Air Products and Chemicals, Inc.

Good morning and welcome to Air Products and Chemicals' first quarter earnings release conference call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Mr. Simon Moore, Vice President of Investor Relations.

Thank you, Leigh Ann. Good morning, everyone. Welcome to Air Products' first quarter 2021 earnings results teleconference. This is Simon Moore, Vice President of Investor Relations, Corporate Relations, and Sustainability. I am pleased to be joined today by Sefi Ghasemi, our Chairman, President, and CEO, Scott Krakow, our Executive Vice President and Chief Financial Officer, and Sean Major, our Executive Vice President, General Counsel, and Secretary. After our comments, we will be pleased to take your questions. Our earnings release and the slides for this call are available on our website at airproducts.com. This discussion contains forward-looking statements. Please refer to the forward-looking statement disclosure that can be found in our earnings release and on slide number two. In addition, throughout today's discussion, we will refer to various financial measures. Unless we specifically state otherwise, when we refer to earnings per share, EBITDA, EBITDA margin, In ROCE, both on a company-wide and segment basis, we are referring to our adjusted non-GAAP financial measures, adjusted earnings per share, adjusted EBITDA, adjusted EBITDA margin, and return on capital employed. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our website in the relevant earnings release section. Now, I'm pleased to turn the call over to Safey.

Thank you, Simon. And good day to everyone. We thank you for taking time from your busy schedule to be on our call today. We are living at a time when all humanity faces significant challenges. The most important and immediate one is the battle against the deadly virus that has already taken many lives and continues to ravage communities around the globe. We can only fight this deadly and global virus if we work together and stay united. In my more than 45 years in business, I have learned that all problems, no matter how challenging, can be solved if we stay focused and united, working toward a common goal. So it is in this spirit of working together as a team that I want to acknowledge the united and extraordinary efforts of all the talented, committed, and resilient people of air products around the world. They work hard every day to provide critical products and services to our customers. Our people working in solidarity and in a determined way have made it possible for us to keep our 750 facilities around the world operating during this unprecedented crisis. They are the ones who are making it possible for us to deliver the good results we see this quarter. And they are the ones who are pushing forward with developing and executing major world-class projects to ensure our growth in the future. They are the ones who, through their actions every day, give meaning to our higher purpose as a company, which is to help humanity move forward in a sustainable way and bring people together to help solve energy and environmental challenges. Our people are the soul of our company, and I am very proud to stand with them. Now, please turn to slide number three. As always, Safety is the most important focus for all of us at Air Products. It's a moral responsibility to keep our people safe, and our goal will always be zero accidents and incidents. Despite the challenging COVID-19 conditions, our team continues to focus on working safely, following our strict protocols to help protect themselves, our customers, and our communities. On slides four, five, and six, you can again see our goal, our management philosophy, and our five-point plan for moving forward. These are the principles that we follow every day. They drove our performance improvement in the past and will continue to guide us in the future. While we have accomplished a great deal in the past six years, transforming air products and delivering superior performance, I always prefer to focus on the future because I prepare the dreams of the future to the history of the past. I have shared our dreams of the future with you before, which you can see highlighted on slide number seven. I would like to repeat them again. Our dream of the future is to be the safest, most diverse, and most profitable industrial gas company in the world. Our dream of the future is to be the largest American chemical company as measured by market capitalization. Our dream of the future is to be the leader in providing solutions to the world's significant energy and environmental challenges. And we believe air products has a higher purpose beyond delivering superior financial results, bringing people together to work together and deliver sustainable solutions that benefit our customers and our world. This is what drives us every day. Now please turn to slide number eight. I'm proud to say that during the past 12 months, we have made significant progress in making these dreams a reality. We have significantly improved our safety record. Our margins remain highest in the industry. We announced our new sustainability goals, including carbon intensity reduction and diversity goals. These are consistent with our growth opportunities and our higher purpose. We helped drive our market cap increase by improving our earnings per share by over 10% on average over the last six years, with positive EPS growth in 2020, despite the negative impact of COVID-19 pandemic. We have continued to create and win projects that help customers and countries meet their growing needs for cleaner energy and environmental solutions. Let me share a few of the examples of these large, important projects that demonstrate progress on our strategy. We've won four world-scale energy heat exchanger projects over the last year, including the Qatar gas megaproject and the project in Mexico that we announced earlier this week. These projects are already contributing to our bottom line as we continue to complete them for our customers. We are executing the Gulf Coast Ammonia Project in the U.S. Gulf Coast and have acquired the hydrogen assets of our PBF customer in California and Delaware. These projects will further enhance our hydrogen leadership position in the United States. We announced the $2 billion coal to methanol project categorized as a national strategic project by the Indonesian government to support energy development and transition and reduce the country's reliance on fuel inputs. We also announced the innovative NEON project in Saudi Arabia to provide the board with a roadmap to transition to carbon-free, that is green hydrogen, the energy source of the future. Now please turn to slide number nine. We remain committed to delivering superior financial performance. And as I said, our people also know they are supporting the higher purpose in the work they do every day. Our industrial gas enterprise is critical to the success of dozen industries. And the scope and complexity of our mega projects require talented people with a variety of skills and backgrounds from different parts of the world to work together as one team. We are proud to bring people from diverse backgrounds and experiences together to collaborate and develop these innovative solutions for some of the most significant energy and environmental challenges in the world. That is our higher purpose, and it inspires our team and drives us every day. Now please turn to slide number 10, which highlights our key gasification projects. We are committed to our gasification strategy and are pursuing exciting projects around the world. We continue to see countries and large companies driving to convert low-value feedstock into high-value products. They have identified gasification as the best way to use abundant, low-value resources like coal, petcoke, and refinery bottoms in a sustainable manner. And we are in the best position to work with them and help them deliver better, more sustainable solutions that benefit their economies and their people. We do expect to announce additional gasification projects in the future. Now, specifically, I would like to give you an update on the two largest gasification projects which I discussed during our last earning call. First, our $12 billion acquisition of the Jazan gasifier and power plant from Saudi Aramco. Since our last call with investors on November 11, 2020, we have continued our discussions with Saudi Aramco to finalize all of the contracts, arrange the financing, and move toward the financial close. I am encouraged by the progress we have made in the last three months, and I would especially like to thank the Saudi Aramco very senior management for the positive steps they have taken to move this transaction forward. We obviously still have work to do to bring this significant project to a final conclusion, but I am more optimistic than I was three months ago. The second project we discussed on the last earning call was Luan. We have reached an agreement with Luan to temporarily reduce our fixed monthly fee during the time that the plant is shut down. And Luan has agreed to extend the length of the contract, which improves our return. Luan did pay us the reduced monthly fee for the months of October November, and December. We continue to believe that the plan will be restarted during this fiscal year. Now, please turn to slide number 11, which reflects our recently announced 12% dividend increase, raising our quarterly dividend to $1.5 per share for an annual rate of $6 a share. This dividend increase is a reminder that while we continue to develop our exciting growth opportunities, we have significant cash flow that supports this substantial dividend increase, the 39th consecutive year of increase for our products. And finally, slide number 12 shows our dividend margin. As always, my favorite slide. that it shows that the margin is up over 1,400 basis points since 2014. I am very proud of our team who continue to deliver EBITDA margins of nearly 40% for the quarter, despite the challenges facing us. Now, I would like to turn the call over to Mr. Scott Krappel, our Executive Vice President and Chief Financial Officer to provide a financial overview. Spot?

