air products & chemicals 2008 june3 jpmorgan
TRANSCRIPT
Bob DixonSenior VP and GMGlobal Merchant GasesJPMorgan3rd Annual Basics and IndustrialsConferenceJune 3, 2008
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ForwardForward--Looking Statements Looking Statements NOTE: This document 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 document 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 the Company; 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 a natural disaster; the ability to attract, hire and retain qualified personnel in all regions of the world where the company operates; charges related to portfolio management, goodwill recoverability, business restructuring and cost reduction actions; the success of implementing cost reduction programs; the timing, impact, and other uncertainties of future acquisitions or divestitures; unanticipated contract terminations or customer cancellation or postponement of projects or sales; significant fluctuations in interest rates and foreign currencies from that currently anticipated; the continued availability of capital funding sources in all of the company's foreign operations; the impact of new or changed environmental, healthcare, tax or other legislation and regulations in jurisdictions in which the Company 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 document 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 companyDiverse 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%)
MerchantGases(34%)
TonnageGases(31%)
Equipment & Energy
(6%)
Healthcare(7%) Electronics &
Performance Materials(22%)
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Air Products Value PropositionAir Products Value PropositionProfitable GrowthProfitable Growth
Stability– Long term contracts– Consistent and predictable
cash flows – Strong balance sheet
Growth– Solid project backlog– High bidding activity– Energy opportunities
Improving returns– Margin improvement– Productivity– Increasing dividends– Share buyback
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Merchant
Transforming Air ProductsTransforming Air ProductsCreating Shareholder ValueCreating Shareholder Value
FY00 Sales $5.7B
FY07 Sales $9.4B
Merchant Tonnage
Equipment & Energy
HealthcareElectronics & Performance
Materials
Tonnage
Chemicals
Electronics & Perf Mat’ls
Equipment & Energy
Healthcare
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Supply Modes Supply Modes Durable Business ModelsDurable Business Models
Package Gases & Specialty Materials
25%
Onsite/Pipeline36%
Liquid/Bulk21%
10, 15 and 20-year contractsTake-or-pay
Contractual energy pass-throughFormula escalation
3-5 year contractsRegional business
Cost pass-through/surcharges
Equipment & Services 18%
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Italy
$480M
Equity Affiliate Income $114MEquity Affiliate Income $114MFY07 Revenues 100% basis $2BFY07 Revenues 100% basis $2B
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South Africa$135M
India
$90MThailand
$85M
Mexico
$550M
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Tonnage GasesTonnage GasesHigh Growth SegmentHigh Growth Segment
Sales
0
500
1000
1500
2000
2500
3000
3500
2004 2005 2006 2007
Operating Income & Margin
050
100150200250300350400450
2004 2005 2006 200710.0%
12.0%
14.0%
16.0%
18.0%
20.0%$MM $MM
Investment by Region
North America
Asia
Europe & Middle East
16% CAGR
• Significant profit growth and improvement in returns on capital while bringing on new investments
• Significant large plant bidding opportunities (both H2 & O2) continue
• Anticipate continued 10%-15% H2 growth
99
Plaquemine
Geismar
Lake Pontchartrain
Convent
Cosmar
Taft
Geismar10
NolaNew Orleans
Chalmette
LouisianaBaton Rouge
BPCarson
ShellWilmington
DominguezChannel
Conoco PhillipsWilmington
Conoco Phillips Carson
VAN NESSAVE.
SepulvedaBlvd
Anaheim Street
91
LongBeachArpt.
190th
St.
