air products & chemicals 5 december 2007 citi basic materials
TRANSCRIPT
Paul Huck, SVP & CFO 2007 Citi Basic Materials Symposium New York CityDecember 5, 2007
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ForwardForward--Looking Statements Looking Statements NOTE: This presentation contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s reasonable expectations and assumptions as of the date of this presentation regarding important risk factors. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors, including, without limitation, overall economic and business conditions different than those currently anticipated; future financial and operating performance of major customers and industries served by Air Products; the impact of competitive products and pricing; interruption in ordinary sources of supply of raw materials; the ability to recover unanticipated increased energy and raw material costs from customers; costs and outcomes of litigation or regulatory activities; consequences of acts of war or terrorism impacting the United States’ and other markets; the effects of a pandemic or epidemic or a natural disaster; charges related to portfolio management and cost reduction actions; the success of implementing cost reduction programs and achieving anticipated acquisition synergies; the timing, impact and other uncertainties of future acquisitions or divestitures or unanticipated contract terminations; significant fluctuations in interest rates and foreign currencies from that currently anticipated; the impact of new or changed tax and other legislation and regulations in jurisdictions in which Air Products and its affiliates operate; the impact of new or changed financial accounting standards; and the timing and rate at which tax credits can be utilized. The company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this presentation to reflect any change in the company’s assumptions, beliefs or expectations or any change in events, conditions or circumstances upon which any such forward-looking statements are based.
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Air Products Air Products At a glanceAt a glance
$10B in sales FY’07Diverse markets and geographiesPositioned for continued long-term value creation
FY07 Geographic Sales
United States(44%)
Asia(17%)
Europe(32%)
Canada/LatinAmerica (5%)
FY07 Segment SalesROW (2%)Merchant
Gases(32%)
TonnageGases(26%)
Equipment & Energy
(6%)Healthcare(6%)
Chemicals(10%)
Electronics & Performance
Materials(22%)
Chemicals(9%)
Electronics & Performance
Materials(21%)
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Value PropositionValue PropositionProfitable GrowthProfitable Growth
Stability– Long term contracts– Consistent and predictable
cash flows – Strong balance sheet
Earnings growth– New projects– Margin improvement– Productivity
Improving returns– Good progress– Continued opportunity
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Supply Modes Supply Modes Durable Business ModelsDurable Business Models
Package Gases & Specialty Materials
26%
Onsite/Pipeline34%
Liquid/Bulk21%
10, 15 and 20-year contractsTake-or-pay minimum volumes
Contractual energy pass-throughFormula escalation
3-5 year contractsRegional business
Cost pass-through/surcharges
% of consolidated revenues (excludes Chemicals segment)
Equipment & Services 19%
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Sales ($B)………………EPS* ($/share)…….......ORONA* (%) …………..ROCE* (%)……………..SG&A / Sales (%)*……
Balance sheet………….Shareholder value…….
A Healthy Report CardA Healthy Report CardFour consecutive yearsFour consecutive years
9.4%$2.52
14.3%
“A” ratingDividend increase & share repurchase
$6.9 $7.7 $8.8
* Comparisons are non-GAAP. See appendix slide for GAAP reconciliation.
