praxair investor day€¦ · rightsizing asset rationalization back office consolidation growth:...

Praxair Investor Day Sustaining Growth and Outperformance

New York City

September 16, 2013 www.praxair.com/investors

1 | Praxair Investor Day | 9/16/2013

Agenda – Morning Session 10:00am – 12:15pm

Topic Speaker

Welcome

Why Praxair?

Managing the Business

Product & Energy Management

Operations Reliability & Productivity

US Packaged Gases – Growth & Profitability

Petchem & Refinery – Pursuing New Opportunities

Canada – Growth through Natural Resources

Mexico – Well-Positioned for Growth

Q&A

Kelcey Hoyt

Steve Angel

Eduardo Menezes

Scott Kaltrider

Sean Durbin

John Panikar

Dan Yankowski

Matt White

Antonio Cesar


Agenda – Afternoon Session 2:00pm to 4:00pm

Topic

High Performance Culture

Europe – A Tale of Two Economies

South America – Valuable Long-Term Franchise

Asia – Growing Profitably

Technology Priorities

Project Selection Discipline

Project Execution

Sustaining Growth & Outperformance

Q&A

Speaker

Scott Telesz

Todd Skare

Domingos Bulus

Anne Roby

Ray Roberge

Ben Glazer

Murray Covello

Jim Sawyer

High Performance Culture

Scott Telesz

Prior employment

– SABIC, VP Resins

– General Electric: General Management, Product

Management, Sourcing roles

– McKinsey

Executive Vice President since 2010 Europe, Asia, Surface Technologies, Strategy, Procurement

2007-2010

1998-2007

1989-1998

Duke University, BS Electrical Engineering

Harvard University, MBA


Praxair Priorities and Processes

1. Safety First… demands operational discipline … positive side effects

2. Profit > Size

3. Stable strategy … stay on course

4. Best practical execution > innovative / futuristic ideas

5. Monthly operating rhythms … avoids quarter-end fire drills

6. Hands On … capex projects, productivity, pricing, risk mitigation

7. Efficient and effective communication … speed, action-oriented

8. Accountability and restrictions enforced … everyone’s responsibility

Rigorous and continuous attention to detail

PR

OC

ES

SE

S

PR

IOR

ITIE

S


Praxair Capex Investing

1. Project capex is still precious cash

Exhaustive stress test scenarios for returns & risk

Avoid “me too” and “must win” rationalization

Overruns taken seriously … regardless of size or cause

2. Unwavering customer negotiation

Onsite and merchant, regardless of size or geography

Adhering to our principles > any single opportunity

3. Conservative acquisitions

Buy quality … integrate thoroughly … remedy mistakes

Discipline … from start to finish


Praxair People

1. Field P&L > HQ Staff

2. Org layers optimized to balance

Command / control / accountability at local level

Unfiltered information flow and executive touch

3. Incentive compensation = f (profit, growth, w/c, ROC)

4. Performers rewarded & promoted

Highly differentiated, formulaic, transparent

5. Leadership transitions without re-org drama / distraction

Institution > Individual


Europe – A Tale of Two Economies

Todd Skare

VP, South Region, US Packaged Gases

Director, Global Supply Systems, Asia

Business Development Manager, US Industrial Gases

Prior Praxair experience in Engineering

President, Praxair Europe since 2010

2009

2005

2003

1992-2002

State University of New York at Buffalo, BS Chemical Engineering

Rutgers, The State University of New Jersey, MBA


Praxair Europe

Ongoing Productivity Initiatives:

Rightsizing

Asset rationalization

Back office consolidation

Growth:

Russia investments

Pipeline expansion in Antwerp

Oil & Gas in the North Sea

Margin upside with recovery…continued targeted investment strategy

Germany

Italy

France

Spain

Portugal

Scandinavia

Russia

Sales of $1.4B

Sales €B 1.1 1.1

2007 2013

2,450 2,230

Headcount (ex-Russia)

Benelux


Moscow

Praxair Russia

Investment Strategy

Integrated supply + density

Quality customers

Heavily industrialized zones

Sales Outlook

2013 2017F

$20

~$250

Existing

Backlog

Praxair Locations

Evraz (3,000 tpd)

Nikochem (400 tpd) VolzhskyAzot Acq.

