Q4 2023 Air Products and Chemicals Inc Earnings Call

Please standby we're about to begin.

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

Mr. Redman just work. Please go ahead Sir.

Thank you Lynette good morning, everyone welcome to air products as well.

Florida running 23 earnings results teleconference.

This is Sid Mandresh rock, Vice President of Investor Relations and corporate Treasurer.

I'm pleased to be joined today by C. If he gets I mean, our chairman president and CEO.

Okay, Sameer, So Hahn, our chief operating officer, Melissa Schafer, our 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 Dot com.

Today's discussion contains forward looking statements, including those about earnings and capital expenditure guidance.

Business outlook and investment opportunities.

Please refer to the cautionary note regarding forward looking statements that is provided in our earnings release and on slide number two.

Additionally throughout today's discussion.

We'll refer to various financial measures.

Including earnings per share operating.

Operating income operating margin.

EBITDA EBITDA margin, the effective tax rate and our oce bolt on a total company and segment basis.

Unless we specifically state otherwise.

Statements regarding these measures are referring to our.

Adjusted non-GAAP financial measures.

Reconciliation of these measures to our most directly comparable GAAP financial measures can be found on our website in the relevant earnings release section now with that I'm pleased to turn the call over to safety.

Thank you Sid and good day to everybody.

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

I would like to begin with slide number three.

Our safety performance, which is our number one priority at air products.

I'm pleased to share that.

Our safety.

Record.

Has improved compared to last year, continuing the significant progress we have made since 2014.

Our ultimate goal will always be zero incidents zero accidents.

Now please turn to slide number four.

Which summarizes our management philosophy.

Do you reiterate.

These principles every quarter.

Cause they are.

Fundamental to a hobby manage the company and continue to profitably grow our earnings per share.

Now please turn to slide number five.

Air products has a very strong business model.

And the long term our strategy to deliver cost consisting earning growth for the short and the long term and I stress the long term.

But ah projects in our onsite business.

We have long term take or pay contracts with our customers.

Drove our volume growth this year.

<unk> economic weakness across the regions.

Our onsite business generates stable cash flow and consistently contributes about half of our total sales.

Also noteworthy is that strong pricing action.

In our merchant business.

As well as our ability to contractually astral energy costs in our onsite business.

It does mitigate inflation as well as higher power and energy costs.

We experienced last year.

We also continue to successfully execute our long term strategy.

Be the leader.

In Blue and Green hydrogen.

For the future.

We had a significant number.

Green hydrogen megawatt projects.

And their execution.

Nobody in the board is matching what we are doing.

Finally, our backlog of over $19 billion.

Test shop, and multi year framework for double digit earnings per share growth, which has been our goal since 2014 and remains our goal for the future.

Now please turn to slide number six.

Our fourth quarter adjusted earnings.

Oh $3 at 15 cents per share exceeded the top end of our guidance for the quarter and improved 30 cents or 11% versus last year.

For the full year fiscal 'twenty, three 'twenty to 'twenty three.

Our adjusted earnings per share of 11 15, one.

Improved $8 26 or 12% over prior years.

<unk> got a strong track record of.

Just simply delivering double digit average earning growth per share. Since 2014, we are very proud of the accomplishment in 2013, despite the unfavorable economic conditions.

In addition to the strong results. We also made significant progress in our critical deployment.

In our capital deployment strategy this year.

<unk> phase two was completed.

Both Gulf coast ammonia enjoy tie our operational.

Neon project financing was more than two times over subscribed and closed successfully.

We also added our four significant LNG sale of equipment projects.

And I'm very.

Very pleased to announce that the natural gas the syngas facility in Las Vegas down is operational and contributing to our earnings.

Before I go any further I want to take time to tank all of our employees around the world every one of the 23000 of them before.

For their dedication and hard work, which has made it possible for us to deliver these impressive results despite significant economic and geopolitical headwinds.

Now please turn to slide number seven.

We are continuing to deliver on one of the problem is to our shareholders in 2014.

Executing to deliver an average of at least 10% growth in earnings per share each year as we move forward.

We believe our two pillar strategy of focusing on our base business.

Extending our leadership in the growing demand for clean hydrogen.

Enable us to continue to deliver double digit.

Growth in our E. P S. As we go forward.

Now please turn to slide number eight.

We are proud again of our accomplishment of more than 40 consecutive years of dividend increases.

As you can see on this slide since 2014, we have increased our dividend an average of 10% every year.

Slide number nine shows our EBITDA margin trend.

Continuing to be my favorite slide.

Our margins have increased to nearly 40% in the second half of fiscal year 'twenty to 'twenty three.

Confirming the strength of our business model.

And the significant cash flow that would be generally.

Now please turn to slide number 10 for our fiscal year, 'twenty 'twenty four outlook and Guardians.

Although that would be continue to be challenging economic conditions.

In the near term.

I remain very optimistic about air products' future.

Our capital deployment strategy.

Our strong business model.

Theres sustain our double digit average earnings growth rate.

Therefore.

For fiscal year 'twenty 'twenty four.

We expect adjusted earnings per share in the range of 12 80 $213.10 per.

Sure.

13% at the midpoint over last year.

We expect new projects, many of which are already on the screen.

To drive our earnings per share growth next year.

Additionally, we also expect improved LNG sale of equipment activities to add to our favorable results in 2024.

