Air Products and Chemicals Inc (APD) 2021 Q3 法說會逐字稿

Good morning and welcome to Air Products and Chemicals' Third Quarter Earnings Release Conference Call. Today's conference 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. Please go ahead, sir.

Thank you, Rochelle. Good morning, everyone. Welcome to Air Products' Third 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 Seifi Ghasemi, our Chairman, President and CEO; Scott Crocco, our Executive Vice President and current Chief Financial Officer; Melissa Schaeffer, who we announced is succeeding Scott as our Senior Vice President and Chief Financial Officer; and Sean Major, our Executive Vice President, General Counsel and Secretary. After our comments, we'll 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 #2.

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, the effective tax rate and 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, 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 release section.

Now I'm pleased to turn the call over to Seifi.

Thank you, Simon, and good day to everyone. Thank you for taking time from your very busy schedule to be on our call today. Today, in addition to announcing our results, we do have a significant announcement, which is updating our future plans for growth and capital deployment. But before we get into the details, I would like to say a few words about our CFO transition, which we announced last month. Please turn to Slide #3.

Following this call, Ms. Melissa Schaeffer will succeed Mr. Scott Crocco as our Chief Financial Officer and assume leadership responsibility for our worldwide finance organization. Scott is retired from Air Products on September 30 as part of this smooth transition.

Today, I want to recognize and thank Scott, who has had a distinguished 31-year career with Air Products. Scott started in our career development program and ultimately progressed to the highest role in finance, serving as our Executive Vice President and Chief Financial Officer. Clearly, that achievement is a testament to Scott, particularly his strong work ethic, his drive to deliver and his focus on creating shareholder value.

Scott, I would like to say publicly what I have told you privately, that it has been a privilege working with you for these past 7 years, particularly as we have executed our growth strategy and grown world-class projects in gasification, carbon capture and hydrogen. These projects continue to differentiate the company and position Air Products for significant growth into the future. Particularly, I want to thank you for leading our effort to position us for the successful closing of the Jazan gasification and power project and for your efforts related to the project financing of this significant investment. I appreciate all you have done to help us move forward, and I wish you great health and happiness in the future. Thank you again for all you have done for Air Products.

Scott, at this point, would you like to say a few words?

Yes. Thank you very much, Seifi. I really appreciate the kind words and the support and the leadership you've provided over these past 7 years. It's been an honor to work alongside you and the rest of the leadership team to set Air Products on a path where the sky truly is the limit. With strong cash flows, significant capital deployment capacity and continued dividend increases, Air Products operates from a position of strength. And I have no doubt there will be many more profitable growth opportunities ahead. I remain excited about the future of this amazing company. Melissa and I worked closely together over the past 2 years, and there's no doubt she will continue to excel and help others to do the same. I look forward to continuing the transition with her over the coming weeks. And again, thank you very much.

Thank you, Scott. I do appreciate your comments. Let me now introduce Melissa Schaeffer. One of the things that you learned right away about Melissa is that she is a passionate and driven individual. For Melissa, it's all about excellence. She is driven to win. Along with that spirit, she brings deep leadership and financial experience from inside and outside Air Products to this new role. She is a great example of the culture we are building here, and I have no doubt she will continue to create an environment where people belong and matter and contribute to their fullest.

Melissa held financial roles of increasing responsibility with Siemens, Ernst & Young and Trinseo before coming to Air Products. She joined us as Vice President and Chief Audit Executive in 2016. She then became our Vice President, Finance, a financial responsibility for our megaprojects as well as Air Products' largest supporting segment. Melissa has been a key part of our growth and success over the past 5 years, and I'm delighted she will be our Chief Financial Officer.

Melissa, would you like to say a few words?

Thank you for the kind introduction, Seifi. And I want to thank Scott for the tremendous example he has set as our CFO. I appreciate the opportunity to join the earnings call today and say hello to all of you. And I look forward to meeting more of the investment community and sharing Air Products' Q4 and full year results with everyone on our next call. Air Products is truly at the heart of providing energy and environmental solutions, which makes this company a truly special place to be. I'm looking forward to our finance organization and the broader Air Products team working together to bring those sustainable growth solutions forward to serve our customers, support our communities and, of course, reward our shareholders. Thank you.

Well, thank you, both Scott and Melissa, for your comments. And now let's turn to our business results.

The stability of our business and the dedication of our people have been on full display as the talented and committed people of Air Products delivered good results again this quarter. Our people working together have kept our 750 facilities around the world operating and our customers supplied through the COVID-19 pandemic. In support of the hard work and dedication demonstrated by our employees, we have not reduced our staff or cut salaries during this difficult period. I am proud to say that Air Products is emerging from this crisis an even a stronger company than before.

We have continued to acquire new assets and businesses, successfully raised prices and brought new plants onstream. We have also strengthened our organization by adding resources in various functions, mostly in engineering and project development, to help us successfully pursue and execute the many exciting future projects we had in front of us.

At the same time, we also delivered earnings per share of $2.31 this quarter, which is 15% higher than last year despite absorbing costs related to our growth-driven development efforts. I am extremely proud of the accomplishments that we have achieved as a team, and I would like to thank all of our employees at Air Products for their dedication and hard work. We continue to execute projects and deliver strong financial results while maintaining our unwavering focus on safety.

