Earnings Call Transcript - APD Q2 2020

Operator, Operator

Good morning, and welcome to Air Products and Chemicals second quarter earnings release 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, Leanne. Good morning, everyone. Welcome to Air Products' Second Quarter 2020 Earnings Results Teleconference. This is Simon Moore, Vice President of Investor Relations. 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'll be pleased to take your questions. Our earnings release and the slides for this call are available on our website at airproducts.com. This discussion contains forward-looking statements. Please refer to the forward-looking statement disclosure that can be found in our earnings release and on Slide #2. In addition, throughout today's discussion, we will refer to various financial measures. Unless we specifically state otherwise, when we refer to earnings per share, EBITDA, EBITDA margin, 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, and return on capital employed. Reconciliations can be found on our website in the relevant earnings release section. With the significant social and economic challenges the world is currently facing from the COVID-19 pandemic, we have restructured our call today to focus on the key information we believe is most important to our investors. You can find our Q2 segment slides in the backup section, but we won't go through them in detail on the call today. Also, given the significant uncertainty that remains regarding the duration of the crisis, the pace of recovery, and the negative impact on the global economy, Air Products is not providing Q3 FY '20 EPS guidance. In addition, we believe it is prudent to withdraw our FY '20 EPS and capital expenditure guidance and therefore we advise our investors that such guidance should no longer be relied upon. We are not providing new FY '20 guidance at this time. And like all of you, we are conducting this call remotely. So during the Q&A, we will intentionally pause to help with any time delay and avoid two people speaking over each other. We appreciate if you would do the same, and we also appreciate your patience. Now I'll turn the call over to Seifi.

