Good morning, and welcome to the 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. Sidd Manjeshwar. Please go ahead sir.

Hi, thank you, Jenifer. Good morning, everyone. Welcome to Air Products' first quarter 2024 earnings results teleconference. This is Sidd Manjeshwar, Vice President of Investor Relations and Corporate Treasurer. I'm pleased to be joined today by Seifi Ghasemi, our Chairman, President and CEO; Dr. Samir Serhan, our Chief Operating Officer; Melissa Schaeffer, our 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. Today's discussion contains forward-looking statements, including those about earnings and capital expenditure guidance, business outlook and investment opportunities. Please refer to the cautionary note regarding forward-looking statements that is provided in our earnings release and on slide number two. Additionally, throughout today's discussion, we will refer to various financial measures including earnings per share, operating income, operating margin, EBITDA, EBITDA margin, the effective tax rate, and ROCE both on a total company and segment basis. Unless we specifically state otherwise, statements regarding these measures are referring to our adjusted non-GAAP financial measures. 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 with that, I'm pleased to turn the call over to Seifi.

Thank you, Sidd, and good day to everyone. Thank you for taking time from your very busy schedule to be on our call today. As always, I would like to begin with slide number three, our safety performance, which is our number one priority at Air Products. I'm very pleased to share that our employee recordable injury rate in the first quarter was 78% lower than in 2014, and our employee lost time injury rate was at a record low, the best in the industry. Our ultimate goal will always be zero accidents and zero incidents. Now, please turn to slide number four, which summarizes our management philosophy. These principles remain fundamental to how we manage and grow our company. Now please turn to slide number five. I would like to take a few minutes to discuss the results for this quarter. Our first quarter adjusted earnings per share of $2.82 was 7% higher than last year. Our business performed well, and we are moving forward. There were several positive contributions to this result that included strong conversion margins, robust on-site activities in the Americas and Europe, and higher quality affiliate income globally. Despite the year-to-year improvement that I just mentioned, our results diverged from the guidance range that we provided due to several items that were not factored into our first quarter 2024 outlook. We have given you a forecast, and we are delivering less than the forecast, but again I'd like to express that we are 7% higher than last year. The factors that affected our guidance are: number one, larger than anticipated volume headwinds from weak economic growth in China. We were too optimistic about performance in China. The second is lower helium demand in electronics, especially across the world. But I would like to mention that our pricing in helium is very stable and robust, but we experienced lower volumes than we expected. There was also a high occurrence of higher costs for a sale of equipment project and the impact of Argentine currency devaluation. With this, let me talk about our revised full-year guidance range. Please turn to slide number six. We now expect full-year adjusted earnings per share to be in the range of $12.20 to $12.50, which reflects the first quarter events I just discussed. It also reflects evolving geopolitical developments, uncertainties, and continued weakness in Asia and helium volumes. This new range is supported by expected positive volume contributions from several new on-site plants and improvement in our LNG sale of equipment business, as well as continuing cost productivity that we always pursue. For the second quarter of fiscal year 2024, our adjusted earnings per share guidance is $2.60 to $2.75. We continue to expect our CapEx to be between $5 billion and $5.5 billion in fiscal year 2024. Now please turn to slide number seven. We are proud of our adjusted earnings per share improvement since 2014, and we have delivered consecutive annual growth of more than 10% in our earnings for the last 10 years. I would like to thank each and every one of our employees around the world for their hard work, dedication, and commitment, which has made it possible for us to deliver these excellent results. Now please turn to slide number eight. In addition to investing in high-return projects, we believe creating shareholder value includes returning cash to our investors by paying a healthy dividend directly to them. In January, we again raised our quarterly dividend to $1.77 per share per quarter, extending our record of 42 consecutive years of dividend increases. We expect to return approximately $1.6 billion to our shareholders in 2024 while continuing to execute high-return industrial gas and clean hydrogen projects that support our customers in their sustainability journey and drive the energy transition. This balanced approach to capital allocation allows us to meet our capital needs while maintaining our A2 credit rating. Now please turn to slide number nine, which shows our EBITDA margin trends since 2014. Our margins have returned to roughly 40% since the second half of fiscal year 2023, which reflects a 1,500 basis point improvement compared to 2014. Our margins are leading industry margins and reflect the continued strength of our business model. Now, it's my pleasure to turn the call over to Melissa Schaeffer, our Chief Financial Officer, to give you a summary of our first quarter 2024 results. Melissa?