Volga River

Region

Urals

Region

$MM

More opportunities than expected… execution every bit as tough

KuibyshevAzot JV

(1,400 tpd)


South America – Valuable Long-Term Franchise

Domingos Bulus

President, Praxair Asia

Executive Director, Andean Countries

General Manager, Colombia

Industrial Gases Manager, South America

Prior Praxair experience in Sales & Operations

SVP & President, Praxair South America since 2003 2001

1996

1995

1990

1984-1989

Gama Filho in Rio de Janeiro, BS Mechanical Engineering

Amana-Key, Advanced Management Program


Praxair in South America

Deep, experienced organization

– 5,500 employees: 4,300 in Brazil

Unrivaled network

– 90+ plants remotely monitored

– 8,000+ deliveries daily

– 300+ sales locations

Outstanding customer retention rate (99%)

Growing faster than competitors

Sales of $2.1B / IG Market = $4.5B

Praxair Presence

Source: Spiritus Consulting

Building presence for over 100 years

#1

#3

#2

#1

#1

#2

#2 #2


South America Outlook

Vast mineral and hydrocarbons

resources

─ Energy and infrastructure projects

Growing middle class with

under-met needs

Manufacturing base expansion

Steel industry repositioning

Currency volatility

High labor and power costs

Slow pace of government

sponsored construction projects

End of commodity “super cycle”

Challenges

Opportunities

Opportunities outweigh challenges


Resilient Performance in Any Environment

High bar for productivity

Price discipline

Contract optimization

World-class CRM program

Applications technology

Unmatched supply reliability

Historical Performance vs. IP

CAGR

= 3%

Industrial Production (region weighted average)

CAGR

= 9%

Praxair South America Sales (in local currency)

100

Expect mid-to-high single digit sales growth annually the next 5 years

2003 2006 2009 2012


Asia – Growing Profitably Dr. Anne Roby

President, Praxair Electronics

SVP, Global Sales

VP, South Region, US Industrial Gases

Houston Area Pipeline Director, US Industrial Gases

Prior Praxair experience in Sales and R&D

President, Praxair Asia since 2011

2010

2009

2006

2004

1991-1999

Villanova University, BS Chemical Engineering

University of Delaware, PhD Chemical Engineering


China Macro & Opportunities

Slower overall economic growth

Rebalancing industrial sector

Government policy driving environmental

compliance and technology-intensive industries

Faster growth inland

Macro Environment

Refining

Chemicals

Energy efficiency

Environmental protection

Opportunities

+ +

- IG Consumption Per Capita

(% of US)

US

China Decades of

organic growth

Source: Spiritus, Praxair internal analysis

20%

100%

+ Praxair China Sales

Strong outlook for industrial gases

Base

Growth

New

Projects

2012 2017F


Praxair China Versus Other Majors

9/13/2013 | Praxair Business Confidential | 16

Source: Praxair internal analysis

Praxair

Comp A

Comp B

Comp C

OP Margin %

PX profitability advantage driven by disciplined approach to the

market and density strategy


Start Up O2 TPD

SOPO 2009 3,000

Wuwei 2012 3,000

Yankuang Guohong

2015 3,000

China Gasification Projects

Coal mine

Gasifier

O2

Syngas

Coal

processing

Coal Gasification

Fuels

(liquids, gas)

