Q4 2021 Air Products and Chemicals Inc Earnings Call

Good morning, and welcome to your Air Products' fourth quarter earnings release Conference call. Today's call is being recorded at the request of Air products. Please note that this presentation and the comments made on behalf of air products are subject to copyright by air products and all rights are reserved beginning today's call.

<unk> is Mr. Simon Moore.

Thank you Christina good morning, everyone welcome to Air Products' fourth 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 say if he gets Sami our chairman President and CEO, Dr. Samir, Sir Horn, our Chief operating Officer, Melissa Schaefer, our senior Vice President and Chief Financial Officer, and Sean Major our executive Vice President General Counsel and Secretary.

After our comments, we'll be pleased to take your questions.

Our earnings release and the slides for this call are available on our website at air products Dot com.

This discussion contains forward looking statements. Please refer to the forward looking statement disclosure that can be found in our earnings release and on slide number two.

In addition throughout today's discussion we will refer to various financial measures.

Unless we specifically state otherwise when we refer to earnings per share EBITDA EBITDA margin the effective tax rate in <unk>, both on a company wide and segment basis, we are referring to our adjusted non-GAAP financial measures adjusted earnings per share adjusted EBITDA adjusted EBITDA margin adjusted effects.

The tax rate and adjusted return on capital employed.

Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our website in the relevant earnings release section.

Now I'm pleased to turn the call over to safety.

Thank you Simon and good day to everyone.

Thank you for taking time from your very busy schedule to be on our call today.

Before we discuss the results I would like to say that despite the best known global challenges.

In 'twenty, and 'twenty and 2021.

They are talented committed and motivated people of air products.

Demonstrated resilience and resolve.

Delivered excellent results.

In addition.

Two new to execute our growth strategy.

I want to tank every one of our employees.

Standing together working hard.

Delivering for our customers and shareholders.

Now please turn to slide number three.

There you can see some of our key highlights for this year.

We deliver.

Strong EPS this year achieving 11%.

Compounded annual growth.

Since fiscal year 2014.

And we increased the dividend for the 39th consecutive year.

You bet again recognized by procedures raters and organizations towards I'll, just standing sustainability performance.

Including one we just announced this week.

Cobalt is for the fifth year in a row.

Our growth strategy and sustainability strategy are one and the same.

To that end, we probably completed after the acquisition and project financing transaction.

For the $12 billion Jun Zhang joint venture with our uncle Aqua power and air products could drop as we announced last week.

In conjunction with the government of Canada, and the province of Alberta.

We announced the new net zero hydrogen energy complex.

In Edmonton, Alberta, Canada.

This water scale energy complex.

I'll begin with a transformative 1 billion net zero hydrogen production and be quick action Concinnity expected on stream in 2024.

And just a few weeks ago.

Announced the four and a half billion dollar board crash clean energy complex.

In Louisiana.

Air products.

Oh and all three.

Megawatt project.

Produce over 750 million standard cubic feet per day of Heidrick blue hydrogen.

Local and global markets by 2026.

We will also capture and 10 minutes D. C question there.

5 million metric tons per year of carbon dioxide.

Can get the largest category capture for sequestration facility in the world.

By combining our core strengths and competencies.

Successfully develop execute and operate these larger scale gasification carbon capture and hydrogen projects.

Address the significant energy and environmental needs of the world.

This is fully aligned with our highest purpose as a company.

Now please turn to slide number four.

As always safety is the most important focus for all of us at air products.

Our goal with all these D to achieve zero accidents and incidents.

Despite the challenging COVID-19 conditions this year.

Team continues to focus on bookings safely.

Following strict protocols.

To help protect.

Our own employees, our customers and our communities.

We are pleased with the focus by the team that improved our safety performance in fiscal year 'twenty, we bought them with us.

Yes.

Slide number five six and seven.

Which we have shared with you many times before.

Cool.

I'll go home all of our management philosophy, and our five point strategic plan.

These are the principles that we follow every day and gave you continue to guide us in the future.

Now please turn to slide number eight.

As you speak.

Leaders are gathered in Glasgow to work on closing the gap.

Dean climate aspirations and climate action.

We are actively engaged in this rapidly evolving global dialogue.

I am committed to.

Ensuring that air products is best positioned.

To deliver on behalf of all of ours.

Stakeholders through this critical period of energy transition.

We believe a successful energy transition.

Likewise.

Successful development and execution of larger scale megawatt projects.

Without that the drop cannot be done.

The scope and complexity of these projects require talented people with a variety of skills and backgrounds from different parts of their board to work together as one team.

This is the highest purpose of our company.

So you can overcome divorced significant energy and environmental sustainability challenges.

Our focus and United people.

Working together.

Provide real solutions for our customers.

Now please turn to slide number nine.

As I have said before.

We believe that hydrogen is one of the energy sources of the future along with electricity.

We are scaling hydrogen production and developing a structure infrastructure.

Sure this successful adoption as a sustainable fuel.

Hydrogen will be the sustainable fuel of the future.

Our customers come to us to deliver this hydrogen.

Produced in a highly efficient manner.

Meanwhile, we are making significant investments.

And new facilities to produce low carbon and carbon free hydrogen made from hydrocarbons.

By executing on new clean hydrogen projects in all their time in Louisiana.

D D D.

Neither in blue hydrogen.

As well as.

Green hydrogen.

As we continue to execute.

Green hydrogen project in the Kingdom of Saudi Arabia.

Now with that background I'm happy.

Happy to return the call over to doctors and their stay at home.

<unk> operating officer to talk about our major projects.

Uh huh.

Thank you Stephanie.

Now please turn to slide 10, which highlights our key growth projects.

We are committed to our growth strategy and continue to execute and pursue exciting projects around the world.

In June we announced the award of the scale of $1 billion net zero hydrogen project in Alberta, Canada.

With the strong support of the Canadian federal and local governments.

This project will use natural gas to make net zero hydrogen.

Which has the same zero carbon footprint is it green hydrogen made from renewable energy.

95% over the Q2, resulting from our net zero project.

B betterment sequestered.

And the remaining 5% will be offset by exporting of clean electricity produced by the clean hydrogen.

The project provides a roadmap for the hydrocarbon based economies to significantly reduce the C O two emissions.

Just a few weeks ago, we had gone out of joining the governor of Louisiana State officials.

Do I announced our water scale for <unk> 5 billion dollar Blue hydrogen project.

This will also be the world's largest government and fewer to sequestration operation.

This project will provide a clean hydrogen to our customers along our 700 mile U S Gulf coast hydrogen pipeline system.

And also produce the blue ammonia targeting heavy transport around the world.

The pipeline will be able to carry a variety of carbon intensity hydrogen, including gray and blue.

These two projects will use advanced gasification technologies available to air products to produce a clean hydrogen while using hydrocarbon feedstock in a sustainable way.

What's the projects also combined in one project the three pillars of our growth strategy gasification.

Carbon capture.

On hydrogen.

We have made good progress on our <unk> project and we expect the facility to be on stream in fiscal year 'twenty three.

We also expect that the buying a project on stream in fiscal year 'twenty three.

Successful execution of the Gulf Coast Ammonia project continues with steel construction on air Products' largest single train 175 million standard cubic feet per.

Third day of hydrogen steam methane reformer.

Well as the related 90 million standard cubic feet per day of nitrogen issue facility.

And related utilities.

When instruction is also progressing well on the 30 mile hydrogen.

By Blind network expansion to our world's largest hydrogen pipeline network.

The project Onstream as schedule remain agile originally planned for the first half of fiscal year 'twenty three.

What forging ahead in Indonesia, and making good progress. Despite some challenges that you have COVID-19.

We expect to complete this project and 25.

For NIM.

As you can see in the picture on the slide we are laying the groundwork for the project, but a betting the land and doing detailed engineering what are even more excited now about this project since our announcement last year.

We're forecasting to export the zero carbon hydrogen in the form of ammonia and a 2026.

In addition to our Mega projects are a product has also continued to make significant investments in our small and mid sized onside generators.

Our regional industrial gases business.

With fiscal year, 'twenty, one being a record year for investment in this category.

These onsite at plants, which typically have a project investment values from half a million to 50 million U S. Dollar cover a range of technologies from a prism hydrogen generator, Brazil oxygen V. S C.

Vacuum swing absorption on our small and mid sized but yes.

Yes.

Specifically fiscal year 'twenty, one was a record year for investments in our present oxygen V. I see a product line within your projects in North America, Europe, India, China, and South Korea.

But predominantly supplying several major glass manufacturers around the world.

The oxygen via assays are frequently integrated with EDA products Oxy fuel burner technology.

Which help reduce emissions.

Wide fuel savings improve productivity and deliver operational savings for the customer.

Now I am pleased to turn the call back to safety.

Thank you Dr. Han.

Please turn to slide number 11.

As we shared with you last week, we along with our joint venture partners completed the asset acquisition and project financing transaction of the towards the air separation unit gasification and power joint venture beat our uncle Aqua power and air products could draw.

And Saudi Arabia.

Making a significant milestone after years of hard work by our people.

As bill.

As our customers and partners.

The project return is expected to be better than we originally envisioned.

As we said last week, we expect pay has gone up the project to contribute an annual run rate of 80 to 85 cents of earnings per share.

Starting as of last week.

The project is expected to contribute about $1 55 to $1 40 for the first 10 years. After the first phase II closes.

Now please turn to slide number 12.

It shows our EPS growth.

We remain vigilant and motivated to deliver excellent financial results.

Consistent.

All of this strategy.

As you can see you have delivered 11% annual EPS growth on average since 2014.

While laying a strong foundation for our future growth.

The excellent results and key milestones we have achieved this year are just at the beginning of our journey delivering gasification carbon capture and hydrogen solutions through the war.

I am very optimistic about our company's prospects.

Completing schwartz.

Participating in a very meaningful bay in the energy transition.

Now please turn to slide number 13.

I was just reminded me share our earnings growth directly with our investors.

Our EPS and dividend.

Have grown by double digits since 2014.

We are committed to deliver increased dividend.

While we continue to execute our growth opportunities.

We have significant cash flow that supports our substantial dividend.

And as you know we have increased that now for the 13 ninth consecutive year.

And finally slide number 14 as always my favorite slide.

Shows that our EBITDA margins are up 1100 basis points since 2014.

Our margin is.

He's down in recent quarters.

Impacted by higher energy pass through Cushing.

Which increases our sales, but it doesn't impact coffees.

Two two of the margin decline from a peak margin is due to the impact of.

And as you pass through.

But.

I don't I do want to stress that we are determined and focused on improving our margins back to Iran, 40% right.

By increasing prices.

Other significant increases in energy costs.

And by improving productivity.

Now I'm happy to turn the call over to Melissa Schaefer.

Our senior Vice President and Chief financial.

Financial Officer.

To discuss our results in more detail Melissa.

Thank you Stacey.

We have made great strides executing our growth strategy. This year, completing multiple projects and winning exciting new project.

At the same time, we continued to focus our base business and deliver excellent results for the quarter and the year. We grew our EPS, 8%. This year, so far coming face external challenges and absorbing the cost of additional resources needed to support our growth strategy.

Distributable cash flow remained strong at $2 7 billion. Furthermore.

Large scale projects currently under development, well substantially add to our earnings once they bring them on stream.

I sure Stacy conviction that for air products.

Indeed, yes take time.

This is a testament to the hard work and commitment that the people of air products and I too want to thank them.

Now please turn to slide 15 for more details on our full year results.

Sales grew 17% to more than $10 billion, tying them together again, 7%.

The 5% volume growth was primarily driven by EMEA and global gases segment.

Although the adverse impact from the pandemic has eased through the year.

Had a negative impact on FY 'twenty one.

Price improved every quarter in all three regions and across most major product lines.

