Full Year 2022 Linde PLC Earnings Call
Good morning, and thank you for standing by and welcome to the Lindy full year and fourth quarter 2022 earnings teleconference and webcast at this time all participants are in a listen only mode.
Please be advised today's conference is being recorded and after the Speakers' 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 Sir.
Thanks, Kevin.
Good morning, everyone and thank you for attending our 2022 fourth quarter earnings call and webcast.
<unk> head of Investor Relations and I'm joined this morning by Sanjiv Blonde Brown, Chief Executive Officer, and Matt White, Chief Financial Officer.
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 the teleconference.
The reconciliations of the adjusted numbers are in the appendix to this presentation.
Sanjiv will provide some opening remarks, and then Matt will give an update on lindsey's fourth quarter financial performance and outlook.
After which we will wrap up with Q&A.
Let me now turn the call over to Sanjiv.
Thanks, Juan and good morning, everyone.
By all measures 2022 was another successful year for Lindy, despite the significant and unprecedented headwinds and.
I'm incredibly proud of how every employee rose to the challenge by not only delivering record financial performance, but also living our core values and supporting key initiatives for all stakeholders.
And while there are hundreds of daily examples where lindsay employees have created real value, so that commitment and determination.
To highlight just a few on <unk>.
Slide three.
Starting with shareholders.
We delivered record financial performance against the backdrop of an energy and inflation crisis not seen in half a century.
Three important metrics, where owners operating margin EPS and ROE state.
All reached record highs both for the fourth quarter and the full meal.
In fact, we achieved our ninth quarter in a row of growing EPS ex FX by 20% or more.
On top of that.
$7 billion, almost 5% of our average market cap was return to owners in the form of dividends and share repurchases.
We also expanded shareholder focus beyond fundamental results.
Identifying persistent technical constraints on Linda stock valuation.
The board recommended a solution to simplify our exchange listing which was approved by an overwhelming majority of shareholders.
However.
Achieving sustainable long term value creation requires more than just a commitment to our owners.
We need to successfully integrate all stakeholders, including employees customers and the very communities we operate in.
So on the environmental front, we continue to make great progress in 2022 was no exception.
Looking at the numbers.
We added 50 additional zero based sites in 2022.
Reaching 760 sites around the globe.
With reduced absolute scope, one and scope to greenhouse gas emissions by over 1 million tons of steel to losses 2021, despite growing volumes.
This was a good start towards our stated goal of reducing 35% greenhouse gas emissions by 2035.
Which was recently validated by the science based targets initiative.
In addition to the use of our technology products and services, we help customers avoid more than two times the CRA emissions from our operational footprint.
These achievements have been recognized by the Dow Jones sustainability index, CDB and several other independent organizations.
And we're not only committed to reducing our own carbon footprint, but we're also playing a major role in the global energy transition, which I'll cover later.
Of course, none of this is possible without the commitment of our employees.
When I measure performance in human capital I first look to our long standing company values of safety integrity inclusion community and accountability.
Our safety performance continues to be best in class as defined by a double digit improvement over 2021, and lost workday cases and commercial vehicle incidents.
Creating a diverse and inclusive environment, where employees can achieve their full potential remains a priority for us in support of this commitment Linda has recently implemented a number of development programs across the enterprise.
We currently at 28% for gender diversity.
And I fully expect us to exceed 30% by 2030 across the entire organization.
The local nature of our business has also enabled over 500 different community engagement projects, an increase of 25% from 2021.
Lindsay donated more than 10 million to support various charitable and stem programs, including over $2 million in support of our Ukrainian employees and relief efforts.
These highlights represent only a handful of accomplishments during the challenging 2020 you.
However, currently we have a relentless focus on how to improve.
Including better positioning ourselves for the future.
And while we have had for great deals since the merger.
I'm, even more optimistic looking ahead.
The $9 2 billion project backlog, which we define as contractual growth project with secured returns increased $2 4 billion versus the third quarter due to our OCI win which I'll talk about shortly.
Additionally, 2022, it was another record year for small onsite Vince as that 52, new contracts will provide secured revenue for the next decade or more.
With this in mind for 2023, we expect to invest almost $5 billion in capex and acquisitions across all three supply modes.
Enabling high quality growth, while increasing asset density and reliability.
Furthermore, we expect to startup over $2 billion in sale of gas projects. This year.
Including a $1 4 billion dollar project with Exxonmobil in Singapore.
You'll recall that this project is expected to start up in phases.