Seifollah Ghasemi, Chairman, President and CEO

Thank you, Simon, and good morning, everyone. Particularly during these challenging times, we thank you for taking time from your busy schedule to be on our call today. Before we talk about the quarter, I wanted to share some thoughts on the current situation. Please turn to Slide #3. The true character and leadership of individuals and companies is revealed during times of crisis. We are certainly going through a crisis, something that none of us has experienced in our lifetime. But I am delighted to report to you that the people of Air Products are demonstrating our culture and character to the world. They are responding to the crisis with caring for our fellow employees and our fellow citizens around the world. They are responding with passion to keep our plants operating so that we can provide our customers with the vital products that they need, as they are responding with their commitment and dedication to move Air Products forward, no matter what the challenges. We have always been a leader committed to safety as our #1 priority. In managing through this crisis, we have provided the right protective equipment and procedures to protect our people on the front lines. We were quick to act to limit travel and transition many employees to work-from-home mode to minimize risk. We are also committed to providing financial security for our people. During this crisis, we have not laid off any of our employees or cut their salaries. We will work to maintain this approach as we navigate through this crisis together. We have a strong financial position necessary to carry our people and their families through these unusual times. Air Products is looking after our customers. Our customers expect us to provide them with the products they need on time with the right quality and a focus on providing excellent service. I am proud that during this crisis we have kept all of our 750 plants operating around the world. I'd like to repeat that we have kept operating all of our 750 plants around the world, a significant accomplishment during these times. We provide products, services, and equipment essential to basic human needs, including medical oxygen, helium for MRI machines, products for food freezing, hydrogen for energy, and related equipment critical to energy and medical needs. We are proud to be identified as a critical industry by all the governments around the world. I want to thank our people on the front lines for keeping all our plants running and delivering to our customers the products they need. In addition, the rest of our people working from home have helped us maintain our business continuity by keeping key processes running and continuing to pursue and win new projects like the PBF hydrogen plant acquisition that we announced in March and closed last week. Air Products is also a leader in looking after our communities. I am proud of how our teams have mobilized safely and quickly to meet increasing oxygen demand. We are actively supporting medical facilities and the establishment of critical temporary hospitals. We have also made financial contributions, donated critical PPE and equipment, and offered our talents to nonprofit organizations that are meeting so many urgent human needs during this crisis. We are making a difference in people's lives. Air Products is also a leader in creating and preserving shareholder value. With prudent management of cash over the last six years, we now have a very strong balance sheet and plenty of cash on hand to weather the current crisis, continue to pay dividends, and invest in attractive opportunities. I would like to thank our team for their commitment and dedication during these difficult times. Their hard work and our resilient business model allowed us to deliver our 24th, and I'll repeat, our 24th consecutive quarter of year-on-year earnings growth despite the negative impact in the second quarter of about $0.06 to $0.08 of earnings per share from the COVID-19 virus. Now please turn to Slide #4. I am pleased that our team stayed focused on working safely. This is always important and particularly during these challenging times. Now please go to Slide #5, which shows our goal, which remains unchanged. And now please go to Slide #6, our management philosophy. We have included this slide in every presentation that I have made to our shareholders in the last six years. It is at times like this that one can fully appreciate the value of following this key management philosophy that I have pursued in my 50 years' career. Yes, cash is king. And yes, the most important job of the CEO is prudent capital allocation. We have been focused on generating and preserving cash. We did not waste our cash on frivolous acquisitions or share buybacks. And we saved our cash for a black swan event that we have the cash to take care of our people, to continue to run our business, serve our customers, contribute to the welfare of our communities, and create value for our shareholders. Now please turn to Slide #7, which is our long-term business strategy. You have seen this many times before. There is no change to this strategy, and we will continue to pursue it as stated. On Slide #8, you can see our exciting gasification strategy. The fundamental drivers creating significant growth opportunities in gasification remain. Countries and large companies around the world continue to focus on gasification to utilize the abundant natural resources they have to produce chemicals, transportation fuels, and energy in a sustainable manner. At this point, I think it's appropriate for me to update you on our important $12 billion deal, the Jazan project for Saudi Aramco. Despite the current challenging times, I'm happy to report that we have now completed the discussions regarding the legal documents, and these legal documents are being submitted to the vendor's legal adviser. Therefore, we now expect to go to the market for the $7 billion project financing by the end of May, and we expect to close this transaction by October of 2020. Now please go to Slide #9, please, which summarizes the PBF hydrogen plant acquisition we announced a few weeks ago. Despite the unprecedented challenges in the world these days, I'm proud that we continue to win large on-site opportunities. We have closed on the purchase of the five operating hydrogen plants in California and Delaware for $530 million and have started providing long-term hydrogen supply to three PBF energy refineries. This project will have returns in excess of the minimum requirements we previously shared with you, and it will be accretive to our bottom line this year in 2020. I'm proud of our team who have worked diligently to negotiate, sign, and close this deal in less than 30 days. This project is aligned with our on-site growth strategy: using our strong balance sheet to acquire, own, and operate assets for customers and supply gases under long-term contracts. We are pleased to expand our strong relationship with PBF. In addition, we are working on many other opportunities around the world so that we remain confident in our ability to deploy our available capital to create significant shareholder value. Now please turn to Slide #10. Again, with the hard work of our team, and the strength of our business model, our EBITDA margin remained over 40%, which is up over 1,500 basis points from early 2014. Now I would like to turn the call over to Mr. Scott Crocco, our Executive Vice President and Chief Financial Officer, to provide a financial overview. Scott?