Thank you, Seifi. Now please turn to slide 10 for a review of our first quarter results. As Seifi stated, our business fundamentals are strong. In comparison to last year, we continue to show underlying sales growth with both positive volume and price. Overall, price for the quarter was up despite lower energy costs across most regions. Volume improved 3% driven by strong on-site volume, including higher demand for hydrogen and contributions from new assets but partially offset by weaker demand for helium, particularly in Asia. Declining natural gas prices in Europe and North America resulted in an 11% lower energy cost pass-through for the company overall. This had no impact on profit but contributed to higher margins. EBITDA improved 8% as favorable volume, price net of power cost, and equity affiliate income more than offset higher costs driven by higher planned maintenance activities and inflation. EBITDA margin of 39.2% increased by more than 500 basis points, with lower energy cost pass-through contributing to about three-fourths of this improvement. ROCE remains steady at about 12%. Adjusting for cash, our ROCE would have been about 13%. Sequentially, results were unfavorable primarily due to seasonality in the Americas and sale of equipment headwinds in our corporate segments. Now please turn to slide 11 for a discussion of our earnings per share. Our first quarter adjusted earnings per share was $2.82, up $0.18 or 7% compared to last year due to favorable volume, pricing, and higher equity affiliate income, partially offset by unfavorable costs. Volume was up $0.11 due to improvements in America and Europe, which more than offset shortfalls in Asia and the corporate segment. Price, net of variable costs, contributed $0.15 this quarter, driven by both pricing actions and lower power costs. Costs had an unfavorable impact of $0.21, driven by higher planned maintenance costs, inflation, and our efforts to support our growth strategy. Equity affiliate income was $0.18 higher due to the contribution of the second phase of the Jazan project and positive results from our unconsolidated joint ventures across most regions. The remaining items, including lower tax rates, higher interest expense, and other non-operating expenses, together had a modest negative impact of $0.05. Before I turn the call to Dr. Serhan, I would also like to thank the people of Air Products for their commitment to the company. I am proud to be working alongside them as we continue to execute our strategy. Now, to begin to review our business segment results, I'll turn the call to Dr. Serhan.

Thank you, Melissa. Please turn to slide 12 for a review of our Americas segment results. Compared to last year price and volume together were up 5%. Hardware, merchants, and price increases of 6% represent a 2% price improvement for the region overall. This shows contribution margin improvement. Volume grew 3% due to strong demand for hydrogen. EBITDA was up 9% driven by strong price as well as favorable volume and equity affiliate income, while partially offset by higher planned maintenance costs. EBITDA margin was up by almost 800 basis points driven mostly by lower energy cost pass-through. Eventually, EBITDA decreased 7% mainly due to seasonality as demand moderated and maintenance activities picked up during the winter. Now please turn to slide 13 for a review of our Asia segment results. The challenging economic conditions in China and the weak electronics market continued to put pressure on the region. Prior to last year, our volumes were flat for the region as higher on-site activity offset lower helium demand. Price jumped 1% as we continued to focus on price over volume. EBITDA and EBITDA margin were down primarily due to the unfavorable helium volumes and higher costs. Sequentially, results improved relative to the unfavorable business mix in the previous quarter. Please turn to slide 14 for a review of our Europe segment results. Volumes were up 9% benefitting from better on-site activities including the new project in Uzbekistan. Compared to last year, merchant pricing remained stable relative to the decline in energy costs, contributing to margin improvement. EBITDA was up 28%, driven by favorable volume, lower power costs, and stronger currencies against the US dollar, which more than compensated for increased cost due to inflation and planned maintenance activities. EBITDA margin was over 1,000 basis points higher, about half of which was due to the impact of lower energy cost pass-through. Sequentially results improved driven by favorable price, volume, and costs. Now, please turn to slide 15 for a review of our Middle East and India segment results. Compared to last year, sales decreased due to lower volume; EBITDA improved due to the completion of the second phase of the Jazan project in mid-January of last year. Please now turn to slide 16 for our corporate and other segment results. This segment includes our sale of equipment businesses, as well as our centrally managed functions and corporate costs. Despite higher sales from LNG activity, EBITDA declined due to higher costs in our non-LNG sale of equipment business as Seifi mentioned before. Our activities related to the LNG equipment and technology business are robust. We continue to have constructive conversations with customers, who are interested in our offerings. We expect our LNG-related projects to improve the corporate segment moving forward. At this moment, I also would like to thank our teams around the world for their effort and demonstrating their determination to overcome the challenges we are facing. Now I would like to turn the call back to Seifi to provide his closing remarks. Seifi?