Beginning this summer.
Therefore, we remove it from the backlog sometime during the middle of this year.
Of course, it's difficult to talk about growth today without mentioning key secular drivers.
Our current project backlog of tier one electronics customers validates that strategy as we continue to lead the industry.
I view clean energy opportunities as being no different.
I expect to win more than our fair share of high quality projects across the energy transition spectrum.
We are already partnering with global leaders and actively developing large scale projects with contractual terms and conditions and scope that you've become accustomed to with Linda.
This approach is consistent with what I mentioned last quarter of course, it never hurts to reiterate.
First we intend to partner with subsurface experts were all underground operation with.
We've not geologist.
Secondly, all projects will follow our investment criteria in other words.
That's the right return for the risk undertaken.
And finally, we will stick to our core which is management of industrial gases, we have no interest to own or speculate on globally created chemicals Rado will have off takers for all products.
Our recent win with OCI perfectly aligns with these principles, which you can find on slide four.
We will invest $1 $8 billion.
As a long term supplier of nitrogen and blue hydrogen into Oci's ammonia facility with terms and conditions and the return profile consistent with our traditional onsite contracts.
OCI is an expert in ammonia production logistics and marketing something Lindsay doesn't want to engage them.
In addition, we are partnering with a world class oil and gas company, while the CEO to six station.
This blue hydrogen project is a great start.
And we have several more large scale LNG projects under development.
These opportunities follow our traditional gas model and involve partners that are global leaders in this space.
In addition.
We will continue to execute in our base business managing pricing productivity and increasing density across all three supply molds.
Because we recognize that all owners appreciate the resilience of the industrial gas model.
Overall 2022 was another stellar year, despite the many headwinds.
We achieved new highs across several key financial metrics, while relentlessly focusing on our core values.
This is the fourth year in a row of double digit EPS growth and I see no reason why this won't continue.
David simply.
Have confidence that we will deliver strong results irrespective of the economic and geopolitical climate.
From my Vantage point I've never been more confident about <unk> future.
I'll now turn the call over to Matt to walk you through the financial numbers.
Thanks Angie.
Please turn to slide five for an overview of our fourth quarter results.
Sales of $7.9 billion were down 5% from prior year.
And 10% sequentially.
Note that underlying sales increased 7% year on year, but decreased 2% sequentially. So there are several moving parts distorting the trends.
First you can see FX down 6% year on year due to the strong U S dollar.
And this trend has already started to reverse as evidenced by the flat sequential impact.
I'll speak to guidance at the end, but based on current FX levels, we might have some upside going forward.
Divestitures from just and the deconsolidation of Russia resulted in a 4% and 2% headwind when compared to prior year in the third quarter.
Well that part of this in June and the rest in September although I do expect a sequential tailwind in the first quarter from our U S acquisition of next year.
The engineering business decreased 4% from last year and 3% sequentially.
The prior year variance is driven by Russian projects and the sequential decline is from timing of a U S project.
I expect a few more quarters of engineering volatility as they resolve and subsequently a lap suspended Russian projects.
While we ceased all Russian activity in July of 2022.
We continue to reconcile balance sheet liabilities upon reaching settlements with our vendors and former customers.
Cost pass through trends are starting to stabilize with a 2% increase over last year, but 3% drop sequentially.
As you know this represents the contractual pass through of energy costs and has no effect on operating profit dollars. However, this will impact operating margins as we gross up or down sales and variable costs.
The volume is down 1% from last year and 4% sequentially.
This prior year economic weakness in EMEA and severe weather conditions in the U S more than offset growth in APAC and project startups.
Most of the slower volume came from pipeline customers.
So there's a larger impact to sales than profit given the contractual fixed payments.
Versus the third quarter volume decline is coming from weather impact to U S pipeline customers.
EMEA is softer economy and normal seasonal impacts from southern Hemisphere L. P. G.
We saw a larger than normal amount of U S pipeline customer outages toward the end of the quarter from weather.
This mostly occurred in December .
But the vast majority of customers are back to their seasonal run rates.
Therefore, this is not expected to be an issue going forward.
Pricing actions remain robust with an 8% increase from 2021 and 2% from the third quarter.
These increases are broad based and aligned with the weighted inflation rate.
Operating profit of $2 billion resulted in a record 25, 3% operating margin.
Excluding pass through operating margins expanded both sequentially and year over year in all gas segments as pricing effects net of cost inflation continue to improve underlying business quality.
