Earnings Call Transcript
Air Products & Chemicals, Inc. (APD)
Earnings Call Transcript - APD Q1 2021
Operator, Operator
Good morning, and welcome to Air Products and Chemicals First Quarter Earnings Release Conference Call. Today's call is being recorded at the request of Air Products. Please note, that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products, and all rights are reserved.
Simon Moore, Vice President of Investor Relations
Thank you, LeAnn. Good morning, everyone. Welcome to Air Products first quarter 2021 earnings results teleconference. This is Simon Moore, Vice President of Investor Relations, Corporate Relations and Sustainability. I'm pleased to be joined today by Seifi Ghasemi, our Chairman, President and CEO; Scott Crocco, our Executive Vice President and Chief Financial Officer; and Sean Major, our Executive Vice President, General Counsel and Secretary. After our comments, we will be pleased to take your questions. Our earnings release and the slides for this call are available on our website at airproducts.com. This discussion contains forward-looking statements. Please refer to the forward-looking statement disclosure that can be found in our earnings release and on slide number two. In addition, throughout today's discussion, we will refer to various financial measures. Unless we specifically state otherwise when we refer to earnings per share, EBITDA, EBITDA margin and ROCE both on a companywide and segment basis, we are referring to our adjusted non-GAAP financial measures, adjusted earnings per share, adjusted EBITDA, adjusted EBITDA margin and return on capital employed. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our website in the relevant earnings release section. Now, I'm pleased to turn the call over to Seifi.
Seifi Ghasemi, Chairman, President and CEO
Thank you, Simon, and good day to everyone. We thank you for taking time from your busy schedule to be on our call today. We are living at a time when all humanity faces significant challenges. The most important and immediate one is the battle against the deadly virus that has already taken many lives and continues to ravage communities around the globe. We can only fight this deadly global virus if we work together and stay united. In my more than 45 years in business, I have learned that all problems, no matter how challenging, can be solved if we stay focused and united working towards our common goal. So, it is in this spirit of working together as a team that I want to acknowledge the united and extraordinary efforts of all the talented, committed and resilient people of Air Products around the world. They work hard every day to provide critical products and services to our customers. Our people working in solidarity and in a determined way have made it possible for us to keep our 750 facilities around the world operating during this unprecedented crisis.
Scott Crocco, Executive Vice President and Chief Financial Officer
Thank you, Seifi. As Seifi stated earlier, our company continued to demonstrate resilience, delivering both higher sales and EBITDA this quarter despite the challenges of the pandemic. Our business, which is about half on-site, continued to deliver stable cash flow despite the difficult conditions continuing around the world. Now, please turn to slide 13 for a brief discussion of our first quarter results. Sales of $2.4 billion were up 5% compared to the prior year driven by strong price, higher energy pass-through, and a positive currency impact. Price actions continue to be an area of focus for us and improved in all three regions. This is the 14th consecutive quarter of year-over-year price gain. Volume was relatively stable, down 1% as the additions of new plants, acquisitions, and increased sales of equipment activities were more than offset by COVID-19 impacts and the reduced Lu'An contribution that Seifi mentioned. EBITDA of $932 million was up 3%, as favorable price, currency, and equity affiliate income more than offset the impact of lower volume and higher costs, primarily due to higher planned maintenance outages. EBITDA margin declined about 100 basis points as lower volumes, including Lu'An and higher costs driven by increased planned maintenance in North America more than offset the positive price impact. Operating income was 4% lower, while EBITDA was higher compared to last year, largely due to depreciation on new plants, particularly the PBF hydrogen plants that we acquired last year.
Seifi Ghasemi, Chairman, President and CEO
Thank you, Scott. Now please turn to slide number 17 for our Asia results. Compared to last year, currency, price, and energy pass-through resulted in a 4% increase in sales despite weaker volumes. Currency was favorable across most key countries contributing 6%. Overall price rose 1% for the region, which represents a 3% increase for merchant products. I'd like to remind you that pricing was positive for Asia for the 15th consecutive quarter and particularly strong in Korea and Taiwan this quarter. Volumes were down 4%, with new plants more than offset by Lu'An, while the merchant business remained stable. Despite the impact of lower volumes, the strong price and favorable currencies kept EBITDA relatively stable. EBITDA margin at almost 48% was 240 basis points lower, primarily driven by lower volumes mostly from Lu'An. Sequentially, sales were up 1% with favorable currencies more than offsetting the weaker volumes. EBITDA increased 4% primarily driven by lower costs, while favorable currency offset the negative impact of weaker volumes. Now, I would like to turn the call back over to Scott to talk about our Americas results.