And for the first quarter of 'twenty 'twenty four our adjusted earnings per share guidance is $2 92, or three or five up 10% to 16% over last year.

We also see our Capex for next year somewhere between five to pharma in a half a billion dollars.

Now please turn to slide number 11.

I know that some of our investors refer to our major project commitments slide to track our projects.

So either.

The size and scale of these projects.

Which all have multiyear execution timeframes set.

Certainly now were in more then.

Time and attention.

We can give them in a single line on a single slide.

Therefore, we remain committed to providing investors visibility and meaningful update to a schedule capital on an offtake as status as we continue to progress our major projects.

So from time to time, we will give you a more adept look into our projects.

Today, we have decided to give you an update on our blue hydrogen and blue ammonia clean energy complex in Louisiana, which is one of the largest projects that we are executing.

Please turn to slide number 12.

We announced our intent to build this board escape facility in Louisiana in October of 2021.

As we moved forward with detailed planning to execute this project.

A significant positive event happened in August of 2022.

Then the United States Congress passed there.

And as your station.

Which created tax incentives for the production of Blue and Green hydrogen.

In addition by 2022 it was becoming more and more evident that the future demand for blue hydrogen and blue ammonia.

Is improving significantly.

Supported by positive developments in other regions of the board, particularly in Europe and Japan.

Not only is there a growing need to decarbonize, the heavy transportation and industrial sector, such as a seed, but also other growing applications, including using low carbon intensity blue ammonia to fuel ships.

Reduce emissions from power plants and more.

These events, especially the passage of the I R. A legislation.

<unk> considered.

Now rather than later is the best time to build the infrastructure for this project to accommodate future expansion.

It is important.

That D R.

That deeply invest.

And the infrastructure needed for future expansion now so that when the demand increases rapidly.

As we expect it to we will be able to bring the next phase of this project on stream as fast as possible.

In addition to the increased cost to build the infrastructure.

Obviously, the project costs has gone up due to inflation.

That they are seeing in the past two years since you announced the project and anticipate in the future to build this facility.

In addition to all of this we have included in the $7 billion funds to cover the interest on capital that we will be using as the build this plant.

This facility is a huge facility we are very excited about its future.

We remain totally committed to this project and its profitability.

It is a unique one other kind of project that will put us significantly ahead of anybody else in the board in the production of this product.

We see significant demand for the product that discipline did produce.

As a result.

I am very pleased to announce today that.

Our board of directors has given US final investment approval to proceed with the project at the new capital estimate of 7 billion.

We expect this project.

We will deliver.

Double digit returns to our investors than it is fully on the street.

As you know this project will produce hydrogen.

And the ammonia at very low carbon intensity.

As the first company to make this these unique low carbon hydrogen and pneumonia products.

At a large scale.

We expect.

We get a premium for the product, which will allow us to achieve double digit returns on capital.

Additionally, they're scared about activities they provide a cost advantage over other similar projects in development at this time.

We are really excited.

Hey, Bob.

The future of low carbon hydrogen.

And ammonia that is about all this project in Louisiana is well underway and we are laying the groundwork to meet the expected additional demand in the future.

The additional infrastructure. We are building now we've continue to be a competitive advantage for air products in the future.

Now it is my pleasure to turn the call over to Melissa Schaefer.

Our Chief Financial Officer to give you a summary of the fourth quarter 2023 result, Melissa.

Thank you Stacey.

And my thanks to the people of air products, who have again delivered double digit average earnings growth.

And environment.

Impressive trend that we have achieved in nine of the past 10 quarters.

Now please turn to slide 13 for a review of our fourth quarter results.

In comparison to last year, we have again achieved underlying sales growth despite ongoing economic weakness.

Merchant pricing was 4% higher compared to last year with positive pricing in most region.

This corresponds to a 2% price improvement for the whole company.

Higher onsite volume, including strong demand for hydrogen and higher LNG sale of equipment activity.

Offset by one time upper Kennedy in the prior year.

Resulting in flat volumes for the company overall.

Declining natural gas costs in Europe, and the Americas reduced energy cost pass through.

<unk> customers.

This 14% decline in fat.

No impact on profit, but with a significant contributor to our higher mark.

Overall impact of currency was minimal as the strengthening of the euro and British pound against the U S. Dollar was mostly offset by weak Chinese RMB.

EBITDA of $1 3 billion.

10% as favorable price.

<unk> costs.

I quit affiliate income more than offset higher other costs.

EBITDA was at four of our five reporting segments.

EBITDA margin jumped more than 700 basis points.

With lower energy cost pass through contributed to about two thirds of the improvement.

Our LTE progressed steadily to reach 12%, which is 90 basis points higher than last year.

We expect to maintain a steady progression as we continue bringing new projects Onstream and put the cash on our balance sheet to work.

Adjusting for cats are our LTE, what had been relatively flat.

13, 4%.

Sequentially results improved primarily due to increased LNG sale of equipment activity as well as on site.

Now please turn to slide 14 for a discussion of our earnings per share.

Our fourth quarter adjusted earnings were $3 15 per share up 30 cents or 11% compared to last year.

Strong pricing and higher equity affiliate income, partially offset by unfavorable cost.

Alright.

Variable costs contributed 44 cents this quarter.

Starting from both price actions and lower power costs.

