Q3 2019 Earnings Call
Good we're good morning, and welcome to the air products and chemicals third quarter earnings release Conference call. Today's call is being recorded at the request of air products.
Note that this presentation and the comments made on behalf of air products are subject to cooperate by air products and all rights are reserved any beginning today's call is like Mr. Sunny and warm Vice President of Investor Relations. Please go ahead.
Thank you Eduardo good morning, everyone.
Welcome to air products third quarter 2019 earnings results teleconference.
This is Simon Moore, Vice President of Investor Relations.
I'm pleased to be joined today by safety get Sami, our chairman President and CEO .
Scott Crocco, our executive Vice President and Chief Financial Officer.
And Sean major our executive Vice President General Counsel and Secretary.
After our comments, we'll be pleased to take your questions.
Our earnings release and the slides for this call are available on our website at air products Dot com.
Please refer to the forward looking statement disclosure that can be found in our earnings release and on slide number two.
Now I'm pleased to turn the call over to safety.
Thank you Simon and good morning to everyone.
We certainly do appreciate your interest in their products and be thank you for taking time from your busy schedule to join us on this call.
At Air products, we have a great team of talented committed and motivated people.
Poor stay focused on serving our customers and creating value for our shareholders every single day.
This team delivered yet another quarter of very strong results.
Ivan to tank auto our 16000 employees for their hard work and dedication.
Our quarterly adjusted earnings per share.
He is at a record $2.17 per share.
11% higher than the last year.
At 14% higher at constant exchange rates.
The issues that Twentys fares.
I'd like to repeat that 20 fares consecutive quarter that we have reported higher results compared to the previous year.
We continue to maintain our position as the safest and most profitable industrial gas company in the world.
Our EBITDA margin this quarter was at a record 40%.
Victory is 1500 basis points higher than five years ago.
We remain in an extremely strong financial and technology position.
The the business that generates significant cash flow.
Each quarter my confidence increases in our ability to deploy this capital into high return industrial gas projects that generate significant value for our shareholders.
But also continuing to return cash to our shareholders through our dividend.
Now please turn to slide number tree.
In terms of safety.
Our goal has always been zero accidents and zero incidents.
We are pleased that we have improved our ROV some injury rate by 72% and our recordable injury rate by 31% since 2014.
But none of us can be satisfied until.
And unless we reach zero accidents.
Even one actually there is too many.
Now please turn to slide number four.
That is the stage our long term.
Cool.
Five years ago, we set the goal to be the safest and most profitable industrial gas company in the board.
Providing excellent service to our customers.
They are very proud of achieving this goal.
And are committed to maintaining our leadership position in the years to come.
Our goal has.
Also been extended to include being the most diverse.
That means.
The or an inclusive company that he built from the contribution of all people.
Now turn to slide number five.
Which is my management philosophy that has guided me throughout my business career.
That is focused on cash generation and responsible capital allocation.
Now please turn to slide number six.
Which is our five point plan for moving forward.
We have shared this with you many times before.
In summary, we are focused on cost and productivity two main pain, our industry leading margins.
We are poised for growth.
By expanding on our core competencies and financial strength.
And we are very focused on promoting a higher purpose for the company in addition to creating value for the shareholders.
We are committed to create a company that all fee for all of the people.
They belong.
It company that People's contribution are recognized and rewarded.
The company that is committed to sustainability and environment.
A company that is supportive of the communities in which we operate.
A company that people want to work for.
They are proud to be part of the innovative process to solve divorce energy and environmental challenges.
That is our higher purpose and we are committed to that.
Now please turn to slide number seven.
This shows the key milestones in our gasification strategy.
Let's take the opportunity to provide an update on a few of these exciting projects.
As expected did wind project continues to run very very well and and contribute to our results.
The design Air separation unit that built on budget and on time with excellent safety performance.
We continue to work towards financial closing of the jazz and Gasifier on power project by the end of this calendar year.
We are continuing our discussion we divide Kate group for the very large core to seeing gas project.
And the drilling type project is going.
We'd expected on a streaming 2022.
Building on this momentum, we just announced the completion of an asset buyback arrangement Widgeon mine, leading coal chemical company in China.