Scott Crocco, Executive Vice President and Chief Financial Officer
Thank you, Seifi. Please turn to slide 18 for a review of our Americas results. Sales were flat compared to last year. Higher price and energy pass-through were offset by lower volumes. Price was again better across all major product lines. The 3% increase for the region was equivalent to 7% for merchant. This is the 10th consecutive quarter of year-on-year price improvement. Volume was down primarily due to the impact of COVID-19, but partially offset by the PBF acquisition. EBITDA of $400 million was 2% below last year's level, as better price and the PBF acquisition were offset by the volume shortfall and higher maintenance costs. For the quarter, although Americas planned maintenance was higher than last year, it is consistent with what we expect in Q2. EBITDA margin dipped 90 basis points with a negative 80 basis point impact from higher energy pass-through, while the unfavorable cost impact was largely offset by other favorable factors, including price and acquisitions. Now, I'll make some comments on our sequential results. Sales increased 2% as higher energy pass-through and positive price overcame negative volume. Price was up across all major product lines, while volume was weaker, primarily due to seasonality. EBITDA declined 3% as weaker volume was partially offset by better price. Margin was down primarily on higher energy pass-through, which had about a 200 basis point impact. Now, I'd like to turn the call back over to Simon to discuss our other segments. Simon?
Simon Moore, Vice President of Investor Relations
Thank you, Scott. Now, please turn to slide 19 for a review of our Europe, Middle East and Africa region results. Our EMEA team delivered outstanding results this quarter. Both sales and profits grew double-digit compared to both last year and last quarter. Price, volume, and currency were all favorable and contributed to the 13% year-on-year sales growth. Volumes grew 5%, principally due to acquisitions and higher on-site volumes, which offset the adverse impact of COVID-19 predominantly in our packaged gas business. Price increased 3% for the region and 4% for merchant, with improvement across most major product lines and sub-regions. This is the 12th consecutive quarter of year-on-year price improvement. Currencies were favorable 6%, primarily due to the euro strength versus the US dollar. EBITDA surged 18% to more than $220 million, supported by price increases, favorable currency, and acquisitions. EBITDA margin improved 170 basis points. Sequentially, volume improvement was driven by a modest COVID-19-related recovery in our merchant business, acquisitions, and higher on-site volumes. EBITDA was also up sequentially and margins remained about flat. Now, please turn to slide 20, global gases, which includes our non-LNG sale of equipment business as well as central costs. Sales increased due to higher sale of equipment projects activity, but profit was lower due to business mix and higher product development spending. As mentioned earlier, we also benefited from the settlement of a supply contract, which offset the gains in project activities last year. Please turn to slide 21, corporate, which includes LNG and other businesses as well as our corporate costs. Sales and profits were higher this quarter versus the prior year, driven by LNG project activities as we continued to execute multiple large projects, including Golden Pass and Mozambique, and the massive Qatargas project also began to contribute this quarter. Sales and profits were both down versus the prior quarter, primarily due to the timing of percent complete activity on the LNG projects. We were excited to announce another new project earlier this week for the Energia Costa Azul LNG export terminal in Ensenada, Mexico. This represents the fourth LNG project we've announced in the last year. Now, to provide some additional thoughts, I will turn the call back over to Seifi.
Seifi Ghasemi, Chairman, President and CEO
Thank you, Simon. Now, please go to slide number 22. As we look forward, unfortunately, we do not expect the COVID-19 global crisis to moderate anytime soon. This will continue to have a negative impact on the economies of most of the countries we operate. We have confidence that the vaccine will help to reverse the course, but the rollout is still in earlier stages and the pace of vaccination is hard to predict. As a result, we continue to find it very difficult to make any reasonable projections about the course of economic activity around the world. Therefore, we are not providing EPS guidance or CapEx guidance for quarter two or for our fiscal year 2021 at this time. We hope the outlook will be less uncertain in April. And if so, we look forward to providing you guidance then. However, I want to share with you what we are seeing so far this quarter, that is in the month of January and as of today in February. Representing about half of our sales, our on-site business has been stable and we expect this to continue. With respect to our merchant business, in Asia, our merchant volumes are down slightly versus where they were at the same time last year, which is before the virus crisis began. So, the volumes have reached almost pre-crisis levels. In Europe, we are off to a weaker start, following the holiday season, and continue to see a larger impact on our packaged gases business versus the liquid bulk business. In Americas, merchant volumes remained down, and I would like to remind you again that we do not have a packaged gas business in North America. As we move forward, we remain committed to executing our growth strategy, providing sustainable solutions to help the world meet its increasing needs for cleaner energy. With our strong portfolio, we are able to meet customers' and countries' drive for cleaner and more sustainable solutions. We see great opportunities ahead in gasification, carbon capture, and hydrogen for mobility, and we continue to develop and invest in strategic opportunities to drive our growth for decades to come. As always, the continued success of this strategy is rooted in the commitment and motivation of the great team we have at Air Products. Our resilient and focused people understand the critical role they play in safely operating more than 750 facilities around the world, executing world-scale projects that support economic and social development. As Air Products, we will work together to deliver these solutions to our customers and to the world. I am proud to say that unlike many other companies, we have not reduced staff or reduced the salary of our people during this pandemic. Indeed, we have continued to strengthen our organization by adding the resources necessary to pursue great opportunities. We have stood by our people. In closing today, I would like to thank all of our dedicated and hardworking people around the world who continue to deliver despite these challenging times. I am proud to be working with them every single day. Now, we are pleased to answer your questions.