Cost has been unfavorable impact at 28% driven by higher inflation and higher maintenance as well as our ongoing effort to support our growth strategy, including bringing new assets on stream.

Accurate affiliate income with 19% higher due to the contribution at the second phase of the Japan project and positive results from other unconsolidated joint ventures across the region.

The remaining items, including Noncontrolling interests interest expense.

And the tax rate together had a modest negative three.

Yes.

Now please turn to slide 15.

We remain committed to maintaining our current targeted a two rating.

With our strong cash flow and additional debt leverage we estimate that we can put more than $30 billion to work over the next 10 years.

Good day ladies.

When I look over $19 billion with approximately 18 billion.

Okay on the energy transition.

We believe that investing in these high return projects is the best way to create long term shareholder value.

Now to begin the review of our business segment results I'll turn the call the Doctor sorry.

Thank you Melissa.

You won our first fourth quarter, we again saw broad based improvements across our businesses.

Profits were favorable in four out of our five segments compared to the previous year.

Please turn to slide 16, what a review of our Americas segment results.

Compared to last year merchant price improved 10%.

Corresponded to a 4% improvement for the overall region.

Volumes grew 3% due to a strong demand for hydrogen.

Epitope, just over 600 million improved 17%.

And by strong price volume and equity affiliate income.

While wireless should be offset by higher costs.

EBITDA margin of 44.5% jumped more than 1100 basis points.

About two thirds of the margin improvement was driven by lower energy costs.

Sequentially EBITDA increased 6% mainly on hydrogen volume.

Now please turn to slide seven for a review of our Asia segments results.

Compared to last year edge of volumes were negatively impacted by slower economic recovery in China.

Weak electronics market and onetime opportunities that benefit last year results.

Despite these volume headwinds our teams maintain focus on price.

EBITDA margin was down primarily due to the unfavorable volumes.

Sequentially.

Price and volume was flat.

However, EBITDA declined primarily due to unfavorable business mix.

Please turn to slide 18 for a review of our Europe segment results.

Compared to last year our costs.

Subsided, while merchant pricing demand is stable.

Strong volumes in our onsite business were offset by weaker demand for merchant products.

Resulting in the flat volumes for the segment overall.

EBITDA was up 15% driven by the lower power costs and stronger currencies against the U S dollar.

Which more than compensated for the other cost increases.

EBIT margin was 1000 basis points higher.

Doximity, two thirds of which was due to the impact lower energy costs.

Sequentially.

<unk> EBITDA was relatively flat as higher volume was offset by unfavorable price and costs.

Thanks, You mentioned before we brought the new project and you expect to start on stream last month.

Italy or than previously anticipated.

We expect this project to gradually ramp up significantly contribute to growth in this segment going forward.

Now please turn to slide 19.

Before we move on to the next reporting segment I would like to take this opportunity to highlight our recently announced largest hydrogen project in Europe.

Blue hydrogen project is being developed in conjunction with Fortis.

To support storage project in the Port of Rotterdam.

What do we have an extensive hydrogen pipeline network.

Voters will transport the field to emission from participating industrials companies and stick with it.

Depleted gas field in the North Sea.

And our products will build own and operate the carbon capture and Seo to treatment facility.

Which will allow us to capture the emissions from our existing hydrogen facility.

Well as the customer refinery.

The resulting low carbon hydrogen to produce would be supplied to exxonmobil under long term offtake agreement.

European regulations are supportive low carbon projects.

We have secured additional support from the Dutch government.

We expect the project to be Onstream in 'twenty six.

Now please turn to slide 20 for a review of our Middle East and India segment.

Compared to last year sales were lower due to lower volume.

The second phase of the design of the project, which closed in mid January of this year I did do equity affiliate income.

And it drove the region's overall results.

Now please turn to slide 24, our corporate and other segment results.

This segment includes our sale of equipment businesses as well as our centrally managed functions and corporate costs.

The sales and profit for this segment improved this quarter, primarily due to higher LNG sale of equipment activities.

We continue to have robust discussions with customers are interested in our luxury technology and equipment.

We're pleased to announce a significant new project involving set of equipment in Malaysia last week.

Adding to our already robust project pipeline.

Echoing safety on Medisoft.

The outstanding results this quarter again don't want to state this thinks of our businesses.

I also would like to thank our teams around the world for their hard work and commitment.

I would like now to turn the call back to safety to provide his closing remarks.

Thank you very much.

I appreciate that now please turn to slide number 22.

We presented this slide during every earnings call.

Cause it is our core belief that the commitment and motivation of our people are the key drivers of our success.

After all.

And all of these processes and physical assets, which are often cited as competitive advantages are all created by people in the organization.

At Air products, we have built an outstanding organization.

Our people working together.

Creating innovative technologies.

<unk> and facilities that are making us a first mover in supporting the transition to lower and zero carbon energy and Decarbonizing, the transportation and industrial sectors.

We are doing this alongside our excellent core industrial gases business, which has also.

And their pin.

Which is also underpinned by sustainability.

And delivering significant productivity and environmental benefits to our customers around the world.

At air products, our higher purpose.

Is to bring people together to collaborate.

And innovate solutions to significant energy and environmental challenges in our board.

I can say that our entire team is focused.

On sustainable growth opportunities generating a cleaner future for humanity.

With that we are.