We purchased two issues previously owned by Gen mine.
And entered into a long term contract to supply oxygen and nitrogen for the customers call to clean fuel project in Shandong Province.
This project is another Great example.
The customers increased confidence in outsourcing that industrial gases.
In addition to these announced projects we continue to work on a number of existing gasification opportunities around the world.
Now please go to slide number eight.
Well you can see the results of our key profitability metrics.
We remain committed to our goal of continuing to be the most profitable industrial gas company in the world as measured by each of these metrics.
And now please go to slide number nine.
Which is always my favorite slide.
And even more so this quarter.
You can see our record quarterly EBITDA margin of 40.1%.
Up 1500 basis points from five years ago.
This is a tremendous achievement by the people of our period of air products and all of US are very proud of it.
Now I would like to turn the call over to Mr., Scott Crocco, Our executive Vice President and Chief Financial Officer to discuss our results in detail.
Scott.
Thank you very much Seifi now please turn to slide 10 for a summary of our third quarter results.
As Sam said, our business continues to perform very well.
Price was up 4% with strong performance across the regions and products.
Continuing the positive trend we saw last quarter.
Volume added another 2%, primarily driven by new plants, including the one.
Sales of $2.2 billion were down 2% as the positive volume and price were more than offset by 4% negative currency.
And a 3% impact from a contract modification.
As I mentioned on past calls this India contract modification reduces sales, but has no impact on our profits.
Our underlying volume was positive.
But was partially offset by lower sales from the disease and sale of equipment project.
As that project nears completion.
And from a prior year contract termination for an old flue gas desulfurization plants.
Excluding does in volumes grew 4% due to new plants.
Base business growth and acquisitions.
We continue to see strong pricing in all three regions and across our merchant product lines.
Our team has worked very hard to realize the value we provide to our customers and I want to thank the team for a job well done.
Although unfavorable currency persisted.
Both EBITDA and adjusted earnings per share reached new highs.
EBITDA of $892 million improved 9%.
And adjusted earnings per share of $2.17 was 11% higher.
EBITDA margin of over 40% is another record high.
Up almost 400 basis points compared to prior year.
Primarily from the higher price and the India contract modification.
Aro CE of 12.7% improved 50 basis points versus last year.
Primarily due to higher profits.
Sequentially EBITDA increased 8% as all three regions improved, particularly Asia following lunar new year in Q2.
Please turn to slide 11.
Our third quarter GAAP EPS was $2.20.
And includes three one time items, which totaled a positive three cents per share impact.
You can find more details in our press release and appendix slides.
Our third quarter adjusted EPS of $2.17 was up 11% or 22 cents per share.
Volume price and cost together contributed 24 cents repeating the strong operating performance from last quarter.
As a reminder, the impact of price increases is shown net of the impact of variable costs.
Primarily variable production costs, such as power and distribution costs in our merchant business.
The other cost line refers to fixed costs, such as personnel and plant maintenance costs.
It increased slightly slightly this quarter versus prior year, but is less of a headwind than in recent quarters.
Currency and foreign exchange was five cents unfavorable primarily due to the Chinese RMB and the euro.
Excluding the unfavorable currency EPS increased 27 cents or 14% over last year.
Non operating items, including tax rate and non operating income combined added three cents.
Our effective tax rate for the quarter was 18.6%.
For the full fiscal year 2019, we expect an effective tax rate of between 19 and 20%.
Now please turn to slide 12.
We continued to generate strong cash flow.
During the last 12 months, we generated about $11.50 per share were over two and a half a billion dollars of distributable cash flow.
From this distributable cash flow, we paid almost $1 billion or about 40% as dividends to our shareholders and still have nearly $1.6 billion available for high return investments in our core industrial gas business.
This strong cash flow enables us to create shareholder value through increasing dividends and capital deployment.
Slide number 13 provides an update on our capital deployment progress.
As you can see we now show almost $17 billion of investment capacity available over the five year period from F 18 through F y 22.
As expected the total capacity continues to grow as we increased EBITDA.
The almost $17 billion includes about $9 billion of additional debt capacity available today.
Over $5 billion of investable cash flow between now and the end of F Y 22.
And almost $3 billion already spent.
