Air Products and Chemicals Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2021

Key Takeaways

  • Air Products reported adjusted Q3 EPS of $2.31, a 15% year-over-year increase despite higher development-related costs.
  • The company has deployed or committed nearly $18 billion in growth projects—1.5 years ahead of schedule—and now plans to deploy over $30 billion of capital through fiscal 2027.
  • Sustainability remains core to the strategy, highlighted by a CAD 1.3 billion net-zero hydrogen project in Alberta (2024), a partnership with Cummins on hydrogen fuel-cell trucks, and the 3rd by 30 carbon-intensity reduction target.
  • Strong cash flow generation—about $2.6 billion of distributable cash flow over the last 12 months—and a 45%+ dividend payout ratio support both shareholder returns and ongoing investments.
  • Longtime CFO Scott Cracco will retire September 30, with Melissa Schaeffer succeeding him as Chief Financial Officer effective October 1.
AI Generated. May Contain Errors.
Earnings Conference Call
Air Products and Chemicals Q3 2021
00:00 / 00:00

There are 15 speakers on the call.

Operator

Good morning, and welcome to Air Products and Chemicals Third Quarter Earnings Release Conference Call. Today's conference is being recorded at the request of Air Products. Please note that this presentation and the comments made on On behalf of Air Products, are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Mr. Simon Maur, Vice President of Investor Relations.

Operator

Please go ahead, sir.

Speaker 1

Thank you, Rochelle. Good morning, everyone. Welcome to Air Products' 3rd Quarter 2021 Earnings Results Teleconference. This is Simon Moore, Vice President of Investor Relations, Corporate Relations and Sustainability. I am pleased to be joined today by Seifi Ghasemi, our Chairman, President and CEO Scott Crocco, our Executive Vice President and current Chief Financial Officer Melissa Schaeffer, who we announced is succeeding Scott as our Senior Vice President and Chief Financial Officer and Sean Major, our Executive Vice President, General Counsel and Secretary.

Speaker 1

After our comments, we'll be pleased to take your questions. Our earnings release and the slides for this call are available on our website at airproducts.com. This discussion contains forward looking statements. Please refer to the forward looking statement disclosure that can be found in our earnings release and on Slide number 2. In addition, throughout today's discussion, we will refer to various financial measures.

Speaker 1

Unless we specifically state otherwise, when we refer to earnings per share, EBITDA, EBITDA margin, the effective tax rate and ROCE, both on a company wide and segment basis, We are referring to our adjusted non GAAP financial measures, adjusted earnings per share, adjusted EBITDA, adjusted EBITDA margin, adjusted

Speaker 2

Thank you, Simon, and good day to everyone. Thank you for taking time from your very busy schedule to be on our call today. Today, in addition To announcing our results, we do have a significant announcement, which is updating our Future plans for growth and capital deployment. But before we get into the details, I would like to say a few words about our CFO transition, which we announced last month. Please turn to Slide number 3.

Speaker 2

Following this call, Ms. Melissa Schaeffer will succeed Mr. Scott Kakko as our Chief Financial Officer and assume leadership responsibility for our worldwide finance organization. Scott is retired from Air Products on September 30 as part of the smooth transition. Today, I want to recognize And thank Scott, who has had a distinguished 31 year career with Air Products.

Speaker 2

Scott started in our career development program and ultimately progressed to the highest role in finance, serving as our Executive Vice President and Chief Financial Officer. Clearly, that achievement is a testament to Scott, particularly his strong work ethic, His drive to deliver and his focus on creating shareholder value. Scott, I would like to say publicly what I have told you privately, That it has been a privilege working with you for these past 7 years, particularly As we have executed our growth strategy and won world class projects in gasification, carbon capture and hydrogen. These projects continue to differentiate the company and position our products for significant growth into the future. Particularly, I want to thank you for leading our effort to position us for the successful closing of the Jazan gasification and power project and for your efforts related to the project financing of this Significant investment.

Speaker 2

I appreciate all you have done to help us move forward, and I wish you great health And happiness in the future. Thank you again for all you have done for Air Products. Scott, at this point, would you like to say a few words?

Speaker 3

Yes. Thank you very much, Sethi. I really appreciate the kind words and the support and the leadership you've provided over these past 7 years. It's been an honor to work alongside you and the rest of the leadership team to set Air Products on a path where the sky truly is the limit. With strong cash flows, significant capital deployment capacity and continued dividend increases, Air Products operates from a position of strength, and I have no doubt there will be many more profitable growth opportunities ahead.

Speaker 3

I remain excited about the future of this amazing company. Melissa and I have worked closely together over the past few years, And there's no doubt she will continue to excel and help others to do the same. I look forward to continuing the transition with her over the coming weeks. And again, thank you very much.

Speaker 2

Thank you, Scott. I do appreciate your comments. Let me now introduce Melissa Schaeffer. One of the things that you will learn right away about Melissa Is that she is a passionate and driven individual. For Melissa, it's all about excellence.

Speaker 2

She is driven to win. Along with that spirit, she brings deep leadership and financial experience From inside and outside air products to this new role. She is a great example The culture we are building here, and I have no doubt she will continue to create an environment where people belong and matter and contribute to their callers. Menestra held financial roles of increasing responsibility with Siemens, Ernesto Young and Trinh Siew before coming to Air Products. She joined us As Vice President and Chief Audit Executive in 2016, she then became our Vice President Finance, The financial responsibility for our mega projects as well as Air Products' largest reporting segment.

Speaker 2

Melissa has been a key part of our growth and success over the past 5 years, and I'm delighted she will be our Chief Financial Officer. Alicia, would you like to say a few words?

Speaker 4

Thank you for the kind introduction, Seifi. And I want to thank Scott for the tremendous example he has set as our CFO. I appreciate the opportunity to join the earnings call today and say hello to all of you. I look forward to meeting more of the investment community and sharing Air Products' Q4 and full year results with everyone on our next call. Air Products is truly at the heart of providing energy and environmental solutions, which makes this company a truly special place to be.