Thank you, Dr. Serhan. Now please turn to slide number 17. As I always say, a real competitive advantage is the commitment, dedication, and motivation of our people. I am proud to see that commitment and motivation in action every day in our company, and I'm very proud of our people. The fundamentals of our existing business are strong, and we are moving forward. The short-term issues we have discussed do not change the compelling long-term prospects of Air Products. Air Products is pursuing a first mover growth strategy with our core industrial gases business as the first pillar and our blue and green hydrogen projects as the second pillar. Executing our strategy in these two pillars with sustainability underpinning both of them enables us to fulfill our higher purpose as a company, which is to help solve significant energy and environmental challenges in our world; that is our highest purpose. First, our industrial gases business and technology solutions help customers across dozens of industries improve yield, increase production, reduce energy consumption, and lower emissions. In other words, to make more with less, while reducing the impact on the environment. Second, the world needs more energy and wants that energy delivered with a lower carbon footprint. At Air Products, we are demonstrating our leadership position, leveraging our decade-long experience, core competencies, core technologies, and our ability to execute world-scale hydrogen projects. By producing and delivering low and zero-carbon hydrogen at the scale for heavy-duty transportation and industry, we can meaningfully contribute to the goal of decarbonizing the world. We believe that the first mover advantage will be substantial and deliver enduring long-term shareholder value, both in terms of return to Air Products and in generating a cleaner future for everybody. With that, we are now more than happy to take your questions.

Thank you. And we'll go first to Jeff Zekauskas from JPMorgan.

Thanks very much. When did the Gulf Coast ammonia project come on and is that a meaningful income stream for you?

Gulf Coast ammonia consists of two different parts: one is the hydrogen plant and the other is the actual ammonia plant. I can comment on the hydrogen plant, because we own that, and that is on the stream and is producing revenue. And on the other part, I don't want to comment, because we don't own that facility and I’d like the owners to make a statement on that if it's necessary.

In the quarter, the expense was significantly higher year-over-year than expected for 2024. You have a large cost-cutting program, and the heavy losses on the sale of equipment are expected to be smaller. There is significant room for improvement in that particular area. Is that correct, or have circumstances changed?

Jeff, you are absolutely right that is the case. In the first quarter, our costs were higher, because of the sale of equipment issue that you mentioned. And we expect that as we go forward, that would not be repeated and therefore our year-to-year costs will be lower as I had mentioned to you before.

Thank you so much.

Thank you, sir.

Thank you. We'll go next to Mike Harrison from Seaport Research Partners.

Hi, good morning.

Good morning.

I was hoping that you could give a little bit more detail on what is going on within the helium business? Is that a situation where demand is lower or a situation where you guys are struggling to get the volumes of helium that you need? And also, which regions have the biggest exposure to helium? It seems like this is mostly an Asia issue at least in the first quarter?

Thank you for the question; that's an excellent question. Number one, we do not have any issues with having helium molecules for sale. We are actually the best, we have always been the supplier that has delivered helium to people when they need it. We have significant production facilities around the world, so we are a very reliable supplier. The issue with helium is that, number one, demand is lower especially in electronics across the board, and particularly in China and in Asia. And the other thing is that we operate on the basis that we want value for the product that we are selling. So we have held up the pricing, and whether we might have lost some market share, that is possible. But we have no issues delivering the product; however, we definitely see a weakness in demand across the world. In terms of Air Products, Asia is a significant part of our helium volumes, but other regions use a lot of helium too.

All right, that's very helpful! And then my second question is related to your guidance. It looks like the implied guidance for the first half of the year is around $5.50 in EPS and you're expecting maybe something closer to $7 in the second half? Can you talk about the visibility that you have that gives you confidence on a much better second half, and maybe help us bridge the improvement that you're expecting in the second half versus the first half of that $50 or so?