We will continue to focus on managing our debt balance to maintain our current targeted a two rating.
Today, we have a total of about $7.7 billion of project in M&A commitments with about $6.7 billion remaining to spend on them.
So you can see we have already spent 15% and already committed well over half of our total available capacity.
Now to begin the review of our business segment results I'll turn the call back over to safety.
Thank you Scott Please turn to our Asia results on slide number 14.
Well you can see that our business has recovered strongly following the lunar new year holiday and our great team in Asia delivered yet another strong set of results.
We remain very positive.
And I would like to stress very positive about our long term growth potential as we continue to invest in this region.
While there has been some modest reduction.
In the reported growth rate of Chinese economy.
We have not seen.
As I said, we have not seen any significant impact on our business.
And most importantly, we have not seen any change in behavior towards AD products from our customers or the government of China.
We continue to be very optimistic about our operations in China.
For the quarter sales that up 9% from last year.
With volume and price together up 15%.
Volumes increased 10%.
Primarily driven by new projects most of these are one.
As a reminder, Lan has started up late in quarter three of last year and continues to perform very though.
Overall pricing for the region was up 5% versus last year.
The ninth consecutive quarter of year over year price improvement.
Price was positive across all major product lines and key countries.
This strong volume and price combined with productivity.
Drove higher profits and margin.
EBITDA increased 24% and EBITDA margins expanded nearly 600 basis points to more than 49%, which is another record.
Sequentially volume and EBITDA improved, 8% and 12% respectively.
Benefiting from a strong recovery from the lunar new year holidays.
And new plant startups.
In addition to the asset buyback Imation thirtyth.
We have recently announced two contract awards in Korea.
Learn from and MC to provide industrial gases for these new 300 millimeter beta fat.
And the other from Pasco cameco to supply oxygen and nitrogen for these new catalyst material and manufacturing complex.
Great examples of our team, earning the confidence of the important customers.
Now I would like to tend to call back over to Scott to discuss our Americas results Scott.
Thank you Sandy.
Please turn to slide 15 for a review of America's results.
Americas pricing success continued.
The 4% improvement represents our best performance in at least four years.
Overall sales were up 1% as higher price was partially offset by 1% lower energy pass through and 2% unfavorable currency impact.
Underlying volumes grew 1%, but were offset by the prior year contract termination I mentioned previously.
Record EBITDA of $410 million increased 7% and EBITDA margin of 43% was up 270 basis points, primarily driven by higher pricing.
Sequentially EBITDA margin improved 270 basis points or 100 basis points, excluding the impact of lower energy pass through.
Now I would like to turn the call back over to Simon to discuss our other segments Simon.
Thank you Scott.
Please turn to slide 16 for a review of our EMEA results.
We continue to show positive operational results despite limited economic growth.
Price increased 4% with improvement across all major products and sub regions.
The EMEA team has now delivered six consecutive quarters of year on year price improvement.
Volume was up 2%, primarily driven by the acquisition of a COO to producer.
While base business volume remained stable as positive retail volumes were offset by lower wholesale volumes.
Sales were negatively impacted by 2% lower energy pass through 5% unfavorable currency and an 11% sales reduction due to the India contract change that Scott mentioned.
Reported EBITDA of $190 million was up 2% and was up 7% on a constant currency basis.
Reported EBITDA margin improved 520 basis points to reach a new high of over 38%.
Excluding the India contract change EBITDA margin was up about 100 basis points.
Sequentially volumes were higher on better merchant volume, including the acquisition.
And although we continue to see Brexit as a potential risk to our future results at this point, we have not seen any significant negative impacts.
Now please turn to slide 17 global gases.
Which includes our air separation unit sale of equipment business as well as central industrial gas business costs.
Sales and EBITDA declined due to lower project activity as we approach the successful conclusion of our hedges and asked you sale of equipment project.
Please turn to slide 18 corporate segment.
Which includes LNG and our other businesses as well as our corporate costs.
Although modest it is great to finally see improvement in this segment with the best sales and profits in almost three years.
The Golden pass LNG project in the US Gulf Coast began to contribute this quarter and we are optimistic about additional LNG orders.
