Air Products and Chemicals Inc Q4 2024 Earnings Call Transcript

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

Question: John McNulty - BMO Capital Markets - Analyst : Yeah. Good morning Selfi. Maybe I can start with something on the more immediate term. You've got some growth despite our difficult environment looking out to 2025 versus 2024. I guess can you help us to kind of basket that a bit? How much comes from price? How much comes from some of the new projects that you've been gradually ramping through '24? And how much comes from core growth?

Question: John McNulty - BMO Capital Markets - Analyst : Got it. Okay. No, that's helpful color. And then maybe I can just ask a question on Louisiana. So you kind of mentioned a bunch of things going on there. You're looking for offtake partners. You're also looking for equity partners and maybe even project financing. I guess, can you speak to what you see as the ideal equity partnership arrangement that you're kind of pursuing at this point, and how we should be thinking about that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 1:30PM, APD.N - Q4 2024 Air Products and Chemicals Inc Earnings Call

Question: John McNulty - BMO Capital Markets - Analyst : So it's less about coming up with a partner to take on some of the manufacturing or other certain parts of the project. It's more about coming up with a partner for the offtake. Is that, am I thinking about that right?

Question: John McNulty - BMO Capital Markets - Analyst : Got it. Okay. Thanks very much for the color.

Question: Jeff Zekauskas - JPMorgan Chase & Co. - Analyst : Thanks very much. I think that there are two prominent activists that seem to be involved in your products. And one of them published a large slide deck, maybe generally speaking, all about the de-risking of various projects. When you listen or look at the activist approach to Air Products, how do you reflect on it? Is it something that leads you to change your behavior in any way or not change your behavior? How do you assess the different new owners and your products and their ideas about the company?

Question: Jeff Zekauskas - JPMorgan Chase & Co. - Analyst : And then for my follow-up. I think on Slide 20, you said you expect to fully load NEOM before the on stream date. The commitment with Total, I think, is for 2030. So does this fully loading NEOM mean that it would be fully loaded for 2027? Or does it mean that it would be fully loaded for 2030? In other words, from the assessment of the profit contribution of NEOM, should one expect a full loading for 2027, if you're mechanically complete at the end of 2026?

Question: Jeff Zekauskas - JPMorgan Chase & Co. - Analyst : Okay, thank you so much.

Question: Patrick Cunningham - Citigroup Inc. - Analyst : Hi. Good morning. I wanted to, with the LNG out of the business, what should we expect in terms of the corporate line for 2025? I know you've taken significant productivity actions. So what might be the offset from cost reduction on the corporate line?

Question: Patrick Cunningham - Citigroup Inc. - Analyst : Understood. Very helpful. And could you provide a more general update on the World Energy project? What is holding up the permitting process? Is there anything about the relationship or project budget that we should know there?

Question: Patrick Cunningham - Citigroup Inc. - Analyst : Understood. Thank you so much.

Question: Steve Byrne - Bank of America - Analyst : Yes. Thank you. I wanted to just drill into NEOM a bit more. Seifi, four years ago, I believe you were talking about a downstream CapEx budget for NEON of $2 billion. What is the status of that now given, I think, back then, you your focus was Asia. It's now Europe. Do you have a strategy of what do you need to invest in Europe to distribute the green ammonia and then crack to hydrogen? Perhaps comment also on your ammonia cracking technology and the efficiency. And just lastly on that, the 35% seems more than Total. Does that mean you've picked up other long-term take or pay contracts?

Question: Steve Byrne - Bank of America - Analyst : And maybe just one more on this. Europe prefers the pathway forward being green, not blue. If that were to change for economic reasons, what would be your end-market outlook for NEOM under that kind of a scenario?

Question: Steve Byrne - Bank of America - Analyst : Okay, thank you.

Question: John Roberts - Mizuho Financial Group, Inc. - Analyst : Thanks Seifi, I'm guessing the Board has already been maintaining some level of contact with potential President candidates that could be available on short notice, especially since the departure of Dr. Serhan. Do you think the search for a President could be over before the proxy is filed for the Shareholder Meeting? slides 31 suggests it could go beyond the Shareholder Meeting. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 1:30PM, APD.N - Q4 2024 Air Products and Chemicals Inc Earnings Call

Question: John Roberts - Mizuho Financial Group, Inc. - Analyst : That's all I have. Thank you.

