air products & chemicals 2007 Sept 26 Credit Suisse
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Transcript of air products & chemicals 2007 Sept 26 Credit Suisse
Paul Huck, VP & CFO Credit Suisse 16th Annual Chemical ConferenceSeptember 26, 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
$9B in salesDiverse markets and geographiesPositioned for continued long-term value creation
FY06 Geographic Sales
United States(49%)
Asia(16%)
Europe(29%)
Canada/LatinAmerica (4%)
FY06 Segment SalesROW(2%)Merchant
Gases(31%)
TonnageGases(25%)
Equipment & Energy
(6%)Healthcare(6%)
Chemicals(10%)
Electronics & Performance
Materials(22%)
Chemicals(10%)
Electronics & Performance
Materials(22%)
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Value PropositionValue PropositionProfitable GrowthProfitable Growth
Stability– Long term contracts– Consistent and predictable
cash flows – Strong balance sheet
Earnings growth– New projects– Margin improvement– Productivity
Improving returns– Good progress– Continued opportunity
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Supply Modes Supply Modes Durable Business ModelsDurable Business Models
Package Gases & Specialty Materials
26%
Onsite/Pipeline34%
Liquid/Bulk21%
10, 15 and 20-year contractsTake-or-pay minimum volumes
Contractual energy pass-throughFormula escalation
3-5 year contractsRegional business
Cost pass-through/surcharges
% of consolidated revenues (excludes Chemicals segment)
Equipment & Services 19%
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A Healthy Report CardA Healthy Report CardThree consecutive yearsThree consecutive years
Sales ($B)……………EPS* ($/share)…….......ORONA* (%) …………..SG&A as % of Sales*....
Balance Sheet………….Shareholder Value…….
9.3%
$2.53
14.2%
“A” ratingDividend increase & share repurchase
$7.0 $7.8 $8.9
* Comparisons are non-GAAP. See appendix slide for GAAP reconciliation.
FY04 FY05 FY06
$2.93 $3.50
10.0%
13.5% 12.2%
11.3%
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d
Equity Affiliate Income >$100MEquity Affiliate Income >$100MFY06 Revenues 100% basis ~$1.6BFY06 Revenues 100% basis ~$1.6B
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South Africa$130M
Italy
$470MIndia
$85MThailand
$80M
Mexico
$515M
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Merchant GasesMerchant GasesDrive a Local Business on a Global Drive a Local Business on a Global ChassisChassis
$2.7 billion in FY’06 Sales– Liquid/Bulk, cylinder and small onsite gases to
diverse industrial markets
LocalBusiness
Regional Roles/Global Collaboration
Global Differentiators
Margin Improvement
& Growth
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Merchant GasesMerchant GasesStrong Growth & PerformanceStrong Growth & Performance
Sales
0
500
1000
1500
2000
2500
3000
3500
2004 2005 2006 2007E
Operating Income & Margin
0
100
200
300
400
500
600
2004 2005 2006 2007E10.0%
12.0%
14.0%
16.0%
18.0%
20.0%$MM $MM
• Continue delivering double-digit growth
• Explosive growth in Asia
• Expanding in Eastern/Central Europe
• New offerings success
• Achieve 20% operating margins
Revenue by region ($, FY07F)
Europe PG
North America
ROWEquipment
Europe LB
Asia
12% CAGR
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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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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 Strong Hydrogen Pipeline PositionsPositions
SF BayRefineries
TarragonaRefinery
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Tonnage GasesTonnage GasesHigh Growth SegmentHigh Growth Segment
Sales
0
500
1000
1500
2000
2500
3000
2004 2005 2006 2007E
Operating Income & Margin
050
100150
200250
300350
400
2004 2005 2006 2007E10.0%
12.0%
14.0%
16.0%
18.0%
20.0%$MM $MM
• 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
• Achieve 16% operating margins
Gross Investment by Region
North America
Asia
Europe & Middle East
18% CAGR
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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, H2 and CO for pipeline systems:– NG based POX units– Syngas
cleanup/separation facilities from POX unit
Recent wins:– Eastman Gasifier in Texas– Wison II in China – BP Clean Power in
California
0
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 Project Hydrogen from Eastman Gasifier Project vs. 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 to Eastman
Ammonia and Methanol to Contract Customers
Eastman Facility
Primary
Secondary
TertiarySyngasGasifier
#1
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Equipment and EnergyEquipment and EnergyPositioned for Continued GrowthPositioned for Continued Growth
$.5 billion in FY’06 SalesBroad customer base– Oil & gas, utilities, chemicals and