Speaker 4

I'm looking forward to our finance organization and the broader Air Products team working together to bring those sustainable growth solutions forward to serve our customers, support our communities and of course, reward our shareholders. Thank you.

Speaker 2

Well, thank you both Scott and Melissa for your comments. And now let's turn to our business results. The stability of our business and the dedication of our people Have been on full display as the talented and committed people of Air Products delivered good results again this quarter. Our people working together have kept our 7 50 facilities around the world operating and our customers supplied through the COVID-nineteen pandemic. In support of the hard work and dedication Demonstrated by our employees, we have not reduced our staff or cut salaries during this difficult period.

Speaker 2

I am proud to say that Air Products Is emerging from this crisis, an even stronger company than before. We have continued to acquire new assets and Successfully raised prices and brought new plants on stream. We have also strengthened our organization by adding resources in various functions, mostly in engineering and project development to help us successfully pursue and execute the many exciting future projects we had in front of us. At the same time, we also delivered earnings per share of $2.31 this quarter, which is 15% higher than last year despite absorbing costs related to our growth driven development efforts. I am extremely proud of the accomplishments that we have achieved as a team, and I would like to thank All of our employees and their products for their dedication and hard work.

Speaker 2

We continue to execute projects and deliver strong financial results, while maintaining Our undeballing focus on safety. As Slide number 4 shows, Despite the challenging COVID-nineteen conditions, our team continues to focus on working safely, following our strict protocols to help protect themselves, our customers and our communities. As always, Safety is the most important focus for all of us at Air Products, and our goal will always be 0 accidents And 0 incidents. The slides number 5, 6 and 7 include our goal, our management philosophy and our 5 point strategic plan. These are the we have seen these before and these are the principles that we will follow every day and they will Continue to guide us in the future.

Speaker 2

Now please turn to Slide 8. We believe the environmental sustainability challenges facing the world are significant. The scope and complexity of the mega projects necessary to address these challenges Requires talented people with a variety of skills and backgrounds from different parts of the world To work together as one team. As I mentioned earlier, we can solve these problems no matter how challenging As long as we all stay focused and united, working toward a common goal on a global basis. We believe this is the calling of our company and the higher purpose for all of us at Air Products.

Speaker 2

Now please turn to Slide number 9. We recently published an annual sustainability report, which highlights our sustainability driven growth opportunities and our many accomplishments in this area. For instance, our products help our customers avoid 72,000,000 tons Of CO2 equivalent emissions, which means that for every ton of CO2 That we emit in making our products, we help our customers avoid 3 tons of CO2 emissions. In addition, more than half of our offerings are sustainable and Close to onefour of our electricity purchases are from renewable sources. We have also set new sustainability goals, which are very much aligned with our growth strategy.

Speaker 2

Our 3rd by 30 goal aims to reduce our carbon intensity by 1 third by 2,030. Our growth opportunities will enable progress toward this goal, and therefore, we We expect to see significant progress later in the decade as our major projects come on stream and start to positively benefit our results. At Air Products, Sustainability is our growth strategy. Since sustainability and our growth go hand in hand, As we strive to solve the world's environmental sustainability problems, we are also Sure. Nicky is an innovative world class net zero hydrogen project in Edmonton, Alberta that we announced last June, and I will talk about a little bit more later on.

Speaker 2

Now please turn to Slide number 10, which highlights our key gasification projects. We are committed to our gasification strategy and are pursuing exciting projects around the world. We do expect to announce additional gasification projects in the future. Now specifically, I would like to give you an update on the 2 large gasification projects, which I have discussed on previous earnings calls. 1st, our 12 $1,000,000,000 acquisition of Jazan, Gazipaya and Power Plant from Saudi Aramco.

Speaker 2

We continue to make significant progress working with our partners and the lenders. The team has worked hard to bring the project to the final stages Our project financing and we still expect this project to reach final financial close by the end of our fiscal year, that is September 30, 2021. 2nd, regarding Luan, The plant is operating at full capacity. As I mentioned last quarter, We expect to recognize reduced fees through fiscal year 2022 before we return to the full fee in 2023. Now I would like to provide an overview of 2 new and very exciting developments Before I discuss the major announcement we are making today, which is our capital deployment plans for the next 6 years.

Speaker 2

1st, on Slide 11, you can see the overview of the Alberta project that we announced last month. This innovative project includes gasification, carbon capture and hydrogen, the 3 pillars of our go to strategy Coming together in one project to support the energy transition. This project is fully aligned with Canada's Clean energy diversification strategy and enables Canada to advance its competitive low carbon economy. It uses locally available hydrocarbons to make net 0 hydrogen. As summarized on Slide 12, the hydrogen will be produced Using other thermal reforming technology, enabling 95% of the CO2 produced by the project to be captured and stored.

Speaker 2

To achieve net 0, the remaining 5% carbon footprint will be offset By exporting the electricity generated by this net zero hydrogen, The output will be supply the output the net zero hydrogen will be supplied to our customers on our existing pipeline in Alberta as well as used to produce liquid hydrogen for the mobility and merchant markets. The project represents a CAD 1,300,000,000 investment and is expected to come in stream in 2024. We also as you can see on Slide number 13, We continue to focus on the very exciting hydrogen for mobility market, And we are pleased to announce a project with Cummins to accelerate the integration of hydrogen fuel cell trucks globally. Cummins will provide hydrogen fuel cell electric powertrain integrated into heavy duty trucks for air products. As we begin the process of converting our global fleet of 2,000 distribution vehicles to hydrogen fuel cell vehicles, We expect the first unit to be online in 2022 and the full conversion Before 2030.