Overall pricing increased 2% and our merchant price was up 5%.

EBITDA was up 7% approaching $4 billion did you say about price currency and activate it equity affiliate income.

Which was partially offset by higher costs.

EBITDA margin declined 330 basis points of which 200 basis points are attribute to higher energy pass through which increases sales, but negatively impacted margin.

Oh see like 160 basis points lower increase in the denominator from our additional $5 billion.

<unk> raised last year.

Our S T E by about 300 basis points.

Adjusting for the cash on our balance sheet, our LTE would be 14, 2%.

We expect Iot to improve as we deploy the cash and bring projects on stream.

Now please turn to slide 16 for a discussion of full year EPS.

Our full year adjusted EPS from continuing operations.

64 cents or 8%.

Price net of variable costs was again strong.

Favorable 34 said the fourth consecutive year of double digit EPS net price improvement.

Volume was flat at acquisition, new plant merchant recovery and higher sale of equipment activity were offset by lower contribution from Lillian.

Different business mix cause volume to have a positive impact on sales, but minimal impact on profit.

Our costs by 46% unfavorable primarily due to the addition of resources to support our future growth and higher plant maintenance cost.

Let's see let's say about 35%.

Primarily driven by the Chinese RMB Euro British pound and South Korean ban.

Our equity affiliate.

Also had strong underlying businesses, all adding 23 cents with several joint ventures reporting stronger medical oxygen sales.

Non operating income.

16th favorable primarily due to lower pension expense.

Interest expense of 12, that's favorable.

5 billion of debt to support our future growth project.

Our effective tax rate of 18, 9% was roughly equal to last year, and we expect an effective tax rate of 19% to 20% in FY 'twenty to 'twenty two.

Now please turn to slide 17 for a brief discussion on our fourth quarter results.

Compared to last year sales increased 22% more than $2 $8 billion.

Priced energy pass through and currency were all up.

Volume increased 9% as strong hydrogen and merchant demand and new assets more than offset reduced the land contribution.

Prices were up again with improvement in all three regions. This is the 17th consecutive quarter of year over year price gains.

Those are all prices are up 3% until at all like equal at a 6% increase for the merchant business.

We experienced significantly higher energy costs in our merchant business. This quarter the situation is particularly challenging in EMEA.

Due to the extremely high natural gas and electricity costs.

Our onsite business about half of our total company sales has contractual protection from energy cost fluctuation.

We are actively executing additional price actions across product lines trade cover the higher entry costs impacting our merchant business.

EBITDA climbed 11% exceeding $1 billion mark at favorable volume price currency and equity affiliate income more than offset higher costs.

EBITDA margin declined 380 basis points, primarily due to higher energy pass through which negatively impacted margin by about 300 basis points.

<unk> sales were up 9% supported by 5% stronger volume and 1% higher pace.

EBITDA grew 7% sequentially.

Volume price and equity affiliate income more than offset higher energy costs.

Now please turn to slide 18.

Our fourth quarter adjusted EPS was $2 51.

At 32 said were 15% above last year.

Volume was favorable in 19th century.

Price net of variable costs contributed forced them at that price increases exceeded variable cost inflation driven by higher power costs.

Like the prior few quarters I plan to add resources and strengthen our organization to support growth has increased our costs. We also saw higher costs due to disruptions across our supply chain and all three regions.

Currency and foreign exchange contributed 6%.

Primarily due to the Chinese RMB and British pound.

Equity affiliate income added nine cents on strong underlying business results.

The four cents of non operating income.

Primarily driven by lower pension expense.

The effective tax rate of 18, 1% was 130 basis points higher than last year due to the last year's higher share based compensation benefits and a tax benefit associated with the P. B S acquisition.

Now please turn to slide 19.

As to the ability of our business allows us to continue to generate strong cash flow.

Over the last 12 months.

I know you did about $2 7 billion of distributable cash flow or almost 12% to $12 per share.

From an EBITDA of about $3 9 billion, we paid interest taxes and maintenance capital.

Note that our maintenance capital is a little higher than usual driven in part by spending on our new global headquarters, which is essentially now complete.

From the distributable cash flow, we paid 45 cents or about $1 $3 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 time enabled us to continue to create shareholder value.

Increasing dividends and capital deployment.

Slide number 20 provides an update of our capital deployment.

As we discussed last quarter, we've extended our time horizon. Another five years to fiscal 'twenty 27, we.

We see tremendous project opportunities beyond 2022, and the investment potential far exceeding the original capacity of $15 billion.

Based on this updated view, we see our capital deployment potential reaching approximately $34 billion through fiscal 'twenty 'twenty seven.

$34 billion includes roughly $10 billion of cash and additional debt capacity available today, almost $17 billion, we expect to be available by 2027 and about $7 billion already back.

We still believe this figure is conservative given the potential for additional EBITDA growth will generate additional cash flow and therefore additional borrowing capacity.

We will continue to focus on managing our debt balance to maintain our current targeted a two rating.

So you can see we have already spent 21% and have already committed 67%.

At the updated capacity we show here.

I should note that this is as of September 30th that does not reflect the closing of the Japan phase one but does include the Louisiana project.

Before I turn it the call back to Stacey I would like to share with you that we plan to reorganize our reporting segments, starting in Q1 of FY 'twenty two.

EMEA segment will be separated into your Europe, and Middle East and India segment to reflect the addition of a significant just Dan Patrick and the Middle East segment and to provide more visibility for our geographic region.

In addition, our global gases and corporate segment will be combined we will provide historical re segmented financial information before the year end now.

Now to begin the review of our business segment results I'll turn the call back over to Stacy.

Thank you very much Melissa.

Now please turn to slide number 21.

But our Asia results.

Sales increased 6% compared to last year.

On 5% favorable currencies and 1% positive.

Price increase the 18th consecutive quarter of year on year price improvement in this region.

Volumes were flat with new plans, mostly outside of China offsetting the lower contribution.

Regarding <unk> there is no change.

For the.

The previous updates that we have given you.

The plant continues to operate at full capacity.

The coal shortage in China.

As I said last quarter, and there's an interim supply agreement.

Recognizing that reduce fees to fiscal year 'twenty two.

For BC 10 through the <unk> in 2023.

This quarter China's effort to reduce energy usage.

And intensity so do work the so-called duo control had a modest adverse effect on our results.

If you do some merchant customers demand.

Cause I, usually they did disruptions in operations.

We continue to monitor this developing situation very closely.

In the long term Bill we do see positive growth opportunities as China continues to focus on reducing its carbon intensity.

EBITDA for this region grew 3% supported by say the big currencies and price.

Cost compares unfavourably, primarily due to a higher than it would be very of the energy cost.

And the resources needed to support project start ups.

Timing of China government incentives last year.

And the disruption.

All right.

Our control policy to reduce energy consumption.

Sequentially EBITDA margins, there's nowhere as higher costs more than offset that their volumes prices up but rounded to zero.

Now I would like to turn the call over to Dr. Han to talk to you about and then of course the results. So I'll just say huh.

Thank you Stacey.

Now please turn to slide 22 for a review of our Americas results.

Sales increased more than 20% versus last year.

EBITDA posted another double digit gain.

Volume grew 3%, primarily due to battle hydrogen and motion demand.

Although harrington either interrupted our U S Gulf Coast operations this quarter.

Our team worked very hard to limit the impact to our business.

While most of our merchant products have returned to pre COVID-19 levels.

Our hydrogen volume has increased.

It has not yet fully recovered.

Demand for jet fuel, which consumes more hydrogen on a unit basis compared to gasoline is still lagging.

Also the industry continue to use more light sweet crude which requires less hydrogen.

We are confident.

In the long term growth.

<unk> demand, particularly in the U S Gulf Coast.

Price for the quarter was again strong.

4% gain for the region was equivalent to 10% on the motion business.

Rice was better across all major products.

This is the 13th consecutive quarter.

Year on year price improvement.

Energy cost basket throw drove a 15% sales increase with the much higher natural gas prices.

EBITDA was 16% ahead of last year.

As positive volume price out of it.

The affiliate income.

Lower maintenance costs more than offset higher inflation.

EBITDA margin was 230 basis points lower.

However, energy costs, especially through negatively impacted EBITDA margin by approximately 500 basis points.

In other words.

EBITDA margin would have been significantly up excluding energy pass it through.

Sequentially.

Energy pass thru drove margin 250 basis points lower.

Now I would like to turn the call back over to Simon to discuss our other segments Simon.

Dr. Scher Huh now please turn to slide 23 for a review of our Europe Middle East and Africa region results.

Our EMEA team delivered another set of outstanding results. This quarter sales jumped 33% versus last year and EBITDA was up 14% volume was strong increasing 14% driven primarily by improved hydrogen and merchant demand and new assets.

Our liquid bulk.

<unk> recovered from the pandemic, but packaged gases and hydrogen are still below pre COVID-19 levels.

Price increase for the 15th consecutive quarter and was higher across most major product lines and subregions.

4% price game for the region corresponds to a 6% improvement for the merchant business.

Consistent with what most consumers and businesses are experiencing our European business faced unprecedented energy cost escalation this quarter.

Supply chain related interruptions further exacerbated a difficult situation.

Our team has done an excellent job COVID-19 coping with these challenges executing pricing actions and keeping our customers supplied.

As Melissa said, our onsite contracts allow us to pass through the higher energy costs.

For our merchant business, we continue to work hard to recover the recent cost increases through additional pricing actions already underway.

Currencies were favorable 3%, primarily due to the strong British pound versus the us dollar.

Yeah.

EBITDA was up 14% to about $230 million, primarily due to the strong volume, while better price equity affiliate income and favorable currencies offset most of the energy cost increase.

EBITDA margin was down 560 basis points with higher energy pass through responsible for about 400 basis points.

The remaining roughly 150 basis point reduction was mainly attributable to unfavorable cost partially offset by favorable equity affiliate income and better volume.

Compared to prior quarter sales climbed 8%, primarily due to pass through while positive price and volume were offset by unfavorable currencies.

Operating income was 3% below last quarter as the positive price and volume were more than offset by higher costs.

Meanwhile, EBITDA was 8% higher due to the inclusion of positive equity affiliate income.

And as Melissa mentioned, we will separate the current M. A S segment into two segments, Europe, and Middle East and India, starting next quarter.

Now please turn to slide 24, global gases, which includes our non LNG sale of equipment businesses as well as central costs.

Sales and profit were up on higher project activities.

We continue to add resources to support project development.

Please turn to slide 25, corporate which includes LNG and other businesses as well as our corporate costs.

Corporate segment sales were higher this quarter driven by increased project activities as we continue to execute multiple large LNG and other projects, but profit was lower on higher corporate costs.

Sequentially sales and profits were better than last quarter.

Again, as Melissa said, we will combine global and corporate starting next quarter.

Now to provide closing comments I will turn the call back over to safety.

Thank you very much Simon.

Air products continues to deliver consistent results.

<unk> significant ongoing challenges in the world.

Our volumes price and profit all grew in 2021.

Overcoming the pandemic the storms supply chain disruption and rising.

Costs globally.

I truly believe that we have become.

Even a stronger company and fully expect to deliver significant earnings growth as the economies around the world recovers and our projects come on stream.

Now please turn to slide number 26.

For fiscal year 2022.

Our earnings per share guidance is $10 20 to $10 40.

15% to 15% over last year.

For quarter, one of fiscal year 'twenty two.

Earnings per share guidance is $2 45 to $2 55.

16% to 20% over last year and these include about two months of the phase one of the <unk> project.

We see our capex.

Five and a half to $5 billion.

And it's.

Fiscal year, 'twenty, two including approximately one and a half billion of phase one of the design projects.

Now please turn to slide number 27.

We are confident.

