Q3 2022 Air Products and Chemicals Inc Earnings Call
Good morning, and welcome to the Air products third quarter earnings release Conference call. Today's call is being recorded at the request of Air products. Please note that this presentation and the comments made on behalf of air products are subject to copyright by air products and all rights are reserved beginning today's call.
As Mr. Simon Moore.
Thank you Cecilia and good morning, everyone welcome to Air Products' third quarter 2022 earnings results teleconference. This is Simon Moore, Vice President of Investor Relations and corporate relations and sustainability I'm.
I'm pleased to be joined today by safety Kazemi, our chairman President and CEO , Dr. Samir sure Hahn, our Chief operating Officer Melissa.
Melissa Schaefer, our senior Vice President and Chief Financial Officer, and Sean Major our executive Vice President General Counsel and Secretary. After our comments, we will be pleased to take your questions. Our earnings release and the slides for this call are available on our website at air products Dotcom.
This discussion contains forward looking statements. Please refer to the forward looking statement disclosure that can be found in our earnings release and on slide number two.
In addition throughout today's discussion we will refer to various financial measures unless we specifically state otherwise when we refer to earnings per share EBITDA EBITDA margin the effective tax rate on our S. C E. Both on a total company and segment basis, we are referring to our adjusted non-GAAP financial measures.
Adjusted earnings per share adjusted EBITDA, adjusted EBITDA margin adjusted effective tax rate and adjusted return on capital employed.
Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our website in the relevant earnings release section.
Now I'm pleased to turn the call over to safety.
Right.
Thank you Simon and good day to everyone.
Thank you for taking time from your very busy schedule to be on our call today.
Our fiscal year.
1022 third quarter results.
Oh the latest demonstration.
The strength and resilience of our business portfolio.
Despite all of the Val d'or and visit those headwinds on the global stage.
Hi, Chad.
Inflation.
Supply chain constraints.
Currency headwinds.
Covid related shutdowns in China.
Barring a crane and the significant rise in energy prices in Europe .
The people of air products delivered excellent results.
Earnings per share up 13% versus last year.
In addition.
As you can see.
We delivered very strong cash flow.
Being support energy transition and growth projects.
I do want to tanks all of the people at air products.
The total commitment to excellence.
Service to our customers.
Now please turn to slide number three.
Our safety performance.
Our highest priority.
He is the safety and well being and go about employees.
We have made significant progress.
Improved our safety performance in the last few years.
But we are working even harder.
Achieve our ultimate goal.
Zero incidents and accidents.
Now please turn to slide number four.
This is all historical performance with the law.
Last eight years.
And the best indication.
Oh boy.
Investment.
And the resilience of our business portfolio.
We have increased our.
Earnings per share.
By an average of.
Person per year.
But the last eight years.
Despite all of the ups and downs in the World economy.
Geopolitical rotations and Kobe.
Yes, the performance is better than what we promised investors.
Does it go.
Now please to slide number five.
Clearly indicates.
That we have shared this success.
Our investors by increasing our dividend per share by an average of 10% per year also.
Now please go to slide number six.
My favorite slide.
This shows our EBITDA margins.
You'll note the significant improvements over the years and please also note.
About three quarters of the recent decline is due to higher pass through energy costs.
The increase ourselves, but not our properties.
I have as usual included slides number 789 and 10.
Emphasize.
Senior commitment.
Basic management principles.
That have guided our performance up to now.
That'd be continue to be the key principles that you can follow in the future.
Slide number 11, 12 and 13.
At present, our new sustainability commitments at the shares on Monday July 25th at the conference call.
The transcript of that call explains all of these are slides in detail.
So I do not plan to go through that again today.
But I do want to reiterate that sustainability is our growth strategy at air products.
And we are committed.
Two improving our performance and enabling our customers to do the same.
We are proud to have set additional ESG goals and increased our total capital expenditure.
Projects driving that.
Transition.
$15 billion or more.
Now, it's my pleasure to agenda called over to Mindy.
Associate there.
Our Chief Financial Officer.
I'll go through the details of the fiscal year third quarter results.
Elisa.
Thank you Stacey as mentioned earlier the resilience of our business is once again demonstrated results this quarter, our onsite business, which generates approximately half of our total company sales.
Is stable and has contractual protection she passed to higher energy costs, our merchant business also performed very well.
I stayed ahead of variable cost increases for the second consecutive quarter and how that has now more than offset the higher variable cost for the year to date.
I'm also pleased to announce that we received a cash distribution of approximately <unk> hundred million from the Japan joint venture and Jim.