FY04 FY05 FY06
$2.92 $3.49
10.0%
13.6% 12.3%
11.4%
FY07
$10.0
$4.37
12.5%
11.8%9.9% 10.5% 11.6% 12.7%
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Italy
$470M
Equity Affiliate Income >$100MEquity Affiliate Income >$100MFY07 Revenues 100% basis ~$1.6BFY07 Revenues 100% basis ~$1.6B
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South Africa$130M
India
$85MThailand
$80M
Mexico
$515M
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Merchant GasesMerchant GasesDrive a Local Business on a Global ChassisDrive a Local Business on a Global Chassis
$3.2 billion in FY’07 salesLiquid/Bulk, cylinder and small onsite gases to diverse industrial marketsGlobal business model– Marketing– Application development– Supply chain
Local execution– Logistics– Sales and pricing– Customer service
Future opportunities– Improve margins– Eastern Europe & Asia growth
Local Business
Regional Roles/Global Collaboration
Global Differentiators
Margin Improvement
& Growth
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Merchant GasesMerchant GasesStrong Growth & PerformanceStrong Growth & Performance
Sales
0
500
1000
1500
2000
2500
3000
3500
2004 2005 2006 2007
Operating Income & Margin
0
100
200
300
400
500
600
700
2004 2005 2006 200710.0%
12.0%
14.0%
16.0%
18.0%
20.0%$MM $MM
Revenue by region ($, FY07)
Europe PG
North America
ROWEquipment
Europe LB
Asia
12% CAGR
• Continue delivering double-digit growth- Explosive growth in Asia - Expanding in Eastern/Central
Europe- New offerings success
• Achieve 20% operating margins
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Tonnage GasesTonnage GasesMarket Leader in Refinery HydrogenMarket Leader in Refinery Hydrogen
Global #1 HyCO Position
4,600 Million SCFD
Comp ZComp Z
Comp Y
Onstream 2007
APD(1940MMscfd)
Comp XComp X
APD Comp. X Comp. Y Others
H2 Plant Operating Years
APD . . .Widening Gap
1995 2000 2005
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Tonnage GasesTonnage GasesHigh Growth SegmentHigh Growth Segment
Sales
0
500
1000
1500
2000
2500
3000
2004 2005 2006 2007
Operating Income & Margin
050
100150200250300350400450
2004 2005 2006 200710.0%
12.0%
14.0%
16.0%
18.0%
20.0%$MM $MM
Investment by Region
North America
Asia
Europe & Middle East
18% CAGR
• Significant profit growth and improvement in returns on capital while bringing on new investments
• Significant large plant bidding opportunities (both H2 & O2) continue
• Anticipate continued 10%-15% H2growth
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Plaquemine
Geismar
Lake Pontchartrain
Convent
Cosmar
Taft
Geismar10
NolaNew Orleans
Chalmette
LouisianaBaton Rouge
BPCarson
ShellWilmington
DominguezChannel
Conoco PhillipsWilmington
Conoco Phillips Carson
VAN NESSAVE.
SepulvedaBlvd
Anaheim Street
91
LongBeachArpt.
190th
St.
Carson H2
Wilmington H2
710
405
405
110
1
110
SouthernCalifornia
APD HyCO facilitiesH2 pipelineCO pipelineSyngas pipeline
1414630630
1414
1616
2121
CN RAIL Edmonton,Canada
SherwoodPark
Petro-CanadaImperial Oil
1616
Mont Belvieu
Port Arthur
Bayport
Battleground
Pasadena
City of Houston
Clear Lake
Baytown 2
LaPorte
Texas City
10
45
610
Lake CharlesBeaumont
225
73
6910
Zwijndrecht
To Moerdijk
Europoort
Pernis
Botlek
Rotterdam
40
40
Corunna
Suncor
Shell Refinery
40
ST.CLAIR RIVER
Air Products Canada
SarniaCanada
ValeroWilmington
Texas
Strong Hydrogen Pipeline PositionsStrong Hydrogen Pipeline Positions
SF BayRefineries
TarragonaRefinery
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Tonnage GasesTonnage GasesLeading the Way on GasificationLeading the Way on Gasification
A leading O2 supplier to gasification facilitiesDesigned, built, own, and operate units for syngas, H2and CO for pipeline systems:– NG-based POX units– Syngas cleanup/separation
facilities from POX unitRecent wins:– Eastman Gasifier in Texas– Wison II in China – BP Clean Power in
