Full Year 2021 Linde PLC Earnings Call
Okay.
[music].
Speaker 1: you
Yeah.
Okay, and thank you for standing by welcome.
The plc fourth quarter 2021 earnings teleconference.
At this time all participants are in a listen only mode.
Please be advised that today's conference is being recorded.
The speaker's presentation, there will be a question and answer session.
I would now like to hand, the conference over to Mr. Juan <unk>.
Head of Investor Relations. Please go ahead.
Speaker 2: Thanks, Christina. Good morning, everyone. And thank you for attending our 2021 fourth quarter earnings call and webcast. I am Wampanoag Head of Investor Relations.
Thanks, Kristina good morning, everyone and thank you for attending our 2021 fourth quarter earnings call and webcast I am hospitalized head of Investor Relations.
And I'm joined this morning by Sanjiv, Lombok, Chief operating officer, and Matt White, Chief Financial Officer.
Speaker 2: And I'm joined this morning by Sanjeev Lamba, Chief Operating Officer, and Matt White, Chief Financial Officer.
Speaker 2: Today's presentation materials are available on our website at lindy.com in the investor section.
Today's presentation materials are available on our website at <unk> dot com in the investors section.
Please read the forward looking statement disclosure on page two of the slides and note that it applies to all statements made during this teleconference. The reconciliations of the adjusted numbers are in the appendix to this presentation.
Speaker 2: Please read the forward-looking statement disclosure on page two of the slides and note that it applies to all statements made during this teleconference. The reconsiderations of the adjusted numbers are in the appendix to this presentation.
Speaker 2: Sanjeev will provide some opening remarks, and then Matt will give an update on Lindy's fourth quarter financial performance and outlook, after which we will wrap up with Q&A. Let me turn the call over to Sanjeev.
So as you will provide some opening remarks, and then Matt will give an update on <unk> fourth quarter financial performance and outlook after which we will wrap up with Q&A.
Let me turn the call over to Sanjiv.
Thanks, Ron and good morning, everyone.
By all measures 2021 was another successful year for Linda.
Speaker 3: By all measures, 2021 was another successful year for Linden.
Speaker 3: Our employees around the world delivered strong financial results while exemplifying Linda's core values every day.
Our employees around the world delivered strong financial results, while exemplifying Linda <unk> core values every day.
Speaker 3: I'd like to take this opportunity to thank them for their tireless efforts to ensure safe, reliable and cost-effective supply of critical products and services to our customers.
I'd like to take this opportunity to thank them for their tireless efforts to ensure safe reliable and cost effective supply of critical products and services to our customers.
Slide three.
Speaker 3: Slide three provides full year highlights by four key areas of focus.
Full year highlights by four key areas of focus of course. This list is not exhaustive there are many more we manage every day.
Speaker 3: Of course, this list is not exhaustive. There are many more we manage every day. However, these represent the overarching priorities that I view as important to our continuing success.
Hello, well these represented the overarching priorities that I view as important to our continuing success.
So let me begin with our shareholders.
This year, we once again delivered industry leading performance.
Speaker 3: This year, we once again delivered industry-leading performance. That makes it the third year in a row since our merger.
That makes it the third year in a row since our merger.
EPS grew 30%.
Speaker 3: Operating cash flows expanded 31% and ROC increased to 17.7%.
Operating cash flows expanded 31%.
<unk> increased to 17, 7%.
Speaker 3: with all three metrics reaching record level.
With all three metrics reaching record levels.
Speaker 3: And it's important to remember, we achieved these numbers from a very strong 2020 base, which also grew double digit percent from 2019.
And it's important to remember we achieved these numbers from a very strong 2020 base, which also grew double digits from 2019.
We clearly demonstrated the resilience of our business in 2020.
Speaker 3: We clearly demonstrated the resilience of our business in 2020.
Speaker 3: and the ability to leverage the economic recovery in 2021.
And the ability to leverage the economic recovery in 2021.
We shared the success with our owners by distributing $7 billion in the form of dividends and stock repurchases and I fully expect this trend to continue.
Speaker 3: We shared this success with our owners by distributing $7 billion in the form of dividends and stock repurchases. And I fully expect this trend to continue.
Speaker 3: This was all done while implementing an orderly CEO and board share transition to ensure future performance without any disruption.
This was all done while implementing and.
An orderly CEO and board chair transition to.
To ensure future performance without any disruption.
Speaker 3: In fact, we have positioned ourselves quite well for the future.
In fact, we have positioned ourselves quite well for the future by.
Speaker 3: by winning high quality opportunities that meet our disciplined investment criteria.
By winning high quality opportunities that meet our disciplined investment criteria.
Speaker 3: 2021 ended with a record 13 billion of contractually secured backlog projects.
'twenty one ended with a record 13 billion of contractually secured backlog projects.
Speaker 3: including more than 1 billion for new semiconductor fabs with leading customers in the electronics end mark.
Including more than $1 billion for new semiconductor fabs with leading customers in the electronics end market.
Speaker 3: In addition to that, we made 2 billion of base CapEx investors.
In addition to that we made $2 billion of base Capex investments, including a record 43 small onsite plants also with long term contracts.
Speaker 3: including a record 43 small on-site plants, also with long-term contracts.
Speaker 3: And we have also committed close to 500 million in clean energy initiatives.
And we have also committed close to $500 million in clean energy initiatives.
Speaker 3: Currently, we are reviewing roughly 300 decarbonization projects globally, with probability adjusted add to more than 4 billion of potential investment opportunities.
Currently we're reviewing roughly 300 decarbonization projects globally with probably the adjusted add to more than $4 billion of potential investment opportunities.
Speaker 3: Of course, none of this is possible without the thousands of talented employees that run our businesses each day. We achieve best...
Of course, none of this is possible without the thousands of talented employees that run our businesses each day.
We achieved best in class safety performance.
While improving gender diversity to 28% well on track for our 30 by 30 goal.
Speaker 3: while improving gender diversity to 28%, well on track for our 30x30 goal.
In addition, we improved on several other concrete specific diversity goals to ensure we run and manage our businesses in a way that best reflects and support the communities we live in.
Speaker 3: In addition, we improved on several other country-specific diversity goals to ensure we run and manage our businesses in a way that best reflects and supports the communities we live in.
Speaker 3: We are a very local business, and it's critical that we always strive to give back.
We are a very local business and it's critical that we always strive to give back.
Speaker 3: In further support of that commitment, every lender business contributed to the 400 community engagement projects executed around the wall.
In further support of that commitment every Linda business contributed to the 400 community engagement projects executed around the world.
Speaker 3: And all these actions were undertaken in another year of the pandemic, with our teams providing reliable and uninterrupted supply of gases and services to our customers, including critical oxygen to millions of patients in hospitals and at their homes.
And all of these actions were undertaken in another year of the pandemic.
With our teams, providing reliable and uninterrupted supply of gases and services to our customers, including critical oxygen to millions of patients and hospitals and at their homes.
Finally, we maintained a strong commitment towards sustainability.
Speaker 3: Finally, we maintained a strong commitment towards sustainability by doubling down on our existing carbon intensity goals and announcing more ambitious absolute emission reduction goals for 2035 and also a roadmap for climate neutrality by 2050.
By doubling down on our existing carbon intensity goals and announcing more ambitious absolute emission reduction goals for 2035 and also a roadmap for climate neutrality by 2050.
Speaker 3: And while it's heartening to see independent recognition of our employees' efforts in this area, including a few listed here from Dow Jones Sustainability and CDP, I know we can further improve our
And while it is heartening to see independent recognition of our employees' efforts in this area, including a few listed here from Dow Jones sustainability and CDP I know, we can further improve.
Overall I am proud of how the Linda team came together against several headwinds and delivered industry leading performance once again.
Speaker 3: Overall, I'm proud of how the Linde team came together against several headwinds and delivered industry leading performance once again.
So as I sit here today I'm more confident now than ever on our ability to deliver another record year in 2022.
Speaker 3: So as I sit here today, I'm more confident now than ever on our ability to deliver another record year in 2022.
I'll now hand over the call to Matt to walk you through the financial numbers Matt.
Speaker 3: I'll now hand over the call to Matt to walk you through the financial numbers. Matt?
Thanks Sanjay.
Speaker 4: Please turn to slide four for an overview of the fourth quarter results.
Please turn to slide four for an overview of the fourth quarter results.
Speaker 4: Sales of $8.3 billion were up 14% versus prior year and 8% sequential.
Sales of $8 $3 billion were up 14% versus prior year and 8% sequentially.
You can see the effects of cost pass through at 6% and 3% versus last year in the third quarter.
Speaker 4: you can see the effects of cost pass-through at 6% and 3% versus last year and the third quarter.
Speaker 4: While this is the highest quarterly number we've seen in over a decade,
While this is the highest quarterly number we've seen in over a decade.
Speaker 4: It demonstrates the strength of our contracts by protecting returns from higher energy.
It demonstrates the strength of our contracts by protecting returns from higher energy costs.
And remember this has no impact to operating profit dollars, but will negatively affect operating margins since we gross up both sales and costs.
Speaker 4: And remember, this has no impact to operating profit dollars.
Speaker 4: but will negatively affect operating margins since we gross up both sales and...
As anticipated engineering contributed a solid 3% growth on the strength of their record project backlog.
Speaker 4: As anticipated, Engineering contributed a solid 3% growth on the strength of their record project back.
This trend should continue in the foreseeable future as they work through their multi year $10 billion sale of plant backlog.
Speaker 4: This trend should continue in the foreseeable future as they work through their multi-year $10 billion sale of plant.
Speaker 4: Excluding these items, organic sales increased 9% over last year and 2% sequentially
<unk> these items organic sales increased 9% over last year, and 2% sequentially from a combination of higher volume and price.
Speaker 4: The volume increase over 2020 was broad.
The volume increase over 2020 was broad based.
Speaker 4: with one third coming from project startups, and the remainder from base volume improvement across all end markets.
With one third coming from project startups.
And the remainder from base volume improvement across all end markets.
Speaker 4: sequentially, volumes were flat as growth in food and beverage and
Sequentially volumes were flat as growth in food and beverage and energy and chemicals.
Speaker 4: were offset by lower metals and seasonal reductions in our southern hemisphere LPG.
Were offset by lower metals and seasonal reductions in our southern hemisphere LPG business.
Price increased 3% over prior year, and 2% sequentially across all geographic segments with the largest increase coming from EMEA due to greater inflationary pressures.
Speaker 4: Price increased 3% over prior year and 2% sequentially across all geographic sites.
Speaker 4: with the largest increase coming from EMEA due to greater inflationary pressures.
We continued to experience some pricing lag for the merchant and packaged business.
Speaker 4: we continue to experience some pricing lag for the merchant and packaged business.
Speaker 4: So we fully expect strong pricing in Q1 and throughout 2022 to recover inflation.
So we fully expect strong pricing in Q1 and throughout 2022 to recover inflation.
No actual merchant and packaged price increases are mid single to low double digit percent across all segments.