That the security all the employment compensation.

<unk> provided to our employees during this difficult and then the period.

Positions us very well and very strongly for the future.

We demonstrated that to our people that support them in times of difficulty.

We are committed to this approach since the only sustainable.

Long term converted competitive advantage of any company is the degree of commitment and motivation of the people in the enterprise.

The strong results and significant milestones to be achieved this year.

<unk> talked about continued growth.

As I said before air products is support is supported by and supportive of divorce focus on sustainability.

Our customers choose our products because they know.

We can help them meet their sustainability goals and we continue to innovate so that we can be a partner on their sustainability journey for the future.

The board's environmental and sustainability challenges are immersed in minutes.

Yeah huge issues that need to be address.

And our growth strategy, which is focused on gasification CASM capture and hydrogen.

He is designed specifically to address this critical needs.

We know that our continued success depends on the ex expertise dedication and commitment of our talented people around the world.

And.

The consistent thing.

Adding resources around the world in order to position office property.

To meet the growth demands and the execution of the projects that we have undertaken.

Rising to the energy challenges that first phase hard work today.

We are committed to.

Having a diverse workforce.

Significant I think development of applications and they got project expertise and collaborative spirit within our companies.

I believe part of air products is uniquely positioned.

Help the buckboard transition to a cleaner and better future.

It's embedded future it'd be believing and in which we have already you're totally missed it now we are pleased to answer any questions that you have.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.

Take our first question from David Begleiter with Deutsche Bank.

Thank you good morning.

See if you had to come off.

Good morning. Thank you you've got a couple of delays in your projects most notably the in Indonesia by roughly a year can you just talk about why those projects being pushed out by a year.

And.

David.

We didn't call them delays I mean, these aren't mega projects and then.

When we announced them to give you our best judgment about when they come on the stream, but all of these projects need to be told me that he need government approvals and all of that so each time, the other calls and give you our latest.

Estimate of what we can see these projects can come on the stream. So right now our best estimate for these projects are they said we have given you.

If that they can move them forward, we'd be telling you the there's.

Sure.

As you know because.

As I said the other day.

Cannot forecast everything because we are dependent on getting significant damage for a lot of these projects.

Understood and just on the Capex increase extras and can you just talk about the pieces of that $5 million to build all increase how much is maybe alberto how much is Louisiana et cetera. Thank you.

Well all data in Louisiana are not going to consume a huge amount of capital next year, but it is also related to the projects that Doctor said Han mentioned I.

I mean people focus on our Mega projects and obviously, we are delighted to talk about it.

But don't forget you still have the base business, which is very resilient and we are doing many many many projects actually as I've. Just said Han mentioned last year was a record year.

For our small and mid sized projects.

We are getting our fair share of the market on those projects they are going to be executed and David required capex.

Thank you very much.

Thank you very much needed.

Yeah.

Our next question from John Mcnulty with BMO.

Yes, thanks for taking my question.

So CV with with the huge spike in energy prices that you saw over in Europe, and I imagine, maybe even a little bit in Asia as well I guess can you speak to how quickly you can offset it with regard to prices is something where look you automatically kind of immediately put it all in or is it something that has to ease in over the next few quarters.

I guess, how should we be thinking about that.

Yeah.

Hey, good morning, John and.

John as you know very well do you have two parts to our business.

On the on sites they immediately go in.

Does that that that's just pass through.

Our merchant sides in packaged gases business.

Some of it has clauses, but there are a lot of it don't have clauses.

And therefore, we need to go and increase prices and invoiced to customers and convince them that energy prices have gone down <unk> gone up and then there is a competitive environment. Some people try to use this as an excuse to get market share and all of that so we need we need work to do.

But budd has compounded at issue in terms of being able to recover them fast enough.

The rate of energy increases.

Energy increases you do forecast these things, but what happened in Europe in the month of August and September, but it's something that it was impossible to forecast the teams would go up 200%.

So as a result, we are lagging in terms of price increases in our Michigan business, especially in Europe.

<unk> is doing a fantastic job they did a great job in September and October, but there's more work to be done so it will be delayed about a quarter maybe.

Got it so a quarter to kind of kind of catch up on that okay.

And then I guess when when thinking about your margin target, where you expect to get the margins back up to kind of that 40% range give or take you know admitting that the rest of it really is more energy pass through and doesn't doesn't isn't really a reflection of the business I guess can you speak to the timing of when you think you can get there or is it something where we can kind of get to see.

See the margins.

Approaching that that type of a level by the end of 2022 is it going to take longer than that I guess and what are some of the measures that you that you really have to kind of enact in order to get back to those 40% type levels.

John as far as I'm concerned I like to see those margins back. There next time, we talk in January.

I mean they are.

We don't like to see our margins go down and therefore, the pricing actions that we have put in place has a lot to do with that because you're talking about there is the margins on all about pricing you know the volumes are the volumes and margin is how much profit you made per unit of volume So vini.

To catch up with the energy costs.

And our goal is to catch up to get as soon as possible.

So when you say my target is to be able to report that our margins have gone back up to 40% in that by next quarter or the quarter. After that how much will they be achieved is obviously going to depend on the airports are now all of US here, but we are doing our best to get there as soon as we can.

And he's got a great team for their kidneys absolutely.

Got it thanks very much for the call I appreciate it.

Thank you John.

Yeah.

Well go to our next question from Kevin Mccarthy with vertical research partners.

Yes, good morning C. For you just to follow up on the previous question can you talk about the level of price increases that you're seeking today in various regions to keep up with this energy inflation in and do you think the pace of realization.

Could differ versus history.

Good morning, Kevin and what it means is that on the obviously.

Obviously, the pace of price increases you have seen but we have done in the past it's about hey, it's 18.

18, 19 consecutive quarters that you are getting for our midstream business.

Getting to four 5% price increases in different regions around the world.

So no.

Yeah.

Paul we've been increasing prices to improve our margins now I'll be happy to increase prices to maintain our margins and therefore, there is a significant sense of urgency here on that.

And how successful we are.

Well, they're going to report that to you next quarter I don't want to forecast that because there's a lot of.

Activities that you're doing a lot involved but the fact is that energy prices have gone up.

We need to recover that from a by increasing prices everybody needs to do that and that is globally, Playstation and if people can be easily that they were going to see their margins go down.

At the same time, we need to also continue to work on our productivity goals.

And our people know that that'd be are all very focused on that Kevin.

Thank you for that and see if he wanted to ask your your opinion on a high level question related to clean hydrogen one can look at this business and <unk>.

Recognize it's got vastly different growth potential than say atmospheric gases and different capital requirements different technology discrete assets et cetera, and you could look at you know multiples for let's say lithium producers or other high growth businesses and they are quite high today.

And so that might argue for separating the business at some point in time on the other hand, you have got a lot of benefits of integration, including inexpensive cost of capital and a high quality balance sheet. So as you as you consider all of those things.

Do you think about.

How the business might develop over time, and whether or not you know well.

We remain within the portfolio on an integrated basis for the long term.

Kevin you are asking me a very.

Very bad.

TV question.

My answer to that is that our commitment.

Yes.

To create value for all shareholders.

If at some point in time.

But you are suggesting.

Yeah.

Significant opportunity for significantly increasing shareholder value.

We would obviously consider that but I don't want to give the impression that they want to do anything tomorrow.

And besides that we need to kind of demonstrate the success of the hydrogen business and all of that so.

Question that you're asking is a very good question.

And.

As a company as a board always look at those options.

No. Even then we would act or if the act on it depends on the circumstances depends on the market. It depends on the development of the hydrogen business and all of that.

Oh, sorry to give you a general answer Kevin, but I'm sure you appreciate what I'm, saying.

I do and sorry for putting you on the spot there, but certainly welcome those thoughts much appreciate it.

Thank you.

Yeah.

Our next question from Steve Byrne with Bank of America.

Yes. Thank you just wanted to drill into your guidance a little bit.

If I understood it correctly in Japan is in the in the 'twenty to 'twenty. Two guide if you if you back out that 11 months worth it seems like kind of a mid single digit EPS guide is there really anything that you were expecting.

A particular headwind in the year or are you just being conservative here.

Well, Steve first of all good morning, and thanks for your question.

I'm very happy that you're breaking it down the way that you are breaking it down we are showing that.

First of all I think you should get credit for Japan at the end of the day, that's part of the company and a good increase in D. C S 15%.

If you want to look at it that day by saying, Okay. I know you have done that.

But.

The base business looks like it's growing 6%.

Well.

That is the babies in the world right now because the base business, Kevin as you know better than I do is dependent on the growth of GDP or industrial production.

And.

I'm not sitting here getting too excited about prospects of GDP and industrial production growth and even indoors.

I mean, everybody likes to say the Kobe. These older now everything is grow.

China.

I think that's a good engine that divorce had last quarter grew only 3%.

Europe.

GDP and industrial production is not bringing any of that in the U S.

Yeah, no that's not that much happening in Latin America is not going anywhere so.

I think we did the circumstances.

Then considering all of the issues about energy cost and then that would be me to recover all of the issues that is related to supply chain.

He is affecting our ability to move helium containers around the world That's really the issue and then all.

All of the.

The fundamentals.

<unk> chain.

And that I mentioned and the overall economic activity. These are all well.

He had issues our job.

You used to give you a guidance.

That is reasonable.

We gave you our guidance for fiscal year 2021.

The average of that was nine O 2.5, and be deliberate nine O two despite hurricanes, which we didnt forecast despite the power outages and all of that it's our job to have that balance.

The business that email.

Our job to look at growth teams looking at the other things and put it all together and give you the best.

And then do you have at the time they give it to you.

And right now our best judgment is that yeah, you're right that overall, our base business is going to grow about six or seven per cent I hope it does better.

They are responsible for giving you a responsible forecast.

Other than Daydream, you give out the fact that everything will be fine.

And COVID-19 hasn't gone away either.

So sorry to give you a long answer, but Steve, but I hope that helps.

It does thank you safety and I did want to ask you a question about your blue hydrogen outlook, when we drill into the Alberta in Louisiana projects, It seems to us that <unk>.

Majority of the capital is really to produce incremental hydrogen supply more so than it is for carbon sequestration or recapture.

So if that's a fair assumption.

What in your view is the key driver for the outlook for needing incremental hydrogen supply in these regions and is it is it is it driven by renewable fuel.

Kevin There is two fundamental dynamics, you're talking about 2020.

You know.

The time that you have to say 2026, and these projects are going to come on stream.

Number one they do need increase hydrogen demand.

On a on the pipeline because you have new.

New customers that are coming on and be foresee ourselves, so doggone debt and therefore, they need additional hydrogen.

Pipeline.

The second thing is that we think.

There will be significant additional customers if you can give them blue hydrogen.

And they do convert and get the benefits.

But then.

A significant part of the production, especially in.

Canada is going to be liquid, which is going to go for mobility. There you see people converting to hydrogen for mobility in the program.

Then in Louisiana, the massive amount of hydrogen that youre, making.

A significant part of that or part of that and we haven't given you the details and until.

Okay.

Figure out all of the details, but fundamentally a significant amount will be converted.

Two blue ammonia.

Which will be exported.

And you know there is a destination of that export is that that's basically and in Japan, where they have the.

No other choice, but how is Japan going to Decarbonize. They don't have oil they don't have gas.

They don't have nuclear.

And they don't have shallow waters to do.

Any kind of within minutes offshore.

So they need to import that energy.

And the best form of energy to import these important blue ammonia.

C O two has been captured and who believed in the power of our plans to generate electricity. So that then they can use their electricity to drive their cars and all of that.

So that that is the thinking that they have in terms of the <unk>.

Ultimate for the Blue hydrogen.

Very good thank you Yossi.

Thank you. Thank you.