Another example of this project meeting our commitments.
I also would like to Echo state these comments and thank all of our people at air products for their outstanding effort to overcome the significant energy cost challenges and achieve key project milestones.
Now please turn to slide 14 for our third quarter results.
Underlying sales were strong price and volume combined were up 12%.
So energy costs have fallen slightly in recent weeks, they remain significantly higher than in prior quarters and our team stepped up our pricing efforts across the region and response to the escalating energy costs are.
Our third quarter merchant price is 17% higher than last year, but yourself it in a 7% gain for the total company.
Merchant prices improved double digits for three consecutive quarters and increased sequentially each quarter.
Volumes were up 5% overall and better in those segments.
New asset recovery in hydrogen in the Americas better merchant demand.
Kris Dev equipment activities more than offset the negative COVID-19 impacts in Asia, and lower hydrogen volumes in Europe.
Currency translation from a strengthening U S. Dollar was a significant headwind this quarter, reducing sales and EBITDA by 5%. Despite this headwind EBITDA increased 11% as favorable volume prices and equity affiliate income more than offset higher costs.
EBIT margin of 33, 9% decreased 360 basis points compared to prior year.
As positive contributions from price equity affiliate income was more than offset by higher energy pass through which lowered EBITDA margin by 500 basis points.
Sequentially volumes were up 4% supported by a lunar new year recovery in Asia, and higher hydrogen volumes in the Americas.
By partially offset by lower merchant demand due to COVID-19 restrictions in China.
EBIT was up 6% sequentially absorbing 2% of currency headwind as favorable price and volume more than offset higher costs.
RSV has climbed steadily the last four quarters to reach 10, 8%.
We anticipate <unk> to further improve as we bring new projects on stream and continue to put the abundant cash on our balance sheet to work.
<unk> for this cash are Aro <unk> would've been 13, 5% this quarter.
Now please turn to slide 15.
Our third quarter adjusted EPS of $2.62 increased 31 cents or 13% from the prior year, representing our fifth consecutive quarter of double digit year over year earnings growth.
Volume and cost together contributed <unk> 27.
Volume of sample 11th and.
Price net of variable cost is for Airbus 32 sets.
Asia, Europe , and Americas, all showed positive price results.
Our costs were higher primarily due to inflation supply chain related issues and higher planned maintenance.
We also remain steadfast in our support for the long term growth of our company hiring the necessary people to bring projects onstream and investing in facilities, including our new helium storage cavern, which will generate significant value in the future.
We keep a close eye on all of our costs and continue to focus on productivity actions across all of our businesses.
Weaker foreign currencies versus the U S dollar lowered our EPS eight.
The Euro British pound Korean won and RMB were the biggest contributors. This was about five cents worse than we expected for the quarter.
The Joy Zhang joint venture continues to deliver as expected and drove the improved equity affiliate income versus prior year.
Non controlling interest was unfavorable as higher earnings from consolidated joint ventures is attributed to our partners.
Non operating income was four cents lower.
Driven by higher pension expense.
Our third quarter effective tax rate of 18, 6% was slightly higher than last year as the favorable impact of just Dan in the current year was offset by prior year impact of favorable one time items.
We expect our tax rate to be approximately 19% next quarter.
Now please turn to slide 16.
The stability of our business allows us to generate strong cash flow.
Like the challenging geopolitical energy environment.
The last 12 months, we generated more than 2.9 billion of distributable cash flow.
$13 per share.
And our EBITDA of over 4 billion, we paid interest taxes and maintenance capital.
From a distributable cash flow, we paid over 45% or roughly $1 $4 billion as dividends to our shareholders and still have over 1.5 billion available for high return projects.
This strong cash flow even in uncertain times enable us to continue to create shareholder value.
Increasing dividends and capital deployment for high return projects.
Slide 17 provides an update to our capital deployment.
As you can see our capital deployment potential is $35 billion through fiscal 2027.
$35 billion includes about $8 billion of cash and additional debt capacity available today.
The $17 billion, we expect to be available by 2027.
And more than $10 billion already spent.
We still believe this capacity is conservative given the potential for additional EBITDA growth, which will generate additional cash flow and additional borrowing capacity.
As always we continue to focus on managing our debt balance to maintain our current and targeted AA rating.
So you can see we have already spent 30% and have already committed 73% and the updated capacity we show here.
We've made great progress and still have substantial investment capacity remaining to invest in high return projects at.
As J P mentioned, we have committed additional $4 billion to the future energy transition projects are about half of the remaining $9 5 billion to be committed.
We are developing a significant number of exciting projects.