Speaker 2

Now let me give you the highlights of our significant announcement today. 3.5 years ago, in 2018, we announced publicly that Air Products' growth strategy Guided by the global energy transition and based on the 3 pillars of gasification, carbon capture and hydrogen Had the potential to create significant growth for our company and that we could foresee deploying or committing $15,000,000,000 of capital in the 5 year period from 2018 to end of 2022. At that time, I remember clearly that our announcement was received with a degree of skepticism. Well, today, I'm happy to show you, as you can see on the Slide number 14, That we have developed we have deployed or committed almost $18,000,000,000 of capital, 1.5 years ahead of our plan. And I want to state that on the aggregate, The return on this capital is in line with the guidance we have been giving our investors before.

Speaker 2

This validates our long term strategy. But now that we are ahead of the plan, The question raised by our investor was, what about the future? I had promised the investors that we would address this question sometime during the summer of 2021. So here we are today, summer of 2021, announcing, As you can see on the Slide 15, that based on what we see ahead, implementing our focused strategy And based on a conservative estimate of our financial capacity, Air Products expects to deploy or commit More than $30,000,000,000 of capital for the 10 year period from 2018 to the end of 2027. Later in this call, Scott will go through the details.

Speaker 2

But today, I wanted to make the point that as before, we are pursuing a growth strategy. We do have the right strategy to move forward. We are aided by the megatrend Energy Transition, we have the people and the core competencies, and we have the financial strength To make our dream a reality and deliver on what we promise our investors. Now please turn to Slide 16, which shows our EPS growth. As you can see, we have delivered greater than 10% annual EPS growth since 2014 And I was appointed Chairman, President and CEO of the company.

Speaker 2

These results are the testament to the hard work and commitment of the people of Air Products, and I want to thank them again for their continued hard work and commitment. Now please turn to Slide number 17. A reminder that we share our earnings growth with our investors. Both our EPS and dividend have grown double digits since 2014. We are committed to delivering increased dividend while we continue to develop our exciting growth opportunities.

Speaker 2

We have significant cash flow that supports our substantial dividend and our growth strategy. And finally, Slide 18 shows our EBITDA margins, as always my favorite slide. There it shows that the margins is up 1200 basis points since 2014. Now I'm happy to turn the call over to Scott to provide a financial overview. Scott?

Speaker 3

Thank you, Seifi. As Seifi mentioned earlier, the stability of our business and the dedication of our people have been on full display. We continue to execute projects and deliver strong financial results despite the unprecedented challenges posed by the pandemic. If we compare our volumes this quarter to Q3 of fiscal year 2019, or in other words, before the pandemic, Our volumes are up 8%. Our trailing 4 quarter distributable cash flow has held steady at approximately $2,600,000,000 for the past 2 years.

Speaker 3

Now, Air Products is emerging from this pandemic, An even stronger company. Our sales, EBITDA and EPS grew double digits this quarter. All three regions reported higher sales and EBITDA, and our price and volume continued to be strong despite lower earnings from the lawn and the ongoing COVID impact. Now please turn to Slide 19 for a brief discussion of our Q3 results. Sales increased 26% compared to prior year, Reaching $2,600,000,000 driven by very strong volume, better pricing, higher energy pass through and favorable currencies.

Speaker 3

Volume improved 12% as COVID recovery, new plants and acquisitions more than offset reduced Lulon contributions. Although the pandemic has eased, the volume recovery has not been consistent across our product lines. We continue to experience the negative impact of COVID-nineteen, although the impact this quarter was more modest than last year. Prices were again up with improvement in all three regions. This is the 16th consecutive quarter of year over year price gains.

Speaker 3

Overall, prices were up 2% in total, which represents a 4% increase for the merchant business. EBITDA climbed 11%, approaching the $1,000,000,000 mark as favorable volume, price, Currencies and equity affiliate income more than offset higher costs, which were impacted by inflation and higher maintenance. EBITDA margin declined 5 20 basis points, primarily due to higher costs and higher energy pass through, which increases sales but not profit. Higher energy pass through negatively impacted margin by about 200 basis points. Higher costs included higher maintenance spending compared to last year due mainly to low spending in the prior year resulting from less access to sites Due to COVID-nineteen, ROCE was 2 40 basis points lower.

Speaker 3

The increase in the denominator from $5,000,000,000 of debt reduced ROCE by about 300 basis points. Sequentially, sales were up 4%, supported by 5% seasonally stronger volume and 1% higher price. Energy pass through was lower by 2% As energy prices returned to a more normal range following the effects of the winter storm in the previous quarter. Now please turn to Slide 20. Our 3rd quarter GAAP EPS was $2.36 and included a $0.05 tax benefit, primarily resulting from reserve adjustments related to a 2017 Tax election on a non U.

Speaker 3

S. Subsidiary. Excluding the non GAAP item, our Q3 adjusted EPS was $2.31 Despite the ongoing impacts of the pandemic and was $0.30 above last year. Volume was favorable $0.26 COVID recovery, new plants and acquisitions more than offset reduced loan contributions. As a reminder, it's important to recognize that as the 60% majority owner of the Lalonde joint venture, 100% of the negative impact from Lalonde is included in the volume line because we consolidate the operating results.

Speaker 3

However, this is partially offset By the positive impact reflected in the non controlling interest line as the net income shared by our partner is also reduced. Price net of variable costs contributed $0.05 as our price increases more than covered variable cost inflation. We continue to execute pricing actions in response to rising variable costs such as power and fuel. Like the prior few quarters, our plans to add resources and strengthen our organization to support growth have increased our costs. Americas maintenance costs were lower last year due to COVID-nineteen limitations and there were temporary COVID related government incentives in Asia last year.