It is important to note that our LNG technology has been selected for several North America and international projects that are awaiting final investment decisions by our customers.
Now I'm pleased to turn the call back over to safety for a discussion of our outlook.
Thank you Simon.
Please turn to slide number 19.
As I said on our last call.
Five years ago.
I promised to be able to grow the companys earnings per share by at least 10% annually.
As you can see we have done better than that over the last 40 years and expect to exceed 10% again this year.
Thanks to the great team at Air products, we have delivered on our commitments.
Our goal continues to be.
Cheating a cumulative average growth rate.
At least 10% in the coming years.
As you all know.
We continue to live in an uncertain board that V at air products cannot control.
But we definitely do have control.
Well that is the actions add products can take to succeed in a dynamic ward.
The habit is strong capable and fixable organization.
That remains focused on productivity and creating our own growth opportunities.
Vitro did allow us to continue to live to deliver.
On our promise to investors.
To increase earnings per share by 10% to you as we move forward.
Now please turn to slide number 20.
Our update that EPS guidance for fiscal year 2019.
He is in the range of eight $8.20 to $8.25.
Despite currency headwinds.
This guidance the present, 10% growth over that are very a strong fiscal year 2018 performance.
For quarter four of fiscal year 2019, our earning per share guidance is 226 to 10 32 to 31.
Up to 13% to 16%.
Over last year.
Our team and the reward continuous to be very optimistic about the future of ad products.
Our five point strategic plan.
Ville differentiate us and drive our success going forward.
Our safety productivity and operating performance.
Continue to provide the foundation of our continued growth.
We have the financial capacity that technical position and the talent to take full advantage of our existing opportunities.
And finally.
Please turn to slide number 21.
As our base.
Our real competitive advantage is the commitment and motivation of the great team behalf at air products.
This is but allows us to continue to generate generate our superior safety and operational performance.
Ivan to again tank all of our 16000.
People around the award for their commitment and hard work and for embracing the opportunities in front of us with energy and a spirit of working together.
I sit in the I'm proud to be part of this winning team.
Now the are delighted to answer your questions.
Great. Thank you.
If youd like to ask a question. Please signal by pressing star one on your telephone keypad.
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Again press Star one to ask a question pause for just a moment to allow everyone an opportunity for questions.
We're not secret next question from PJ Juvekar from Citi. Please go ahead.
Yes.
Safely.
Good pricing in the quarter I think this was by far one of your best pricing quarters ever.
Your your onsite pricing is kind a set contractually.
So I assume that margin prices are up a lot more than what you reported here.
Can you talk about what's going on there is it driven by utilization and what are you seeing from compared to competitors. The are you seeing more disciplined behavior from competitors.
Thank you.
Good morning, TJ that you are very right. Then we report our results to report over the whole sector, including the onsite business. Obviously, the onsite business that prices are not going up and thats half of our business. So then dealing for 4% price increase it really is about eight or 9%.
What is driving the pricing is our decision to increase prices because it's about almost eight years that you haven't really increase prices our costs are going up.
I made a very very public a statement in February of this year that V. At air products have decided to increase our prices to recover our costs and they are willing to lose volume if people want to buy from somebody else and obviously thats a free choice. They have the consciously have decided that we need to maintain our margins and we are increasing the prices I certainly cannot and will not comment on the behavior of the other people I mean, that's up to them to comment and then you asked in the question, but they certainly have made a conscious decision despite utilization rate or anything like that that we need higher prices to maintain our margins weekend that our margins go down.
Thank you and then just quickly.
You know there is your western a trade war going and I know you are not directly impact here, what your customers are and so.
Can you talk about what end markets, where you're seeing that impact of the trade war.
And ER, which markets are strong for you.
What TJ quite frankly, we do not see that now maybe it is because in China for example, more than 60% of our businesses onsite business and therefore as a result.
We have a lot of protection there.
But overall I mean, I know the headline says that China is slowing.
But then the next line it says China grew 6.32%.
I mean, if that was the case in the US we will all be doing cartwheels. So the Chinese economy is growing and youre seeing the benefit of that.
Okay. Thank you.
Thank you very much region.
Do you find that your question has been answered you may remove yourself from the queue by pressing star too.