Question: Chris Parkinson - Wolfe Research, LLC - Analyst : Thank you so much. Great. Seifi, regarding the Louisiana project, obviously, it's fairly sizable, and there's a lot of focus on both manufacturing as well as the offtake agreements in terms of redistributing potentially some of that project risk. However, one of the things that's been on my mind, and I think a lot of investors has been just the, given the size of the facility, just the construction outlay and how to think about the various units going into that, just relative to the size of everything else that's been done in the United States over the last decade or 1.5 decades. So can you perhaps just give us a little bit more detail on the various stages on how we should be thinking about that development or evolution of that project? And whether or not it has to be all at once or you're thinking about in various stages, perhaps one through three? Just any color there would be particularly helpful. Thank you.

Question: Chris Parkinson - Wolfe Research, LLC - Analyst : That's very helpful. And just a real quick one here. Regarding the CapEx of the NEOM, the $2 billion of the offtake, you mentioned a few questions ago that there could be a material difference between the initial expectation. And I believe it was everything to Asia and Europe in terms of transportation, buses and everything else we discussed back in 2020. But if we just took something such as the Total agreement and said, hey, that's roughly one-third of the production, let's call that of the original amount, $667 million. What's the difference roughly, just purely roughly of kind of that implied number of what, let's say, the legacy thought process and what you could be looking at today? I mean is that like a 10% difference of to refineries in Europe? Or is that something that could be more significant like a 30% or 40% difference in terms of like how we're thinking about the offtake CapEx of the project? Thank you so much.

Question: Chris Parkinson - Wolfe Research, LLC - Analyst : Thank you very much.

Question: Mike Sison - Wells Fargo - Analyst : Hey, good morning. Seifi, traditional hydrogen projects, historically, you tend to sell that out with offtakes when you sign them. Was that the case when you sort of created the business, 60 to 65 years ago? And do you think at some point for the clean hydrogen projects that, that demand will be big enough when you announce the project, you'll have offtakes immediately?

Question: Mike Sison - Wells Fargo - Analyst : Yes, that's great. And then just a quick follow-up. When you think about your earnings growth for 25%, 6% to 9%, I understand it's, the economic environment isn't great. But if you think about longer term and you execute well on your pretty well publicized growth strategy, '26, '27, '28, what do you think that growth rate should pick up to as your clean energy projects kick in with the growth from your core industrial gas business?

Question: Mike Sison - Wells Fargo - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 1:30PM, APD.N - Q4 2024 Air Products and Chemicals Inc Earnings Call

Question: Josh Spector - UBS - Analyst : Yeah. Hi, good morning. I wanted to ask a question on the NEOM offtake. There's just been some chatter, I guess, more recently around some finer details around that contract. So you highlighted take or pay. You mentioned you're comfortable with the returns. I guess some of the questions have been if there's any qualifying events, be it regulatory or credits that need to be put in place before that contract goes into effect or whether you would say what you have today is more Iron Cloud, there's nothing that needs to happen for that to hit your return targets?

Question: Josh Spector - UBS - Analyst : Okay. Yes, I appreciate that. And just on another note, if I could just ask on your approach to project returns when using leverage or not using leverage. I guess, now a couple of your bigger products, you're talking about using more leverage. Do you expect that when you employ project financing, are you targeting a higher equity return? Or is that still in the framework that you would target that greater than 10%, 12% return? So how should investors kind of work that into our framework of what the flow-through is on Air Products' equity return from investments?

Question: Josh Spector - UBS - Analyst : Yeah, very clear.

Question: Kevin McCarthy - Vertical Research Partners - Analyst : Yes, thank you and good morning. Seifi, on slide 29, you indicate that you would expect to return to a positive net cash flow position starting in 2027, and I was wondering if you could elaborate on some of the assumptions behind that goal. For example, would it be contingent upon bringing in a partner and, or project financing in Louisiana or could you get there on an organic basis, so to speak, without the benefit of those actions? And perhaps there are other assumptions you might like to speak to.