Sure.

And well go to our next question from Duffy Fischer with Barclays.

Yes, good morning.

Good morning, Jonathan.

Dr. Sharon talked about 2021 being a record year for the investment kind of in that mid sized capex for you guys. So when we look at that roughly how accretive is that 22 and 23 going forward is that significantly a bigger jump than normal or how should we think of that.

Into our model.

Well it will be accretive as we go forward.

I mean oh.

All of those projects that he's talking about take two or three used to bill.

So it's 21, they got the project. So it will be 'twenty two 'twenty three each one is going to start having an impact on our results.

425.

It did it always things are not that something that you turn it on right away they still need to be an engineer them built.

He's absolutely correct that you had a very good year on those mid sized projects.

We don't usually talk about that but he decided to talk about it this quarter because I was just getting concerned that people are under the impression that the only thing. They like is megawatt project no. We are committed to our existing business and we are getting more than our fair share of the existing business on the smaller size.

And our people are doing a great job in getting those projects and execute them.

Okay Fair enough and then same thing here.

Made a comment that there was some disruption in your business in China. In particular was that how were being cut off to your plants was that power being cut off to your customers, where they couldn't run can you break that out a little bit more how were you impacted where you had to shut down your operations there.

First of all.

And let me just characterize those disruptions in the fourth quarter was not material.

And that much.

Felt obligated to mention them because they've got a few incidents, but they are not material nor are they going to be material this quarter or the next quarter, you'll have to wait and see.

And then the other thing is that the.

We have two kinds of business since you really don't know.

Do you have that.

That onsite business the onsite business, we'd be the only shut down all their plan. If the customer is forced to shut down let's say says he has a plan and they say shut down they're still find that the customer doesn't need oxygen and do you have to shut down that debt.

And then do you have our merchant business our merchant business. These are the shutdown on merchant business because.

You know because we are not the desserts business. So they don't specifically say shutdown day issue, it's mainly the customers that they shut down which affects us.

Great. Thank you guys.

Thank you Duffy.

Well go to our next question from Marc Bianchi with Cowen.

Hi, Thank you.

Wanted to first start with the blue hydrogen projects that you've you've announced and.

Using the technologies of of HR, and pox and I think you'd commented earlier that there is a competitive advantage of gasification. That's at play there I was hoping you could talk about that a little bit more.

Especially after we've heard from from peers, saying that they too can offer both technologies and.

And even capture 95% of the C O two through ASMR.

Yeah.

Well I'm very happy that you are asking me a question because.

The blue hydrogen projects that you have announced they are using new technology.

In Canada, and another technology in that.

Louisiana, because he can't capture 95% of the C O two C questions.

When it comes to the S. M on what happens in an S. M. Off then you take the natural gas.

Spain is steam methane reformer.

You would take some of the natural gas directly into the process goes well then a calculation and you breakdown C. H four to see on hydrogen and then you shifted your hydrogen and the C or the consumer too and it goes up that you can't capture 95% of that.

Sure.

But then you use a lot of the natural gas to burn to heat up the tubes, which contained the catalyst.

That is combustion like combustion a furnace or in a power plant.

To wrap quickly.

You can capture that you are too.

But it did cost you an arm and a day to capture them.

So, making the statement that I can't capture 95% of the C. O two from S. M. On tools you can't capture the CMO is too.

But the issue is that is it cost effectively.

So what we are saying is that the technology that we have made.

It partially ability to capture the shield you in a cost effective way.

But yeah.

You'll have to put a lot of that.

Equipment on das them off to capture the shift from combustion.

You know it took two and ethically you can say I can put especially boxes and do that and I really don't want to comment on but our competitors said they have to defend but they say stay in business, but from our point of view will then be put carbon capture on S. M ours as we have done and we actually operate the biggest month in port Arthur and everybody.

Can go on and take a look at it we have to see what to capture on the processed spot because that is economical became captured that and use it for the national recovery, but on the combustion part you don't do that because that becomes cost prohibitive Chinese be done yeah sure anything can be done at the cost.

I hope that helps money that that's helpful. Thank you safety.

Earlier, Dr. Han mentioned I think some increased confidence.

Neon versus last year I'm curious, what's behind that that statement is there anything to say about perhaps customers being signed up or what's driving that statement.

I didn't have Doctor said Han answered that but he's not going to make any comments about customers, but she's going to tell you why he sees visit about the project as compared to before that yourself.

Thanks, Savi as we communicated before this is really our first move out of project and this.

What are the scale for the production of Green hydrogen.

And I can tell you we have one maybe 30 different walkers themes going in but all of them.

And what'll being optimizing your producing products improving the costs.

And that's really what are the additional confidence coming that we really feel that we have a very good solution very very competitive.

And we are targeting for 2026 that you need to have it on stream.

We'll be competitive very low carbon intensity and it really meets the specific patients that are being imposed in the different countries in the world.

Thank you very much yeah. Thank you Okay. I hope you got your answer okay. Thank you.

Thank you. Thank you very much.

Well go to our next question from Bob Court with Goldman Sachs.

Yes, good morning, its actually Mike Harris sitting in for Bob.

Just curious I might use scenario.

Hey, how are you is it is there a scenario where new and returned to full feeds before 'twenty three and then on I guess the other hand, what is the likelihood that that production could become permanent.

Yeah.

Yeah I understood. The first part of your question and that thing is that the agreement that you have the plant is running at full capacity.

Women's we have with them in terms of the structure of the fees and so on that is not going to improve in 2022, there's just what they have right now it's been improving 2023. The second part of your question I wasn't sure I heard it because you've got this really.

There was a disruption on what you said can.

Can you just Oh I'm sorry, yes.

Yeah. The second part was is there possibility or likelihood that that reduction could become permanent.

Yeah.

Well I hope you don't anticipate that Oh, you mean that in 'twenty, a turnkey treated one comes and says Oh you were charging me reduce we continue doing that well.

Oh, that's yeah, Alright agreement.

So that's another really good agreement.

The agreement I don't want to anticipate but Glenn you'll do and but we would do in that case, but right.

Right now we don't expect that.

Okay. Thank you.

Thank you.

We will take our next question from John Roberts with UBS.

John Your line is open please check your mute button.

Due to no response, we'll go to our next question.

Vincent Andrews with Morgan Stanley.

Thank you and good morning, everyone.

Good morning, Dan how are you doing.

I'm very well, thank you say I.

I'd be curious to get your thoughts on.

In the long term not not obviously, where things are today, but you know if you think in the medium to long term. What you think the cost of carbon is gonna be.

And maybe on a regional basis, you could talk about it and to the extent you wanted to discuss what's you're assuming when you think about you know looking at a new project that might be helpful too.

Hello, Vincent you're asking to get very very insightful question I mean right now.

Different parts of the board have put different numbers in place.

Fortunately they have food.

$200 right.

Per ton of C. O two you get the incentive for that.

Canada he's talking about.

Yeah, you know 50 to $100.

John.

Are there parts of the board that we have exposure to that it is the number is somewhere in between.

<unk> hundred dollars $60 $75 $250, it's all over the place.

I think that the.

You know.

The way we look at these projects and all of that he tried to kind of look at the profitability.

On the basis that they don't get too much of these kind of things because we don't want to rely on government subsidies every time they do something.

But overall these numbers are all going to develop based on the commitments that people have name and fundamentally.

What is going to happen eventually.

If people are going to I mean, I see a great deal of fascination all of these promises being made that Glasgow, but.

But if you add up all of those things the amount of carbon credits that you need in order to meet the requirements.

Becomes draw against.

And therefore.

In order to generate those things.

Customers need to start using these low carbon energy sources.

And therefore do you happen to have real incentives for people to convert from Gaza from diesel.

I mean for ships and trains and planes and all of that and she is making to really shift towards clean energy.

And that burn a little bit of incentive is not going to do that so I think if the governments are serious to achieving those goals. They have to put in a steep incentives to incentivize people to actually do that.

No.

Most of that is very encouraging for our business.

Do you have to see how it develops our attention as we go forward.

I appreciate that answer and yes. Thank you very much in the interest of time I'll pass it along.

Thank you very much and I really appreciate that.

Good next question.

We'll take our next question from Jeff Zekauskas with J P. Morgan.

Thanks very much.

I think I was looking at your project commitments.

And I didn't see any.

Commitments in the electronics area through 2026.

Is that something strategic where air products is moving away from the electronics area.

In favor of other opportunities.

And when you look at your $4 5 billion or so in Capex for next year can you talk about what the big chunks.

Gartner spend though.

Okay.

Jeff Good morning, first of all I have.

Israel.

Yeah.

Jeff.

You know one of the reasons that the one to Dr. Han to talk to you about the smaller facilities and all of that.

Well, it's because my concern about the fact that the question that you just asked.

Our winning our fair share of business in electronics, we are doing some very big projects for people like all of these big.

Electronic manufacturers like Intel like Samsung TSMC and all of that.

We don't see you don't highlight them because they are not mega projects, but we are winning our fair share of those.

So we are not that is actually one of the sectors. We are very focused on they are very strong in Asia Pacific where most of these projects are happening and we are definitely on top of that right now in terms of the breakdown I would hesitate to give you the breakdown because then.

People know exactly which projects you have bonefish projects you have in bone and all of that but believe me add products has been and continues to be extremely focused on the electronic sector and I can.

Claim that we are definitely winning our fair share of.

Those projects for those big customers.

Yeah.

Okay Jamie.

Yes, Thank you Brian.

Sure.

Well go to our next question from P J <unk> with Citi.

Yes. Thank you so I'll ask one quick question.

You know what's happening globally. If you look at the narrative about C. O P 26.

The move towards decarbonization and less investments in fossil fuels.

Do you see a scenario where fossil fuel prices just keep going up as a result, similar to what has happened in Europe.

And if that does happen hypothetically.

How do you project in China, and other parts of the World.

In an environment of higher energy prices. Thank you.

Well P. J. Thank you pay me for asking a very excellent question.

Thing is that there is no question that if.

Hydrocarbon prices go up.

Like the oil price having gone up.

That does help some of the existing projects that you have.

China I mean, right now one of the reasons that Lou Anne is operating at full capacity despite.

Despite the very high price of coal in China is because they are doing they are taking hold and they're making diesel I'm doing selling the diesel fuel at higher prices because the oil price is $84 it at that.

So we have round about the ease and hydrocarbons.

Hydrocarbon costs go up.

It helps those kind of projects, but then the other interesting part is that if hydrocarbons costs go up.

The cost of renewable energy.

Compared to hydrocarbons becomes even more attractive.

So you would say that it's easier to convert a truck driver from diesel to hydrogen because not that these are these cost anymore.

In a funny Bay, if actually a hydrocarbon prices go up.

We will help our strategy in terms of focusing on renewables.

Yeah.

Does that makes sense.

Yes that does but does it impact your coal gasification plants.

Well it helps them.

Because the coal gasification plants are producing chemicals vishal competing with production from oil I mean, the whole reason that try not using a lot of coal or Indonesia on Skus, a lot of coal or the India of Orange to use coal is because they want to use coal to produce chemicals. So that they don't have to pay.

Foreign currency for the oil that important.

So if energy prices go up.

Coal prices are in the ground there.

That would help.

All right Great I'll pass it along thank you.

Thank you very much I really appreciate that.

Yeah.

Any other questions or that's there.

It appears there are no further questions at this time.

Okay did that then I would like to thank everybody who was on the call. We very much appreciate your very good and insightful and sometimes difficult questions, but that's the way. It is I do appreciate that.

And we look forward to talking to you then be announce the first quarter results sometime in January or early February.

Again, and I have a very nice day.

Today's call. Thank you for your participation you may now disconnect.

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Yes.

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Okay.

Yeah.