The engineering segment had an abnormally high operating margin this quarter due to favorable project timing.
Recall that engineering follow as a percent of completion accounting method.
Customer cash deposits are held on the balance sheet as of liabilities and.
While we have the contractual right to bill the customer at which point.
Liability is recognized on the income statement as revenue.
This quarter, we settled a large contract enabling us to retain all related cash deposits. Thus recognizing the remaining liability as current period revenue.
I do not expect this margin to be sustainable beyond this quarter.
A lot of you are likely wondering how to model engineering going forward given the recent performance.
I believe the best approach is to use the sale of plant backlog as the next three to four years of revenue.
With average profit margin in the low to mid teen percent.
During times of rising backlog.
Cash inflows and margins tend to be higher.
Whereas in a declining backlog it's.
It's usually the opposite.
However, the current situation is deviating from this pattern due to the significant project wind down from sanctions.
So we still may have a few more volatile quarters ahead.
EPS of $3 16 increased 14% from last year or 20% excluding FX.
It sounds you have mentioned this is the ninth quarter in a row of 20% or more EPS growth ex FX.
Operating cash flow is down versus prior year and sequentially.
This is almost entirely driven by engineering project timing.
Please turn to slide six for a review of 2022 capital management.
Operating cash flow was $9 billion for 2022 or 82% of EBITDA consistent with our multi year average.
The business continues to deliver steady levels of cash in any economic environment.
You can see to the right, how we invested that cash along.
Lined with our stated capital allocation policy of growing the dividend.
Reinvesting in the business.
And using leftover cash for share repurchases.
During the year, we invested $3 $3 billion, while returning seven $5 billion back to shareholders.
We anticipate a meaningful step up in 2023 for new business investments.
While raising the dividend and maintaining a healthy share repurchase program.
I'll wrap up with guidance on slide seven.
For the first quarter, we're providing an EPS range of $3 five to $3 15.
An increase of 4% to 8% versus prior year or 9% to 13% when excluding FX.
Sequentially is this range assumes that recovering U S pipeline volumes and an acquisition.
Are mostly offset by China seasonality and lower engineering profit.
Our full year guidance is expected in the range of $13 15.
$13 55.
Representing an increase of 7% to 10% or 9% to 12% when excluding an estimated 2% FX headwind.
Both ranges assume no material change in economic conditions at the midpoint.
Furthermore, we're estimating a 4% FX headwind for the first half year and flat for the second half.
Although recent trends have been better.
At this time, we believe it's appropriate to remain cautious against the backdrop of an uncertain environment.
If the economy grows we'll have upside.
And if not we.
We'll take actions to mitigate like we did in 2020 and 2022.
Our job of management is not to predict what will happen, but instead.
Execute in a volatile world and deliver on our commitments.
I'll now turn the call to Q&A.
At this time I would like to remind everyone in order to ask a question. Please press star and then the number one on your telephone keypad.
Our first question comes from Duffy Fischer with Goldman Sachs.
Yes, good morning.
A couple of part question just around the new project announcements. So historically a lot of the fertilizer companies used captive production.
So one I'm just wondering with this outsource does that indicate that maybe either moving to an ATR or something in the IRA.
Or just connected to your pipeline does that give you guys an advantage, particularly in the industry in general without sourcing hydrogen going forward and then I just on the.
The project itself. So the way to think about it you're 10 cents of op profit for every dollar of capital we should put in about $180 million run rate kind of whenever we think that starts up in 2025 is that a fair way to think about this.
Thanks Duffy.
So let me let me just take a step back and tell you why projects like this become attractive to have Linda as a partner with them in the OCI project. As an example, there are few things that work in our favor and then that kind of translates into your question as to why and why outsource versus captive.
Let me brings in a number of things to the table one EPC capability with a successful track record executing very large and complex projects integrating different technology packages, you referenced a trs 80 hours a new for many people to operate I mean, we already operate one and clearly you know at our own facility. So that that advantage is something that then become.
<unk> available to people, who are thinking about that outsourcing model.
Add on to that the reliability that we were able to bring with the single captive Standalone unit does not have.
We of course hope to hydrogen pipeline up to a U S Gulf coast system and to the cavalry that has the ability obviously to store excess hydrogen at times, when we are able to produce more.
And strong operational expertise in managing the ATR ASU complex I mentioned to you already operate one at clear Lake and obviously adds to that whole piece ammonia players in my mind are increasingly seeing Lindsay is a very complementary partner.