Thank you, Safey. As Safey stated earlier, our company continued to demonstrate resilience, delivering both higher sales and EBITDA this quarter, despite the challenges of the pandemic. Our business, which is about half onsite, continued to deliver stable cash flow, in spite of the difficult conditions continuing around the world. Now, please turn to slide 13 for a brief discussion of our first quarter results. Sales of $2.4 billion were up 5 percent compared to prior year, driven by strong price, higher energy pass-through, and a positive currency impact. Price actions continue to be an area of focus for us and improved in all three regions. This is the 14th consecutive quarter of year-over-year price gain. Volume was relatively stable, down 1%, as the additions of new plants, acquisitions, and increased sale of equipment activities were more than offset by COVID-19 impacts and the reduced Luan contribution that safety mentioned. EBITDA of $932 million was up 3%, as favorable price, currency, and equity affiliate income more than offset the impact of lower volume and higher cost, primarily due to higher planned maintenance outages. EBITDA margin declined about 100 basis points, as lower volumes, including the loan, and higher costs, driven by increased planned maintenance in North America, more than offset the positive price impact. Operating income was 4% lower, while EBITDA was higher compared to last year, largely due to depreciation on new plants, particularly the PBF hydrogen plants that we acquired last year. COVID-19 continued to negatively impact our business. We estimate the pandemic reduced overall sales by about 4%, and EPS by about 10 to 15 cents. ROCE was 250 basis points lower, negatively impacted by the step-up in the denominator from the additional $5 billion of debt. Sequentially, the 3% weaker volume was driven primarily by seasonality, Luan, and lower sale of equipment activities. However, sales were up overall sequentially, as this lower volume was more than offset by favorable currency, higher energy pass-through, and positive price. Now please turn to slide 14. Our first quarter adjusted EPS of $2.12 was comparable to last year, despite the negative 10 to 15 cent impact of COVID-19. Volume was unfavorable 25 cents. The negative impacts of COVID-19 in Luan more than offset the PBF acquisition and new plants. Volume was nearly flat in sales, but unfavorable in EPS due to business mix. Price net of variable costs contributed 17 cents, with increases in all regions. Cost was unfavorable 6 cents as we executed planned maintenance projects and added new resources for future growth. For this quarter, we also benefited from the settlement of a supply contract. Currency and foreign exchange contributed $0.06, primarily due to appreciation of the Chinese RMB and euro relative to the U.S. dollar. Equity affiliate income added $0.04 due to strong underlying business results, while non-controlling interest was also favorable $0.04 on lower profits in our consolidated joint ventures, primarily due to Luan. As a reminder, we consolidate 100% of Luan's results given our 60% majority ownership of the joint venture and deduct our partner's 40% interest in the non-controlling interest line. Interest expense was $0.07 unfavorable due to the cost associated with the additional $5 billion of debt. The remaining $0.05 includes a favorable $0.04 pension impact and a favorable one set impact from a lower tax rate. The effective tax rate of 19.3% was down 50 basis points from prior year. We still expect our effective tax rate to be around 20 to 21% in fiscal year 21. Now, please turn to slide 15. We continue to generate strong cash flow, underscoring the stability of our business. Over the last 12 months, we generated almost $2.6 billion of distributable cash flow, or about $11.50 per share. From our EBITDA of over $3.6 billion, we paid interest, taxes, and maintenance capital. Note our maintenance capex is a little higher than usual, driven in part by spending on our new corporate headquarters. From the distributable cash flow, we paid over 40% or over $1.1 billion as dividends to our shareholders and still have about $1.4 billion available for high-return industrial gas investments. This strong cash flow, even in uncertain times, enables us to continue to create shareholder value through increasing dividends and capital deployment. Slide number 16 provides additional details on our capital deployment. we continue to have substantial investment capacity remaining. As you can see, we expect about $18 billion of investment capacity available over the five-year period from FY18 through FY22. The $18 billion includes over $9 billion of cash and additional debt capacity available today, about $2.5 billion of investable cash flow between now and the end of FY22, and about $6 billion already spent. Additionally, we will generate more cash and borrowing capacity as projects come on stream, and some of the spending in our backlog extends beyond FY22. We expect to reframe this potential for you later in 2021. We will continue to focus on managing our debt balance to maintain our current targeted AA2 rating. With a few new projects signed and some coming on stream, our total project and M&A commitments increased slightly to $12.7 billion, with about $11 billion remaining to spend on them. So you can see we've already spent almost 35% and already committed 95% of the capacity we show here. Now, to begin the review of our business segment results, I'll turn the call back over to Safey.

