Q2 2025 Air Products and Chemicals Inc Earnings Call
Good morning, and welcome to the Air products second 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 our reserve beginning today's call is Mr. Eric Scooter.
Speaker Change: Thank you welcome everyone to Air Products' second quarter 2025 earnings Telecom.
Speaker Change: This is Eric <unk>, Vice President of Investor Relations.
Speaker Change: Joining me today are Eduardo Bonanza.
Speaker Change: Executive Officer, Mr. Schaffer, our Chief Financial Officer, and Sean Major Executive Vice President General.
Speaker Change: General Counsel and Secretary.
Speaker Change: After our comments, we'll be pleased to answer your questions.
Speaker Change: Our earnings release and slides for this call are available on our website at investors out of your products Dot com.
Speaker Change: Today's discussion contains forward looking statements, including those about earnings and capital expenditure guidance is this outlook and investment opportunities.
Speaker Change: Please refer to the cautionary note regarding forward looking statements.
Speaker Change: In our earnings release and on slide number two.
Speaker Change: Additionally throughout today's discussion, we will refer to various financial measures, including earnings per share operating income operating margin EBITDA the effective tax rate.
Speaker Change: C E.
Speaker Change: Either on a total company or segment basis.
Speaker Change: Unless we specifically state otherwise.
Speaker Change: Regarding these measures refer to our adjusted non-GAAP financial measures.
Reconciliations of these measures to our most directly comparable GAAP.
Speaker Change: Financial measures can be found on our investor website, and the relevant earnings release section.
Edward: Now I'll turn the call over to Edward.
Speaker Change: Thank you Eric Good morning, as Eduardo Thank you for joining US today. Please turn to slide three let me begin by sharing your thoughts on my first three months.
Edward: Seal.
Edward: We saw a nice visit.
Speaker Change: Several sites and met with many of our large customers and partners I.
Speaker Change: I can say a product at a solid four industrial gas business.
Speaker Change: If we stay within our traditional business model.
Speaker Change: Good to go.
Speaker Change: Yeah, the onsite business model today, approximately 50% of the company's sale all side long term take or pay conflicts the highest cost synergies.
Speaker Change: The process also build density units merchant business, helping customers be more efficient as.
Speaker Change: We became the leading supplier.
Speaker Change: Hydrogen pipeline networks around the work, including the worlds largest and the U S.
Speaker Change: We have also began leading supplier.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: He is a clearly absolutely beautiful.
Speaker Change: However over the past few years, our products moved away or.
Speaker Change: So it's a book.
Speaker Change: The company can give us your best sense of coal gasification and Danny clean Air.
Speaker Change: Capital.
Speaker Change: I projects, which of course of a kind technology and more importantly, without immediate offtake agreements in place.
Speaker Change: So our products moved away from its successful model, while significantly easing its financial leverage in head count to support these projects.
Speaker Change: <unk> grew by almost 7000 employees since 2018 to execute against the plan.
Speaker Change: Just had a negative impact on both Boston execution quality, leading to significant project delays.
Speaker Change: All of this needs to be borne itself refocusing, our product lines or businesses or capabilities at.
Speaker Change: Please turn to slide four and let me talk about where that stands.
You can think about air products' business in three categories first we have the strong for industrial gas.
Speaker Change: This includes an onsite projects take or pay agreement original merchant business and a portfolio of high quality minority owned okay.
Speaker Change: The business has about $12 billion in sales and operating margin was 24%.
Speaker Change: Confident we can improve margins and unlock significant value.
Speaker Change: Cost productivity and operational excellence.
Speaker Change: This is the largest opportunity we have considering the $35 billion in capital we have invested in the base business.
Speaker Change: In summary, our products can grow strongly and profitably and traditional industrial guests and yes. We can also participate in clean energy opportunities as long as they align with the traditional industrial gases bottle with customers to take volume risk.
Speaker Change: Secondly, we have the two large projects in Saudi Arabia.
Speaker Change: We believe this project is set up to be the lowest cost producer.
Speaker Change: And blue ammonia for several decades to be clear air products is an industrial gas company and does not intend to be a retail marketer of ammonia.
Speaker Change: Progress report I can't say that the Saudi Green project is progressing well.
Speaker Change: Gigawatts of solar and wind power generation will be completed by mid 2026, and we will start commissioning the electrolyze antimony production after that.
Speaker Change: Informed before we successfully leased notwithstanding this project through partnership and project Finance we.
Speaker Change: We expect product availability.
Speaker Change: Seven.
Speaker Change: Regarding the Louisiana project, we are actively working to de risk it by focusing on industrial gases for the project, we announced ongoing discussions to divest obviously the situation in the ammonia production elements of this project.
Speaker Change: Earliest startup of this facility is 2028 or 2020, not banning the risky status.
Speaker Change: To make it clear air products will only move forward with this project when we have warm offtake agreements for hydrogen and nitrogen.
Speaker Change: Third we also have the underperforming projects capex totaling about $5 billion.
Speaker Change: These are also foci energy transition projects with substantial cost overruns and.
Speaker Change: In some instances.
Speaker Change: The performing projects designed to produce additional volumes or non contracted pipeline sales and for the hydrogen mobility market, which is being delayed or reduced I.
Speaker Change: I will provide additional comments on these underperforming projects in the field.
Speaker Change: Yes.
Speaker Change: Please turn to slide five.
Speaker Change: The price will get back to basics of course, we will return to excellence in execution or business, we can't invest about one $5 billion or industrial gas projects going forward, our focus will be on opportunities that meet our high return thresholds with high quality customers.
Speaker Change: Okay.
Speaker Change: And we will work to expand our margins.
Speaker Change: Excellent.
Speaker Change: And by right sizing the organization.
Speaker Change: We returned to a normal level of Capex spending.
Speaker Change: What was the second problem with slide <unk>.
Speaker Change: Cautiously optimistic about both the green hydrogen project in Saudi Arabia, and the Blue hydrogen facility in Louisiana.
Speaker Change: Arabia in the near term, we will focus on completing construction and selling in ammonia F O B, Saudi Arabia until hydrogen regulations will be developed.
Speaker Change: And we will delay destiny downstream facilities in Europe until specific regulatory frameworks for.
Speaker Change: Each time, we have for them.
Speaker Change: Okay.
Speaker Change: As you all know the previously announced agreement for Green hydrogen supply in Europe. It is scheduled to start in 2000.
Speaker Change: We expect regarding the development of this project no later than waiting for yourself.
Speaker Change: Our Louisiana, we plan to concentrate on the hydrogen and nitrogen production and continue discussions to de risk the carbon sequestration ammonia production activities, there will be no new spanning commitments on this project why we pursued it risky Spanish.
Speaker Change: Lastly, we are moving forward with the underperforming projects, given our commercial obligations and project status.
Speaker Change: So they are not expected to materially contribute to operate.
