Q4 2024 Linde PLC Earnings Call
[music].
Ladies and gentlemen, good day and thank you for standing by welcome to <unk> fourth quarter and full year 2024 earnings teleconference and webcast.
At this time all participants are in a listen only mode.
Please be advised that today's conference is being recorded.
After the speaker's presentation, there will be a question and answer session.
Speaker Change: And I would now like to hand, the conference over to Mr. Juan Pliers head of Investor Relations. Please go ahead Sir.
Juan Pliers: Thank you good morning, everyone and thanks for attending our 2024.
Speaker Change: Fourth quarter earnings call and webcast.
Speaker Change: As head of Investor Relations.
Speaker Change: And I'm joined this morning by Sanjiv.
Sanjiv: Chief Executive Officer, and Matt White, Chief Financial Officer.
Sanjiv: Today's presentation materials are available on our website at <unk> dot com in the Investor section.
Sanjiv: Please read the forward looking statement disclosure on page two of the slides and note that it applies to all statements made during this teleconference.
Sanjiv: A reconciliation of these adjusted numbers are in the appendix to this presentation.
Sanjiv: So as you will provide some opening remarks, and then Matt will give you an update on <unk> fourth quarter financial performance and 2025 outlook.
Sanjiv: After which we will wrap up with Q&A.
Sean: I'll now turn the call over to Sean.
Sean: Thanks, a lot and good morning, everyone.
Speaker Change: Looking back 2020 full was another successful year for the Lindsay organization.
Speaker Change: I'd like to personally thank the 65000 plus employees for their relentless drive to deliver shareholder value, while they live our core values every day.
Speaker Change: This isn't something that happens overnight, okay, copying R&D driven topped out from a handful of individuals.
Speaker Change: Rather it is a result stemming from decades long culture mindset and operating.
Speaker Change: And it can best be exemplified by the results shown on slide three.
Speaker Change: From my perspective, there are four key categories that Lindsay must excel that day in day out to maintain our long term industry leading position.
Speaker Change: Of course, we must deliver on our key financial metrics and remain responsible stewards of our owners' capital.
Speaker Change: That's a given.
Speaker Change: But we have a sustainable leadership position.
Speaker Change: For that.
Speaker Change: And the long term that requires continued investment in our people and surrounding communities.
Speaker Change: As well as doing our part to help improve the environment.
Speaker Change: Finally, we must position ourselves for the future.
Speaker Change: Sure resilience and continuous growth and improvement.
Speaker Change: We can never be complacent based on past performance.
Speaker Change: I want to start with our people and communities.
Speaker Change: Lindy success has always been and always will be.
Speaker Change: Attribute it to our employees ownership mentality and collective efforts.
Speaker Change: We continuously strive to be good corporate citizens.
Speaker Change: I was in the communities, where we live and work.
Speaker Change: Also having a safe and diverse workforce is a top priority.
In order to ensure lindsey's competitiveness for many years to come.
Speaker Change: And you can see the improvements we've made from an already leading position.
More work needs to be done and I fully expect to leverage technology in that effort, but I am pleased to see the progress made to date.
Speaker Change: While the people and the communities are a priority.
Speaker Change: Well its towards ensuring a sustainable environment, becoming more challenging every day.
Speaker Change: I think it's fair to say, we're seeing more extreme weather now than in prior years and here at Lindy, We will continue to do a bot to help the environment.
Speaker Change: Through an increased focus on low carbon power.
Speaker Change: <unk> increased its active low carbon and renewable energy consumption by 19% year over year.
Speaker Change: In 2020 for over 40%.
Speaker Change: The power consumption is now low carbon based.
Speaker Change: These are just a few of the many accomplishments and I want to encourage you to read our annual report on many more.
Speaker Change: Furthermore, it is rewarding to see our sustainability effort is being recognized by some of the most prestigious names such as the Dow Jones, which included Lindy and its sustainability World index for the 22nd consecutive year.
Speaker Change: In addition, we pride ourselves in helping our customers avoid molded.
Speaker Change: Lines are C O two emissions through the use of our products and services.
Speaker Change: There is much more work ahead to achieve our ambitious sustainability goals, including reducing our greenhouse gas emissions.
Speaker Change: 5% by 2035.
Speaker Change: Turning to financial performance.
Speaker Change: Lindsay once again led the industry across key metrics.
Speaker Change: 25, 9% R O C.
Speaker Change: EBIT margin increased 190 basis points to 29, 5%.
Speaker Change: E P S, increasing 10% ex FX and 7 billion of capital return to shareholders from the significant excess free cash flow.
Speaker Change: These are the best metrics in the industry.
Speaker Change: By a wide margin.
Speaker Change: This provides us with a source of pride and ownership.
Speaker Change: But we also recognize this is the past.
Speaker Change: Allegations are derived from a combination of past performance and future expectations, so be must continuously position ourselves for future growth.
Speaker Change: Godless of the macroeconomic conditions.
Speaker Change: Positioning for future staff, but the concise strategy.
Speaker Change: And capital allocation policy.
Speaker Change: Lindsay we know that the investments we make.
Speaker Change: And the ones we avoid are equally.
Speaker Change: Because mistakes in this industry can have long lasting consequences.
Speaker Change: This is why sticking to our core business, while maintaining disciplined contract terms.
Speaker Change: Critical to building safe reliable unprofitable supply infrastructure.
Speaker Change: The year ended with more than $10 billion in backlog.
Speaker Change: Including a record sale of gas backlog of $7 billion.
Included in this is a two plus billion dollar dollar win in Canada, which is a great example of a high quality project and our core geography.
Speaker Change: This project not only has fixed payment structure with predicted returns, but materially improves our local supply density and a fast growing region for clean energy.
Speaker Change: I fully expect to be announcing new projects and customers.
Speaker Change: The near future.
Speaker Change: But drawing in industrial gases embolden, just mega projects.
Speaker Change: We have to continue keeping our eye on smaller opportunities.
Speaker Change: As well ensuring that they are attractive annuity like growth.
Speaker Change: During 2020 full we once again set a record for small on site, but it's exciting.
Speaker Change: Signing 59 long term agreements for a total of 64 blocks.
Speaker Change: All of which will increase reliability and strengthen our network density.
Speaker Change: Acquisitions of small tuck in packaged gas opportunities also remain an important part of Synergize Grove with 18 signed transactions.