Speaker 4: Note, actual merchant and packaged price increases are mid-single to low double digit percent across all sectors.
Operating profit of $1 $8 billion is up 14% from last year and 2% sequentially.
Speaker 4: Operating profit of $1.8 billion is up 14% from last year and 2% sequentially.
Operating margins of 22, 2% or flat with prior year.
Speaker 4: Operating margins of 22.2% are flat with prior year, but down 140 basis points sequentially.
<unk> down 140 basis points sequentially.
There are three drivers currently having a negative effect on operating margins.
Speaker 4: There are three drivers currently having a negative effect on operating margins.
Speaker 4: of which two have a neutral to positive effect on operating profit dollars, and the third is a temporary lag that will correct over the next few quarters. The first
To have a neutral to positive effect on operating profit dollars and the third is a temporary lag that will correct over the next few quarters.
The first factor is of course cost pass through.
Speaker 4: And as mentioned earlier, a 6% increase is the highest we've seen.
And as mentioned earlier, a 6% increase is the highest we've seen.
Speaker 4: This is a standard part of our contracts that has no effect on profit dollars.
This is a standard part of our contracts that has no effect on profit dollars, but had an unfavorable impact to operating margins of 120, and 70 basis points versus prior year and third quarter respectively.
Speaker 4: but had an unfavorable impact to operating margins of 120 and 70 basis points versus prior year and third quarter respectively.
The second factor relates to the engineering segment, becoming a larger part of the growth.
Speaker 4: The second factor relates to the engineering segment becoming a larger part of the growth.
Speaker 4: This will improve profit, dollars, and cash growth.
This will improve profit dollars and cash growth.
Speaker 4: but has a negative effect on mix since this business has a different margin profile due to the lack of capital intensification.
But has a negative effect on mix since this business has a different margin profile due to the lack of capital intensity.
Speaker 4: Finally, the last factor is because energy prices have increased faster than price actions in the merchant and packaged business.
Finally, the last factor is because energy prices have increased faster than price actions in the merchant and packaged business.
Speaker 4: This pricing normally lags one to two quarters, and the higher inflation in Q4 caused this to push out another quarter.
This pricing normally lags one to two quarters and the higher inflation in Q4 caused this to pushed out another quarter.
Speaker 4: You can see in the table what the gas segment margin trends look like, excluding cost pass through impact.
You can see in the table, what the gas segment margin trends look like excluding cost pass through impact.
Speaker 4: up quite nicely year over year and down slightly on a sequential basis from this lag.
Up quite nicely year over year and down slightly on a sequential basis from this lag effect.
Speaker 4: I fully expect we'll recover this inflation with underlying margins expanding in 2022.
I fully expect we will recover this inflation with underlying margins expanding in 2022.
Speaker 4: EPS of $2.77 was 20% above last year and 1% above the third quarter.
EPS of $2 77.
It was 20% above last year, and 1% above the third quarter.
Speaker 4: We also included a full year summary on appendix slide.
We also included a full year summary on appendix slide eight showing sales and EPS growth of 13% and 30%.
Speaker 4: showing sales and EPS growth of 13% and 30%.
To <unk> point this growth rate comes off a 2020 base, which also performed quite well.
Speaker 4: To Sanjeev's point, this growth rate comes off a 20-20 base, which also performed quite well.
Speaker 4: Full year in Q4 2021 EPS increased from 2019
Full year, and Q4 2021, EPS increased from 2019 by.
Speaker 4: by 46% and 47% respectively.
By 46% and 47% respectively.
Speaker 4: which emphasizes the continued growth of our business through any scenario.
Which emphasizes the continued growth of our business through any scenario.
Speaker 4: In fact, the business is well positioned to outperform in all economic cycles.
In fact, the business is well positioned to outperform in all economic cycles.
Speaker 4: Our portfolio has ample resilient market exposure for recessions like 2020.
Our portfolio has ample resilient market exposure for recessions like 2020.
High quality cyclical customers across all supply modes for expansion periods like 2021.
Speaker 4: high quality cyclical customers across all supply modes for expansion periods like 2021.
Speaker 4: significant sale of plant capabilities to immediately benefit from capital cycles like we're seeing today.
Significant sale of plant capabilities to immediately benefit from capital cycles like we're seeing today.
And sale of gas expertise, which has delayed capital cycle benefits two to three years down the road.
Speaker 4: and sale of gas expertise, which has delayed capital cycle benefits two to three years down the road.
Simply stated Belinda model can deliver leading performance regardless of the macro economic climate.
Speaker 4: simply stated Belindy model can deliver leading performance regardless of the macroeconomic climate.
Speaker 4: The last point I'd like to make on this slide relates to capital management.
The last point I would like to make on this slide relates to capital management.
Speaker 4: You can see that ROC, which we view as the single most important metric for this industry.
You can see that RFC, which we view as the single most important metric for this industry.
Speaker 4: reached a new record of 17.7%. This.
Reached a new record of 17, 7%.
This doesn't just happen overnight.
Speaker 4: It takes considerable effort from thousands of our employees.
It takes considerable effort from thousands of our employees.
Speaker 4: to continuously deliver industry-leading profit and cash growth.
To continuously deliver industry, leading profit and cash growth.
Speaker 4: underpinned by a disciplined and consistent capital allocation process.
Underpinned by a disciplined and consistent capital allocation process.
And a big part of that effort went toward delivering the record operating cash flow of $3 $2 billion.
Speaker 4: And a big part of that effort went toward delivering the record operating cash flow of $3.2 billion, which is covered in more detail
Which is covered in more detail on slide five.
Okay.
The left side shows our quarterly operating cash flow trends.
Speaker 4: The left side shows our quarterly operating cash flow.
Speaker 4: You can see that cash has increased each quarter for three straight years and that 2021 was a record by growing 31% over prior years.
You can see that cash has increased each quarter for three straight years.
And that 2021 was a record by growing 31% over prior year.
Speaker 4: The operating cash flow to EBITDA ratio reached 96% for full year 2021, well above
The operating cash flow to EBITDA ratio reached 96% for full year 2021.
Well above historical levels.
Part of this is driven by project prepayments in the $1 $3 billion inflow of contract assets and liabilities.
Speaker 4: Part of this is driven by project prepayments in the $1.3 billion inflow of contract assets and liability.
Speaker 4: which is the accounting term to describe working capital for the engineering business.
Which is the accounting term to describe working capital for the engineering business.
Speaker 4: As stated before, engineering is a strong cash generating business that delivers returns well within our investment criteria.
As stated before engineering is a strong cash generating business that delivers returns well within our investment criteria.
These prepayments are from the record project backlog, which will benefit the income statement over the next three to four years.
Speaker 4: These prepayments are from the Record Project Backlog, which will benefit the income statement over the next three to four years.
Due to timing effects, I expect 2022 contract assets and liabilities to be substantially lower than the 2021 level.
Speaker 4: Due to timing effects, I expect 2022 contract assets and liabilities to be substantially lower than the 2021 level.
Speaker 4: but we still anticipate strong cash performance across the rest of the business.
But we still anticipate strong cash performance across the rest of the business units.
Speaker 4: Overall, I expect ongoing operating cash flow to EBITDA ratios in the low to mid 80 percent.
Overall, I expect ongoing operating cash flow to EBITDA ratios in the low to mid 80% range.
Speaker 4: The right side shows how we deployed the $10 billion of full-year cash.
The right side shows how we deployed that $10 billion of full year cash flow.
Speaker 4: A third was invested back into the business in the form of contractually secured growth projects and base capex, which represents both growth and maintenance investments.
A third was invested back into the business in the form of contractually secured growth projects and base Capex.
Which represents both growth and maintenance investments.
Recall that a substantial portion of our business.
Speaker 4: including packaged gases, healthcare services, and engineering.
Including packaged gases healthcare services and engineering.
Speaker 4: don't require much CapEx to grow. So this only represents a portion of the future growth potential.
Don't require much capex to grow so this only represents a portion of the future growth potential.
Speaker 4: In addition, we return two-thirds, or $7 billion, back to shareholders in the form of dividends and share repurchase.
In addition, we returned two thirds or $7 billion back to shareholders in the form of dividends and share repurchases.
Our January 2021 share repurchase program of $5 billion.
Speaker 4: Our January 2021 share repurchase program of $5 billion is substantially complete.
Is substantially complete.
Speaker 4: And we will review the future capital allocation in our upcoming board meeting in two weeks.
And we will review the future capital allocation and our upcoming board meeting in two weeks.
Overall strong cash contribution from all business units enabled lindy to invest for future growth while rewarding shareholders.
Speaker 4: Strong cash contribution from all business units enabled Lindy to invest for future growth while rewarding shareholders.
I'll wrap up with guidance on slide six.
First quarter guidance is in the range of $2 70.
Speaker 4: First quarter guidance is in the range of $2.70 to $2.80, up 8% to 12%.
To $2 80.
Up 8% to 12% from prior year.
Speaker 4: or 11% to 15% when adjusting for the assumed 3% currency.
Or 11% to 15% when adjusting for the assumed 3% currency headwind.
Sequentially versus Q4 this.
Speaker 4: Sequentially versus Q4, this range assumes flat economic conditions.
This range assumes flat economic conditions.
Speaker 4: with seasonally lower volumes offset by higher inflation recovery.
Seasonally lower volumes offset by higher inflation recovery.
Speaker 4: Q1 is traditionally the weakest quarter of the year, including for cash flow.
Q1 is traditionally the weakest quarter of the year.
Including for cash flow due to payment timing.
Full year 2022 guidance is $11 55.
Speaker 4: Full year 2022 guidance is $11.55 to $11.85.
$211 85.
Speaker 4: representing an 8% to 11% increase versus 2021, or 10% to 13% when adjusting for the 2% FX head.
Representing an 8% to 11% increase versus 2021.
Or 10% to 13% when adjusting for the 2% FX headwind.
The midpoint of this range assumes flat economic conditions, and thus no base volume improvement.
Speaker 4: The midpoint of this range assumes flat economic conditions and thus no base volume improvement.
Speaker 4: Consistent with our prior approach, this is not our economic forecast. Rather, it merely represents the underlying assumption in the guidance.
Consistent with our prior approach this is not our economic forecast rather it merely represents the underlying assumption in the guidance range.
Speaker 4: you can insert your own view of the 2022.
You can insert your own view of the 2022 economy.
And if it does better I would expect to be at the top end or above this range.
Speaker 4: And if it does better, I'd expect to be at the top end or above this range.
And if we experience a recession.
Speaker 4: We'll take actions to meet this commitment as we did in 2000.
We'll take actions to meet this commitment as we did in 2020.
There remains a lot of uncertainty heading into 2022.
Speaker 4: There remains a lot of uncertainty heading into 2020.
Speaker 4: And despite all the expert forecasts, nobody knows what will happen.
And despite all the expert forecasts nobody knows what will happen.
Speaker 4: However, we have an industry leading business portfolio and contractually secured project back.