We're now ready to answer any of your questions and we welcome them operator, we are ready for questions. Please.

Thank you if you would like to ask a question. Please click now by pressing star one on your telephone keypad again that is the Starkey followed by the judge I Wonder if you have a question or comment.

We will take your first caller.

John Mcnulty from BMO capital markets. Please go ahead.

Yes. Good morning, Thanks for taking my question.

So I guess I wanted to dig into the Louisiana project, a little bit more than the incremental $2 $5 billion of spend I guess it sounds like there's a bunch of buckets, including capital interest.

Taking over more utilities kind of expanding the scope of the project I guess can you help us to put into buckets, where the bulk of that that $2 5 billion is going.

Yeah, Good morning, John.

Excellent question.

Number one obviously as we said we announced this project two and a half years ago, everybody knows that there has been inflation. There is no escaping that and there will be inflation as we continue to do these projects the labor markets are tight.

Some of the supply equipment and so on are tied therefore, there is significant inflation that we have had to deal with.

And we have included that in the new capital project.

Order of magnitude I mean, let's say that it's about a $1 billion or more is inflation.

The rest of it is the fact that we have as I said during the call.

<unk> put.

Put in.

Interest on capital, obviously as capital goes up.

Charge ourselves interest using our own capital because otherwise we would apply tender. So that is a significant part of that $2 5 billion and then in addition to that we have decided because we see demand for these products being significant that right now.

Some of the fundamental infrastructure.

We want to build it bigger so that when we want to expand we don't have to bet.

At smaller units again teams like while their supply things like land preparation things like we bought additional 1000 acres.

Expansion. So it's a combination of all of that that adds up to the $2 5 billion billion you.

You would say increase we also have put in contingency.

We have reviewed this thing in detail with our board and I'm very happy that they have supported us, but I keep going back to the fundamental issue.

That we are reiterating.

But we are pleased.

Very carefully that we expect double digit return now on $7 billion.

Better than double digit return on Florida, and a half billion. So.

If you want to look at it in a glass half full we are actually going to make more money than before.

John I cannot.

Stress.

Fact that we see the demand for the product.

Materializing it is serious.

And as we go forward, we will be able to demonstrate that to you. But this is a very exciting project. It's a unique project.

We are executing it we are in the field and our people are very excited about it and we are all very excited and very positive about this project.

Got it thanks very much for the color on that.

And then I guess my second question would just be on the Netherlands project it.

It sounds like its interesting and kind of emerging opportunity can you help us to think about how much capital may get put to work on that project and how youre thinking about the returns for it as well.

Yeah, I'm going to have the Doctor said I will give you more color, but obviously the return for that will be double digits as like anything else, we do but Dr. Han is very close to that project and I like him to comment on that seven thanks Effie.

We're really not going to talk about the specific about the capital for the project, but again, it's a very exciting opportunity.

Our project and our first mover advantage when it comes to Blue hydrogen we started with the net zero Blue hydrogen project in Edmonton, Canada, and we went to that Louisiana Dot project and now this is really the third and it's really the biggest sports show in Europe.

Excited about it with long term offtake agreement with a subsidiary of Exxonmobil.

We capture we will capture C O two from our existing hydrogen facility in the port of Rotterdam, and we will also capture Seo tool from another Exxon a hydrogen plant what we basically saw provided to Porto sequestered under the North Sea.

Again, emphasizing the double digit return for the project.

And coming on <unk>, great. Thanks, very much for the call.

Thank you. Thank you very much.

Well hear next from John Roberts from Mizuho.

Thank you and nice quarter.

Staying on the blue hydrogen.

Project in Europe anything unique about the gas sourcing for that project given europes disadvantaged gas situation.

Is that replacing existing hydrogen capacity or is your customer expanding their demand.

Well I can answer that and then if the Doctor said help us add to that but.

Fundamentally.

It is an existing plan that we have existing plans that Exxon had we have their technology and knowhow, we are going to put cadbury capture on these existing units and.

Captured the Caribbean and put it in this pipeline to go NBC question. So we are actually reducing C. O two emissions into the air. This is not a new plan that people say that you are building a new plant you are capturing this year or two but you are not really reducing existing emission. This is real.

<unk> exists reducing existing emissions and that is where our technology is and that's where our no holidays and therefore, it's a very positive project has received very positively and it is a significant project you don't want to disclose the exact demand because of andas that we have but it is not a $10 million project, but it's not the 2 billion.

Project, either by you said substantial amount of Capex.

And that's a Saturday you want to add there again.

Again, it's really emphasizing no additional hydrogen it's just really a converting agree of hydrogen to blue hydrogen and again with full support of the Dutch government.

For low carbon hydrogen.

And on the volume weakness in China could you Peel apart syngas versus electronics versus merchant Lox Lin.

John that is a very very good questions that I.

I've been trying to get a handle on that myself, but it's just not that easy about where the weakness is but there is obviously weakness in the electronics, but there is a weakness in the fundamental Chinese economy, and we are beginning to see that.

So I don't want to go through that all of the details of the breakdowns, but we are seeing a general weakness and that.

Hopefully that trend will change but.

That's that.

Despite that we are giving you the guidance that we're giving you because we are saying that if the Chinese economy doesn't develop as well as it should then what.

We will take additional productivity measures to make sure we deliver the guidance that we've given.

Great. Thank you.