As a result, I think we have a good chance to exceed this target.
We continually evaluate our capital deployment options and determine the best way to use the available cash entrusted to us by our shareholders. We believe that investing in these high return projects is the best way to create shareholder value for the long run.
Now to begin the review of our segment results I'll turn the call back over to Stacy.
Thank you Melisa.
Now please turn to slide number 18 for our Asia results.
As I mentioned.
I mentioned earlier currency was a major carrier.
You had this quarter.
Sales were flat as positive volume and price.
All set by weaker currency.
Volume was up 2%.
As we continue to successfully bring.
On the strength being gone extreme small to medium sized traditional industrial gas plants.
In our onsite business across the region.
Which more than offsets that.
Merchant volumes caused by Covid restrictions in certain parts of China in the last quarter.
Our merchant price was up.
5% compared to last year.
Which resulted in the 2% overall price improvement for the region.
Cost and favorable primarily due to higher planned maintenance.
Inflation and supply chain inefficiencies caused by Covid restrictions.
EBITDA was 5% lower mostly due to currency and.
EBITDA margin decreased 230 basis points.
As better price and volume only partially offset the higher costs.
Now I would like to turn the call over to Simon to talk about our Europe results fun.
Thank you Stacey now please turn to slide 19.
Energy costs in Europe remained very high but had no profit impact on our onsite business. Since we are contractually able to pass the costs onto our customers.
Since almost all of our natural gas usage is for onsite hydrogen production, we have very little cost exposure to natural gas and no cost exposure to the power used for our onsite a S shoes.
In our merchant business, our team continues to implement price increases to compensate for higher power costs, highlighting the strength of our business model.
You can see the power costs for Europe . This quarter, we're still three times the level at the beginning of 2021.
Although we have now fully recovered the higher power costs for the year to date, we remain mindful of the dynamic nature of the situation and we are continuing to work hard on pricing.
Now please turn to slide 20 for a review of our Europe results.
Negative currency had a significant impact on Europe , all major local currencies were weaker versus the dollar by double digits.
Compared to prior year underlying sales were stable supported by a sizable step up in merchant pricing.
Rice increased 17% over last year for the region, which translates to a 25% gain for the merchant business.
Prices were higher across all major product lines and sub regions and this is the fourth consecutive quarter of sequential price increases.
Volume was 3% weaker merchant volume was up but hydrogen volume was negatively impacted by a planned customer turnaround in another customer reducing volume from us due to high natural gas costs.
EBITDA improved 4% due to strong price net of variable costs and better equity affiliate income, which were partially offset by unfavorable currency and weaker volume.
EBITDA margin decreased 500 basis points compared to prior year as better pricing net of variable costs, only partially offset higher energy cost pass through which lowered margin more than 700 basis points.
Compared to the prior quarter merchant volume improved and price continue to gain strength across all key product lines and sub regions.
EBITDA was up 9% as better price net of variable costs more than offset weaker currency.
EBITDA margin improved 230 basis points, primarily due to the strong price.
Compared to Q1 of this year Europe's operating income has improved $40 million or 40% and EBITDA margin has increased by over 600 basis points, owing much to our team's successful pricing effort.
Now I would like to turn the call over to Dr. Sharon for a discussion of our other segments.
Thank you Simon.
Now please turn to slide 21 for a review of our Americas results.
Energy cost pass through was a significant factor this quarter.
<unk> for two thirds of the 33% sales increase over last year, but contributing no profit. However, it does negatively impact our margins.
Underlying sales were strong volume and price together were up 12% similar to the last two quarters.
Volume grew 4% primarily due to recovery in hydrogen despite the planned outages in this quarter.
As well as a new on sites coming online.
We expect hydrogen to continue its path to recovery as we move into 2023.
Our third quarter volume growth was partially offset by continued weakness in our South America motion business.
Lower demand for medical oxygen.
As well as the favorable impact from our one time items in the previous year.
As mentioned the positive price momentum continued.
Our team in the Americas did an excellent job.
Again by raising your prices to more than cover the higher energy costs.
Raj has improved in all key product lines over last year and were also up sequentially.
The 8% gain for the region compared to last year is equivalent to an 18% increase in our merchant business.
As we indicated previously.
<unk> was still elevated in the third quarter.
But it's expected to decrease in this fourth quarter.
Cost were also unfavorable primarily due to inflation on supply chain related challenges.
Including the driver shortages that continue to impact the industry.
EBITDA grew 3% driven by higher price and volume.
Partially offset by higher costs.
EBITA margin declined 980 basis points from the previous year due to higher energy cost pass through.