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[music].

Good morning, and welcome to Air Products' fourth quarter earnings release Conference call. Today's call is being recorded at the request of Air products. Please note that this presentation and the comments made on behalf of air products are subject to copyright by air products and all rights are reserved beginning today's call.

Is Mr. Simon Moore.

Thank you Christina good morning, everyone welcome to Air Products' fourth quarter 2021 earnings results teleconference. This is Simon Moore, Vice President of Investor Relations corporate relations and sustainability.

I'm pleased to be joined today by <unk>, Our chairman President and CEO, Dr. <unk>, Our Chief operating Officer, Melissa Schaefer, Our senior Vice President and Chief Financial Officer, and Sean Major our executive Vice President General Counsel and Secretary.

After our comments, we'll be pleased to take your questions.

Our earnings release and the slides for this call are available on our website at air products Dot com.

This discussion contains forward looking statements. Please refer to the forward looking statement disclosure that can be found in our earnings release and on slide number two.

In addition throughout today's discussion we will refer to various financial measures.

Unless we specifically state otherwise when we refer to earnings per share EBITDA EBITDA margin the effective tax rate in <unk>, both on a company wide and segment basis, we are referring to our adjusted non-GAAP financial measures adjusted earnings per share adjusted EBITDA adjusted EBITDA margin adjusted affair.

<unk> tax rate and adjusted return on capital employed.

Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our website in the relevant earnings release section.

Now I'm pleased to turn the call over to <unk>.

Thank you Simon and good day to everyone.

Thank you for taking time from your very busy schedule to be on our call today.

Before we discuss the results I would like to say that despite the well known global challenges in 2020 and 2021.

They are talented committed and motivated people of air products.

Demonstrated resilience and resolve them.

Delivered excellent results.

In addition.

Two new to execute our growth strategy.

I want to tank every one of our employees.

Standing together working hard.

Delivering to our customers and shareholders.

Now please turn to slide number three.

There you can see some of our key highlights for this year.

With the leather.

Strong EPS this year achieving 11%.

Compounded annual growth.

Since fiscal year 2014.

And we increased the dividend for the 39th consecutive year.

We've got again recognized by procedures raters and organizations towards I'll, just stand being sustainability performance.

Including one we just announced this week.

And cobalt is for the fifth year in a row.

Our growth strategy and sustainability strategy are one and the same.

To that end, we probably completed after the acquisition and project financing transaction.

For the $12 billion Jun Zhang joint venture with our uncle Aqua power and air products could drop.

As we announced last week.

In conjunction with the government of Canada, and the province of Alberta.

We announced the new net zero hydrogen energy complex.

In Edmonton, Alberta.

Canada.

This water scale energy complex.

We'll begin then it turns formative 1 billion net zero hydrogen production and B Court action Concinnity expected on stream in 2024.

And just that youll be single.

Announced the four and a half billion dollar board crash clean energy complex.

In Louisiana.

Air products.

All in all three.

Megawatt project.

Which will produce over $750 million.

<unk> two will be feet cause day of heidrick blue hydrogen for local and global markets by 2026.

We will also capture and 10 minutes D C questionnaire.

5 million metric tons per year of carbon dioxide, making it the largest carbon capture for sequestration facility in the world.

By combining our core strengths and competencies.

Successfully develop execute and operate these largest scale gasification carbon capture and hydrogen projects.

The address the significant energy and environmental needs of the world.

Yes, it's fully aligned with our higher purpose as a company.

Now please turn to slide number four.

As always safety is the most important focus for all of us at air products.

And our goal will always be to achieve zero accidents and incidents.

Despite the challenging COVID-19 conditions this year.

Our team continues to focus on bookings safety.

Following strict protocols to.

To help protect.

Our own employees, our customers and our communities.

We are pleased with the focus by the team that improved our safety performance in fiscal year 'twenty bomb Restless.

Yes.

Slide number five six and seven.

Which we have shared with you many times before.

Cool.

I'll go home, our management philosophy, and our five point strategic plan.

These are the principles that we follow every day and gave you continue to guide us in the future.

Now please turn to slide number eight.

As you speak.

What leaders altogether in Glasgow to work on closing the gap.

Dean climate aspirations and climate action.

We are actively engaged in this rapidly evolving global dialogue.

I am committed to.

Ensuring that air products is best positioned.

To deliver on behalf of all of us.

Stakeholders through this critical period of energy transition.

We believe a successful energy transition.

Likewise.

Successful development and execution of larger scale megawatt projects.

Without that the drop cannot be done.

The scope and complexity of these projects require talented people with a variety of skills and backgrounds from different parts of their board to work together as one team.

This is the highest purpose of our company.

We can overcome divorced significant energy and environmental sustainability challenges with our focus and United people.

Working together.

Robot real solutions for our customers.

Now please turn to slide number nine.

As I have said before.

We believe that hydrogen is one of the energy sources of the future along with electricity.

We are scaling hydrogen production and developing a structure and cost structure.

I'm sure this successful adoption as a sustainable fuel.

Hydrogen will be the sustainable fueled up the future.

Our customers count on us to.

To deliver this hydrogen.

Produced in a highly efficient manner.

Meanwhile, we are making significant investments in new facilities to produce low carbon and carbon free hydrogen made from hydrocarbons.

By executing on new clean hydrogen projects, you can power better in Louisiana.

D D D.

Neither in blue hydrogen.

As well as.

Green hydrogen.

As we continue to execute.

Give me one green hydrogen project in the Kingdom of Saudi Arabia.

Now with that background I'm happy.

Happy to return the call over to doctors and their set Hahn, our chief operating officer to talk about our major it projects Doctor say huh.

Thank you Stephanie.

Now please turn to slide 10, which highlights our key growth projects.

We are committed to our growth strategy and continued to execute and pursue exciting projects around the world.

In June we announced the award of a scale of $1 billion net zero hydrogen project in Alberta, Canada.

With the strong support of the Canadian federal and local governments.

This project will use natural gas to make net zero hydrogen.

Has the same zero carbon footprint is it green hydrogen made from renewable energy.

95% over the CEO of tool, resulting from our net zero project will be betterment Anthony sequestered.

The remaining 5% will be offset by exporting of clean electricity produced by directly and hydrogen.

The project provides a roadmap for the hydrocarbon based economies to significantly reduce the CEO to emissions.

Just a few weeks ago, we had gone out of joining the governor of Louisiana State officials.

Do I announced our water scale for <unk> 5 billion dollar Blue hydrogen project.

This will also be the world's largest permanent CEO to sequestration operation.

This project will provide a clean hydrogen to our customers along our 700 mile U S Gulf coast hydrogen pipeline system.

And also produce the blue ammonia targeting heavy transport around the world.

The pipeline will be able to carry a variety of carbon intensity hydrogen, including gray and blue.

These two projects will use advanced gasification technologies available to add products to produce a clean hydrogen while using hydrocarbon feedstock in a sustainable way.

Both the projects also combined in one project the three pillars of our growth strategy gasification.

Carbon capture.

On hydrogen.

We have made good progress on our <unk> project and we expect the facility to be on stream in fiscal year 'twenty three.

We also expect the deep banking project Onstream in fiscal year 'twenty three.

Successful execution of the Gulf Coast Ammonia project continues with field construction on air Products' largest single train 175 million standard cubic feet per.

Third day of hydrogen steam methane reformer.

Well as the related 90 million standard cubic feet per day of nitrogen ASU facility.

And related utilities.

Construction is also progressing well on the 30 mile hydrogen.

Pipeline network expansion to our largest hydrogen pipeline network.

The project Onstream as schedule remain agile originally planned for the first half of fiscal year 'twenty three.

We're forging ahead in Indonesia, and making good progress despite some challenges that youll COVID-19.

We expect to complete this project and 25.

For NIM.

As you can see in the picture on the slide we are laying the groundwork for the project bidding the land and doing detailed engineering what are even more excited now about this project since our announcement last year.

We're forecasting to export the zero carbon hydrogen in the form of ammonia and in 2026.

In addition to our Mega projects are a product has also continued to make significant investments in our small and mid sized onsite generators.

Our regional industrial gases business.

With fiscal year, 'twenty, one being a record year for our investments in this category.

These onsite plants, which typically have a project investment values from half a million to 50 million U S. Dollar cover a range of technologies from a prism hydrogen generator.

Oxygen vse.

Vacuum swing absorption on our small and mid sized Suvs.

Yes.

Specifically fiscal year 'twenty, one was a record year for investments in our president oxygen V. I see a product line within your projects in North America, Europe, India, China, and South Korea.

But predominantly supplying several major glass manufacturers around the world.

The oxygen via assays are frequently integrated with air products Oxy fuel burner technology.

Which help reduce emissions.

Wide fuel savings improve productivity and deliver the operational savings for the customer.

Now I am pleased to turn the call back to safety.

Yes.

Thank you Dr. Han.

Please turn to slide number 11.

As we shared with you last week.

Along with our joint venture partners completed the asset acquisition and project financing transaction of the talk doesn't hinder our air separation unit gasification and power joint venture beat our uncle Aqua colored and air products could draw.

Kazan, Saudi Arabia maker.

Making a significant milestone.

The hard work by our people.

It has been.

As our customers and partners.

The project return is expected to be better than we originally envisioned.

As we said last week.

We expect phase one of the project to contribute an annual run rate of 80 to 85 cents of earnings per share.

Starting as of last week.

The project is expected to contribute about $1 35 to $1 40 for the first 10 years. After the first phase II closes.

Now please turn to slide number 12.

It shows our EPS growth.

We remain vigilant and motivated to deliver excellent financial results.

Consistent with our strategy.

As you can see we have delivered 11% annual EPS growth on average since 2014.

While laying a strong foundation for our future growth.

The excellent results and key milestones we have achieved this year are just at the beginning of our journey delivering gasification carbon capture and hydrogen solutions through the war.

I am very optimistic.

Our company's prospects.

<unk> sure.

Participating in a very meaningful way in the energy transition.

Now please turn to slide number 13.

I've just been reminded we share our earnings growth directly with our investors.

Both our EPS and dividend.

<unk> grown by double digits since 2014.

We are committed to deliver increased dividend, while we continue to execute our growth opportunities.

We have significant cash flow that supports our substantial dividend.

And as you know we have increased that now for the 13 ninth consecutive year.

And finally slide number 14 as always my favorite slide.

Those that are EBITDA margins are up 1100 basis points since 2014.

Our margin.

He's down in recent quarters.

Impacted by higher energy pass through.

It increases our sales, but it doesn't impact profits.

Two of their margin declined from a peak margin is due to the impact of higher energy pass through.

Right.

I don't I do want to stress that we are determined and focused on improving our margins.

Back to around 40%.

By increasing prices.

Other significant increases in energy costs.

By improving productivity.

Now I'm happy to turn the call over to Melissa Schaefer.

Our senior Vice President and Chief financial.

<unk> financial officer.

Discuss our results in more detail and Lisa.

Thank you Stacey.

We have made great strides executing our growth strategy. This year, completing multiple projects and winning exciting new project at.

At the same time, we continued to focus our base business and deliver excellent results for the quarter and the year.

Our EPS, 8% this year, so far coming face external challenges and absorbing the cost of additional resources needed to support our growth strategy.

Distributable cash flow remained strong at $2 7 billion. Furthermore.

Large scale projects currently under development, well substantially add to our earnings once they bring them on stream.

I sure Stacy conviction that for air products basket, indeed, yet to come.

This is a testament to the hard work and commitment of the people of air products and I too want to thank them.

Now please turn to slide 15 for more details on our full year results.

Sales grew 17% to more than $10 billion volume and price together again, 7% to.

<unk>, 5% volume growth was primarily driven by EMEA and global gases segment.