Thank you John.

And again that is the star key followed by this agent. One. However defines our question has been answered you may remove yourself from the queue by pressing the star key followed by the digit Q well hear next from Vincent Andrews from Morgan Stanley.

Yeah.

Thank you and good morning safety I wanted to follow up on Louisiana in two ways. One it sounds like some of the incremental Capex will be spent now but the benefits won't necessarily accrue to the company at the time. The first phase starts up so I just wanted to understand you'll have 7 billion of total Capex spent when the project starts up.

Traditionally we think of your return.

Coming to the company in that first year will you not get the full would you not get the return on the full 7 billion of Capex. When you start up all you have to wait until phase two to get some of the return on some of the infrastructure and real estate spend that youre doing incrementally.

Sure and good morning excellent question, we are not going to leave any money on the table, we are going to price the product in such a way that we get double digit return on the project on the $7 billion right from the start.

Okay, and then secondly, if I go ahead.

No no that's after you.

Okay, and then secondly, I wanted to ask you about your Canadian project.

I believe your your one of your Offtake partners.

It is also constructing a facility up there in part to use your product and I believe they had an investor event earlier in September where that project might be delayed if that project is delayed how does that impact air products economics, and their ability to market their their own product.

Well the way I would like to answer that is that first of all we are committed to meeting the requirements of our customer.

Whenever our customers comes on stream, if you'd have our plans ready for them.

They are a very valued customer you know who they are Exxon and they are one of our largest customers and we have another respect for them and we worked with them very closely.

In terms of if they are delayed then we already not 100% of the product is going to then you have other customers that we believe.

We'll be taking the product on time, we have a liquid hydrogen plant that we are going to feed. Therefore, we would expect that the effect on the air products would not be that material.

Thank you very much for all the detail.

Sure.

Well hear next from David Begleiter from Deutsche Bank.

Hi, Good morning, that's a stable calling here for Dave I guess on the major projects slide.

Are there any other material changes on other projects in terms of its project cost and the timeline that you haven't updated.

And also I guess I'm project cause.

About the cost inflation and Louisiana project, that's about 20% why shouldn't that be the case for other projects that you have in your pipeline.

Well first of all with respect to other projects.

There is no material change in the profitability of those projects that we.

We want to bring to your attention now and as we as I said in my call.

Some of these bigger projects as we go forward in our earning calls if we give you more detail about the different projects.

The second thing is that if you take a look at the inflation thing.

One of the biggest projects we are executing bus just and that is already done the next project.

Big project versus Neil.

I have already given you the capital for that and we don't expect any significant inflation on that that is in our backlog.

There'll be gave you the numbers right now the projects that we are doing there are other projects that we are doing are in such a way that the return is connected to the capital. So even extra capital goes up the return doesn't go down. So there is nothing material to report at this stage.

Okay. Thanks.

And then.

F Q1 European pricing was down 1% is there any yes.

Specific competitive dynamic that is out there then that one person decline because I don't think you have a declining pricing for a long time and I think your peer is still seeing some pricing credits in Europe. In Q4 can you just talk about you know, what's causing that and then your expectation on pricing in Europe and then.

Just in general for next year.

But I would obviously love to answer your question in detail, but yeah.

You know that we do have a very strong policy and we adhere to that all of US is easy that video not talk about forward looking on price that is not appropriate in our industry and the maybe you can talk to you about what has happened in the past, but we do not have any opinion or any suggestions about what is going to add.

Happen in the future and.

So.

My apologies I would not be able to answer that question ordering out of that.

Policy and my Chief Legal Officer is nodding his head down doing the right thing.

Okay. Okay.

Thank you.

We'll move next to Mike <unk> from Barclays.

Great. Thank you good morning.

First I wanted to go back on.

Good morning, Stephanie I wanted to circle back on Louisiana as you just answered an earlier question I think talking about pricing the product appropriately to get your double digit return upon start up which is great, but when should investors expect the signed off take agreement to help us get a bit more comfortable with the revenue stream from our projects.

Well on that one I have been very.

Yeah.

Kind of a very clear about what is our philosophy.

We could have signed agreements long term agreements for selling that product two years ago.

But we always said that we do not want to do that because.

As we go forward.

It is going to become very clear to prospective customers.

That there are not that many.

Plants or sources of low.

Carbon.

The level of low carbon intensity hydrogen and blue ammonia that you are going to produce.

And therefore, the value of our product.

We will go higher.

We are not in a hurry to sign long term agreements the demand is going to be there.

But right now if we are negotiating with any of these prospects.

Customers can be very Frank they give you a list of 20 projects that Oh wait a minute I can buy from this guy in the Middle East and this guy in Louisiana. This project and this project all of those projects are paper projects Nobody's doing anything we are the only people who are actually building a plant.

So we have another two or three years before these plants come on stream. This should not be in a hurry to go and sell this stuff cheap just because that makes everybody feel happy the odd business. Our goal our responsibility is to make as much money as we can for the shareholders. We think the VAT.

Do you have these products will become higher as we get closer to where the demand is there and there is not that many people who are supplying it.

No.

Do not expect for us to comment and make a big announcement about.

Selling this product in the near future because we are just not going to do with it.

Yeah.

We believe that the demand is there.

Our customers know that the demand is there it's just a little bit of a game, but at what point people are going to come to the table and we just don't think that right now is the time to do that.