California0
5,000
10,000
15,000
20,000
25,000
APD Comp X Comp Y Comp Z
O2 for Gasification/ ATR Customers(TPD)
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Hydrogen from Eastman Gasifier Hydrogen from Eastman Gasifier Project vs. Project vs. ““OffOff--GasGas”” FacilitiesFacilities
Hydrogen ~ 85% - 95% O/SH2 purification
Typical “Off-Gas” Facility
RawMaterials Chemical
plant
Ethylene, etc
APD O2 Spare
#3
#2Pet Coke
Hydrogen toAir Products
>99% O/S
Methanol
Ammonia
Eastman facility
SyngasGasifier
#1
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Equipment and EnergyEquipment and EnergyPositioned for continued growthPositioned for continued growth
$.6 billion in FY’07 salesBroad customer base– Oil & gas, utilities, chemicals and
metals
Products– LNG heat exchangers, large air
separation units, hydrocarbon separators, helium containers, hydrogen fueling systems…
Strategy– Leverage existing relationships– Develop energy projects– Leverage engineering technology
and products to grow gases businesses
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LNG Heat ExchangersLNG Heat ExchangersMarket LeadershipMarket Leadership
APD world leader in LNG equipment technologySustainable competitive advantage with AP-X®
technologyUS import terminals– 6 constructed; 7 bcfd– 22 approved; 37 bcfd – 27 proposed; 25 bcfd
Anticipate 2-3 LNG orders per year over next 5 years
Net Imports
BC
FD
25%
15%
US Natural Gas Gap
US NG Imports 2006 & 2020
Production
Consumption
2006 2020
BC
FD
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Electronics & Performance Materials:Electronics & Performance Materials:A natural extension of what Air Products A natural extension of what Air Products does bestdoes best
$2.1B segment underpinned by technology, innovationFranchise positions / global leadershipStrategic positions with leading customers Operationally excellent global supply chainLeading edge applied technology, new products
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Electronics & Performance MaterialsElectronics & Performance MaterialsStrong PerformanceStrong Performance
Sales
0
500
1000
1500
2000
2500
2004 2005 2006 2007E
Operating Income & Margin
0
50
100
150
200
250
2004 2005 2006 2007E0.0%
3.0%
6.0%
9.0%
12.0%
15.0%$MM $MM
10% CAGR
• Excellent profit and return improvement driven largely by Electronics turn around
• Continue delivering double-digit growth
• Achieve 15% operating margins
Asia (40%)
North America (40%)
Latin America (2%)Europe
(18%)
Revenue by region ($, FY07F)
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Fiscal Year 2007:Fiscal Year 2007:Fourth Year of DoubleFourth Year of Double--Digit GrowthDigit Growth
($Millions) FY06 FY07 $ ∆ % ∆Growth vs. PYContinuing Operations *
$567 million in shares repurchasedAdditional $1B authorization announcedContinued to improve the portfolio
* Comparison is non-GAAP, see appendix for reconciliation
Sales $8,753 $10,038 $1,285 15%Operating Income 1,128 1,390 262 23%Net Income 792 976 184 23%EPS ($/share) 3.49 4.37 0.88 25%ORONA (%) 11.4% 12.5% 110bp
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Margin Improvement FocusMargin Improvement Focus
Cost Cost reductionreduction
200bp200bp
Improved Improved mixmix
50bp50bp
Plant Plant efficiencyefficiency
50bp50bp
2007 2010
14%17%
300 basis point operating margin improvement from …
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2008 and Beyond2008 and BeyondSustainable DoubleSustainable Double--Digit GrowthDigit Growthat Superior Returnsat Superior Returns
Targeting EPS growth between 10-15%11 large ($25MM+) projects on stream in ‘08New geographiesNew applications/products/markets
Cost reduction/productivityROCE well above our cost of capital +3-5%
More Focused, Less Cyclical,More Focused, Less Cyclical,Higher Growth, Higher ReturnsHigher Growth, Higher Returns
