreciate is that as we go forward.
All of these big projects and so on these kind of things is normal and that it happens it's just.
And Mike.
And the question the customers and to the investors is please just don't panic I mean.
And they tell you what it is and.
And you know.
And and make a judgment based on the facts that are then suddenly and other people who have always been saying that gasification doesn't book and that'd be say land and shut down and they said look.
I told yourselves. This is that this is the end of it nothing else is going to GAAP and these guys are going to the wrong track, but again as I said, we would always tell you exactly what we know at the time to talk to you.
Thank you.
Thank you Sir.
And we have significantly over time can we say this is the last question. Please yes. There are no further do you have another question.
At this time no other.
And that's the right time to and this well I just like to again, thank everybody for being on our call and listening to our presentation.
We sincerely appreciate your interest and we look forward to discussing our results with you again next quarter and and as I said earlier.
Stay safe and healthy and all the best take care and thank you.
And that will conclude today's call. We thank you for your participation.
Yeah.
Okay.
Yeah.
Okay.
Okay.
Yeah.
Yeah.
[music].
And.
Yes.
And.
Yes.
[music].
Yeah.