Although the adverse impact from the pandemic has eased through the year, it's still had a negative impact on FY 'twenty one.

Pricing every quarter in all three regions and across most major product lines.

Overall pricing increased 2% and our merchant price was up 5%.

EBITDA was up 7% approaching $4 billion did you say about price.

Empty and activate it equity affiliate income.

It was partially offset by higher costs.

EBITDA margin declined 330 basis points of which 200 basis points are attributed to higher energy pass through which increases sales, but negatively impacts margin.

<unk> hundred 60 basis points lower the increase in the denominator from our additional $5 billion.

That raised last year reduced our FTE by about 300 basis points.

Adjusting for the cash on our balance sheet are our LTE would be 14, 2%.

We expect <unk> to improve as we deploy the cash and bring projects on stream.

Now please turn to slide 16 for a discussion of full year EPS.

Our full year adjusted EPS from continuing operations was up 64 cents or 8%.

Price net of variable cost it was again strong.

<unk> 34 said.

Fourth consecutive year of double digit EPS net price improvement.

Volume was flat at acquisition, new plant merchant recovery and higher sale of equipment activity were offset by lower contribution from Lillian.

Current business mix cause volume to have a positive impact on sales, but minimum impact on profit.

Our costs were 46 cents unfavorable primarily due to the addition of resources to support our future growth and higher plant maintenance cost.

Currency was saying about 35.

Primarily driven by the Chinese RMB Euro British pound and South Korean bonds.

Our equity affiliates also had strong underlying business results, adding 23 cents.

With several joint ventures reporting stronger medical oxygen sales.

Non operating income was 16.

16 cent favorable primarily due to lower pension expense.

Interest expense of 12, <unk> favorable due to the $5 billion of debt to support our future growth project.

Our effective tax rate of 18, 9% was roughly equal to last year, and we expect an effective tax rate of 19% to 20% in FY 2022.

Now please turn to slide 17 for a brief discussion on our fourth quarter results.

Yeah.

Compared to last year sales increased 22% to more than $2 $8 billion.

Priced energy pass through and currency.

Yep.

Volume increased 9% as strong hydrogen and merchant demand and new assets more than offset reduced the land contribution.

Prices were up again with improvement in all three regions. This is the 17th consecutive quarter of year over year price gains.

Those are all prices are up 3% Intel at all like equal at a 6% increase for the merchant business.

We experienced significantly higher energy costs in our merchant business. This quarter the situation is particularly challenging in EMEA.

Due to the extremely high natural gas and electricity costs.

Our onsite business about half of our total company sales has contractual protection from energy cost fluctuation.

We're actively executing additional price actions across product lines to recover the higher energy costs impacting our merchant business.

EBIT declined 11% exceeding 1 billion dollar mark as favorable volume price.

Currency and equity affiliate income more than offset higher costs.

EBITDA margin declined 380 basis points, primarily due to higher energy pass through which negatively impacted margin by about 300 basis points.

Sequentially sales were up 9% supported by 5% stronger volume and 1% higher pace.

EBITDA grew 7% sequentially, a better volume price and equity affiliate income more than offset higher energy costs now.

Now please turn to slide 18.

Our fourth quarter adjusted EPS was $2.51.

32 cents or a 15% above last year.

I am with favorable 19.

Price net of variable costs contributed <unk> <unk>.

This increases exceeded variable cost inflation, driven by higher power costs.

Like the prior few quarters.

<unk> to add resources and strengthen our organization to support growth has increased our costs. We also saw higher costs due to disruptions across our supply chain and all three regions.

Currency and foreign exchange contributed six.

Primarily due to the Chinese RMB and British pound.

Equity affiliate income added nine cents on strong underlying business results.

The <unk> of non operating income was primarily driven by lower pension expense.

The effective tax rate of 18, 1% was 130 basis points higher than last year due to the last year's higher share based compensation benefits and a tax benefit associated with the PBS acquisition.

Now please turn to slide 19.

As to the ability of our business allows us to continue to generate strong cash flow.

Over the last 12 months, we generated about $2 7 billion of distributable cash flow are almost 12 $12 per share.

From an EBITDA of about $3 9 billion, we paid interest taxes and maintenance capital.

Note that our maintenance capital is a little higher than usual driven in part by spending on our new global headquarters, which is essentially now complete.

From the distributable cash flow, we paid 45 cents or about $1 $3 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 enabled us to continue to create shareholder value through increasing dividends and capital deployment.

Slide number 20 provides an update of our capital deployment.

As we discussed last quarter, we've extended our time horizon. Another five years to fiscal 'twenty 27, we.

We see tremendous project opportunities beyond 2022, and then investment potential far exceeding the original capacity of $15 billion.

Based on this updated view, we see our capital deployment potential reaching approximately $34 billion through fiscal 2027.

$34 billion includes roughly $10 billion of cash and additional debt capacity available today, almost $17 billion, we expect to be available by 2027 and about $7 billion already stacked.

We still believe this figure is conservative given the potential for additional EBITDA growth will generate additional cash flow and therefore additional borrowing capacity.

We will continue to focus on managing our debt balance to maintain our current targeted a two rating.

So you can see we have already spent 21% and have already committed 67%.

The updated capacity we show here.

I should note that this is as of September 30th So it does not reflect the closing of the Japan phase one but does include the Louisiana project.

Before I turn the call back to Stacey I would like to share with you that we plan to reorganize our reporting segments, starting in Q1 of FY 'twenty two.

EMEA segment will be separated into euro Europe, and Middle East and India segment to reflect the addition of a significant Shazam project in the Middle East segment and to provide more visibility for our geographic region.

In addition, our global gases and corporate segment will be combined we will provide historical re segmented financial information before the year end now.

Now to begin the review of our business segment results I'll turn the call back over to safety.

Thank you very much Melissa.

Now please turn to slide number 21.

But our Asia results.

Sales increased 6% compared to last year.

On 5% favorable currencies and 1% positive.

Price increase the 18th consecutive quarter of year on year price improvement in this region.

Volumes were flat with new plans, mostly outside of China offsetting the lower land contribution.

Regarding <unk> there is no change.

For the.

The previous updates that we have given you.

The plant continues to operate at full capacity.

The coal shortage in China.

As I said last quarter and there's the interim supply agreement, we are recognizing that reduce fees to fiscal year 'twenty two before leaving 10 through the full year.

1023.

This quarter China's efforts to reduce energy usage.

And intense so our duo the so-called duo control had a modest adverse effect on our results.

We've reduced some merchant customers demand caused isolated disruptions in operations.

We continue to monitor this.

Eloping situation very closely.

In the long term, though we do see positive growth opportunities as China continues to focus on reducing its carbon intensity.

EBITDA for this region grew 3% supported by say the big currencies and price.

Cost compares unfavourably, primarily due to a higher than it is the variable energy cost.

And the resources needed to support project start ups.

The timing of China government incentives last year.

And the disruption.

All right.

Our control policy to reduce energy consumption.

Sequentially, EBITDA and margins were lower as higher costs more than offset that their volumes prices up but rounded to zero.

Now I would like to turn the call over to Dr. <unk> to talk to you about a 10 minute cause results.

Uh huh.

Thank you Stacey.

Now please turn to slide 22 for a review of our Americas results.

Sales increased more than 20% versus last year.

EBITDA posted another double digit gain.

Volume grew 3%, primarily due to battle hydrogen and motion demand.

Although harrington either interrupted our U S Gulf Coast operations this quarter.

Our team worked very hard to limit the impact to our business.

While most of our merchant products have returned to pre COVID-19 levels.

Our hydrogen volume has increased.

But has not yet fully recovered.

Demand for jet fuel, which consumes more hydrogen on a unit basis compared to gasoline is still lagging.

Also the industry continue to use more light sweet crude which requires less hydrogen.

We are confident.

In the long term growth.

Hydrogen demand, particularly in the U S Gulf Coast.

Price for the quarter was again strong.

4% gain for the region was equivalent to 10% on the merchant business.

Price was better across all major products.

Is the 13th consecutive quarter of year on year price improvement.

Energy cost basket through drove a 15% sales increase with the much higher natural gas prices.

EBITDA was 16% ahead of last year.

Positive volume price equity affiliate income.

And lower maintenance costs more than offset higher inflation.

EBITDA margin was 230 basis points lower.

Energy costs, especially through negatively impacted EBITDA margin by approximately 500 basis points.

In other words.

EBITDA margin would have been significantly up excluding energy pass through.

Sequentially.

Energy pass thru drove margin 250 basis points lower.

Now I would like to turn the call back over to Simon to discuss our other segments Simon.

Thank you Dr Scher huh.

Please turn to slide 23 for a review of our Europe Middle East and Africa region results.

Our EMEA team delivered another set of outstanding results. This quarter sales jumped 33% versus last year and EBITDA was up 14% volume was strong increasing 14% driven primarily by improved hydrogen and merchant demand and new assets.

Our liquid bulk.

<unk> recovered from the pandemic, but packaged gases and hydrogen are still below pre COVID-19 levels.

Price increase for the 15th consecutive quarter and was higher across most major product lines and sub regions, the 4% price gain for the region corresponds to a 6% improvement for the merchant business.

Consistent with what most consumers and businesses are experiencing our European business faced unprecedented energy cost escalation this quarter.

Supply chain related interruptions further exacerbated the difficult situation.

Our team has done an excellent job COVID-19 coping with these challenges executing pricing actions and keeping our customers supplied.

As Melissa said, our onsite contracts allow us to pass through the higher energy costs for our merchant business. We continue to work hard to recover the recent cost increases through additional pricing actions already underway.

Currencies were favorable 3%, primarily due to the strong British pound versus the us dollar.

EBITDA was up 14% to about $230 million, primarily due to the strong volume, while better price equity affiliate income and favorable currencies offset most of the energy cost increase.

EBITDA margin was down 560 basis points with higher energy pass through responsible for about 400 basis points the.

The remaining roughly 150 basis point reduction was mainly attributable to unfavorable cost partially offset by favorable equity affiliate income and better volume.

Compared to prior quarter sales climbed 8%, primarily due to pass through while positive price and volume were offset by unfavorable currencies.

Operating income was 3% below last quarter as the positive price and volume were more than offset by higher costs.

Meanwhile, EBITDA was 8% higher due to the inclusion of positive equity affiliate income.

And as Melissa mentioned, we will separate the current M. A S segment into two segments, Europe, and Middle East and India, starting next quarter.

Now please turn to slide 24, global gases, which includes our non LNG sale of equipment businesses as well as central costs.

Sales and profit were up on higher project activities.

We continue to add resources to support project development.

Please turn to slide 25, corporate which includes LNG and other businesses as well as our corporate costs.

Corporate segment sales were higher this quarter driven by increased project activities as we continue to execute multiple large LNG and other projects, but profit was lower on higher corporate costs.

Sequentially sales and profits were better than last quarter.

Again, as Melissa said, we will combine global and corporate starting next quarter.

Now to provide closing comments I will turn the call back over to safety.

Thank you very much Simon.

Air products continues to deliver consistent results.

<unk> significant ongoing challenges in the world.

Our volumes price and profit all grew in 2021.

Overcoming the pandemic the storms supply chain disruption and rising.

Costs globally.

I truly believe that we have become.

Even a stronger company and fully expect to deliver significant earnings growth as the economies around the world recovers and our projects come on the stream.

Now please turn to slide number 26.

For fiscal year 2022.

Our earnings per share guidance is $10 20 to $10 40.

Up 15% to 15% over last year.

For quarter, one of fiscal year 'twenty two.

Earnings per share guidance is $2 45 to $2 55.

16% to 20% over last year and these include about two months of the phase one of the <unk> project.

We see our capex.

Five and a half to $5 billion.

Yeah.