Speaker Change: Realized revenues of approximately $200 million.
Speaker Change: All in 'twenty 'twenty four it was another successful year. Despite the many challenges that being said, it's time to move forward and look ahead.
Speaker Change: All of you have seen that new earnings guidance for 2025 and.
Speaker Change: And therefore, I believe it's important to reiterate the components of our long standing EPS growth algorithm on slide four.
Speaker Change: For many years now we've defined our EPS growth into three categories.
Speaker Change: Both capital allocation and management actions are within our control.
And the economy is not.
Speaker Change: Capital allocation represents contributions from our longstanding and stable capital management policy.
Speaker Change: The main elements include a contractual project backlog share repurchases small bolt on acquisitions and capital structure efficiencies generally achieved through interest and tax management.
Speaker Change: It is important to note that our backlog definition is unique in our industry.
Speaker Change: As an only includes incremental growth from contractually committed customers with fixed payments elements and termination provisions to ensure a minimum return on capital.
Speaker Change: While no other company followed the strict interpretation.
Speaker Change: Certainly provides.
Speaker Change: Linda greater certainty of backlog EPS contribution in any environment.
Speaker Change: Similarly, the majority of acquisitions are justified on cost synergies only.
Speaker Change: And therefore provide a high degree of confidence on capital return and thus EPS generation.
Speaker Change: Finally share repurchases offer an attractive and flexible use of excess free cash flow as project startup and acquisition cadence will ebb and flow, enabling a highly consistent EPS contribution from overall capital allocation.
Speaker Change: All of these elements have historically contributed 4% to 6% EPS growth and I feel confident this will continue for the years to come.
Speaker Change: Management actions represent the daily self help initiatives our employees undertake to ensure growth regardless of the macro climate.
Speaker Change: Digital solutions are increasingly supporting productivity price and cost management, which are controllable initiatives deeply embedded into our culture and operating rhythm.
Speaker Change: Which allow us to grow earnings regardless of the economy.
Speaker Change: History has proven for these to be the largest compound value generators as they are not directly correlated to overall economic activity.
Speaker Change: This combination of capital allocation and management actions is expected to deliver 10 plus percent EPS growth each year, great margin expansion.
Speaker Change: <unk> 25 is no exception.
Speaker Change: For the pre or post molecule. These two components have been the dominant driver of our long term double digit EPS growth cargo.
Speaker Change: While I remain confident in our ability to deliver all of its 10% we are constantly striving to find more opportunities to improve.
Speaker Change: Conversely.
Speaker Change: We cannot control the top category, which represents macroeconomic factors.
Speaker Change: Andy.
Andy: These are two factors that matter the most foreign exchange rates and the industrial production as a proxy for base volume trends.
Speaker Change: Recall that we are a U S dollar functional company.
Andy: Similarly total earnings.
Andy: Eliminated in foreign currencies, and thus exposed to FX translation.
Andy: Similarly, while our customers are often under long term contracts with fixed facility fees, the incremental gas to consume as a function of their own production rates, which typically highly correlates to industrial demand hence.
Andy: Hence why global IP as a generic proxy for our customer gas consumption of base volumes.
Andy: The current 2025 guidance range assumes a 4% FX translation headwind, while the midpoint of the range assumes zero percent IP growth in Boston.
Andy: Overall, it's clear that the growth algorithm is well intact.
Andy: But we have our work cut out regarding unfavorable FX translation.
Andy: This does not come as a surprise as you may recall from our statements last quarter and subsequent self help actions that we initiated.
Andy: Furthermore, we will continue to identify and execute additional management actions to mitigate macro weaknesses.
Andy: Eventually.
Andy: These economic headwinds will convert to deal with it.
Andy: You always do.
Andy: Until then you can be rest assured that the entirety of the organization will be focused on creating shareholder value and maintaining our long term industry leadership no matter the environment.
Andy: I'll turn the call over to Matt to walk through our financial results.
Andy: Sanjay.
Andy: Fourth quarter results can be found on slide five.
Speaker Change: Sales of $8 $3 billion or flat to prior year and down 1% sequentially.
Speaker Change: For both the prior year and sequential comparisons.
Speaker Change: Foreign currency translation was a 2% headwind.
Speaker Change: Excluding FX and cost pass through.
Speaker Change: Underlying sales grew 2% versus last year and were flat from the third quarter.
Speaker Change: Price increases of 2% over 2023, and 1% sequentially continued to track with globally weighted inflation.
Speaker Change: Yes.
Speaker Change: Volume growth was flat as contribution from the project backlog in the Americas, and APAC offset lower base volumes in EMEA.
Speaker Change: The sequential volume decline is primarily attributed to softer EMEA metals and mining volumes.
Speaker Change: And seasonality factors.
Speaker Change: In general economic trends, mostly followed our prior guidance, although the FX impact was worse than expected from a significant strengthening of the U S dollar toward the back half of the fourth quarter.
Speaker Change: Operating profit of $2 $5 billion grew 9% and resulted in a 29, 9% margin.
Speaker Change: Primarily from management actions around price cost and productivity.
Speaker Change: P S $3 97.
Speaker Change: <unk> grew 11% or 13% excluding FX.
Speaker Change: The 9% Capex increase is entirely driven by contractual projects as base Capex decreased from a combination of currency productivity and lower base volumes.
Speaker Change: I anticipate this trend to continue as we execute on the record $7 billion sale of gas backlog to support future growth.
Speaker Change: Further details on capital management can be found on slide six.
Speaker Change: Full year operating cash flow ended at $9.4 billion.
Speaker Change: With almost 60% occurring in the second half.
Speaker Change: As mentioned in prior calls I expect this split to remain due to seasonality of specific cash outflows.
Speaker Change: Including incentive payments taxes and interests.
Speaker Change: The Pie chart on the right shows our full year capital allocation.
Speaker Change: We invested $5 billion back into the business with half underpinned by secured high quality growth opportunities.
Speaker Change: And we returned $7 billion to shareholders in the form of dividends and stock repurchases.
Speaker Change: Returning this amount of capital to our owners year after year requires a disciplined capital allocation policy and a very healthy balance sheet.
Speaker Change: Two things that are much easier said than done.
Speaker Change: I'll wrap up with guidance on slide seven.