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tell me morewww.airproducts.com
Thank you
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Appendix:Appendix:NonNon--GAAP ReconciliationGAAP Reconciliation
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Appendix:Appendix:FY2008 GuidanceFY2008 Guidance
%($/share) FY07 FY08 Guidance Change
Diluted EPS - Continuing Operations
GAAP $4.67 $4.80-$5.00 3%-7%
Adjustments (1) ($0.30)
Non GAAP $4.37 $4.80-$5.00 10%-14%
(1) See previous appendix for listing of adjustments
Full Year
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Appendix:Appendix:FY2007 FY2007 –– Q4 vs. Q3Q4 vs. Q3
Fav / (Unfav)
Operating Income from EPS Operating Income from EPS Operating Income from EPSIncome Cont. Ops Cont. Ops Income Cont. Ops Cont. Ops Income Cont. Ops Cont. Ops
GAAP Measure $389.1 $301.7 $1.35 $363.9 $284.5 $1.28 7% 6% 5%
Gain on contract termination ($36.8) ($23.6) ($0.11)Supp. pension plan charge $10.3 $6.4 $0.03Global cost reduction plan $13.7 $8.8 $0.04Donation/sale of cost investment ($5.0) ($19.8) ($0.09)Tax adjustments ($11.3) ($0.05)Tax audit resolution ($27.5) ($0.12)
Non GAAP Measure $371.3 $262.2 $1.17 $363.9 $257.0 $1.16 2% 2% 1%
FY2007 Q4 FY2007 Q3 FY2007 - Q4 vs Q3
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Appendix:Appendix:ORONA NonORONA Non--GAAP ReconciliationGAAP Reconciliation$ MillionsQuarter Ended Dec-04 Mar-05 Jun-05 Sep 05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07
Operating Income Op. Inc. Reported 235.9 238.8 256.8 259.3 253.2 280.3 290.8 231.3 331.2 323.5 363.9 389.1 Proforma Option Expense (11.0) (10.9) (11.1) (14.9) - - - - - - - - Op. Inc. Reported with Option Exp all periods 224.9 227.9 245.7 244.4 253.2 280.3 290.8 231.3 331.2 323.5 363.9 389.1 Disclosed Items: Global Cost Reduction Plan - - - - - - - 72.1 - - - 13.7 Pension Settlement charge 10.3 Gain on contract termination - - - - - - - - - - - (36.8) Donation/sale of cost investment - - - - - - - - - - - (5.0)
Op Inc incl Option Expense, ex items 224.9 227.9 245.7 244.4 253.2 280.3 290.8 303.4 331.2 323.5 363.9 371.3
AssetsTotal Assets 10,653.4 10,707.3 10,309.8 10,408.8 10,624.9 11,032.5 11,290.8 11,180.7 11,500.0 11,878.0 12,568.8 12,668.9
Less Investment in Equity Affiliate 672.1 672.8 661.3 663.7 679.4 718.2 736.4 728.3 765.6 796.2 817.9 855.4
Less Current Assets Disc Ops 141.8 142.9 137.4 136.8 134.6 136.1 116.8 32.2 31.5 30.0 28.5 28.5 Less Non-Current Assets Disc Ops 208.9 205.9 204.6 194.1 189.3 185.8 182.6 56.6 54.4 54.3 55.5 39.8
Net Assets from Cont Ops 9,630.6 9,685.7 9,306.5 9,414.2 9,621.6 9,992.4 10,255.0 10,363.6 10,648.5 10,997.5 11,666.9 11,745.2
ORONA with Option Expense in all periods - reported4 Qtr Trailing Op Income 971.2 1,023.6 1,068.7 1,055.6 1,133.6 1,176.8 1,249.9 1,407.7 5 Qtr Avg Net Assets from Cont Ops 9,531.7 9,604.1 9,717.9 9,929.4 10,176.2 10,451.4 10,786.3 11,084.3
ORONA with Option Expense in all periods - reported 10.2% 10.7% 11.0% 10.6% 11.1% 11.3% 11.6% 12.7%ORONA for the Quarter (Op inc x 4 / 2 pt avg net assets) 10.6% 11.4% 11.5% 9.0% 12.6% 12.0% 12.8% 13.3%
ORONA with Option Expense in all periods - ex items4 Qtr Trailing Op Income 971.2 1,023.6 1,068.7 1,127.7 1,205.7 1,248.9 1,322.0 1,389.9
5 Qtr Avg Net Assets from Cont Ops 9,531.7 9,604.1 9,717.9 9,929.4 10,176.2 10,451.4 10,786.3 11,084.3
ORONA w/ Option Exp all periods - ex items 10.2% 10.7% 11.0% 11.4% 11.8% 11.9% 12.3% 12.5%ORONA for the Quarter (Op inc x 4 / 2 pt avg net assets) 10.6% 11.4% 11.5% 11.8% 12.6% 12.0% 12.8% 12.7%
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Appendix:Appendix:ROCE NonROCE Non--GAAP ReconciliationGAAP Reconciliation$ MillionsQuarter Ended Dec-04 Mar-05 Jun-05 Sep 05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07Numerator Operating Income Reported 235.9 238.8 256.8 259.3 253.2 280.3 290.8 231.3 331.2 323.5 363.9 389.1 Proforma Option Expense (11.0) (10.9) (11.1) (14.9) Equity Affiliate Income 25.5 25.2 26.3 28.4 27.8 24.3 25.9 29.7 30.1 32.4 35.5 33.8