Operator, Operator
Thank you. And we'll take our first question from Duffy Fischer with Barclays.
Duffy Fischer, Analyst
Yes. Good morning, guys. Two questions on two of your big projects. First one on Lu'An. With the renegotiation of the contract, do the economics change at all once the plant goes back up and running? And then the second one is just around NEOM. And on that one, when should we see the ground breaking kind of by segment, so when should we see the solar and the wind farm start, when will we see the ammonia plant start and then when will we see the electrolyzer start? If you think about that, kind of what's the timing of those relative to each other? And then maybe just the last one tied on there, have you already ordered long lead time equipment for the NEOM project?
Seifi Ghasemi, Chairman, President and CEO
Good morning, Duffy. Thank you for your question. With respect to Lu'An, we have negotiated a reduction of fixed fee during the time the plant is shut down, but Lu'An has agreed to extend the contract. So, once the plant comes back on stream, our overall return will be a little better than before. The second thing is that with respect to NEOM, we are finalizing the agreements and all of that; you know how it is, and doing pre-engineering and all of that. We hope to break ground sometime in the May, June timeframe. And we have ordered some of the long-term items; we are in the process of doing that in the next few days.
Duffy Fischer, Analyst
Great.
Seifi Ghasemi, Chairman, President and CEO
And we expect, obviously, then everything to come on stream as we go forward for startup in 2025.
Duffy Fischer, Analyst
Terrific. Thanks, guys.
Seifi Ghasemi, Chairman, President and CEO
Okay, Duffy?
Duffy Fischer, Analyst
You bet. Thank you.
Operator, Operator
And we'll take our next question from Kevin McCarthy with Vertical Research Partners.
Kevin McCarthy, Analyst
Yes. Good morning. Seifi, as you consider future projects in China based on your experience with Lu'An, do you anticipate increasing a sovereign premium or your hurdle rate as you evaluate future projects? And then I had a second question on volume. What was the impact from Lu'An in the quarter? And I think you also mentioned an impact from lower sale of equipment affecting volume in the quarter; if you could quantify that as well, it would be helpful. Thank you very much.
Seifi Ghasemi, Chairman, President and CEO
Thank you, Kevin. First of all, the way you are asking the question about Lu'An implies that it is something that is a systemic issue. Lu'An is a specific case. We have gone through that with you in terms of what is happening. We do have four other gasification projects in China; they are operating, there is no issue, we have been paid for the past few years and we continue to be doing that. And with Lu'An, the fact that we agreed to a decrease while the plant is shut down is a sign that we are trying to work with the customer because there are plenty of new opportunities. So, there is no change in our view about investing in China. We have had an excellent experience. We are having EBITDA margins of 48%. We see significant opportunities. That is the economy of the future, and to ignore it would be really short-sighted. And, therefore, we continue to be committed to that country the way we have been before. With respect to exactly quantifying those two numbers that you want to do, I'm hesitant to do that because then we will tell you exactly what the terms and conditions of our contract with Lu'An and with sale of equipment, and that is not very wise for us to do that. I hope you give us a pass on that.
Kevin McCarthy, Analyst
Okay, fair enough. Thank you.
Seifi Ghasemi, Chairman, President and CEO
Thank you. Thank you, Kevin.
Operator, Operator
And we'll take our next question from Vincent Andrews with Morgan Stanley.
Vincent Andrews, Analyst
Thank you, and good morning, everyone. If I could just ask Seifi, as we're about to go into a period of time where we're going to start lapping COVID, it sounds like you still have some concerns about what that impact could be and so we shouldn't think of it as being maybe a tailwind for you in the coming quarters as we go through the harder parts of that. Is that correct or is there some other things or risks that you see in the outlook? So, that would be my first question. Thank you.