As Slide #4 shows, 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. As always, safety is the most important focus for all of us at Air Products, and our goal will always be 0 accidents and 0 incidents.

Slides #5, 6 and 7 include our goal, our management philosophy and our 5-point strategic plan. These are the -- you have seen this before, and these are the principles that we will follow every day, and they will continue to guide us in the future.

Now please turn to Slide #8. We believe the environmental sustainability challenges facing the world are significant. The scope and complexity of the megaprojects necessary to address these challenges requires talented people with a variety of skills and backgrounds from different parts of the world to work together as one team. As I mentioned earlier, we can solve these problems no matter how challenging as long as the we always stay focused and united working toward a common goal on a global basis. We believe this is the calling of our company and the higher purpose for all of us at Air Products.

Now please turn to Slide #9. We recently published an annual sustainability report, which highlights our sustainability-driven growth opportunities and our many accomplishments in this area. For instance, our products help our customers avoid 72 million tons of CO2-equivalent emissions, which means that for every ton of CO2 that we emit in making our products, we help our customers avoid 3 tons of CO2 emissions. In addition, more than half of our offerings are sustainable, and close to 1/4 of our electricity purchases are from renewable sources.

We have also set new sustainability goals which are very much aligned with our growth strategy. Our Third by '30 goal aims to reduce our carbon intensity by 1/3 by 2030. Our growth opportunities will enable progress towards this goal. And therefore, we expect to see significant progress later in the decade as our major projects come onstream and start to positively benefit our results.

At Air Products, sustainability is our growth strategy. And sustainability and our growth go hand in hand. As we strive to solve the world's environmental sustainability problems, we are also creating growth opportunities for the company. A prime example of such an opportunity is our innovative world-class net-zero hydrogen project in Edmonton, Alberta, as we announced last June and I will talk about a little bit more later on.

Now please turn to Slide #10, which highlights our key gasification projects. We are committed to our gasification strategy and are pursuing exciting projects around the world. We do expect to announce additional gasification projects in the future.

Now specifically, I would like to give you an update on the 2 large gasification projects which I have discussed on previous earnings calls. First, our $12 billion acquisition of Jazan gasifier and power plant from Saudi Aramco. We continue to make significant progress working with our partners and the lenders. The team has worked hard to bring the project to the final stages of project financing, and we still expect this project to reach financial close by the end of our fiscal year, that is September 30, 2021.

Second, regarding Lu'An, the plant is operating at full capacity. As I mentioned last quarter, we expect to recognize reduced fees through fiscal year '22 before we return to the full fee in 2023.

Now I would like to provide an overview of 2 new and very exciting developments before I discuss the major announcement we are making today, which is our capital deployment plans for the next 6 years.

First, on Slide 11, you can see the overview of the Alberta project that we announced last month. This innovative project includes gasification, carbon capture and hydrogen, the 3 pillars of our growth strategy coming together in one project to support the energy transition. This project is fully aligned with Canada's green energy diversification strategy and enables Canada to advance its competitive low-carbon economy. It uses locally available hydrocarbons to make net-zero hydrogen.

As summarized on Slide 12, the hydrogen will be produced using auto-thermal reforming technology, enabling 95% of the CO2 produced by the project to be captured and stored. To achieve net zero, the remaining 5% carbon footprint will be offset by exporting the electricity generated by this net-zero hydrogen. The output will be -- the output, the net-zero hydrogen, will be supplied to our customers on our existing pipeline in Alberta as well as used to produce liquid hydrogen for the mobility and merchant markets. The project represents a CAD 1.3 billion investment and is expected to come onstream in 2024.

We also -- as you can see on Slide #13, we continue to focus on the very exciting hydrogen for mobility market, and we are pleased to announce a project with Cummins to accelerate the integration of hydrogen fuel cell trucks globally. Cummins will provide hydrogen fuel cell electric powertrain, integrated into heavy-duty trucks for Air Products as we begin the process of converting our global fleet of 2,000 distribution vehicles to hydrogen fuel cell vehicles. We expect the first unit to be online in 2022 and the full conversion before 2030.

Now let me give you the highlights of our significant announcement today. 3.5 years ago, in 2018, we announced publicly that Air Products' growth strategy, guided by the global energy transition and based on the 3 pillars of gasification, carbon capture and hydrogen, had the potential to create significant growth for our company and that we could foresee deploying or committing $15 billion of capital in the 5-year period from 2018 to end of 2022. At that time, I remember clearly that our announcement was received within a degree of skepticism.

Well, today, I'm happy to show you, as you can see on Slide #14, that we have developed -- we have deployed or committed almost $18 billion of capital 1.5 years ahead of our plan. And I want to state that on the aggregate, the return on this capital is in line with the guidance we have given our investors before.

This validates our long-term strategy. But now that we are ahead of the plan, the question raised by our investors was, "What about the future?" I had promised the investors that we would address this question sometime during the summer of 2021. So here we are today, summer of 2021, announcing, as you can see on Slide 15, that based on what we see ahead, implementing our focused strategy and based on a conservative estimate of our financial capacity, Air Products expects to deploy or commit more than $30 billion of capital for the 10-year period from 2018 to the end of 2027.