Thank you, Scott. Now please turn to slide number 17 for our Asia results. Compared to last year, currency, price, and energy pass-through resulted in a 4% increase in sales despite weaker volumes. Currency favorable across most key countries contributed 6%. Overall price rose 1% for the region, which represents a 3% increase for merchant products. I'd like to remind you that pricing was positive for Asia for the 15th consecutive quarter and particularly strong in Korea and Taiwan this quarter. Volumes were down 4% with new plans more than offset by Luan while the merchant business remained stable. Despite the impact of lower volumes, the strong price and favorable currencies kept EBITDA relatively stable. EBITDA margin at almost 48% was 240 basis points lower, primarily driven by lower volumes, mostly from yuan. Sequentially, sales were up 1% with favorable currencies more than offsetting the weaker volumes. EBITDA increased 4% primarily driven by lower costs, while favorable currency offset the negative impact of weaker volumes. Now, I would like to turn the call back over to Scott to talk about America's results.

Thank you, Sefi. Please turn to slide 18 for a review of our America's results. Sales were flat compared to last year. Higher price and energy pass-through were offset by lower volumes. Price was again better across all major product lines. The 3% increase for the region was equivalent to 7% for merchant. This is the 10th consecutive quarter of year-on-year price improvements. Volume was down primarily due to the impact of COVID-19, but partially offset by the PBF acquisition. EBITDA of $400 million was 2% below last year's level, as better price and the PBF acquisition were offset by the volume shortfall and higher maintenance costs. For the quarter, although America's planned maintenance was higher than last year, it is consistent with what we expect in Q2. EBITDA margin dipped 90 basis points with a negative 80 basis point impact from higher energy pass-through, while the unfavorable cost impact was largely offset by other favorable factors, including price and acquisitions. Now I'll make some comments on our sequential results. Sales increased 2% as higher energy pass-through and positive price overcame negative volume. Price was up across all major product lines, while volume was weaker, primarily due to seasonality. EBITDA declined 3%, as weaker volume was partially offset by better price. Margin was down primarily on higher energy pass-through, which had about a 200 basis point impact. Now, I'd like to turn the call back over to Simon to discuss our other segments. Simon?

Thank you, Scott. Now, please turn to slide 19 for a review of our Europe, Middle East, and Africa region results. Our EMEA team delivered outstanding results this quarter. Both sales and profits grew double-digit compared to both last year and last quarter. Price, volume, and currency were all favorable and contributed to the 13% year-on-year sales growth. Volumes grew 5% principally due to acquisitions and higher on-site volumes, which offset the adverse impact of COVID-19, predominantly in our packaged gas business. Price increased 3% for the region and 4% for merchant, with improvement across most major product lines and subregions. This is the 12th consecutive quarter of year-on-year price improvement. Currencies were favorable 6%, primarily due to the euro strength versus the U.S. dollar. EBITDA surged 18% to more than $220 million, supported by price increases, favorable currency, and acquisitions. EBITDA margin improved 170 basis points. Sequentially, volume improvement was driven by a modest COVID-19-related recovery in our merchant business, acquisitions, and higher onsite volumes. EBITDA was also up sequentially, and margins remained about flat. Now, please turn to slide 20, global gases, which includes our non-LNG sale of equipment business, as well as central costs. Sales increased due to higher sale of equipment project activity, but profit was lower due to business mix and higher product development spending. As mentioned earlier, we also benefited from the settlement of a supply contract, which offset the gains in project activities last year. Please turn to slide 21, corporate, which includes LNG and other businesses, as well as our corporate costs. Sales and profits were higher this quarter versus prior year, driven by LNG project activities as we continue to execute multiple large projects, including Golden Pass and Mozambique, and the massive Qatar gas project also began to contribute this quarter. Sales and profits were both down versus prior quarter, primarily due to timing of percent complete activity on the LNG projects. We were excited to announce another new project earlier this week for the Energía Costa Azul LNG export terminal in Ensenada, Mexico. This represents the fourth LNG project we've announced in the last year. Now, to provide some additional thoughts, I'll turn the call back over to Sandy.

