Earnings Call Transcript - APD Q3 2021

Operator, Operator

Please standby we're about to begin. 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.

Simon Moore, Vice President of Investor Relations

Thank you, Rochel. Good morning, everyone. Welcome to Air Products' 3rd 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 as 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 number 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.

Seifi Ghasemi, Chairman, President, and CEO

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 that is updating our 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 number 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 has retired from Air Products on September 30th as part of the smooth transition. Today, I'm going 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. 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 onboarded 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 efforts to position us for the successful closing of the Jazan Gasification and Power Project and 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?

Scott Crocco, Executive Vice President and Chief Financial Officer

Yes. Thank you very much, Seifi. I 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 have worked closely together over the past few years, and there is no doubt you 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.

Seifi Ghasemi, Chairman, President, and CEO

Thank you, Scott. I do appreciate your comments. Let me now introduce Melissa Schaeffer. One of the things that you will learn 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 that we're 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 has held financial roles of increasing responsibility at Zemin's, 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 of Finance, overseeing financial responsibility for our megaprojects, as well as Air Products' largest reporting segment. Melissa has been a key part of our growth and success over the past five years, and I'm delighted she will be our Chief Financial Officer. Melissa, would you like to say a few words?

Melissa Schaeffer, Senior Vice President and Chief Financial Officer

Thank you for the time and 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. 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 look forward to our finance organization and our broad 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.

Seifi Ghasemi, Chairman, President, and CEO

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 at 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 as an even stronger Company than before. We have continued to acquire new assets and businesses, successfully raised prices, and brought new plans on stream. 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 have 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 number 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 number 5, 6, and 7 include our goal, our management philosophy, and our 5-point strategic plans. We 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 number 8. We believe the environmental sustainability challenges facing the globe are significant. The scope and complexity of the megaprojects necessary to address these challenges require 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 we all stay focused and united, working towards 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. We can all please turn to slide number 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. This 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 a quarter 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 3rd by 30 goal aims to reduce carbon intensity by one-third by 2030. Our growth opportunities have enabled progress towards this goal, and therefore, we expect to see significant progress later in the decade as our major projects come on stream and start to positively benefit our results. At Air Products, sustainability is our growth strategy. Hence, 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 the innovative, world-class, net-zero hydrogen project in Edmonton, Alberta that we announced last June, and I will talk about a little more later on. Now, please turn to slide number 10, which highlights our key gasification projects. We are committed to our gasification strategy and are pursuing exciting projects around the world. We do expect to announce additional gasification projects in the future. Now, specifically, I would like to give you an update on the two large gasification projects which I have discussed on previous earnings calls. First, our $12 billion acquisition of the 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 through the final stages of project financing, and we still expect this project to reach final financial close by the end of our fiscal year that is 09/30/2021. 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 two 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. Just on slide 11, you can see the overview of our Beta project that we announced last month. This innovative project includes Gasification, Carbon Capture, and Hydrogen. The three pillars of our growth strategy coming together in one project to support the energy transition. This project is fully aligned with Canada's clean 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 other thermal reforming technology, enabling 95% of the CO2 produced by the project to be captured then stored. To achieve net zero, the remaining 5% carbon footprint will be offset by exporting the electricity generated by the net-zero hydrogen. The output will supply the net-zero hydrogen 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 1.3 billion Canadian dollar investment and is expected to come online in 2024. As you can see on slide number 13, we continue to focus on the very exciting hydrogen for the mobility market. And we are pleased to announce a project with Cummins, to accelerate the integration of hydrogen fuel sales trucks globally. Cummins will provide a hydrogen fuel electric powertrain and integrate it 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 three 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 years from 2018 to the end of 2022. At that time, I remember clearly some skepticism regarding this announcement. Now today, I'm happy to show you, as you can see on slide number 14, that 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 4th 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 years 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 the 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 please 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 a 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 number 17, a reminder that we share our earnings growth via our investors. Both our EPS and dividends have grown double-digits since 2014. We are committed to delivering increased dividends while we continue to develop our exciting growth opportunities. We have significant cash flow that supports our substantial dividends and our growth strategy. And finally, slide number 18 shows our EBITDA margins. As always, my favorite slide. There it shows that the margins are up 1,200 basis points since 2014. Now I'm happy to turn the call over to Scott to provide a financial overview. Scott.

Scott Crocco, Executive Vice President and Chief Financial Officer

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 fourth 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 as an even stronger Company. Our Sales, EBITDA, and EPS grew double-digits this Quarter. All three regions reported higher sales in EBITDA. And our price and volume continued to be strong despite lower earnings from the Lu'An joint venture 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 the 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 an improvement in all three 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 inclined 11% approaching the $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 at $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 non-controlling 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. America's 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 non-controlling 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 UK 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 non-operating 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 number 22 provides an update on our capital deployment. As Seifi mentioned, we've 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 timeframe 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 target AA2 rating. As you can see, we've already spent at 22% and have already committed 57% over the updated capacity we show here. In short, we exceeded the commitment we made to you in 2018 and have 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.

Seifi Ghasemi, Chairman, President, and CEO

Thank you very much, Scott. Now, please turn to slide number 23 for our Asia results. Sales increased 15% compared to last year supported by a strong volume, better price, and favorable currencies. Volumes were up 6%, reversing the negative trend of the previous four 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, the price was also positive by 1%. EBITDA increased 9% driven primarily by favorable price, volume, currencies, and equity affiliate income. Costs compared partly using 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 America's results.