However, we have an industry, leading business portfolio and contractually secured project backlog.
Speaker 4: So regardless of the economic challenges, we remain quite confident in our ability to continue delivering shareholder value. I'd now like to turn the call over to Q&A.
So regardless of the economic challenges, we remain quite confident in our ability to continue delivering shareholder value.
I'd now like to turn the call over to Q&A.
And if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Speaker 5: After using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question.
If you are using a speakerphone. 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.
We will take our first question from Steve Byrne with Bank of America.
Speaker 6: Yes, thank you. I'd like to drill in a little bit on your engineering business.
Yes, thank you I'd like to drill in a little bit on that your your engineering business.
Speaker 6: You had this kind of pop in revenue in the 4th quarter and you have had this. You know, sale of of plant chunk, the 6Billion dollar project recently. But when you look over the last.
You had this kind of pop in revenue in the fourth quarter and you have had this.
Sale of plant shrunk the $6 billion project recently, but when you look over the last four.
Four years.
Speaker 6: Revenue hasn't changed much, backlog hasn't changed much, but your margins have doubled.
Revenue Hasnt changed much backlog hasnt changed much but your margins have doubled.
Speaker 6: Can you comment on what have you done to do that? Is that just productivity or is this a mix shift? And how has your view of the value of this business and the benefits of the broader, you know, operating units changed since?
Can you comment on.
Have you done to do that is just productivity or is this a mix shift.
And how has your view of the.
The value of this business and the benefits to the broader.
Operating units changed since then.
The last few years.
Steve I'll, let Matt take that question and then I'll add on to that sure Hi, Steve. So first on your question on the history. The backlog on the third party actually has declined if you go back a couple of years or last year or so, but the margins have been able to maintain quite well because recall we show the segment of the third.
Speaker 3: Steve, I'll let Matt take that question, and then I'll add on to that. Sure.
Speaker 4: Hi, Steve. So first on your question on the history, the backlog on the third party actually has declined if you go back a couple years or last year or so. But the margins have been able to maintain quite well because recall.
Speaker 4: We show the segment of the third-party business. In addition, the engineering organization also works on our intercompany sale of gas backlog.
Party business. In addition, the engineering organization also works on our intercompany sale of gas backlog. They have the ability to gain absorption of the labor and build that and our sale of gas backlog that they support and perform will be part of the capex of the organization and the sale of plant backlog that they perform and execute become third part.
Speaker 4: They have the ability to gain absorption of the labor and build that, and our sale of gas backlog that they support and perform will be part of the CapEx of the organization, and the sale of plant backlog that they perform and execute become third-party sales and profits for the organization.
Sales and profits for the organization. So this one is something as you probably know we talked about even at the merger time. This combination of the companies, bringing all of the opportunities both sale of plant and sale of gas not only give our engineering organization a good backlog to work with but also really helps with their <unk>.
Speaker 4: So this was something, as you probably know, we talked about even at the merger time, this combination of the companies bringing all of the opportunities, both sale of plant and sale of gas, not only give our engineering organization a good backlog to work with, but also really helps with their very strong technical capabilities across growing in both areas.
Strong technical capabilities across growing in both areas now when you think about looking forward I think the simple way to think about how to model. This business. The sale of plant third party backlog is translated dollar for dollar so.
Speaker 4: Now, when you think about looking forward, I think that the simple way to think about how to model this business, the sale of plant third party backlog is translated dollar for dollar. So our sale of plant backlog is $1 backlog equals $1 sales in the future. And as you probably know, the sale of gas backlog is a dollar of CapEx. So it has a different ratio to sales.
<unk> backlog is $1 backlog equals $1 sales in the future and as you probably know the sale of gas backlog is a dollar of capex. So it has a different ratio to sales. So for the engineering business about a $10 billion backlog means we will get about $10 billion of future sales and it's usually over three years to four years.
Speaker 4: So for the engineering business, about a $10 billion backlog means we will get about $10 billion of future sales, and it's usually over three to four years on how that's recognized. And from a margin perspective, as long as they continue to have a good backlog of both third party and sale of gas, it'll allow them to efficiently manage their costs and obviously leveraging our global footprint in terms of what the hourly rates are.
On how that's recognized and from a margin perspective as long as they continue to have a good backlog of both third party and sale of gas it will allow them to efficiently manage their costs and obviously leveraging our global footprint in terms of what the hourly rates are so hopefully that answers your question and maybe let me just add on.
Speaker 3: So hopefully that answers your question and maybe let me just add on to that a little bit, Steve, in terms of how we see that business. So.
To that a little bit Steve in terms of how we see that business. So there are a couple of things the engineering business allows us to do on the on the gas side, as well, which make it quite quite unique and important for US. One is early insight into project. So when one of our customers is looking at a large project they will reach out to the engineering team and get some input we get very.
Speaker 3: There are a couple of things that the engineering business allows us to do on the gas side as well, which make it quite unique and important for us. One is early insight into projects. So when one of our customers is looking at a large project, they will reach out to the engineering team and get some input. We get very early insight into that and obviously are able to leverage that. Now, the next step from that is our ability then to be able to say whether we want a particular project to go down a sale of gas or a sale of plant oil.
Early insight into that and obviously are able to leverage that now the next step from that is our ability then to be able to say, whether we want a particular project to go down a sale of gas or a sale of plant option.
Speaker 3: And again, that optionality is something that comes intrinsically by having the engineering in-house. And last but not least, it is really a competitive advantage as we look at the transition that's going to happen with clean energy. There is a whole new market opening up, and of course, right in the heart of that is technology which is owned and proprietary to linear engineering and their ability to take other technologies and build them into solutions that will hold us in good stead as we look ahead.
And again that Optionality is something that comes intrinsically by having the engineering in house and last but not least it is really a competitive advantage as we look at the transition that's going to happen with clean energy. There is a whole new market opening up and of course right in the heart of that is technology, which is owned and proprietary to Linda.
Hearing and their ability to take other technologies and build them into solutions that will hold us in good stead as we look ahead.
Speaker 6: Thank you for that. And one quick one on your European business.
Thank you for that and one quick one on your European business.
Can you provide the split on revenue between on site.
Speaker 6: Can you provide the split on revenue between onsite and
Speaker 6: Merchants and packaged and and the sequential price mix increase of 4%.
Merchant <unk>.
The sequential price mix increase of 4%.
Speaker 6: Were you aggressive about pushing through price early in the quarter in order to achieve the results you did?
You are aggressive about pushing through price early in the quarter in order to achieve the results we did.
Right, Steve So the split roughly around the EMEA business, which kind of spans about 40 countries, but that split is roughly about a third two thirds a third of on site, whereas you know well the pass through kind of goes automatically from the contractual structures, we have and about two thirds of merchant and packaged.
Speaker 3: Right, Steve. So the split roughly around the EMEA business, which kind of spans about 40 countries, but that split is roughly about a third, two-thirds, a third of on-site, where as you know well, the pass-through kind of goes automatically from the contractual structures we have, and about two-thirds of merchant and packaged, where again, a lot of hard work goes in. And to your point, you might recall, Steve, that for about four quarters now we've been talking about inflation. It isn't new.
Where again a lot of hard work goes in and to your point we've been.
You might recall, Steve that for about four quarters now we've been talking about inflation it isn't new.
Speaker 3: And while it's not well recognized, I thought it's worthy of just a quick reminder. You know, we operate in about a hundred countries.
And while it's not well recognize I thought its worthy of just a quick reminder, we operate in about 100 countries. Some of the best businesses that we have in many parts of the world, including Latin America Asia, and Europe have been actively managing inflation over decades.
Speaker 3: Some of the best businesses that we have in many parts of the world including Latin America, Asia and Europe have been actively managing inflation over decades.
Speaker 3: It's not new to us, it's a muscle that reflects from time to time, and it's part of our performance culture, kind of getting into the detail. Digging in, ensuring we're executing on pricing and productivity actions day in, day out. So that's what the guys have been doing over there. We kind of treat it as part of our ongoing business process, and they run that every day in that quarter. It isn't something that we do at the end of the quarter or at the beginning of a quarter.
This is not new to us it's a muscle that reflects from time to time in its part of our performance culture kind of getting into the detail digging named ensuring they're executing on pricing and productivity actions day in day out. So that's what the that's what the guys have been doing over there we kind of treated as part of our ongoing business process and they run that.
Every day in that quarter, it isn't something that we do at the end of the quarter or the beginning of the quarter.
Thank you.
Go to our next question from P J <unk> with Citi.
Good morning, Sanjay and Matt.
Speaker 7: Good morning, Sanjeev and Matt. Could you talk about your 300 decarbonization project?
Could you talk about your 300 decarbonization projects.
Speaker 7: set potential of four billion dollars in pipeline. How advanced are these projects and when do they, when are they likely to get added to the back?
You said potential of $4 billion in pipeline.
How advanced are these projects and when do they when are they likely to get added to the backlog.
Speaker 3: Right PJ, thanks for that question. So obviously we are very excited seeing the number of projects, the momentum that's building up around that. Very important to always remind ourselves that these projects have long lead time and development and you know we are seeing that on any major project of course even more so on some of these clean energy projects.
Alright P. J. Thanks for that question. So obviously, we are very excited to see the number of projects. The momentum that's building up around that very important to always remind ourselves of these projects have long lead time in development.
And we are seeing that on any major project of course, even more so on some of these clean energy projects. Typically these projects are divided into three <unk>, we kind of categorize them into three headings. If you will.
Speaker 3: Typically, these projects are divided into three, you know, we kind of categorize them into three headings, if you will, there are a number of projects around mobility, you read about them every day. And many of these projects, you know, of course, they are smaller in size relative to the other two segments, but many of these progressing at different paces.
A number of projects around mobility, you read about them everyday.
And many of these projects of course, they are smaller in size relative to the other two segments, but many of these progressing at different paces.
Speaker 3: a large number of them green, but a number of blue projects linked to mobility as well. The second bucket is really around induction.
Large number of them green, but a number of blue projects linked to mobility as well. The second bucket is really around industrial applications. This is where we're seeing either incumbent customers are new customers look at blue hydrogen green hydrogen look at how they convert and decarbonize their own processes, whether it's steel chemicals.
Speaker 3: or new customers, look at blue hydrogen, green hydrogen, look at how they convert and decarbonize their own processes, whether it's steel, chemicals, refining, it's a long list. So all of those activities. Now, being at the heart of that, and in most cases, incumbent in there, we are working actively with our customers to be able to help them understand their decarbonization strategy. And as a consequence of that, provide the input needed from our perspective to support that.
Refining it's a long list so all of those activities now being at the heart of that.
And in most cases incumbent in there we are working actively with our customers to be able to help them understand their decarbonization strategy and as a consequence of that provide the input needed from our perspective to support that.
Speaker 8: support that.
Speaker 3: The last segment is really where we're looking at the energy transition, so use of hydrogen in particular as an energy source, either through a carrier, so ammonia gets talked about a lot, or hydrogen by itself.