Thank you, Simon. Now, please go to slide number 22. As we look forward, unfortunately, we do not expect the COVID-19 global crisis to moderate anytime soon. This will continue to have a negative impact on the economies of most of the countries we operate. We have confidence that the vaccine will help to reverse the course, but the rollout is still in early stages. and the pace of vaccination is hard to predict. As a result, we continue to find it very difficult to make any reasonable projections about the course of economic activity around the world. Therefore, we are not providing EPS guidance or CapEx guidance for quarter two or for our fiscal year 2021 at this time. We hope the outlook will be less uncertain in April, and if so, we look forward to providing you guidance then. However, I want to share with you what we are seeing so far this quarter, that is, in the month of January and as of today in February. Representing about half of our sales, our on-site business has been stable, and we expect this to continue. With respect to our merchant business, in Asia, our merchant volumes are down slightly versus where they were at the same time last year, which is before the virus crisis began. So the volumes have reached almost pre-crisis levels. In Europe, we are off to a weaker start following the holiday season and continue to see a larger impact on our packaged gases business versus the liquid bulk business. In America, merchant volumes remain down, and I would like to remind you again that we do not have a packaged gas business in North America. As we move forward, we remain committed to executing our growth strategy, providing sustainable solutions to help the world meet its increasing needs for cleaner energy. With our strong portfolio, we are able to meet customers' and countries' drive for cleaner and more sustainable solutions. We see great opportunities ahead in gasification, carbon capture, and hydrogen for mobility. And we continue to develop and invest in strategic opportunity to drive our growth for decades to come. As always, the continued success of this strategy is rooted in the commitment and motivation of the great team we have at Air Products. Our resilient and focused people understand the critical role they play in safely operating more than 750 facilities around the world, executing world-scale projects that support economic and social development. As Air Products, we will work together to deliver these solutions to our customers and to the world. I am proud to say that unlike many other companies, we have not reduced staff or reduced the salary of our people during this pandemic. Indeed, we have continued to strengthen our organization by adding the resources necessary to pursue great opportunities. We have stood by our people. In closing today, I would like to thank all of our dedicated and hardworking people around the world who continue to deliver despite these challenging times. I am proud to be working with them every single day. Now we are pleased to answer your questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. And we'll take our first question from Duffy Fisher with Barclays.

Yes, good morning guys. Two questions on two of your big projects. First one on Luann. With the renegotiation of the contract, do the economics change at all once the plant is back up and running? And then the second one is just around NEOM. And on that one, when should we see the groundbreaking, you know, kind of bi-segment? So when should we see the solar and the wind farm start? When will we see the ammonia plant start? And then when will we see the electrolyzer start? You know, if you think about that, kind of what's the timing of those relative to each other? And then maybe just the last one tied on there, have you already ordered long lead time equipment for the NEOM project?

Good morning, Duffy. Thank you for your question. With respect to Luan, we, as I said, we had negotiated a reduction of fixed fee during the time the plant is shut down. But Luan has agreed to extend the contract. So once the plant comes back on a stream, our overall return will be a little bit better than before. The second thing is that with respect to Neom, We are finalizing the agreements and all of that, you know how it is, and doing pre-engineering and all of that. We hope to break ground sometime in May, June timeframe, and we have ordered some of the long-term items, or we are in the process of doing that in the next few days. And we expect, obviously, then everything to come on the stream as we go forward for a startup in 2025.

Terrific. Thanks, guys. You bet. Thank you.

And we'll take our next question from Kevin McCarthy with Vertical Research Partners.

Yes, good morning. You know, Safia, as you consider future projects in China, you know, based on your experience with Luan, Do you anticipate increasing a sovereign premium or your hurdle rate as you evaluate future projects? And then at a second question on volume, what was the impact from Luan in the quarter? And I think you also mentioned an impact from lower sale of equipment affecting volume in the quarter. If you could quantify that as well, it would be helpful. Thank you very much.

Thank you, Kevin. First of all, I mean, the way you are asking the question about Luan as if it is something that, I mean, Luan is a specific case. We have gone through that with you in terms of what is happening. We do have four other gasification projects in China. They are operating. There is no issue. They have been paid for the past few years, and they continue to continue that. And with Luan, The fact that we agreed to a decrease while the plant is shut down is a sign that we are trying to work with the customer because there is plenty of new opportunities. So there is no change in our view about investing in China. We have had excellent experience. We are having EBITDA margins of 48%. We see significant opportunities. That is the economy of the future, and to ignore it would be really short-sighted. and therefore we continue to be committed to that country the way we have been before. With respect to exactly quantifying those two numbers that you want to do, I'm hesitant to do that because then people tell you exactly what are the terms and conditions of our contract with Luan and with sale of equipment, and that is not very wise for us to do that. I hope you give us a pass on that.

Okay, fair enough. Thank you.

Thank you. Thank you, Kevin.

And we'll take our next question from Vincent Andrews with Morgan Stanley.

Thank you, and good morning, everyone. If I could just ask, Safey, you know, as we're about to go into, you know, a period of time where we're going to start lapping COVID, it sounds like you still have some concerns about, you know, what that impact could be. And so we shouldn't think of it as being, you know, maybe a tailwind for you in the coming quarters as we go through the harder parts of that. Is that correct, or is there some other things or risks that you see in the outlook? So that would be my first question. Thank you.