Supporting their efforts to stop their expansion programs on Blue and subsequently green as well you put all of that together I think it's a compelling argument Duffy.
As far as the return profile is concerned and I I I heard some numbers there I would say to you. The way we think about returns and again this goes back to our disciplined capital in and invest.
The investment criteria.
For us double digits Unlevered Bose tax returns is how we would assess a project like this this is a traditional industrial gas project no different to any other that we do and that's how we would then factor that returns coming back into the returns you would see hitting the EPS.
Great. Thank you guys.
Our next question comes from John Mcnulty with BMO capital markets.
Yeah. Thanks for taking my question, maybe just another one on the on the blue hydrogen opportunities Youre.
You're in a position now where you've got a partner on the on the carbon sequestration side I guess, when we think about the Q45 credits or the value of them. So maybe theres. Some negotiation there I guess, how should we think about how much you capture as part of this carbon capturing that you setup versus versus how the sequestration gets.
Allocated is there a way that we should be thinking about that or a rule of thumb I'm sure every contracts can be a little bit different but your partner sounds like it's going to be at a steady and long term one.
Exactly so Duffy, let me let me just sorry, John Let me just start off by quickly.
Identifying as you saw on slide four.
Three components to this deal coming together there was a customer who has the offtake up we've defined that as a core part of our strategy without an offtake or we don't develop these projects. There is a linear scope, which is the ASU. The a T R and the carbon capture equipment that we are investing in as a 45 Q is linked back to the entity that <unk>.
Project streams like this at the moment, where advanced conversations with a number of partners for this very project.
And essentially what we're agreeing with them is potentially what you could call a tipping fee.
Where we would we would have structures, which allowed them to take the cost of transmitting and injecting the.
The <unk> storage underground and obviously managing that on a permanent basis. So that's how you would structurally see it obviously the 45 <unk> benefits are part of that discussion and negotiation that we're currently pursuing with with a couple of three.
Different carbon sequestration experts.
Got it thanks very much for the color.
Okay.
Our next question comes from Mike <unk> with Barclays.
Great. Thanks, Good morning, guys.
I'll stay on that theme and ask another one on the OCI project.
You mentioned it will connect your existing pipeline for your existing customers on that pipeline I assume you're currently supplying them traditional gray hydrogen.
I'd assume there is also now an opportunity to sell them blue hydrogen at some price or value premium am I thinking about that correctly.
And then when you think about your base returns our hurdle rates for this project with those incremental come up shift opportunities to blue hydrogen on the pipeline be considered in your base returns or is that call it potential upside from here.
So Mike you're right that there is some excess blue hydrogen that we would have out of this facility.
We've obviously scope for that.
<unk> into the U S Gulf Coast hydrogen pipeline networks, both face right. It works as a reliability factor very attractive for OCI at the same time gives me the opportunity to dig that surplus blue hydrogen and put it back into my system, we have demand for that blue hydrogen and yes. There is a premium you you know in the past I've explained.
Green and blue the premiums that exist and we will be putting that into the pipeline for customers, who are moving onto blue hydrogen and have the willingness to pay for it so.
To that extent whatever surplus we have we have factored that in into our our economics. As you would expect we tend to be fairly conservative on their own how we modeled some of that stuff and you will see that also here.
Is there a potential upside longer term there is always going to be as I transition to blue hydrogen happens.
Great. Thank you.
Our next question comes from Nicola Tang with Pete Sorry, BNP Paribas.
Thanks, everyone.
David.
Hey, guys talk a little bit about the buyback at sneaks I see that it stepped down a little bit from the usual.
In Q4, which I assume with Gucci restrictions around I had a few early Jan.
If I understand correctly, the delisting process or maybe a few restrictions around your ability to pay dividends.
The buyback I'm, taking that as well.
Approval from the Irish core, let's say can you just sort of clarify whether that you see any constraints in terms of your buyback with timing.
And around the delisting period. Thanks.
Nicola and good the headline that by saying I don't see any constraints, but I lost my to just give you a little more color on that sure hi, Nick well so.
Two questions I think first just on the buyback pace. Yeah. We were since this is classified as a merger of the actual structure. We were essentially a out of the market entirely from most of the month of December .
We are back in.
Traditional <unk>, one and then it will open up again, two active buybacks and a couple of days so that would drive some of the quarterly reductions given that we needed to be officially out.