Well now take our next question from John Roberts from UBI US. Please go ahead.
Thank you very much do you think the theme parks Union oxygen explosion in China will affect project activity at all in China.
No I don't think so because.
I think once people investigate they find out.
While the causes and it said.
I don't want to speculate but.
I don't think that is an indication of any fundamental issues with respect to processes and so on from what we understand the explosion was that the issue now that the gasification unit no I don't expect any any impact not at all John .
Then how much was volume up in the us because I assume it was probably down in Latin America at least a little and I don't really know what Mexico data actually have to equity income. So I think thats probably didn't show up in your numbers.
Our volumes in Americas was up about 4%.
In total for sale.
I am a coating that dynamic.
I think what we said on the call was our underlying volumes were up 1% in the Americas offset by the prior year contract termination yes.
Right now I was asking us versus Latin America, or north versus South Korea, and usually we don't usually break that down but the us is not.
The economy in the us is not growing that much.
It's flat thank you.
Thank you.
We'll now take our next question from Bob core from Goldman Sachs. Please go ahead.
Thanks, Good morning.
Good morning, Ron.
Explore your Ginnie Mae project is that.
Just the fruition of something I think you guys had worked a couple of years ago on buying back those assets used in supplying the gasifiers is that the same project now, it's just getting formalized and completed.
That is correct.
That you are and then we have been working on this project for a while and it finally came to fruition and youre announcing it.
So as I noticed you say, you're going to supply by pipeline and I think there's I guess, a conventional view that these coal projects must be out in the middle of nowhere. So if youre supplying by pipeline does that mean, you're utilizing other assets in the area to supply.
No John is David by pipeline that yes. Our plan is next to their plan.
Just that it is delivered into pipe that means that we are not delivering liquid.
Got you and then just facility.
During my is massive does this portend future opportunities there could you do as Youve done with.
With Suzanne and others and and eventually convert this into some potential gasification.
Opportunity as well from an investment standpoint.
Bob obviously that would be our ambition yes.
And if I might sneak one last one in Japan have you guys finalized your ownership structure there.
The percentages injuries and.
I think they have said that we will end up owning about 51%.
But.
We are finalizing the contract the numbers might change at 1% up and down but nothing massive now we will end up owning the majority of it.
Great. Thank you Sir.
Thank you.
All right, we'll take our next question from Stephen Byrne from Bank of America. Please go ahead Sir.
Yes. Thank you.
So for you.
Certainly affected.
A significant culture change at air products, and just wanted to get your view on where you are at right now with respect to.
So that process is there is there more to go on on structural change or is it primarily at this point that youve incentivized employees to come forward with with new opportunities for improvement.
Well. Thank you for your question.
Obviously, I'm very proud of but we have achieved but.
At the same time, you know build a culture change youre never done we can always always always do better.
But I am very very satisfied with the progress we have made.
Our results show that and in terms of the future I think our people are.
Very excited about the growth opportunities that we have and as a result.
You know we are a lot more productive people are excited about coming toward.
People are excited about working on.
Very exciting and new projects.
And there.
We are hiring people and so that always creates a positive move within the company, we always work on productivity and but we are hiring people for our new projects or Nada.
So on.
Very good about the organization do you have a great team of people, but at the same time, we can always do better.
And on gasification.
You mentioned Sophie that you're you're still working on numerous opportunities just curious as to whether or not you are seeing.
The bidding activity increase or get more competitive, particularly since your margins in Asia have really.
Escalated with Luann.
VR VR seeing very good opportunities, we are working on new on new project.
And.
In terms of the bidding activity quite honestly.
We are not in a good position to answer because our customers don't necessarily tell us at home, we are competing bid and how many other bidders and all of that but overall you know who our competitors are there are really three at people who are partnership can participate on these big projects that are not 20, so out of the three of US. We are all focused on different parts of the board and.
Then there are the other two are in every project that we are in I don't know, but then be approach a customer they tried to do the best we can.
For them and for other products and Fortunately the VR. Fortunately, we see a lot of opportunities and I expect us to get additional orders as we move forward.
Thank you.
Thank you.
Well now take our next question from Duffy Fischer from Barclays. Please go ahead.