Scott Crocco, Executive Vice President and Chief Financial Officer

Thank you, Seifi. As Seifi stated earlier, our company's financial position is very strong. Our cash flow generation is very stable, supported by our industry-leading on-site business, which represents more than half of our sales. Additionally, our cash on hand and limited debt provide an ability to access additional funding as needed. We are confident that we have sufficient resources to meet all our capital deployment opportunities. As you can see in Slide 11, we have over $2 billion of cash on hand. We also have an undrawn $2.3 billion committed revolving credit facility available. However, I don't anticipate any need to access these funds. Meanwhile, our company's leverage is very low. Net debt is about $1 billion, and our net debt-to-EBITDA ratio is a low 0.3x. This allows us to increase debt considerably while still maintaining our targeted A/A2 debt rating. Our dividend and capital investment plans remain unchanged. We are committed to rewarding our investors by increasing the dividend and growing the company. As shown in Slide 12, Air Products has delivered 38 consecutive years of dividend increase through many periods of challenging economic conditions, and we continue to believe that investing in high-return projects will create more shareholder value over the long term than buying back shares. We remain optimistic about our ability to deploy significant capital into our exciting growth opportunities, including recent opportunities like the PBF asset acquisitions. We also have about $1 billion of debt maturing by the end of 2021, so we continue to evaluate the best time to access the debt markets. Now please turn to Slide 13 for our second quarter results. Our sales and profits grew despite the unprecedented disruption due to COVID-19, demonstrating the stability of our on-site contracts and the geographic diversity of our merchant businesses. Overall, COVID-19 negatively impacted volumes by about 1% and EPS by $0.06 to $0.08, primarily in the Asia merchant business. The Asia merchant business was down about 25% for about six weeks after the Lunar New Year holiday but recovered in late March. As expected, our on-site business remained stable. We also did not see much impact in Europe or the Americas for the quarter, but we did begin to see an impact right at the end of the quarter. Seifi will provide some comments later regarding what we have seen so far in April. Our team in Asia has worked hard managing through the crisis. We are encouraged to see that business gradually returned to normal by the end of the quarter. I would like to thank our team for their focus on health, safety, and serving our customers reliably. A job very well done. For the quarter, sales grew modestly to $2.2 billion as strong underlying sales were offset by 5% lower energy pass-through and 2% unfavorable currency, primarily the Chinese RMB, the euro, and the Korean won. Volume and price improved in all three regions. Volume increased 6% as new plants, overall positive base business, LNG activity, acquisitions, and a short-term contract in Asia more than overcame the negative impact of COVID-19. And as I mentioned, our existing on-site business was stable. Price was up 2%, the 11th consecutive quarter of year-over-year price increase. EBITDA reached almost $900 million, up 8%, with higher profits across all three regions. EBITDA margin was again over 40%, the fourth consecutive quarter exceeding the 40% mark, up 260 basis points. About 180 basis points of the improvement was from lower energy pass-through, with the rest primarily driven by higher price. EPS of $2.04 was up 6% despite the negative $0.06 to $0.08 impact of COVID-19 and unfavorable currency. Sequentially, sales and profits were down as a result of reduced activities due to Lunar New Year holidays and the COVID-19 impact. ROCE of 13.5% continues to improve, up 90 basis points over last year. As Simon mentioned, we don't plan to review the individual segments in detail, but I would like to make some summary brief comments on their second quarter performance. All three geographic regions delivered stronger results, with volume, price, EBITDA, and EBITDA margin up in each region. Asia's volume was up 6% despite a negative 4% impact from COVID-19. The growth was driven by new plants and a short-term supply contract that we mentioned last quarter. Almost two-thirds of our Asia business is on-site, which remained stable as we expected. We saw strong hydrogen volumes for the refining industry in the U.S. Gulf Coast, Canada, and Rotterdam. Americas and EMEA only began to see impacts from COVID-19 during the last week of the quarter. Americas EBITDA margin was up 540 basis points, with about 350 of that from lower energy pass-through. EMEA EBITDA margin was up 90 basis points, primarily from higher price. We also saw LNG driving profit improvement in our Corporate segment. Now please turn to Slide 14. Our second quarter GAAP EPS was $2.21, which includes two one-time items: a $34 million gain due to a property sale and a $14 million tax adjustment in India, which, combined, contributed $0.18 of EPS. Our second quarter adjusted EPS of $2.04 was up $0.12 per share or 6% driven by strong operating performance. Volume and price together contributed more than $0.30 despite the negative $0.06 to $0.08 impact from COVID-19. Cost was unfavorable $0.17 due to our continued investment in the resources to support our growth strategy, coupled with additional planned maintenance and life extension work needed in our facilities, mainly in North America, as mentioned during our last quarter's call. We do anticipate customers delaying planned outages in the second half of the year. Currency and foreign exchange was $0.05 unfavorable primarily due to the Chinese RMB, the euro, and the Korean won. Equity affiliate income contributed $0.03, while a modestly higher tax rate subtracted $0.02. The effective tax rate was 20.5% for the quarter, up 60 basis points over last year. We continue to expect an effective tax rate of 20% to 21% in fiscal year 2020. Now please turn to Slide 15. We continue to generate strong operational cash flow. As I mentioned, our EBITDA was up 8% despite the COVID-19 global pandemic, again, demonstrating the quality of our business model. Over the last 12 months, we generated about $2.7 billion or over $12 per share of distributable cash flow. From this distributable cash flow, we paid almost 40% or over $1 billion as dividends to our shareholders and still have about $1.7 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 #16 provides an update on our capital deployment progress. As you can see, we expect about $18 billion of investment capacity available over the 5-year period from FY 2018 through FY 2022. Our total capacity is expected to continue to grow as we increase EBITDA. The $18 billion includes about $10 billion of additional debt capacity available today, over $4 billion of investable cash flow between now and the end of FY '22 and almost $4 billion already spent. We will continue to focus on managing our debt balance to maintain our current targeted A/A2 rating. And as I mentioned earlier, we continue to evaluate the best time to access the debt market. As Seifi said, we continue to sign new projects. So our total project and M&A commitments are up to about $9 billion, with about $8 billion remaining to spend on them. So you can see, we have already spent over 20% and already committed almost two-thirds of our total available capacity. We remain extremely confident in our ability to deploy this capacity into on-site projects that will create significant long-term shareholder value. Please turn to Slide #17 for a summary of our perspective on COVID-19. We are safely keeping our plants running, and we are mobilized to meet our customers' needs, particularly for medical oxygen. Our results this quarter demonstrate the resilience of our business model despite the impact from COVID-19. We have been seeing lower Americas and EMEA merchant volumes in April and expect that to at least impact Q3. We have seen customers delaying planned maintenance activities, and we are monitoring for any potential delays in our projects under construction. Looking forward, we are confident that our strong financial position will support our future investment opportunities. Now to provide some additional thoughts in the future, I'll turn the call back over to Seifi.