Speaker Change: We're initiating full year EPS guidance of $16.15 to $16 55.
Speaker Change: Representing 4% to 7% growth or 8% to 11% when excluding an estimated 4% currency headwind.
Speaker Change: Yeah.
Speaker Change: As mentioned earlier, the 4% impact just from the accounting translation of foreign earnings.
Experienced a rapid strengthening of the U S dollar towards the end of 2024.
Speaker Change: Recall this is merely a projection as were required to book the actual months average rate to the income statement.
Speaker Change: The methodology used for this estimate is consistent with prior practice by using the forward curves on a weighted basis for each foreign currency at the start of the month.
Speaker Change: Yeah.
Speaker Change: Historically large currency devaluations have often been followed by periods of more significant local inflation.
Speaker Change: With 2022 being a recent example.
Speaker Change: If that occurs and anticipate incremental pricing opportunities to recover the currency devaluation impact.
Speaker Change: These potential pricing opportunities are not baked into the guidance range at this time since the amount or timing of subsequent inflation is difficult to estimate.
Speaker Change: The midpoint of this range assumes no economic improvement from the current environment, and thus assumes flat base volumes.
Speaker Change: As Sanjay mentioned, our base volumes derived from customer supply contracts. There growth is a function of gas consumption from our contracted tanks and cylinders, hence why local industrial production tends to be the best proxy.
Speaker Change: First quarter EPS guidance range is $3 85 to $3 95.
Speaker Change: With similar assumptions to the full year.
Speaker Change: At this time, we believe it's appropriate to remain prudent with a more cautious economic outlook.
Speaker Change: If things turn out better so too will our results.
Speaker Change: And if they worsen we will take additional mitigating actions.
Speaker Change: But regardless of the economy.
Speaker Change: I'm confident <unk> will continue to create shareholder value.
Through our time tested execution culture.
Speaker Change: Disciplined capital allocation.
Speaker Change: And proven management actions.
Speaker Change: This has been embedded in our DNA for decades.
Speaker Change: And over the years, while many have claimed built simply copy this model.
Speaker Change: All have failed.
Speaker Change: Because here at Lindy.
Speaker Change: We're often imitated.
Speaker Change: But never duplicate.
Speaker Change: I'll now turn the call over to Q&A.
Speaker Change: Yeah.
Speaker Change: Thank you and we will now begin the question and answer session.
Speaker Change: You have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to withdraw your question Press Star one a second time.
Speaker Change: If you are called upon to ask your question and our listening via speaker phone on your device. Please pickup your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: To be able to take as many questions as possible. We ask that you. Please limit yourself to one question.
Speaker Change: Again, it is star one if you would like to join the queue.
Speaker Change: And your first question comes from the line of Mike <unk> with Barclays. Your line is open.
Mike: Great. Thank you good morning, guys.
Speaker Change: Sanjiv, there's a lot of political noise out there right now between tariff potential a new administration. Some pullback on Green energy funding I guess, how has your discussions with potential project partners evolved at all I'm really trying to get at say projects that are pre FID today.
Mike: Those discussions slowed down or picked up at all.
Speaker Change: Yeah.
Speaker Change: So Mike as we've referenced in previous calls we have seen people will take a little bit more time and apply a bit lower rig out before.
Speaker Change: Before going to <unk>.
Speaker Change: I think it's a good thing because you do need that when you're doing multibillion dollar projects typically and I think we are seeing that fee is continue in their built in there obviously is some uncertainty around the regulatory framework.
Speaker Change: And requirements in terms of what the New administration may or May not do the one thing I do want to emphasize though and I think in the context of clean hydrogen. This is particularly important people tend to think about the Iran. Does a lot of talk around what happens with the area under the new administration within the eye or if there is a specific provision and IRS provision in fact.
Speaker Change: Gulf 45 Q.
Speaker Change: <unk> predates the eyrie it actually goes back to around 2008, when it was implemented and about 90% of the projects that we are developing in the U S are actually looking at 45, Q as a potential incentive and I think we feel fairly fairly confident that that.
Speaker Change: Structure around the 45 Q will remain.
Speaker Change: Given particularly that it predates the IRA I just want to provide that specific clarification, because I get a lot of questions around that but generally we're seeing people take a bit more time to get to <unk> and we're seeing that they are actually being a little bit more rigorous in their approach before they make a final call in terms of putting capital on the ground.
Speaker Change: The other point I would just quickly add to that Mike as you are aware that in the past we've talked about.
Speaker Change: I think it was actually two years ago, we talked about $8 billion to $10 billion in.
Speaker Change: Clean energy investments from a lending perspective.
Speaker Change: We're about half way there given the two projects the large projects that you've already announced North America. We're obviously continue to develop projects elsewhere. Those two current projects. We're working on are both likely to see another phase.
Speaker Change: Which likely means that we will see equivalent investment there plus the other projects as well so when I look at the overall pipeline I feel pretty good about the quality of projects that we're pursuing and the path to getting to that eight to 10 billion of investments over the next few years it looks pretty much intact.
Speaker Change: Great. Thank you.
Speaker Change: And your next question comes from the line of Steven Haynes with Morgan Stanley. Your line is open.
Steven Haynes: Hey, good morning, Thanks for taking my question.
Speaker Change: So it kind of looks like exiting the year. Your EMEA margins are now like 200 basis points ahead of Americas, maybe 100 X the cost pass through.
Speaker Change: So do you think your Americas.
Speaker Change: Margins will gain ground in 'twenty five and then also.
Speaker Change: Second piece of this I think the gap is kind of widening versus APAC. So I was wondering if you could also kind of frame the opportunity there. Thank you.
Steven Haynes: Thanks, Steven So if you go back historically and you get to about five years ago. Many of you ask the same question when Americas margins were leading and I think APAC and EMEA were at 17% to 19%.
Steven Haynes: And we had said Dan and I want to repeat again today that our business is our genius and there is no impediment to getting to the highest margins we see anywhere in our business. The one thing I often point out when we have this conversation around margins is each one of our segments.
Steven Haynes: As a country or a business that has a margin with a full number in front of it.
Steven Haynes: And in many ways, we encourage our businesses each of the segments to push and try and understand what those successful businesses with a 40 plus percent margins that Joey to ensure that we can bridge. The gaps so to answer your question both for Americas and APAC My expectation remains that margins will continue to improve.