Speaker Change: We anticipate these projects will provide positive cash flow, which will allow us to recover on a non discounted basis or cash investment over the life of the projects.
Speaker Change: We have roughly $2 billion remaining to be spent August projects from 26 to <unk> 48.
Speaker Change: Our goal will be to maximize profitability.
Speaker Change: Most of the negotiations operation improvements and productivity.
Speaker Change: Turning to slide six we have begun the process of getting back to basics, we canceled three significant U S project in February and we are taking a more prudent approach to the Louisiana price.
Speaker Change: Additionally, we are also working to address the underperforming projects, which do not currently meet our expectations for the previously announced net zero hydrogen projects in Edmonton total cost is now expected to be $3 $3 billion with one stream between late 'twenty early.
Speaker Change: Early 'twenty eight.
Speaker Change: Over the next two slides I will detail, how we will bring down both.
Speaker Change: Capital expenditure in head count in the coming years.
Speaker Change: On slide seven you can see that once we complete the project in Saudi Arabia, and Louisiana as well as the underperforming projects our capital expenditure level roughly $2 5 billion last.
Speaker Change: Year, which can sustain both our future growth and ongoing maintenance.
Speaker Change: Now please turn to slide eight.
Speaker Change: Part of our productivity improvement will come from right sizing the allocated down to the levels. We had before we started the large wave of projects discussed in this presentation.
Speaker Change: Total head count increased from approximately 16000 to 23000 employees since 2018.
Speaker Change: 1300 reductions have already been modified.
Speaker Change: And that process is in addition to the approximately 500 related to the LNG divestiture.
Speaker Change: We intend to identify another 25.
Speaker Change: 3000 positions, which will be eliminated between 2026 and <unk> as we finalize the large projects with the objective of reaching and unemployment level similar to 2018 adjusted for employee will to support U S.
Speaker Change: Let's turn to slide nine and talk about our roadmap for improvement in the coming years.
Speaker Change: For 2025, we expect our base business deliver around $12 per share or EPS double digits, our oce and over 90%.
Speaker Change: Operating margin.
Speaker Change: We strongly believe we can do better so we will look to maximize profitability from the base business to drive results in the coming years.
Speaker Change: We will manage our cash flow to allow dividend increases new projects and in time reduce our debt and buy back shares.
Speaker Change: As we improve our operating margin.
Speaker Change: And the address challenges incentive projects, we expect key operating metrics to improve.
Speaker Change: Despite the burden of the underperforming projects, we anticipate that during the 26 to 2029 period, we can achieve high single digit adjusted EPS growth adjusted operating margin in the high Plains and adjusted <unk> in the low to mid teens.
Speaker Change: We also expect our aggregate net cash flows we put some neutral during this period.
Speaker Change: As you can see in the far right column once the Saudi Arabia in Louisiana projects begin contributing we expect to unlock significant potential achieve.
Speaker Change: Achieving roughly 30% adjusted operating margin mid to high teens, adjusted RC and double digit adjusted EPS for 2030 and beyond.
Speaker Change: Our objective is that its full contribution these projects will allow us to achieve greater than 10% compounded EPS growth versus 2025.
Speaker Change: <unk> 31 or 32.
Sure.
Speaker Change: The air products <unk> recognized the importance of transparent communications with investors.
Speaker Change: Going forward, we will.
Speaker Change: Focus 100% on our core industrial gas business.
Speaker Change: <unk> been disciplined with capital and build a culture that prioritizes productivity and continues to improve.
Speaker Change: Finally, I would like to express my gratitude for their products employees for.
Speaker Change: By the way they receive me doing the last few months and for their support as we focus the company now a traditional business model. Despite fiscal changes will need to go through now.
Speaker Change: Now I'll turn it over to Melissa to both through our financial results and lithium.
Melissa: Thank you Eduardo.
Speaker Change: Good morning, everyone.
Speaker Change: A reminder, on this call speaking about adjusted non-GAAP financial measures.
Speaker Change: Before we go I want to take them on much acknowledged at $2 billion after tax charge taken in the second quarter.
Speaker Change: This charge included the project cancellation of previously announced cost reduction measures and executive separation costs.
Speaker Change: We will now turn to slide number 11 to review our financial results.
Speaker Change: Our second quarter adjusted earnings per share of $2 69.
Speaker Change: Below our previous guidance of $2 75 to $2 85 primes.
Speaker Change: Primarily due to changes in cost estimates on a.
Speaker Change: Project in the U S.
Speaker Change: And lower than forecasted.
Speaker Change: <unk>.
Speaker Change: Compared to last year sales volume was down 3%.
Speaker Change: With 2% driven by the LNG business divestment, while weekend merchant, primarily helium was largely offset by favorable buying across the region.
Speaker Change: Total company <unk> was up 1%, which equates to a 3% improvement for the merchant business.
Speaker Change: By continued non helium pricing strength in the Americas and Europe.
Speaker Change: Adjusted operating income.
Speaker Change: Decreased 9%, mainly due to the LNG divestiture and unfavorable.
Speaker Change: Additionally, we saw higher costs, driven by Americas maintenance and fixed concentration, which is partially offset by strong productivity actions across the company.
Speaker Change: Operating margin was down 210 basis points.
Speaker Change: <unk> hundred <unk>, driven by higher energy pass through.
Speaker Change: Now please turn to slide number 12, the details of our second quarter earnings per share.
Speaker Change: Second quarter adjusted earnings per share of $2 69.
Speaker Change: Increased 16% from prior year.
Speaker Change: The divestment of the LNG business accounted for that.
Speaker Change: Headwinds and currency was unfavorable or.
Speaker Change: Our base.
Speaker Change: We can create volume price and cost was down 7%.
Speaker Change: Other than LNG volume was relatively flat as a lower helium.
Speaker Change: Largely offset by favorable onsite.
Speaker Change: Price is tied to that of course, then driven by improvement in the Americas and Europe.
Speaker Change: Costs are 11% on sales.
Speaker Change: Well, primarily due to fixed cost inflation and higher maintenance in the Americas, partially offset by favorable cost productivity across the company.
Speaker Change: Sorry income that's better in Europe, but partially offset by lower attribution in America.
Speaker Change: Now please turn to slide number 13.
Speaker Change: I would like to provide an update on our FY <unk> full year guidance.
Speaker Change: Since our last earnings call, we have canceled several large project and observed volatility and macroeconomic conditions.
Speaker Change: As we look at the guidance year on year divestiture of LNG will continue to drive a 4% decrease relative to the prior year.
Speaker Change: The large project cancellation will be a 3% headwind, resulting from lower operating income and reduced capitalized.
Speaker Change: We anticipate base business growth of 2%.
Speaker Change: I understand for the year, despite a 5% headwind in Hawaii.
Speaker Change: Starting in fiscal 2025, all year adjusted earnings per share to be in the range of $11 85.
Speaker Change: The $12 50.