Later in this call, Scott will go through the details, but today, I wanted to make the point that as before, we are pursuing a growth strategy. We do have the right strategy to move forward. We are aided by the megatrends of energy transition. We have the people and the core competencies, and we have the financial strength to make our dream a reality and deliver on what we promised our investors.

Now at least turn to Slide 16, which shows our EPS growth. As you can see, we have delivered greater than 10% annual EPS growth since 2014 when I was appointed Chairman, President and CEO of the company. These results are the testament to the hard work and commitment of the people of Air Products. And I want to thank them again for their continued hard work and commitment.

Now please turn to Slide #17, a reminder that we share our earnings growth with our investors. Both our EPS and dividend have grown double digits since 2014. We are committed to delivering increased dividend while we continue to develop our exciting growth opportunities. We have significant cash flow that supports our substantial dividend and our growth strategy.

And finally, Slide #18 shows our EBITDA margins, as always, my favorite slide, where it shows that the margins is up 1,200 basis points since 2014.

Now I'm happy to turn the call over to Scott to provide a financial overview. Scott?

Thank you, Seifi. As Seifi mentioned earlier, the stability of our business and the dedication of our people have been on full display. We continue to execute projects and deliver strong financial results despite the unprecedented challenges posed by the pandemic. If we compare our volumes this quarter to Q3 of fiscal year 2019, or in other words, before the pandemic, our volumes are up 8%. Our trailing 4-quarter distributable cash flow has held steady at approximately $2.6 billion for the past 2 years. Now Air Products is emerging from this pandemic an even stronger company. Our sales, EBITDA and EPS grew double digits this quarter. All 3 regions reported higher sales and EBITDA. And our price and volume continued to be strong despite lower earnings from Lu'An and the ongoing COVID impact.

Now please turn to Slide 19 for a brief discussion of our third quarter results. Sales increased 26% compared to prior year, reaching $2.6 billion driven by very strong volume, better pricing, higher energy pass-through and favorable currencies. Volume improved 12% as COVID recovery, new plants and acquisitions more than offset reduced Lu'An contributions. Although the pandemic has eased, the volume recovery has not been consistent across our product lines. We continue to experience the negative impact of COVID-19, although the impact this quarter was more modest than last year. Prices were again up, with improvement in all 3 regions. This is the 16th consecutive quarter of year-over-year price gains. Overall, prices were up 2% in total, which represents a 4% increase for the merchant business.

EBITDA climbed 11%, approaching a $1 billion mark as favorable volume, price, currencies and equity affiliate income more than offset higher costs, which were impacted by inflation and higher maintenance. EBITDA margin declined 520 basis points primarily due to higher costs and higher energy pass-through, which increases sales but not profit. Higher energy pass-through negatively impacted margin by about 200 basis points. Higher costs included higher maintenance spending compared to last year due mainly to low spending in the prior year, resulting from less access to sites due to COVID-19.

ROCE was 240 basis points lower. The increase in the denominator from the additional $5 billion of debt reduced ROCE by about 300 basis points. Sequentially, sales were up 4%, supported by 5% seasonally stronger volume and 1% higher price. Energy pass-through was lower by 2% as energy prices returned to a more normal range following the effects of the winter storm in the previous quarter.

Now please turn to Slide 20. Our third quarter GAAP EPS was $2.36 and included a $0.05 tax benefit primarily resulting from reserve adjustments related to a 2017 tax election on a non-U.S. subsidiary. Excluding the non-GAAP item, our third quarter adjusted EPS was $2.31 despite the ongoing impacts of the pandemic and was $0.30 above last year. Volume was favorable $0.26. COVID recovery, new plants and acquisitions more than offset reduced Lu'An contributions.

As a reminder, it's important to recognize that as the 60% majority owner of the Lu'An joint venture, 100% of the negative impact from Lu'An is included in the volume line because we consolidate the operating results. However, this is partially offset by the positive impact reflected in the noncontrolling interest line as the net income shared by our partner is also reduced.

Price, net of variable costs, contributed $0.05 as our price increases more than covered variable cost inflation. We continue to execute pricing actions in response to rising variable costs such as power and fuel. Like the prior few quarters, our plans to add resources and strengthen our organization to support growth have increased our costs. Americas' maintenance costs were lower last year due to COVID-19 limitations, and there were temporary COVID-related government incentives in Asia last year.

Currency and foreign exchange contributed $0.12, with the Chinese RMB and euro accounting for roughly half of the impact. Equity affiliate income added $0.04 on strong underlying business results, while noncontrolling interest was also favorable $0.05 on lower profits from our consolidated joint ventures, primarily Lu'An.

The effective tax rate of 18.2% was 110 basis points lower than last year due to a change in U.K. tax law. We expect our effective tax rate to be slightly below 20% in fiscal year '21. The remaining $0.04 includes a favorable $0.05 in nonoperating income primarily driven by lower pension expense and an unfavorable interest expense of $0.01.