Which accounted for around 800 basis points.
With most of it driven by one time gains in the previous year.
Sequentially.
Hydrogen volumes and continued price gains helped to drive EBITDA higher despite higher supply chain related costs.
EBITDA margin was lower primarily due to higher energy cost pass through.
Now please turn to slide 22 for a review of our Middle East and India segment.
Sales and operating income in this segment are modest.
Since our middle East and India wholly owned operations out of smaller in size.
However.
The segment's EBITDA is significant since it includes the equity affiliate income related to the design joint venture.
Our India joint venture and ex AP.
For the quarter shelves, what high versus the previous year.
Previous quarter due to acquisitions.
The $50 million increase in equity affiliate income included our share of the <unk> joint venture with net profit.
As Melissa indicated earlier, we received a distribution of about $100 million from the joint venture during the third quarter.
And I'm also happy to report that the plant commissioning activities continue to make good progress.
Please turn to slide 23 for our corporate segment.
This segment includes our sale of equipment businesses as well as our centrally managed functions and corporate costs.
Over the past few years, our non LNG celebrate equipment businesses have grown considerably.
Have become major contributors for this segment.
For this quarter sales and profit increased driven by strong activities in non LNG projects and also supported by favorable profit recognition up on the recent completion of an LNG set of equipment to project.
As expected inquiries for the potential LNG projects have increased significantly.
But these projects take time to develop we are working hard to find a new projects in order to maintain our momentum.
At this point I would like to take you on the call back over to safety to provide his closing comments.
Thank you Dr. Han.
As I have mentioned previously.
Our strategy for the company is fundamentally base.
During two things at the same time.
Two pillars.
Number one is too.
To operate our base industrial gas business.
In the most efficient way.
June year to invest in.
So that business something that we had been doing and we will continue to do.
The second pillar of our strategy is to focus on zero and low carbon hydrogen projects.
Produce hydrogen energy.
Part of the future.
Air products today.
And the production of Green hydrogen worldwide.
Our strategy.
To have a natural extension of that leadership position.
And to be the leader in the production of Green hydrogen.
Please Andrea and Hello, better resources and Blue hydrogen.
You choose the production of hydrogen from hydrocarbons.
<unk> captured.
That is our growth strategy for the future.
We are very much committed to this strategy.
These two pillars are part of the same thing.
They fit together.
Line.
Core competencies as a company.
They give us the potential to grow significantly.
As the board's largest hydrogen supplier.
With over 60 years of experience with hydrogen.
We are uniquely positioned.
To be successful in Florida.
Implementing this strategy.
We have been knowhow to carry out our megawatt projects.
And implement them successfully.
As demonstrated by the successful completion.
Several major projects recently.
Clothing and more than $2 billion.
<unk> project the largest single award.
It was completed.
On time.
Their budgets recently.
We can also leverage our existing assets as many of our energy transition projects.
Next to our own pipelines.
Can readily supply the low carbon hydrogen to our existing customers.
Now please turn to slide number 24.
Like everyone else we.
We see significant economic challenges as we go forward.
Colby restrictions in China.
Ladies and uncertain.
We expect inflation currency and supply chain constraints.
Tenure to be headwinds.
Aldo.
I have only a very small business in Germany.
Feet of energy supply.
He is weighing on part of Europe .
Despite all of these headwinds.
I remain confident.
And the strain.
Stability.
Of air products business.
We will push for price increases to compensate for additional costs.
Pursue additional volume opportunity until we pay very close attention to our cost.
As a result.
Fiscal year 'twenty two.
We have kept our guidance unchanged.
Despite.
Ultimately all of these headwinds but also the.
More than 10 cents of negative currency impact.
That we see which is different which is higher than when we gave you the guidance.
Last quarter.
A range of $10 20 to $10 40.
Presents a 14% increase at the midpoint over last year.
We expect to see our capex.
2022 to be slightly about $4 5 billion.
Including the approximate Seabourn Manhattan previously invested.
Phase one of the <unk> project.
Now please turn to slide number 25.
Who makes its energy transition in reality.
You need people, who share the same vision.
For this important undertaking.
Recently I've been hosting a strategy discussions.
Our employees around the world.
These are extensive.
<unk> dialogues.
Small groups of people at the time.
Allow me to share our strategy did our people.
As always to answer their questions and get input from them.
I have already met with approximately 2000.
Our employees in the last two months.
I plan to talk to all of our 20000 employees.
Small groups in the next year.
And the next year or so.
I'm happy to say.
Our employees are excited.