But obviously at some point in time, we do want to sell the product. There's no question about that but it's just the fact that we are trying to get the maximum value for the very unique product that we are going to be making nobody else in the ward is producing this kind of product.

And by the time. This plan comes as an industry. There is nobody else who is going to be producing this product at this escape.

Nobody has made the commitment and it takes a long time to develop these projects and build these projects.

Okay.

Thank you for that very thoughtful answer.

Second just a quick follow up on cash flow, maybe serve Melissa I think operating cash flow of the past two years is about $3 2 billion, whereas capex is running about 5 billion in dividends about one and a half billion annually. So leverages, obviously, moving a bit higher short term.

When in your multiyear outlook would you expect that to peak out or when should we start to see operating cash flow helped by the projects start to move meaningfully higher in your view.

Yeah, I'll, just make a general comment and then I'll turn it over to Melissa to give you any more details.

Necessary, but fundamentally a.

We have always been telling you that we are committed to maintaining our a rating.

That means that we will not lever the company.

More than about three and a half times.

If we ever get to that stage.

We just stopped doing projects.

We are going to be responsible.

We have significant opportunity.

And as Melissa as shown here on the slides, we still have a lot of headroom to lever the company before we run out of cash but.

If we ever get to the stage I just found it.

To make the point if we get to this stage that we are getting to the limit of three and a half then it would slow down on the projects, we are not going to be irresponsible and try to lever the company.

Because we are very committed to our 88 that is the general comment.

Melissa you want to add to that sure. Thanks, Stacy Hi, Mike how are you.

So as you mentioned, we do continue to have very strong cash flow to support our ongoing business. We do continue to increase dividends, which is our commitment.

And we are executing against our global project backlog with that situation because of the cash outlay, we do expect to go to the debt market. This year.

This fiscal year.

With that being said as we bring these assets on stream, we will of course naturally be deleverage.

So that will be a a decrease leverage and obviously well continue to maintain at a two rating.

You mentioned again likely will go out this year with the cash need, but we do feel very comfortable that we will stay within that two times leverage so that we can maintain our AA rating.

Great. Thank you so much.

Thank you.

That's the case.

Okay.

From Jpmorgan. Your line is open. Please go ahead.

Thanks very much.

The working capital was a use of $424 million this year.

And your undistributed earnings of equity method investments.

Negative two six days. So if you add that up that's 685 that was pulled away from cash from operations and so your cash flow was flat year over year.

For 2024.

What do you expect that.

$3 5 billion 4 billion more than $4 billion as working capital outflow or inflow can you explain your.

Cash flow dynamics for next year.

Hey, good morning, Jeff.

Good morning, as you already you are asking.

Very good and a very detailed question and that.

Going to.

Refer that details to Melissa to give you some color on that.

Alicia yes.

Thanks, Jeff I appreciate your questions and you all is definitely a very interesting and detailed question. So as we mentioned we do still have a very strong cash inflow. This year, we had a few significant large cash outflows, including the closing of our phase two four.

Sure Dan.

Happened in January and.

However, with that being said working capital is still being largely funded by our ongoing insulin trade activities.

This year as we mentioned, we do expect to have capex at around five to five and half billion, which is not far off where we were this year, including the closing of do they just Dan joint venture. So we are very comfortable given our current cash flow that we will be able to meet ongoing working capital needs as well as execute.

Against our growth strategy.

Okay, Alright for my follow up.

If you're.

If your investment in Louisiana is going to be 7 billion is that $7 billion to be spent by 2026 and so should we assume that your capex in two.

2025, and 26 should be higher than the $5 to $5 $5 billion range, you've got for 'twenty four.

Yes, I'll take that bush at play.

We have we have announced officially today that we expect the project cost.

<unk> 7 billion.

We have not announced that we expect that air products will spend $7 billion in building the project.

We can as we go forward.

And we signed long term agreements to sell the product.

We can and we will seriously consider like we did with Neil.

<unk> level, the project and finance the project.

So you might end up that out of the $7 billion.

Our actual cash outlay for the project might.

Might be two two and a half 3 billion not seven so there is a possibility of doing that.

Please don't forget that.

So.

We are.

Yeah.

We had the capacity to expand our own cash, but we would rather.

Project Finance these products showed that'd be add more cash for future projects and this demonstrates that we did this with.

Joanne that it was a $12 billion project and the project finance that we have done that with Neil.

And there is a good possibility I am not saying, 100%, but theres a good possibility that we will do that with this project, which is a very interesting project I'm very amenable to having a project finance.

Okay, Jeff. Thanks, Yes. Thank you so much.

Thank you very much.

Moving next to Marc Bianchi from TD Cowen.

Hi, Thank you.

I'd first like to ask for an update on the Neon project can you talk about progress there remind us of the timeline.

Any updates on potential offtake agreements.

Our new home project is moving forward very nicely.

We are at.

Certainly almost done with the engineering, we are actually constructing the plan. We have as you saw then announcement today by Neon Green hydrogen company that they are taking delivery of the wind turbines. So that project is expected, but right now the timeline that we have announced.

Is at the end of 2026, beginning of 2027, and we fully expect to meet that deadline, so that in terms of that.

Discussions about the offtake again, the comments that I made about Louisiana apply to that.