Speaker 3

Currency and foreign exchange contributed $0.12 with the Chinese RMB and euro accounting for roughly half of the impact. Equity affiliate income added $0.04 on strong underlying business results, while non controlling interest was also favorable $0.05 On lower profits from our consolidated joint ventures, primarily the 1. The effective tax rate of 18.2% was 110 basis Lower than last year due to a change in U. K. Tax law.

Speaker 3

We expect our effective tax rate to be slightly below 20% in fiscal year 2021. The remaining $0.04 includes a favorable $0.05 in non operating income, primarily driven by lower pension expense and an unfavorable interest expense of $0.01 Now please turn to Slide 21. The stability of our business allows us to continue to generate strong cash flow. Over the last 12 months, we generated about $2,600,000,000 Distributable cash flow or almost $12 per share. From our EBITDA of about $3,800,000,000 we paid interest, Taxes and maintenance capital.

Speaker 3

Note that our maintenance CapEx is a little higher than usual, driven in part by spending on our new global headquarters. From a distributable cash flow, we paid over 45 percent or over $1,200,000,000 as dividends to our shareholders, And we still have about $1,400,000,000 available for high return industrial gas investments. This strong cash flow, even in uncertain times, enables us to continue to create shareholder value through increasing dividends and capital deployment. Slide number 22 provides an update on our capital deployment. As Stacy mentioned, we've extended our time horizon Another 5 years to 2027.

Speaker 3

Since we see tremendous project opportunities beyond the original capacity of $15,000,000,000 We think it's appropriate to extend the timeframe for at least another 5 years. This updated view of our capital deployment potential shows over $30,000,000,000 available through fiscal 2027. The $30,000,000,000 includes over $9,000,000,000 of cash And additional debt capacity available today, almost $15,000,000,000 we expect to be available by 2027 And almost $7,000,000,000 already spent. We believe this figure is conservative given the potential for additional EBITDA growth, which generates additional cash flow and therefore additional borrowing capacity. We will continue to focus on managing our debt balance to maintain our current targeted AA2 rating.

Speaker 3

So you can see we've already spent 22% and have already committed 57% of the updated capacity we show here. In short, we exceeded the commitment we made to you in 2018 and have substantial capacity available to deploy to support our growth strategy. Now to begin the review of our business segment results, I'll turn the call back over to Seifi.

Speaker 2

Thank you very much, Scott. Now please turn to Slide number 23 For our Asia results, sales increased 15% compared to last year, Supported by strong volume, better price and favorable currencies. Volumes were up 6%, reversing the negative trend of the previous 4 quarters. Base volumes driven by COVID recovery and the addition of numerous small new plants more than offset The reduced Luan contribution. Asia pricing overall was positive 1%, primarily divided driven by good performance in China across most product lines.

Speaker 2

This was the 17th consecutive quarter of year on year price improvement in Asia. Sequentially, price was also positive by 1%. EBITDA increased 9%, driven primarily by favorable price, volume, currencies and equity affiliate income. Costs compared favorably partly due to inflation and COVID related Incentives last year. I should say COVID related government incentives and costs last year.

Speaker 2

EBITDA margin of 47.4 percent was 270 basis points lower as reduced Luann contribution And increased costs more than offset the benefits of higher price volume and equity affiliate income. Operating income and margin compared unfavorably to EBITDA and EBITDA margin due to higher quality affiliate income and additional Depreciation from new plants. Sequentially, sales and profit improved as economic activities Rebounded following the Lunar New Year holidays. Now I would like to turn the call back to Scott to talk about Americas' results.

Speaker 3

Thank you, Staphy. Please turn to Slide 24 for a review of our Americas results. Sales surged 25% over last year. Volume, price, energy pass through and currency were all positive. Volume grew 9%, primarily due to COVID recovery, higher medical gases in South America and one time items.

Speaker 3

Most merchant products have returned to their pre COVID levels, but hydrogen volume has not yet fully caught up. While the demand for transportation fuels has improved as people resume travel, the increases are not even across different types of fuel. Gasoline and diesel volumes have rebounded. However, the demand for jet fuel, which consumes more hydrogen on a per unit Basis compared to gasoline still lags. Furthermore, the industry has shifted to use more light sweet crude, which requires less hydrogen.

Speaker 3

In addition, the industry's inventory level remained high. Price was again strong. The 4% increase for the region was equivalent to 8% on the merchant business. Price was better across all major product lines, And this is the 12th consecutive quarter of the year on year price improvement. Energy cost pass through was again higher As natural gas prices remained elevated versus last year and drove a 10% sales increase, EBITDA reached $465,000,000 A 13% increase over last year as better volume and price as well as one time items more than offset power and other cost inflation and higher maintenance.

Speaker 3

Our maintenance costs were unfavorable versus last year because limited maintenance work was possible last year Due to the restrictions imposed by Provid protocols, following the successful completion of the turnarounds this quarter, We expect our maintenance activities to moderate next quarter. Higher energy cost pass through negatively impacted EBITDA margin by over 400 basis points or almost 90% of the reported decline. Compared to last quarter, Americas volumes increased 6%, Driven by stronger hydrogen volume, partly helped by recovery following the winter storm and one time items. Price also improved 1%, up across all major product lines. Energy pass through was lower sequentially as the natural gas price Came back down after the spike caused by the winter storm.

Speaker 3

EBITDA increased 4% sequentially, supported by improved volume and price as well as one time items, while cost was unfavorable. EBITDA margin was 120 basis points better, primarily driven by about 3 50 basis points of favorable energy pass through, while strong Price partially offset higher costs. Now, I'd like to turn the call back over to Simon to discuss our other segments. Simon?

Speaker 1

Thank you, Scott. Now please turn to Slide 25 for a review of our Europe, Middle East and Africa region results. Our EMEA team delivered another set of outstanding results this quarter. Sales jumped 45% Volume and EBITDA were both up about 25% versus last year. COVID recovery and acquisitions primarily drove the 24 Our liquid bulk business has returned to its pre COVID level, but the packaged gas business still lagged.