<unk> data and confidence we.
We take on the bulk challenges ahead of us.
Their commitment and motivation.
Is our long term competitive advantage.
Rich is going to make us successful.
Implementing our strategy.
I am okay.
I have been and continue to be very excited about.
The future of air products.
Now before we answer your questions.
I do have an announcement to make.
As all of you on this call know.
Okay. All of you on this call.
No my friend and colleague Mr. Simon Moore vary though.
He has been responsible for Investor relations for the last 12 years.
He has been a significant contributor to the success of air products.
Last 33 years.
Recently, Simon informed me that he plans to spend more time with his family and therefore.
The ambitious to retire from air products.
At the end of March 2023.
We have decided to imbalances decision entity.
So that you can about go about finding a successor.
Open and public manner and also.
To give his successor plenty of time for the transition.
I do want to publicly acknowledge and.
Thanks Simon.
I'll, just standing and valuable contribution.
He has made to air products.
And also acknowledge the key role.
Yes played in developing our sustainability program.
All of us at air products.
Simon the best in his retirement.
And look forward to working with him over the next eight months to identify.
In addition to a strong successor.
Simon.
Thank you again for all you have done for air products.
And I invite you to make any comments you would like to make at this time.
Thank you Savi.
I have been honored to enjoyed the challenges the opportunities the people and the teamwork at air products over the last 30 plus years.
As they say no one joins a company planning to stay for 30 years, but I have been lucky to be challenged with a wide variety of opportunities that always made air products a great place to be.
As we discussed when I first shared my decision with you I remain fully supportive of air products growth strategy.
Continuing to focus on a very strong base business, while we further advanced our unique first mover advantages driving the sustainability focus to energy transition for the World will no doubt creates significant value for our investors employees customers and other stakeholders.
And safety I want to specifically, thank you for leading the team to transform air products into this great company with an incredible future.
I'm looking forward to continuing to drive our critical work support the search for an outstanding successor, and ensure a smooth transition.
Thanks again safety.
Thank you very much Simon for your kind remarks, I do appreciate that.
We are pleased to answer your questions.
Thank you if you wish to ask a question at this time. Please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment.
Again, Please press star one to ask a question.
We will now take our first question from Christopher Parkinson from MS. Sue. Please go ahead.
Great. Thank you so much for taking my question.
Your team has done a very good job over the last several quarters.
Obviously from a pretty tough place last October to getting ahead on price costs in both Europe and also the U S for your Powerpoint slides.
Can you just discuss.
Those efforts in the context of the current macroeconomic environment. Obviously, there is some potential.
Potential cracks in Europe , and some other places so just.
How are those discussions going on now how should we think about your ability to hold price into the next fiscal year just any additional color on the your updated thought process. Thank you so much.
Thank you, Chris and good morning to you Hey, good morning, Chris Thanks for your comments I appreciate that.
We are very confident.
We will be able to continue doing what we had been doing in the last two quarters in order to deal with all of the headwinds that youre dealing with.
And you know we have significant headwinds in currency.
And as your costs and all of that.
We believe that they have the.
Capacity their resilience their screens and the market position.
Two new to increase prices to compensate for energy cost and other inflationary factors. So we are not going to fall behind on that as we have demonstrated in.
In the last few quarters and I expect those efforts to continue.
The second thing is that our people.
Phenomenally.
Chris on our costs.
Sure that'd be.
Really counts for every penny.
And Melissa and her role as CFO .
Playing a leading role.
In that.
Interacting with our businesses around the world to make sure they understand their costs and.
We keep our eyes on the ball.
Making sure that you are not spending on any money that you don't have to spend on so putting all of these together that is why you have had quite honestly the courage.
Considering everything that is going to be thrown at us in the next quarter not to change all of that.
Our forecast for the year and stick with the tend towards each 10, 40 beach means that midpoint 10 30.
And knowing full well that you are going to be hit with at least 10 cents.
Currency had.
So we are going to keep doing what we have been doing and I'm very confident that you should be successful Chris.
That's very helpful and just a quick follow up in your last slide presentations for the last quarter.
Slide 11, just kind of the update of the fiscal year 'twenty three major product project considerations I mean <unk>.
The bank GTA, so on and so forth.
Can you just give us a quick update on any incremental thoughts you have on those kind of that second stage of getting Lou Anne you back to prior levels. Just any color you could offer would be greatly appreciated. Thank you.
Sure they fully expect Atlanta to go back to the original.
Contract, you're starting October 1st and all of those other projects that you mentioned do you expect them to come on stream in 2023 and contribute to that.