Seifi Ghasemi, Chairman, President and CEO
Vincent, good morning, and thank you for your challenging question. I understand the desire for optimism; we've all felt it, especially last summer when cases and deaths were decreasing. However, I'm uncertain about what the future holds. I remain hopeful that the vaccine will be effective, but we're still seeing 4,000 daily deaths and around 100,000 new cases. It's unclear whether we'll face another surge or new variants. We need to stay cautious. Everyone, including us, wishes to move past COVID and return to normalcy, but I have a responsibility to provide investors with a realistic perspective. I don’t want to oversell a rosy picture. Currently, the U.S. is experiencing significant challenges, with volumes decreasing. I'm unsure how this will play out, but if the situation improves, we'll be in a better position. You might think we’re being conservative, and perhaps we are, but we aim to maintain a balanced outlook.
Vincent Andrews, Analyst
That's fair enough. And just as a follow-up, there was elevated planned maintenance expense this quarter and the prior quarter. How should we be thinking about that over the next couple of quarters? Are you done with that or is there more to come?
Seifi Ghasemi, Chairman, President and CEO
You should see the numbers improve as we move forward because much of the higher maintenance was caused by the refinery shutdowns, which are beyond our control. Many took the opportunity during COVID for turnarounds. I'm optimistic that those numbers will improve as we progress.
Vincent Andrews, Analyst
Okay, thank you very much.
Seifi Ghasemi, Chairman, President and CEO
Thank you, Vincent.
Operator, Operator
And we'll take our next question from Bob Koort with Goldman Sachs.
Bob Koort, Analyst
Good morning, Seifi.
Simon Moore, Vice President of Investor Relations
Good morning, Bob. How are you this morning?
Bob Koort, Analyst
I'm well, thank you. But I was a little confused in the commentary about COVID punishing your US business, where you note that you don't have a packaged gas business and yet that was the source of COVID pressure in Europe. So, is it something to do with the refining industry or could you give us a little more color on what particular end markets may be causing you trouble from a COVID standpoint in the Americas?
Seifi Ghasemi, Chairman, President and CEO
We sell a lot of helium for MRI machines and balloons. With fewer elective surgeries happening, helium volumes have decreased, and there are also fewer parties, leading to a general decline in activity. Additionally, our hydrogen pipeline volumes are down, partly due to refinery shutdowns, but overall activity is low because people are not driving as much. These factors have been causing us trouble.
Bob Koort, Analyst
Thank you. That's helpful. And then may I ask on Lu'An, and maybe you're reluctant to provide the specifics, but do you have comfort in knowing exactly why they haven't restarted and that gives you the confidence that it happens sometime? It would seem like coal gasification when oil has rallied as much as it has may be more competitive; maybe a little more color there would be helpful.
Seifi Ghasemi, Chairman, President and CEO
Regarding Lu'An, there are multiple factors that contributed to the plant's shutdown, including reorganization issues. I prefer not to discuss those publicly as they could reflect poorly on the company's management, and I want to maintain a positive view of them. However, the situation has been resolved, and we are confident that the plant will restart. Our arrangement with the company is mutually beneficial, and they have several new projects in the pipeline that we are eager to be involved in. I’m less concerned about Lu'An than some of our investors might be, but we will wait to see how things unfold and provide updates as we have more information to share.
Bob Koort, Analyst
Perfect, thanks.
Seifi Ghasemi, Chairman, President and CEO
Thank you.
Operator, Operator
And we'll take our next question from John Roberts with UBS.
John Roberts, Analyst
Thanks. Seifi, Jazan began starting up last quarter, I think. Where are they in the process of their ramp up?
Seifi Ghasemi, Chairman, President and CEO
They are currently in the process of commissioning various units of the facility, and we are assisting them. I don't have the exact number, but we have nearly 200 people involved in this commissioning effort. I'm not certain if crude has officially been introduced into the stream, so that's a question for Saudi Aramco. Overall, as I mentioned, we have a significant number of people collaborating with the Saudi team in a very productive manner to initiate the facility.
John Roberts, Analyst
And then secondly, the refining industry is under a lot of pressure. Are your refining customers generally at minimum take on their contracts? And as they restructure here over the next several quarters or a couple of years, is there anything we need to look out for in terms of the integrity of their contracts?
Seifi Ghasemi, Chairman, President and CEO
About the integrity of the contracts, no. The fact that our customers are not taking as much as they used to take before is a fact. As I told you, the volume in our pipeline in the Gulf Coast is down, but it's very regional. I mean, different parts of the world are different than, for example, in California, our pipeline volumes are doing okay. So, it depends on which region you are, but there is no question that overall people are not driving as much and therefore there is an impact on the refining industry that you know better than I.