Speaker Change: Please note the potential economic impact of global carrier is not in our guidance.
Speaker Change: While the industrial gas business is primarily a local business and very resilient is difficult to determine at this time, if there'll be broader macroeconomic impacts from tariffs or events that may impact our customers.
Speaker Change: We expect our third quarter adjusted earnings per share to be in the range of $2 93.
Speaker Change: $3.
Speaker Change: Our full year capital expenditures to be approximately five.
Speaker Change: We've included additional details on our segment results in the appendix section.
Now well open up the call for questions operator.
Speaker Change: Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Speaker Change: And our first question is going to come from John Mcnulty from BMO capital markets.
John Mcnulty: Yes, good morning, and thanks for taking my question and welcome to Air products.
Speaker Change: So I had a question for you on the underperforming projects, where where you highlighted that there is no operating income contribution I guess, maybe a couple of things on that first how should we think about the EBITDA contribution just because obviously early on there's going to be a lot of of DNA, just given the size and scale of these.
Speaker Change: Projects and then I guess also tied to that.
Speaker Change: The Alberta project looks like it's ballooned up almost at almost three times, what I think the original plan was I guess can you help us to understand what's going on there and what.
Speaker Change: What looks to be a.
Speaker Change: <unk> delay in that project as well thanks very much.
John Mcnulty: Okay, Hey, Thank you John for the question.
John Mcnulty: Yes, let's start with the contribution from the projects in terms of EBITDA as we are saying here, we expect to true basically recover our capital on our own discounted basis, which means that we expect to be able to get on average our depreciation.
John Mcnulty: For this project so.
Of course, it is not what we expect to have but that's but that's what the situation is considering the.
John Mcnulty: <unk> increase that we have in capital, which is part of your second question. So.
John Mcnulty: Regarding Alberta, I would say that.
John Mcnulty:
John Mcnulty: Of course, we had some self inflicted issues.
John Mcnulty: When you have that.
John Mcnulty: In the construction environment that is so forgivable as Alberta, you pay a steep price. So when you. When you have a project that gets out of sequence venue and you start losing windows in terms of whether on how to how to.
John Mcnulty: Execute the project and then you have very low.
John Mcnulty: Broad productivity front upfront contractors that are theyre expensive to start with so you'll get on this spiral and then the project get delayed.
John Mcnulty: Capitalized interest in which case.
John Mcnulty: Indicators for our products is included in the cost of these projects. So.
What happened here basically.
John Mcnulty: Didn't happen in the last 90 days as you can imagine.
John Mcnulty: At the end of last year.
Company basically understood that we had a problem we hired a third party to look at the project to give us some.
John Mcnulty: Opinions about how we're doing on that end.
John Mcnulty: As a result of that and some of the reviews.
John Mcnulty: They were to do here, we basically took some actions on replacing.
John Mcnulty: Project management teams, replacing contractors and then we re sequenced the job.
John Mcnulty: And that resulted on this estimate for cost and schedule that we have presented today.
John Mcnulty: And of course this is not exactly what we would like to have but.
John Mcnulty: We have a commitment to be transparent with the shareholders and the and this is where we are today.
John Mcnulty: Got it okay. Thanks, Thanks for the color on that and then maybe just a follow up in your in your introductory remarks, you spoke about some of the past strategic decisions, including the pivot to gasification.
John Mcnulty: <unk> got it seems like 40 to 54 at those kind of big gasification projects out there in terms of EPS contribution I guess can you speak to your comfort with those with those projects are they delivering kind of as you would expect if you were if you were starting from scratch in and I guess can you speak to the resiliency there.
John Mcnulty: You would expect from those if we have some sort of a downturn, especially given some of the issues going on between the U S and China.
John Mcnulty: Yes.
John Mcnulty: Yeah, it's another subject I I know we have three.
John Mcnulty: Gasification projects in China, where we operate the coal gasifier.
John Mcnulty: And the reality is if you look at our numbers from 'twenty, three and 'twenty for the EPS contribution the combined EPS contribution of these three projects was close to zero. So it's a it's not exactly the 40 <unk> youre mentioning here.
John Mcnulty: Before you ask I know there were a lot of discussions about Luann project win when that started the one project is probably the best of the three projects we have there.
John Mcnulty: The main issues, we have already added two projects. So we.
John Mcnulty: We have our team working on that.
John Mcnulty: Trying to understand how we can optimize these assets.
John Mcnulty: But we feel if you look historically on the performance of the Asia segment for Air products, you will see some deterioration coming from the last few years and I would say that.
John Mcnulty: Most of the deterioration came from these gasification projects.
John Mcnulty: And in terms of the.
John Mcnulty: The tensions between China and the U S. At this point, we don't see a lot in the in the ground.
John Mcnulty: No.
John Mcnulty: Our business is really a local business I think it's understood locally by.
John Mcnulty: The government and the customers.
John Mcnulty: Local business and the and again.
John Mcnulty: These are the two projects that we have that we have more problems there theyre not government entities. They are a private company.
John Mcnulty: Company's debt.
John Mcnulty: Make methanol or or or ammonia from from syngas from coal gasification.
John Mcnulty: Got it thanks very much for the color.
Steve Byrne: Our next question comes from Steve Byrne from Bank of America.
Steve Byrne: Yes. Thank you.
Steve Byrne: In your remarks.
Speaker Change: To about the scoping in Louisiana I was just wondering if one potential scenario would be.
Steve Byrne: To just focus on hydrogen.
And you have the.
Steve Byrne: Our largest pipeline network in the Gulf Coast.
Steve Byrne: Why pursue ammonia at all dropped the ammonia reactor dropped a deepwater port and just focus on hydrogen and reduce the capex is that a is that a scenario that you would consider.
Steve Byrne: That's exactly the scenario. We are we are trying to explain to you we were talking about not only having someone else executing the ammonia loop and owning the ammonia loop, but also.
Steve Byrne: You know another company or the same company, taking care of the <unk> sequestration, which is not a core business for us.
Steve Byrne: So the objective C front.
Steve Byrne: The total cost of this project, let's say, it's $8 billion with the full scope our objective is to.
Steve Byrne: Bringing the total capex doubtful range of $5 billion to $6 billion with a firm offtake agreement for the hydrogen and nitrogen that's that's the objective.
Steve Byrne: We have given ourselves until the end of the year to work on this on this.
Steve Byrne: Options and.
Steve Byrne:
Steve Byrne: Relatively optimistic on that I think we have.
Steve Byrne: Good location, we have probably the best.
Steve Byrne: <unk> part of the space in the in the in the region. So I think we have the right components.
Steve Byrne: Our our total capex.
Steve Byrne: In line or even a little better than other products that were announced in the region. When you adjust for the for this size of the project.
Steve Byrne: Okay. Thank you for that.
Steve Byrne: A question about my own.