Vincent, good morning, first of all. Thank you for bringing your very thoughtful question. I know that everybody is very optimistic, wants to be optimistic. All of us have been wanting to be optimistic in the summer. Then the number of cases have gone down, the number of deaths have gone down, and then you saw what happened. I have no idea what is going to happen. I hope that the vaccine and all of that will work. But still, 4,000 people a day are dying. The number of cases has come down, but still there's 100,000 cases. I don't know whether there will be another round, there will be another variant, and so on. So we don't want to get ahead of ourselves. I know that everybody, believe me, us more than anybody else, would love to be done with this COVID and go back to our normal lives. But I'm responsible for giving investors a balanced view of what we expect. And I just don't want to run ahead of ourselves and tell everybody that everything is rosy. The part of the world which is especially giving us problem is actually the United States of America. The volumes are there. So I don't know how it will work out, but if it does for the better, then we are in better shape. But you can accuse us of being conservative. Maybe we are, but we just want to have a balanced view.

That's fair enough. And just as a follow-up, there was elevated planned maintenance expense this quarter and the prior quarter. How should we be thinking about that over the next couple of quarters? Are you done with that, or is there more to come?

On that one, I would say that you should see the numbers become better as we go forward because a lot of the higher maintenance was driven by the economy shutdowns and all of that. That's not all under our control. A lot of people took advantage of the COVID thing to have turnarounds. So I'm hoping that those numbers will look better as we go forward.

Okay. Thank you very much. Thank you, Vincent.

And we'll take our next question from Bob Court with Goldman Sachs.

Good morning, Sophie. Good morning, Bob. How are you this morning? I'm well, thank you. But I was a little confused in the commentary about COVID punishing your U.S. business where you note that you don't have a packaged gas business, and yet that was the source of COVID pressure in Europe. So is it something to do with the refining industry, or could you give us a little more color on What particular end markets may be causing you trouble from a COVID standpoint in the Americas?

Helium. We serve a lot of helium to MRI machines and to balloons and all of that. People are not doing elective surgeries. The volumes of helium is down, and people are not having many parties, and the general activity is down. So that is one thing. And also the volumes on our hydrogen pipeline is down. Some of it is because of the refineries being shut down. But overall, the activity people are not driving as much. So those are the things that has been causing us trouble.

Thank you. That's helpful. And then might I ask on Luann, and maybe you're reluctant to provide the specifics, but do you have comfort in knowing exactly why they haven't restarted? and that gives you the confidence that it happens sometime. It would seem like coal gasification, when oil is rallied as much as it has, may be more competitive. Maybe a little more color there would be helpful.

But with respect to Luan, there are a lot of different, you can put in several different cases about why the plant is shut down, the reorganization and all of that, and I don't want to publicly talk about that because it has a reflection on the management of that company, and I don't want to be negative on that. But the Luan situation did resolve itself. We are confident that that plant will restart, and the arrangement that they have with the company is accommodating us, accommodating them, and they have a lot of new projects underway that we want to participate in. I'm not as worried about Luan as our investors seem to be, but we need to wait and see, and we report to you what we know as of the time that we are reporting to you.

Perfect. Thanks.

Thank you.

And we'll take our next question from John Roberts with UBS.

Thanks. Sefi, Jezan began starting up last quarter, I think. Where are they in the process of their ramp-up?

They are still commissioning the different units of the facility, and we are obviously there helping them. I believe, I don't know the exact number, but we almost have close to 200 people helping them commission the facility. I'm not sure that crude has been officially introduced into the stream, and that's a question that should be directed towards Saudi Aramco. But overall, we have, as I said, a large number of people working with the Saudi team in a very productive way to start up the facility.

And then secondly, the refining industry is under a lot of pressure. Are your refining customers generally at minimum take on their contracts? And as they restructure here over the next several quarters or a couple years, is there anything we need to look out for in terms of the integrity of the contracts?

About the integrity of the contracts, no. The fact that our customers are not taking as much as they used to take before is a fact. As I told you, the volume in our pipeline in the Gulf Coast is down. But it's very regional. I mean, different parts of the world is different than, for example, in California, our pipeline volumes are doing okay. So it depends on which region you are working. But there is no question that overall people are not driving as much and therefore there is an impact on the refining industry. You know that better than I. Thank you. Thank you, John.

And we'll take our next question from Jeff Zakowska with JP Morgan.

Good morning, Seth. Good morning. How are you, Jeff? Sorry. In terms of Gizan, what's the issue in the negotiation? That is, why wasn't the deal closed earlier? And what are the issues that you're trying to work out in order to get to a resolution? And how long do you think it might take?

Well, the Things that we have to discuss is, as I told you before, Jeff, one was the fact that when we initially negotiated the contract with Saudi Aramco, we expected a significantly higher interest rate for the $7.2 billion of debt that we have to finance. Today, because of the market condition, the actual interest rates are obviously lower than that. So the issue that we have had to negotiate, and we have negotiated that, is how much of that saving goes to each party. That's basically it. I mean, if they're assuming X amount of interest, now it is lower. So who gets the benefit of it and how much of it? So that was one issue in terms of negotiation. The second thing is that they are trying to arrange $7.2 billion of debt. That is not an easy task with a lot of banks involved and all of that, and the terms, conditions, and all of that. So those are the two issues that we need to work out. In terms of how long it takes, I'm hoping that we will be done with this thing by May, June, but it takes time and it is unpredictable. There is a lot of factors. This is a geopolitical thing. The The view of the banks changes every day. The view of Saudi Aramco changes every day. So I'm not pessimistic. I'm actually optimistic. I think they'll get this thing done at some point in time. But those are the two issues that we are working on. I think one of them we have worked on. I think we have an understanding with the senior management of Aramco in terms of what we are going to do in terms of sharing of the profits. But the devil is in the details. All of this has to be translated into actual contract language. And the debt has to be arranged. So that's what is taking time.