John Roberts, Analyst
Thank you.
Seifi Ghasemi, Chairman, President and CEO
Thank you, John.
Operator, Operator
And we'll take our next question from Jeff Zekauskas with JP Morgan.
Jeff Zekauskas, Analyst
Good morning, Seifi.
Seifi Ghasemi, Chairman, President and CEO
Good morning. How are you, Jeff?
Jeff Zekauskas, Analyst
Sorry. In terms of Jazan, what's the issue in the negotiation? That is, why wasn't the deal closed earlier and what are the issues that you're trying to work out in order to get to a resolution and how long do you think it might take?
Seifi Ghasemi, Chairman, President and CEO
We have two main points to discuss, Jeff. Firstly, when we initially negotiated the contract with Saudi Aramco, we anticipated a much higher interest rate for the $7.2 billion of debt we needed to finance. However, due to current market conditions, the actual interest rates are lower. The primary negotiation issue is determining how much of the savings from the lower rates will benefit each partner. Secondly, arranging the $7.2 billion of debt involves many banks, making it a complex task with various terms and conditions to finalize. As for the timeline, I aim to have everything resolved by May or June, but it can be unpredictable due to several factors, including the changing perspectives of the banks and Saudi Aramco. I'm not pessimistic; rather, I feel optimistic that we will eventually reach an agreement. One issue has been addressed, and we have a preliminary understanding with Aramco's senior management regarding profit sharing, but translating that understanding into formal contractual language and finalizing the debt is what is taking time.
Jeff Zekauskas, Analyst
Thank you for that. My second question is for clarification to Scott. When you were discussing the Americas business, did you mention that you expected either the operating income or the EBITDA in the second quarter to be similar to the first?
Seifi Ghasemi, Chairman, President and CEO
Scott, could you please provide an answer to that? I don't recall.
Scott Crocco, Executive Vice President and Chief Financial Officer
Sure. Happy to. Yes, yes. Thanks, Jeff, for the question; I appreciate it. My comment that was regarding the maintenance spending. And as Seifi mentioned, those terms are driven by when our customers take turnarounds, planned turnarounds. So, it's a technical term here. And the spending on that and the expenses that we'll incur, it's kind of lumpy. And my comment in there is for the second quarter, not be surprised if we see the same sort of level of maintenance that we saw in the first quarter.
Jeff Zekauskas, Analyst
Okay, great. Thank you so much.
Scott Crocco, Executive Vice President and Chief Financial Officer
You're welcome.
Seifi Ghasemi, Chairman, President and CEO
Thank you, Jeff.
Operator, Operator
And we'll take our next question from PJ Juvekar with Citi.
PJ Juvekar, Analyst
Yes. Good morning, Seifi.
Seifi Ghasemi, Chairman, President and CEO
Good morning, PJ. How are you this morning?
PJ Juvekar, Analyst
Doing well. So, I have a question about Lu'An. You mentioned that there are three other gasifiers operating in China. What is the underlying issue with Lu'An? Is it company-specific, and is it related to profitability at the current coal price, or is there an issue with the downstream process into fuels? Could you provide some clarity on that?
Seifi Ghasemi, Chairman, President and CEO
We currently have four other gasification projects in operation, and the issue at Lu'An is specific to that facility. While some may want to interpret this situation as an economic concern, I must be careful about the implications regarding the management there. The state of Shanxi has decided to consolidate all chemical facilities into one, which involves new personnel who are currently reassessing everything and considering our options. This situation is more about the management's careful evaluation than about economic factors. Additionally, coal prices in China have risen significantly in recent months due to winter demand. While there are many theoretical arguments to be made, the main point is that the new management is taking their time to explore their options.
PJ Juvekar, Analyst
Okay, thank you for that.
Seifi Ghasemi, Chairman, President and CEO
Okay. Thank you.
PJ Juvekar, Analyst
And then just quickly on your EMEA. You have a packaged gas business down in Europe. Would you say that post-COVID that that business will have the most upside recovery? Thank you.
Seifi Ghasemi, Chairman, President and CEO
Yes, it will. Our team in Europe is doing an excellent job. The results they achieved last quarter, given the circumstances, are very impressive. They are well organized, continue to push pricing, and are performing very well. If COVID is no longer an issue, there is significant potential for growth there, absolutely.
Operator, Operator
And we'll take our next question from David Begleiter with Deutsche Bank.
David Begleiter, Analyst
Good morning, Seifi. How are you?