That's an excellent question. Obviously, the guidance is our best estimate at this point. We can foresee the world events. Fundamentally, when you look at Air Products during the years, we consistently deliver about 46% to 47% percent of the year results in the first half, and we deliver around 53% to 54% in the second half, so the second half is usually our strongest quarter because of seasonality. You should take that into account. Furthermore, we expect that in the second half of the year some of the on-site projects we have will be running very strong, resulting in a higher income from those. That is our estimate as of today. However, how the world will turn remains to be seen. But that is how we bridge the gap of why we will be able to deliver the $7 versus the $5.50 in the first half.

Thank you very much.

Thank you.

Thank you. We'll go next to John Roberts from Mizuho.

Thank you. Seifi, is the weakness in China also related to on-site operations? And maybe you could separate the gasifier business from other on-site?

John, first of all, thank you for your question, and I hope all is well with you. There is no weakness in on-site in China. Our on-site business is take-or-pay across the world, therefore we don't see any issues there. The fundamental issue is on the merchant side and helium, and that is related to the economic activity. I just like to caution everybody on the call that the economic situation in China is not as robust as people might think. We, as you know, make products that are used instantaneously. We are a great leading indicator. Things are not really that exciting in that part of the world.

Thank you.

Thank you.

Thank you. We’ll go next to Steve Byrne from Bank of America.

Yes, thank you! I was just looking at the location of Jazan, and it seems to be within 100 miles of quite a few of these recent strikes in Yemen. I just wanted to ask, is everything there okay at the plant? Or do you see any access to labor or risks with this issue going on right now?

Well, first of all, up to now we have not seen any incidents; none of these missiles so far have been directed at the facility. I mean, I can't predict the future, but up to now there have been no issues. The refinery is running fully; our performance there is great. I'm very proud of our people. We are operating 16 gasifiers, which are the largest in the world for gas decline at the bottom of the refinery. Despite predictions for the worst, those things are actually working, producing syngas, supplying hydrogen to the refinery, and we are making close to 4,000 megawatts of power that is delivered to the Saudi grid. So up to now, everything is fine.

Very good. Thank you. Can you provide any more detail on the CapEx target for the year, the $5 billion to $5.5 billion? Can you just highlight what are the largest projects within that list? I was just curious whether you are moving forward with the project in North Texas this year?

Right now, in that $5 billion to $5.5 billion, that is not a significant amount of money for the project in Texas, because we are in the process of getting the permit and doing the preliminary engineering. However, we did spend a few hundred million, but it is not a significant part of that $5.5 billion. The $5 billion to $5.5 billion is mainly going to be spent on our continuing operations in NEOM in Saudi Arabia for our green hydrogen facility; a substantial amount of it will go to our blue hydrogen facility and other substantial amounts will go to our blue hydrogen facility in Canada. We also have our expenditure on the sustainable airline fuel facility in Los Angeles. Then, we have our maintenance CapEx of about $1 billion a year that we spend on our day-to-day investments. We don’t typically announce every small project, but that is also around $1 billion, so our maintenance CapEx is around $500 to $600 million, bringing the total maintenance CapEx to around $1.5 billion, with the rest for the bigger projects.

Thank you.

Thank you.

Thank you, we'll go next to John McNulty from BMO Capital Markets.

Yes. Good morning. Thanks for taking my questions. So we had a question on the dividend hike that you guys announced earlier. It strikes us as kind of smaller than I guess what we've seen in the past from Air Products. The question is, why is that? Is there any concern from, say, the rating agencies around the comfort with your capital spending, or is there some change why that hike would be as kind of modest as it's been? I guess how should we think about that?

Well, for the past six or seven years I have always been telling people that I personally believe that dividends should be a percentage of the stock price, and we had given people guidance that we target that we pay about 2.5% of our stock price as dividends, and we were doing that. However, with the stock price where it is, more than $7, it is significantly higher than that. So I don't see why we should significantly increase the dividend given the current stock prices because shareholders are getting more than 2.5% from the stock and then a 10% growth, and it becomes at least almost a 12.5% return if they buy the stock. If there is no issue with respect to our cash or cash flow, we also have investors who believe we shouldn't pay any dividends, but obviously that will never happen, and they are never going to reduce the dividend. But the rate of increase is very directly related to the stock price.