Steve Byrne: $600 a ton in a reasonable estimate for the green ammonia that you will be taking possession from the joint venture.
Steve Byrne: Curious to hear your view on oil.
Speaker Change: Your proposition to potential customers at $600 a ton.
Steve Byrne: Yes, as you can imagine.
Speaker Change: Talk about specific numbers on our agreements I can tell you that from the outside I was very concerned with this project because we have these long term take or pay commitment to buy the entire production of ammonia I have seen several reports from sell side analysts with estimates of the price.
Speaker Change: I can tell you that I was positively surprised with the numbers that I found and they are in the in the lower part of the range of <unk>.
Speaker Change: The estimates that I've seen before.
Speaker Change: I would say that.
Speaker Change: In addition to that.
Speaker Change: The one positive point for our new home project is that since we own the power generation, both solar and wind.
Speaker Change: And there is no other variable costs.
Speaker Change: The price that we're going to have from the joint venture is going to be basically fixed for the life of the agreement we have with small adjustment for O&M, but that but that would be it. So.
Speaker Change: I think in the long term, it's a very favorable outlook for us in the in the.
Speaker Change: In the market.
Speaker Change: In the in the short term 20 722.
Speaker Change: 2013 to the regulations in Europe are more well developed.
Speaker Change: Uh huh.
Speaker Change: We're going to have a little less contribution but I'm relatively.
Speaker Change: We're optimistic that the project will contribute to us.
Speaker Change: Starting in the end.
Speaker Change: When we start up the plant in 2027.
Speaker Change: Okay. Good thank you.
Thank you.
Speaker Change: And our next question is going to come from David Begleiter from Deutsche Bank. Please go ahead.
Speaker Change: Thank you good morning, Eduardo first on the head count reduction.
Speaker Change: The initial savings from the first tranche of a roughly ETR people being let go and what's the cadence of those savings.
Speaker Change: You know we started this process before so you know even in 'twenty three 'twenty four so I'll I'll, let Melissa explained the numbers, but we are.
Speaker Change: Very advanced on the on the 'twenty three 'twenty four and I think we are already.
Speaker Change: <unk> to 50% or more than that on the on the new.
Melissa: Reductions of 800 people that Melissa do you have.
Melissa: Additional comments on that sure yes, thank you Eduardo.
Speaker Change: Since FY2023 we've taken action on around 2400 individuals and that's about 10% of the organization.
Speaker Change: This will largely be complete the FY 'twenty, three and 'twenty four action by the end of this fiscal year and we will see the FY 'twenty five actions continue through FY 'twenty six we should see about $25 million in savings for this fiscal year, So CHF 25 actions and.
Speaker Change: The remaining will be seen and 26, we're looking for a run rate of around 100 million for the FY 'twenty five actions.
Alberta: Thank you Eduardo Alberta again in six months time, the project has basically doubled in cost.
Speaker Change: Then pushed out by two years so.
Speaker Change: When I'm still not clear when the company became aware of this and what's been the reaction of your customer to this delay.
Speaker Change: Yeah, I hope you understand that.
Speaker Change: For 90 days and you know I.
Speaker Change: I cannot give you that that information precisely.
Speaker Change: It's it's something that we.
Speaker Change: We'll probably going to need to take a look and I can make some comments and private to you but.
Speaker Change: It's definitely not something that I can comedy.
Speaker Change: Understood. Thank you.
Speaker Change: And our next question comes from Jeff.
Scott from JP Morgan.
Speaker Change: Yes.
Speaker Change: Thanks very much.
Speaker Change: Can you talk about what the point of the remaining Louisiana project is for air products that is.
Speaker Change: How much hydrogen you need and why you need it.
Speaker Change: And why you want to go forward with that part of the project.
Speaker Change: Uh huh.
Jeffrey: Yeah, Jeffrey if I, if I understand your question as well.
Jeffrey: Total project if you go back and look at the numbers if I'm not wrong is something like 750 million cubic.
Jeffrey: Cubic feet a day of hydrogen.
Jeffrey: And.
Speaker Change: As you as you know, we announced two ammonia trains and so the ammonia production is stating about 75% to 80% of the or maybe more of a type of about 80% to 85% of the total hydrogen production. So the balance that we have.
Jeffrey: Really the equivalent of one somewhat right.
Jeffrey: Yes.
Jeffrey: But what what size SME, so that that's where we have today in the in the scope.
Jeffrey: And.
Jeffrey: We know the size of our all our sites.
Jeffrey: The size of our system.
Jeffrey: This is a.
Jeffrey: Relatively.
Jeffrey: <unk> part of our our our total production in the Gulf Coast, and we believe we can absorb that.
Jeffrey: Normal business.
Speaker Change: Thank you for that and for Melissa Yes.
Jeffrey: Cost savings from.
Employee reductions are.
Jeffrey: Something like $100 million going forward.
Jeffrey: Does that mean that.
Jeffrey: These employees are the costs of these employees were mainly capitalized.
Jeffrey: And so the income statement effects of.
Jeffrey: Of getting to a more normal employee level.
Jeffrey: Our smaller.
Jeffrey: Yeah, Great question, Jeff So the amount that I'm, giving you that $100 million associated to the FY 'twenty five program. That's the P&L impact. So there are in fact engineers that are capitalized on top of that $100 million of savings around $40 million I'm an engineer.
Jeffrey: Bring resources impact that you don't see flow down to the bottom line, but obviously, we will have a reduction in the capital cost.
Speaker Change: Okay, great. Thank you so much.
Patrick Cunningham: Our next question comes from Patrick Cunningham from Citi.
Speaker Change: Yes.
Patrick Cunningham: Hi, good morning, and welcome Eduardo.
Speaker Change: Neil you are now delaying the downstream investment until you get regulatory clarity what does that mean for the agreement with hotel and who are the logical customers for that green ammonia and just your general view on the relative premium you would get paid there.
Speaker Change: Yeah, our our agreement for you now.
Speaker Change: Uh huh.
Speaker Change: Green hydrogen in Europe, the agreement that we announced.
Speaker Change: Few months ago, when David was making reference to.
Speaker Change: It is really for 2013, right and the and the agreement as you know the customer has several refineries across Europe and as part of the agreement and what Youre basically doing today's engineering work and permitting work.
Speaker Change: And trying to wait to see how each country will transpose. The EU regulations. So together, we can decide which refinery would make more sense.
Speaker Change: For us to supply the green hydrogen. So this is the work we're going to be doing between now and 2027, I would say and by 2027 and we hope to have a definition.
Speaker Change: Are you able to understand exactly the regulations and what makes sense for for both our products and the customer in terms of installing this.
Speaker Change: As hydrogen.
Speaker Change: Ammonia associated as for hydrogen production.
Speaker Change: In terms of why do we do starting 'twenty 'twenty seven it's part of what I have been working on.
Speaker Change: We hope to be able to announce a.