Question: Kevin McCarthy - Vertical Research Partners - Analyst : Thanks, Yes. Seifi, if I may, I wanted to ask also on slide 21 and 22, you provide some detail regarding the future growth of clean hydrogen. I think the source of that is a Deloitte study from 2023, and so I'm curious, some of your peers inside and perhaps also outside the industrial gas industry have talked about some attenuation of time lines and some uncertainties on the regulatory and economic side. So my question would be, how does your internal view today compare with this forecast? Is it better or worse or perhaps similar? If you look at it perhaps on a bottom up basis, given your unique insights and conversations you're having all over the world, how would you describe that trajectory relative to the way it was in 2023? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 1:30PM, APD.N - Q4 2024 Air Products and Chemicals Inc Earnings Call

Question: Chris Parkinson - Wolfe Research, LLC - Analyst : Thank you, Seifi.

Question: Mike Leithead - Barclays Bank PLC - Analyst : Great. Thank you. Good morning. Great. First, Melissa, a housekeeping, Seifi. You made a comment, Melissa, about a onetime asset sale benefit in Americas. Did I hear that correctly? And just how much of an impact was that?

Question: Mike Leithead - Barclays Bank PLC - Analyst : Yes. Seifi, I wanted to go back to World Energy. I think you said in a prior answer that your relationship there is excellent. But there was a lawsuit that became public about two weeks ago that shows Air Products World Energy a good amount of money, that World Energy has since defaulted on. So how do we square that?

Question: Mike Leithead - Barclays Bank PLC - Analyst : Fair enough.

Question: Duffy Fischer - The Goldman Sachs Group, Inc. - Analyst : Yes, good morning guys. First question is just around the Asia business. Price being down, is that more an indication of just what's happening generally? Supply, demand is a little bit out of whack? Or is that still the hangover from helium prices falling and hurting pricing overall in Asia?

Question: Duffy Fischer - The Goldman Sachs Group, Inc. - Analyst : Okay. Thank you. And then I just want to go back to the headcount comment you made. Again, headcount for you guys is up about 4,000 people in the last several years. And I just wanted to, so none of that headcount is really running through the P&L in the EPS that you guys delivered last year. All of that is basically being capitalized? Or is there some percentage split between what's being capitalized and what's running through the P&L?

Question: Steve Byrne - Bank of America - Analyst : Great. Thank you, guys.

Question: Laurence Alexander - Jefferies - Analyst : Good morning. One short-term question on the price, the merchant pricing that you're seeing in North America. What do you see, what are you using for next year's outlook as to how solid pricing will be? And kind of can you just elaborate on the dynamics there? And then secondly, you made a comment around how, as the first mover, you're getting better contracts than you would expect to guess in the future. Can you unpack kind of some, or give some examples around that? Because I appreciate kind of the marketing angle of being able to show people you have the facilities first. But can you walk through kind of the contractual differences that, the opportunities that you've been able to capture that you would never get again? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 07, 2024 / 1:30PM, APD.N - Q4 2024 Air Products and Chemicals Inc Earnings Call

Question: Laurence Alexander - Jefferies - Analyst : Perfect. Thank you

Question: Sebastian Bray - Berenberg - Analyst : Hello, good morning and thank you for taking my questions. I have two please. The first is on the Middle East segment. Jazan, I think, was a bit shy, the whole Middle East and India line was a little bit shy of consensus expectations. And I think this is the second time this has happened. Has anything happened at Jazan that makes that business less profitable in 2024 than in previous years? Was anything shifted in the contract? Is there anything else within EBITDA line for Middle East and India that would explain that? And my second question is more philosophical. The company has costed up significantly with a lot of personnel to in-house expertise across the hydrogen chain. Carbon capture, probably some terminal and transport as well. If I take the target for net cash flow positive by 2027, to me, that implies, okay, we do NEOM Louisiana, but we don't necessarily do any other projects in the meantime in a big way. How is it going to be able to continue to use the expertise of all of these people? Or are they still focused on those two projects? Thank you.

Question: Sebastian Bray - Berenberg - Analyst : Thank you.