Seifollah Ghasemi, Chairman, President and CEO

Thank you, Scott. We have reviewed Air Products' performance for January, February, and March of 2020, and I want to add that March was still a solid month despite the ongoing crisis in Europe and the Americas. I know our investors are interested in our current situation as of April. First, I can share that nearly all of our 750 plants globally are operational and providing essential products to our customers. Our on-site business, which makes up 52% of our sales, is performing well, and we anticipate this trend will continue. In Asia, our merchant volumes have bounced back to pre-crisis levels, and some product lines are even surpassing last year's figures. In Europe, merchant volumes have dipped about 25% in April, though there has been a slight improvement recently. The packaged gases segment is primarily driving the volume decline in Europe. In the Americas, merchant volumes are down approximately 15% in April but have stabilized over the last week. It’s important to note that we do not operate a packaged gases business in the United States. While it's encouraging to see a decrease in COVID-19 cases and a flattening of the curve in certain regions, we must acknowledge the considerable uncertainty surrounding the duration of this crisis, the speed of recovery, and its adverse effects on the global economy. Due to this uncertainty, Air Products is not issuing EPS guidance for the fiscal third quarter, and we have decided to withdraw our previous EPS and CapEx guidance for the fiscal year 2020. Even though we aren't providing guidance, I'd like to offer a framework to help you understand Air Products' business situation during these complex times. The stability of our on-site operations globally and normal volumes in Asia account for about two-thirds of our business, and we do not foresee significant effects on this portion of our sales moving forward this year. For the remaining third, our merchant business in the Americas and Europe will likely face challenges in the third quarter and for the entire year, but we are unable to quantify this due to the existing uncertainty. One way to assess possible impacts is to consider whether merchant volumes in these regions decrease by 25% for a quarter, which might align with a similar decline in industrial production. Such a reduction would impact our earnings per share by about 30% to 35%, equating to 3% to 4% of our annual EPS. Please refer to Slide #18. During these tough times, our competitive advantage remains the dedication and motivation of our exceptional team at Air Products. Our strong financial standing and solid business model will enable us to carry out our strategy, enhance long-term shareholder value, and increase our dividend as we have consistently done for over 30 years. Our project backlog is progressing as anticipated, with significant opportunities for investment in our core business. Most importantly, we will prioritize our employees' health and safety and that of their families. I want to express my gratitude to our 17,000 employees for their hard work and commitment, showcasing the true spirit of Air Products. Our success now and in the future relies on their dedication, and I am extremely proud of how our team is rising to the challenge under these trying circumstances. We take pride in playing a vital role and making a difference during these challenging times by keeping our plants operational and supplying essential industrial gases to support livelihoods. This is our mission at Air Products. To everyone tuned in today, let us remember that we are united in this crisis, and together we will overcome it and achieve success. Stay safe and healthy. We are now ready to answer any questions you may have.

Operator, Operator

And we will take our first question from David Begleiter with Deutsche Bank.

David Begleiter, Analyst

Seifi, on Jazan, assuming it closes in October, how should we think about the earnings contribution in 2021?

Seifollah Ghasemi, Chairman, President and CEO

Well, obviously, we have given you guidance about the fact that for every dollar that we invest, you should expect approximately $0.10 of operating profit. So you can convert that to EPS impact very easily. At this point, I think that's the guidance I want to give you, but once we actually close, then we will be a little bit more specific.

David Begleiter, Analyst

Very good. And just last thing on your on-site business, what's your exposure as refineries reduce their operating rates? You highlighted the stability of your on-site business, but is there not some downside risk as we do see lower crude runs by refineries?