Steven Haynes: And again, we've said in our prepared remarks earlier, you should expect to see margin expansion in 2020, if I followed the plc overall, which obviously is an aggregation of the different segments.
Steven Haynes: Say to you that I'd, probably say that that margin expansion range is between 20 to 50 basis points typically that's what we expect long adult obviously, we've been delivered delivering well in excess of that and that obviously sets up some expectations, but.
Steven Haynes: Margin expansion each of those segments will continue to grow margin.
Steven Haynes: Benjamin to APAC bridging that gap and of course America has got a solid business, which will continue to expand its margin as well.
Steven Haynes: Okay. Thank you.
Steven Haynes: And your next question comes from the line of Duffy Fischer with Goldman Sachs. Your line is open.
Duffy Fischer: Yes, good morning, guys.
Duffy Fischer: You talk about IP being your biggest kpis, which is fair.
Duffy Fischer: Roughly what is the leverage if IP is up or down 1% how much EPS does that generally drive for you and then if you would maybe just take a spin around the world. What are you seeing IP I know guiding to flat as is prudent.
Duffy Fischer: But where do you see potential for things to be better or worse than that.
Duffy Fischer: Duffy I'll, let Matt talk a little bit about about the IP correlation and then I'll give you a walk around the world.
Speaker Change: Yes, Duffy so to start as you probably know we split our volumes into project and base and our project volumes solely track are startups. So that is as you know completely independent of any IP or macroeconomic factor and it's purely contractual based on the fixed element. So that one is part of the capital allocation.
Duffy Fischer: Acacia contribution to the EPS algorithm, but to your point when you think about base volumes as Sanjay mentioned.
Duffy Fischer: We have the rental which affects their regardless that gets back to the resiliency of our model as you recall about 65% of our revenues are fairly resilient, but of the molecule that they take whether in the cylinder or whether in the tank for liquid and to some extent over fixed fees in the pipe. That's just going to be a function of their production so from that.
Duffy Fischer: And that tends to best proxy to IP and.
Duffy Fischer: So I would say within the base volume piece.
Duffy Fischer: Lines now to your point, we tend to get higher IP leverage in developing countries, where they are expanding more what you'll look at his intensity of gas per capita.
Duffy Fischer: Whereas in more developed nations, it's closer to a one to one ratio you tend to see on the IP.
Duffy Fischer: And the base volume tracked so that's how I would think about that when you look around the world.
I think we can all agree that how some countries report IP is not equal in all countries, but when we adjust for what we feel are a little bit of some noise in the numbers.
Duffy Fischer: What we've been seeing is IP close to zero, maybe tens of bps globally weighted on our businesses.
Duffy Fischer: As what it's been ranging in that but.
Duffy Fischer: We'll have to see how it plays out going forward I think EMEA a drag as you know Americas has been pretty solid and I think China dependent upon which number you actually want to use it can range anywhere from close to zero to the official number of 5%.
Duffy Fischer: That's how we would kind of see the IP, but I'll hand off the Sochi, maybe can give you a little walk around the world just with general color on trends. Thanks.
Duffy Fischer: Thanks, Matt that's helpful and just ran the grounding you on how it plays into our equation, but also how we think about it.
Speaker Change: Duffy, let me just walk you through the wall I think it's a question I'm sure on many People's minds, I'm going to try and break this down and powered by Baidu different perspective, I'll start with the markets that we have the end markets and use that as a guide for it to take to kind of define what we're expecting and then talk about different geographies as well. So that's starting over resilient end market.
Speaker Change: By their very nature of you would expect them to grow and therefore, we expect low to mid single digit growth in our resilient end markets, driven primarily by electronics and food and beverage industrial sector. Obviously, most cyclical impacted by industrial activity and demand. We do expect lower volumes, there and you know wasn't last year, we expect flat.
Speaker Change: Low volumes, particularly in metals and chemicals.
Speaker Change: If I now take the other perspective and talk about geographies and I'm going to start off with maybe the Americas, our expectation low single digit growth in the Americas across the resilient end markets. The industrial sector are also expected to be kind of flattish against what we see last year.
Speaker Change: Specifically talk about the U S. Though in the U S. I would say to you. Our current view remains and I've said this before right.
Speaker Change: Volumes and sales at a high watermark, our expectation remains that in the first half of deal they likely to be flattish. That's what we are hearing from our customers.
Speaker Change: Towards the backend of the year the second half for sure. We are expecting increased momentum across the U S and we will see that play through in how we see the Americas.
Speaker Change: Volumes and growth activity come true.
Speaker Change: On the other hand.
Speaker Change: A bit of a contrast unfortunately.
Speaker Change: In Europe, we expect to see continued softening.
Speaker Change: This is primarily in western Europe also a little bit in eastern Europe, but primarily invest in Europe. The resilient end markets will continue to grow there is a good trajectory there and we'll expect that spot metals manufacturing chemicals energy all expected to be softer in lower volumes versus previous year. So Europe. Unfortunately is a drag.
Speaker Change: In a moment.
Speaker Change: Now as far as Asia Pacific is concerned.
Speaker Change: With China, because I know that's on it.
Speaker Change: The number of your mines.
Speaker Change: I was in China, two weeks ago spent a week with the team talking to our customers meeting a number of Ceos and getting a flavor on what I think is going to happen in China.
My short summary is.
Speaker Change: From our perspective.
Speaker Change: Don't expect anything significant in China in 2025.
Speaker Change: Not baking in any kind of recovery I think industrial volumes and activity will remain stable, but flat no recovery in any of those sectors metals and mining specifically is likely to be negative year on year for a number of reasons driven partly by by demand, but equally by some large turnaround.
Speaker Change: That our customers are taken in the Costa deal. So we are going to see that play in Q1 and Q2.
Speaker Change: But again metals and mining unlikely to see any any growth. The one sector in China that is growing today and will continue to grow is there electronics sector.
Speaker Change: Lot of energy and a lot of money has been put into that sector by the government as well. So we do expect that that will play out and continue to see some some level of growth.
Speaker Change: If I was looking at China, a bit more broadly I would say to you two trends of particular note coming out of my visits.
Speaker Change: First that.