Now please turn to Slide 21. The stability of our business allows us to continue to generate strong cash flow. Over the last 12 months, we generated about $2.6 billion of distributable cash flow or almost $12 per share. From our EBITDA of about $3.8 billion, we paid interest, taxes and maintenance capital. Note that our maintenance CapEx is a little higher than usual driven in part by spending on our new global headquarters.

From a distributable cash flow, we paid over 45% or over $1.2 billion as dividends to our shareholders, and we 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 #22 provides an update on our capital deployment. As Seifi mentioned, we have extended our time horizon another 5 years to 2027. Since we see tremendous project opportunities beyond the original capacity of $15 billion, we think it's appropriate to extend the time frame for at least another 5 years. This updated view of our capital deployment potential shows over $30 billion available through fiscal 2027. The $30 billion includes over $9 billion of cash and additional debt capacity available today, almost $15 billion we expect to be available by 2027 and almost $7 billion already spent. We believe this figure is conservative given the potential for additional EBITDA growth, which generates additional cash flow and, therefore, additional borrowing capacity. We will continue to focus on managing our debt balance to maintain our current targeted A/A2 rating.

So you can see, we've already spent 22% and have already committed 57% of the updated capacity we show here. In short, we exceeded the commitment we made to you in 2018 and has substantial capacity available to deploy to support our growth strategy.

Now to begin the review of our business segment results, I'll turn the call back over to Seifi.

Thank you very much, Scott. Now please turn to Slide #23 for our Asia results. Sales increased 15% compared to last year, supported by strong volume, better price and favorable currencies. Volumes were up 6%, reversing the negative trend of the previous 4 quarters. Base volumes, driven by COVID recovery and the addition of numerous small new plants, more than offset the reduced Lu'An contribution. Asia pricing overall was positive 1%, primarily driven by good performance in China across most product lines. This was the 17th consecutive quarter of year-on-year price improvement in Asia. Sequentially, price was also positive by 1%.

EBITDA increased 9% driven primarily by favorable price, volume, currencies and equity affiliate income. Costs compared unfavorably, partly due to inflation and COVID-related incentives last year -- I should say, COVID-related government incentives and costs last year.

EBITDA margin of 47.4% was 270 basis points lower as reduced Lu'An contribution and increased costs more than offset the benefits of higher price, volume and equity affiliate income. Operating income and margin compared unfavorably to EBITDA and EBITDA margin due to higher quality affiliate income and additional depreciation from new plants. Sequentially, sales and profit improved as economic activities rebounded following the Lunar New Year holidays.

Now I would like to turn the call back to Scott to talk about the Americas results.

Thank you, Seifi. Please turn to Slide 24 for a review of our Americas results. Sales surged 25% over last year. Volume, price, energy pass-through and currency were all positive. Volume grew 9% primarily due to COVID recovery, higher medical gases in South America and onetime items. Most merchant products have returned to their pre-COVID levels, but hydrogen volume has not yet fully caught up. While the demand for transportation fuels has improved as people resume travel, the increases are not even across different types of fuel. Gasoline and diesel volumes have rebounded. However, the demand for jet fuel, which consumes more hydrogen on a per unit basis compared to gasoline, still lags. Furthermore, the industry has shifted to use more light sweet crude, which requires less hydrogen. In addition, the industry's inventory level remained high.

Price was again strong. The 4% increase for the region was equivalent to 8% on the merchant business. Price was better across all major product lines, and this is the 12th consecutive quarter of year-on-year price improvement. Energy cost pass-through is again higher as natural gas prices remained elevated versus last year and drove a 10% sales increase.

EBITDA reached $465 million, a 13% increase over last year as better volume and price as well as onetime items more than offset power and other cost inflation and higher maintenance. Our maintenance costs were unfavorable versus last year because limited maintenance work was possible last year due to the restrictions imposed by COVID protocols. Following the successful completion of the turnaround this quarter, we expect our maintenance activities to moderate next quarter. Higher energy cost pass-through negatively impacted EBITDA margin by over 400 basis points or almost 90% of the reported decline.

Compared to last quarter, Americas' volumes increased 6% driven by stronger hydrogen volume, partly helped by recovery following the winter storm and onetime items. Price also improved 1%, up across all major product lines. Energy pass-through was lower sequentially as the natural gas price came back down after the spike caused by the winter storm. EBITDA increased 4% sequentially, supported by improved volume and price as well as onetime items, while cost was unfavorable. EBITDA margin was 120 basis points better primarily driven by about 350 basis points of favorable energy pass-through, while strong price partially offset higher costs.

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 25 for a review of our Europe, Middle East and Africa region results. Our EMEA team delivered another set of outstanding results this quarter. Sales jumped 45%, and volume and EBITDA were both up about 25% versus last year. COVID recovery and acquisitions primarily drove the 24% volume increase. Our liquid/bulk business has returned to its pre-COVID level, but the packaged gas business still lagged.

Price increased for the 14th consecutive quarter and was higher across most major product lines in all the subregions. The 1% price gain for the region corresponds to a 2% improvement for the merchant business. Real price increases were partially offset by unfavorable mix since the demand across the product lines was not even. We are also executing additional pricing actions to recover the recent power cost increases.