The last segment is really where we're looking at the energy transition so use of hydrogen in particular as an energy source either through a carrier. So ammonia gets talked about a lot our hydrogen by itself and that.
Speaker 3: That's a large segment, as you would expect, but it is complex because it has its own dynamic around large SOEs you're dealing with, political structures, and of course, a need for a global trade structure that allows for that distribution level to happen.
That's a large segment as you would expect it is complex because it kind of has.
Its own dynamic around it.
Largest so easier dealing with kind of political structures and of course.
Net a need for a global creative structure that allows for that distribution levels to happen.
Speaker 3: So we see development in all of these three. I think those 300 projects kind of fall neatly into there. And again, I have to say that while momentum is building up, and of course, you're reading lots of announcements every other day, I know, I do too, but I don't really see many of those announcements translate into projects immediately. There is a lead time to that development. Do I see that, you know, the four billion that you referenced? Now remember, that four billion is probability adjusted.
So we see development in all of these three I think those 300 projects kind of fall neatly into there and again I have to say that while momentum is building up and of course youre reading lots of announcements every other day I know I do too, but I don't really see many of those announcements translate into projects immediately there is a lead time to that development do I see.
The $4 billion that you referenced and I remember that $4 billion is probability adjusted.
Speaker 3: I mean, if I was to open up the Pandora's box and tell you what the absolute value is, we're talking $20-plus billion in terms of absolute value of those projects. But probably adjusted on a reasonably conservative lender basis, as you would expect, we think about $4 billion will come into decisions, FID decisions, for us in the next three years.
I mean, if I was to open up the Pandora's box and tell you what the absolute value as we're talking 20 plus billion dollars in terms of absolute value of those projects, but probably adjusted on a reasonably conservative lender basis. As you would expect we think about 4 billion will come into kind of decisions FIV decisions for us in the next three years.
Speaker 4: And PJ, this is Matt, I may just add to that as well. Recall it, that our definition of project backlog is really the most stringent in the industry. So we have been executing right now some of those green projects as part of our base cap X. If you notice sequentially, it even popped up here about 130, 140 million.
And P. J. This is Matt I may just add to that as well recall that our definition of project backlog is really the most stringent in the industry. So we have been executing right now some of those green projects as part of our base Capex. If you notice sequentially. It even popped up here about 130 $140 million. So these are ones, where we're building density.
Speaker 4: So these are ones where we're building density. These are ones where we're converting to say blue or green on some existing hydrogen network. So they are happening, but to make our project backlog definition, it requires a very stringent approach, but we fully expect to see some there in the future.
These are ones, where we're converting to say blue or green on some existing hydrogen network. So they are happening but to make our project backlog definition. It requires a very stringent.
Approach, but we fully expect to see some there in the future to <unk> point.
Speaker 7: great thank you for that and just uh... question on the flip side of the energy prices so you know the high energy prices the better
Great. Thank you for that and just a question on the flipside of this energy prices.
So these high energy prices does that accelerate your green blue hydrogen projects in gist.
Speaker 7: just uh... you know with higher power costs what is the cost of green
With higher power costs, what is the cost of green hydrogen today. Thank you.
Speaker 3: So PJ, that's a fairly broad question. Let me just take a step back and mention something to you, which I think is important to remind everyone, which is that one of.
So P J.
That's a fairly broad question, let me just take a step back and mentioned something to you, which I think is important to remind everyone, which is that one of the areas around energy transition and we're seeing a bit of pragmatism in Europe . As you know now because the taxonomies now describing both natural gas and nuclear as being in the green kind of zone. If you will.
Speaker 3: You know, areas around energy transition and we're seeing a bit of pragmatism in Europe as you know now because the taxonomy is now describing.
Speaker 3: both natural gas and nuclear as being in the green kind of zone, if you will.
Speaker 3: But one of the things to just remind ourselves, you know, natural gas will continue to be very important as we look ahead. So I see certainly momentum building up on natural gas, more investments, you know, the capital cycle that...
But one of the things you just remind us though in our natural gas will continue to be very important as we look ahead. So I see certainly momentum building up on natural gas more investments the capital cycle that Matt referenced in his in his comments earlier on we see some of that playing out and the projects.
Speaker 3: Matt referenced in his comments earlier on, we see some of that playing out and the projects that we are talking about in Linde Engineering as well, a lot of them serving that natural gas, growing natural gas.
We are talking about and Linda engineering as well a lot of them serving that natural gas growing natural gas.
Speaker 3: uh... you know business and and and development linked to that
Business and development linked to that now so that is important to recognize because we see that as part of the energy transition you'll see a role a very important role that natural gas locally.
Speaker 3: So that is important just to recognize, because we see that as part of the energy transition, you'll see a role, a very important role that natural gas will play.
Speaker 3: Let me move on and talk about, you know, whether whether the energy costs are actually supporting this transition and
Move on and talk about whether whether the energy costs are actually supporting this transition and my view is there are two transitions happening I believe in the next decade, or so you will see scalable technology for blue hydrogen pickup now get applied now and actually create a transition to that.
Speaker 3: There are two transitions happening. I believe in the next decade or so, you will see scalable technology for blue hydrogen pick up now, get applied now, and actually create a transition to that ultimate greener energy transition that is often talked about. So I really see blue playing a big role. And really, the kind of power pricing that you referenced earlier on doesn't have a direct impact on that. And therefore, that momentum is on its own.
Greenough.
Energy transition.
Is often talked about so I really see blue playing a big role and really the kind of power pricing that you referenced earlier on it doesn't have a direct impact on that and therefore that momentum is on its own on the green side, Yes, as you see energy prices move up there is there is a bit of a challenge around that.
Speaker 3: On the green side, yes, as you see energy prices move up. There is a bit of a challenge around that and that will get factored in. Of course, all of this will normalize.
That will get factored in of course all of this will normalize. The reality is what you see today is what is going to be for the next five years. So we should look at green hydrogen with that perspective, there is a lens of maybe a five to seven year development cycle. I've said this before our technology roadmap suggest that there is a five to seven year cycle for that scale.
Speaker 3: The reality is what you see today isn't what's going to be for the next five years. So, we should look at green hydrogen with that perspective. There is a lens of maybe a five to seven year development cycle, I've said this before. Our technology roadmap suggests that there's a five to seven year cycle for that scale up to happen and for green hydrogen to start then still be at a premium, but a more acceptable premium to maybe blue as we look ahead.
Up to happen and for Green hydrogen to stop then still be at a premium, but a more acceptable premium to maybe blue.
As we look ahead.
Thank you.
Thank you our next question from Nicola Tang with.
BNP Paribas.
Speaker 9: Hi, everyone, and thanks for taking my questions. First, I wanted to dig in a little bit more on the pricing dynamics.
Hi, everyone and thanks for taking my questions.
Firstly I wanted to dig in a little bit more.
Price the pricing dynamics.
I think you mentioned that in Europe , I think remarks at the cost.
Speaker 9: I think you mentioned that in your opening remarks that the cost inflationary pressure was bigger in Europe , so I was wondering why the sequential change
Inflationary pressures.
Wondering why.
The sequential change in the sequential margin squeeze was actually larger in Americas that it wasn't Europe on an ex pass through basis.
Speaker 9: in or the sequential margin squeeze was actually larger in America's than it was in Europe on an x cost pass-through basis, you know, is that to do with, I don't know, America's not being as effective at pricing or is it perhaps to do with the
Is that to do with Americas, not being as effective pricing or is it perhaps you do it.
Speaker 9: pricing dynamics in Lincare. And I guess linked to that, you know, could you talk a little bit about how the pricing dynamics in healthcare versus other industrial exposures and how the contract structures work? That's the first one. Thank you.
Pricing dynamics, and Lincare and I guess linked to that could you talk a little bit about how the pricing dynamics in health care investors I'm all for it.
Industrial exposure and how quick.
Contract structures work, that's the first one thank you.
Hi, Nicole it's Matt.
Speaker 4: So first, we'll start with saying there's there's no structural concerns. I just want to make sure we're aware of that and we understand that. And I think it's important also realize that, as you may recall in our last.
So first we'll start with saying Theres no structural concerns I just want to make sure. We're aware of that and we understand that and I think it's important also realize that.
As you may recall on our last quarter Europe right now is in the middle of some we'll call it larger cost actions that they're taking as well and you remember Americas and APAC had done those earlier and we always said that EMEA would be a little later and so they are in the midst of those so what youre seeing in EMEA is a combination of yes, hi.
Speaker 4: Europe right now is in the middle of some we'll call larger cost actions that they're taking as well. And you remember Americas and APAC had done those earlier. And we always said that EMEA would be a little later. And so they're in the midst of those. So what you're seeing in EMEA is a combination of, yes, higher inflation and pricing actions, but also in the middle of some cost actions that they're taking, which will help the margin profile.
Inflation and pricing actions, but also in the middle of some cost actions that they're taking which will help the margin profile.
Speaker 4: In the Americas, I would not say there's anything concerning or different. To your point, the health care profile on pricing will be different, right? That won't price as fast to inflation. It tends to be a little more structured. Now, that being said, at least in the U.S., they are getting a large inflationary price increase that will be effective here January 1st. So that's a normal part of the process. But I would say it's more a function of how the cost actions are being taken in EMEA right now on a delayed basis, which is causing.
Americas I would not say, there's anything concerning or different to your point the health care profile on pricing will be different right that won't price.
As fast to inflation it tends to be a little more structured now that being said at least in the U S. They are getting a large inflationary price increase that'll be effective here January one so that's a normal part of the process, but I would say, it's more a function of how the cost actions are being taken in EMEA right now on a delayed basis, which is causing that.
Okay.
Speaker 9: All right, thanks. And then just a quick one around volume. So it looks like all end markets were up sequentially apart from metals and mining. And I know it's still a bit early in the year, but could you maybe maybe give us a whistle stop, you know, whistle stop tour of what you're seeing so far across some of your key end markets? And I guess specifically comment on the metals and mining point.
Alright, Thanks, and then.
Just a quick one around volume it looks like we'll end markets were up sequentially apart from metals and mining and I know instead of early in the year, but could you maybe just maybe give us a whistle.
Whistle stop tour of.
What youre seeing so far a question Miguel key end markets and I guess, specifically comment on the left with the mining plan.
Sean Nikola why not do that and what I'll do is I'll walk you through Q4, just to kind of build a base and then quickly talk about the outlook that we're looking at and I'll talk specifically about metals and mining in China as you know thats quite intrinsically linked so let me start with the Americas as maybe the starting point overall in Q4, you saw a strong growth about 7%.
Speaker 3: Sure, Nikhil, why didn't I do that? And what I'll do is I'll walk you through Q4 just to kind of build a base and then quickly talk about the outlook that we're looking at. And I'll talk specifically about metals and mining in China. As you know, that's quite intrinsically linked.
Speaker 3: So let me start off with America as maybe the starting point. Overall, in Q4, you saw strong growth, about 7% up. It was pretty broad-based. When I look at the market breakdown, metals, manufacturing, chemicals and refining, all cyclical end markets, strongest.