Speaker Change: The government has recognized the need for support if it's got to get the postal private consumption and the property market to pick up it set a lot of things not enough stimulus has gone into the market. So we haven't seen any improvements other than the fact that the last quarter you saw a bit of improvement from industrial activity for <unk>.
Speaker Change: Sports, but we haven't really seen private consumption pickup happened now there are all kinds of subsidies in place that they're putting out there is small but hopefully they will have an impact over a period of time.
Speaker Change: Hey, do you I wouldn't hold my breath for 2025 in terms of improvement, but beyond that longer term certainly we will see the China market stabilize and probably grow at a small base that they used to.
Speaker Change: But certainly we would expect to see growth come back.
Speaker Change: The rest of Asia Pacific is largely flat versus previous year, except for India, which is obviously the growth story at the moment and again given our strong presence in India. We are making the most of it is winning more than our fair share feel really good about where that's going.
Speaker Change: That's kind of a view around what we see across the board and expect in 2025.
Speaker Change: Great. Thank you guys.
David Begleiter: And your next question comes from the line of David Begleiter with Deutsche Bank. Your line is open.
Speaker Change: Hi, It's David Huang here for Dave.
Speaker Change: What are your concerns if any of the praxair Lindy playbook will be adding pull it at products given the recent management change I guess would that be a negative cooling D has the shift away from focusing too much on backup projects will cause that change without seeing a even more rational industry pricing environment.
Speaker Change: Hey, if I didn't get I didn't get your question entirely but I'm going to answer it anyway.
Speaker Change: Lindsey has a leadership position in the market because of a number of factors I said in my prepared remarks, you cannot replicate and I think Matt put it really nicely.
Speaker Change: Try and copy, but you can never never really duplicate.
Speaker Change: What Lindsay has developed over over many decades and that's built into our operating rhythm that's built into our performance culture and more importantly, it is built into the networks that we have developed across the world where because of the network density. We have we're able to get the margin improvement that we see and of course command the stretch.
Speaker Change: The relationship with the customer and have the pricing power we have that.
Speaker Change: Whats demonstrated in the margin expansion that you've consistently seen over the last five years, we will continue to work on that what others will or won't work on really is a question you will need to address to them, but I think Linda is the market leader and we would reflect that and the behaviors. We put out there in the marketplace consistently.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: And your next question comes from the line of Farmer with BNP Paribas. Your line is open.
Speaker Change: Hi, Yes. Good morning, guys. Good question on health care, where I think you've been around zero percent organic growth every quarter in 2024, and I was wondering if you could talk about what you've seen on price as volumes and if there's any specific area that is preventing a big headwind and then I guess, if you can expand into what.
Speaker Change: What's your thinking.
Speaker Change: 2020 sites for this one thank you.
Laura: Thanks, Laura.
Speaker Change: You've heard me say this before that in the healthcare space, we expect long term kind of mid single digit growth and that's what we would expect now you'd know the health care sector is made up of two sub segments. If you like the the hospital care business, which is growing reasonably well and well on its way and then obviously the whole cabinets around the world.
Speaker Change: It tends to be moving forward as well now we have as Youre aware and from past calls we have said that we were doing some portfolio rationalization in our homecare business out of the U S.
In many ways the numbers youre seeing at the moment are reflecting some of that rationalization that has been done in that <unk> got a business that is moving forward well as you know the homecare business in particular, given the inflationary environment that we see has to work really hard on productivity effort and I'm happy to see that idling care, we are really seeing that progress being made.
Speaker Change: So its looking pretty robust and resilient as things stand at.
Speaker Change: At some stage, we will lap these portfolio actions that you would see the long term kind of mid single low to mid single digit growth that we would expect from health care overall.
Speaker Change: Thank you.
Speaker Change: Is that kind of a sort of left on the project side, you talked mostly about decarbonization related projects.
Speaker Change: Could be signs in the in the future you Didnt mentioned electronics is there a specific reason for that I don't think we've seen significant new ESI using electron Antonio signs over the last couple of years.
Speaker Change: Is this an area, where we should see new projects.
Speaker Change: Alright, I'll only tell you that that 20% of my all time record sale of gas backlog is electronics, we are executing on electronics projects as we speak.
Speaker Change: More than happy to tell you that we'll be announcing new wins very shortly as well so I'm not I'm not sure whether that question really.
Speaker Change: Address the specific point, but I think really good about electronics and our specific position in there in fact, we took our board recently to the to our Phoenix facility, which serves TSMC.
Speaker Change: It's been a very successful project for TSMC, So feel really good about it executing a number of projects as we speak they're starting up and providing impact and we continue to win more than our fair share.
Speaker Change: Excellent. Thank you.
Speaker Change: And your next question comes from the line of Jeff Zekauskas with J P. Morgan Your line is open.
Jeff Zekauskas: Thanks very much.
Speaker Change: <unk>.
Speaker Change: In 2020 for your cash flow from operations was up 1%.
Speaker Change: Even though your EPS grew about 10%.
Speaker Change: Was that a depressed number and so when you look at 2025 and your <unk>.
Speaker Change: <unk> growth of four to seven.
Speaker Change: Cash flow from operations, scoring to grow higher or lower.
Speaker Change: And then secondly in.
Speaker Change: In terms of market share in the overall industrial gas market.
Speaker Change: It's market share pretty much constant for all of the major players or are you gaining share overall are losing share is there any share shift.
Jeff Zekauskas: Thanks, Jeff.
Jeff Zekauskas: I'll, let Matt talk about the cash flows and then we'll talk about the market.
Matt: Yeah, Jeff so on the Ocs to your point that tend to look at EBITDA rates to OCR freight so similar to what you are saying, but instead of EPS EBITDA.
Matt: And to your point, though they should grow similarly, and the ratio we tend to always look to achieve an ocs to EBITDA is usually in the low eighties.
Matt: And to your exact point, what we had occur over the last probably I would say 24 months give or take is this unwinding of our engineering portfolio as we worked out the sanction projects and so what that created was you had a large influx of deposits.
Matt: <unk> of cash that stopped and then we had to settle the payments to basically suppliers and you had a very rapid acceleration of an unwind. So that created a large outflow of cash associated with the engineering business.
Matt: And that's what created a slower growth of ocs relative to EBITDA, because essentially what you had with some liabilities, which are the contract liabilities. If you look at that specific line has been quite unfavorable and what it is as these liabilities are unwinding on the wind down, but theyre not cash generative so.