Speaker 1

Price increased for the 14th consecutive quarter and was higher across most major product lines and all the sub regions. The 1% price gain for the region corresponds to a 2% improvement for the merchant business. Real price increases were partially offset by mix since the demand across the product lines was not even. We are also executing additional pricing actions to recover the recent power cost Currencies were a favorable 12%, primarily due to the strong euro and British pound versus the U. S.

Speaker 1

Dollar. EBITDA was up 25 percent to over $210,000,000 driven primarily by the strong volume. EBITDA margin was down 5.40 basis points with higher energy pass through responsible for about 200 basis points. The remaining roughly 300 basis point reduction was mainly attributable to unfavorable costs, mostly power and other cost inflation. Compared to prior quarter, sales rose 7%, primarily supported by positive 5% volume, But EBITDA was down 2% and margin was about 300 basis points lower as this volume gain was more than offset by higher Costs including power and other cost inflation and lower equity affiliate income.

Speaker 1

Now please turn to Slide 26, Global Gases, which includes our non LNG sales of equipment businesses as well as central costs. Sales increased due to higher sales of equipment project activity, The profit was lower due to business mix and higher product development spending. Sales and profits were roughly equal to last quarter. Please turn to Slide 27, Corporate, which includes LNG and other businesses as well as our corporate costs. We were pleased to be selected for Nigeria LNG's Train 7 project building on the success of the Air Products LNG equipment and technology for the Corporate segment sales were higher this quarter driven by increased project activities as we continued to multiple large LNG and other projects, but profit was lower on higher corporate costs, and sales and profits were roughly equal to last quarter.

Speaker 1

Now to provide some additional thoughts, I'll turn the call back over to Seifi.

Speaker 2

Thank you very much, Simon. Now Please turn to Slide 28. Air Products continues to deliver consistent earnings and cash flow. Our on-site business, which is roughly half of our total sales, remains stable. We have seen signs of improvement in merchant volumes, particularly relative to the very challenging quarter 3 last As I mentioned earlier, Luan facility is operating at full capacity, And we expect the Jazan transaction to achieve financial close by the end of September 2021.

Speaker 2

For quarter 4 of fiscal year 2021, our earnings per share guidance is 2.44 to $2.54 up 11% to 16% over last year. This makes our guidance for our fiscal year to be 8.95% to 9.05 Up approximately 8% over last year and within the range we shared with you last quarter. We continue to see our CapEx at approximately $2,500,000,000 for the year 2021. Our fiscal year 'twenty one EPS and CapEx guidance obviously exclude any contribution from Jazan. Meanwhile, we continue to execute our other projects, bringing them on stream and finalizing agreements with our customers.

Speaker 2

We are committed to our capital deployment strategy and to growing our Pipeline of projects. We continue to be very optimistic about our focused long term growth strategy. The capital deployment Projections that we shared with you today for the next 6 years clearly demonstrate our significant Growth potential in the years to come. Now please turn to Slide 29. Clearly, the only sustainable long term competitive advantage of any company is the degree of commitment and motivation of the people in the enterprise.

Speaker 2

We are fortunate To have that commitment with our people. By working together against the hardships of the pandemic, Supporting our customers and each other, I'm proud to say that we have made our company even stronger in the process. Not only have we continued to strengthen our base business, but also further extend our core competencies pursuing our growth Strategy. Our gasification, carbon capture and hydrogen growth platforms all For the drive for a cleaner environment, and we are executing mega scale projects in all three areas. We all know that the world's desire for clean energy will only accelerate.

Speaker 2

Our differentiated growth strategy and unmatched expertise have positioned Air Products Continued strong shift levels and growth well into the future. As always, I want to again Thank our customers around the world. In innovating alongside you, the dedicated and committed people of Air Products Now we are very pleased to answer any questions that you have. Thank

Operator

And our first question, we'll hear from Vincent Andrew with Morgan Stanley.

Speaker 5

Thank you. Good morning, everyone, and congratulations to Scott. Very well done and distinguished career clearly. Savi, could I ask you on the new sort of outlook for capital allocation, maybe 2 pieces about it. 1, how are you thinking about how much of it will be sort of in that mega project category that we've seen with NAOM and so forth Versus sort of the more traditional industrial gas projects.

Speaker 5

And second to that, as I think back over the last three and a half So the first CapEx outlook, the menu of things you're interested in expanded into gas And then we got into green and blue hydrogen, now carbon capture. I would assume that we're going to see the future CapEx skew more towards those latter categories, but I'm Curious whether there's anything else that's on the horizon that's not currently on the CapEx menu that we should start thinking about?

Speaker 2

Good morning, Vincent, and thank you very much for your comment about Scott. He's a great guy. We all know that. With respect to your specific question, Vincent, out of the additional 12 point 5 $12,000,000,000 that we announced in the next 6 years. We expect about $5,000,000,000 To be in support of our existing business and the balance of it being the large projects.

Speaker 2

And in terms of the focus, we are going to stay very focused, Vincent, and Spend our money on gasification, hydrogen, which is blue and green, and CO2 capture. We are going to try not to venture too much outside of those three specific areas. And there is significant opportunity. Now that you asked the question, it gives me we came up with the $30,000,000,000 not because of lack of projects. It is Because of we wanted to demonstrate what is our financial capacity to maintain our A rating.

Speaker 2

As we go forward, Obviously, we will get it. We cannot project you EBITDA for 2,030. So that's why we are constrained. There are a lot of projects in the areas of gasification, hydrogen and CO2, as you will see in the future, and we are going to stay Focused on that because I believe by being focused, you get results rather than being all over the place.

Speaker 6

Thanks very much.

Speaker 2

Thank you, Incy.

Operator

And next we'll move to Jeff Zekauskas with JPMorgan.