It was pretty broad based when I look at the market breakdown metals manufacturing chemicals and refining all cyclical end markets strongest followed of course by electronics and food and beverage, which also did quite well and just very quickly I'm going to cover refinery because I know a number of your interest in that a refinery volumes are up higher than pre COVID-19 levels, excluding startups were at.
Speaker 3: followed, of course, by electronics and food and beverage, which also did quite well. And just very quickly, I'm gonna cover refinery because I know a number of you are interested in that. Our refinery volumes are up, higher than pre-COVID levels, excluding startups, we're at about 15% up, including startups about 24% up when I look and compare to fourth quarter of 2019.
About 15% up including startups about 24% up when I look and compare to fourth quarter of 2019 now.
Speaker 3: Now, sequentially, we saw chemicals and energy continue to be strong. Metals lagged a little bit in the Americas as well, largely as a result of customer turnarounds that happened in the last quarter. Manufacturing slightly weaker, but that's kind of what we typically expect in the third and fourth quarter. So, you know, nothing unexpected over there. The other way to look at the economy is what happens on the packet side of the business. And again, in the U.S., you know, we saw good growth across all end markets. So which is really good to see.
Sequentially, we saw chemicals and energy continue to be strong metals lagged a little bit in the Americas as well largely as a result of customer turnarounds that happened in the last quarter manufacturing slightly weaker, but that's kind of what we typically expect in the third and fourth quarters.
Nothing unexpected or debt.
The way to look at the economy is what happens on the package side of the business and again in the U S. We saw good growth across all end markets, So which is really good to see.
Speaker 3: Both gases and hard goods saw double-digit year-on-year growth.
<unk> gases and hard goods saw double digit year on year growth pretty pretty strong growth there sequentially gases might've been about flat hard goods continue to grow. So again that is good to see that as I look ahead into into the current quarter. I can tell you that we are seeing the fundamental demand stay strong there or the supply chain challenge.
Speaker 3: pretty strong growth there. Sequentially, gases might have been about flat. Hard goods continue to grow. So again, that is good to see that. As I look ahead into the current quarter, I can tell you that we are seeing that fundamental demand stays strong. There are the supply chain challenges and obviously the inflation number that came out this morning will worry people, but we still see that underlying demand being pretty strong around the Americas and nothing that I can point out to that suggests any shift from what we've seen.
And obviously the inflation numbers that came out this morning with worry people, but we still see that underlying demand being pretty strong around the Americas and nothing that I can point out too that suggest any any shift from what we've seen.
Let me move on EMEA and talk briefly so again broad based growth in EMEA really led by industrial is recovering metals manufacturing high single digit in Q4, we saw a nice recovery in food and beverage. Thank everyone on the call who went out and bought a bottle of beer bump because we were up 20% in the overall and in the UK in particular, so that.
Speaker 3: Let me move on to EMEA and talk briefly. So again, broad-based growth in EMEA, really led by industrials recovering, metals manufacturing, high single digit in Q4. We saw a nice recovery in food and beverage.
It's kind of good news sequentially volumes are more or less flat, even though we have less work days in the quarter and again in EMEA I see that trend holding for now I can see anything other than some marginal adjustments on health care, where we had a bit of a spot in a few countries around medical oxygen, but we're seeing elective surgeries pick ups.
Speaker 3: you know, less work days in the quarter. And again, in EMEA, I see that trend holding for now. I can't see anything other than some marginal adjustments on healthcare where we had a bit of a spurt in a few countries around medical oxygen, but we're seeing elective surgeries pick up, so I see a bit of offset in that coming into the Q1 as well. APAC, volumes up 7%, about what I'd expect, led really by electronics, chemicals, and energy and manufacturing. This is where metals and minerals.
A bit of offset in that coming into the Q1 as well APAC volumes up 7% above what I would expect led really by electronics chemicals, and energy and manufacturing and this is where metals and minerals mining for us was lower than last year and as you heard the story before.
Speaker 3: APAC volumes up 7%, about what I'd expect, led really by electronics, chemicals and energy and manufacturing. This is where metals and minerals, or mining for us, was lower than last year. And you've heard the story before, curtailment in China, really the root cause of that.
Elements in China really the root cause of that.
Speaker 3: And again, sequentially in APAC and Q4 as well, we saw they were about 2% down.
And again sequentially in APAC in Q4 as well as we saw there were about 2% down largely linked to metals and mining in China, some customer turnarounds in chemicals as well and then there was some seasonal adjustment for LNG LPG volumes and South Pacific.
Speaker 3: largely linked to metals and mining in China, some customer turnarounds in chemicals as well, and then there was some seasonal adjustment for LNG, LPG volumes in South Pacific, that kind of tends to happen every year.
Tends to happen every every year just on China again, recognizing that people are tracking this quite closely if I look at January in particular and look at some data.
Speaker 3: Just on China, again, recognizing that people are tracking this quite closely, if I look at January in particular and look at some data that we're kind of tracking, I see steel a little bit holding back a little bit. I think in the first three weeks of January , it was down about 10 to 11%.
We're kind of tracking I see steel a little bit holding back a little bit I think in the first three weeks of January it was down about 10% to 11%.
Speaker 3: you know, the key production cuts and some constraints and curtailments that are in place, likely to be there till early March in provinces like Hebei, Tianjin, Beijing, Shandong, et cetera. After that, you know, I expect that we'll get back to, you know, last year levels, 2021 levels, and overall for the year, I'd expect that we'd probably see something which is flat or slightly flat. Also, looking at
The key production cuts and some constraints and curtailments that are in place likely to be there till early March and provinces like albeit Tianjin Beijing Shan Dong et cetera.
After that I expect that we'll get back to.
Last year levels 2021 levels and overall for the year I'd expect that we'd probably see something which is flat or slightly up.
Also looking at.
Obviously some of the Q1 numbers get adjusted for the Chinese new year kind of impact. So once we look at that we find the other segments electronics holding its own pretty pretty solid so far automobile production up a little bit up about 6% for the first three weeks of January again, Thats a good signal the last week of January you have to ignore.
Speaker 3: some of the Q1 numbers get adjusted for the Chinese New Year kind of impact. So once we look at that, we find the other segments, electronics, you know, holding its own pretty, pretty solid so far. Automobile production up a little bit, up about 6% for the first three weeks of January . Again, that's a good signal. The last week of January you have to ignore because that's the week before Chinese New Year. So things start kind of, you know,
Because thats the week before Chinese new year, so things start kind of.
Speaker 3: shutting down, and that's just a normal course of events. So we're watching closely to see what happens in China on the recovery. Next week onwards, that's when the recovery post-CNY or post-Chinese New Year will happen.
Shutting down and Thats, just a normal course of events. So we are watching closely to see what happens in China on the recovery next week onwards, that's when the recovery post <unk> post Chinese new year will happen. So we're going to figure out how that plays out as we as we look ahead into the rest of the quarter.
Speaker 3: So we'll kind of figure out how that plays out as we look ahead into the rest of the quarter.
That's great. Thank you so much of the detail.
And we'll take our next question from Bob Court with Goldman Sachs.
Speaker 5: our next question from Bob Cort with Goldman Sachs.
Speaker 10: Thank you very much. Sanjeev, I want to go a little deeper on the pricing and the electricity and power costs in Europe . It seemed like there was quite a bit of investor consternation.
Thank you very much sanjiv I want to go little deeper on the pricing and the electricity and power costs in Europe . It seemed like there was quite a bit of investor consternation.
Speaker 10: some market players. We're talking about four and five fold increases in those costs. So you guys did a remarkable job in the quarter. Do we have more to come? Is there a peak pinch point coming up in the first or second quarter?
Market players, we're talking about four five fold increases in those costs. So.
You guys did a remarkable job in the quarter.
Do we have more to come as our peak pinch point coming up in the first or second quarter and then if.
Speaker 10: could, could you just talk about how you specifically introduce price through your three primary distribution methods? Thanks.
If you could could you just talk about how you specifically introduced price through your three primary distribution methods.
Sure. Thanks.
Speaker 3: Thanks, Bob. So let me, maybe what I might do, Bob, is just take a step back and talk about inflation in general, because it seems to be on everyone's mind, talk about how we address inflation more broadly, and then talk about the different, you know, supply modes and, you know, how we kind of work our way through that.
Thanks, Bob So let me maybe what I might do Bob is just take a step back and talk about inflation in general because it seems to be on everyone's mind talk about how we address inflation more broadly and then talk about the different supply modes, and how we kind of walk our way through that so.
And gas is about 70% of our costs.
Speaker 3: In gases, about 70% of our costs are really in three buckets. Power and natural gas are first, wages and distribution the other.
Really in three buckets powered natural gas the first wages and distribution the other two.
Speaker 3: Now, really, energy cost increases are a part and parcel of the industrial gases business. I mean, it's something we manage every day. If power or natural gas costs go up, we make sure all our onsite contracts are passing that energy cost through. You can see that in our pass-through line. You see 6% year-on-year for the quarter, 3% sequential. And Matt said this earlier, it's one of the highest in the decade. So, you know, that's pretty high, but again, it's part of kind of the norm, the business that we just run, that we manage that on a day-to-day basis and pass through.
Now really energy cost increases are a part and parcel of the industrial gases business I mean, it's something we manage every day.
A follow on natural gas costs go up we make sure all our onsite contracts are passing that energy costs through you can see that in a postural line you see 6% year on year for the quarter, 3% sequential and Matt said. This earlier, it's one of the highest in the decade so pretty.
Pretty high but again, that's part of kind of the norm the business that we just run that we manage that on a day to day basis and pass through.
Speaker 3: In parallel, our merchant and package businesses know what needs to be done. They're out there in the field pricing our products to cover these cost increases every day. There's price escalation clauses, there are charges, surcharges, et cetera. So when you see that overall pricing line, you know, 3% year on year, 2% sequential, that kind of means merchant and package pricing is about double of that amount. You know, I could tell you that across segments, I see a range somewhere from mid single digit to low double digit.
In parallel our merchant and packaged businesses, nor what needs to be done there are out there in the field pricing our products to cover these costs increases every day.
Gas price escalation clauses that are charges surcharges et cetera.
So when you see that overall pricing line three 3% year on year, 2% sequential that kind of means merchant and package pricing is about double that amount and I can tell you that across segments IC a range somewhere from mid single digits to low double digits.
Speaker 3: Now clearly not enough to cover the power inflation in the quarter itself and we both referenced this in our remarks earlier, but we tend to have a lag of maybe one to two quarters to recover the full cost inflation. But you should know we will continue to see pricing going forward and we will recover that cost inflation as we've done over decades. So again, not something new, that's kind of how we think about it.
Now clearly not enough to cover the power inflation in the quarter itself.
And we both referenced this in our in our remarks earlier, but we tend to have a lag of maybe one to two quarters to recover the full cost inflation, but you should know we will continue to see pricing going forward and we will recover that cost inflation as we've done over decades, So again, not something new that's kind of how we think about it.