Speaker Change: Firm plans on how we're going to commercialize is ammonia again F O B, Saudi Arabia, we don't intend to be a long term marketers of ammonia to be in the ammonia business. So we're we're looking and working with potential partners and I hope to be able to.
Speaker Change:
Speaker Change: Have something firm that I can.
Speaker Change: Sure with with you all by the end of 2026.
Speaker Change: I am excited by the end of 2025.
Speaker Change: Understood very helpful.
Speaker Change: I'm curious as you go and meet with leaders in the different countries whats your sense for the opportunity on productivity and price optimization for the core business how.
Speaker Change: How meaningful will those levers be and where do you see the biggest opportunities on price.
Speaker Change: Yeah, Hi, I I would say that you know.
Coming from the outside I.
Speaker Change: Going back in time, I tell people that I used to come to Allentown 2025 years ago to work in projects in the end.
Speaker Change: <unk> is a development people training people and culturally they were not very different from what it was used with so I wasn't expecting very difference.
Speaker Change: Different cultures.
Speaker Change: When I when I came here I don't know exactly what to expect on the operating side of the day to day, but I'm I'm I'm.
Speaker Change: Pleasantly surprised.
Speaker Change: Thank you.
Speaker Change: You know the local business performed well I think they have a lot of attention to detail. They have been working very hard on price and productivity for the last few years.
Speaker Change: It doesn't mean, it's perfect. You know there is always an opportunity you see that we talk about our our base business today running at 24%.
Speaker Change: Operating profit margin and by the way you want to see any references to EBITDA in any of our presentations going forward. So we're going to look at it really the operating profit from our regions.
Speaker Change: Keep the equity.
Speaker Change: <unk> outside of that although we have fantastic business on some of these joint ventures, but we're going to focus on our business and I don't think there is any reason for us to not have the same level of performance of the the.
Speaker Change: The best in class players here. So we're going to work on that I believe there is an opportunity for us to raise our <unk>.
Speaker Change: Operating margins too.
Speaker Change: The level of 30% as we have in <unk>.
Speaker Change: Roadmap slide and.
Speaker Change: It's basically blocking and tackling and reviewing every business fantastic every detail and.
Speaker Change: And I think the business already had that DNA and we would I'm just trying to expedite that and.
Speaker Change: And make sure that everyone behaves like a business owner and they own their own P&L and.
Speaker Change: We can accomplish that as this increase in operating profit margin.
Speaker Change: And our next question from.
Mike Lee: And our next question go ahead, Mike Lee from Barclays.
Mike Lee: Great. Thanks, good morning.
Mike Lee: First question I was hoping you could provide a bit more color on how the team worked through deciding which projects should be canceled versus which projects were deemed underperforming yet. Your go forward such as why the green hydrogen project in Arizona moves forward versus say the Green hydrogen project in New York does not.
Mike Lee: Yes. It is.
Mike Lee: Just a cash flow decision so.
Mike Lee: You'll have to two factors one any.
Mike Lee: Commercial commitments that you have with customers.
Mike Lee: That very seriously so we need to finish.
Mike Lee: The contractual commitment that we have and then if you have the freedom of making a decision like that then you just look at your cash flow.
Mike Lee: Look at why do you need to spend to finish the project from where you are and what the cash flow will be after the discount cash flow will be after you you start to plan. So in the case of Arizona, we'll basically 90% done.
Mike Lee: Our 95% of the Capex was already spanned a committed so.
Speaker Change: It was not.
Speaker Change: The best thing for the shareholders was to finish the project and get whatever cash flow will get out of this project and in the case of <unk>.
Speaker Change: I'm missing a in New York, We we were in the you know at the beginning of the project, we still had to spend another $400 million finished and based on the perspective that you have for the mobility market you didn't make sense for us to continue on a cash basis.
Speaker Change: Great. That's Super helpful. And then second I just was hoping you could talk more about the cash flow progression you expect over the next one to two years I guess when you talk about net cash flow is that after funding the dividend and how do you think about when it is appropriate to begin share repurchases as you alluded to in the slides.
Speaker Change: Yes, I think I you know you are talking about being neutral, including everything, but I'll I'll I'll, let Melissa give you more details go handlers sure. Thanks Eduardo.
Melissa: So when we look at cash flow positive. We believe we can be cash flow positive as early as next year.
Melissa: Obviously is of course dependent on our web curves for the execution of our projects and several other factors, but as of right. Now we are projecting to be cash flow positive next year. Additionally, we are forecasting to be net cash flow positive through 2028, and then accelerating the significant pause.
Melissa: It is thereafter, when I think about share repurchase.
Melissa: I take into consideration a number of things we need to think about NSS.
Melissa: Our our balance sheet, we need to de lever and as we as we decrease our capital spend.
Melissa: Of course part of that plan as our balance sheet does get into a position to do so and economically. They can we will then put in our share buyback program at that point in time.
Speaker Change: Great. Thank you.
Duffy Fischer: And our next question comes from Duffy Fischer from Goldman Sachs.
Duffy Fischer: Yes, good morning.
Duffy Fischer: Helium for you guys has been a pretty volatile earnings contributor over the last five years kind of ran up post the war and then rolled off hard.
Duffy Fischer: And it acts kind of like a commodity on supply demand to some degree. So can you help size the earnings contribution from helium today and basically how you see that contribution progressing kind of out through year 2006 to 29 period.
Duffy Fischer: Yeah Duffy.
Duffy Fischer: It's.
Speaker Change: Hayden is a is a different product as you know we you know we have.
Duffy Fischer: Suppliers and customers in the.
Duffy Fischer: And it's a more cyclical business and it.
Duffy Fischer: It became even more cyclical with the when the BLM basically ended the programming.
Duffy Fischer: They were basically the balance of the volume in <unk> and that went away.
Duffy Fischer: Air products, we took measures to true.
Duffy Fischer: Protect ourselves so we have this big Kevin that we.
Duffy Fischer: Commission in Texas.
Duffy Fischer: And and we use that to basically absorb the cyclicality volumes right.
No we don't have hidden as a segment in our numbers. So I have a very difficult time give you more specific numbers on that but I can tell you that.
Duffy Fischer: Compare to the us pre COVID-19 that when we had the March shortage and the prices went up.
Duffy Fischer: The team at Air products did a good very good job.
Duffy Fischer: Pushing not taken advantage of that they really are.
Duffy Fischer: Increase the operating profit very significantly and now that the market is long because of all the Russian project product that you see coming in in Asia.
Duffy Fischer: We have been managing that using our cavern and and although the numbers year over year. The magnitude for US is maybe its a said was a very significant impact and as you know air products has a very large proven a much larger percent of the saves and guidant and their larger competitors.
Duffy Fischer: But today no our operating come from Eden is still significantly higher than it was in the pre COVID-19. So you'd went up very significantly is coming down.
Duffy Fischer: But it's still better than let's.