Okay. And then thank you for that. My second question is I guess a question of clarification to Scott. Scott, when you were reviewing the America's business. Did you say that you thought either the operating income or the EBITDA in the second quarter would look like the first?

Scott, would you please answer that? I don't remember.

Thanks, Jeff, for the question. I appreciate it. My comment there was regarding the maintenance spending and the safety mentioned. These turns are driven by when our customers take turnarounds, planned turnarounds. So it's a technical term here, and the spending on that and the expense that we'll incur is kind of lumpy. And my comment in there is for the second quarter, not be surprised if we see the same sort of level of maintenance that we saw in the first quarter.

Okay, great.

Thank you so much. You're welcome. Thank you, Jeff.

And we'll take our next question from PJ Juvicar with Citi.

Yes. Good morning, Sefi. Good morning, PJ. How are you this morning? Doing well, doing well. So question on Luan. You know, you mentioned that you have three other gasifiers that are running in China. So wondering what is the underlying issue with Luan? Is it just, is it looks like it's company specific and is it, Is it that it's not profitable at current coal price, or is it the downstream process into fuels that is an issue? Can we just shed some light on that?

PJ, number one, we have four other gasification projects that are working. It is a specific issue related to Luan. And as much as people would like me to convert that into economic reason, I think it has to do – and as I said, I need to be careful – because I don't want to say anything kind of implying that there is a little bit of a confusion with the management there. But the state of Shanji has decided to consolidate all of the chemical facilities into one facility. They have new people and all of that, and those people have said they want to look at everything and look at our options and all of that. That is more of a reason for keeping the plant shut down than anything to do economically and all of that. But the fact that coal prices are higher in China significantly in the last few months because of the winter, and the fact that the parent company can sell coal, I mean, you can make a lot of theoretical arguments, but it's just basically that the new management is taking their time trying to assess their options.

Okay, thank you for that. Okay. And then just quickly on your EMEA, You know, you have a package gas business that's down in Europe. Would you say that post-COVID that business would have the most upside in a recovery?

Thank you. Yes, it will. Yes, it will. But I have to say that our team in Europe is doing a wonderful job. The results that they have produced this last quarter, considering what's going on there, is very, very good. They have their act together. They keep pushing the pricing. And they're doing a very good job. But if COVID goes away, there is significant upside there. Yes, absolutely.

And we'll take our next question from David Begleder with Deutsche Bank.

Good morning, Fifi. How are you?

Hey, David. How are you? Other than being buried under 32 inches of snow, I'm perfectly fine.

Yes, it is. I'm doing well. Thank you. Just on Jezanne, how soon after the issues are resolved and the deals are completed, the contract signed, can the project come online and start up?

The day that we do the financial close, we are online. whether the refinery is online or not. Our deal is a fixed PFC thing, as you know, like other deals. So the day that we do the financial closing, the next day we will see the benefit of the EPS on our bottom line.

Understood.

So you need to look for the announcement about the financial close. Yeah.

Great. And just on potential new green hydrogen projects, I know you're working on them. Is there potential for another announcement this year on green hydrogen?

David, I'm not going to go there. I have no idea. I mean, we are working on other projects and all of that, but for me to be that specific would not be responsible when those things are very big projects. We are working on other projects, but to be that specific, I can't do that. You need to give me a pass on that, too.

Understood. Thank you. Thank you, David.

And we'll take our next question from Mike Sisson with Wells Fargo.

Hey, Safey. I'm buried in snow as well in Cleveland, but in terms of in terms of EPS growth, you did a nice job in 2020. Can you still generate some EPS growth in 21? I know you can't give any specifics, but the model seems to be built to be able to do that on an annualized basis. So then has the growth algorithm changed at all longer term in terms of what you think you could do in terms of EPS growth?

No, we still believe that on the average, in the next five or six years, we will deliver about 10%, the same way that we had done in the last six years. My view hasn't changed on that. That is our goal and we can make that happen. And we'll do our best to make it happen.

Great.

There's no fundamental structure or reason that, yeah, go ahead.

Yeah. Just then just any comments on 21 in terms of your ability to grow?

Well, in 21, if, but frankly, if COVID subsides, Luana starts, and we close on Jazan at a reasonable time, then the 10% increase should not be too much of a problem. It depends. You know, we are not giving any guidance, not only because of COVID, but also because of these two big things can have an effect. So we just need to be a little bit patient to see how everything works out. But we obviously, you know, I'm very optimistic about the future of our products, for sure. That's why I bought a lot of shares in December, as you know. So I'm personally, I'm very optimistic, but we have to give you a balanced picture here.

Got it. Thank you.

Thank you.

And we'll take our next question from Steve Byrne with Bank of America.

Yes, thank you. Safey, you mentioned that your hydrogen pipeline on the U.S. Gulf has slowed, but in California it remains firm. I was just curious whether that is potentially a bit of an end market difference. You have some of the refineries in California converting their hydro treaters and hydro crackers over to renewable diesel and just wanted to hear your view on whether there is a potential longer term opportunity here to air products if there is a kind of an expansion of that renewable diesel opportunity nationwide rather than just California whether the net use of hydrogen per unit of diesel versus per unit of renewable diesel is meaningfully different.