Seifollah Ghasemi, Chairman, President and CEO

No. Our on-site business, as we have always said, we get a fixed monthly fee for running our plants and providing product to our customers. Whether they are operating at 100%, 90%, or 80% doesn't make much of a difference. And you have seen that fully demonstrated during the second quarter where there was obviously a lot of pressure on everybody around the world and in China and all of that. So that doesn't affect us that much.

Operator, Operator

And we'll take our next question from John McNulty with BMO Capital Markets.

John McNulty, Analyst

So two questions on the backlog. I guess the first would be you have a lot of business coming in on the merchant front that you've listed in your backlog for 2021. I guess, can you give us some color as to your confidence in that demand or that business coming on and what the impact might be in terms of how we should be thinking about the earnings contribution in 2021?

Seifollah Ghasemi, Chairman, President and CEO

With all due respect, John, I would like to disagree with you in terms of the fact that most of those investments in our backlog are in merchant. They really are not. Most of them are in our on-site model. So as a result, I don't expect much of an issue with that as they come in. I think they are mostly on-site business with fixed BFCs.

John McNulty, Analyst

Got it. Yes. I see the major on-site projects. I was curious about the four merchant projects you have listed and what the likelihood is of those becoming active, as well as their potential impact.

Seifollah Ghasemi, Chairman, President and CEO

So they did come on, and they are very small in terms of the context of the thing, and some of them actually replace some older plants. So I don't expect that to be material at all, John.

John McNulty, Analyst

Got it. Got it. Okay. And then for the second question, the macro obviously is going to be a lot slower in the short term, and that may have some impact on the ability for new projects to get bid upon and things like that. At the same time, you just won the big PBF project or business. I guess I'm wondering how you're thinking about the on-site opportunities out there and if we should be thinking about the project backlog expanding as we kind of go throughout the year or kind of staying level to maybe going down a bit. How should we be thinking about that?

Seifollah Ghasemi, Chairman, President and CEO

I believe we should view that part of our business as normal. In fact, the current crisis may create opportunities for those who were hesitant to sell their industrial gas plants. They might now consider divesting those assets to generate some cash. Therefore, I anticipate that our pace of activity will continue and may even accelerate.

Operator, Operator

And we'll take our next question from Kevin McCarthy with Vertical Research Partners.

Kevin McCarthy, Analyst

Seifi, in listening to your comments, it sounds like your business in Asia is recovering nicely. If that is the case, would you expect earnings to improve sequentially in the fiscal third quarter in Asia relative to what you just posted in the second quarter?

Seifollah Ghasemi, Chairman, President and CEO

Yes, I do. Our business in Asia is doing fine right now. And as I said in my comments, some of the product lines are actually higher than last year. So I do expect an improvement in our Asia segment next quarter.

Kevin McCarthy, Analyst

Okay. That's helpful. And then, Seifi... Sorry to interrupt. As a second question, I was wondering if you could elaborate on the decision to discontinue your capital expenditure guidance as distinct from the earnings guidance. It looks like the year is half done. I imagine a lot of these projects are already underway. Are there particular sources of uncertainty that have emerged now that might call into question the fate of individual projects? Or what is the rationale there?

Seifollah Ghasemi, Chairman, President and CEO

Kevin, that is driven by just one project, which is Jazan. We expect that project to close in October. If it closes on September 28, the significant capital expenditure will be included in our 2020 numbers. If it closes on October 2, it will fall into 2020 and 2021. That is why we chose not to provide guidance; we didn’t want to create confusion by speculating on the exact closing date and facing potential changes in our projections. The investment is not $200 million; it’s billions of dollars. Therefore, we decided to refrain from confirming the capital expenditure, Kevin. That's the only one actually.

Operator, Operator

And we'll take our next question from Vincent Andrews with Morgan Stanley.

Vincent Andrews, Analyst

First, could you clarify, Seifi, when you mentioned how April was performing and mentioned if merchant volumes decreased by 25%, would that translate to a 3% to 4% impact on EPS or a $0.34 impact on EPS?