Matt: That's why they create that unfavorable aspect on the working capital line that you see so that is what's been driving this.
Matt: The ability for the EBITDA in Ocs to grow together, we've substantially gotten through all that are in our engineering business I expect 2025 to be a lot closer aligned on those growth rates.
Matt: But this is normally this is how the engineering percent completion business works normally it's spread over a four year build cycle. So you don't notice it but given the events of the sanction projects that got compressed into a much tighter structure as we had to deal with the sanction projects.
Speaker Change: Thanks, Matt and let me talk about market share so actually Jeff to be honest, we don't spend a lot of time thinking and talking about market share.
Speaker Change: It's something that we can segment down and talk about specifics and that's what I'm going to do for you. So I'm going to start by just reminding you record sale of gas backlog of seven plus billion right.
Speaker Change: Good test of their market share is headed and to be honest, we're winning more than our fair share of those large projects, which are as I'll remind you and as we said in our prepared remarks. These are contracted growth with good solid terms and conditions, including termination guaranteeing a minimum of a total capital letters.
Speaker Change: That is guaranteed so just as a reminder that that vary.
Speaker Change: Very rigorous definition of backlog, where we are selling today with a record backlog that demonstrates on the larger project side and how we are positioned in terms of market share.
Speaker Change: For the merchant and package business. The concept of market share is less relevant what is more important than which is where we spend most of our time.
Speaker Change: Thinking about network density.
Speaker Change: Clearly if you have network density you are the leading player in that market usually biomarker. So it is very important to make sure. The network density as what you drive through the decisions you make in terms of how you manage your business on a day to day basis. So I feel pretty good about the network that we've developed and the strength of our market position.
Speaker Change: And in each one of those networks, which actually results in as I said earlier getting the margin expansion that look for and getting the market position of the strength of our relationship with our customers because of those networks that we've developed so I'll just summarize by saying Linda remains a market leader and we expect that leadership to continue to move forward.
Speaker Change: Given these elements that I just talked about.
Speaker Change: Great. Thank you.
Speaker Change: And your next question comes from the line of Steve Byrne with Bank of America. Your line is open.
Steve Byrne: Yes. Thank you I was wondering to better understand this.
Speaker Change: The 59.
Steve Byrne: Small onsite wins.
Steve Byrne: Maybe more specifically how would you compare the the contract terms of those small on sites versus the long run sorry, sorry, I would assume these are long term take or pay agreements. Some of them. Maybe you can have your own employees on site. So how would you how would you compare the return.
Steve Byrne: Turns on these projects versus the big ones.
Steve Byrne: Can you comment on.
Steve Byrne: You know what what are the gases that are driving the small on sites a year. This is oxygen for oxy fuels or.
Steve Byrne: This hydrogen et cetera. Thank you.
Steve Byrne: As a fantastic question, Steve and I are I really wanted to somebody to raise it so thanks for doing that.
Steve Byrne: 59 long term contracts you would've read we signed 59 long term contracts on a building 64 plans all of this happened in the <unk>.
Steve Byrne: In the space of the last 12 months, so feel really good about breaking the record now let's talk about the profile of the small loan size I get excited about small on sites because from so many different perspectives. They are actually a perfect way of generating annuity income for this business and you can imagine this building 64 plants will be starting.
Steve Byrne: More than one a week to make sure that that revenue and cash generation happens, let's talk about returns terms and conditions and the types of gases. So I think good to start with the types of guests.
Steve Byrne: It was both oxygen nitrogen and indeed in the future we expect to see Electrolyze based hydrogen which is currently not included in our definition for smaller headwinds, but at some stage, we will see that as a developing portfolio element to be added onto the small on site.
Steve Byrne: Nitrogen largely oxygen I'll give you a great example, so we've been working with many customers I'll take one Owens, Illinois, where we have been supporting them on their teeth.
Steve Byrne: Decarbonization efforts in this particular case, we have a piece of applications technology called optimal.
Steve Byrne: We have developed and we have deployed that successfully across a number of lost customers Owens, Illinois being a good example of one of those where we are able to recover do heat recovery, which allows them to get significant efficiencies reduced natural gas consumption and run the throughput of the bonuses.
Steve Byrne: At a significantly higher level. That's a good example of small onside goes on site and should provide that we do the same with paper and pulp into the same with electronics et cetera, which is where we would largely use nitrogen as an example, so.
Steve Byrne: Yes.
Steve Byrne: Both of these gases dry.
Steve Byrne: Our smaller portfolio and are kind of largely equally split between the different technologies that we apply and when the terms of these small on site contracts range between 10, and 15 years exactly identical to what you would typically see and on the on the large onsite speeds the terms and conditions are almost.
Steve Byrne: Identical as well same fixed fee elements that we talk about similar profile in terms of cash flows what tends to happen, though is that the execution timeline for these projects is much shorter typically we'd be able to deploy a small onsite anywhere between nine to 15 months as you know the large onsite projects.
Steve Byrne: Larger projects that we do tend to take longer in terms of their construction commissioning period. So again, a very very nice piece also another small loan sizes were able to derisk the execution as well because the execution or a portion of the civils the scattered out by the customer and again helps us both implemented construct quickly but.
Steve Byrne: Also have the customer take the risk around the civils piece as well that brings me the enter returns and our returns typically both small on site are above what we would see on average for some of the large projects. So feel really good about the returns highly accretive to our portfolio and again <unk> been seeing over the last four or five years, we've put a lot of focus on developing this part.
Steve Byrne: The portfolio and are really seeing the benefits of that in these 59 Lotto contract, we signed and the 64 plots were building up.
Steve Byrne: All in I think really good part of the portfolio, we have very excited about it.
Steve Byrne: Thank you.
Speaker Change: And your next question comes from the line of Michael <unk> with Wells Fargo. Your line is open.
Speaker Change: Hi, This is <unk> on for Mike. Thanks for taking my question. This is sort of touched on earlier in the call, but I wondered if you could just clarify the contributions from pricing versus productivity and cost management. When we're talking about forward looking guidance for the quarter and for the year. Thanks.
Speaker Change: Hey, Avi, it's Matt so.
Speaker Change: We don't split that out but it sounds you mentioned on the algorithm. So we've got 10 plus percent and the combination of the capital allocation contribution and the management action contribution.