But also at the same time, there has been public announcements by other people about their demand for green hydrogen in Europe.

You saw that one of the largest oil companies in the world.

<unk> announced that they will need 500000 tons of green hydrogen.

By 2030.

Just to put it in perspective 500000 tons is equivalent of three times the capacity of Neil. So there is going to be plenty of demand for that project, but we will wait as I said in terms of our strategy.

To price that appropriately so that we can get an appropriate return on that project.

Okay. Thank you Stacey.

That's a great overview. Thank you.

Other question I had was on.

The <unk>.

Targeting greater than 10% internal rate of return.

Does that suggest that there is this is an upgrade from your prior messaging of.

Sort of an EBIT contribution of 10% of the project cost and does this now includes the benefit of IRA I believe before the comment was that you were not including the benefit of higher rates.

Well, it's a combination of all of that we have always said that.

10% IRI is the minimum.

That really translates to what you said 10 10 cents of operating profit on a dollar of investment those two go together.

We do expect.

And we have demonstrated that now that you have all of the detailed numbers.

Please take a look at the return we're getting on Japan, and Japan is a $12 billion project.

And if you look carefully you'll find out that in terms of IRR. The returns on that is more than 15%. So.

We obviously as I said we.

Price our products.

Not based on just the return the pricing based on what the market bears.

But if it goes below 10%, we usually don't do the projects unless it is phenomenally as strategic and we don't have that too many of those so overall.

The 10%.

Or are these are minimal.

And we expect most of our projects to produce more than that.

And the inclusion of benefit from IRI.

Well.

It depends on which project and how much it affects that and all of that but.

Obviously, we have had but as you know I are able is designed in such a way.

We would be able to get a good return, but also price the product to encourage the customers to use that because it was an incentive for that so it's going to help both sides.

Okay. Thank you very much.

Thank you.

Well move next to Mike Sison from Wells Fargo.

Hey, good morning, nice nice quarter and outlook.

I apologize I just wanted to ask on Louisiana again, maybe I just I, maybe I just don't understand so so.

I'd take the 7 billion and then your normal.

10% of capital should be applied on the seven.

Or is that less than seven.

Well.

The rule of thumb that we said you should expect once that plant is fully operational.

We would expect that.

If we have financed that ourselves.

7 billion is all our money usually they expanded to $700 million uplift on their operating income or better products.

But as I've said, we might decide to a project finance it which in that case it would be in accordance with how much cash within that.

But if it was understood our money out you should expect $700 million yes.

Okay, and then given that the cost has gone up from four five to seven is the pricing assumption on what youre going to sell has that changed and.

Does that 10% return change on a certain price.

That you need to get for the product.

Yes.

Believe that that.

Well. This is why our board approved the project that 7 billion because they see that we have.

Expect that we will be able to sell the product at the price.

And at the premium.

Yeah.

Forget that you can look at is not very difficult for the investors to take pen to pencil and just go through.

Order of magnitude that plant to make it simple I assume it is making three and a half million tons a year of.

Ammonia.

Assume it price for Blue ammonia, you know where the price of Gray is obviously blue is going to be higher than that.

And then see what the revenues and then the cost is.

It is natural gas costs that you can calculate.

It is operating costs that you can calculate.

It's electricity costs that you can calculate very easily and then by the time you get done with the mat.

You'll find out that that plan has it.

I think the reason about price for blue.

Do ammonia.

Can easily make more than 141 $5 billion of EBITDA.

So then that were 7 billion becomes a decent return project. So it is not difficult to actually do the calculation.

You know right now you know where the price of the gray ammonia is.

Got it.

It is not very difficult to convince yourself.

That project is a very very good project.

Portal thing for air products is to execute the project and bring the project.

You get the permit for the classics well due to sequestration.

Execution is the challenge for us, but I think the rest of it will work out very nicely.

Understood. Thank you very much.

Thank you.

Kevin Mccarthy from vertical research partners. Your line is open.

Yes, good morning safety about three weeks ago. The U S government announced its intention to establish seven regional hydrogen hubs at a cost of $7 billion to be funded by the bipartisan infrastructure law I'd be curious to hear your thoughts on that program I believe you were involved.

With the so-called arches project or hub in California on the <unk>.

One hand, I suppose this accelerates some market development on the other hand, there are many dozens of.

Partners in these hubs.

Some of which might be customers, others might be existing competitors or possibly future competitors. So maybe you can put that into context for us in terms of your involvement and how you see that.

Market developing.

But that particular project, which is part of the infrastructure project.

I've never really emphasize that too much because that.

In terms of helping but we are doing is not comparable to the IRS.

It is $7 billion.

Are spread over a lot of different projects.

By the time it gets to any one individual company and saw the amount is not that much to move the needle. We obviously welcome any kind of investment to promote the use of hydrogen that is a positive thing but in terms of any kind of immaterial. We are part of the arduous thing.

I mean do you have an NDA, we cannot talk about it that much but fundamentally.

That contribution from that.

Infrastructure Bill as you said 7 billion divided by all of these projects is not going to move the needle for us in terms of what would be there or we are not going to do that we have never counted that as being anything significant.

That is not comparable anything like the IR day, because we the IATA hey, it becomes very meaningful when you start sequestrating in Louisiana, a 5 million.