Earnings before tax before items 250.4 253.1 272.0 272.8 281.0 304.6 316.7 261.0 361.3 355.9 399.4 422.9
Global Cost Reduction Plan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 72.1 0.0 0.0 0.0 13.7 Gain on Contract Termination 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (36.8) Pension Settlement Charge 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 10.3 Donation/Sale of Cost Investment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (5.0)Earnings before tax ex items 250.4 253.1 272.0 272.8 281.0 304.6 316.7 333.1 361.3 355.9 399.4 405.1
Effective tax rate before items 29.3% 28.7% 26.1% 29.2% 27.0% 27.5% 26.7% 24.6% 26.9% 27.0% 18.0% 18.9%Earnings after tax before items 177.0 180.5 201.0 193.1 205.1 220.8 232.1 196.8 264.1 259.8 327.5 343.0 Effective tax rate ex items 29.3% 28.7% 26.1% 29.2% 27.0% 27.5% 26.7% 27.2% 26.9% 27.0% 25.9% 26.0%Earnings after tax ex items 177.0 180.5 201.0 193.1 205.1 220.8 232.1 242.5 264.1 259.8 296.0 299.8
4 Qtr Trailing Earnings after tax (numerator) - before items 779.7 820.0 851.1 854.8 913.8 952.8 1,048.2 1,194.4
4 Qtr Trailing Earnings after tax (numerator) - ex items 779.7 820.0 851.1 900.5 959.5 998.5 1,062.4 1,119.7
Denominator Total Debt 2,559.0 2,505.3 2,508.7 2,493.7 2,601.9 2,796.6 2,973.3 2,849.8 3,150.2 3,313.9 3,778.9 3,677.2 Equity 4,740.8 4,910.1 4,614.9 4,545.5 4,708.8 4,967.7 5,046.6 4,924.0 5,111.5 5,276.5 5,456.3 5,504.0 Minority Interest 183.8 186.1 179.1 181.1 180.5 191.7 171.2 178.0 188.8 178.4 176.0 177.3
Total Capital 7,483.6 7,601.5 7,302.7 7,220.3 7,491.2 7,956.0 8,191.1 7,951.8 8,450.5 8,768.8 9,411.2 9,358.5
5 Qtr Average Capital (denominator) 7,419.9 7,514.3 7,632.3 7,762.1 8,008.1 8,263.6 8,554.7 8,788.2
ROCE before items 10.5% 10.9% 11.2% 11.0% 11.4% 11.5% 12.3% 13.6%ROCE before items for the Quarter (earnings after tax x 4 / 2 pt avg capital) 11.2% 11.4% 11.5% 9.8% 12.9% 12.1% 14.4% 14.6%ROCE ex items 10.5% 10.9% 11.2% 11.6% 12.0% 12.1% 12.4% 12.7%ROCE ex items for the Quarter (earnings after tax x 4 / 2 pt avg capital) 11.2% 11.4% 11.5% 12.0% 12.9% 12.1% 13.0% 12.8%
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Appendix:Appendix:ROCE Tax Rate ReconciliationROCE Tax Rate Reconciliation
Q105 Q205 Q305 Q405 Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407ReportedIncome from Cont. Ops. Before Tax and Min. Int 233.5 234.3 257.2 261.2 254.7 279.3 287.3 222.7 322.2 318.1 355.2 380.8Minority Interest (4.3) (4.5) (8.3) (5.6) (6.1) (10.2) (6.4) (7.1) (7.9) (7.4) (8.3) (8.8)Income from Cont. Ops. Before Tax 229.2 229.8 248.9 255.6 248.6 269.1 280.9 215.6 314.3 310.7 346.9 372.0Proforma Option Expense (11.0) (10.9) (11.1) (14.9) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0Income from Cont. Ops. Before Tax w/ Option Exp. 218.2 218.9 237.8 240.7 248.6 269.1 280.9 215.6 314.3 310.7 346.9 372.0Tax Expense 63.9 62.8 62.0 70.2 67.0 74.0 75.1 53.0 84.7 83.8 62.4 70.3Tax Rate Reported 29.3% 28.7% 26.1% 29.2% 27.0% 27.5% 26.7% 24.6% 26.9% 27.0% 18.0% 18.9%
ITEMSOperating IncomeGlobal Cost Reduction Plan 72.1 13.7Gain on Contract Termination (36.8)Supp. Pension Plan Charge 10.3Donation/Sale of Cost Investment (5.0)
Tax ExpTax Audit Settlement 27.5Global Cost Reduction Plan 25.3 4.9Gain on Contract Termination (13.2)Supp. Pension Plan Charge 3.9Donation/Sale of Cost Investment 14.8Tax adjustments 11.3
Ex ItemsIncome from Cont. Ops. Before Tax w/ Option Exp. 218.2 218.9 237.8 240.7 248.6 269.1 280.9 287.7 314.3 310.7 346.9 354.2Tax Expense 63.9 62.8 62.0 70.2 67.0 74.0 75.1 78.3 84.7 83.8 89.9 92.0Tax Rate ex Items 29.3% 28.7% 26.1% 29.2% 27.0% 27.5% 26.7% 27.2% 26.9% 27.0% 25.9% 26.0%