Currencies were a favorable 12% primarily due to the strong euro and British pound versus the U.S. dollar. EBITDA was up 25% to over $210 million driven primarily by the strong volume. EBITDA margin was down 540 basis points, with higher energy pass-through responsible for about 200 basis points. The remaining roughly 300 basis point reduction was mainly attributable to unfavorable costs, mostly power and other cost inflation.

Compared to prior quarter, sales rose 7%, primarily supported by positive 5% volume, but EBITDA was down 2% and margin was about 300 basis points lower as this volume gain was more than offset by higher costs, including power and other cost inflation, and lower equity affiliate income.

Now please turn to Slide 26, Global Gases, which includes our non-LNG sale of equipment businesses as well as central costs. Sales increased due to higher sale of equipment and project activity, but profit was lower due to business mix and higher product development spending. Sales and profits were roughly equal to last quarter.

Please turn to Slide 27, Corporate, which includes LNG and other businesses as well as our corporate costs. We were pleased to be selected for Nigeria LNG's Train 7 project, building on the success of the Air Products LNG equipment and technology for the first 6 trains.

Corporate segment sales were higher this quarter driven by increased project activities as we continued to execute multiple large LNG and other projects, but profit was lower on higher corporate costs. And sales and profits were roughly equal to last quarter.

Now to provide some additional thoughts, I'll turn the call back over to Seifi.

Thank you very much, Simon. Now please turn to Slide #28. Air Products continues to deliver consistent earnings and cash flow. Our on-site business, which is roughly half of our total sales, remains stable. We have seen signs of improvement in merchant volumes, particularly relative to the very challenging quarter 3 last year.

As I mentioned earlier, Lu'An facility is operating at full capacity, and we expect the Jazan transaction to achieve financial close by the end of September 2021. For quarter 4 of fiscal year 2021, our earnings per share guidance is $2.44 to $2.54, up 11% to 16% over last year. This makes our guidance for our fiscal year to be $8.95 to $9.05, up approximately 8% over last year and within the range we shared with you last quarter. We continue to see our CapEx at approximately $2.5 billion for the year 2021. Our fiscal year '21 EPS and CapEx guidance obviously exclude any contribution from Jazan.

Meanwhile, we continue to execute our other projects, bringing them onstream and finalizing agreements with our customers. We are committed to our capital deployment strategy and to growing our pipeline of projects. We continue to be very optimistic about our focused long-term growth strategy. The capital deployment projections that we shared with you today for the next 6 years clearly demonstrate our significant growth potential in the years to come.

Now please turn to Slide #29. Clearly, the only sustainable long-term competitive advantage of any company is the degree of commitment and motivation of the people in the enterprise. We are fortunate to have that commitment with our people. By working together against the hardships of the pandemic, supporting our customers and each other, I'm proud to say that we have made our company even stronger in the process. Not only have we continued to strengthen our base business but also further extend our core competencies, pursuing our growth strategy. Our gasification, carbon capture and hydrogen growth platforms all support the drive for a cleaner environment, and we are executing mega-scale projects in all 3 areas.

We all know that the world's desire for clean energy will only accelerate. Our differentiated growth strategy and unmatched expertise have positioned Air Products for continued strong sales and growth well in the future.

As always, I want to again thank our customers around the world. In innovating alongside you, the dedicated and committed people of Air Products are doing their part to achieve our common higher purpose of creating a better world for everyone.

Now we are very pleased to answer any questions that you have.

(Operator Instructions) And our first question we'll hear from Vincent Andrews with Morgan Stanley.

Congratulations to Scott, very well done and distinguished career clearly. Seifi, can I ask you on the new sort of outlook for capital allocation? Maybe 2 pieces about it. One, how are you thinking about how much of it will be sort of in that megaproject category that we've seen with NEOM and so forth versus sort of the more traditional industrial gas projects?

And second to that, as I think back over the last 3.5 years of the first CapEx outlook, the menu of things you're interested in expanded into gasification, and then we got in the green and blue hydrogen, now carbon capture. I would assume that we're going to see the future CapEx skew more towards those latter categories, but I'm also curious whether there's anything else that's on the horizon that's not currently on the CapEx venue that we should start thinking about.

Thank you very much about your comment about Scott. He's a great guy. We all know that.

Yes. Thanks, Vincent. I really appreciate that.

With respect to your specific question, Vincent, out of the additional $12.5 billion -- $12 billion that we announced in the next 6 years, we expect about $5 billion to be in support of our existing business and the balance of it being the large projects. And in terms of the focus, we are going to stay very focused, Vincent, and spend our money on gasification; hydrogen, which is blue and green; and CO2 capture. We are going to try not to venture too much outside of those 3 specific areas. And there is significant opportunity.

Now that you asked the question, it gives me -- we came up with the $30 billion not because of lack of projects. It is because of we wanted to demonstrate what is our financial capacity to maintain our A rating. As we go forward, obviously, we will get it. We cannot project you EBITDA for 2030. So that's why we are constrained. There are a lot of projects in the areas of gasification, hydrogen and CO2 as you will see in the future, and we are going to stay focused on that because I believe by being focused, you get results rather than being all over the place.