Speaker 3: Wages is the other cost bucket I talked about, something that I particularly keep a very close eye on, and our team knows that productivity needs to offset cost inflation.
Wages as the other cost bucket I talked about something that I.
I, particularly keep a very close eye on and our team knows that productivity needs to offset cost inflation.
Speaker 3: I'm really pleased, and I've said this before, with how we've embraced that productivity culture across this new merged organization.
I'm really pleased and I've said this before with how we've embraced that productivity culture across the new merged organization and I see progress in all fronts. There we allowed US productive review in the next few weeks I am confident that the Linda employees across segments will have several hundred projects focus on efficiency focus on automation leveraging technology to make our <unk>.
Speaker 3: And I see progress on all fronts there. We'll have a productive review in the next few weeks. I'm confident that the Linde employees across segments will have several hundred projects focused on efficiency, focused on automation, leveraging technology to make our work streams even more efficient. So it's an ongoing piece. It's kind of in our DNA. It's what we do and work through. And wage inflation gets offset through a lot of activity that happens on the productivity side.
Work streams, even more efficient so it's an ongoing piece thats kind of in our DNA, It's what we do and walk through and wage inflation gets offset through a lot of activity that happens on the productivity side.
Speaker 3: Finally, distribution costs. I can't say that we're not seeing driver shortages and costs related to that, but I can also tell you that we have charges and surcharges in place today to mitigate that.
Finally distribution cost icon icon say that we're not seeing driver shortages and cost related to that but I can also tell you that we have charges in surcharges in place today to mitigate that cost now more work needs to be done clearly, particularly in hiring drivers, which is a bit of a challenge in the business and but also ensuring that each business is passing that cost inflation through so again all in.
Speaker 3: Now more work needs to be done, clearly, particularly in hiring drivers, which is a bit of a challenge in the business.
Speaker 3: but also in ensuring that each business is passing that cost inflation through. So again, all in, the team is working to pass the cost inflation through. We currently see
The team is working to pause the cost inflation through we currently see.
Speaker 3: you know, at every element of that cost inflation is looked at by the teams. We reviewed at our GBRs every month and, you know, they've kind of done a fairly good job, but there's more needed to offset the cost inflation in its entirety. And you should expect continued pricing and productivity to reflect that as we go forward.
At every element of.
All of that cost inflation has looked at by the themes. We reviewed at our <unk> every month and they've kind of do have done a fairly good job, but theres more needed to offset the cost inflation in its entirety and you should expect continued pricing and productivity to reflect that as we go forward.
Speaker 3: For the three different segments, I hope, Bob, I've given you enough color, but the onsite piece passed through. It's kind of direct action.
For the three different segments I hope, Bob I've, given you enough color, but the onsite piece pass through it's kind of direct action on the merchant piece. There is a lot of work that happens on both the merchant and the packet side and we kind of leverage that on an ongoing basis and again going back into our history. If you go back I don't know 20 years, maybe theres never been negative pricing we've always.
Speaker 3: On the merchant piece, there is a lot of work that happens on both the merchant and the packet side, and we kind of leverage that on an ongoing basis, and again.
Speaker 3: going back into our history, if you go back, I don't know, 20 years maybe, there's never been negative pricing. We've always been pricing positive. And that's just the way we run the business. And as I said earlier, you know, managing this cost inflation, energy cost increase in particular, part and parcel of an industrial gas business. That's terrific. Very comprehensive. Thanks, Sanjeev.
Been pricing positive and Thats, just the way we run the business and as I said earlier, managing discussed inflation energy cost increase in particular part and parcel of an industrial gas business.
That's terrific very comprehensive thanks, Andrew.
Okay.
And we'll take our next question from Duffy Fischer with Barclays.
Speaker 4: Yeah, good morning gentlemen. First question just around the guide. So 275 if you annualize that gets you to 11, your midpoint is 70 cents higher than that. So can you just talk about as we go from Q1 through the next 3 quarters where that 70 cents comes from?
Yes, good morning, gentlemen.
First question just around the guide.
275, if you annualize that gets you to 11 your midpoint is 70% higher than that so can you just talk about as we go from Q1 through the next three quarters, where that 70 <unk> comes from.
Speaker 4: Tuffy, it's Matt. So first, as I mentioned in the pre-remarks, as you well know, Q1 is always our seasonally weakest.
Duffy, it's Matt So first as I mentioned in the pre remarks as you well know Q1 is always our seasonally weakest.
Speaker 4: Just given some of the seasonality we see, whether it's Chinese New Year, Brazilian Carnival, a lot of the events that happened in the first quarter.
Just given some of the seasonality, we see whether it's Chinese new year Brazilian Carnival, a lot of the events that happened in the first quarter. So you always have that component. Furthermore, our backlog is starting up our projects are contributing they will continue to ramp forward and bring value and we mentioned, we still expect strong price.
Speaker 4: So you always have that component. Furthermore, our backlog is starting up. Our projects are contributing. They will continue to ramp forward and bring value. And we mentioned, you know, we still expect strong pricing throughout.
Missing throughout so we fully feel good about that full year guide, we're obviously, giving our first quarter based on how we see the seasonality I mean, if you go back traditionally Q4 to Q1 is usually flattish or even slightly down when you exclude things like FX. So I think you are seeing a little bit of.
Speaker 4: So we fully feel good about that full year guide. We're obviously giving our first quarter based on how we see the seasonality. I mean, if you go back traditionally Q4 to Q1, it's usually flattish or even slightly down when you exclude things like effects. So I think you are seeing a little bit of improvement there.
Movement, there, but as I mentioned, we're taking a very neutral assumption on the macro and if we see some growth in the macro that will be that will be some upside to how we're thinking about this but but right now we feel quite good about that full year, and we should see some ramping and improve.
Speaker 4: As I mentioned, you know, we're taking a very neutral assumption on the macro and if we see some growth in the macro, that will be, you know, that will be some upside to how we're thinking about this. But right now we feel quite good about that full year and we should see some ramping and improvements in the EPS just given project contribution, pricing actions, cost actions, et cetera, as you normally see in a business.
<unk> and EPS, just given project contribution pricing actions cost actions et cetera.
We normally see in a business like this.
Great. Thanks, and then could you talk a little bit more in depth about the healthcare business.
Speaker 4: Great, thanks. And then, could you talk a little bit more in depth about the healthcare business? How has it grown over the last year relative to the overall business? And more importantly, particularly like the home healthcare delivery business, how does it price? Because as I recall, its mechanism is a little bit different with bids and stuff like that. So how does it price in a situation like this where you've got a lot of inflation?
How has it grown over the last year relative to the overall business and more importantly, particularly like the home health care delivery business, how does that price because as I recall its mechanism is a little bit different with bids and stuff like that so how does it prices in a situation like this.
<unk> got a lot of inflation.
Duffy I'll kind of cover that as you've kind of made the question in two parts right, let's talk about the business that deals with the hospitals and where we supply product and as you know.
Speaker 3: Ravi, I'll kind of cover that as you've kind of made the question in two parts, right? Let's talk about the business that deals with the hospitals and where we supply products. And as you know,
Speaker 3: Our team did a fantastic job in the course of the year making sure that very critical medical oxygen needs were met across the world.
Our teams did a fantastic job in the course of the year, making sure that very very critical of medical oxygen needs were met across the world and that business.
Speaker 3: And that business, we said this before, we've seen those medical oxygen volumes start to trend down. We've seen normal elective surgeries trend back up, and we're seeing that kind of offset each other and see our view of mid- to long-term growth in healthcare mid-single-digit.
<unk> said this before we've seen both medical.
Oxygen volumes start to trend down we've seen normal elective surgeries trend back up and we're seeing that kind of offset each other and see our view of kind of long mid to long term growth and help get mid single digit.
Speaker 3: And we're seeing that business trend over that kind of horizon. You see about 3% growth year on year in the first quarter.
We are seeing that business trend to that all of that kind of horizon, you see about 3% growth in <unk>.
Year on year in the first quarter.
Speaker 3: So I don't expect anything exceptional over there more broadly, but we do see that kind of trending to that mid-single digit.
So I don't expect anything exceptional over there more broadly, but we do see that kind of trending to that mid single digit number.
Speaker 3: As far as home care is concerned, you know, we again saw some peaks happen and with the COVID.
As far as home care is concerned.
We again saw some peaks happen and with the Covid.
Speaker 3: Infections going up, we saw oxygen pick up.
Factions going up we saw oxygen pick up that result.
Speaker 3: There is a, you know, when you think about volumes on the home care side.
Think about volumes on the homecare side that tends to get offset them because some of the other.
Speaker 3: that tends to get offset then because some of the other, you know, businesses that we have tend to be tend to kind of not get prescribed as much. And therefore, you see that offset in volume. We kind of saw that we saw nothing unusual. We've kind of seen that for the pandemic right through. And we saw that right happen, you know, through through this period as well. Again, just as a reminder, I think that business dealt with maybe about one hundred and fifty thousand.
Businesses that we have tend to be tend to kind of not get prescribed as much and therefore youll see that offset in volume we kind of saw that we saw nothing unusual we've kind of seen that for the pandemic right through and we saw that right happen through.
Through this period as well again, just as a reminder, I think that business dealt with maybe about 150000 patients.
Speaker 3: if I'm not wrong, 150,000 patients that we supported through the pandemic, ensuring that home oxygen was available to them as they came out of critical care and so on and so forth. So, again, a good way of just contributing to that, to the fight against the pandemic, if you will.
Not all 150000 patients.
We supported through the pandemic, ensuring that home oxygen was available to them as it came out of critical care and so on and so forth. So again, a good way of just contributing to that.
To the fight against the pandemic if you will.
Speaker 3: Pricing on that, you know, there is some history there, Duffy, but essentially, you know, the CMS and, you know, a lot of the basically the, in the US in particular, the agencies have recognized the critical need of that. And, you know, we haven't seen that comparative bid piece play out in the last two or three years, more than that now actually three years plus. And, you know, I think that there is some degree of stability on pricing in there at the moment.
Pricing on that there is some history, there duffy, but essentially.
CMS and a lot of.
Basically in the U S. In particular, the agencies have recognized the critical need of that and if you haven't seen that competitive bid based play out in the last two or three years more than that now actually three years plus.
And I think there is some degree of stability on pricing in there at the moment.
Great. Thank you guys.
Speaker 3: They do get an inflation adjustment that Matt pointed out earlier, Duffy, in case I missed that.
They do get an inflation adjustment that Matt pointed out earlier Duffy in case I missed that.
Okay.
Take our next question from Jeff Zekauskas with J P. Morgan.
Yeah.
Thanks, very much and one of your slides you say that you've sourced more than a third of your global electricity from low carbon sources.
Speaker 11: Thanks very much. In one of your slides, you say that you've sourced more than a third of your global...
Speaker 11: Do your customers want you to do that?
To your customers want you to do that.
Do they want to pay a premium for electricity from low carbon sources and how do you manage the issue.