Carson H2
Wilmington H2
710
405
405
110
1
110
SouthernCalifornia
APD HyCO facilitiesH2 pipelineCO pipelineSyngas pipeline
1414630630
1414
1616
2121
CN RAIL Edmonton,Canada
SherwoodPark
Petro-CanadaImperial Oil
1616
Mont Belvieu
Port Arthur
Bayport
Battleground
Pasadena
City of Houston
Clear Lake
Baytown 2
LaPorte
Texas City
10
45
610
Lake CharlesBeaumont
225
73
6910
Zwijndrecht
To Moerdijk
Europoort
Pernis
Botlek
Rotterdam
40
40
Corunna
Suncor
Shell Refinery
40
ST.CLAIR RIVER
Air Products Canada
SarniaCanada
ValeroWilmington
Texas
Strong Hydrogen Pipeline Positions
SF BayRefineries
TarragonaRefinery
1010
Electronics & Performance MaterialsContinuing Margin Improvement
Sales
0
500
1000
1500
2000
2500
2004 2005 2006 2007
Operating Income & Margin
0
50
100
150
200
250
2004 2005 2006 20070.0%
3.0%
6.0%
9.0%
12.0%
15.0%$MM $MM
11% CAGR
Asia (40%)
North America (40%)
Latin America (2%)Europe
(18%)
Revenue by region ($, FY07) Strong top line growth over the past four years
Excellent profit and return improvement
Near term focus on further margin improvement to achieve our goal of 15%
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Merchant GasesSolid Performance Continues
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- Strong growth in Asia - Expanding in Eastern/CentralEurope
- New offerings success Achieve 20% operating margins
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Merchant GasesDrive a Local Business on a Global Chassis
Liquid/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
Great opportunities– Continued margins improvement– Emerging markets and
geographies
Local Business
Regional Roles/Global Collaboration
Global Differentiators
Margin Improvement
& Growth
1313
Merchant GasesGrowth via Innovation
New offerings including:– Safer packaged gases– Leading edge burner
technologyApplications and supporting technology
– Glass– Food– Water
1414
Air Products Cleanfire® BurnerSuperior Oxy-Fuel Performance!
1515
Margin 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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Sales ($B)………………EPS ($/share)…….......ORONA (%) …………..ROCE (%)……………..SG&A / Sales (%)……
Balance Sheet………….Shareholder Value…….
A Healthy Report CardA Healthy Report CardFour consecutive yearsFour consecutive years
9.6%$2.45
14.7%
“A” ratingDividend increase & share repurchase
$6.4 $7.1 $8.2
FY04 FY05 FY06
$2.80 $3.35
9.9%
14.2% 12.8%
11.3%
FY07
$9.4
$4.20
12.4%
12.2%9.6% 10.1% 11.2% 12.3%
* Comparisons are non-GAAP.
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Sales ($B) $4.8 $5.1 11%
SG&A as a % of Sales 12.2% 12.0% (20bp)
Operating Margin 13.7% 14.5% 80bp
Diluted EPS ($/share) $1.96 $2.39 22%
ROCE (%) 11.7% 12.4% 70bp
Q2 YTD Q2 YTDFY07 FY08 Change
Consolidated Consolidated ’’08 YTD Financials:08 YTD Financials:Delivering LeverageDelivering Leverage
Comparisons are non-GAAP
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Outlook for Industrial GasesOutlook for Industrial GasesContinued StrengthContinued Strength
Global outlook for gases tracking on forecast
Future demand drivers are strong– High energy costs efficiencies– High capital costs debottlenecking– Environmental pressures new applications
Well positioned globally with market leadership– Hydrogen for clean fuels– Oxygen for gasification– Electronics
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2008 and Beyond2008 and BeyondSustainable DoubleSustainable Double--Digit GrowthDigit Growthat Superior Returnsat Superior Returns
Targeting sustainable double-digit EPS growth– 15% to 19% EPS growth in FY 08
● Targeting 300bp margin improvement over3 years– Cost reduction and SG&A improvement– Accelerated productivity– 100 basis points in FY’08
Targeting a ROCE 3% to 5% above our cost ofcapital
More Focused, Less Cyclical,More Focused, Less Cyclical,Higher Growth, Higher ReturnsHigher Growth, Higher Returns
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