Seifollah Ghasemi, Chairman, President and CEO

Sure. What I mentioned is that if industrial production were to decline by 25%, causing both Europe and the Americas to also drop by that amount, that isn't what we're currently observing. In April, European volumes were down 25%, while in the U.S., the decline was only 15%. I wanted to provide some guidance: if both regions experienced a 25% drop for the quarter, the impact would be around $0.30 to $0.35, which translates to approximately 3% to 4% of our total earnings per share for the year. So, the projected effect would be $0.30 to $0.35 for that quarter, assuming a 25% decrease across the board.

Vincent Andrews, Analyst

Yes. Okay. That's very helpful. And then if I could just ask on the merchant gases side of the equation. There have been some reports in the U.S. and in Europe about shortages of CO2 in the U.S. as a function of corn ethanol plants not having co-product production. Is that something that you're seeing, and that the company is going to be able to be a solution provider for that missing CO2?

Seifollah Ghasemi, Chairman, President and CEO

What I want to clarify is that your statement is entirely accurate. For Air Products, CO2 accounts for 1% of our sales in the U.S. and 5% in Europe. Currently, Europe is not facing any issues. Therefore, in the U.S., it represents a very small portion of our operations. As such, it will not significantly affect our business, and we are not positioned to address the situation since it is such a minor aspect for us.

Operator, Operator

And we'll take our next question from Mike Harrison with Seaport Global Securities.

Michael Harrison, Analyst

Can you discuss any supply chain or logistical challenges you have faced due to COVID, particularly any extra costs from shortages or the need to transport products in less efficient ways?

Seifollah Ghasemi, Chairman, President and CEO

Look, related to CO2, as I said, for us, it's such a small business. We haven't seen much of an impact on our business, and we haven't had to do anything significantly unusual.

Michael Harrison, Analyst

I mean, more broadly speaking, though, when it comes to LOX/LIN or argon or anything else.

Seifollah Ghasemi, Chairman, President and CEO

No. On LOX/LIN, argon and all of that, thanks to the outstanding efforts of our people, they get up in the morning, they go to work, they obviously wear the proper protective equipment, but we have kept all of our plants running, all of our supply chain. And we haven't had any issues of not delivering to a customer or not being able to meet customer demand. So I'm very proud of that. And we have kept our company running, and we have supplied products to all of our customers with no shortages and no disruption.

Michael Harrison, Analyst

All right. And then I wanted to also ask about the impact of lower planned maintenance. You mentioned that a couple of times. That's customer maintenance and planned downtime. But what does that mean to you guys in terms of your own maintenance costs? And are these discretionary maintenance projects? Or why is there a decline?

Seifollah Ghasemi, Chairman, President and CEO

When we have a plant like a hydrogen plant that is supplying a refinery, we obviously can only take our plant down for maintenance when they take their refinery down. Because if we take our plant for maintenance and the refinery is operating, then we will create a disruption for the refinery. So we coordinate our downtimes very, very closely with the refinery. What we are saying is that some of the refineries might decide to move their maintenance to another quarter, and as a result of that, we would not take our plant down. As a result of that, we would not have to do the maintenance and therefore that might be a favorable impact on our bottom line.

Operator, Operator

And we'll take our next question from Steve Byrne with Bank of America.

Steve Byrne, Analyst

You're still getting 2% to 3% overall price in each of the regions, which is driven by merchant, or less than half of your revenue. Given that in a couple of the regions now you're seeing a contraction, are any of those merchant customers asking you to renegotiate price or pushing back on that? So just a general question about your outlook for pricing in this slowdown.

Seifollah Ghasemi, Chairman, President and CEO

Excellent question. Let me just be very specific. You're right; the numbers that we publish are for all of our business. But I can give you, and we have been open about this before, in terms of price increases for our merchant business, year-over-year, Americas was up 6%, Europe was up 5%, and Asia was up 6%. Those are the facts in terms of the second quarter. Now what is going to happen in the future, we have a policy of not to comment on prices for the future because of the nature of our industry. So I'm sure you understand that well why I wouldn't do that because it's not appropriate. But those are the facts in terms of what we have seen up to now.

Scott Crocco, Executive Vice President and Chief Financial Officer

You mentioned that about this available capital deployment capacity that's $18 billion. You've committed, I think you said, two-thirds of it. That is a five-year window that is fixed, and you're now halfway through that five-year window. At what point do you kind of put that on a rolling five-year forward basis because your future contribution of that is shrinking? And is this lower oil environment doing anything to your outlook for gasification of coal?