Speaker 11: Do they want to pay a premium for electricity from low carbon sources? And how do you manage the issue of passing through raw material costs if you're accessing more from low carbon sources and that electricity is more expensive? How does that negotiation work with your customers?
Passing through raw material costs, if youre accessing more from low carbon sources and that electricity is more expensive how does that negotiation work with your customers can you expand on this.
Sure.
Speaker 3: Jeff, so this is something that we've been doing for some time, so it's not new and there are various parts of the world where we have the ability to source renewable and low carbon energy and power in particular, and we've been kind of doing that and passing those costs through.
So this is something that we've been doing for some time, so it's not new.
And there are various parts of the world, where we have the ability to source renewable and low low carbon energy and power in particular, and we've been kind of doing that in passing those costs through youre right in some markets, we're more advanced than others. The UK is a.
Speaker 3: You're right, in some markets we're more advanced than others. The UK is a good example, parts of Europe a good example, where these are well understood by the customers and that pass-through mechanism has been built in around that and they accept that.
A good example parts of Europe are good example, whereas these are well understood by the customers and that pass through mechanism has been built in and around that and they accept that there is a separate stream.
Speaker 3: There's a separate stream of green products that are now coming out, and again, we're getting premium for that.
Green products that are now coming out and again, we're getting premium for that this is a very small nascent market. So I'm not going to stress too much on it other than to just tell you that there is a growing demand small at the moment, but growing where where our customers for their own requirements, because they want to be able to certify.
Speaker 3: This is a very small, nascent market, so I'm not going to stress too much on it other than to just tell you, you know, that there is a growing demand, small at the moment, but growing where, you know, where our customers for their own requirements, because they want to be able to certify their products and products as being
<unk> <unk> products and products as being.
Speaker 3: um, you know, having, having green components are seeking, um, you know, green products from us, which we are able to provide because of some of the sourcing that we do. And there you do get some premium. Again, it's not exorbitant, but, but there is some, you know, premium over, over normal product that we'd be able to provide. Now, as we
Having having green component are seeking.
Green products from Us, which we are able to provide because of some of the sourcing that we do and that you do get some premium again, it's not exorbitant, but there is some premium over over normal product that we'd be able to provide.
Now as we go forward.
Speaker 3: A large number of customers across the world in fact are speaking to us about how green are we going to be longer term in terms of our power sourcing. And again, there are two components to that, Jeff, that we need to always remember. One is that the grid itself is greening, and we do see that. And the other is how actively will we go and get renewable or low carbon power. And I think that's, you know, those are the two elements that actually bring up that number that he talked about, the thought that we have today and growing.
A large number of customers across the world in fact are.
We are speaking to us about how green are we going to be longer term in terms of our power sourcing and again there are two components to that Jeff.
Jeff that we need to always remember one is that the grid itself is greening and we do see that and the other is how actively will be go in get renewable or low carbon bar and I think thats.
Those are the two elements that actually bring up that number that he talked about the third that we have today and growing.
Speaker 3: And again, as the grid greens, there is a broader momentum around that. So that gets picked up and that's kind of reflected in the grid pricing that comes through. And where we do active there, I think clearly we have a blended rate that goes to the customer and gets recovered. The only thing I can tell you is that today we're recovering fully on our energy costs and our power costs, even with this blend of 35% renewable and low carbon.
And again the grid Greens, there is a broader momentum around that so that gets picked up and thats kind of reflected in the grid pricing that comes through and where we do active there I think clearly we have a blended rate that goes to the customer and gets recovered. The only thing I can tell you is that today, we are recovering fully on our on our energy cost on our power cost.
Even with this blend of 35% renewable and look up.
Speaker 4: And Jeff, I would just add, when you think about low carbon, you have to think holistically. So while I know the first thing that comes to mind is always solar and wind, which clearly can be a little more expensive, you also have to think of hydro, right? And hydropower we use extensively where we can, it tends to be lower cost power. And so by blending some of that hydro in, and especially with some of the other new green opportunities, it can still give us a very attractive average cost.
And Jeff I would just add when you think about low carbon and you have to think holistically. So while I know the first thing that comes to mind is always solar and wind, which clearly it can be a little more expensive.
You also have to think of hydro and hydro power, we use extensively where we can it tends to be lower cost power and so by blending some of that hydro in and especially with some of the other new green opportunities that can still give us a very attractive average cost of power.
Speaker 11: And then, secondly, in the quarter, was there maybe 75 or 100 million of increased energy . . .
And then <unk>.
Secondly in the quarter was there may be 75 or $100 million of increase.
Energy costs that you werent able to recover.
Speaker 11: from pricing that you expect to recover in the future? What's your gap?
From pricing that you expect to recover in the future. What's your what's your gap right now.
So Jeff.
Speaker 3: So Jeff, without getting to the numbers, the principle that I want to tell you is that we absolutely expect to recover the lag that we have from the previous quarter's inflation that we've seen. And as a principle, you should expect that our pricing will ensure that that lag is covered.
Without getting to the numbers the principle that I want to tell you is that we absolutely expect to recover.
The lag that we have from the <unk>.
Previous quarters inflation that we've seen.
And as a principal you should expect that our pricing will ensure that that lag is covered.
Great. Thanks, so much.
Yes.
We'll take our next question from Peter Clark with Society Generali.
Hi, yes, good morning.
Speaker 12: Yes, good morning. The first one is on productivity, actually. It never ends, of course, and I saw on the APAC slide, it's being stepped up. If I remember rightly, obviously, APAC started quite early after the merger started. So just wondering what's going on there. And then within Europe , you alluded to the fact productivity, of course, was a help.
First one is on productivity actually never ends of course and I saw on the APAC slide it's being steps.
Brian Obviously APAC starting question Andy after them emerging staff is so just wondering what's going on there and then within Europe , you alluded to in fact conductivity and courses to help.
Speaker 12: in the fourth quarter. Am I right in thinking there's still a bit of productivity momentum in Europe ? So when we go maybe Q2, Q3 as you get over the lag, you're expecting a little bit of a margin bump.
In the full quarter am I right in.
There's still a little bit of quote continued momentum in Europe . So when we go maybe Q2 Q3 as you get over the lag youre expecting a little bit of a margin bump.
Speaker 12: coming through in EMEA. Thank you.
Coming through in EMEA. Thank you.
Thanks Juan.
Speaker 3: Peter, why don't I start off with Europe first? So the answer is, yes, there is a lot of.
Peter why don't I subtle with Europe .
So the answer is yes, there is.
A lot of activity going on ongoing on productively generally, but more importantly in Europe , specifically in a number of high cost countries. There is a specific cost program that the European business is pursuing you saw us take a restructure charge I think it was the quarter before.
Speaker 3: activity ongoing on productivity generally, but more importantly in Europe , specifically in a number of high-cost countries, there is a specific cost program that the European business is pursuing. You saw us take a restructured charge, I think it was the quarter before, and that is going through. That will have consequences, of course, positively so, on the margin that you've just referenced.
And that is going through so.
That will have consequences of course positively so on the margin that you just referenced and as far as APAC is concerned you've heard me say this before a lot of the businesses in APAC kind of embraced that productivity piece and have built a lot of momentum around that there is an active activity at the moment globally, but APAC kind of.
Speaker 3: As far as AIPAC is concerned, you've heard me say this before, a lot of the businesses in AIPAC embrace that productivity piece and have built a lot of momentum around that. There is an active activity at the moment globally, but AIPAC kind of
Speaker 3: trying to take a bit of leadership on this, around seeing that a significant portion of that productivity comes from digitalization effort. We believe digitalization provides the right booster for our productivity at the moment. And again, you know, I've set some internal goals that they're pursuing quite aggressively, and I'm pleased to see the progress they're making.
Trying to take a bit of leadership on this around seeing that a significant portion of that productivity comes from digitalization effort. We believe digitalization provides the right boost for our productivity at the moment and again.
Set some internal goals that they're pursuing quite aggressively and I'm pleased to see the progress theyre, making on that.
Speaker 12: Okay, thank you. And then, Matt, you alluded to the fact the backlog is ramping up this year. I think you have the target now for the backlog providing mid-single digit to EPS. Just wondering if 22 is going to be one of those years or the first years of that, and then potentially what that might mean for the top line kicker from that, because 2%, I think, in the fourth quarter, you alluded to. So, presumably, it's going over three towards four. I don't know. Thank you.
Okay. Thank you and then Matt you alluded to the fact, the backlog is ramping up this year I think you have the target now for the backlog providing mid single digit to EPS. Just wondering if <unk> is going to be one of those years, where the first year and then potentially what that might mean for the topline kicker from that because 2% I think in the fourth quarter U and Lindsay.
Two so presumably is going over the three tools for I don't know thank you.
Speaker 4: Sure, Peter, and to your point, the 2% I alluded to would be specifically on the sale of gas because we were talking about the base volume. So when you think about the total backlog and totality of sale of plant plus sale of gas, you're absolutely right. Mid single digit is how we think about it. That's clearly through 2022. And we can see that in several years out, just given the size of the backlog and the time to work it through. So we feel very good about that. And that's something we reinforce and will be part of our continued performance and outlook. Good, and I'm looking forward.
Sure Peter and to your point, the 2% I alluded to would be specifically on the sale of gas because we were talking about the base volume. So when you think about the total backlog in totality of sale of plant plus sale of gas Youre absolutely right mid single digit is how we think about it that's clearly through 2022, and we can see that in several years out just given the size of the backlog.
And the time to work it through so we feel very good about that and Thats something we reinforce and will be part of our continued performance and outlook.
And I'm looking forward to the new share buyback. Thank you.
Speaker 13: So am I.
So am I.
Yes.
Okay.
And we'll take our next question from John Mcnulty with <unk>.
Speaker 5: our next question from John McNulty with BMO Capital.
BMO capital markets.
Speaker 3: Hi, good morning Sanjeev and Matt. This is Bhavesh Lodhia on behalf of John . Thanks for all the color around the pricing and the inflation side. A quick follow-up on the volume side of things. Are you seeing any impact from the ongoing higher pricing, either through demand destruction or just delays in the volume recovery in the economy? And is that something that could come back once price is moderate?
Hi, Good morning, <unk> and Matt. This is obviously down on behalf of John .
Thanks for all the color around the pricing and inflation side, a quick follow up on the volume side of things are you seeing any any impactful on the ongoing higher pricing either two to demand destruction audience believes in the volume recovery in the economy and is that something that could come back once Glenn is moderate.
Speaker 3: So the simple answer to that, Bhavesh, is no. We are seeing underlying demand growth continue to be there. You saw that in the Americas, up 7%. You saw it in APAC, up 7%. EMEA, plus 2%, and growing. So I can't see, I can't reference any demand destruction. I think we are on a solid kind of demand pattern at the moment. Impact really comes from supply chain issues and logistics and things like that.
So the simple answer to that valuation is no we are seeing underlying demand.
Growth continued to be there you saw that in the Americas up 7% you saw in APAC up 7% EMEA.