Speaker 7

Thanks very much. So a 2 part question. If you look at your European operations And your Asian operations over the last three quarters, they're sequentially flat. The Asian EBITDA is a little bit better, P and EBITDA is not. Why is that the case given that the global economy has been improving?

Speaker 7

And secondly, in your reconciliation tables, And your return on capital, your return on capital has gone from 12.4% a year ago to 10. It's kind of moved down sequentially. Why is that? What are the factors that you are encountering that's lowering your capital returns?

Speaker 2

Good morning, Jeff. Two very good questions. Good morning. Yes, 2 very good questions. Number 1, When you look at it the way you say that it is flat, the global economy is improving, please Take note that the global economy is improving and people going to restaurants and flying around.

Speaker 2

In the major economies that we are operating, the industrial economy has not improved that much. That's number 1. The second thing, our results are significantly affected by Luan. You know that very well because Luan had an EBITDA contribution every year at full capacity under normal circumstances Of almost $150,000,000 $160,000,000 a year. When that number comes down, then Another significant item, which I have mentioned many times before, we are investing in increasing Organizations significantly could develop these new projects.

Speaker 2

When we announced in projects like Canada, We have been working on 4 other projects. Each one of these projects cost $4,000,000 or $5,000,000,000 $10,000,000,000 to develop. We are spending that Because you are investing for the future. So that is taking also hitting our results. But look at our volumes.

Speaker 2

If you look at our volumes, our volumes are better than all of our competitors During that period, we have grown our base volumes. If you take all of the mumbo jumbo out of the people's results and our results, Our volume growth has improved better than anybody else. It's 12%. So therefore, I don't That's number 1. The same thing with respect to the return on capital employed, it depends number 1, how you calculate it, Because if we can calculate our return on capital employed, the way other people calculated where they don't consider the cash, We are at 15%, not at 10%.

Speaker 2

The second thing is that our return on capital employed has gone down because We borrowed $5,000,000,000 that is still sitting on our balance sheet and we haven't deployed that. Once we deploy that, Once we pay for the Jazan $2,500,000,000 you have return on capital employed jump up.

Speaker 7

Okay, good. Thanks.

Speaker 2

Yes. Thank you, sir. Absolutely. Yes. Thank you, sir.

Operator

And we'll move on to John Roberts with UBS.

Speaker 8

Hey, guys. This is Josh Spector on for John this morning. First, just on behalf of the team here at UBS, I just want to say congrats to Scott on the retirement and welcome Melissa to the team. Happy to have you here. Thanks.

Speaker 8

Going to the thanks. So just sticking on the volume point Within the regions, with the projects starting up, it's become a little bit tougher to tell where the merchant levels are versus 2019. Could you walk through the different regions and help us understand how much volume you might be lower in aggregate relative 2019 or in other words, how much recovery is left to get there? And then second would just be in some of the one time items you called out in the Americas. Can you quantify what that is or give us some insight on what that is that's benefiting you guys in the quarter?

Speaker 8

Thanks.

Speaker 2

Sure. Thank you very much. I think that during the course of his comments, Scott mentioned that if you take our volumes And compared to pre COVID, we are 8% ahead in terms of our merchant volumes. So we are actually volume wise ahead of where we Before the COVID started. That's why the previous point that I was making.

Speaker 2

Then with respect to your second question about One time items, we don't want to give too much detail about those because it involves customers and so on. And some of the people Don't want to exactly for us to disclose exactly what we set out for them if they closed the refinery or something like that. So apologies for not answering that question.

Speaker 8

Okay, thanks. If I could just try again on the volume side. So on a like for like basis, You would say volumes are 8% ahead. That doesn't include contribution from new projects? Or are we mixing up things there?

Speaker 2

There are new projects, but it is not substantial. Even if you exclude the new projects, we are ahead.

Speaker 8

Okay. Thank you.

Speaker 2

Thank you.

Operator

We'll move on to Steve Byrne with Bank of America.

Speaker 9

Yes. Thank you and our best to you, Scott. There were a variety of comments made about the year over year comparisons. Some of those you would have had visibility on like Luan and some of your corporate costs perhaps, but what would you say Was most surprising to you on the cost side or that impacted your results in the quarter that We're different from your expectations a few months ago?

Speaker 2

Well, the expectation that we had was The U. S. Economy on the industrial side, especially, would be stronger than it is, And especially also HEICO, I mean the hydrogen. Those things didn't develop to our expectation. The rest of it, we did have visibility, you're right.

Speaker 2

But those were the surprise was the performance in Americas.

Speaker 9

Okay. Thank you, Seifi. And one quick one for you on your helium business. Any comments on the outlook For you, particularly given the large Russian project in development, any concerns there?

Speaker 2

Well, Steve, on that one, I mean, you are very knowledgeable about what is going on and the details. There is this big project, high helium project that the Russians are working on, the so called Amur project. That project has significant amount of capacity. And when and if I mean, I shouldn't say if when it comes on a stream, whenever it is, it will obviously change the supply demand Basis in the helium worldwide, and it will have an effect on prices. But we don't know when that is going to be, And that project has been delayed many times.

Speaker 2

So when that happens, it will obviously have an effect. It hasn't happened. We don't expect it to happen next quarter, but it might happen in the future. There is a lot of volume of helium that can come on stream. Is that okay, Rishi?

Speaker 2

Yes. Thank you.

Operator

And next we'll move to John McNulty with BMO Capital Markets.

Speaker 6

Yes, good morning. Thanks for taking my question. And again, congratulations, Scott. It's been a pleasure working with you. So a question on the global business And the corporate lines, because the revenues keep going up pretty meaningfully.

Speaker 6

You've got some of the big new LNG business coming in and yet the profits Year over year have definitely faded. So I guess can you give us a little bit more color as to the drivers behind that and when we might be through that, whether it's Incremental costs or expenses on the corporate line and maybe some of the business mix changes on the global side just because it is a little bit It seems to be holding back the revenues as much as it has been.