Seifi Ghasemi, Chairman, President and CEO
Hey, David. How are you? Other than being buried under 32 inches of snow, I'm perfectly fine.
David Begleiter, Analyst
Are you? I'm doing well, thank you. Seifi, just on Jazan. How soon after the issue is resolved and the deals are completed, the contract is signed can the project come online and start-up?
Seifi Ghasemi, Chairman, President and CEO
The day that we do the financial close, we are online. Whether the refinery is online or not, our theory is a fixed tier seating as you now like other the deals. So, the day that we do the financial closing, the next day we will see the benefit of the EPS on our bottom line.
David Begleiter, Analyst
Understood.
Seifi Ghasemi, Chairman, President and CEO
So you need to look for the announcement about the financial close.
David Begleiter, Analyst
Okay. And just on potential new green hydrogen projects, I know you're working on them. Is there potential for another announcement this year on green hydrogen?
Seifi Ghasemi, Chairman, President and CEO
David, I'm not going to go there. I have no idea. I mean, we are working on other projects and all of that, but for me to be that specific would not be responsible, and those things are very big projects. We are working on other projects, but to be that specific, I can't do that. You need to give me a pass on that too.
David Begleiter, Analyst
Understood. Thank you.
Seifi Ghasemi, Chairman, President and CEO
Thank you, David.
Operator, Operator
And we'll take our next question from Mike Sison with Wells Fargo.
Mike Sison, Analyst
Hey, Seifi. I'm buried in snow as well in Cleveland, but in terms of…
Seifi Ghasemi, Chairman, President and CEO
Hi, Mike.
Mike Sison, Analyst
How are you doing? In terms of EPS growth, you performed well in 2020. Can you still achieve some EPS growth in 2021? I understand you can't provide specifics, but the model appears to be designed to allow for annualized growth. Has the growth algorithm changed at all in the long term regarding your expectations for EPS growth?
Seifi Ghasemi, Chairman, President and CEO
No. We still believe that on average in the next five or six years, we will deliver about 10%, the same way that we had done in the last six years. My view hasn't changed on that. That is our goal, and we will make that happen, and we'll do our best to make it happen.
Mike Sison, Analyst
Great.
Seifi Ghasemi, Chairman, President and CEO
Yes, go ahead.
Mike Sison, Analyst
Yes. Just any comments on '21 in terms of your ability to grow?
Seifi Ghasemi, Chairman, President and CEO
Well, if COVID subsides, Lu'An starts, and we close on Jazan in a reasonable timeframe, then achieving a 10% increase should not be too difficult. It depends.
Mike Sison, Analyst
Got it.
Seifi Ghasemi, Chairman, President and CEO
We are not providing any guidance, not only due to COVID but also because these two major factors could have an impact. We just need to be a little patient to see how everything unfolds. However, I am very optimistic about the future of Air Products; that's why I purchased a significant number of shares in December. Personally, I feel optimistic, but we need to present a well-rounded view here.
Mike Sison, Analyst
Got it. Thank you.
Seifi Ghasemi, Chairman, President and CEO
Thank you.
Operator, Operator
And we'll take our next question from Steve Byrne with Bank of America.
Steve Byrne, Analyst
Yes, thank you. Seifi, you mentioned that your hydrogen pipeline on the US Gulf has slowed, but in California, it remains firm. I was just curious, whether that is potentially a bit of an end market difference; you have some of the refineries in California converting their hydrotreaters and hydrocrackers over to renewable diesel. I just wanted to hear your view on whether there is a potential longer-term opportunity here to Air Products if there is a kind of an expansion of that renewable diesel opportunity globally or nationwide rather than just California; whether the net use of hydrogen per unit of diesel versus per unit of renewable diesel is meaningfully different?
Seifi Ghasemi, Chairman, President and CEO
Steve, you have a great insight and observation. We don't want to delve into it too much as it's not our primary focus. However, fundamentally, what you're saying is correct and could actually present an opportunity for us. Yes, I agree with all of your statements.
Steve Byrne, Analyst
Okay. Seifi, I remember you mentioning a couple of years ago that there were more than 50 gasification projects being considered. I wonder if many of those have been put on hold or re-evaluated over the past year due to the significantly lower crude prices. Are you seeing any increase in that activity and discussions now that crude has begun to recover?
Seifi Ghasemi, Chairman, President and CEO
There are many coal gasification projects being considered, not just in China, but also in India and Indonesia, which are currently the most active regions. As you know, COVID caused a slowdown in capital expenditure, but we are becoming more optimistic about gasification as time passes. We hold a very strong position in this market and are the clear leader. If another gasification project arises globally, I would bet 90% that we will secure the contract for its products. Thus, we remain positive about the future of gasification.