The increase in EPS, there's just this year.
So we look forward to having.
Good use in 2023.
Sure.
Thank you.
We will have to look our next question from Vincent Andrews from Morgan Stanley . Please go ahead.
Thank you and good morning, everyone and congratulations in advance Simon.
Sandy can you talk about.
You mentioned, you had 10 cent incremental FX headwinds versus I guess, the middle of your fiscal year, obviously, the raw material environment, the macro environment hasn't gotten any easier either so what is it that's happening in the business, it's better than what you expected, that's allowing you to maintain the guidance.
Our ability.
Two things number one our ability.
To make sure that the increased prices to keep up with inflation and the second thing is that.
There are pockets of our business.
We are doing better than would be expected to be very specific the hydrogen pipeline in the Gulf coast, because but you know very though about the increased activity for our refineries so that is helping us.
Is it follow.
Yeah sure go ahead.
No go ahead finish off.
No I was done thank you Lindsay.
Okay. Thank you and then just a follow up I was just wondering as we think about the potential for energy electricity issues, possibly in the fourth quarter and maybe the first calendar quarter of this year, depending on what happens what are your mitigation plans in terms of you know do you have the capability to shift volume to certain plants to serve.
The merchant market, if you have to reduce production or our customers proactively maybe global customers proactively maybe shifting some volume to other geographies or what or what are your contingency plans.
But we have a lot of flexibility to deal with that if that is what the customers want to do.
I don't know because we have many many operations.
That can be.
We do that all the time in order to manage off.
Electricity costs, because you know when electricity costs go up significantly during the night to adult during the day, depending on the New York, we shut down some facilities, maybe a slowdown in some facilities and ramped it.
So if you happen to have the flexibility to deal with that you must be referring specifically to any possible electricity shortages in Europe as a result of the cutoff of the natural gas in that region.
But if that happens then be just that.
Our drugstore operations to what the question is rich.
You too.
Thank you very much.
Thank you.
Yeah.
We will now take our next question from David Begleiter from Deutsche Bank. Please go ahead.
Thank you and good morning.
Good morning, David Good morning on the <unk> and dividend will this be ongoing quarterly dividend or semi annual well how should we think about the dividend going forward.
Well, obviously the dividend is at the discretion of the board of directors of the company, but we expect to be getting a regular dividend that's there.
Expectation in the got the dividend this quarter and I expect.
You know I don't want to say every single quarter, but in general over the course of the year would be expect to get the dividend that is necessary or expected as a pair of the our investment agreement.
As the company.
The good news as Doug just said Han mentioned is that.
Plant is operating.
Michigan is going well and we have an outstanding customers in.
Saudi Aramco the chair.
Happens to be generating a lot of cash themselves. So.
No very good and that they were almost through this current year or any early thoughts on fiscal 'twenty three earnings.
David.
Uh huh.
I would not want to venture into that yeah, I have to give me until the beginning of November to give you a guidance for that so I don't really want to come.
Comment too much on that but I am optimistic.
Because they do have a significant plants coming on stream and therefore, I am expecting a good 2023, but in terms of exactly where we are going to be.
It depends on the world economy, and all of that but maybe.
We will obviously give you a <unk>.
Forecast for that.
Would that in India announced our results at the end of October or early November .
Very good thank you very much.
Thank you Dave.
We will now take our next question from John Roberts from Credit Suisse. Please go ahead.
Thank you best wishes, Simon and I'm going to ask just one question.
The press release mentioned the potential green hydrogen project in Oman, which you've talked about before but it also mentions the Netherlands and the UK for Green hydrogen I don't think you've talked about that before could you give us a little bit more information there.
John first of all good morning.
Asking a very good question.
Give us a little bit of time to sort out the details of that before we make any public comments, yes. We are looking at possibility of a green hydrogen.
The project in the Netherlands, using the wind.
The energy that they have but you havent finalized everything you just wanted to let people know that they are working on dose, but bus we have finalized the details we will make an appropriate announced.
Okay. Thank you.
Thank you John .
We will now take our next question from Kevin Mccarthy from vertical Research partners. Please go ahead.
Yes, good morning.
Safety as you look a few years into the future do you think that demand for clean hydrogen projects around the world.
We'll begin to exceed the industrial gas industries practical ability to fund them.
Other words I look at slide 12, you have a yellow box there.
Obviously, you've inked a lot of projects already.
You have perhaps Oman and the other ones that John just asked about the 4 billion dollar number towards the right of the slide is not especially large relative to.
Your balance sheet or relative to the market opportunity for clean hydrogen so.