Speaker Change: And for purposes of guidance I'd say roughly split 50, 50, just say 5% at this stage.
Speaker Change: Historically management actions have been the larger contribution.
Speaker Change: But we always need and want to think about that as a spread right to think about one in isolation to us does it make a lot of sense, because youll see very different inflation levels in different countries.
Speaker Change: So the local spread of price to cost inflation is a critical metric for us.
Speaker Change: Cause that positive spread is what's part of the compound value creation of the model.
Speaker Change: So I would say, it's a very very local discussion, but the spread needs to remain positive. That's a big component of the margin expansion, our long term margin expansion as well but.
Speaker Change: But I'd say for purposes of the guidance right now just assume it's roughly half from management actions at the 10% and half from capital allocation of the 10%, So five and five and as Sanjay mentioned, where we're obviously going to continue to take actions to try and improve on that but that's what's laid out in our guidance at this stage.
Speaker Change: Okay. Thanks.
Speaker Change: And your next question comes from the line of John Mcnulty with BMO capital markets. Your line is open.
John Mcnulty: Yes. Good morning, Thanks for taking my question. So a question around the $10 billion backlog between sale of gas and sale of equipment.
John Mcnulty: How much of the equipment at this point is locked in where we don't have to worry about tariffs or maybe the benefit of the strong dollar and how much of it is there a little bit of exposure on how should we be thinking about that.
John Mcnulty: Thanks, John So again as you said 10 billion in backlog about 3.13 to one that sits in in the Soe side, the sale of equipment side and the balance seven plus sitting in AR in the sale of Casa So.
John Mcnulty: Far as tariffs are concerned obviously, we've been looking at at the portfolio.
John Mcnulty: So E side, our contractual protection typically takes care of that so we go in with full pricing with our contractors and wherever necessary, we'd have contractual protection to make sure that events like tariffs et cetera get adequately covered on the sale of gas side, where we're doing a lot of the procurement, we're obviously managing and tracking that quite closely we did that study.
John Mcnulty: Recently for our U S projects and actually the impact of the tariffs is de Minimis. So really we are not seeing any impact there and our experience of the past has been there were tariffs have been tariffs for a while now including the first round of the administration a few years ago. When we when we dealt with is one of the things. We found was that it did get introduced tipping.
They didn't really impact our firm offers that we put in on the procurement cycle, but also more importantly, we got some benefit typically out of devaluation of currencies that more than offset the tariff impact. If there was impact of any significance. So all in all I'd say to you we've looked at tariffs.
John Mcnulty: Part of what we've done in the Boston kind of manage that adequately at this point in time and feel pretty good about where our projects done.
Speaker Change: Great. Thanks, very much for the color.
John Mcnulty: Okay.
John Mcnulty: And your next question comes from the line of Peter Clark with Bernstein. Your line is open.
Peter Clark: Yes, good morning, everyone I got kicked off so I hope I'm.
Peter Clark: I don't ask something that's been asked before but I am not terribly surprised with the guidance, but maybe I was a bit off on the forex.
Peter Clark: Do you think the sales line I guess slightly lower but I'm, assuming you've got some very profitable market sitting there that are being hit very hard with the currency I'm thinking Mexico, maybe Brazil, a bit just wondering if there's an element of that in that in that guidance and then I like to that the tariff risk I know gaseous don't travel I know, it's mostly for customers in the region, but again.
Peter Clark: These very profitable markets, a woman's at risk in terms of terrorists.
Peter Clark: And again, it Mexico would be a classic terms without just how you think around that as well. Thank you.
Peter Clark: Hey, Peter it's Matt So I'll start on the FX, Yes, you actually hit on the two bigger ones, Brazil, and Mexico, where the larger ones I would say if you think about the evolution of FX through 2024.
Peter Clark: Some of the European based currencies as you probably know were almost quite favorable to flat in the beginning of 2024, but unfortunately, what you were seeing where a lot of Latam currencies devalue very fairly materially.
Peter Clark: The peso and Mexican peso being one that Brazilian Reais and then Argentinian peso as you can imagine which is on a on a managed devaluation, which uses hyper currency inflation. So the Latam currencies, we're probably seeing more of the brands in the first half to two thirds of the year, but what we saw in the fourth quarter just given some of the <unk>.
Peter Clark: No political and political events was a significant flight to the dollar I think Dx why index is probably the best indicator of that if you sort of look at Dx y.
Peter Clark: Right.
Peter Clark: Round at the beginning of the prior to the U S elections to where it ended in the year.
Peter Clark: I appreciate it almost 10% and I think you gave a pretty good indication of the six major basket currencies of which that index is comprised of how much those major currencies you saw that move so that was a I would say it was a two stage impact on the rates.
Peter Clark: What that ended up with with some of the more larger currencies like the euro and the Sterling and the Aussie dollar et cetera, really devalued in the back half of the fourth quarter. So that I'd say that was the dynamic we saw it'll be what it'll be right.
Peter Clark: Well, obviously as we mentioned we you book on the average rate each month and then we'll see.
Peter Clark: If the devaluations do create inflationary aspects.
Peter Clark: I think Sanjay had mentioned the tariffs.
Peter Clark: As you can imagine our impact on the tariffs is really.
Peter Clark: Indirect we dealt since we're so localized to your point, we don't have much direct impact Sanjiv mentioned, the equipment, which is small and that tends to self correct. So it really just comes down to a function of the customers that we supply and what production levels. They have given our leading density positions in a lot of these economies.
Peter Clark: We feel quite good that we are there to capture where the products move to.
Peter Clark: Because I think at the end of the day, what you have to ask yourself with these tariffs.
Peter Clark: Is production shifting or will there be a reduction of production, but in a shifting basis, we feel quite good will capture where it goes.
Peter Clark: And if there is a net reduction of the question will be from where.
Peter Clark: So time will tell on that but this is more going to be a function of that IP, we talked about and we'll see how it plays out.
Peter Clark: But given the guide we gave on a basically a zero IP at the midpoint.
Peter Clark: We'll have to see how our how things play on that.
Speaker Change: Got it thank you.
Peter Clark: Yeah.
Speaker Change: And your next question comes from the line of Patrick Cunningham with Citi. Your line is open.