Steve Byrne, Analyst
Okay, thank you.
Seifi Ghasemi, Chairman, President and CEO
Thank you.
Operator, Operator
And we'll take our next question from John McNulty with BMO Capital Markets.
John McNulty, Analyst
Thank you for taking my question. My first inquiry is about Jazan. Based on your discussion regarding the current challenges, it seems that once the project reaches completion, the overall profitability you anticipated aligns closely with your initial expectations. Is that correct, or have there been any changes concerning the terms or other factors?
Seifi Ghasemi, Chairman, President and CEO
First of all, good morning, John. Hope you're well. And secondly, your statement is totally accurate. That means that as soon as this thing is done, we will see the impact on our bottom line, kind of in line with what you would expect.
John McNulty, Analyst
I understand. So, regarding the Americas, we are somewhat puzzled by the volume decline, which appears similar to what we experienced during the peak of COVID in the June quarter. Why haven't conditions improved? The macro situation seems to have gotten better. Is it simply related to the seasonal nature of refining that might be contributing to this issue? I'm unclear on why the Americas isn't showing improvement from quarter to quarter at this point.
Seifi Ghasemi, Chairman, President and CEO
John, I'll give you an answer, and then I'll let Scott add any comments if he wants. The main factors are maintenance costs, lower helium volumes, and a slight slowdown in the refineries. Another factor is that the US economy is still facing difficulties. While there are positive discussions happening, we aren't seeing those improvements on the ground yet. Those are the four reasons. Scott, do you have anything else to add?
Scott Crocco, Executive Vice President and Chief Financial Officer
No, I agree with that. And just to also point out, like I said in the prepared remarks, there is some seasonality on a sequential basis. But as you mentioned, Seifi, there's the underlying economy, there's the COVID helium situation. So, I just agree with what you said.
John McNulty, Analyst
Thanks very much for the color.
Scott Crocco, Executive Vice President and Chief Financial Officer
All the different businesses will act differently, but as there is improvement in the economy, COVID and otherwise, we expect to see a lumpy as things restart and so forth as opposed to a steady increase.
John McNulty, Analyst
Got it. Fair enough, thanks a lot, guys.
Scott Crocco, Executive Vice President and Chief Financial Officer
Yes.
Seifi Ghasemi, Chairman, President and CEO
Thank you, John.
Operator, Operator
And we'll take our next question from Chris Parkinson with Credit Suisse.
Chris Parkinson, Analyst
Good morning, Seifi. It's great to hear you're doing all well. I just have two brief ones. Just first as it pertains to the carbon capture opportunities, do you just have a brief update on your perspective addressable market, any internal projects and also just anything on how you could potentially work with third parties given your tech expertise?
Seifi Ghasemi, Chairman, President and CEO
Good morning, Chris. I hope you’re doing well. The opportunities in carbon capture are looking even better than before. There's a strong emphasis on capturing carbon for environmental benefits, and there is a notable shift towards the hydrogen economy, moving from grey hydrogen to blue hydrogen and then to green hydrogen. Currently, there is high demand for blue hydrogen, particularly for ammonia production, where CO2 is captured during hydrogen production. Countries like Japan are interested in utilizing that ammonia directly in their power plant boilers to achieve decarbonization. There’s a lot of discussion about blue ammonia and blue hydrogen. We are actively working on carbon capture and will eventually announce significant projects to demonstrate our progress. This has been a topic I've been discussing for several years. Developing these projects, like those in NEOM, typically takes five to six years, and we are hopeful to share updates in the coming years.
Chris Parkinson, Analyst
We'll certainly look forward to that. And the second very brief question, just in the second half, a lot of local media in India and Indonesia are reporting that you're actively bidding on a lot of projects, and on the latter of which we've obviously already heard some constructive news. Can you just possibly speak to just the magnitude of those opportunities and the rough timeline, given it seems like you've already bid? Is that something we could potentially expect in fiscal year '21 or should we still be kind of more methodical and more balanced with our expectations on those fronts? Thank you very much.
Seifi Ghasemi, Chairman, President and CEO
Well, Chris, thank you very much for the question. Chris, one of the things that one does in life is that you learn from your past experience, right? We have gotten a lot of heat because we announced Jazan before it was a done deal, and now you see every quarter we have to explain. So, in Indonesia, we are obviously talking about gasification projects in Indonesia. We have been telling you we have been doing that for the past 3.5 years. I met the ministers there four years ago. But we haven't done anything that is announceable yet. We have talked to people; we have talked about projects and all of that, and we don't want to do anything again like Jazan to come and say, oh, we have signed a memorandum of understanding and all of that and then every quarter have to explain why it didn't become a project. These projects are very complex. It depends on the actions of a lot of government agencies. It changes the course of some of the countries. There are significant impacts on people who import products; who now are not going to be importing product. It's very complex, and we just don't want to get ahead of ourselves. I have read all of those reports; I've seen all of those reports, but we just want to be responsible and we will announce something when we think it's going to be a real project rather than just the discussions. And I hope you have some patience with us, Chris.