What happens as the demand for these projects continues to rise and the capital has expanded do you think that will exert upward tension on future returns or how might the industry respond.
But for sure good morning, Kevin you are asking.
Excellent question.
As the demand goes up.
The ability.
To finance these projects become easier.
And I think.
Does it all do you see tell you for example have you are going to do with the project in New Orleans, and so on in detail.
I think as the board and.
But out of the infrastructure funds and everybody sees that the demand is real and it is going there.
And then are you.
Be able to finance these projects.
Yeah.
How would you finance these projects and therefore I think we will.
Besides that we at air products.
Our confidence that we would be able to keep up in terms of the capital demands that'd be don't thinks will be capital constrained.
And I think the rest of the industry those who wish to play on this thing.
With that.
Participate I think there is a lot of cash.
As you know better than I do significant amount of cash available around the world.
Who is looking for investing in green projects.
<unk> is lack of projects or lack of credible projects.
And that is why I think yeah.
In time, you can see that with some of our projects then.
That'd be willing to finance them that we'd be a lot of demand for people to project finance them. So I don't expect at least speaking for air products I cannot speak for the industry, but it's pretty grim for air products I don't think it will have the problem of lack of cash.
Okay. Thank you for that and congratulations to you Simon it's been a pleasure.
Thanks.
We will now take our next question from Jeff Jeff Zekauskas from Jpmorgan. Please go ahead.
Thanks very much.
Uh huh.
There is an inflation reduction bill.
Before the Congress.
And <unk>.
Previously there was a queue 45 tax credit, which I think was really $50 a ton for sequestering carbon dioxide.
And they're proposing in the current traffic that it <unk>.
$85, a tonne so maybe up $35 a ton.
So.
By my calculation may be that would increase your.
Tax credit by $175 million.
That is it would take us from about $2 50, a year or two for 25 that you would receive over annually over a 10 year period.
Does that math makes sense too.
Yeah, Jeff overall that math makes sense and actually that Matt if you take the 25.
Thursday, five daughters that the price to significantly more than the $5 million that you were talking about where the digital project. Because you also have a lot of C or two in other places.
Yeah.
Yes.
That is in front of Congress is about 750 pages.
I do not want to claim that I know that everything that is in all of the 750 pages, but he has been involved significantly in the details of that bill.
But the build is not passed yet so it will be premature to comment on it.
Once the bill becomes law.
I promise you that we will have.
The conference call and we at air products.
Will delineate for you all.
All of the aspects of that bill that would affect our business because it's not just wanted to see are two there are things in that about hydrogen and other things. So I just like to wait be know a lot about that too, but I like to wait until that.
It becomes law the president signs it hopefully in the next few weeks and then we will as I said I promise you. We will have a detailed conference call there will be a delay.
The effect of that across our business.
Okay.
Thank you for that okay.
In terms of the thanks for that and in terms of the amount of C. O. Two you can sequester.
So if it's.
If that project is 5 million tons, a year for 20 years that would be 100 million tons and then in the answer to my previous question. You said you could put other carbon dioxide down that shaft.
How big is the well is it a 100 million tons 200 million tons can you roughly size, how much carbon dioxide youll be able to sequester or what your design idea is.
Well that is a little bit of a secret that we have but rather a magnitude. Let me tell you that the agreement that we have with the state of Louisiana allows us.
To put it in store.
Significantly higher so you have to then the hundred million that you quote significantly high.
Okay, Great I don't want to give the exact number because we are under a confidentiality, but it is significantly higher than the Andrew.
Okay. Good thank you very much.
Thank you Sir.
We will now take our next question from Mike <unk> from Barclays. Please go ahead.
Great. Thanks, Good morning, guys.
First question.
I was hoping you can provide us just additional thoughts around how you're seeing business trend in China and Europe as we go into the fiscal fourth quarter.
Well in China.
I think as we mentioned before.
The impact of the Covid shutdowns, neither able to deal with that and actually.
At all of the rest of our business growing the effect was not that material in terms of what is going to happen in the fourth quarter.
It all depends.
<unk>.
What would be the Chinese government's reaction to any addition of outbreak of the Covid.
Covid and.
And how many massive shutdowns they would.
Implement or they would not implement so I cannot predict that.
But.
We are prepared for that the understand what that involves and obviously the uptake in some of that into consideration in terms of that.
Our guidance, but that.
That is totally unpredictable in terms of what will happen.
The advise trial.
Business in China has been doing fine, especially.
Especially the major customers that we have.
Our running.
That even though some of the coal gasification projects are running at full capacity because of the price of oil.