Fiscal year, 'twenty, two including approximately one and a half billion of phase one of the design projects.

Now please turn to slide number 27.

We are confident.

The security of employment compensation.

That <unk> provided to our employees during this difficult and then the period.

Positions us very well and very strongly for the future.

We've demonstrated to our people that support them in times of difficulty.

We are committed to this approach since the only sustainable.

Long term converted competitive advantage of any company is the degree of commitment and motivation of the people in the enterprise.

The strong results and significant milestones to be achieved this year.

Just parked about continued growth.

As I've said before air products is support is supported by <unk>.

Supporting all divorced focus on sustainability.

Our customers choose their products because they know that.

We can help them meet their sustainability goals and we continue to innovate so that we can be a partner on their sustainability journey for the future.

The board's environmental and sustainability challenges are immersed in minutes.

Yeah huge issues that need to be addressed.

And our growth strategy, which is focused on gasification carbon capture and hydrogen.

He is designed specifically to address this critical needs.

We know that our continued success depends on the ex expertise dedication and commitment of our talented people around the world.

And.

The consistent theme.

Adding resources around the world.

We're there to position office property.

To meet the growth demands and the execution of the projects that we have undertaken.

Rising to the energy challenges that first phase of our work today.

We are committed to.

Having a diverse workforce.

Significant I think development of applications and megawatt project expertise and collaborative spirit between our companies.

I believe it caught us air products is uniquely positioned to help the buckboard transition to a cleaner and better future.

It's embedded future it'd be believing and in which we have already you're totally vested.

Now we are pleased to answer any questions that you have.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question.

Take our first question from David Begleiter with Deutsche Bank.

Thank you good morning.

See if you had to come off.

Good morning. Thank you you've got a couple of delays in your projects, most notably Japan.

In Indonesia by roughly a year you can just talk about why those projects being pushed out by a year.

And David I wouldn't call them delays I mean, these aren't mega projects in there.

When we announced them to give you our best judgment about when they come on the stream, but all of these projects need to be told me that he need government approvals and all of that so each time, the other calls and give you our latest.

Estimate of what we think the these projects can come on the stream. So right now our best estimate for these projects are they said we have given you.

If we can move them for what we can tell you is that.

Sure.

Delays with your bed you know because.

As I said.

Cannot forecast everything because they are dependent on getting significant damage for a lot of these projects.

Understood and just on the Capex increase extras and can you just talk about the pieces of that $5 million to build all increase how much is maybe alberto how much is Louisiana et cetera. Thank you.

Well all they've done in Louisiana are not going to consume a huge amount of capital next year, but it is also related to the projects that Doctor said on mentioned I.

I mean people focus on our Mega projects and obviously, we are delighted to talk about it.

But don't forget you still have the base business, which is very resilient and we are doing many many many projects actually as I've. Just said Han mentioned last year was a record year.

For our small and mid sized projects.

We are getting our fair share of the market on those projects they are going to be executed and David required capex.

Thank you very much.

Thank you very much David.

Our next question from John Mcnulty with BMO.

Okay.

Yes, thanks for taking my question.

So CV with with the huge spike in energy prices that you saw over in Europe, and I imagine, maybe even a little bit in Asia as well I guess can you speak to how quickly you can offset it with regard to prices is something where look you automatically kind of immediately.

Put it all in or is it something that has to ease in over the next few quarters I guess, how should we be thinking about that.

Hey, good morning, John.

John as you know very well, but you have two parts to our business.

On the on sites they immediately go in.

That's just pass through.

Our merchant sides in packaged gases business.

Some of it has clauses, but there are a lot of it don't have clauses.

And therefore, we need to go and increase prices and invoiced to customers and convince them that energy prices have gone down <unk> gone up and then there is a competitive environment. Some people try to use this as an excuse to get market share and all of that so we need we need works to do.

But but has compounded the issue in terms of being able to recover them fast enough.

The rate of energy increases.

Energy and increases you do forecast these things, but what happened in Europe in the month of August and September, but something that it was impossible to forecast that things would go up 200%.

So as a result, we are lagging in terms of price increases in our merchant business, especially in Europe.

<unk> is doing a fantastic job they did a great job in September and October, but there is more work to be done so that it will be delayed about a quarter maybe.

Got it so a quarter to kind of kind of catch up on that okay.

And then I guess when thinking about your margin target, where you expect to get the margins back up to kind of that 40% range give or take the.

The rest of it really is more energy pass through and doesn't doesn't isn't really a reflection of the business I guess can you speak to the timing of when you think you can get there or is it something where we can kind of get to see the margins.

Coaching that that type of a level by the end of 2022 was it going to take longer than that I guess and what are some of the measures that you that you really have to kind of enact in order to get back to those 40% type levels.

John as far as I'm concerned I like to see those margins back next time, we talk in January.

And for that I mean.

We don't like to see our margins go down and therefore, the pricing actions that we have put in place has a lot to do with that because you're talking about there.

The margins on all about pricing you know the volumes are the volumes and margin is how much profit you made per unit of volume.

Yeah, they need to catch up with the energy costs.

And our goal is to catch up with you as soon as possible.

So then you say my target is to be able to report that our margins have gone back up to 40% in that by next quarter or the quarter. After that how much of it would be achieved is obviously going to depend on the airports.

All of US here, but we are doing our best to get there as soon as we can.

And he's got a great team for their kidneys absolutely.

Got it thanks very much for the call I appreciate it.

Thank you John.

Yeah.

Well go to our next question from Kevin Mccarthy with vertical research partners.

Yes, good morning, <unk> just to follow up on the previous question can you talk about the level of price increases that you are seeking today in various regions to keep up with this energy inflation and do you think the pace of realization.

Could differ versus history.

Yeah.

Good morning, Kevin and what it means is that yeah. I mean, obviously the pace of price increases you have seen but we have done in the past it's about.

It's 18 19 consecutive quarters that youre getting.

Midstream business, we are getting to four 5% price increases in different regions around the world.

So no.

Yeah.

Before we didn't increasing prices to improve our margins now I'll be happy to increase prices to maintain our margins and therefore, there is a significant sense of urgency here on that.

And how successful we are.

Well Youre going to report back to you next quarter I don't want to forecast that because there's a lot of.

Activities that they do on a lot involved but the fact is that energy prices have gone up.

We need to recover that from a by increasing prices everybody needs to do that and there is global inflation in it.

If it can be it would be that they were going to see their margins go down.

At the same time, we need to also continue to work on our productivity goals.

And our people know that that'd be are all very focused on that Kevin.

Thank you for that.

I wanted to ask you or your opinion on a high level question related to clean hydrogen one can look at this business and.

Recognize it's got vastly different growth potential than say atmospheric gases and different capital requirements different technology discrete assets et cetera, and you could look at multiples for let's say lithium producers or other high growth businesses and they are quite high today.

And so that might argue for separating the business at some point in time on the other hand, you have got a lot of benefits of integration, including inexpensive cost of capital and a high quality balance sheet. So as you as you consider.

All of those things.

How do you think about.

How the business might develop over time and whether or not.

We will remain within the portfolio on an integrated basis for the long term.

Kevin you are asking me a very.

Very good.

Telecom question.

My answer to that is that our commitment.

Is.

To create value for all shareholders.

If at some point in time.

Or do you are suggesting.

Yeah.

Significant opportunity for significantly increasing shareholder value.

We would obviously consider that but I don't want to give the impression that they want to do anything tomorrow.

And besides that we need to kind of demonstrate the success of the hydrogen business and all of that so.

Question that you're asking is a very good question.

And.

As a company as a board always look at those options.

No. Even then we would act or if the act on it depends on the circumstances it depends on the market. It depends on the development of the hydrogen business and all of that.

No.

So I'm going to give you a general answer Kevin, but I'm sure you appreciate what I'm, saying.

I do and sorry for putting you on the spot there, but certainly welcome those thoughts much appreciate it.

Thank you.

Okay.

Our next question from Steve Byrne with Bank of America.

Yes. Thank you just wanted to drill into your guidance a little bit.

If I understood it correctly in Japan is in the in the 2022 guide if you if you back out that 11 months worth it seems like kind of a mid single digit EPS.

Sky is there any anything that you were expecting.

<unk>.

Particular headwind in the year or are you just being conservative here.

Well, Steve first of all good morning, and thanks for your question.

I'm very happy that you're breaking it down the way that you are breaking it down V are showing that.

First of all I think you should get credit for Japan at the end of the day, that's part of the company and a good increase in D. C is 15%.

But if you want to look at it that day by saying, Okay. I know you have done that but.

The base business looks like it's growing 6%.

Well.

That is the baby's see the world right now because the base business, Kevin as you know better than I do is dependent on the growth of GDP or industrial production.

And.

I'm not sitting here to getting too excited about prospects of GDP and industrial production growth anywhere in the world.

I mean, everybody likes to say they'll Colby. These older now everything is grow.

China.

I think that's a growth engine that divorce had last quarter grew only 3%.

Europe.

GDP and industrial production is not bringing any of that in the U S.

That's not that much happening in Latin America is not going anywhere so.

But in the circumstances.

Then considering all of the issues about energy cost and then good that'd be me to recover all of the issues that is related to supply chain.

He is affecting our ability to move helium containers around the world That's really the issue and then all.

All of the.

The fundamentals.

<unk> chain.

And that I mentioned and the overall economic activity. These are all good.

He had issues are jaw.

Just to give you a guidance.

That is reasonable.

We gave you our guidance for fiscal year 2021.

The average of that was nine O 2.5, and be deliberate nine oh too despite the hurricane, which we didnt forecast despite the power outages and all of that it's our job to have a balance.

The business that email.

Our job to look at growth teams looking at the other things and put it all together and give you the best.

Do you have at the time, they give it to you.

And right now our best judgment is that yeah, you're right that overall, our base business is going to grow about six or 7% I hope it does better.

They are responsible for giving you a responsible forecast.

Other than Daydream and give out the fact that everything will be fine.

And COVID-19 hasn't gone away either.

So sorry to give you a long answer, but Steve, but I hope that helps.

Thank you Stacey and I did want to ask you a question about your blue hydrogen outlook, when we drill into the Alberta in Louisiana projects, It seems to us that <unk>.

Majority of the capital is really to produce incremental hydrogen supply more so than it is for carbon sequestration or capture.

So if that's a fair assumption.

What in your view is the key driver for that outlook for needing incremental hydrogen supply in these regions and is it is it is it driven by renewable fuel.

Kevin There is two fundamental dynamics you are talking about 2020.

You know.

The time that you have seen in 2026 and these projects are going to come on stream.

Number one the.

Do need increase hydrogen demand.

On.

On the pipeline because you have new.

New customers that are coming on and the foresee ourselves sold out on that and therefore, they need additional hydrogen.

Pipeline.

The second thing is that we think.

There will be significant additional customers if you can give them blue hydrogen.

And they do convert and get the benefits.

But then.

A significant part of their production, especially in.

Canada is going to be liquid, which is going to go for mobility. There do you see people converting to hydrogen for mobility in the program.

Then in Louisiana, the massive amount of hydrogen that youre, making.

Significant part of that or part of that we haven't given you the details.

Until.

Okay.

Figure out all of the details, but fundamentally a significant amount will be converted.

Two lower ammonia.

Which will be exported.

And you know that the destination of that export is that that's basically and in Japan, where they have the.

No other choice, but how is Japan going to Decarbonize. They don't have oil they don't have gas.

They don't have nuclear.

And they don't have shallow waters to do.

Any kind of <unk> offshore.

So they need to import their energy.

And the best form of energy to import these important blue ammonia CEO.

C O two has been captured and to bear anything they're part of our plans to generate electricity. So that then they can use their electricity to drive their cars and all of that.