Got it. Okay. So it's more about the yield, not necessarily the earnings growth or anything like that?

Thank you.

Can you provide an update on which projects are not fully operational in the first half of the year but will be in the second half? This information will help us better model our expectations.

I'm going to get into disclosing the operational details of our customers, and I don't have the privilege of doing that because of the confidentiality agreements we have. So, if you give me a break, I cannot answer that question in detail. Sorry about that.

No, no problem. No problem at all. We'll definitely give you a break on that. Thanks for the time.

Thank you. I appreciate that.

Thank you. We'll go next to Vincent Andrews from Morgan Stanley.

Thank you and good morning, everyone. If I could just ask on the helium, what was sort of the surprise in the quarter on the electronic side of the equation? What's really changing with those customers? Is it something in particular, or is it just the economy there is decelerating? Are we at the point with the electronics piece that you're comfortable that aspect has flattened out at a level that you're comfortable with? Maybe we could start there.

First of all, good morning, Vincent. Thanks for the good question. Usually, what happens with the electronic industry is that they run very strongly during the third quarter of the calendar year to make all of the chips and so on that are used for all the toys and everything that people are going to buy for Christmas. After that period, usually the fourth quarter of the year for the chip makers is slower. In addition, you do have economic conditions and all of that. I am not an expert in terms of the dynamics of the electronic industry, but I would like to tell you that what we are seeing is a slow down in demand. Additionally, the helium price being high significantly affects the operational people at the chip manufacturing facilities to try to conserve helium. So there might be a little bit of demand destruction too.

Okay. And then as a follow-up, in the fiscal second quarter, we obviously just had another winter storm in the Gulf Coast area. Are you anticipating that you're going to have some downtime associated with that or customers are going to have downtime from some plants being turned off in preparation for that weather event?

That's a very difficult question to answer, to be honest. That might be the case, but I don't want to predict that, Vincent. I don't know.

I just meant what had already happened, the storm that happened in January. Is that already baked in?

Yes. Dr. Serhan, do you have anything to add to that?

Minor issues really that happened. We still see very strong hydrogen demand even during that phase.

Okay. Thank you very much.

Okay, Vincent. Thank you. Excellent.

Thank you. We'll go next to David Begleiter from Deutsche Bank.

Thank you. Good morning.

Hey, David.

Good morning. Just staying on helium, can you quantify the impact of the year-over-year helium profit decline in Q1? And your expectations for the full-year in terms of helium profit decline?

David, you are asking a question that we have never answered; we have never really disclosed the details of the performance of our helium business for competitive reasons. I'm sure you understand that. So I do not want to quantify that exactly. However, comparing to last year, when we look at the performance, we are still ahead, but we expected weakness in helium that has materialized. Whether it will continue in the second quarter and the third quarter remains to be seen, and that is one of the reasons we lowered our guidance, because we are allowing for the fact that it might continue. But we don't know for sure.

Understood. Thank you. Just on the Alberta project, now that we're within 12 months, hopefully a start-up, do you have timing of that project ramping up early next year? How should we think about the earnings contribution throughout calendar year '25 for Alberta?

David, I didn't understand which project you were referring to?

The Alberta project. When will it come on stream, and how are you thinking about the earnings cadence post its start-up early next year?

Excellent. I'll have Dr. Serhan answer that. Samir?

Thank you for the question. We remain incredibly excited about our first blue net-zero hydrogen project that's in the construction phase right now. We look to bring it on stream in fiscal year '25 in line with our customer plans. There are no updates regarding the deployed capital or government incentives provided. We are fully committed to this asset, and things are going well, aligning with our customer, IOL.

We'll be online in the first half of this fiscal year? Sorry.

It's in fiscal year '25; I mean, in the second half.

Second half, thank you.

Everything is going well for that up to now.

Thank you very much.

Thank you.

Thank you. We'll go next to Josh Spector from UBS.

Hi, good morning. I wanted to follow up just on the guidance and maybe ask specifically, when you talk about the challenges and uncertainty, China and helium demand, etc. To hit your second half, do markets need to improve, or are you assuming any improvement there? Or is status quo plus what you see coming online enough to get to what your expectations are today for the second half?