Yes, good morning.
So if we could go to your favorite slide nine.
You are in that band of 34% to 36% for basically 16, 17 and 18 now in the last two quarters, you've kind of broken out of that band to a much higher range.
Is the last two quarters indicative of where you think the new range will be over the next several years or are the last two quarters more of an anomaly more will trend back towards that 34% to 36% over time.
Good morning Duffy.
You always ask me difficult questions, but that's fair that's fair at the had been guiding you that the margins are going to be around 33% to 35%.
Right now we have delivered around 40%, 37%, 40%. So right now if I was going to make a prediction for the future. We are going to be in a higher band, we are going to be somewhere between 38% to 40%.
That is correct.
Great. Thanks.
And as long as we are predicting the future.
Could you give us a.
Early peak, what 2020 looks like for you guys and maybe not business conditions, because they can change, but just when you look at the projects that you've got feathered in for 2020 is that supportive of that 10% plus growth rate youre trying to get an EPS.
Well.
You said in the call twice that our goal is to improve our profitability by 10%. So I think that kind of answers your question right.
That is right.
Yes.
Perfect. Thank you guys.
Sure.
All right, we'll now take our next question from Jeff Zekauskas from Jpmorgan. Please go ahead.
Thanks, very much well what was your Asia volume growth X flu around.
Uh huh.
Good morning, Jeff.
Hi, good morning, including land it was about.
About maybe 4%.
4%, Okay and.
Price prices in the United States, our prices in North America in Europe have been very good year over year.
But pricing in Europe and in the 10 in the Americas was flat sequentially.
And.
Capacity utilization rates and in North America, and Europe have flattened out and come off so.
Generally speaking you know has pricing in industrial gases as a base case plateaued Pat.
Current levels that Laura.
I wouldn't want to say that I expect continued price improvement in the next at least in the next two quarters.
And then after that we'll see how it works out but.
I think the momentum that we have we will continue in the next two quarters.
Yes.
Okay.
Thank you very much.
Thank you.
Well now take our next question from Don Carson from Susquehanna Financial. Please go ahead Sir.
Thank you.
Good morning safety.
You've been delivering strong earnings growth. Despite the drag from from LNG show can you remind US you know what what has that drag on earnings has been in the last few years and as your project backlog starts to improve what what sort of contribution could you see a sale of LNG equipment, making over the next few years.
John Thats, an excellent question at the in 2015, our LNG business delivered us about 50 cents earnings per share about $150 million of either.
At last year and this year it almost contributed nothing so the drag has been about 50 cents.
So I'm, hoping that in time, maybe to cover that and and hopefully even improve on that.
Okay.
And one follow up on.
Your EPS contribution you had 4% volume growth if you exclude use and what you show that as a four cents drag on EPS year over year. So I'm trying to reconcile why volume improvement would be any P.S. drag.
Matt I think Scott in the best position to answer this is Scott. Please sure hi, Don Thanks for the question I think I mentioned this in my prepared remarks. So importantly, when we look at the undervalued lying volumes up modestly and the contribution from those volumes were good there were a couple of things in there that will refer to as kind of a negative mix impact which is the timing for the Jews and project, which is recall is the sale of equipment. So the timing on revenues versus profit year on year is throwing that off a little bit as well as the prior year contract termination that I mentioned.
In Americas, So thats why you see the difference between the EPS contribution versus the sales, but again importantly, when you Peel those kind of one off things out.
The underlying volumes were up and the contribution from those volumes were positive.
Thank you.
Now take our next question from David Begleiter from Deutsche Bank. Please go ahead.
Thank you good morning. Thanks.
Good morning, David.
Well. Thank you just such as and as we get closer to 20, as we get closer to 2020.
You talk about the cadence of the earnings ramp from that JV into 2020, 2020 and 2021 earnings.
Either pre tax basis on an EPS basis.
Well David.
First of all the are working on that thing.
And we are hoping that people that everything good workout and they do the financing and science. So I just want to say it is not a done deal yet, but if it is done but we have said publicly is that considering but we are investing we did see a contribution about more than 75 cents from that project. When it comes on stream now launched we actually get the contract sign put all of the numbers together and all of that and we make the final announcement that this has been done hopefully before the end of this calendar year. Then we will give you a better guidance in terms of the impact on 2020, and 2021 and moving forward.