Steve, you have a very good insight. That's a very good observation. We don't want to talk about it too much because that is really not our business. But fundamentally, what you are saying, all of the things that you are saying are correct. and that can actually be an upside for us. Yes, I agree with all of your statements.

Okay. And, Sefi, I remember a couple years back you made a comment about the number of gasification projects that were being considered in, I believe it was just China, and the number, if I recall correctly, was more than 50. I just wonder whether a lot of those may have been, you know, kind of idled or reconsidered over this past year given much lower crude and whether or not you're seeing any pickup in that activity and those discussions going forward now that we've seen a recovery in crude.

There are significant number of co-gasification projects under consideration, not only in China, but also in India and Indonesia. Those are places where we see the most activity. And we expected, I think, with COVID, everybody pulled back, as you know very well, in terms of capital expenditure and so on. But as time goes by, we are optimistic about gasification. We have a very, very strong position there. Quite frankly, they are by far the market leader. And if there is another gasification project in the world, I would bet you 90% of their products will get that. So I think that we continue to be optimistic about that.

Okay, thank you. Thank you.

And we'll take our next question from John McNulty with BMO Capital Markets.

Yeah, thanks for taking my question. So I guess the first one would just be on Jezanne. It sounds like when you, at least based on your discussion of kind of what the sticking points are, it sounds like, assuming that this thing does get to the finish line, that the overall profitability that you were expecting is pretty much online with your original expectations. Is that fair, or has anything else changed when you think about the terms or anything like that?

First of all, good morning, John. Hope you're well. And secondly, your statement is totally accurate. That means that as soon as this thing is done, we will see the impact on our bottom line kind of in line with what you would expect.

Got it. Perfect. And then I guess with regard to the Americas, I guess admittedly we were a little bit confused on the volume weakness where you're kind of seeing the same declines as you saw kind of at the heat of COVID kind of in the June quarter. So I guess why haven't things gotten better? Like when we look at the macro, it looks like it has improved. So I guess is it just a function of You know, the seasonality of refining and maybe that's kind of, you know, whatever, maybe that's part of the reason to blame. I guess I don't quite understand why the Americas isn't getting at least, you know, from quarter to quarter to quarter to getting better at this point.

John, I'll provide you an answer and then I would like Scott to comment on that if you want to spark that. The biggest impacts are maintenance costs. The second significant impact is lower heating volumes. And the tenth impact is that the refineries have slowed down a bit. And the fourth one is that the U.S. economy is still struggling, my friend. Everybody is talking about these great rosy things, but on the ground we don't see that yet. So those are the four reasons. Scott, do you want to make any further comments?

No, I agree with that. And just to also point out, like I said in the prepared remarks, that there's some seasonality on a sequential basis. But as you mentioned today, if it is in the line economy, there's the COVID helium situation. So it's good to put this in there. Thanks very much for the call. All the different businesses will react differently. But as there's improvement in the economy, in COVID and otherwise, we expect to see a lumpy, you know, as things restart and so forth, as opposed to a steady increase.

Got it. Fair enough. Thanks a lot, guys. Thank you, John.

And we'll take our next question from Chris Parkinson with credit, please.

Good morning, Seth. It's great to hear you're doing well. I just have two brief ones. First, as it pertains to the carbon capture opportunities, do you have a brief update on your perspective addressable market, any internal projects, and also just anything on how you could potentially work with third parties, giving your tech expertise?

First of all, good morning, Chris. Hope you're well. Chris, the carbon capture opportunities are being driven. Things look even rosier than before because one thing is capturing carbon to help the environment and all that. But there is a significant push right now, as I have talked to the investors in the last year and a half, the last two years, that the transition to the hydrogen economy will be gray hydrogen, then blue hydrogen, and then green hydrogen. there is a significant demand now for so-called blue hydrogen, that people are thinking about making ammonia where you capture the CO2 that is generated, then you make the hydrogen. And therefore, the ammonia is called blue, and then especially Japan wants to take that ammonia and blow it directly into their boilers for their power plants, and that is how they are going to decarbonize. So there is significant demand, a lot of conversations about so-called blue ammonia and blue hydrogen and all of that. We are working on carbon capture. We continue to work on carbon capture. And as I said, we will in time announce appropriate projects of meaningful size to show you that we are making progress on this thing. You know, this is something I've been talking to you about for two, four years. It takes, you know, just like in NEOM, it takes five or six years to develop these projects. So we are working on them, and hopefully we can have some news for you in the years to come.

We'll certainly look forward to that. And the second very brief question, just in the second half, you know, a lot of local media in India and Indonesia said, we're reporting that you were actively bidding on a lot of projects, the latter of which we've obviously already heard some constructive news. Can you just possibly speak to just the magnitude of those opportunities and the rough timeline given it seems like you've already bid? Is that something we could potentially expect in fiscal year 21, or should we still be kind of more methodical and more balanced with our expectations on those fronts? Thank you very much.