Speaker Change: Hi, Good morning, just on the step up in Capex for 2025, most of them are being driven by the two large projects and is this step up from those projects more meaningful in 2026 as well. Thank you.
Speaker Change: Okay.
Patrick: It's Patrick.
Patrick: We just referenced the sale of gas backlog being an all time high at 771 billion daily. That's the reason why youre seeing the step up in Capex and obviously sitting within that are the two large projects that we're executing around the clean energy piece, but also a number of electric electronics projects et cetera. So that is really that's all.
Patrick: <unk>, that's driving the Capex number as things Tom.
Patrick: Yeah.
Patrick: Yeah.
Patrick: Yeah.
Patrick: And your next question comes from the line of John Roberts with Mizuho. Your line is open.
John Roberts: Yes. Thank you.
John Roberts: Competitor had a large nonrecurring helium sale in the quarter.
John Roberts: Take down industry helium prices or how would you characterize the helium market.
Yeah.
John Roberts: John I think the helium market continues to display exactly the characteristic that we've been seeing for the <unk>.
John Roberts: Most of 2024 in fact.
John Roberts: As I look at the helium market today I would say to you that there are after the walls were helium as long Asia is one of them as you know about a third of all the imports into China coming out of Russia, which obviously is unbalanced market to some extent demand side on helium remains flattish.
John Roberts: We see some softness around electronics, and maybe MRI, but that tends to kind of pick up during the course of the year I.
John Roberts: Pricing as things stand.
John Roberts: <unk> remained stable, we're not seeing any significant movements on pricing correction that happened as you know about a year or 18 months ago. There is nothing unexpected happening.
John Roberts: <unk>.
John Roberts: Youre referencing a transaction that I won't comment on at this stage, but you know.
John Roberts: There are shifts in helium supply and demand all the time there is nothing new happening over here that will impact the market itself.
John Roberts: Thank you.
John Roberts: Yeah.
Speaker Change: And your next question comes from the line of Kevin Mccarthy with vertical research. Your line is open.
Speaker Change: Hi, This is Matt <unk> on for Kevin Mccarthy regarding the new Ccs hub in Jubail could you provide more details on the scope and structure of your investment in the project.
Speaker Change: How large is the investment and do you see those projects being foundational in nature and that it could turn into a base hub for additional follow on investments with the goal of increasing regional asset density.
Speaker Change: Thanks, Bob So essentially I'm going to give you a high level view of the project. It Hasnt gone to a Friday when it does you will hear us talk a bit more about it but essentially it's a three way joint venture that is developing which won't be in its first phase of a very large.
Speaker Change: Ccs project in Saudi the three partners are led by Saudi Aramco.
Speaker Change: S L B and Lindy.
Speaker Change: Each.
Speaker Change: Contributing their skill set into that project. The first phase of that project is between nine to 11 million tons per annum of tubing sequestered. There is an expectation that there will be two more phases by the end of the third phase when it gets completed this could well be the world's largest Ccs project at.
Speaker Change: 54, or 53 million tons per annum of Cotwo capture and sequester. So yes, there is potential for growth beyond obviously, we will assess those phases when they happen at this point in time. This joint venture structure is developing the project. The feed has been completed.
Speaker Change: The capital is being assessed as we speak so I'm not going to give you a firm number just yet I expect in the next few months and once that happens you will get a lot more detail around it but it is a fairly significant project with some exceptional partners in a part of the world, where Linda will strengthen its position.
Speaker Change: And obviously, there will be a future opportunity to continue to grow with this alongside this project. We will also look at developing.
Speaker Change: Blue hydrogen project, which would leverage the Ccs infrastructure that has been developing this project, but again when that goes to a filing to your goals and meets our investment criteria and we have a project was talking about you'll hear us talk a bit more about that.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: And we will now take our final question from the line of Laurence Alexander with Jefferies. Your line is open.
Speaker Change: Hi, This is Dan Rizzo on for Laurence I was just wondering what your view is on the depth of the pipeline of potential hydrogen projects.
Speaker Change: Particularly in the EU and Japan.
Speaker Change: So I.
Speaker Change: I said this earlier and I am going to maybe just quickly recap my earlier comments and then talk specifically about the markets you've mentioned so.
Speaker Change: We have seen that people are being more rigorous in applying both diligence before they take on.
Speaker Change: Decisions for these large projects.
Speaker Change: And when I think about our pipeline in the context of that I feel really good about the strength of the high quality projects. We have in our pipeline that we are developing with developing those projects as you would expect in the U S and Canada. So in North America, and the Middle East largely Saudi Arabia, but also potentially in Emirates.
Speaker Change: In Europe, particularly with partners like Ecuador, where potentially we have an opportunity to provide low carbon hydrogen or blue hydrogen into the into the European network and then we're looking at some projects in Asia.
Speaker Change: Which are localized for for local markets. Your specific question around Europe, and Japan, I would say to you that the projects in Japan are minimal other than the fact that Japan is a very important market from an import perspective that they were going to import in either clean hydrogen or derivatives such.
Speaker Change: <unk> ammonia or methanol into their market for.
Speaker Change: Wholesale applications that they've determine are needed for their decarbonization efforts. So everybody is looking at far east from a point of <unk>.
Speaker Change: The ability to export into that market, which is why it remains in the bulk market alongside Japan booths at Korea as well, but.
Speaker Change: The development itself in Japan, I think is minimal.
Speaker Change: As far as Europe is concerned obviously.
Speaker Change: You see a lot of discussion around green hydrogen in Europe.
Speaker Change: <unk> green and including Blue and so on and so forth. The reality is that the regulatory framework is so difficult to be able to get to a decision point to the very large substantive investment requires a lot of time and I think we're seeing that play out in Europe as things stand, which is why there is a real feel that the.
Speaker Change: European aspirations for the amount of hydrogen the need for that market will not be entirely met because you know the combination of the time to kind of decipher the regulatory framework and to make investment decisions and this advisement is obviously a little more challenge.
Speaker Change: Yeah.
Speaker Change: Thank you very much.
Speaker Change: And I would now like to turn the call back over to Mr. <unk> for any additional or closing remarks.
Speaker Change: Thank you and thank you everyone for participating in today's call.
Speaker Change: If you have any further questions feel free to reach out directly to me.
Speaker Change: Sure.
Speaker Change: Yeah.
Speaker Change: Ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].