No, we don't expect any improvement. We expect things to be the way they are. I just hope that things don't get worse due to geopolitical developments. But we are not factoring in any significant improvement in the world economy. That is correct.

Okay, thanks. That's helpful. And just on the sale of equipment, when you talk about the increase in cost there, is that cost to execute? Is that a material issue with a specific contract? Just thinking about how unique or one-off that is. When you talk about your LNG wins, and you've been talking about more projects coming online or sales in the next couple of years, is that a risk we need to think about with those contracts potentially underwater or some other cost issue?

If I may answer the second part, the LNG thing; we expect that the projects you are talking about are the projects which are already under execution and we have won. So the risk on that is low. Regarding the sale of equipment, what we are talking about is inflation and delays in execution; that is costing us money.

Okay, yes. Thank you.

Thank you very much.

Thank you. We'll go to Marc Bianchi from TD Cowen.

Hi, thank you. The question was asked earlier about the large components of CapEx, and you mentioned NEOM, the two blue hydrogen projects and SAF. You provided an update on Alberta just now. I'm curious if you could update us on the status of the other three?

On the other three, we don't have anything substantial to report other than what we have told you before. So, things are going okay with them as of right now. We do not have anything material that has happened to report to you.

Okay. Thank you, Seifi. Could you just remind us the start-up expectation for NEOM Louisiana and SAF?

NEOM, we are expecting December 31, 2026. With Louisiana, we have previously said fiscal year 2028, and with SAF, it is projected for around fiscal year 2027, depending on us getting all of the permits that we need.

Okay, thank you for that. The other question I had was there have been some reports in news stories lately about natural hydrogen, so naturally occurring hydrogen deposits that could be quite meaningful. I'm curious about your view on that and if you have any involvement?

We do not have any involvement in that, and I don't want to give you a scientific answer, but that’s a little bit of a pie in the sky—that there's hydrogen just sitting there that you need to reveal and come out at zero cost. We are not involved in any projects like that. We are not going to get involved in that because we just don't think that is reality.

Thank you very much.

Thank you.

Thank you. We'll go next to Mike Leithead from Barclays.

Great. Thank you.

Good morning.

Good morning. Could you maybe update us on the state of your ongoing discussions for green and blue ammonia potential off-take? Should we expect some offtake announcements later this year? Or do you still believe it's better to wait until closer to project start-up to formalize some of those?

On this one, you are raising an excellent point. We have told people not to expect any announcement about any offtake until about a year or year and a half before the plants come on stream. The main reason for that is we believe that, as we get closer to deadlines that companies have to comply with the new environmental rules, they will recognize that there are not that many real commercial facilities coming onstream that have the product. Therefore, the value of our product will be higher than what people think it is today. We are not in a hurry to sign any agreements. We think the demand is there. So we plan to take our time. However, if someone wants to act sooner and offers us a long-term contract at the prices we expect, we may announce that sooner. But I wouldn't want investors to expect any announcements soon.

That makes sense. That's great. That makes sense. On a similar note, I believe the Treasury Department recently came out with guidance around the green hydrogen tax credit. Most people viewed it as fairly strict, although I also believe Air Products’ plans are well-aligned with this guidance. Bigger picture, do you have any concerns about the strict interpretation limiting the U.S. industry's ability to take off, or do you actually see it as advantageous for Air Products?

No, we absolutely disagree with that point of view that this is limiting. I mean, how is it limiting? We are complying with every single part of what the Treasury Department has put out, the three pillars. We are committing billions of dollars to build these facilities. Other people can do the same thing. Some people are trying to get funding from the government while continuing to pollute the atmosphere. And we don't believe that; we believe very strongly in the three pillars. That means that any electricity used for the production of green hydrogen needs to be additional. Otherwise, you're just going to use coal to replace that power used. It must be additional. The second thing is that it has to be hourly; otherwise, in the middle of the night when there is no sun, if somebody makes green hydrogen, they are drawing power from the grid and that has to be replaced from coal-fired plants. And finally, it has to be on the same network. We are fully supportive of what the Treasury Department has put out. I'd like to applaud them for sticking to their principles, which were designed not to make companies rich but to save the environment. The IRA is designed to improve the environment, and we should all abide by that. We are fully aligned with those new rules and I hope they maintain their nerve and execute those principles because they are the right principles. We are spending billions and executing projects even before those rules are established, complying with them because we think they are the right rules.