Seifollah Ghasemi, Chairman, President and CEO

Yes. I will answer that question, Steve. You're right, we have committed two-thirds. We have another almost 2.5 years to go to commit the other one-third. In terms of giving you a rolling five-year, yes, we will do that, but we will not do that now. We will do that probably next year to give you a view for the next five years after 2022. With respect to the nature of the projects or any slowdown, quite frankly, we don't see any reason for the slowing down of those mega projects that we are very much attached to as a result of the virus thing, at least at this stage. So we continue to remain very optimistic about the robust nature of our fundamental strategy as we go forward in terms of focusing on gasification, carbon capture, and hydrogen full mobility.

Operator, Operator

And our next question will come from Jeffrey Zekauskas with JPMorgan.

Jeffrey Zekauskas, Analyst

So as I understand your products, whether Air Products' on-site volumes grow or they contract, that piece of the business is irrelevant to year-over-year EBITDA changes, excluding currency and acquisition. The real lever is in merchant volumes and merchant prices. So in a world in which merchant volumes really move down, can you flex your cost structure down in order to cushion the effects to Air Products? Or is it difficult to flex your cost structure?

Seifollah Ghasemi, Chairman, President and CEO

Well, Jeff, you have a great understanding of our business. You're asking a very good question. My answer is that the main driver for Air Products' growth, which we are committed to achieving 10% annual EPS growth, is not just the fluctuations in merchant volumes. It's about investing in new opportunities and projects that are coming up. This has been the foundation of our business. Over the past five years, we've achieved an average growth rate of 13% in EPS, driven in part by improvements to our cost structure that have made us more efficient. We have completed that phase now. Moving forward, the primary driver of our growth will come from the new projects we are launching, which will be significantly beneficial. That's why, regardless of what happens with our merchant business, I remain very optimistic that we will be able to achieve at least 10% annual EPS growth in the long term.

Operator, Operator

And we'll take our next question from John Roberts with UBS.

John Roberts, Analyst

European merchant is down 25% in April. How much more than the 25% decline is packaged gas down? And how much less than the 25% decline is bulk liquid down?

Seifollah Ghasemi, Chairman, President and CEO

Approximately, packaged gases is down about 40% and liquid is down about 16%, approximately.

John Roberts, Analyst

And do you have any hydrogen customers operating below their contracted requirements? And do you anticipate any of your hydrogen customers suspending operations temporarily?

Seifollah Ghasemi, Chairman, President and CEO

We do not. I mean I'm sure some of our hydrogen customers might be operating below capacity, but we haven't seen a drop in hydrogen volumes from our pipeline. But I don't know in the future that might be the case, but it doesn't affect us, as we have discussed before.

Operator, Operator

And we'll take our next question from Bob Koort with Goldman Sachs.

Robert Koort, Analyst

Seifi, you've only talked about maybe doing asset acquisitions, and it seems like some of the JVs include a component of that, but this PBF was the first meaningful one that was solely assets and not a gas supply and rolling in your project work. But what does the pipeline look of other asset acquisition opportunities? And if you were handicapping, would you suggest your next big capital project will be an asset acquisition or a new gasification project?

Seifollah Ghasemi, Chairman, President and CEO

Probably an asset acquisition.

Robert Koort, Analyst

And can you give us an update on YK? Is there any progress there? At some point, will you need to formalize a delay in your expectations of when that project will come on stream?

Seifollah Ghasemi, Chairman, President and CEO

Yes. The thing is that, unfortunately, as I mentioned, I think, on our January call, we were supposed to have a big meeting on that thing in the month of February in China, but obviously, that didn't happen. The issue with that project has not changed. It's still the issue of coal allocation, and we are going to kind of put a target for ourselves that by the time that we announce our results at the end of October, we would give you a definitive answer about whether that project is a go or no-go. We are still optimistic that, that is going to be a real project. But I do promise you that by the end of October we will give you a definite answer on that, rather than just keeping it kind of in suspense.

Operator, Operator

And our next question will come from P.J. Juvekar with Citigroup.

P.J. Juvekar, Analyst

Seifi, is all your on-site business on facility fees? Or is there some business, maybe some old business, that was stuck at a certain operating rate below which take-or-pay begins to kick in? So I guess what I'm asking is, is there any cyclicality in your on-site business?

Seifollah Ghasemi, Chairman, President and CEO

No. No material cyclicality. No, there isn't. As you have seen during 2008, and as we have demonstrated in the last few months, it's a pretty robust business, the way we have it structured, PJ.