Speaker 2

John, first of all, good morning. Hope all is there with you. The second thing is that, John, we are talking about deploying $30,000,000,000 of capital. That means those projects need to get engineered and built before they contribute to the bottom line. We have added, Without exaggeration, close to 2,000 people To our engineering and project management and business development staff in the last 2 years, 2,000 people.

Speaker 2

If you take $100,000 $120,000 per person, That becomes a lot of money. We have absorbed a lot of costs because of pricing and all of that, but still We are spending a significant amount of dollars in order To position ourselves that not only we develop these projects, but that we also execute them and build them. But then when we do that, I mean, people know how to do the math better than anybody else. If we deploy the $30,000,000,000 By 2027, which we say we will, and we say that the return on that thing is Expect $0.10 operating profit for every dollar. That is $3,000,000,000 of operating profit in addition to what you're doing.

Speaker 2

You do that after tax and then you come up with a significant number with respect to more than $10, 11, $15 per share. So in order we need to make that a reality. That is not going to happen by itself. And therefore, we are going to be absorbing a lot of additional costs in the meantime. Now a year from now, 2 years from now, depending on how many projects we have, now if the next year we come and say that look, we have spent Now we have to increase it to 40, then we will have to add more people.

Speaker 2

So there is Points to the same. We need to spend the money to develop the project, to get the project. And as you know, the new rules is such that We cannot put the projects on the balance sheet and then you win them and those that you win, you have to eat the cost. That's the accounting rules. So that is where I think the investors need to have a little bit of patience with us because these costs are going to be with us.

Speaker 2

And quite honestly, it is amazing that the effect is not as much as it could be because as I said, 12,000 people, it's costing us $240,000,000 $250,000,000 a year to support those people.

Speaker 6

Okay. Got it. Yes. No, fair enough. Very helpful color on it.

Speaker 6

Thanks a million, JP.

Speaker 2

Thank you.

Operator

And we'll move to Kevin McCarthy with Vertical Research Partners.

Speaker 1

Yes, good morning. Seifi, over the last several quarters, we've seen inflation accelerate Pretty broadly and a lot of specialty chemical companies are feeling the effects of that in today's market. Air Products, of course, is blessed in that you pass through a lot of costs. But as you've been discussing, I think there are other costs that aren't So my question would be, do you think there's any need or opportunity to accelerate the pace of pricing Given that backdrop of industry inflation and how might your answer differ by region of the world?

Speaker 2

That is a very good question, Kevin. First of all, we believe I mean, the way we operate is that Our base business, people increase prices to cover inflation. That is the minimum we expect them to do. The other cost increases, obviously, as I mentioned before, is adding additional resources. But our philosophy is that if power costs go up, prices need to go up.

Speaker 2

And as compared to other chemical companies, We have another benefit is that our raw material price doesn't go up because our raw material is really air for most of our products. And if it is natural gas, we do pass it through. So overall, as I've said many Times before, with my 40 to 20 year experience in industrial gases, inflationary times are in general are positive Industrial Gases because it gives you a license to increase prices. And if the I mean, in our Call, we mentioned price increases on an overall basis. But if you take just our mentioned price Increases.

Speaker 2

We have had price increases this last quarter of 7% in Americas, 3% in Europe, 3% in Asia, total company 5% in price increase. So for the mission side, so that is significant and it's keeping us up to date with inflation.

Operator

And we'll move on to David Begleiter with Deutsche Bank.

Speaker 10

Good morning, Seifi, and of course, my congrats to Got it. Well, it's been a pleasure. Seifi, just on Jazan, if you do assume financial close by fiscal year end, should we still presume a Full year of earnings contribution for Jazan next fiscal year?

Speaker 2

Yes. It is going to depend on the details of the final structure of the financing and all that. But yes, we have said that once We do financial close and we pay a certain amount of money, we are going to get The BFC or the basic facility in accordance with how much money they have put in. So we should expect good contribution in 2022, yes. Very good.

Speaker 2

And do

Speaker 10

you have an update on the And Nome and Indonesian projects? Thank you.

Speaker 2

The Nome project, we obviously working on it. We have, I think, at least around 400 people working on that project. The project is moving forward. We are Clear, preparing the ground and the engineering is going forward. So we are making progress on that project.

Speaker 2

With respect to Indonesia, I don't have any update. Indonesia has a lot of issues there with the COVID and all of that. So I don't really have any update. Thank you. Thank you.

Operator

And we'll move on to Mike Harrison with Seaport Research Partners.

Speaker 11

Hi, good morning and best wishes to Scott Congratulations to Melissa on the new role. In terms of the Americas business, You mentioned that we're up sequentially on stronger hydrogen demand. I think that's related The Texas freeze and some improvement in refinery utilization. But you also mentioned that some of these refineries are using more Light and sweet crude feedstocks, which require less hydrogen. Can you talk a little bit more about the longer term effect of that trend?

Speaker 2

But for the longer term, we are actually very bullish about our hydrogen pipeline in the Gulf Coast. We expect that hydrogen network to be really sold out in about 2 years' time Because the fundamental drivers for growth are there. The refineries will come back and there is a significant trend, Mike, you know that very well. Toward converting the refineries into making renewable diesel And as we have said, the intensity of hydrogen for renewable diesel is higher than other things. So we remain very optimistic about that.

Speaker 2

Just quarter by quarter, the numbers move, but for the longer term, we are very optimistic about that hydrogen pipeline and that whole

Speaker 11

All right. And in the EMEA business, you mentioned the higher power cost and the need to go after additional pricing there. You just talk about those dynamics a little bit more? I guess, is there some seasonal improvements In the power situation such that if you wait it out, maybe the costs will come a little bit lower?