Great. Thank you so much.

Thank you.

Thank you. We'll go next to Duffy Fischer from Goldman Sachs.

Yes, good morning, guys.

Good morning, Duffy. How are you?

Good, thank you. Question on cash flow, if I could. At least in the first quarter, cash flow was down or operating cash flow was down double digits even though earnings were up. Will that invert throughout the year? Would you expect operating cash flow to grow roughly at the same level of EPS this year?

Duffy, I'm glad you asked this question, but I'll have Melissa go through the details. But our EBITDA is going up, and if our EBITDA is going up, the cash coming to the company is going up. What we are reporting is accounting, and it's the timing of the cash. We report the number because we book it, but when we get the actual cash, it's different based on our equity affiliates. Melissa, would you please explain that?

Yes, absolutely. Thank you, Seifi. Hi, Duffy, how are you? So, first of all, our EBITDA cash conversion is stable, and our distributable and investment cash flow are both positive. That's in line with our year-over-year EBITDA improvement. Furthermore, we have industry-leading DSO, so all is very strong. We did see an incremental reduction in our operating cash flow to EBITDA this quarter. This is attributed mainly to timing components related to our distributions of earnings for our large equity affiliate. Again, not an issue with profit, just timing. The second one is we manage and look to derisk our helium supply chain, and thus we are building some of our helium inventory, which obviously has an offset to operating cash, but it will attribute to process moving forward.

Okay, Duffy?

Thank you. You bet. Thank you for that one. And just on the announcement that the EPA was given to the state of Louisiana the authority to deal with CO2 sequestration there, can you kind of roughly explain how your relationship is with the state and how quickly you think that will speed up the process there and when we might get permits for Louisiana?

Duffy, I'm glad you asked that question. We are very excited about that. I think it was the right decision, and it will cut about a year off our timeline to get the permit for the Class 6 well. We have an excellent relationship with the State of Louisiana, and it's not just about the relationship. We are going to do the right thing by having the State of Louisiana review that. We gain time because the State of Louisiana will have fewer Class 6 wells to deal with than the EPA. So it's just a matter of workload, and they did the right thing. Therefore, the State of Louisiana can approve our project about a year faster than the federal government would have done that. That is why it is very helpful and impactful and gives us a lot more confidence in terms of our ability to get the Class 6 permit if we need it.

Great. Thank you.

Thank you very much.

Thank you. We'll go to Kevin McCarthy from Vertical Research Partners.

Yes. Thank you and good morning. Seifi, I wanted to come back to the helium market dynamics. I heard your comments on the demand side. My question is, have you witnessed any material changes on the supply side of the global market, such as the operating status of Gazprom's Amur project in Russia? Or is it strictly a function of demand in terms of the volume shortfall that you cited in the quarter?

That is a very good question. Theoretically, whatever Amur produces in Russia, theoretically, there are global sanctions on that. That is not supposed to be getting into the market. Is it getting into the market illegally and therefore increasing the supply of helium, and therefore that is why people are buying from other people? It could be the case. I am not certain. But the detailed dynamics on that are, and I don't want to be interpreting sanctions laws. However, we haven’t seen any significant factors from that yet, and at least we don’t see it right now, but it might be the case.

Okay. That's helpful. And then, secondly, I had a few housekeeping questions possibly for Melissa. I think you mentioned devaluation of the Argentine peso. We talked about the cost overrun from the sale of equipment project. Can you quantify the impact of some of those issues in the quarter?

I don't think we want to quantify the details of each of them, but the effect of the Argentine currency devaluation was about $10 million on our bottom line, which is approximately $0.03.

Okay. And the SOE? No comment on that one?

No, the rest of it, we don't want to break down how much was helium, how much was the sale of equipment, and how much was the slowdown in China, because then we will be giving you too much competitive information, if you don't mind.

I see. Okay. Thank you very much.

Thank you.

Thank you. We'll go next to Patrick Cunningham from Citi.

Hi, good morning. Could you maybe comment on the direction of price in Europe? How sustainable are these margins going forward?