Refinery

Hydrogen

Methanol

& Olefins Ammonia

Praxair

ASU

Praxair Plants

Customer quality

End market outlook

Technology & operational execution

Permitting & water challenges

Investment concentration

IG Scope

Careful selection of target projects

Project Viability

Praxair

Considerations


Praxair Asia

Praxair Asia Sales

Geographic selectivity … profitable growth

Thailand

India

In Operation

Under Construction

China

Korea

2017F

India

China

2012

Thailand

Korea

$1.4B

>$2.5B

Thailand

Korea

India

China


Technology Priorities

Ray Roberge

Chief Technology Officer

President, Electronics

Director Sales, Electronics

Director Product Line Development, Global Supply Systems

Prior Praxair experience R&D & Business Management

SVP & Chief Technology Officer since 2011

2008

2005

2002

1998

1973

Worcester Polytechnic Institute, BS Chemical Engineering

University of Michigan, MS Chemical Engineering


Technology Overview

Impact Priorities

Supply System

Optimization

ASU and HyCO cost reduction

Product line designs for high

construction costs

~3% per year lower

cost to serve

Applications

Technology Drive top-line

growth

New growth applications for

developed markets

Migrate applications to

emerging markets

Productivity 5% per year

Sustain productivity savings

Operational efficiency

Enhanced reliability

Technology programs aligned with business priorities


Praxair Air Separation Product Lines

Global designs with product

slate flexibility

Design for sale-of-gas “Total

Cost of Ownership”

Reduce cost 3% every year

Rapid learning and project execution

Recoverable engineering

Procurement leverage

Reliability: common spares

Approach Benefits

Competitive advantage through product line plants

10 15

20

Product Line (P/L)

Platforms

P/L Plants as % of

Total Plant CapEx

P/L Plants Operating or

Under Construction

2008

35

90 60

80 90+

2013 2018F 2008 2013 2018F 2008 2013


Applications in Emerging Markets

Environmental

Metfab

Steel / Metals

Pharmaceuticals

Food & Beverage

IG Consumption Per Capita (% of US)

US China Mexico Brazil India

Decades of

organic

growth

20% 12% 10%

2%

100%

Applications migration driving emerging market growth

Source: Spiritus, Praxair internal analysis 22 | Praxair Investor Day | 9/16/2013

Applications Example – O2 in Steel Production

O2 Intensity per ton of Steel

Coke to Pulverized

Coal Injection + O2

Direct Reduced Iron

Stove

Oxygen

Dilute Oxygen

Combustion

CoJet System

Hot O2 Burner Productivity

Innovations key contributor to oxygen demand growth

150

100

Index

1995 2000 2005 2010 2015

Nat Gas + O2


Project Selection Discipline

Ben Glazer

General Manager, Helium & Rare Gases

Director, Advanced Components, Electronics

Controller, Oil & Gas Services

Prior Praxair experience in Finance

Captain, United States Air Force

Director, Executive Staff & Capital Projects since 2012

2009

2006

2005

2002-2004

1995-2001

US Air Force Academy, BS Mechanical Engineering

Northeastern University, MS Mechanical Engineering

Cornell University, MBA


Heads-Up Review

Final Approval

First Pass Review

Audit

Potential Project

Identified

Monthly Execution Reviews

Customer Proposal

Opportunities consistent with stated strategies

Standard global hurdle rate >> cost of capital

Single project evaluation model

Terms & conditions review

Risk-based return criteria

Managing Our Capital Projects

Project Selection Project Execution

Process focus supports long-term return on capital goals


Praxair Investment Criteria

Lower Risk Standard Global Hurdle Rate Higher Risk

Strategic Alignment

Cost Reduction – Take or Pay – Merchant Guaranteed Cash Flows

Sovereign Risks

Execution

Customer & Asset

Criteria

Foreign exchange volatility Contractual enforcement Ease of doing business

Product line offering Execution complexity

Counter-party risk Underlying asset viability

Density & integrated supply systems

– Stand alone plants Opportunistic –


Sample Project Return on Capital

Investment Initial Contract Term Renewal

Annuity-based business model

Accretive to ROC within ~5 years

Successive renewals

- 2 - 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16+

Praxair Consolidated Return on Capital Average

Economic Term (years)


IG Capex Project Backlog Geographic Mix

Based on announced projects for competitors

Praxair project portfolio well-balanced across geographies

Comp A Comp B Comp C Praxair 2013F

Year End

N. America

S. America

Europe

M.E. & Africa

Other Asia-

Pacific

China


Project Execution

Murray Covello

VP, Global Operations Excellence

President, Praxair Asia

VP, Operations and Services, US Industrial Gases

President, Canada

Prior Praxair experience in Sales & Operations

Vice President, Global Supply Systems since 2009

2008

2005

2002

1999

1981-1997

University of Toronto, BS Mechanical Engineering

York University, MBA


Design & Build

* FEL-1 & 2 – increasingly detailed project estimates

Start-Up

Management

Project Reviews

Disciplined Project Execution Process

Front End Loading (FEL) Process

Budgetary FEL-1 (Business Planning)