And next, we move to Jeff Zekauskas with JPMorgan.

So a 2-part question. If you look at your European operations and your Asian operations over the last 3 quarters, they're sequentially flat. The Asian EBITDA is a little bit better. The European EBITDA is not. Why is that the case given that the global economy has been improving?

And secondly, in your reconciliation tables, in your return on capital, your return on capital has gone from 12.4% a year ago to 10%. It's kind of moved down sequentially. Why is that? What are the factors that you are encountering that's lowering your capital returns?

Two very good questions. Number one, when you look at it the way you say that it is flat, the global economy is improving, please take note that the global economy is improving and people going to restaurants and flying around. In the major economies that we are operating, the industrial economy has not improved that much. That's number one.

The second thing, our results are significantly affected by Lu'An, you know that very well, because Lu'An had an EBITDA contribution every year at full capacity under normal circumstances of almost $150 million, $160 million a year. When you -- when that number comes down, then it distorts all of the numbers. But please look at our volumes.

And another thing is that our results are affected by another significant item, which I have mentioned many times before. We are investing in [increased] organization significantly to develop these new projects. When we (inaudible) project like Canada, we have been working on 4 other projects. Each one of these projects costs $4 billion or $5 billion, $10 billion -- $10 million to develop. We are spending that money because we are investing for the future. So that is taking -- also hitting our results.

But look at our volumes. If you look at our volumes, our volumes are better than all of our competitors during that period. We have grown our base volumes. If you take all of the mumbo-jumbo out of people's results and our result, our volume growth has improved better than anybody else. It's 12%. So therefore, I don't (inaudible) results. That's number one.

The second thing with respect to the return on capital employed, it depends on how you calculate it because if we can calculate our return on capital employed the way other people calculated that they don't consider the cash, we are at 15%, not at 10%. The second thing is that our return on capital employed has gone down because we borrowed $5 billion that is still sitting on our balance sheet and we haven't deployed that. Once we deploy that, once we pay for the Jazan $2.5 billion, your -- that return on capital employed jump up. Is that okay, Jeff?

Yes.

And we'll move on to John Roberts with UBS.

This is Josh Spector on for John this morning. First, just on behalf of the team here at UBS, I just want to say congrats to Scott in his retirement, and welcome Melissa to the team. Happy to have you here.

Going to the -- so just sticking on the volume point within the regions, with the project starting up, it's become a little bit tougher to tell where the merchant levels are versus 2019. Could you walk through the different regions and help us understand how much volume you might be lower in aggregate relative to 2019? Or in other words, how much recovery is left to get there? And then second would just be in some of the onetime items you called out in the Americas, can you quantify what that is or give us some insight on what that is that's benefiting you guys in the quarter?

Sure. Thank you very much. I think that during the course of his comments, Scott mentioned that if you take our volume and compare it to pre-COVID, we are 8% ahead in terms of our merchant volumes. So we are actually volume-wise ahead of where we were before the COVID started. That's why the previous point that I was making.

Then with respect to your second question about onetime items, we don't want to give too much detail about those because it involves customers and so on and some of the people don't want to -- exactly for us to disclose exactly what we set out for them if they close the refinery or something like that. So apologies for not answering that question.

Okay. If I could just try again on the volume side. So on a like-for-like basis, you would say volumes are 8% ahead. That doesn't include contribution from new projects? Or are we mixing up things there?

There are new projects, but it is not substantial. Even if you exclude the new projects, we are ahead.

And we'll move on to Steve Byrne with Bank of America.

Our best to you, Scott. There were a variety of comments made about the year-over-year comparison. Some of those you would have had visibility on like Lu'An and some of your corporate costs perhaps. But what would you say was most surprising to you on the cost side or -- that impacted your results in the quarter that were different from your expectations a few months ago?

Well, the expectation that we had was that the U.S. economy on the industrial side especially would be stronger than it is and especially also HyCO, I mean, the hydrogen. Those things didn't develop to our expectation. The rest of it, we did have visibility (inaudible), but those were -- the surprise was the performance in Americas.

Okay. And one quick one for you on your helium business. Any comments on the outlook for you, particularly given the large Russian project in development? Any concerns there?

Well, Steve, on that one, I mean, you are very knowledgeable about what is going on in the details. There is this big price high helium project that the Russians are working on, the so-called Amur project. That project has a significant amount of capacity. And when and if -- I mean I shouldn't say if, when it comes onstream, whenever it is, it will obviously change the supply-demand basis in the helium worldwide and it will have an effect on prices. But we don't know when that is going to be, and that project has been delayed many times. So when that happens, it will obviously have an effect. It hasn't happened. We don't expect it to happen next quarter, but it might happen in the future. There is a lot of volume of helium that can come onstream. Are those okay, Steve?

Yes.

And next, we move to John McNulty with BMO Capital Markets.

Again, congratulations, Scott. It's been a pleasure working with you. So a question on the global business and the corporate lines because the revenues keep going up pretty meaningfully. You've got some of the big new LNG business coming in, and yet the profits year-over-year have definitely faded. So I guess, can you give us a little bit more color as to the drivers behind that and when we might be through that, whether it's incremental costs or expenses on the corporate line and maybe some of the business mix changes on the global side? Just because it is a little bit surprising that it seems to be holding back the revenues as much as it has been.