As far as the Irish distributable reserves, which you're referring to on dividends and buyback as you know this is the same process. We went through on the original merger between Praxair and Linde AG. It is somewhat perfunctory exercise, especially now that we have a track record in history. So we don't see this as any issue we.
We are well ahead of it and this will not affect the dividend it will not affect the buybacks and we've got that well accounted for so there's no concerns on that in my part.
Okay.
Thanks, so much.
Our next question comes from Jeff Zekauskas with J P. Morgan.
Okay.
Thanks very much.
With all of the winter storms did lindsay itself have operational issues.
Hydrogen.
In the fourth quarter.
Jeff the impact of the winter storm was primarily on our onsite customers, resulting in customer outages.
We're there to support them with whatever nitrogen requirements et cetera, but there, but the outages were at the customers end.
Great. Thank you so much.
Our next question comes from David Begleiter with Deutsche Bank.
Thank you Sanjeev I'm back to the OCI project should we think about the 45 <unk> tax credit is additive to a low double digit return or is it embedded in that assumption.
It is David its embedded so obviously the relevant portions are appropriately embedded into the economic model.
And obviously double digit as you know it is a wide range. So it's an attractive project for us the way it comes together.
Very good and you mentioned last quarter about 30 projects Youre working on I think in the U S. On the back of the eye array implementation, where do we stand on additional projects like OCI being announced perhaps in next few months here a few quarters. Thank you.
David I've I've mentioned that we have a large number of projects that we're working on we've said that we have visibility over a decade now are about $30 billion in it.
In overall terms of decisions that we expect to be making I also mentioned that I see $7 billion to $9 billion of decisions on projects a foreign investment over the next two to three years and that you know despite the $1 8 billion that we've now announced I still see that seven to 9 billion number as being robust in terms of decisions over the <unk>.
Two to three years.
Thank you.
Our next question comes from Peter Clark with Society General.
Yes. Thank you again going back to the OCI and this will be I mean, obviously that that place. These trends can see that with the infrastructure to pipelines and everything obviously, there's a lot of a tool now coming out of Europe , though with a response to the IRS.
I see your footprint and that is not quite the same as the Gulf Coast, you don't have the hydrogen pipelines and they say makes sense and so I was just wondering how you see your advantage is there is there is a real risk.
So Peter I'm going to give you. The example of Germany and laying out where we have exactly.
We have here in the U S Gulf Coast.
We're not going to get us well.
In Europe , you don't have the same pipeline infrastructure that you have on the Gulf Coast. So we do and I was going to give you. An example of Germany and <unk>, where we have exactly the same structure multiple customers pipeline network serving.
Refineries and chemical companies in that in that industrial network. So that's an example of where we have incumbent strength. In fact, we are building. Our electrolyze is there to provide some green into that very pipeline network. So that's one example, where we do have the ability to expand and use that incumbent position that we have as the leverage to win more.
Or into that industrial industrial activity and the path that we operate in lineup in Germany. So that's an example in Europe .
What I would say also to you is I think the nature of the projects in Europe is going to tend to be quite different where there will be a complex producing product and then putting it into a pipeline network our ability therefore to participate in these islands developments remains very strong and I can also tell you that off the number of projects.
That I referenced previously.
And in response to David's question.
A number of those currently being developed in Europe as well.
Can I sneak one in on trading just on Europe , obviously, the margin shot up you'd have the volumes down a lot of that was the onsite business. So I presume that helps your margin, but effectively you know how do you see the price stockman.
In terms of pushing the selling price through against the energy cost situation now because I presume most of it through new pool. That's out so just how you see that progressing in 23. Thank you.
Okay.
So the way I think about about.
Energy costs and their implications for our business is twofold right.
In terms of power costs, and natural gas costs anything that happens in terms of it going up or down gets accounted for in our contractual cost pass through mechanism. So if that moves up and down yes, you will see some shifts happen as a result of that.
For the rest.
The way, we recover inflationary impact and the way we manage our business is pricing and as you know we've got a 30 year track record now of positive pricing and I see no different than.
Nothing different to suggest that there will be any different as we move forward.
If fuel costs go up and we manage that through a pricing mechanism. That's the cost inflation piece. If other cost go up you might have thought through a pricing mechanism as well one of the things that we do is we manage that to product pricing and not only surcharges and therefore, the stability of that pricing longer term is quite sound and we feel pretty.
Good about where it stands and how we'll be able to cope with that as we move forward.