metalsProducts– 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 whatA natural extension of whatAir Products does bestAir Products does best
$2B+ segment under-pinned by technology, innovationFranchise positions / global leadershipStrategic positions with leading customers Operationally excellent global supply chainLeading edge applied technology, new products
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Electronics & Performance MaterialsElectronics & Performance MaterialsStrong PerformanceStrong Performance
Sales
0
500
1000
1500
2000
2500
2004 2005 2006 2007E
Operating Income & Margin
0
50
100
150
200
250
2004 2005 2006 2007E0.0%
3.0%
6.0%
9.0%
12.0%
15.0%$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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Q3 YTD Q3 YTDFY06 FY07 Change
Consolidated Consolidated ’’07 YTD Financials:07 YTD Financials:Continued Solid PerformanceContinued Solid Performance
* Continuing Operations ** Comparisons are non-GAAP, see appendix for reconciliation
Sales ($B) $6.5 $7.5 16%
Diluted EPS ($/share)* $2.56 $3.21 25%
ORONA (%)** 10.9% 12.2% 130bp
SG&A as a % of Sales* 12.4% 11.8% (60bp)
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9.5%
10.5%
11.5%
12.5%Q
1'05
Q2'
05
Q3'
05
Q4'
05
Q1'
06
Q2'
06
Q3'
06
Q4'
06
Q1'
07
Q2'
07
Q3'
07
Q4'
07
On Track To Hit On Track To Hit ’’07 ORONA Goal07 ORONA Goal
ORONA Improvement
4 Qtr Rolling AvgCurrent Qtr Annualized
xx
x
x
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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 BP Operating Margin Improvement From …
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Beyond 2007Beyond 2007Sustainable DoubleSustainable Double--Digit GrowthDigit Growthat Superior Returnsat Superior Returns
Targeting EPS growth between 10-15%10 large ($25MM+) projects on stream ‘08New geographiesNew applications/products/markets
Cost reduction/productivityROCE well above our cost of capital +3-5%
More Focused, Less Cyclical,More Focused, Less Cyclical,Higher Growth, Higher ReturnsHigher Growth, Higher Returns
tell me morewww.airproducts.com
Thank you
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ORONA = Operating Return on Net AssetsOperating Income
Average (Net Assets – Equity Affiliate Investment)
ROCE = Return on Capital Employed(Oper Inc BT + Equity Affiliate Inc BT)x(1- ETR)
Average (Debt + Equity + Minority Interest)
ROCE … more inclusive– Equity Affiliate Income– After Tax
Return On Capital MeasuresReturn On Capital MeasuresTransitioning to ROCETransitioning to ROCE
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Return On Capital MeasuresReturn On Capital MeasuresSimilar TrendsSimilar Trends
* see appendix for ROCE calculation
8.5%
9.5%
10.5%
11.5%
12.5%
FY04 FY05 FY06
ORONA
ROCE
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Appendix:Appendix:Non GAAP ReconciliationNon GAAP Reconciliation
($ Millions, except per share data)
FY04 FY05 FY06 FY04 FY05 FY06(1) FY04 FY05 FY06Sales 7,031.9 7,768.3 8,850.4 7,031.9 7,768.3 8,850.4SG&A 956.2 1,013.6 1,080.7 39.4 38.5 995.6 1,052.1 1,080.7SG&A% of Sales 13.6% 13.0% 12.2% 14.2% 13.5% 12.2%
Diluted EPS - Continuing Ops $2.66 $3.06 $3.29 (0.13) (0.13) 0.21 $2.53 $2.93 $3.50
(1) Global cost reduction plan charge
Non GAAP MeasureGAAP Measure Proforma adjusts
Stock Option Expense
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Appendix:Appendix:ORONA NonORONA Non--GAAP ReconciliationGAAP Reconciliation
$ MillionsQuarter Ended Jun-05 Sep 05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07
Operating Income Operating Income 257.6 258.0 253.5 282.6 291.9 232.9 332.3 324.7 364.6 Proforma Option Expense (11.1) (14.9) Global Cost Reduction Plan - - - - - 72.1 - - - Op Inc ex Global Cost Red/incl Option Expense 246.5 243.1 253.5 282.6 291.9 305.0 332.3 324.7 364.6
AssetsTotal Assets 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
Less Investment in Equity Affiliate 661.3 663.7 679.4 718.2 736.4 728.3 765.6 796.2 817.9
Less Current Assets Disc Ops 103.0 100.7 100.5 102.5 83.3 - - - - Less Non-Current Assets Disc Ops 142.1 133.5 130.7 128.5 126.4 - - - -
Net Assets from Cont Ops 9,403.4 9,510.9 9,714.3 10,083.3 10,344.7 10,452.4 10,734.4 11,081.8 11,750.9
ORONA ex Global Cost Reduction Plan with Option Expense in all periods4 Qtr Trailing Op Income 939.0 947.6 974.4 1,025.7 1,071.1 1,133.0 1,211.8 1,253.9 1,326.6
5 Qtr Avg Net Assets from Cont Ops 9,421.3 9,511.2 9,627.2 9,699.1 9,811.3 10,021.1 10,265.8 10,539.3 10,872.8
ORONA ex Global Cost Red. Plan w/ Option Exp. 10.0% 10.0% 10.1% 10.6% 10.9% 11.3% 11.8% 11.9% 12.2%ORONA for the Quarter (Op inc x 4 / 2 pt avg net assets) 10.3% 10.3% 10.5% 11.4% 11.4% 11.7% 12.5% 11.9% 12.8%
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Appendix:Appendix:ROCE CalculationROCE Calculation