FEL-2 (Facility Planning)

FEL-3 (Project Planning)

Budgetary estimate

Conceptual design

Initial cost estimate

Design iterations

Control cost estimate

Procurement & contracts

Risk plans

Project Execution

Operations input

Audit

Careful selection and superior execution ensure expected ROC


IP-sensitive engineering in US

China team for local projects and

global detailed design

Building strong Russian capabilities

3rd party engineering firms to balance

workload

Engineering capacity leveraged by

product line concepts

Work transfer facilitated by IT and

common tools

Mobile and talented teams

1,000+ Headcount

US Project

US Design

Europe/Russia

South America

China

India

Other Asia

Other NA Project

Praxair Engineering Deployment Strategy

Global product line design … local execution


Praxair Capex Project Results

Cost Performance

(% variance to control budget)

Schedule Performance

(% variance to control schedule)

New geographies: Russia

Construction cost escalation:

Brazil

Current Challenges

China prefabrication / sourcing, local

capability, contractor management

Leverage Brazil fabrication and

execution team

Solutions

0.9% 0.4%

-0.5%

2.3% 2.3%

2008 2009 2010 2011 2012

2.8% 1.9%

3.5%

2.3%

3.8%

2008 2009 2010 2011 2012

Proven execution capability…key to delivering expected project returns


Sustaining Growth & Outperformance

Jim Sawyer

VP & Treasurer

Assistant Treasurer

Area Treasurer, Europe

Prior Praxair experience in Finance

EVP & Chief Financial Officer since 2000

1994

1992

1989

1985

Wesleyan University, BS Geology and Environmental Sciences

Massachusetts Institute of Technology, MBA


Financial Leverage:

High ROC and cash flow

Operating Leverage:

Price + productivity > inflation

20 Years of Growth and Outperformance

Continued focus on growing EPS faster than revenue

EPS

13% CAGR

SALES

8% CAGR

OP

11% CAGR

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011


What We Heard Today

Mexico oil & gas

Air & water quality

North America

manufacturing

Brazil infrastructure

Canada natural

resources

US petchem

projects Growing

applications

& intensity

China

gasification

Russia

Disciplined pricing

High performance

culture

Energy

management

Sustainable

productivity

P&L accountability

Integrated supply

& density

Industry-leading

ROC 14-15%

Increasing free

cash flow

1-2% annual share

reduction

Growth from diverse sources… continued leverage down the P&L

Energy

Emerging Markets

Environmental

Excludes foreign currency and divestitures 35 | Praxair Investor Day | 9/16/2013

Cash Flow Projections (2013-17F Cumulative)

Cash Flow Generated from Operations

$17 billion (24% of sales)

Cash Flow Distributed

$7 billion (10% of sales)

Cash Flow Invested

$10 billion (14% of sales) Europe

South

America

Asia

North

America

Dividends Share

Repurchase

Balanced use of cash to maximize return to shareholders

Asia

South

America

Europe

North

America


Governance and Integrity

Maintain strong systems and a culture of global corporate governance, compliance, ethics,

human rights, integrity and accountability.

Strategic Leadership

Stay current with, and take advantage of, emerging global opportunities, developments and

challenges to position Praxair for the future.

Customer Commitment

Focus relentlessly on the delivery of customer value through continuous innovation that helps

our customers enhance their product quality, service, reliability, productivity, safety, energy

efficiency and environmental performance.

Environmental Responsibility

Achieve continuous environmental performance improvement and energy efficiency in our

operations.

Employee Safety and Development

Provide opportunities that allow employees to develop to their fullest potential in a creative,

inclusive and safe environment.

Community Support

Participate in community development in regions where we operate.

Financial Performance

Maintain year-on-year recognition from shareholders and stakeholders for top-tier financial

performance.

Stakeholder Engagement and Communication

Partner with internal and external stakeholders to achieve a strong, secure and sustainable

society, economy and environment.

Principles of Sustainable Development


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