Chairman, President & Chief Executive Officer at Air Products and Chemicals
Thank you, Sid, and good day to everyone. Thank you for taking time from your very busy schedule to be on our call today.
I am proud to say that the people at Air Products delivered great results this quarter, despite the significant macroeconomic headwinds. I would like to thank each of our talented, dedicated and motivated employees for their hard work.
Now please turn to slide number three. Our safety performance, which is always our highest priority. As you can see, we have made significant progress since 2014, but we always work hard to do better. Our goal is to achieve zero incidents and zero accidents.
Now please turn to slide number four. For the first quarter of our fiscal year 2023, our earnings per share was $2.64, an improvement of $0.16 per share or 6% versus last year. But our underlying performance versus last year was much better than that. The items that you need to consider to make a fair comparison versus last year are at $0.15 negative impact from currency, and a one-time gain of $0.20 in the first quarter of last year from the finalization of the Jazan ASU joint venture. I would like to point out also that our guidance for the first quarter was to deliver earnings per share of $2.60 to $2.80. Our actual EPS is $2.64, which is within our guidance, but at the lower end. The principal reason is that the Chinese and European economies were weaker than our expectation in early November, when we gave you the forecast.
Now please turn to slide number five. We are committed to reporting our shareholders, while pursuing our long-term growth strategy. I am pleased to say that we have again raised our quarterly dividend, this time by 8% to $1.75 per share per quarter or $7 a share on an annual basis, extending our record of more than 40 consecutive years of dividend increase. We expect to pay out more than $1.5 billion to our shareholders in 2023, reflecting our commitment to return cash to our shareholders.
Now please go to slide number six, still my favorite slide, which shows our EBITDA margin trend. While energy costs remain high, our margin improved this quarter. Our team has worked hard on increasing prices to offset the higher energy costs in our merchant business and we continue to work on productivity. I would also like to point out that three quarters of the margin decline, since the peak margin of around 42% is due to higher energy cost pass-through in our onsite business, which increases our sales, but does not impact our profit.
Now please turn to slide number seven. In addition to delivering strong results, we also achieved several significant project milestones during the quarter. In December 2022, we were very excited to announce our $4 billion green hydrogen project in the United States. This project will be located in Northern Texas, and is our latest mega-scale zero carbon, which means green hydrogen project since the announcement of our revolutionary NEOM green hydrogen project in 2020, and it will be by far the largest green hydrogen project in the United States. The information about this project and the recording of our December 8th webcast for this project are available on our website.
Now please turn to slide number eight. We were pleased to announce on January 19th, the completion of the second phase of the $12 billion Jazan gasification and power project, which is 51% majority owned by Air Products and it is 60% project finance. During the first quarter, with the first phase of this project, which was completed in October of 2021, Air Products contributed at about $1.5 billion for the purchase of $7.1 billion of assets from Saudi Aramco.
In the second phase, which was just completed, Air Products contributed an additional $900 million for the purchase of $4.2 billion of additional assets. Our total cash contribution for this project is $2.5 billion. As expected, the first phase of the project at end was $0.80 to $0.85 per share on an annual basis, which significantly contributed to our results in fiscal year 2022. With the completion of the second phase, we now expect about a total of $1.35 per share of earning contribution on an annual basis. This is fully in line with what we announced to investors more than three years ago.
Now please turn to slide number nine, where I wanted to provide you with an update on our great NEOM green hydrogen project, which is appropriate to give you an update since we are very close to completing a major milestone, which is signing the definitive project financing agreement for this project. And therefore, we wanted to give you an update before you read about that in the next few weeks. We have been making excellent progress on this world-scale project to bring energy to the world. The engineering is now about 30% complete. All major sub-contracts for the project have been awarded, including the electrolyzers and the power plant and all of that. Land preparation is completed and construction has started, and the joint venture team is in place and executing the project.
Now please turn to slide number 10. As you know, Air Products has a one-third ownership position of the NEOM production joint venture. But importantly, and this is very important, we remain the sole off taker of 100% of the green hydrogen produced in the form of green ammonia produced at this facility, and in an exclusive 30-year contract. We continue to see significant opportunities to use this green ammonia to bring green hydrogen to consumers around the world. And as I said, we are the sole off taker and distributor of this product. Then I want to emphasize that their off take price for this green ammonia remains the same as then we negotiated the original project in the summer of 2020 when we announced the project. This is a very key point that the fact that now our project financing this project. And as a result, we are absorbing all of the project financing charges and so on. That has not changed the off take price.