No.
All of it all.
As I said, except for the unknown in terms of dealing with Covid.
Otherwise it seems to be fine in terms of China.
In terms of Europe .
Energy costs are obviously shoring.
Much to our surprise.
The economy has not suddenly the tank economies.
Still our volumes.
Not significantly dropped.
There is a little bit of a surprise it's Ken.
As we go forward, but.
We are optimistic that that.
We'll continue to be the case.
Is that enough.
That's perfect. Thank you.
Thank you.
Our next question comes from Steve Byrne from Bank of America. Please go ahead.
So safety, there's a lot of interest or growing interest on the LNG area and you have a really strong platform. There I guess can you help us to understand what the current kind of EBITDA run rate is for that business and where where do you think it could go like what's the maximum level just based on your capacity or flexibility around your manufacturing process.
How big could that number get if LNG materializes the way some some bolt on the energy market are actually thinking it will.
John that's yourself hunting in his comments mentioned that we are seeing a lot of inquiries about our LNG business.
Yeah, what I can tell you is that historically.
The peak performance of that business.
Was approximately.
$200 million contribution in the Navy.
Today it is yet.
I don't want to quote the exact number but it is obviously not there.
So and it is the law.
No other than that so.
We expect that business to do better.
But it is in the context of the $4 billion of Fortinet billions of dollars of it.
Air products, they would be down.
Okay.
You know, it's not going to double our EBITDA, but it is a good business. It is an excellent business and it's quite significantly.
Increased its EBITDA contribution as we go forward and yeah.
We are looking forward to that then is as you said there is a lot of interest in building a.
Very very good position behind the very good management team did and we have.
Very good saw that was technology that you saw.
Goodbye everybody.
Like I think 85% of all of the major LNG facilities around the world use our technology.
So that's.
All right on a day to day basis stuff yourself runs that business 70, <unk> do you want to make any additional comments.
I think you've covered it.
Salad.
The projects, we are executing now with six projects I mean in our manufacturing facility again significant amount of opportunities now.
Hoping with our customers again, the high not sure where you got some pricing are driving this.
Energy challenges in Europe is also driving this.
Again, we have I did last year at 60% capacity to our manufacturing and the Florida Court mandated.
So we have a very well positioned to really.
Capture that business and build upon that momentum.
Got it. Thanks, Thanks for the color I appreciate it and then C. P. You you have a really big project backlog at this point.
There's been a lot of inflationary pressures, whether it's labor or or or.
Or different commodities and some are starting to come off some we're continuing to push higher can you help us to understand the inflationary impact on the on the capital that you're putting to work on the projects in the backlog and how we should be thinking about that.
But John .
There is obviously no question that there is inflation and that inflation impact.
The capital cost of some of the projects that we are doing that.
The point that you are making is that.
With significant amount of the capital that we are putting in the ground.
We have not committed.
So the price of product out of those facilities.
Especially.
Blue hydrogen and green hydrogen projects.
Therefore in case inflation drives up the capital.
Backfile dramatically means that product out of those plants will be more expensive than be shed it.
And therefore it.
So I'm not worried about losing their margins that we expected on those projects, which is most of our investment.
And then there is a significant amount of our projects.
Almost at the end.
And phase two is fixed price because said youre purchasing something we're not building that that is a significant amount of money that we're going to deploy.
And then projects Gulf Coast ammonia and some of the other projects are almost done.
So what we are less.
Yeah.
We have quoted a number publicly I think.
Approximately $2 billion a lot of projects.
Our.
<unk> you already have it fixed price contract.
Our customers.
So if you take that 3 billion and you say that inflation is going to cost you 10%.
They might have to spend $300 million more on those projects.
And going by the rule of thumb that.
It would be effect on our bottom line of about $30 million in terms of the.
Operating income so that can happen.
Be asleep the team at air.
Products is very very focus to minimize the effect of inflation and also to go back to some of those customers and try to increase the price to get any compensation for that but that is order of magnitude the extent about exposure John .
Got it thanks very much for the color safety I appreciate it.
Sure.
Thank you Sir no further questions in the queue I would like to turn the call back to Stacey for any additional or closing remarks.
Well. Thank you very much I would like to thank everyone of you for listening to our presentation and also.
You very much for your good questions.
I'd like to once again, thank Simon for his outstanding contribution and fishing badly is obviously going to be with us for a few more calls as we go forward and.
And we look forward to talking to you.
Sometime at the end of October or early November would be and also results and in the meantime have a safe healthy and enjoyable summer. Thank you.
Thank you that will conclude today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.