Air Products and Chemicals, Inc.

Good morning and welcome to Air Products 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. Sid Manjeshwar. Please go ahead.

Thank you, Katie. Good morning, everyone. Welcome to Air Products' first quarter 2023 Earnings Results Teleconference. This is Sid Manjeshwar, Vice President of Investor Relations and Corporate Treasurer. I am pleased to be joined today by Sethi Kissemi, our Chairman, President, and CEO, Dr. Sameer Serhan, our Chief Operating Officer, Melissa Schaefer, our Senior Vice President and Chief Financial Officer, Sean Major, our Executive Vice President General Counsel and Secretary, and Simon Moore, our Vice President of Investor Relations, Corporate Relations, and Sustainability, who, as previously announced, will be retiring at the end of March. After our comments, we will be pleased to take your questions. Our earning 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, operating income, operating margin, EBITDA, EBITDA margin, the effective tax rate, and ROCE, both on a total company and segment basis, we are referring to our adjusted non-GAAP financial measures. Adjusted earnings per share, adjusted operating income, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted effective tax rate, and adjusted 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 Relief section. Now, I'm pleased to turn the call over to Sethi.

Thank you, Seth, and good day to everyone. Thank you for taking time from your busy schedule to be on our call today. I am proud to say that the people at Air Products delivered great results this quarter despite the significant macroeconomic headwinds. I would like to thank each of our talented, dedicated, and motivated employees for their hard work. Now, please turn to slide number three, our safety performance, which is always our highest priority. As you can see, we have made significant progress since 2014, but we always work hard to do better. Our goal is to achieve zero incidents and zero accidents. Now, please turn to slide number four. For the first quarter of our fiscal year 2023, our earnings per share was $2.64. an improvement of 16 cents per share or 6% versus last year. But our underlying performance versus last year was much better than that. The items that you need to consider to make a fair comparison versus last year are a 15 cents negative impact from currency and a one-time gain of 20 cents in the first quarter of last year from the finalization of the Jazan ASU joint venture. I would like to point out also that our guidance for the first quarter was to deliver earnings per share of 260 to 280. Our actual EPS is 264, which is, within our guidance, but at the lower end. The principal reason is that the Chinese and European economies were weaker than our expectation in early November when we gave you the forecast. Now, please turn to slide number five. We are committed to reporting our shareholders while pursuing our long-term growth strategy. I am pleased to say that we have again raised our quarterly dividend, this time by 8% to $1.75 per share per quarter, or $7 a share on an annual basis, extending our record of more than 40 consecutive years of dividend increase. We expect to pay out more than $1.5 billion to our shareholders in 2023, reflecting our commitment to return cash to our shareholders. Now please go to slide number six. It's still my favorite slide. It shows our EBITDA margin trend. While energy costs remain high, our margin improved this quarter. Our team has worked hard on increasing prices to offset the higher energy costs in our merchant business, and we continue to work on productivity. I would also like to point out that three-quarters of the margin decline since the peak margin of around 42% is due to a higher energy cost pass-through in our on-site business, which increases our sales but does not impact our profit. Now please turn to slide number seven. In addition to delivering strong results, we also achieved several significant project milestones during the quarter. In December 2022, we were very excited to announce our $4 billion green hydrogen project in the United States. This project will be located in Northern Texas and is our latest mega-scale zero-carbon, which means green, hydrogen project since the announcement of our revolutionary neogreen hydrogen project in 2020, and it will be by far the largest green hydrogen project in the United States. The information about this project and the recording of our December 8 webcast for this project are available on our website. Now please turn to slide number eight. We were pleased to announce on January 19 the completion of the second phase of the $12 billion gasification and power project, which is 51% majority owned by Air Products, and it is 60% project finance. During the first quarter, with the first phase of this project, which was completed in October of 2021, Air Products contributed about $1.5 billion for the purchase of 7.1 billion of assets from Saudi Aramco. In the second phase, which was just completed, Air Products contributed an additional $900 million for the purchase of $4.2 billion of additional assets. Our total cash contribution for this project is $2.5 billion. As expected, The first phase of the project has earned us 80 to 85 cents per share on an annual basis, which significantly contributed to our results in fiscal year 2022. With the completion of the second phase, we now expect about a total of $1.35 per share of earning contribution on an annual basis. This is fully in line with what we announced to investors more than three years ago. Now, please turn to slide number nine, where I wanted to provide you with an update on our great neon green hydrogen project, which is appropriate to give you an update since we are very close to completing a major milestone, which is signing the definitive project financing agreements for this project. And therefore, we wanted to give you an update before you read about that in the next few weeks. We have been making excellent progress on this water-scale project to bring green energy to the world.