Peter This is Matt I would just add to <unk> point, I mean, I think a good indication to see these changes youre looking for or the sequential trends. So when you look at EMEA a sequential trends in this most recent quarter you can see that to Sanjay pointed pass through is negative 6% that is the energy pricing that is.
The natural gas pricing coming down yet pricing was up 4%. So we're still seeing stability in the pricing levels, but of course, we are seeing large reductions in the pass through as that energy comes in.
Thank you.
[laughter].
Okay.
Our next question comes from Kevin Mccarthy with vertical research partners.
Yes. Good morning, Sanjiv would you comment on your expectations for China as they emerge from the lunar new year holiday. What are you baking in there in terms of baseline demand trajectory for 'twenty three and then I'd welcome any thoughts on non China Asia as well taking into account your.
Exxonmobil project startup in Singapore.
Sure.
So Kevin.
Just talking about the APAC business overall and I'll just walk you through.
APAC more broadly that will give you the color that youre looking for again, we had solid pricing as you saw we had record operating margins. They are up at 26, 5% I've said to you folks before that you know there's a target on the back of the Americas business in APAC and EMEA or are moving in that direction to try and bridge that gap.
Sales were pretty strong.
In electronics in particular across APAC, followed by chemicals energy and then a bit of a manufacturing.
It is it is a story of two halves, if you will ex China.
Again electronics, very strong chemicals engineering energy and manufacturing and also extremely strong some seasonal impact of LPG business in South Pacific that you would normally expect.
We've seen that that levels stable and I'm seeing that in January the same momentum carrying through.
In China itself.
In the last quarter, we saw steel automotive being reasonably weak.
The Chinese new year, obviously and in January kind of impedes, our ability to really see how that recovery is going to come through given the reopening that's been touted now I think the next couple of weeks I'm watching carefully to see how that trend shapes up and that's really going to determine what that long term view on China is going to be.
Last year that I expect moderated growth out of China, and that's kind of what we've considered in our in our guidance.
Thanks very much.
Our next question comes from John Roberts with Credit Suisse.
Thank you is Linda interested in the disassociation of ammonia back to hydrogen and nitrogen.
I don't know if any of the OCI ammonia is targeted for export for local disassociation, but I'm more interested in general since there are a number of blue ammonia projects underway by companies, who don't sell hydrogen and nitrogen and I guess, there could be some extra cargo and so it'll be available eventually in that market.
John I'll answer that in two parts, let's talk about technology, and then I'll talk a little bit about the commercial side of things as far as technology is concerned Linda has some really good technology around backtracking.
But just cracking that ammonia back to get disassociate and get hydrogen back.
And we are in fact running pilots as we speak on some new catalyst and some new developments over there to make that a lot more efficient as a process. We are running with one of the largest oil.
Oil and gas companies in the world kind of doing that those trials. So I feel very good about the technology, we have I feel very good about that particular project that we're running through it and you'll hear more on that in the weeks ahead.
As far as the commercials are concerned I really struggled with this the.
The reality is for us to make ammonia will agree.
We put a lot of energy into that process, we get the ammonia molecule will then move that molecule from from point a to point B in a large you know in a large ship.
We will then take it to a storage at the other end and we were back racket. The amount of energy loss that has seen that entire process makes the economics not viable in my mind.
Don't see so for me Dirk.
Correct ammonia usage, Idaho, the fertilizer front, our direct as in.
Fuel injection of fuel blending makes a lot more sense in the near term.
As technology changes and improves and as the energy balancing work that we're doing in fact in our pilot continues to improve then it becomes a little more viable longer term.
Thank you.
Our next question comes from Steve Byrne with Bank of America.
Yes. Thank you can you provide a little more granularity on how you got the 21% sales growth in electronics year over year, given that end market has clearly slowed.
Okay.
But our fab is being constructed.
<unk>.
And we're talking about.
Solid contracts with.
Tier one players across across the world.
When the fab is constructed they have to manage that operational elements to appoint right. So that capacity utilization works in our favor and we are actually growing that market. Both in terms of ramp ups that are happening on new fabs that came up two or three years ago, and we continue to ramp our gases into increase in production that is happening over there.
And in addition to that we also continued to improve some of the molecules that we bring into these fabs given the new technologies that are there are we call them electronic special gases that we continue to see growth over there as well.
Of course, I'll always odd that there is a good strong pricing element to that.
And if I could.
On the OCI Blue ammonia project with 2025 start ups.
Does seem quite ambitious is construction already underway.