That that is the thinking that they have in terms of the hour.

For the Blue hydrogen.

Very good thank you Yossi.

Thank you. Thank you.

Sure.

And we'll go to our next question from Duffy Fischer with Barclays.

Yes, good morning.

Hey, good morning, Jeff.

Dr. <unk> talked about 2021 being a record year for the investment kind of in that mid sized capex for you guys. So when we look at that roughly how accretive is that 22 and 23 going forward is that significantly a bigger jump than normal or how should we figure that.

Into our model.

Well it will be accretive as we go forward.

I mean.

All of those projects that he's talking about take two or three years to build.

So it's 21 regard that project. So it will be 'twenty two 'twenty three it didn't start having an impact on our results in 'twenty four 'twenty five.

It did it always things are not that something that you turn it on right away they still need to be in junior them built but he's absolutely correct that if you had a very good year on those midsized projects.

We don't usually talk about that but he decided to talk about it this quarter because I was just getting concerned that people are under the impression that the only thing they like is megawatt project.

We are committed to our existing business and we are getting more than our fair share of the existing business on the smaller size.

And our people are doing a great job in getting those projects and executing them.

Okay fair enough.

Then you had.

You made a comment that there was some disruption in your business in China. In particular was that how were being cut off to your plants was that power being cut off to your customers, where they couldn't run can you break that out a little bit more how were you impacted where you had to shut down your operations there.

First of all.

And let me just characterize those disruptions in the fourth quarter it was not material.

And that much.

Obligated to mention them because they've got a few incidents, but they are not material nor are they going to be material this quarter or the next quarter, you'll have to wait and see.

C.

And then the other thing is that we have.

Two kinds of business sense, you're very doesn't know.

Do you have that.

Our onsite business the onsite business to be the only shut down our plan. If the customer is forced to shut down lets say 16 plan and they say shut down they're still trying to the customer doesn't need oxygen and do you have to shut down that debt.

Okay, and then do you have our merchant business.

<unk> business is actually shut down our merchant business because.

Because beyond the energy business. So they don't specifically say shutdown day issue, it's mainly the customers that they shut down rich at Texas.

Great. Thank you guys.

Thank you Duffy.

We'll go to our next question from Marc Bianchi with Cowen.

Hi, Thank you.

Wanted to first start with the blue hydrogen projects that you've you have announced and.

Using the technologies of HR and parks and I think you commented earlier that there is a competitive advantage of gasification. That's at play there I was hoping you could talk about that a little bit more.

Especially after we've heard from peers, saying that they too can offer both technologies.

And even capture 95% of the C O two through rest of Maher.

Yeah.

Well I'm very happy that Youre asking me.

Because.

The blue hydrogen projects that you have announced they are using new technology.

In Canada and another technology in.

Louisiana, if he can't capture 95% of the field to see question.

When it comes to the S. M on what happens in an S. M. Off then you take the natural gas.

They are staying at steam methane reformer.

You would take.

Some of the natural gas directly into the process goes well then a calculation and you break down C. H four to C. O hydrogen and then you shifted you'll have hydrogen in the shield the consumer too and it goes up that you can capture 95% of that sure.

But then you use a lot of the natural gas to burn to heat up the tubes, which contained the catalyst.

That is combustion like combustion or fitness or in a power plant.

To radically.

You can capture that you are too.

But these do cost you an Ottoman index to capture that.

So, making a statement that I can't capture 95% of the CEO of tube from S. M. On tools you can't capture the CMO is too.

But the issue is that is it cost effective or not.

So what we are saying is that the technology that makes it possible to capture the C O two in a cost effective way.

But yeah I mean.

You'll have to put a lot of that.

Equipment on the S M <unk> to capture the CMO to from combustion.

And I think that you can say, Oh, I can put especially our boxes and do that and I really don't want to comment on but our competitors said they have to defend but they say stay in business, but from our point of view will then be put carbon capture on S. M ours as we have done and we actually operate the biggest month in port Arthur and everybody.

Can go and take a look at it we have the CEO to capture on the process plant because that is economical became captured that and use it for the national recovery, but on the combustion part they don't do that because that becomes cost prohibitive Chinese to be done yeah sure anything can be done at the cost.

I hope that helps money that's helpful. Thank you Stacey.

Earlier, Dr. Han mentioned I think.

So me increased confidence.

On neon versus last year, I'm curious, what's behind that that statement is there anything to say about perhaps customers being.

Being signed up or what's driving that statement.

I didn't have built yourself on answered that but he's not going to make any comments about customers, but she's going to tell you why he feels better about the project as compared to before.

Thanks, Effie yet as we communicated before this is really our first move out of project and this.

The scale for the production of Green hydrogen.

And I can tell you we have a lot on maybe 30 different walkers themes going in parallel.

And developing optimizing and producing our products improving the costs.

And that's really what are the additional confidence coming that we really feel that we have a very good solution very very competitive.

And we are targeting for 2026 that you need to have it on stream.

It will be competitive very low carbon intensity and it really meets the specifications that are being enforced in the different countries in the world.

Thank you very much.

Thank you Okay I hope you got the answer Mike Okay. Thank you.

Thank you very much.

Well go to our next question from Bob Court with Goldman Sachs.

Yes. Good morning, this is actually Mike Harris sitting in for Bob.

Just curious I might use scenario hey, how are you is there is there a scenario where luann could return the full fees before 'twenty three and then I guess the other hand, what is the likelihood that that production could become permanent.

Yeah.

I understood. The first part of your question and that thing is that the agreement that you have at the time he was running at full capacity.

Agreement you have with them in terms of the structure of the fees and so on that is not going to improve in 2022 versus what they have right now it did improve in 2023. The second part of your question I wasn't sure.

I hear it because you've got district.

There was a disruption but use it can.

Can you just Oh I'm sorry, yes.

Yes. The second part was is there possibility or likelihood that debt reduction could become permanent.

Yes.

Well I hope you don't anticipate that Oh, you mean that in 'twenty, you're trying to get read one comes and says.

We're charging a reduced fee continue doing that well.

Oh, Yeah, Alright agreement.

So that's another really good agreement I don't want to anticipate but the glanville do and but we would do in that case, but right.

Right now we don't expect that.

Okay. Thank you.

Thank you.

We will take our next question from John Roberts with UBS.

And John Your line is open please check your mute button.

Due to no response, we'll go to our next question.

Vincent Andrews with Morgan Stanley.

Thank you and good morning, everyone.

Good morning, Dan how are you doing.

I'm very well, thank you say I'd.

I'd be curious to get your thoughts on.

In the long term not not obviously, where things are today, but if you think in the medium to long term.

Do you think the cost of carbon is going to be.

And maybe on a regional basis, you could talk about it and to the extent you want to discuss what youre, assuming when you think about looking at a new project that might be helpful too.

Hello, Vincent you're asking to get very very insightful question I mean right now.

Different parts of the board have put different numbers in place I'm in California, They have food.

$200 right.

Ton of C. O two you get the incentive for that.

Canada he's talking about.

Yeah, you know 50 to $100.

John.

Are there parts of the board that we have exposure to that it is the number is somewhere between.

<unk> hundred dollars $60 $75 $150, it's all over the place.

I think that the.

You know.

They're very they look at these projects and all of that be try to kind of look at the profitability.

On the basis that if you don't get too much of these kind of things because we don't want to rely on government subsidies every time they do something.

But overall these numbers are all going to develop based on the commitments that people have name and fundamentally.

What is going to happen eventually.

If people are going to I mean, I see the great fascination all of these promises being made at Glasgow.

You add up all of those things the amount of carbon credits that you need in order to meet the requirements becomes dry gas.

And therefore.

In order to generate those things.

Customers need to start using these low carbon energy sources.

And therefore do you happen to have real incentives for people to convert from gasoline from diesel.

I mean, four ships and trains and planes and all of that and she is making to really shift to clean energy.

And that.

A little bit of incentive is not going to do that so I think if the governments are serious to achieving those goals. They have to put in a steep incentives to incentivize people to actually do that so the prospect of that is very encouraging for our business.

Have to see how it develops.

So as we go forward.

I appreciate that answer and yes. Thank you very much in the interest of time I'll pass it along.

Thank you very much and I really appreciate that.

Next question.

We'll take our next question from Jeff Zekauskas with J P. Morgan.

Thanks very much.

Safety I was looking at your project commitments and I didn't see any.

Commitments in the electronics area through 2026.

Is that something strategic we're aligned.

Air products is moving away from the electronics area.

In favor of other opportunities.

And when you look at your $4 5 billion or so in Capex for next year can you talk about what the big chunks that youre going to spend them.

Yes, good morning first of all I have.

Israel.

Yeah.

Yes.

You know one of the reasons that the wanted Dr. Han to talk to you about the smaller facilities and all of that.

Well, it's because my concern about the fact that the question that you just asked we are winning our fair share of business in electronics.

We're doing some very big projects for people like all of these big.

Electronic manufacturers like Intel like Samsung TSMC and all of that.

You don't see it you don't highlight them because they are not mega Mega projects, but we are winning our fair share of those.

So we are not that is actually one of the sectors. We are very focused on.

Very strong in Asia Pacific There most of these projects are happening.

We are definitely on top of that.

Now in terms of the breakdown I didn't hesitate to give you the breakdown because then.

People know exactly which projects you have both of these projects you had been born and all of that but believe me air products has been and continues to be extremely focused on the electronics sector and I can't.

Wayne that we are definitely winning our fair share of.

Who knows.

Projects for those big customers.

Okay great.

Thank you Brian.

Sure.

Well go to our next question from P J <unk> with Citi.

Yes. Thank you.

One last quick one quick question.

You know what's happening globally. If you look at the narrative about <unk> 26, and a move towards de carbonization and less investments in fossil fuels.

You will see a scenario where of course at a fair price. So just keep going up as a result.

Similar to what has happened in Europe.

And if that does happen hypothetically.

How do your projects in China, and other parts of the World are fair and I'm glad I went up higher than that.

Does your prices. Thank you.

Well P. J. Thank you pay me for asking a very excellent question.

Thing is that there is no question that if.

Hydrocarbon prices go up.

Like the oil price having gone up.

That does help some of the existing projects that you have.

China, I mean right now.

One of the reasons that land is operating at full capacity.

Despite the very high price of coal in China is because they are doing they are taking hold and they're making diesel.

Selling the diesel fueled at higher prices because the oil price is $84 it at that.

So.

Round about.

Its hydrocarbon costs go up.

Helps those kind of projects, but then the other interesting part is that if hydrocarbons costs go up.

There's a cost of renewable energy compared to hydrocarbons becomes even more attractive.

So you would say that it's easier to convert a truck driver from diesel to hydrogen because not that these are these cost anymore.

In a funny Bay, if actually a hydrocarbon prices go up.

We will help our strategy in terms of focusing on renewables.

Does that makes sense.

Yes that does but does it impact your coal gasification plants.

Well it helps them.

Because the coal gasification plants are producing chemicals, which are competing with production from oil.

The reason that try not using a lot of coal or Indonesia on Skus, a lot of coal or the India of Orange juice coal is because they want to use coal to produce chemicals. So that they don't have to pay for and currency for the oil that important.

So if energy prices go up.

Coal prices are in the ground and therefore that would help.

All right Great I'll pass it along thank you.

Thank you very much I think they appreciate that.

Yeah.

Any other questions or that's there.

It appears there are no further questions at this time.

Okay did that then I would like to thank everybody who was on the call. We very much appreciate your very good and in <unk>.

Right.

And sometimes difficult questions, but that's the way it is I do appreciate that and we look forward to talking to you then be in all of the first quarter results sometime in January or early February. Thank you again and have a very nice day.

Yeah.

Today's call. Thank you for your participation you may now disconnect.