Chris Parkinson, Analyst
I certainly will. Thank you very much for the color.
Seifi Ghasemi, Chairman, President and CEO
Thank you. Thank you, sir.
Operator, Operator
And we'll take our next question from Jonas Oxgaard with Bernstein.
Jonas Oxgaard, Analyst
Good morning, guys.
Seifi Ghasemi, Chairman, President and CEO
Good morning. How are you?
Jonas Oxgaard, Analyst
Living the dream every day. I wanted to ask about the Lu'An scab. You mentioned you are highly confident that it will restart, but what happens if it doesn't? Is that part of your negotiations? And is there a signed agreement with the new management there?
Seifi Ghasemi, Chairman, President and CEO
If the plant never starts, we have agreed to a reduced fee and are willing to wait a few quarters to see if it restarts. However, if they inform us that the plant will not start, we will enforce our contract, which clearly outlines the process if a customer shuts down. We are confident in our position, but we want to avoid court if possible, as we haven't received confirmation of a permanent shutdown from the customer. Maintaining a good relationship is important, and we are exercising patience. If we reach this time next year and they still haven't restarted and indicate plans to mothball the plant, then we will take legal action to enforce our contract.
Jonas Oxgaard, Analyst
Okay, thank you.
Seifi Ghasemi, Chairman, President and CEO
Okay, Jon?
Jonas Oxgaard, Analyst
Second question, if you don't mind, on hydrogen. Your competitors and even companies who, I guess, aren't really considered competitors are approaching hydrogen much more tentatively, right? One of your competitors inaugurated their first 20 megawatt electrolyzer this week, but you're going from, well, I wouldn't say zero, but close to zero to 1.3 gigs in one fell swoop. Can you talk about what, like, the reasons why you're so confident that you can do this mega project without baby step first and how are you different from the rest?
Seifi Ghasemi, Chairman, President and CEO
We differentiate ourselves through our approach to gasification and other technologies. Our primary objective is to be competitive and enable our customers to utilize green hydrogen effectively. This cannot be achieved at a small scale. Our scaling efforts are not a technological risk; they are founded on established technology. At NEOM, we are constructing 4 gigawatts of wind and solar energy, which is well-known technology. Additionally, we are installing 650 tons of electrolyzers daily, combining 30 units of 20 megawatts each to eliminate risks. The ammonia plant we are building will produce 1 million tons of ammonia, further confirming that we are not engaging in risky technological ventures. We are focused on creating a mega project to reap the benefits of economies of scale, making our initiatives economically feasible. Moreover, many companies announcing their plans lack a green electricity source, while we are focused on producing green electricity. The crux of our approach is committing to substantial projects; without such investments, conversions to new technologies will not occur. For instance, if bus operators in San Francisco don’t have guaranteed green hydrogen, there’s little incentive to transition. Committing billions of dollars to infrastructure fosters confidence. The main difference lies in being the first to establish this infrastructure. While developing electric vehicles may seem straightforward, the early decisions made by companies like Tesla offered them a significant advantage at a time when many believed success was unlikely. The same holds true for our approach; being the first movers allows us to provide assurance to our customers regarding the products they need for transformation. We are not commenting on our competitors’ strategies but remain confident in our path toward scaling and producing genuine green hydrogen rather than smaller, less significant quantities. We are also constructing additional hydrogen plants, such as a 30-ton/day facility in Port Arthur and others worldwide, but the true future is in the mega-scale projects.
Jonas Oxgaard, Analyst
Thank you. Absolutely.
Seifi Ghasemi, Chairman, President and CEO
Sure. Thank you very much. Appreciate that.
Operator, Operator
And there are currently no other questions in the queue at this time. I would like to turn the call back over to Seifi for any additional remarks.
Seifi Ghasemi, Chairman, President and CEO
Well, once again, I would like to thank everybody for being on our call. Thanks for listening to our presentation, and thanks for your good questions. We appreciate your interest, and we look forward to discussing our results with you again next quarter. As I said earlier, please stay safe and healthy. And all the best to all of you and your families. Thank you, again.
Operator, Operator
And that does conclude today's conference. Thank you for your participation. You may now disconnect.