And maybe particularly for your partner.
Does your contract with them.
It would take effect in 2025.
Their plant is not on stream and at the other end.
Sure.
Our partner for sequestration.
Well on their way to getting any classics injection well can you comment on those perhaps.
Key bottlenecks.
So these projects typically take many months to develop in some cases years.
And so we have been working on this project for a while Steve So.
That's the reason why we are reasonably confident about getting this up and running in 2025, and then commercial production. So I feel pretty good about where things stand with that havent, having a local engineering and organization with the ability to do EPC on very complex projects, obviously helps and is a competitive advantage from a lindsay perspective.
Our customers have obviously been working on that project for a period of time as well and are well advanced in terms of their own construction activity. So again feel good watching that and I am not concerned about it.
Delays on their end to having said that contractually, we always protect ourselves and we have date certain contracts to ensure that if we are if we have done the investments and done the construction that we needed to do that we are able to then ensure that our facility fees or facility charges are then paid to us on a date certain basis.
Coming onto the downhole activity, we are talking to at least three if not more.
Very confident world class companies that are experts in carbon sequestration.
And those discussions are progressing well and obviously you would expect us to do some diligence around their ability to get permits stakes, where they stand in that process and have some have already applied others are fairly advanced in terms of their preparation again, we feel good about how they are kind of in terms of readiness to manage that.
Restoration when it comes to when it comes to the pipeline.
Thank you.
Our next question comes from Vincent Andrews with Morgan Stanley .
Thank you and good morning, everyone, just sticking with that global end market trends slide.
Two aspects of it one is this going to be the last quarter of difficult healthcare comparisons and should that yellow box start to turn green and then secondly, the other piece within industrial actually had the worst sequential sales growth. So what in particular, what's in that other bucket was driving that minus 6% sequentially.
<unk>.
Right so.
We are about lapping the cobot volumes, Vince you're right that we will see that largely lapped now.
I think the point that you can also notice a sequential movement on that suggests that we are actually headed in the right direction, you'll see that green.
Greening up of it if you like.
In the in the quarters ahead, so that looks pretty much in along the expectations we have for that.
As far as the rest is concerned.
Kelly.
There are sequential elements over here that have a range of different things matters referenced most of this I'm going to just highlight a couple of them. So I make sure that I covered that one we told you that U S onsite.
Business Salt saw customer outages due to winter storm in the U S that obviously affected.
Between metals and chemicals and energy.
We have and again you heard this before but I'll just repeat it January trends look very good.
Onsite customers are back to seasonal run rates in line with expectations or even slightly above.
We mentioned that in our Q1 guidance already as you might've seen so feeling pretty good about where that trend is.
In terms of the developments out of the Americas that you saw.
As far as.
EMEA just briefly cover and let you know that.
From our perspective, there has been.
Lower economic activity across EMEA.
The course of this year has been especially true on the onsite business given the volatility on the energy cost.
Customers in metals chemicals, and energy, obviously impacted by that so volumes were down versus previous year as far as the onsite business portfolio was concerned, but again, having strong contracts and high quality customers helps and you can see that in the EMEA margin, which which hit that 25% Mark which was the target that I set for them as it.
Move down that journey to try and bridge the gap to the Americas margin.
As far as Europe's concern sentiment is of course improving.
And given the stability in energy pricing, we are starting to see some volume creeping up slowly.
As far as the onsite business that I mentioned to you earlier on.
But of course, they still remained below below.
Previously a levels and were just waiting and watching and how that how that all shapes up.
And just to the other end market, which is the bottom one on that slide under industrial yes.
The other piece of that.
Yeah, Matt do you want to just yeah sure Vince.
So a couple of things on other generally what it represents clearly items that wouldn't fit in the categories above it represents a competitor or it would represent distributors that we don't have an actual end market identified.
It is the smallest percent so large moves could shift it in this particular case, it's the seasonal component of LPG. That's the big driver since that is a sort of a retail component of our southern hemisphere business.
And that just shows on the year over year, but you can see the year over year is still up slightly and this is mainly driven by the seasonality component of some of that.
Residential LPG component.
Very clear thanks, so much.
Sure.
Our next question comes from Tony Jones with Redburn.
Hey, good morning, everybody. Thanks for taking my question I, just wanted to ask about volumes.
With the good visibility you have over the next couple of quarters do you think some of the new projects ramping up will offset slower end market trends, particularly in the U S. If things deteriorate from here. Thanks.