Speaker 2

Well, I don't think so. I think that in Europe, there is a structural issue that when you decide that you don't want to use Nuclear and we don't want to decide to use coal, then the other alternative sources of energy are more expensive. I mean, In some parts of Europe, energy costs last quarter was almost 100% more than last year. So I think that power cost increases in Europe are going to be a thing of the future. And in order and that's why a lot of these Seeing that people talk about making green hydrogen using the grid in Europe is kind of a little bit of a pie in the sky.

Speaker 2

But overall, I think That our job is to increase our prices to compensate for the power cost. And our contracts are structured that way. Sometimes we might get a little bit of a lag in implementing that, but our people know exactly what they need And in time, we will catch up. But I don't think how prices in Europe are going to ease.

Speaker 11

Thank you very much, Stacey.

Speaker 2

Thank you very much. Thank you.

Operator

And Bob Koort with Goldman Sachs will have the next question.

Speaker 12

Thanks very much. On Jazan, Safiya, the gasifier is running now, so it's just a function of paper shuffling to start accruing the benefits?

Speaker 2

Bob, good morning. How are you this morning?

Speaker 12

Doing great.

Speaker 2

You just asked me a question that I Cannot answer because we have been prohibited by Saudi Aramco We talked about the state of operation of the refinery and what stage it is and how it is operating and so on For security reasons. So I cannot tell you what is operating, what is not operating and all of that. I mean, if you want, you can ask that question from Saudi Aramco, but I think they will say probably the same thing that I said. So I apologize. You asked the question and I cannot answer it.

Speaker 2

Sorry about

Speaker 12

How about on the debt facility that was launched back in May? Is that the final piece that has to be concluded?

Speaker 2

That is the final piece that needs to be concluded. That is underway and we are very close. Got you. Okay. Thank you, Safi.

Speaker 2

Thank you. Thank you. Thank you.

Speaker 12

Thank you.

Speaker 2

Thank you.

Speaker 12

Thank you. Scott, really enjoyed working with you over the years.

Speaker 2

Thanks, Bob. Likewise.

Operator

And we'll move on to Tim Fisher with Barclays.

Speaker 13

Yes, good morning. Thanks. First question just around Luan. Seifi, I think you mentioned that you thought it was going to get back to a run rate of $160,000,000 of EBITDA, but I didn't understand was that in the fiscal 2022 for you guys or is that calendar 2022 for the customer?

Speaker 2

It is in fiscal 2023. Let's call 22. I mentioned in the call that it will be low.

Speaker 13

Okay. 22 is low as 23 gets okay, fair enough. And then second one on your Alberta project, I believe one of your big customers up there is Suncor. And they had announced about a month earlier than you guys kind of a similar project. Does your project supersede what they were going to do?

Speaker 13

Or is there enough space up there that both of you can do a large green hydrogen project?

Speaker 2

Well, I don't want I obviously don't want to speak for Suncor. They are a customer of ours, but we are not the only Prior, they have their own SMRs. So what they intend to do, our contract with them lasts until 2028. I don't know what is their intention about doing a project to replace their own SMRs, doing a project to They own SMRs and what they buy from us, that's something that you have to talk to them. I don't want to be speaking for them.

Speaker 2

But this project they announced it will come on stream in 2028 and our project will come on stream in 2024.

Operator

And next we'll hear from Marc Bianchi with Cowen.

Speaker 7

Thank you. A fuel cell company, which is Was a hydrogen customer noted on their earnings call that they transitioned away from Air Products because they were unhappy with supply and pricing? The same company is also building out their own green hydrogen supply chain. Maybe you want to respond to that situation since it was mentioned on an investor call recently. But The question really is more broadly, what do you say to investors that might be concerned about competition for hydrogen distribution in mobility applications?

Speaker 2

Well, first of all, with respect to that specific customer who made those comments, I wish them very good luck into what they are doing. We have stopped supplying them for a very simple reason because we think the product that we have is worth a lot more and we can sell it for a higher price to other people. Therefore, we are in the business of making money. There was no sense for us to continue to sell hydrogen at low prices. That's why we have stopped dealing with them.

Speaker 2

In terms of building their own plant, as I said, I wish them good luck and I hope they are successful. And as far as other people wanting to get into the business, that's perfectly fine. We have been in the business of making hydrogen for the last 60 years. A lot of people are waking up in the morning and now want to get into the hydrogen I wish them good luck. There is plenty of opportunity, plenty of demand for this product.

Speaker 2

And if they want to get into it, They are more than welcome. I don't think we are concerned about that. We welcome competition. We have competition in Everything else we do, and therefore, I have no concern about that, and I wish everybody good luck who wants to get into the business. We just have a minor 60 years of head start on them, but that people might consider is not that significant, but they'll find out What it

Speaker 8

takes.

Speaker 2

Thank you, Seifi. Thank you.

Operator

We'll move on to Mike Sison with Wells Fargo.

Speaker 14

Hey, good morning. Hey, Scott, congratulations. Hope You found a fun place to retire like Cleveland, but just one question on the 20 27 goals, Stacy. You've talked about demand being really good for hydrogen and other areas. Is it possible that, A, you could maybe deploy that capital sooner than 27?

Speaker 14

Or Is it maybe you have to spend more potentially if demand is going to be that strong?

Speaker 2

What we believe is that the demand is very strong and we do believe that we will commit more than that. So That's our view.

Speaker 14

Great. Thank you.

Speaker 2

Thank you.

Operator

And at this time, I would like to turn the call back over to Sethi Ghassami for any additional or closing remarks.

Speaker 2

Well, I just want to thank everybody for being on our call and listening to our presentation. We appreciate your interest, and we obviously look forward to discussing our results with you again next quarter. As I said earlier, Please stay safe and healthy, and all the best. Thank you very much for being on our call.

Operator

And that will conclude today's call. We thank you for your participation.

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