Tons of C O two at $80, that's $408 million a year of contribution obviously it costs some money to sequester this year too, but as I said the numbers are not comparable so on the infrastructure Bill we have always said it's a good thing obviously is a good thing it's better than nothing but it's not something that would.

Make any material difference to what we are doing or not doing.

Okay. Thank you for that and then secondly, if I may would you comment on your outlook for the corporate and other line. It came down quite a bit in the fiscal fourth quarter and I know you've been active on LNG. So maybe you can comment on on the forward profile for LNG as well.

The controllable expenses flowing through that line in 2024.

Sure I have made it made dishes they'd been in the last quarter and I'd like to reiterate that we do have programs in order to control our corporate cost.

Had a significant amount of corporate costs in 2023.

We are pursuing a lot of projects starting up a lot of projects those things do cost money, we don't expect that the amount will be as much in the.

2024. In addition, the fact that our LNG business and so on and the other businesses are doing will help on that so we do expect a reduction of that corporate cost.

In 2024 versus 2023.

Okay. Thank you buy a significant amount.

Thank you.

Thanks, Lou Anne Byrne from Bank of America.

Yes. Thank you.

This is the strength in hydrogen demand during the quarter in the Americas, specifically in your U S Gulf Coast pipeline.

If so.

What fraction of those pipeline customers are you in dialogue with about <unk>.

Switching them from green to Blue and if the demand outlook in that region for Blue hydrogen is so robust.

Are you.

You potentially consider reducing the design and scope of Louisiana project.

Drop the ammonia piece of it which would include.

The.

The offshore you know.

The port and so forth in addition to an ammonia reactor.

You are asking a very very good question I do not expect that we would get through their stage that we would drop the ammonia part because.

Yeah.

There will be a robust demand for blue ammonia, but.

You are very right the demand for blue hydrogen.

Is growing in that part of the World. We are engaged with all of the customers and.

The interesting thing is that if they ever expand the project that is where we can focus more on what you said that maybe produce more blue hydrogen.

Volume to produce more ammonia. So overall there is still is very positive as you said and.

And the fact that air products has a 700 mile hydrogen pipeline in that part of the board gives us significant advantage in being able to optimize this.

That is a very good position to be and I think youre pointing out a very good point.

And then one follow on with respect to the Netherlands.

Blue hydrogen project.

I believe <unk> is also <unk>.

<unk> done a project with poor Soc and my question for you is.

Netherlands is moving in this direction of Blue hydrogen.

You see potential that the rest of Europe.

It might relax its preference for green and embrace blue more.

Yeah.

Right now the Blue hydrogen project in Netherlands is very practical because you do have these.

Steam methane reformers, there and it's a very efficient to capture this year or two from there.

And produce their blue hydrogen, it's better than the gray hydrogen.

I do not think that that signals that the fundamental demand.

For new applications.

In Europe, especially for mobility and for some of the refineries will go to Blue I think green hydrogen will still be the will end up being a preference for.

Europe as you have seen in the announcement of some of the.

Major possible users.

So I think it will be a combination of the two.

Thank you. Thank you.

S Lady.

Ladies and gentlemen, as a final reminder, that is star one we will hear next from Josh Spector from UBS.

Hi, Good morning, it's Chris Perrella on for Josh.

A follow up on I guess, the volume outlook for this coming year with volumes in Asia.

And some of the one off deals that you did in 2023 rolling off what is the volume.

<unk> underpinning your guidance for this coming year.

Well on that one.

We have looked at this thing and you.

You know, it's very difficult to obviously predict the future but overall.

We have looked at this thing there.

You know that our business is very much related to GDP, but to industrial production.

<unk> kind of budgeted ourselves is that.

Industrial production in the U S will be positive.

And.

You know not double digits or anything like that and last year. It was about two 5% something like that maybe a little bit less than that so positive in the U S.

Flat in Europe.

And down in Asia.

That's.

Very much overall economic condition and the rich behalf.

Reduced the guidance for next year.

Alright, Thank you and one quick follow up on the Rotterdam project, how should we think about the capital spend.

Uh huh.

With <unk>, taking the C O two from you whats the cost involved in having them essentially dispose of it.

Well they are going to charge us a sub $10 per ton.

Or disposing is sure to which we will obviously pass through to the.

So our customer we wouldn't be paying for that.

And then we obviously.

Yeah.

We haven't charged for our capital and then there is a charge for the sequestration.

I don't think if you're at Liberty to quote the number that what is going through Chargers, but at some point in time, they might decide to make that public.

The Dutch government, providing incentives for.

For the tier two of sequestration, but doctors that are honest.

I think that the Dutch government is also contributing on the cost for the sequestration.

Alright is there a capital a rough capital number for this for the for the carbon capture.

We haven't disclosed that.

I'm not allowed to disclose that but as I said it is it is more than $100 million in less than 1 billion.

Somewhere in between.

Fair enough. Thank you very much Johnny about sorry about that we're not we are not allowed to disclose the number.

Okay.

Alright, thank you.

Thank you very much okay.

I think we have a significantly gone over time is that anybody else on the queue operator.

At this time there are no callers in the queue.

Okay, well with that I would like to thank everybody for being on our call today.

Appreciate your interest in air products, and we look forward to discussing our results with you again next quarter and stay safe stay healthy and all the best and have a great day.

That does conclude today's teleconference. We thank you all for your participation you may now disconnect.

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