<unk>, 2% and growing so I can see I can reference any demand disruption I think we are in a solid kind of demand pattern at the moment impact really comes some supply chain issues in logistics and things like that.
And is it fair enough and then looking at your backlog so you've clearly been very active in the semiconductors electronics speed boost.
Speaker 3: And then looking at your backlog, so you've clearly been very active in the semiconductors electronic space. Those customers are investing a lot in the capacity for multiple years now. Can you add some color as to how the electronics part of your backlog looks right now? And then how do you see the share of electronics as a percentage of your sales go from the 18% that you show right now?
Those customers are investing a lot in the capacity for multiple years now can you add some color as to how the electronics part of your backlog. It looks like now and then how do you see this share of electronics.
As a percentage of sales.
Both on the 18% that you saw sure right now.
Speaker 3: Absolutely. So it's my favorite topic, so I'm glad you are.
So it's my favorite topics I'm glad you asked.
Speaker 3: So, you know, from a market perspective, I'd say it's one of those end markets that I referenced earlier on saying that we won one billion of projects in the last year to serve top end customers. You know, the top one, two, three in electronics, the end markets, you know, with those wins. I'm also very pleased to say that I am confident that electronics will probably be the strongest growth contributor to our sale of gas backlog for the next couple of years, at least. This year and maybe another.
So from a market perspective, I'd say, it's one of those end markets that I referenced earlier on saying that we won 1 billion of projects in the last year or so top end customers. The top 123 in electronics end markets.
With those wins.
So very pleased to say that I am confident that electronics will probably be the strongest growth contributor to our sale of gas backlog for the next couple of years at least this year and maybe another two so again, it's an area that.
Speaker 3: So again, it's an area that our technology and operating expertise carries a lot of weight. We have customer relationships that are very critical. It's currently only 8% of our sales, Bhavish. So not 18, but 8%. And I expect that to continue to grow. And I certainly see that as double digit.
Our technology and operating expertise carries a lot of weight.
We have customer relationships that are very critical it's currently only 8% of our or our sales Bobby so not anything, but 8% and I expect that to continue to grow and I certainly see that as double digits.
Got it got it thank you.
We'll take our next question from David Begleiter with Deutsche Bank.
Speaker 6: Thank you. On the sales gas backlog at a high level, do you see this increasing over time, or do you think it will stay in this roughly $3.5 billion plus range?
Thank you.
On the sales gas backlog backlog at a high level do you see this increasing over time or do you think it will stay in this.
Roughly $300 billion plus range.
Hey, David So the way I'm looking at the backlog and I kind of referenced a little bit around.
Speaker 3: Hey, David. So the way I'm looking at the backlog, and I kind of reference a little bit around, you know, what we saw on the electronic side and what we see happening there. I'll talk a little more about proposal activity, because that feeds into that question. But this is my view. We've got a backlog of about three and a half billion at the moment, we'll have about a billion of startups this year, mostly at the back end, second half of the year, if you will. So a billion of that is going to come out of the backlog. And I'm glad it does, because that starts generating revenue and profits for us.
What we saw on the electronic side and what we see happening there I'll talk a little more about proposal activity because that feeds into that question. But this is my view, we've got a backlog of about $3 5 billion at the moment, we have about $1 billion of startups. This year, mostly at the back end second half of the year, if you will.
So a $1 billion of that is going to come out of the backlog and I'm glad it does because that starts generating revenue and profits for us.
Speaker 3: I'm seeing a fair amount of proposal activity as we speak, and that really gives me some encouragement to say, I expect that we'll fill that backlog and either be at this level or maybe a little bit higher by the end of the year. Just where is that coming from? So we're seeing...
Seeing a fair amount of proposal activity as we speak and that really gives me some encouragement to say I expect that we'll fill that backlog.
Either be at this level or maybe a little bit higher by the end of the year, just where is that coming from so we are seeing strong electronics opportunity pipeline and I fully expect as I said a minute ago that electronics will continue to be a strong contributor to our <unk> backlog for this year and a couple more so.
Speaker 3: strong electronics opportunity pipeline, and I fully expect, as I said a minute ago, that electronics will continue to be a strong contributor to our SOG backlog for this year and a couple more.
Speaker 3: So, you know, that's kind of a good starting point. Chemicals demand also remains reasonably strong. We kind of see some projects coming up in that space. There are, you know, in addition to our more traditional projects, we're also seeing methanol and ammonia projects come up in that space. So, again, seeing a number of companies evaluate the investments in those segments. So happy to see that progressing as well.
Kind of a good starting point chemical demand also remains reasonably strong we kind of see some projects coming up in that space. There are in addition to our more traditional projects. We're also seeing methanol and ammonia projects come up in that space. So again seeing a number of companies evaluate the investments in those segments, so happy to see that progressing as well.
Speaker 3: On refining, we're seeing requests for blue and green hydrogen studies ramping up significantly. Customers are also reaching out to see how we can help them kind of capture carbon and, you know, if we can provide some services around that. So again, we see some opening of there as well.
Refining we're seeing requests for blue and Green hydrogen study is ramping up significantly customers are also reaching obviously, how we can help them kind of capture carbon and if.
He can provide some services around that so again, we see some opening of there as well and then I mentioned to you. The 300, all kind of decarbonization projects overall, if you will.
Speaker 3: And then, you know, I mentioned to you the 300 odd kind of decarbonization projects overall, if you will, all of which kind of look like they're moving forward. Some of them will come for decisions into the backlog this year.
All of which kind of look like they're moving forward some of them are comfort decisions into the backlog this year.
Speaker 3: But of course, they have their own lead times that have to be worked out.
But of course, they have their own lead times that that's kind of how.
We walked through.
Very good and just back on healthcare Sanjeev anyway to parse out the benefits from Covid this year, but that might not repeat next year or in 2022.
Speaker 2: Very good. And just back on health care, Sanjeev, anybody parse out the benefits from COVID this year, but that might not repeat next year or in-
David the way I'm thinking about this is I am seeing that trend down for sure and we are seeing normal health care volumes. So what happened was in hospitals. In particular also juries came to a stop and the hospital's got dedicated are really primarily serve COVID-19 patients as COVID-19 infections and hospitalizations in particular.
Speaker 3: David, the way I'm thinking about this is I am seeing that trend down for sure, and we're seeing normal healthcare volumes. So what happened was in hospitals in particular, all surgeries came to a stop and the hospitals got dedicated or really primarily served COVID patients.
Speaker 3: As COVID infections and hospitalizations in particular are going down, there are a number of very critical elective surgeries that have been
Going down there are a number of very critical elective surgeries that have been postponed which are now coming back and which need oxygen for their procedures. So we're seeing that ramp back up and that's probably the best way to think about that we have with <unk>.
Speaker 3: which are now coming back and which need oxygen for their procedures. So we're seeing that ramp back up and that's probably the best way to think about that. We're seeing that offset intrinsically in the healthcare volumes by itself.
Seeing that offset intrinsically in the health care volumes by itself.
Thank you.
Speaker 5: And our last question comes from Lawrence Alexander with Jeff.
And our last question comes from Laurence Alexander with Jefferies.
Speaker 6: Good morning. Two quick ones. Some of the questions assumed or implied that the pricing would catch up to the cost gap within a quarter or two. I just want to clarify.
Good morning, two quick ones.
Some of the questions.
Assumed or imply that the pricing would catch up to the cost cap and within a quarter or two just wondering.
Clarify is that true or do you think it will take longer than that.
Speaker 14: clarify if that's true or do you think will take longer than
Speaker 14: And secondly, as you look at the longer term with the energy transition and the uncertainty around the industrial architecture and how that might be rearranged, does that affect at all your interest in doing larger kind of portfolio optimization, you know, streamlining the number of countries you're operating in?
And secondly, as you look at the longer term with the energy transition and the uncertainty around the industrial architecture, and how that might be rearranged does that affect at all your interest in doing larger kind of portfolio optimization streamlining the number of countries are all.
Pricing in.
Hey, Laurence so the simple answer to pricing is that whatever gap. There is we will we will recover that so that's kind of how we operate and look at this and there is no gap at the end of that process and.
Speaker 3: Hey Lawrence, so the simple answer to pricing is that, you know, whatever gap there is, we will recover that. So that's kind of how we operate and look at this and, you know, there is no gap at the end of that process.
Hopefully that helps.
Speaker 3: Talking about energy transition and industrial architecture, it's a great question. It merits a longer discussion. But in a nutshell, the way I describe it to you is.
Talking about energy transition in industrial market, it's a great question.
It's a longer discussion, but in a nutshell the way I'd describe it to you as we think of the energy transition and we see opportunity arise as a result of that and we're seeing that either through the blue ammonia blue.
Speaker 3: You know, we think of the energy transition and we see opportunity arise as a result of that, and we're seeing that either through the blue ammonia, blue, you know, hydrogen route.
Our hydrogen route.
Speaker 3: in few core developments around green hydrogen, green ammonia as well, and we're seeing different industries open up and different opportunities open up as a consequence of that transition.
Few calls developments around green hydrogen green ammonia as well.
And we're seeing different industries opening up in different opportunities open up.
As a consequence of that transition.
Speaker 3: Coming to the portfolio rationalization piece, we kind of look at that anyway, irrespective of the energy transition. You know, if there is some overlap there, obviously, you know, that will get factored in. But irrespective of that, we kind of constantly look at our portfolio to try and understand positions that we feel.
Coming to the portfolio rationalization piece, we kind of look at that anyway irrespective of the energy transition.
If there is some overlap there obviously that.
That will get factored in but irrespective of that we kind of constantly look at our portfolio to try and understand positions that we feel gives us the leverage that we want to look at and you've seen that that strategy being executed over the last year, where and we've exited a number of businesses, but also we've bought out minority shareholders and others, where we know.
Speaker 3: give us the leverage that we want and look at. And you've seen that strategy being executed over the last year where we've exited a number of businesses, but also we've bought out minority shareholders and others where we know that we are able to do a better job and we can focus the team to kind of deliver on what it needs to deliver rather than get distracted by listing requirements.
That we are able to do a better job and we can focus the team to kind of deliver on what it needs to deliver rather than get distracted by listing requirements. So all of that kind of plays in everyday.
Speaker 3: So all of that kind of plays in every day as our kind of strategy gets executed on.
Our kind of strategy gets executed on that.
Okay. Thank you.
Speaker 5: That concludes today's question and answer session. Mr. Pelleas, at this time, I will turn the conference back to you for any additional.
That concludes today's question and answer session. Mr. Players at this time I will turn the conference back to you for any additional or closing remarks.
Speaker 2: We've seen a nice job and thank you everyone for participating in today's call. If you have any further questions, you know where to reach me. Take care.
We're seeing a nice job and thank you everyone for participating in today's call. If you have any further questions you know where to reach me take care.
This concludes today's teleconference. Thank you for your participation you may now disconnect.
Speaker 5: That concludes today's teleconference. Thank you for your participation. You may now disconnect.
Okay.