Quite frankly, that is one area where we did better than expected. Our results in Europe are excellent; the margins are up 1,000 basis points, and that is because people have done a good job maintaining their prices while energy prices are declining. How this will develop in the future obviously depends on what happens to energy prices and so on. But I'm very proud of our people in terms of their performance regarding maintaining pricing, and we have been successful. As Dr. Serhan stated, our European business performed very well during the quarter.

Great. And then maybe just a related follow-up on the Uzbekistan project. How much volume was up on Uzbekistan? What contribution should we anticipate throughout the year? I know previously you discussed $0.35 per share. How is Uzbekistan performing relative to your expectations?

Dr. Serhan, would you like to answer that?

Yes, I just want to start by saying this project really has been a great fit for both Air Products and Uzbekistan. It leverages our core competencies and addresses the country's desire for energy independence and socioeconomic development. This project includes the world’s largest ATRs, auto thermal reformers. Just to remind everyone, to produce blue hydrogen, you need to use auto-thermal reformers and those are the largest in the world, or you need to use box units, which are the partial oxidation, the technology we bought from GE gasification. We are excited about the operational and technological synergies by operating these large ATRs. The asset was brought on stream in October '23. We expect it to contribute around $0.35 for the full year.

Okay.

Great. Thank you.

Thank you. Operator, this would be the last question, okay?

Thank you. Okay, we'll go to Mike Sison from Wells Fargo.

Hey, good morning, everybody. I guess my first question on fiscal '24 EPS growth, the projects that were recently come on stream, before that you've noted in the slide. Are those contributing what you thought they would contribute in 2024? And I guess sort of the follow-up is that the delta between the 13% growth to the 6% to 9% growth now has nothing to do with the projects, more of the other stuff that you talked about in terms of headwinds?

Well, the thing is that if you're up year-on-year and in the meantime China is going down, helium volumes are lower, and we had these headwinds; then the only reason that it's going up is because some of the other projects are contributing. Of course, that’s the way I would like to leave it with you, okay? The negative is still going up. Therefore, the other projects are contributing, yes.

Yes, that's great. Beyond 2024, when you think about '25, '26, '27, more of a longer-term sort of view, how do you think the growth algorithm changes or maybe doesn't change as we look out at those years in terms of EPS growth?

I think Air Products will deliver on the average an EPS growth of the 10% that we have delivered before. That's our goal. One year, we might be at 9%, another year we might be at 11%. But overall, we are going to continue on that trend. We promised that ten years ago; we have delivered, and I fully expect that we will continue to deliver that.

Right. Thank you.

Thank you, sir.

Thank you. We'll go to Laurence Alexander from Jefferies.

Hi, this is Dan Rizzo on for Laurence. Thank you for getting me in. I just want to make sure that of the projects under execution that's listed on page 19, the next one that's going to come online is the one in Alberta, Canada, correct?

Yes. Alberta, Canada is the next one, which is going to come on stream. As Dr. Serhan said, we expect that to be in fiscal year 2025.

Are there any other projects that will come on right behind that? Or will there be, I don’t know, delays? I'm trying to think of the cadence as they are coming online.

Well, after that, we will have by the end of fiscal year '26, at the end of calendar '26, our green hydrogen project in Saudi Arabia. The year after that, we will hopefully have our blue hydrogen project in Louisiana. Also, we will hopefully have other projects that we will announce.

Okay, thank you very much.

Thank you.

And we'll take our last question from Laurent Favre from BNP.

Yes, good morning and thanks for squeezing me in. I'd like to go back to the SAF project, actually. I think you just mentioned that the start-up would be in 2027. In May last year, you had indicated startup in '25. In August, it was still part of the group of projects that should be up and running by 2026. I was wondering if you could talk about the specific reasons for this more than one-year delay. Is it the customer side? Or is it execution on your side? Thank you.

It is related to the fact that we are building this plant in California. You know in California it usually takes a long time to get permits. It depends on the timing of the permits for construction for that facility. Once we have a final ruling on the permit, we will then be able to provide a definite date about when that plant is going to come on stream.

And could you size the potential cost of a run on top of the $2.5 billion that was initially slated? Are we talking about a material difference?

I'm not sure I understood the question.

No. I think, Laurent, on that one, the capital—we earn the return on the capital of the project. We won't anticipate any capital update there.

The return on the project is fixed. We are going to get a return on the capital that we spent, no matter what the capital is. Okay?

Okay, thank you.

Thank you, sir.

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