Air Products and Chemicals Inc at BMO Capital Markets Growth & ESG Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : No, that sounds great. That sounds great, Seifi. So look, as you know, most of the chemical investors out there are very familiar with the Air Products program or platform. But admittedly, we have a broader group of ESG analysts and portfolio managers on that may not be quite as familiar with Air Products and may not have necessarily been updated on a bunch of the calls that you've had in the last few months or quarters. So maybe we can start with the NEOM project that you announced a few months back. Can you hit us some of the high points on this side just to familiarize investors with the project and why it's so exciting at this point?

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. Thanks very much, Seifi. So I think that helps to put everybody on the -- at least somewhat up to speed on the NEOM project. I guess one question that we got submitted in through the app, and we'll be trying to weave these in throughout the presentation, is, clean hydrogen and the technology for it has been around for a while now. What kind of got us to this tipping point where now it makes sense and it makes sense for Air Products to really make such a large investment in this area? Was it around demand that you were seeing from the regulators and the actual demand for the product? Was it the technology emerging? Was it the cost in terms of renewable energy? Like what was it that got you comfortable that this was the right time and the right type of project to really step in?

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. No, that makes sense. So Seifi, electrolysis technologies have been out there for a while. And admittedly, they're not perfect. They're continuing to kind of improve. Ammonia production has been out there as well. So it seems like you brought a lot of these together in order to have kind of a fulsome solution. But I guess how do you see the competitive environment when it comes to green hydrogen playing out? Do you think we'll see other large-scale projects coming online or similar to the NEOM-type project? Or will they be smaller regional ones? Or is it a little bit early to tell? Or maybe it goes both ways? Maybe you get a little bit of each. How should we be thinking about that?

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. No, it makes sense. So we've gotten a couple of questions that have come in around the cost side. So maybe I can raise those. The first one is around, can you give us your thoughts in terms of the economics and the efficiency of converting that green hydrogen to ammonia and then back? Why did you choose that as an avenue to bring green hydrogen to the markets? Can you speak to that a bit? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 08, 2020 / 1:00PM, APD.N - Air Products and Chemicals Inc at BMO Capital Markets Growth & ESG Conference (Virtual)

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. No, it makes sense. And I assume at this point, the NEOM project and the costs aren't necessarily competitive with gray hydrogen. But at the same time, we are going to continue to see the costs gradually push lower as the electrolysis technology improves and the conversion improves. Is that the right way to think about it at this point, where you do need at least a little bit of a premium for green hydrogen? But one, that customers are willing to pay for that because they do see the importance of it. And two, over time, those costs will come down. Are we thinking about that right? That's one of the questions that we've gotten from another investor coming in.

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Sure.

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. No, makes sense.

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. No, makes sense. Maybe we can ask another question because we've gotten a lot of questions on this one. So your big NEOM project is in Saudi. And you made it known earlier this past quarter, actually, that one of your other projects in Saudi, the Jazan project hasn't made it to the finish line. There's some negotiation-related issues around the contract structure, et cetera. And you basically told the investors, "Look, don't put it into the backlog at this point." Is there any risk that the NEOM project doesn't make it to the finish line as well, just given the partnership is with the Saudis as well? I guess how should we be thinking about that?

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. And that was actually going to be my last question on the hydrogen front, is looking at it from another angle of the NEOM project, it does look solid. And you've got -- and I think one of the things that really made it attractive was you have -- Saudi has access to cheap renewable energy. However, we see other regions that have cheap, renewable energy costs as well, like the U.S., India, China. I mean, there's a whole host where renewable fuel costs or renewable energy price are actually pretty thin or pretty low and may be compelling. Have you've seen interest from other regions outside of Saudi where they're looking to partner with someone like Air Products in a project similar to NEOM? How should -- how should we be thinking about that?

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. Got it. No, that's great. Well, maybe, look, we've talked a lot about the green hydrogen side, maybe we can move on to some other topics of interest as well. We've gotten a handful of questions. So one of the things that is of note for Air Products is the sizable backlog of projects that you have. And in our opinion at least, it should, with the help of NEOM, toward the end of it, it should really help Air Products to see at least low double-digit growth in terms of EPS through the middle of the next decade. That said, there have been some questions of late on the resiliency of that backlog because we have seen the Jazan joint venture seemed to stall out a little bit. There's also been, I guess, some questions around the contract -- or excuse me, around Lu'an and that asset having been temporarily taken down. So I guess tied to that, we have a couple of questions. First of all, can you speak to the resiliency of the products that you currently have in your backlog and the confidence that Air Products will get a proper return on these and get them to the finish line? Can you give us some color and some comfort around that?