Well, Chris, thank you very much for the question. Chris, You know, one of the things that one does in life is that you learn from your past experience, right? We have gotten a lot of heartburn because we announced Gazan before it was a done deal, and now you see every quarter we have to explain it. So in Indonesia, we are obviously talking about gasification projects in Indonesia. We have been telling you we have been doing that for the past three and a half years. I met the ministers there four years ago. But we haven't done anything that is announceable yet. We have talked to people. We have talked about projects and all of that. And we don't want to do anything again like Josanne to come and say, oh, we have signed a memorandum of understanding and all of that, and then every quarter have to explain why it didn't become a project. These projects are very complex. It depends on the actions of a lot of government agencies. It changes the course of Some of the countries, there are significant impacts on people who import product, who now are not going to be importing product. It's very complex, and we just don't want to get ahead of ourselves. I have read all of those reports. I've seen all of those reports. But we just want to be responsible and even announce something when we think it's going to be a real project rather than just discussions. And I hope you have some patience with us, Chris.

I certainly will. Thank you very much for the color.

Thank you.

Thank you, sir.

And we'll take our next question from Jonas Oxgaard with Bernstein.

Good morning, guys. Good morning. How are you? Living the dream every day. I was going to pick a little bit. I was going to pick a little bit more at the Luan scab here. So you mentioned that you have high confidence that it's going to restart, but what happens if it doesn't? Is that part of your negotiations and is there a sign of agreement with the new management there?

Well, if it never, you're talking about what if the plan never starts?

Yeah.

We have agreed with a reduced fee, we will wait another, as long as it takes, for a few quarters to see whether they restart or not. But if they come and say, we are never going to stop this plan, then they have a contract. We will go to court and enforce our contract. Our contract is very clear about what happens if this customer shuts down. It is very clear, it is very defendable, and we are very confident about the outcome of that. But we didn't want to go to court and start enforcing that because we don't know, the customer has never told us that they are shutting this thing down permanently, and we didn't want to prematurely destroy our relationship with the customer. So it's a matter of being patient and working with your customer. I mean, it is, you know, next year at this time, and they haven't even started yet, and they have sent us a letter that they are going to mount a plant, then we go to court and enforce our contract.

Okay, thank you. Okay, John? A second question, if you don't mind, on hydrogen. Your competitors and even companies who, I guess, aren't really considered competitors are approaching hydrogen much more tentatively than One of your competitors inaugurated their first 20 megawatt electrolyzer this week. But you're going from, well, I wouldn't say zero, but close to zero to 1.3 gigs in one fell swoop. Can you talk about the reason why you're so confident that you can do this mega project without baby step first? And how are you different from the rest?

Well, the way they are different is the same thing with gasification and everything else. The main reason that we are doing what we are doing is that we want to be competitive and put our customers in a competitive position to use green hydrogen. You cannot do it at a small scale. The scale-up that we are doing is that it's not as if you are taking a technological risk. We are not. I mean, what are we doing at Neom? We are Building, yeah, four gigawatts, three and a half, four gigawatts of wind and solar. That's known technology. It's no big deal. Then we are building 650 ton a day electrolyzers. And everybody says, oh, my God. Yeah, but how are we doing that? We are going to take 30 of those 20 megawatt things that you said and put them together. So there is no risk in there. And then the ammonia plant, we are building a million ton ammonia plants all over the place. So we are not taking any technological risk. What we are doing is that we are creating a mega project so that we get the benefit of the economy of scale. That's number one. And then the second thing is that all of these people who are announcing these different plans, the source of electricity is not green, and we are creating a green source of electricity. But the main thing is we are doing mega projects because that is how you, number one, make it economically feasible. And number two, unless somebody like us makes a commitment to make a big project, people are not going to convert. I mean, if you own buses in San Francisco, you are not going to go and convert them to fuel cell vehicles if you don't have an assurance that you will have the green hydrogen to put in them. Then what's the point of converting? So when you know that somebody is spending $6 billion, $7 billion to build infrastructure, then you get the confidence. That is the difference in terms of what we are doing and what they are doing. It's not a big technological risk, but it's being the first and being the people, the first ones who develop the infrastructure. I mean, I don't want to make big comparisons here, but What is to making an electric car? I mean, my God, it's a motor and a gearbox, right? But look at where Tesla is and look at where GM and Volkswagen are. Those guys took the decision, went first, and everybody said, well, this is not going to work out because it's no big deal. GM can do this anytime. Look at where their stock is and where GM's stock is. There is significant advantage to be the first mover And you have to move on a big scale in order to make it economical for your customers to have confidence that you are going to have the product when they convert their fleet. So that is what we are doing. I have no comment about what our competitors are doing. They are, I'm sure, they are very smart people. And, you know, people like yourself, we question them about what they are doing and what they are not doing, and I don't want to make any comment on them. But for sure, we know, I hope we know what we are doing. And what we are doing is go for a scale, go for an economic scale when you have the opportunity and produce a real green hydrogen, not these toy things at 10 ton and 20 ton a day that really doesn't. But besides that, we are doing those things. You are building a 30 ton a day plant hydrogen in Port Arthur. We are building 30 ton plant hydrogen in other parts of the world. So that's not a big deal, but the mega scale is the future. Okay, John. Thank you. Absolutely. Sure. Thank you very much. Appreciate that.

And there are currently no other questions in the queue at this time. I would like to turn the call back over to safety for any additional remarks.

Well, once again, I would like to thank everybody for being on our call. Thanks for listening to our presentation, and thanks for your good questions. We appreciate your interest, and we look forward to discussing our results with you again next quarter. As I said earlier, please stay safe and healthy, and all the best to all of you and your families. Thank you again.

And that does conclude today's conference. Thank you for your participation. You may now disconnect.