Duffy Fischer: Let's say the period between 15 and 18.
Duffy Fischer: We expect that 426, and 27 that will continue to see some headwinds in price.
Duffy Fischer: We have a more volume because of our Catherine So we expect to manage that and reduce these headwinds as much as we can but.
Duffy Fischer: All of them is a information that melisa was able to provide.
Speaker Change: For this year I'm afraid that we cannot disclose more than that.
Speaker Change: Fair enough and then I just wanted to go back if I could and just to understand so in the early years before you have the offtake agreement, let's say in 2030 and hopefully some other committed by then when Youre selling just the ammonia youre assumption is it your offtake price for.
Speaker Change: The product will be meaningfully lower than what youll be able to sell it out so you'll be able to generate significant free positive cash flow and EBITDA from the asset or from the offtake agreement.
Speaker Change: Yeah, I don't know your definition of a meaningfully but it will be.
Speaker Change: Our forecast is that we will be able starting 2027 to be positive and to increase that number as the years go by.
Speaker Change: We were trying to be cautious here on on on why do we can do we are still negotiating a lot of these offtake agreements and but our our expectation is that.
Speaker Change: We're gonna be.
Speaker Change: Let's say.
Speaker Change: We're gonna be start to be slightly positive in the in 2007 and an increase from there.
Speaker Change:
Speaker Change: But again, the we need to do that because.
Speaker Change: As you can imagine if we have a very favorable price for the ammonia as I explain it means that the joint venture doesn't have a very high returns. So we need to get some margin to basically a remunerate our shareholders for the investment that we made at the joint venture.
Speaker Change: Terrific. Thank you guys.
Speaker Change: Thank you.
Speaker Change: And our next question is going to come from Jeff Spector at UBS. Please go ahead.
Jeff Spector: Yeah, Hi, good morning, first a quick follow up for Melissa just in answer to Mike's comments around free cash flow can you just confirm your 26 comments is that positive free cash flow after the dividend here before the dividend.
Speaker Change: So that's positive free cash flow after the dividend.
Speaker Change: Perfect. Thanks, and then for Eduardo I wanted to ask around your general approach to guidance here. So obviously air products versus peers has had a bit of a different approach in terms of what macro assumptions are baked in.
Speaker Change: So as you look at what's here for 2025. The next couple of quarters, what's your assumptions baked in on a macro perspective, and then more medium term when you say high single digit EPS growth how much of that again are products in your control cost savings, etc projects versus macro assumptions. Thanks.
Speaker Change: Well I I would say that we expect.
Speaker Change: Not a lot of help going forward from the economy, you know for the next two quarters.
Speaker Change: The currency, we expect to be about where we are today.
Speaker Change: The tariff issue as Melissa said is it's a little bit complicated now we don't have a lot of Trey.
Speaker Change: Great.
Speaker Change: In our day to day business. The main issue here is on the capital side and as you can imagine for our projects when we.
Speaker Change: We don't buy things off the shelf, we basically have to order equipment and modules and that kind of stuff and they normally it takes six months to eight months to be to be manufactured by our suppliers and I have to say that it's a it's a very difficult environment to predict right now.
Speaker Change: Considering that you won't be.
Speaker Change: Pay the tariffs once you the equipment is imported so.
Speaker Change: We are having.
Speaker Change: As every well every.
Speaker Change: One else you know a little difficult.
Speaker Change: Try to forecast what you do in our projects in.
Speaker Change: Going back to our customers that we are in active negotiations.
Speaker Change: Is there any alternatives.
Speaker Change: Trying to share the risk somehow.
Speaker Change: This is affecting much more our our projects our business development in our day to day business.
Speaker Change: Okay. Thank you.
Speaker Change: Once again, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Our next question is going to come from Mike Harrison from Seaport Research partners. Please go ahead.
Hi, good morning.
Speaker Change: You talked about the growth that growth Capex of 1 billion and a half dollars a year.
Speaker Change: Core industrial gas business I'm, just curious is that kind of just a placeholder in the actual spend is going to depend on the number of available projects that you guys find a meet return metrics maybe.
Maybe if you could talk.
Speaker Change: A little bit more about your approach to determining what projects you're going to pursue and what you will pass on.
Speaker Change: Yeah of course, it's a it's a it's just an estimate based on you know why do we have been doing for the for the last few years and they're in the one five is more like why do we envision for for 2029% to 30. So if you look at the slide you're going to see that.
Speaker Change: For the next few years, we're going to have a little less than that its our expectation, but again two things.
Speaker Change: To have first we need to to be able to fit that in our our capital.
Speaker Change: Capital allocation principle, which is being net cash neutral, including dividends as maybe so said from 26 to 28, and then secondly, you know they need to satisfy all of our our return expectations right Alright, I worked in this business for a long time and I can tell you that the most difficult thing when you talk about new projects.
Speaker Change: As you say no right, it's very easy to say, yes.
Speaker Change: But you have to to to basically raise the.
Speaker Change: To be very firm about your hurdle rates about the returns expectations and if you project Kim can deliver that.
Speaker Change: Right, if the project cannot deliver that.
Speaker Change: After you stress all the assumptions and you need to pass and that will be the philosophy.
Speaker Change: Alright. Thank you for that and then just related to the uncertainty around tariffs a lot of companies that we talk to are saying that they're seeing some slowing in manufacturing activity and pauses in decision, making I'm just curious your merchant Lox Lin Lar.
Speaker Change: Business, probably gives you some pretty real time line of sight into what's going on with your manufacturing customers can you talk a little bit about what you've been seeing in the March and April timeframe.
Speaker Change: Cross your three key regions from a merchant demand perspective. Thank you.
Mike: Thank you, Mike Yeah I I.
Speaker Change: I'm asking the same question, it's a it's been a little difficult to get a good answer on that.
Speaker Change: In fact, I think we had like a.
Speaker Change: A slight uptick in manufacturing before the tariffs came on line because people are trying to do.
Speaker Change: To.
Speaker Change: Create inventory or was something else.
Speaker Change: And now I expect that to be a little negative.
Speaker Change: Really the countries that we are more concerned there'll be more affected our U S and China.
Speaker Change: And.
Speaker Change: I.
Speaker Change: At this point is very hard for me to give you a good estimate of what's going on there.
Speaker Change: And our next question is going to come from Chris Parkinson from Wolfe Research. Please go ahead.
Chris Parkinson: Thank you so much just wanted to turn back to your commentary about Alberta in Rotterdam understanding some of the commentary on the underperformance in the cost overruns, but is this.
Chris Parkinson: You still have some decent customers associated with those projects is this commentary about those specific projects and how are they were managed or is it more of a larger indictment on your view of blue hydrogen and how that fits into your intermediate to long term strategy. Thank you.
Chris Parkinson: Yeah.
Chris Parkinson: No I I would say that you know our our contracts and our customers. They have been has S as expected.