Scott Crocco, Executive Vice President and Chief Financial Officer

Thank you, Seifi. Please turn to Slide 24 for a review of America's results. Sales surged 25% over last year. Volume, price, energy pass-through, and currency were all positive. Volume grew 9% primarily due to the COVID recovery, higher medical gases in South America, and one-time 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 resumed 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, industry inventory levels remain 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-over-year price improvement. Energy cost pass-through was again higher as natural gas prices remained elevated versus last year and drove the 10% sales increase. EBITDA reached $465 million, a 13% increase over last year as better volume and price, as well as one-time items more than offset power and other cost inflation 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, America's volumes increased 6% driven by stronger hydrogen volume, partly helped by recovery following the winter storm and one-time 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 one-time items, while costs were 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 to Simon to discuss our other segments.

Simon Moore, Vice President of Investor Relations

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 lags. Price increase for the 14th consecutive quarter and was higher across most major product lines and all the sub-regions. The 1% price gain for the region corresponds to a 2% improvement for the merchant business. Real price increases were partially offset by an 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 the prior quarter, sales rose 7% primarily supported by a positive 5% volume. But EBITDA was down 2% and the 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 equipment businesses as well as central costs. Sales increased due to higher sales of equivalent 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 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 will turn the call back over to Seifi.

Seifi Ghasemi, Chairman, President, and CEO

Thank you very much, Simon. Now, please turn to Slide number 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, the 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 the 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 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 of approximately $2.5 billion for the year 2021. Our fiscal year '21 EPS and Capex guidance exclude any contribution from Jazan. Meanwhile, we continue to execute our other projects, bringing them on stream 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 demonstrate our significant growth potential in the years to come. Now, please turn to Slide number 29. 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 am 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 we have also further extended 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 projects in all three areas. We all know that the most desire for clean energy will only accelerate our differentiated growth strategy and unmatched expertise, which have positioned Air Products for continued strong success 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, Operator

Thank you. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. And our first question, we'll hear from Vincent Andrew with Morgan Stanley.

Vincent Andrews, Analyst

Thank you. Good morning, everyone, and congratulations to Scott. A very well done and distinguished career, clearly. Seifi, could I ask you on the new outlook for capital allocation, maybe two pieces about it. How are you thinking about how much of it will be in that mega-project category that we've seen with NEOM and so forth versus the more traditional industrial gas projects? And second to that, I think back over the last 3.5 years of the first CapEx outlook, the menu of things you're interested in expanding into gasification, and then we got into green and blue hydrogen and 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 menu that we should start thinking about.

Seifi Ghasemi, Chairman, President, and CEO

Good morning, Vincent, and thank you very much for your comment about Scott. He's a great guy. We all know that.

Scott Crocco, Executive Vice President and Chief Financial Officer

Yes, thank you. I really appreciate it.

Seifi Ghasemi, Chairman, President, and CEO

Yeah. With respect to your specific question, Vincent, out of the additional $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 to be 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 three specific areas. And it's a significant opportunity. Now that you asked the question, it gives me a chance to clarify. We came up with the $30 billion, not because of a lack of projects. It is because we wanted to demonstrate what our financial capacity is to maintain our A rating. As we go forward, obviously, we cannot project your 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 can see in the future, and we're going to stay focused on that because I believe by being focused, you get results rather than being all over the place.

Vincent Andrews, Analyst

Thanks very much.

Seifi Ghasemi, Chairman, President, and CEO

Thank you, Vincent.

Operator, Operator

And next, we'll move to Jeff Zekauskas with JPMorgan.

Jeff Zekauskas, Analyst

Thanks very much. A two-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 moved down sequentially. Why is that? What are the factors that you are encountering that are lowering your capital returns?

Seifi Ghasemi, Chairman, President, and CEO

Good morning, Jeff.

Jeff Zekauskas, Analyst

Good morning.

Seifi Ghasemi, Chairman, President, and CEO

Two very good questions.

Jeff Zekauskas, Analyst

Thank you.

Seifi Ghasemi, Chairman, President, and CEO

Yes. Two very good questions. Number one, when you look at it, you say that it is flat. The global economy is improving. Please take note that the global economy is improving and people are going to restaurants and flying around. In the major economies where 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 to $160 million a year. When that number comes down, then it distorts all of the numbers. But please look at our volumes. Another thing is that our results are affected by another significant item which I have mentioned many times before. We are investing in increased organizations significantly to develop these new projects. When we enhance in a project like Canada, we have been working on four other projects. Each one of these projects costs about $4 million or $5 million, $10 million to develop. We are spending that money because we are investing for the future. That is impacting our results as well. 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 complexities out of other people's results and our results, our volume growth has improved better than anybody else. It's 12%. So, therefore, I don't — that's number one. The second thing with respect to their 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 calculate it where they don't consider the cash, we are at 16% not at 10%. The second thing is our return on capital employed has gone down because we borrowed $5 billion that is still sitting on our balance sheet and has not yet been deployed. Once we deploy that, once we pay for the Jazan $2.5 billion, your return on capital employed will jump up.

Jeff Zekauskas, Analyst

Okay, good. Thank you.

Seifi Ghasemi, Chairman, President, and CEO

Is that okay with you?