John, first of all, good morning. Hope all is well with you. Second thing is that, John, we are talking about deploying $30 billion of capital. That means those projects need to get engineered and built before they contribute to the bottom line. We have added, without exaggeration, close to 2,000 people to our engineering and project management and business development staff in the last 2 years, 2,000 people. If you take $100,000, $120,000 per person, that becomes a lot of money. We have absorbed a lot of costs because of pricing and all of that, but still we are spending a significant amount of dollars in order to position ourselves that not only we develop these projects but that they also execute them and build them.

But then when we do that -- I mean people know how to do the math better than anybody else. If we deploy the $30 billion by 2027, which we say we will, and we say that the return on that thing is expect $0.10 operating profit for every dollar, that is $3 billion of operating profit in addition to what we are doing. You do that after tax, and then you come up with a significant number with respect to more than $10, $11, $15 per share. So in order -- we need to make that a reality, that is not going to happen by itself. And therefore, we are going to be absorbing a lot of additional costs in the meantime.

Now a year from now, 2 years from now, depending on how many projects we have, now if the next year, we come and say that, look, we spent $30 billion, now we have to increase it to $40 billion, then we will have to add more people. So there is a sequence to this thing. We need to spend the money to develop the project, to get the projects. And as you know, the new rules is such that you cannot put the projects on the balance sheet and then you win them and those that you win, you have to eat the costs. That's the accounting rules.

So that is where I think the investors need to have a little bit of patience with us because these costs are going to be with us. And quite honestly, it is amazing that the effect is not as much as it could be because as I said, 2,000 people, it's costing us $240 million, $250 million a year to support those people. Okay, John?

That's fair -- yes. No, fair enough. Very helpful color on it.

And we'll move to Kevin McCarthy with Vertical Research Partners.

Seifi, over the last several quarters, we've seen inflation accelerate pretty broadly and a lot of specialty chemical companies are feeling the effects of that in today's market. Air Products, of course, is blessed in that you pass through a lot of costs. But as you've been discussing, I think there are other costs that aren't passed through. And so my question would be, do you think there's any need or opportunity to accelerate the pace of pricing given that backdrop of industry inflation? And how might your answer differ by region of the world?

That is a very good question, Kevin. And first of all, we believe -- I mean the way we operate is that our base business, people increase prices to cover inflation. That is the minimum we expect them to do. The other cost increases, obviously, as I mentioned before, is adding additional resources. But our philosophy is that if power costs go up, prices need to go up. And as compared to other chemical companies, we have -- another benefit is that our raw material price doesn't go up because our raw material is really air for most of our products. And if it is natural gas, we do pass it through.

So overall, as I've said many times before, with my 42-year experience in industrial gases, inflationary times are, in general, positive for industrial gases because it gives you the license to increase prices. And if the -- I mean, in our call, we mentioned price increases on an overall basis. But if you take just our merchant price increases, we have had price increases this last quarter of 7% in Americas, 3% in Europe, 3% in Asia, total company 5% in price increase. So that's for the merchant side. So that is significant, and it's keeping us up to date with inflation, Kevin. Okay?

Thank you for that.

And we'll move on to David Begleiter with Deutsche Bank.

Of course, my congrats to Scott as well. It's been a pleasure. Seifi, just on Jazan, if we do assume financial close by fiscal year-end, should we still presume a full year of earnings contribution for Jazan next fiscal year?

Yes. It is going to depend on the details of the final structure of the financing and all that. But yes, we have said that once we do financial close and we pay a certain amount of money, we are going to get BFC, or the basic facility, in accordance with how much money we have put in. So we should expect good contribution in 2022, yes.

Very good. And do you have an update on the NEOM and Indonesian projects?

The NEOM project, we obviously are working on it. We have, I think, at least around 400 people working on that project. The project is moving forward. They are clear at preparing the ground, and the engineering is going forward. So we are making progress on that project. With respect to Indonesia, I don't have any update. Indonesia has a lot of issues there with the COVID and all of that. So I don't really have any update.

And we'll move on to Mike Harrison with Seaport Research Partners.

Best wishes to Scott, and congratulations to Melissa on the new role. In terms of the Americas business, you mentioned that we're up sequentially on stronger hydrogen demand. I think that's related to the Texas freeze and some improvement in refinery utilization. But you also mentioned that some of these refineries are using more light and sweet crude feedstocks, which require less hydrogen. Can you talk a little bit more about the longer-term effect of that trend?

Well, for the longer term, we are actually very bullish about our hydrogen pipeline in the Gulf Coast. We expect that hydrogen network to be really sold out in about 2 years' time because the fundamental drivers for growth are there, the refineries will come back and there is a significant trend, Mike, you know that very well, towards converting the refineries into making renewable diesel. And as we have said, the intensity of hydrogen for renewable diesel is higher than other things. So we remain very optimistic about that. It's just quarter-by-quarter, the numbers move. But for the longer term, we are very optimistic about that hydrogen pipeline and that whole infrastructure there.