Chris Parkinson: As I said quickly during the remarks some of these projects they even have a or they had some additional volume that we need to play so far the customers. We still believe we can do that.
Chris Parkinson: That's been positive.
Chris Parkinson: We have some other projects like in Alberta that we have a you know a liquid hydrogen plant associated with the project that was supposed to produce a liquid hydrogen for the.
Chris Parkinson: For the local market for the mobility local market.
Chris Parkinson: Part of the project on the liquefied is basically done and all that so we're going to go ahead with that because it's going to be there, but we expect a very slow development on that so the the overall, let's say underperformance of the projects.
Chris Parkinson: Related to.
Chris Parkinson: Our expected financials are basically related to the to the overrun in capex into some additional volumes for the mobility market everything else I think it's.
Chris Parkinson: We expect to perform as is expected in the project.
Chris Parkinson: Got it and just a quick dive into a little bit more details on your comment about 2026 free cash flow post the dividends yes.
Chris Parkinson: You both just mentioned this but just.
Chris Parkinson: Just really hit the nail here one is what further assumptions, where we need to make in terms of like cash flow conversion of what's specifically in your control to reach those levels.
Chris Parkinson: And I apologize I'm, just kind of like 10 questions on it. So I just wanted to be absolutely certain that we have this correct.
Chris Parkinson: Yes.
Chris Parkinson: At the end of the day look at all of our projects, our Capex and our cash generation. It's all about how much money, we're going to spend in Louisiana. So it's all about what how.
Chris Parkinson: We're gonna be able to derisk that project and and manage that.
Chris Parkinson: The cash flow for that project in 2020 six 'twenty seven and.
Chris Parkinson: And maybe maybe a little bit of 28 to make sure that we are cash neutral on this on the spirit. So that's the main point so.
Chris Parkinson: We're going to solve the equation to be cash neutral, we're not going to increase our that that's our that's our spear.
Chris Parkinson: Spirit here and and the the lever that we have is really the Spanish in Duluth.
Chris Parkinson: Louisiana project.
Speaker Change: Thank you very much.
Speaker Change: And our next question is going to come from Kevin Mccarthy vertical research partners. Please go ahead.
Speaker Change: Yes, Thank you and good morning, Ed.
Speaker Change: Eduardo coming back to your Blue hydrogen project in Louisiana I was wondering if you can provide an update on your business discussions for that project. For example, irrespective of the scope changes that you talked about I think air products is pursuing partnerships for <unk>.
Speaker Change: Australia, and then also as I understood It financial partners with an eye toward project financings. So how are those discussions going and with regard to the new timeline of late 'twenty eight or possibly 2029.
Speaker Change: What is the rate limiting step as it no longer receipt of the class six permit and it's shifted to the business side sorting out.
Speaker Change: Some of the scope and financial issues.
Speaker Change: That you outlined.
Speaker Change: No. There is no there is no.
Speaker Change: Issues with the permits I think we are basically complete.
Speaker Change: On the on the farmers for the class six well.
Speaker Change: The issue really is how we progress in our discussions.
Speaker Change: Both for the COPD sequestration and the ammonia loop.
Speaker Change: And.
Speaker Change: How long it will take you know again, we've given ourselves until the end of this year through to get this concluded.
Speaker Change:
Speaker Change: The final schedule will depend on how fast we can we can close these deals.
Speaker Change: In terms of a.
Speaker Change: Project financing for the remaining scope of the project, which is the the hydrogen and nitrogen plan.
Speaker Change: It's something that we may consider.
Speaker Change: But it's not you know even even practical to start talking about that before.
Speaker Change: We can have the project completed the DNA aided and and we have partners for the ammonia and <unk>.
Speaker Change: The future so to make it clear I I'm not.
Speaker Change: You know a big fan of project Finance I think it is expensive I think is something that.
Speaker Change: We should do.
Speaker Change: Only in cases, where we have joint ventures or or or all the cases, but it has it has for very large projects like this one like like neon it has.
Speaker Change: Some merit and are in the case of the armed frankly, even helped us to keep the project.
Speaker Change: You know very well.
Speaker Change: Uh huh.
Speaker Change: Containing the box. So we do not have the same issues that we have in other places in terms of overruns and so forth.
Speaker Change: I think part of that is a disciplined at it.
Speaker Change: <unk> came with the project finance, so we're going to look for that in our we may look for that depending on our cash flow and depending on the offers that we have but that's not the priority right now the priority.
Speaker Change: <unk> in the model.
Speaker Change: I appreciate that and then secondly.
Speaker Change: Thank you for the updated comments on your infrastructure build out in Europe, just wanted to clarify, though what what the status.
Speaker Change: Of that build out is in the U K, Netherlands, and Germany at one point air products was talking about $2 billion.
Speaker Change: For various import terminals in those countries can you comment on you know how much capital has been sunk and how much you're avoiding and what what you would need to see to resume.
Speaker Change: Uh huh.
Speaker Change: We.
Speaker Change: I would say that we basically pausing all activity. There we are just doing the <unk>.
Speaker Change: Permitting and a little bit of engineering on all displaces until we understand exactly what the regulations will be for each country.
Speaker Change: So we have some costs.
Speaker Change: Costs that that.
Speaker Change: Was some money that we spend.
Speaker Change: That I think it's part of.
Speaker Change: The the overall.
Speaker Change: Charge that Melissa talk but it's not very significant compared to just $2 billion and again, we will not going to spend anywhere close to this money in going forward.
Speaker Change: I can't tell you right now.
Speaker Change: When or we're going to spend this money until we get clarity from the regulations from each country.
Speaker Change: Understood. Thank you so much.
Speaker Change: And our next question is going to come from Laurence Alexander from Jefferies.
Laurence Alexander: Good morning, just to come back to the merchant and the non on site businesses can you just characterize.
Laurence Alexander: What return hurdles, you're using and how they compare to what has been used by air products over the last I don't know 10 15 years and.
Laurence Alexander: Have you significantly changed in any way the return hurdle metric and secondly, within the footprint how much of the region by region and I mean within like the local operations how much of the footprint is actually.
Laurence Alexander: And highly concentrated markets and.
Laurence Alexander: And how much is in markets, where you wish there was.
Laurence Alexander: You need a significant increase in density.
Laurence Alexander: By yourself or competitors to improve return on capital on a regional basis.
Laurence Alexander: Okay.
Laurence Alexander: I'll try to answer I don't know if I understood the question completely but the merchant business.
Laurence Alexander: For US you know most of our margin.
Laurence Alexander: Our business comes from Big bag from from large on site plant. So basically they are included on the calculations that we have for return on our projects.
Laurence Alexander: We you know the hurdle rate is is something that we don't talk publicly.
Laurence Alexander: I think it's fair to say double digits.
Laurence Alexander: And on top of that and that.