Then now please turn to Slide 11. Initially, the three partners planned, which are Air Products, NEOM which is owned by PIF and ACWA Power, we intended to use our own cash to fund the project -- the total project. But over the past two years, we have seen significant interest from the global financial institutions who see tremendous value proposition of this project. Therefore, we got tempted and we considered and we decided that the best course of action to minimize our cash contribution and maximize the return on the cash is to do non-recourse project financing for this project. The partners will contribute 25% cash and the remaining 75% will be non-recourse project financing.
And obviously, if you are doing non-recourse project financing, you want to maximize the amount of money that you can borrow, therefore, you put a lot of your ongoing costs and you bring them forward to the real present value and borrow against that. I'm going to explain this a little bit more when we get to the detailed chart. This means that Air Products -- this project financing means that now our cash contribution to this project will be $800 million -- less than $800 million, which significantly less than the $1.7 billion that we originally expected. That is what you would expect us to do, that is the whole point of project finance.
Now please turn to slide number 12. I am pleased to say that the non-recourse financing is well underway and these are more than two times oversubscribed from what we want to borrow. We have received commitments from over 20 global financial institutions, demonstrating their confidence in this project. Later this month, we expect to complete what we call the dry close, which is the signing of the definitive financing agreements, and we expect the full financial close to be completed a few months later. We'll obviously let you know as we make progress on the project finance.
Now please turn to slide number 13, so that I can provide you with an overview of the total project capital needs. First, the original $5 billion that we have mentioned before, for the capital required to build the facility. We have increased that -- it has increased by about $0.5 billion due to inflationary pressure that everybody expects. Then in addition, we have further increased the project investment by $1.2 billion to include items that we were going to buy service from other people, but now we want to provide those services ourselves in order to make the project totally self-contained and we wouldn't be dependent on others. These include power transmission lines and other infrastructure that was needed for the project. This increases the capital cost, but it decreases the operating costs and we decided that was a better trade-off. But the key point was to make sure that the project is not dependent on other people doing such things and we would have control over the whole thing, so that when we come on stream, we have everything that we need for the project to be operating.
Now the other item and I'm sure will be a subject of the questions from people is the $1.8 billion for projects financing costs. That is a big number. But it is very explaining what that is. Again as I said, if you have project financing, you want to put and borrow as much money as you can. First of all, about a $1 billion of that $1.8 billion is the interest during construction. So we are spending money. We want to borrow that money. There is an interest in that borrowing, therefore that adds up for the net total length of the project to about a $1 billion, you want to finance that and borrow against that.
Then we are using the land, instead of leasing the land for 50 years, we decided to pay for the land upfront, that reduces our ongoing costs and we can finance that. That is a few hundred million dollars spares for the project. Usually you by the spares as you go forward, we decided to buy all the spares upfront and finance that. So those are the kind of costs that comprise the $1.8 billion. It makes a lot of sense and that is the beauty of project finance that you can -- you have the flexibility of bringing up forward a lot of your costs that will save your operating costs in the future. So altogether, the total funding needed for the project is $8.5 billion,
Now please turn to slide 14, which is the overview of the funding. As I described before, the $8.5 billion is made of $6.2 billion of non-recourse debt, which we wanted to maximize and $2.3 billion of cash funded through partners. Therefore, obviously, the Air Products cash contribution is about one-third of that which is less than $800 million, and this is as compared to the $1.7 billion that we originally expected. So overall, we are very pleased with we are. We are very pleased with the fact that we are project financing this thing, minimizing our cash flow and we are very pleased that the price that we are paying for the ammonia has stayed the same as it was in 2020. We are very optimistic about project and the prospects for a good return for the total supply chain as we go forward.
Now, please turn to slide number 15. I would like to summarize the discussion by sharing some thoughts about our strategy. As I have mentioned before, there are two pillars for growth strategy at Air Products and sustainability is the foundation for both of them. Through our core industrial gas business, we supply customers in dozens of industries with critical products and services at lower emissions and increased efficiency and productivity. Through our blue and green hydrogen [Indecipherable] project of the future, we would commit more than $15 billion by 2027 to deliver clean hydrogen at a scale, helping to drive the energy transition and moving humanity forward. These two pillars, which support each other for success, put us in the heart of solving the world's needs for sustainable energy and environmental solution. I am proud to say that the people of Air Products have continued to drive these results in the near-term and make excellent progress in executing our growth projects as we move forward.
Slide number 16 summarizes our management principles, which I reiterate every quarter. These principles are critical to Air Products' success and will continue to guide us in the future.
Now, I am pleased to turn the call over to Melissa, our Chief Financial Officer. Melissa?