All right. And in the EMEA business, you mentioned the higher power costs and the need to go after additional pricing there. Can you just talk about those dynamics a little bit more? I guess, is there some seasonal improvement in the power situation such that if you wait it out, maybe the cost will come a little bit lower?

Well, I don't think so. I think that in Europe, there is a structural issue that when you decide that you don't want to use nuclear and you don't want to decide to use coal, then the other alternative sources of energy are more expensive. I mean, in some parts of Europe, energy cost last quarter was almost 100% more than the last year. So I think that power cost increases in Europe are going to be a thing of the future. And in order -- and that's why a lot of these things that people talk about, making green hydrogen using the grid in Europe, is kind of a little bit of a pie in the sky.

But overall, I think that our job is to increase our prices to compensate for the power costs. And our contracts are structured that way. Sometimes, we might get a little bit of a lag in implementing that, but our people know exactly what they need to do, and in turn, we will catch up. But I don't think power prices in Europe are going to ease.

And Bob Koort with Goldman Sachs will have the next question.

On Jazan, Seifi, are the gasifiers running now? So it's just a function of paper shuffling to start accruing the benefits?

You just asked me a question that I cannot answer because we have been prohibited by Saudi Aramco to talk about the state of operation of the refinery and what stage it is and how it is operating and so on for security reasons. So I cannot tell you what is operating, what is not operating and all of that. I mean if you want, you can ask that question from Saudi Aramco, but I think they will say probably the same thing that I said. So I apologize. You asked the question, and I cannot answer you. Sorry about that.

Okay. How about on the debt facility that was launched back in May, is that the final piece that has to be concluded?

That is the final piece that needs to be concluded. That is underway, and we are very close. We are very close on that.

Scott, really enjoyed working with you over the years.

Thanks, Bob. Likewise.

And we'll move on to Patrick Fischer with Barclays.

First question, just around Lu'An. Seifi, I think you mentioned that you thought it was going to get back to a run rate of $150 million to $160 million of EBITDA. But I didn't understand, was that in the fiscal 2022 for you guys? Or is that calendar 2022 for the customer?

It is in fiscal 2023. Fiscal '22, I mentioned in the call that it will be low.

Okay. '22 is low, '23 gets -- okay, fair enough. And then second one, on your Alberta project, I believe one of your big customers up there is Suncor. And they had announced about a month earlier then, you guys kind of a similar project. Does your project supersede what they were going to do? Or is there enough space up there that both you can do a large green hydrogen project?

Well, I don't want -- I obviously don't want to speak for Suncor. They are a customer of ours, but we are not the only supplier. They have their own SMRs. So what they intend to do -- our contract with them lasts until 2028. I don't know what is their intention about doing a project to replace their own SMRs, doing a project to replace their own SMRs and what they buy from us, that's something that you have to talk to them. I don't want to be speaking for them. But the project they announced, they come onstream in 2028, and our project would come onstream in 2024.

And next, we'll hear from Marc Bianchi with Cowen.

A fuel cell company, which is -- was a hydrogen customer noted on their earnings call that they transitioned away from Air Products because they were unhappy with the supply and pricing. The same company is also building out their own green hydrogen supply chain. Maybe you want to respond to that situation since it was mentioned on an investor call recently. But the question really is more broadly, what do you say to investors that might be concerned about competition for hydrogen distribution and mobility applications?

So first of all, with respect to that specific customer who made those comments, I wish them very good luck into what they are doing. We have stopped supplying them for a very simple reason, because we think the product that we have is worth a lot more and we can sell it for a higher price to other people. Therefore, we are in the business of making money. There was no sense for us to continue to sell hydrogen at low prices. That's why we have stopped dealing with them. In terms of building their own plant, as I said, I wish them good luck, and I hope they are successful.

And as far as other people wanting to get into the business, that's perfectly fine. We have been in the business of making hydrogen for the last 60 years. A lot of people are waking up in the morning and now want to get into the hydrogen business. I wish them good luck. There is plenty of opportunity, plenty of demand for this product. And if they want to get into it, they are more than welcome. I don't think we are concerned about that. We welcome competition. We have competition in everything else we do. And therefore, I have no concern about that, and I wish everybody good luck who wants to get into the business. We just have a minor 60 years of head start on them, but that people might consider is not that significant, but they'll find out what it takes.

And we'll move on to Mike Sison with Wells Fargo.

Scott, congratulations. I hope you found a fun place to retire like Cleveland, but -- just one question on the 2027 goal, Seifi. You've talked about demand being really good for hydrogen and other areas. Is it possible that, a, you could maybe deploy that capital sooner than '27? Or is it maybe you have to spend more potentially if demand is going to be that strong?

So we believe that the demand is very strong, and we do believe that we will commit more than that. So that's our view.

And at this time, I would like to turn the call back over to Seifi Ghasemi for any additional or closing remarks.

Well, I just want to thank everybody for being on our call and listening to our presentation. We appreciate your interest, and we obviously look forward to discussing our results with you again next quarter. As I said earlier, please stay safe and healthy and all the best. Thank you very much for being on our call.

And that will conclude today's call. We thank you for your participation.