Very good and just on merchant pricing safe, you've always a merchant price gain by region that you realized in the quarter.
At I'd like to read the numbers merchant pricing, but 9% 6% 14%.
And 99% total.
Yeah that was Americas, Europe , and Asia in that order.
Thank you very much.
Thank you.
All right. We will now take our next question from Chris from Christopher Parkinson from Credit Suisse. Please go ahead.
Great. Thank you. Good so just when you are looking at the sort of overall for fiscal year 20, there. Obviously, if you base moving parts business growth, which obviously can go with the macro your projects in Saudi Arabia, various transfer smaller backlog projects and the initial ramp of some LNG wins I understand if you can't quantify these buckets, but can you just comment on your confidence in terms of the line of sight that you see into these and just your general level of enthusiasm pertaining to each thank you.
Hey, Chris I can say that I'm.
Very optimistic.
That VBL delivered a 10% improvement over 2019.
Now if the number is going to be any better we will talk to you about that into that in October but right now sitting here looking at bodies happening into war and we think that you should be able to improve our EPS next year by 10% versus this year.
And they look at it is that you know.
Our job you know I get paid $15 million a year to come and deliver results rather than comment explained by I didn't understand that if it is up we are committed to improve our EPS at 10% to you in the years to come.
We have done that will be.
Find different levers to pull in order to make that happen, but if these cost reduction price increases new projects and all of that so that is our commitment to the investor that has been our commitment to the investors since five years ago, and we hope to continue to deliver that Chris.
Okay fair enough.
In your materials, you've been consistently referencing an additional 6.7 billion remaining capital to deploy.
And you made it very clear that you all may explore projects. Thanks.
In excess of 10% returns when you just look at the remaining backlog opportunities, which it's my understanding is still ample.
Can you just comment or those returns, mostly close to that 10% level or is it fair to say, there's still plenty in there.
That would be more similar to depart the implied return of our low end. Thank you.
Well I'm not you know, it's very difficult to predict that but we do have said that we would be very hesitant to take any project that less than 10% again.
So hopefully all of these projects will be 10% or higher.
Thank you.
Thank you Chris.
All right, we'll take our next question from Jonas Oxgaard from Bernstein. Please go ahead.
Hi, good morning, guys.
Oh hi.
You have you talked Oh, we don't guide on time about and expanding your on site as a percentage of your total.
But considering the success in your merchant business now are you revisiting that strategy at all.
No because we are of that exceed our merchant business, you're going to grow it as fast as we can we are not downsizing that.
But we think that our onsite did grow faster than that.
So they are a ratio of his change not because there is slowing down on the merchant business, but because we think the onsite business has the potential of growing faster than diminish.
Well, you don't see an opportunity to okay, but you don't see an opportunity to double down on the merchant either.
Well the American business, we are going to double down based on economic growth.
I mean, if they have in China, it's growing 6% did build new merchant clients.
But if that you'll have a situation in Europe or in the U.S. There. The market is not growing then obviously, you're not going to add the capacity, but that we are committed to our merchant business, we will grow it as fast as we can grow it which is basically GDP nobody can grow their merchant business faster than GDP I don't care about Daisy.
Because that if they say, albeit going to grow faster than the other guy that means they are going to take market share away from the other guy and that doesn't happen.
Nobody can take away market share from us.
So and vice versa show them the merchant business is going to grow with the GDP of each region and as it grows it investment that we are committed to that do you have to know all the other people, but my point is that that growth.
Is in emerging markets. It is not in the us and it is not in Europe .
Okay that makes sense. Thank you.
Once again, if youd like to ask a question. Please.
Press Star one well now take our next question comes from.
One more question please.
Is there a last question. Please go ahead.
Well.
Hey, Matt.
Doesn't seem that there is any other questions so with that.
I would like to tank everybody for being on our call. Thanks for taking time from your busy schedule to listen to our presentation.
We do appreciate your interest and good questions.
And look forward to discussing.
Another set of good results with you again next quarter.
Have a nice summer holiday and all the best take it.