Laurence Alexander: The any any additional risks that we have country risk customer risk regulatory risk, we need to add on top of our standard or the way that we use for let's say the U S. So so that's that's all I can say on that in terms of.
Laurence Alexander: Density.
Laurence Alexander: You know all of our business.
Laurence Alexander: It's.
Laurence Alexander: We have we have good.
Laurence Alexander: Presence in most of the geographies, where we participate we don't participate in a lot of geographies. So if.
Laurence Alexander: If you go for example in Asia, you're going to see that.
Laurence Alexander: 90% of our business is in three countries and China.
Laurence Alexander: Korea and Taiwan.
Laurence Alexander: And in the business in U S and in Europe, we.
Laurence Alexander: We have two very large competitors that are based there. So it's a little more complicated, but where we operate we have good density and and I don't think we have any.
Laurence Alexander: I was going to have a place here and there that we'd like to have more but it's.
Laurence Alexander: It's not it's not a main issue for us today.
Speaker Change: Thank you.
Speaker Change: And our next call comes from Laurence <unk> from BNP.
Speaker Change: Yes, good morning.
Speaker Change: You mentioned when you talked about the mountain improvements.
Speaker Change: Head Count reduction I was wondering if you could talk a little bit more about what youre going to do with your organization.
Speaker Change: In center utilization as well as management structure et cetera. So for instance are you keeping the 12 golds management that was announced last summer. Thank you.
Speaker Change: Thank you well I say, yeah, it's a it's a you know.
Speaker Change: I know I know in Europe. The term management board has a very different meaning that it has in a in a in America I was surprised that as well.
Speaker Change: It doesn't have a legal.
Speaker Change: Legal meaning that they has in Europe.
Speaker Change: I need to think a little bit about that how we how we call the debt in the organization.
To avoid.
Speaker Change: Complications in people, especially people in Europe looking at this and thinking it's like that.
Speaker Change: Like our management Board in Europe, which is which is not so.
Speaker Change: You know overall I I.
Speaker Change: I have to say that the message that we have here is not an easy message for our employees I think our people are smart people. They understand that if today, we're expanding $4 billion in capital above the maintenance capital projects.
Speaker Change: We're going to go down to watch one five of course, we're going to need to reduce.
Speaker Change: And and but I think that.
Speaker Change: In general.
Speaker Change: I'm pleased that I talk.
Speaker Change: Two in our in our products that have 2030 years in the company. They they understand that we are in a in a in a row.
Speaker Change: <unk> patch here and they in general support.
Speaker Change: The measures and they understand that we need to do some of these movements in order to have the company through to bring back the strength of the company and avoid even folks further cuts.
Speaker Change: Cuts in the future. So so overall I think.
Speaker Change: I expect that to be well understood by the employees and in terms of the management of the company.
Speaker Change: I am still working with the original group that we have here of course, we're going to have changes here and there like you have in any business, but there is no drastic changes or no.
Speaker Change: Hum.
Speaker Change: You can restructure is to announce.
Speaker Change: Thank you and on the capital allocation side.
Speaker Change: From the <unk>, which I assume you hope to get some proceeds for and are you considering any disposal all of certain business lines all of certain countries.
Speaker Change: Oh, you're talking about divesting of our countries in operations.
Speaker Change: Yeah, Yeah, yeah yeah.
Speaker Change: Yeah, we we.
Speaker Change: No.
Speaker Change: No.
Speaker Change: The short answer would be no I would say that Oh, we were.
Speaker Change: Industrial gas company.
Speaker Change: Guests business and wherever there is a business, where we're going to try to be there that doesn't mean that if you have a very small position in some geographies that doesn't make it.
Speaker Change: A lot of sense for you to be there that youre not going to consider that.
Speaker Change: But nothing you know nothing major and nothing that.
Speaker Change: Like I've seen some considerations before.
Speaker Change: In front of your products and in the press.
Speaker Change: South Koreans things like that we we definitely not gonna hexion any dispositions in that products.
Speaker Change: Alright, thank you.
Speaker Change: Thank you.
Mike Sison: Our next question comes from Mike Sison from Wells Fargo.
Mike Sison: Hey, Good morning, Eduardo one quick question on the $5 billion of underperforming assets air products used to talk about generating roughly 15% on every dollar spend for EBITDA and about 10%.
Mike Sison: On every dollar for EBIT imply that depreciation is around 5% is that what you think the <unk> will generate around a 5% or mid single digit return and then it's.
Mike Sison: So that formula.
Mike Sison: You know maybe different than what you think what do you what do you think.
Mike Sison: The return should be on every capital that are part expands on future projects. Thank you.
Okay, Oh, yeah.
Mike Sison: Yeah, I understand the math I think is a very simplified version you know 5% means that he had depreciated 20 years in some cases, we do some cases, we do a shorter than that we have I think we have an accounting obligations to depreciate.
Mike Sison: According to the life of the agreement so it.
Mike Sison: It will be what it will be in each case.
Mike Sison: And again I I, it's one of these when we when we compete for these projects.
Mike Sison: It's really a tough fight and Oh, it's about the Capex that you have the efficiency that you have in your plants, the O&M costs and it's about your.
Mike Sison: Expected IRR. So obviously you know we try to avoid make comments about that publicly.
Mike Sison: We will not going to be in the in the range of.
Mike Sison: R O C that we Wanna be if every project comes at you know, let's say, 10% IRR, So we need projects to come higher than that.
Mike Sison: And but that's all I can say at this point, we will not talk.
Mike Sison: Talk about publicly what our hurdle rates are because that's a sensitive information from a competitive point of view.
Mike Sison: Thank you.
Speaker Change: We will now take our last question from John Roberts from Mizuho. Please go ahead.
Mike Sison: Thank you.
Mike Sison: Welcome as well do you expect any material recovery on what's already been spent in Louisiana for Ccs in ammonia.
Mike Sison: And with that recovery likely be rolled into a favorable contract for Ccs or a hydrogen offtake agreement.
Mike Sison:
Mike Sison: We are negotiating that we cannot make a lot of comments on that I think of course.
Mike Sison: In the ammonia side that makes it makes all the sense in the war in the futures side are there are some other options that we may look at.
Mike Sison: But certainly the.
Mike Sison: The sites that we have and the work we've done and it seemed to society. It has value and and he can be monetize within this project or as a standalone operation. So.
Mike Sison: Think that's that's our goal.
Mike Sison: Both cases.
Mike Sison: Thank you.
Mike Sison: Okay.
Mike Sison: Okay.
Mike Sison: And this will conclude our question and answer session I will turn it back over to Ed Eduardo.
Mike Sison: Okay.
Ed Eduardo: Our remarks.
Ed Eduardo: Thank you. Thank you for attending the call and I have a safe day and I look forward to see you next quarter right.
Ed Eduardo: Okay.
Ed Eduardo: And this concludes today's call. Thank you for your participation you may now disconnect.
Ed Eduardo: [music].