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. No, that's helpful. Maybe we can speak a little bit more directly to the Lu'an project because we've gotten a handful of questions on those. So you took the project -- or they took the product, I should say, down for some planned maintenance where you get paid kind of a modest reduction from your normal Fee. And now they've decided not to bring it back up right away. There's a lot of speculation as to what necessarily drove this, whether it was low oil prices or any economics or regional coal mergers that they're involved in, et cetera. Can you shed a little light as to what may be stalling their production time line?

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. No, that helps to put it a little bit more in perspective, especially with some of the merger-related issues, the change in management. I mean, it sounds like you guys really have built up a true partnership here. So I assume this asset being down isn't necessarily about, well, coal gasification doesn't work or anything like that. So one of the questions that we had is, does the dynamics that are happening in this project give you any pause about any of the other coal gasification projects in your backlog? I assume by your tone and by how you've explained the Lu'an situation, that it really doesn't. But maybe you can clarify that for investors.

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. And that actually brings up another question that we were going to be asking as well, which is, I know you said you don't want to announce projects before everything has been contractually locked up and that type of thing, which obviously makes sense. At the same time, at least in the foreign press, we've seen some projects with your name on them in Indonesia. And actually, it sounds like something may be taking place in India as well. I guess can you speak to at least whether you're in discussions with the governments around these types of projects? Is that something that's fair?

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. That makes sense and fair. It's certainly fair enough. So one -- I guess one other topic that's come up is, look, Jazan is a question mark at this point. It sounds like it's not something we should necessarily assume it's 100% gone, but certainly take it out of the backlog. If -- I guess, one, is that right? Is that a proper characterization around it? And I guess the second question would be, okay, this leaves you with a chunky $2.5 billion to put to work. I guess, where should we think about where that capital goes? Would you consider doing some sort of an accelerated buyback? I know in the past, you've kind of frowned on that because you have a lot of growth opportunities. But it would maybe fill some of the near-term void that Jazan has created. And if not, can you speak to the potential projects that you're looking at and working on right now?

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. Fair enough. And then -- so maybe to that, we've spoken a lot about the green hydrogen opportunity. We've spoken a lot about the gasification story, and it looks like there's still a lot of breath left there. Can you speak to some of the other opportunities that you see out there? You mentioned carbon capture. I guess, how should we be thinking about how your pipeline develops going forward around carbon capture? Is it going to be exclusively tied into blue hydrogen opportunities? Is it broader than that? I guess how should we be thinking about the opportunities and the growth that may be tied into the carbon capture side?

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. No, makes sense. And it seems like there's a lot of opportunities in all of them.

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : When you look at the blue ammonia front, is that something that you would take on, on your [own]? Or is that one where you may be more encouraged to handle the carbon sequestration side of it and maybe turn the actual ammonia production over to one of the more traditional players? Because you do have that ability now to take it on yourself, just given some of the alliances and agreements that you've put in place. But is that -- would that be your goal? Or would you rather, for the most part, handle the carbon sequestration part of it and leave the ammonia reduction to more traditional players in the ammonia space? How should we think about that?

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : Got it. Fair enough. You got to keep them all open for sure. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 08, 2020 / 1:00PM, APD.N - Air Products and Chemicals Inc at BMO Capital Markets Growth & ESG Conference (Virtual) So Seifi, we've spoken a lot about the green hydrogen side when it comes to ESG. But Air Products has a lot of other initiatives that they've been working on both internally and externally from an ESG perspective. Maybe as we wrap up this session, maybe you can speak to some of those, so -- just so that our ESG investors that are on can get a little bit more familiarized with some of the initiatives that you've really been pushing.

Question: John Patrick McNulty - BMO Capital Markets Equity Research - Analyst : I couldn't have come up with a better ending for our fireside chat. Look, Seifi, I want to thank you and the rest of the team for joining us today. We really appreciate your time and your thoughts. And we're going to let you go. I know you got a bunch of one-on-ones throughout the rest of the day and you also have business to conduct as well. But thank you so much for your time. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 08, 2020 / 1:00PM, APD.N - Air Products and Chemicals Inc at BMO Capital Markets Growth & ESG Conference (Virtual) And with that, I think we'll end the fireside chat now. Take care.