P.J. Juvekar, Analyst

Okay. And then when I look at your volume growth, what was the same-store volume growth for Air Products overall? And particularly in Asia, you gave COVID impact, but can you take out the impact of new project start-ups? And so just trying to get the same-store sales.

Seifollah Ghasemi, Chairman, President and CEO

It's obviously the growth is related to new projects, but we usually do not quantify that because then we will be giving away too much information. But obviously, during January, February, and March, merchant volumes in China were down, just like they are going to be down in this coming quarter in Europe and the U.S. But we did have new projects coming on stream. And as a result, it made up for it. That is what I was saying in answering the other question that the main growth driver for Air Products is all of the work we have done in the past six years with new projects that are beginning to come on stream, and you're going to see a lot of that coming on stream in 2021, '22, '23, which would put us in an excellent position.

Operator, Operator

And we'll take our next question from Chris Parkinson with Crédit Suisse.

Christopher Parkinson, Analyst

So just a quick question on the recent PBF deal. It looks like it came together fairly quickly. Can you address how long you've been targeting these assets? Additionally, how should we think about the long-term optionality or potential in terms of carbon capture in California as well as the potential to leverage your pipeline network?

Seifollah Ghasemi, Chairman, President and CEO

We have a strong relationship with PBF and have been supplying them hydrogen for a long time. The idea of acquiring their hydrogen plants has been discussed for the last couple of years. We made a specific offer to them in October, but they took their time considering it. By March, we made an even more detailed offer, which they were interested in. Their condition was for a quick transaction, which we were able to accommodate, leading to the successful deal. Regarding carbon capture opportunities, California has significant incentives for capturing carbon, and we have many steam methane reformers, especially now with additional ones in California that produce CO2. It makes sense for us to explore capturing CO2 from these sources and potentially utilize it for enhanced oil recovery or sequestration to create value. We are actively looking into this.

Christopher Parkinson, Analyst

Could you quickly touch on the end markets? Are there any differences in merchant volumes so far? I understand it's tied to IP, but are there any specific end markets to mention? Additionally, a brief update on your health care business and nonmedical helium demand would be appreciated.

Seifollah Ghasemi, Chairman, President and CEO

Sure. In terms of the market sectors, obviously, the oxygen demand for hospitals, the demand has gone up. We do not have a huge business on that in the U.S., but we do have a very big business for hospitals in Spain and Italy and in some other parts of Europe. So the demand for oxygen is obviously up because of the situation. Full freezing demand has relatively kept up pretty well. Obviously, the areas where you see a reduction in demand is basic industries and especially smaller industries that use for oxy-fuel burners and all of that for all of the manufacture. And in terms of helium, the helium, most of the helium goes with MRI machines, and that hasn't slowed down.

Operator, Operator

And we'll take our next question from Duffy Fischer with Barclays.

Duffy Fischer, Analyst

First question is just, can you help break out the decremental margin differential between the European business and the U.S. business just because there you have package, here you don't? So if we're putting different declines in revenue based on IP from those two regions, how should we think about either like on an EBITDA percent basis or an EBIT percent basis differential in decremental margins?

Seifollah Ghasemi, Chairman, President and CEO

You're asking me to give you a lot more detailed information than we usually give to people. But overall, if you want to do the kind of calculation that you want to do, there isn't a huge amount of difference between the margins. Americas is higher than Europe, but it is not as if one is 10%, another one is 40% there. They are not too different, let me put it that way.

Duffy Fischer, Analyst

Okay. Fair enough. And then just the last one, in the working capital line this quarter, it seemed like you ate about $200 million more in cash than you have historically in the second quarter. What happened there? And is that something we should think about repeating? Or is that kind of a one-time thing that will end up going away?

Seifollah Ghasemi, Chairman, President and CEO

Well, on that one, on that question, I would like to turn it over to Scott, who knows more about it than I do to answer that. Scott, would you like to take that question, please?

Scott Crocco, Executive Vice President and Chief Financial Officer

Sure, happy to. First of all, it's not systemic. There's nothing related to COVID-19. What we have is just some timing issues on larger payments, particularly in our sales equipment business on some contracts. So it's nothing significant and not something we expect to continue.

Seifollah Ghasemi, Chairman, President and CEO

What Scott is saying is that it has nothing to do with actually physical inventory and so on. It's just some of the accounts payable, accounts receivable kind of thing.

Operator, Operator

Okay. Are there any other questions? And that does conclude today's conference. Thank you for your participation. You may now disconnect.