Tony as I said the volume trends that we were looking at in January it'll look look really good and I've mentioned the onsite customers in particular.
Seeing that backup seasonal run rates that I would expect them to be at or slightly above that more broadly around manufacturing. We are also seeing a snap back after the holiday period, so the seasonal impact and they got to watch out for what happens beyond that again January showed us a good catch up after that in the U S as well.
In Q4, our packaged goods.
I looked at the gases and hard goods, both grew sales double digit and we're seeing momentum continue into January on that as well.
Thank you.
Our next question comes from P J <unk> with Citi.
Yes, good morning Sanjay.
You know in the past you talked about three buckets of capital.
Decarbonize Lindsay was 3 billion Decarbonize customers was 10 billion and in Greenfield projects was $20 billion.
Are the returns on industry buckets kind of similar to each other and then how do you go about forecasting long term hydrogen price given that this could be 2030 year projects and hydrogen costs have been coming down substantially. Thank you.
P. J, let me, let me talk about the hydrogen priced quickly and then we can talk about the three buckets and how we look at them. So as far as hydrogen price is concerned you know we've been in the hydrogen business for about 50 years now so you've got some long term experience around hydrogen pricing in terms of how we think about hydrogen pricing really.
Look at our projects the capital that we put on the ground and look at as I said before double digit Unlevered full stacks IRR is to make sure those projects stand on their feet you want that back into the hydrogen pricing and obviously given that we lead the hydrogen market both in the U S and elsewhere in the world, we feel pretty good about being very competitive.
In terms of what we bring to offer now.
The hydrogen price development that you're referencing over here is largely going to be that variability is largely going to come on the green side of things a lot of scale up needed clean is neither scalable today, nor is it cost effective today, even with the PTC or <unk> $3 per kg that might come out of the out of the IRA.
I would say to you that the inflection point for green isn't quite there yet I see a journey of at least five to seven years, there, but youre right you will see some some pricing curves on that that'll that'll kind of develop in the next five years to seven years to make it.
Get to a point of inflection on volumes the.
The three buckets that we spoke about.
Youre right. They all three different buckets. There are two specific elements in there that you can think about the first when we have assets on the ground in the U S. Gulf Coast as an example today when we add capture.
Capability to that and that worked with the sequestration partner to put a downhole.
There is an existing asset base onto which I am I am adding a little more incremental capital and getting the leverage of that installed base that perhaps so clearly the return will look more attractive.
While the rest whether it's <expletive>.
<unk> our customers on new markets, we are largely setting up new assets, which will be just as we have in the OCI case, and an ASU plus an ATR plus carbon capture you put that together. We will then again look for our traditional industrial gas.
In our contract structures and return profile, where we would expect to have returns commensurate with the risk that we undertake.
So that's how I would I would kind of say to you that those those two buckets would really play out.
Our final question.
Comes from Christopher Parkinson with Mizuho.
Great. Thank you so much for taking the question.
On the last earnings call you had a very helpful. Slide four Im sure you remember it goes the IRA and accelerated in the U S. Clean energy transition can you just you don't actually one of the smaller buckets. The decarbonize Linda It seems like you have a lot of projects three plus billion dollar opportunity fairly low hanging fruit, how should we be assessing those opportunities in terms of your prioritization.
Versus obviously, the interim well I'd say short intermediate and longer opportunities with customers as well as new markets. Thank you.
Thanks, Brett so that bucket and I referenced it briefly to <unk> question earlier on as well that bucket is installed assets that we have today. There are about 11 to 13 assets that we have on our list for that three.
$3 billion spend that we talked about and really I expect that in the in the midterm. We will be looking at Decarbonizing that there are two drivers for that one we are seeing conversions and demand buildup of blue hydrogen and across our existing networks are clearly we want to make sure our assets already enabled to supply that the second remember that from a sustainability.
Any point of view, we've made a commitment that we will bring absolute reductions to our scope one emissions, which are coming from that installed base of team maintain a reformer that we operate in the Gulf coast. So we will be tackling that both from a point of creating economic value, but also living up to our sustainability commitments that we've made in reducing absolute scope one emissions.
In the midterm Youll see actions on all of that.
Thank you so much.
Yeah.
That concludes today's Q&A session I'll now turn the call back over to Juan <unk> for closing remarks.
Kevin Thank you and thanks, everyone for participating in today's call. If you have any further questions feel free to reach out have a safe day.
That concludes today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.