Ladies and gentlemen, good day, and thank you for standing by. Welcome to the Linde Second Quarter 2023 Earnings Teleconference and Webcast. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question-and-answer session. And I would now like to hand the conference over to Mr. Juan Pelaez, Head of Investor Relations. Please go ahead, sir.

Thank you, Abbie. Good morning, everyone, and thank you for attending our 2023 second quarter earnings call and webcast. I am Pelaez, Head of Investor Relations, and I'm joined this morning by Sanjiv Lamba, Chief Executive Officer; and Matt White, Chief Financial Officer. Today's presentation materials are available on our website at linde.com in the Investors section. Please read the forward-looking statement disclosure on Page 2 of the slides and note that it applies to all statements made during this teleconference. The reconciliations of the adjusted numbers are in the appendix to this presentation. Sanjiv will provide some opening remarks, and then Matt will give an update on Linde's second quarter financial performance and outlook, after which we will wrap up with Q&A. Let me now turn the call over to Sanjiv.

Thank you, Juan, and a very good morning, everyone. The Linde team once again delivered strong results despite the challenging environment. For the second quarter, we grew EPS, excluding foreign exchange by 16%, expanded margins by 440 basis points, and increased return on capital to 24.9%. These results don't just happen on their own. They require a strong execution culture and operating rhythm, which ensure that all 66,000 employees are aligned towards creating shareholder value. I'm proud of how we've demonstrated this resilience quarter after quarter, regardless of the economy. To this end, we are seeing some economies starting to soften as evidenced by recent data. Now I'm not going to try and predict what the future will hold because no one really knows. But I can tell you with some confidence that Linde will continue to manage what we can control and deliver on our commitments, which is reflected in our guidance for the year. For example, we are managing inflation by contractually passing through energy cost variances while securing price increases that align with local market trends. This is a key part of our contractual structure and operating discipline that we've consistently demonstrated for decades. On top of this, we continuously optimize costs through robust productivity initiatives. Ultimately, it's the spread between price and cost that adds compound value. Furthermore, our backlog is fueling growth. We're currently executing on our $7.8 billion project backlog on time and on budget. For me, a healthy backlog contains quality customers with secured returns and is constantly turning over. In the last 12 months alone, we started up 22 projects valued at $2.1 billion while winning 38 new projects valued close to $3 billion. Looking ahead, investors can rest assured we'll win projects that add value commensurate with risk. With this in mind, we continue to make good progress on the $50 billion of clean energy opportunities, of which I expect $9 billion to $10 billion will be decided in the next few years. We're also adhering to a long-standing and proven capital allocation policy, which has consistently demonstrated industry-leading financial performance and shareholder returns. We continue to see ample quality growth opportunities within our traditional industrial gases business. This year, we made the largest acquisition in Linde's history with nexAir, significantly enhancing our packaged gas presence in the fast-growing Southeastern United States. I'm happy to say it's performing well ahead of expectations and further validates our tuck-in acquisition strategy. In addition, we consistently returned capital through stock repurchases and increasing dividends, both to reward investors and ensure investment discipline. Let me now wrap up with a quick overview of end markets, which you can find on Slide 3. Starting with consumer-related markets, we have positive year-on-year organic growth primarily driven by price increases. Note that sequential trends are subject to seasonality, so you'll see less respiratory health care but more beverage carbonation during warmer months. Health care itself is growing at a mid-single digit rate as expected, and food and beverage continues to expand as we see more applications for food freezing and aquaculture. While electronics is up versus the prior year, we see some sequential softness from lower packaged and merchant sales into fabs, although the onsite volumes appear to be stable. For the industrial markets, both manufacturing and metals and mining are growing at 9%, led by price improvements as well as strength in battery production, commercial space, and carbon steel. You can see that chemicals and energy are growing the least at only 1%, primarily driven by customer turnarounds in the United States, as well as lower demand in Europe. I expect the U.S. to improve for the second half since a number of customers are already back online, but it's difficult to project how European demand will develop. You'll recall that these contracts are underpinned by fixed payments, so our profit impact is mitigated. Overall, the business continues to perform well as we adapt to local market conditions. Since our merger, we've grown EPS at an average of 19% per year from 2019 to today. This was achieved against a backdrop of a global pandemic, supply chain constraints, energy crisis, military conflicts, and the largest inflation increase in decades. It's because of this track record and the daily execution of our dedicated employees that I continue to have confidence Linde will grow EPS at double-digit percentages on average, regardless of the economic environment. I'll now turn the call over to Matt to walk you through the financial numbers.

Thanks, Sanjiv. Slide 4 provides an overview of the second quarter results. Sales of $8.2 billion are down 3% compared to last year, but flat sequentially. The comparison has some noise related to movements in foreign exchange translation, engineering, project timing, divestitures, and cost pass-through. As you know, we contractually pass through energy variances, which can cause fluctuations to revenue, but have no impact on profit dollars. Excluding these items, underlying price and volume are up 6% versus the prior year and 3% versus the first quarter. Higher prices are the main driver of underlying sales growth with an increase of 7% versus 2022 and 1% sequentially. Consistent with prior years, pricing trends are representative of the weighted inflation rates across our countries of operation. While we're seeing some disinflation in more developed regions, we're not seeing deflation. If the disinflation persists, I'd expect moderating price increases going forward, especially as we lap prior year comparisons. From a volume perspective, sequential trends played out as expected with a 2% seasonal improvement, but year-over-year volumes are down 1% despite positive contributions from the project backlog. There are two contributing factors to the base volume decline. About a quarter relates to lower on-site volumes in the U.S. Gulf Coast, where customers took more outages than last year. Most customers are back online, so we anticipate sequential volume growth in Q3. The remaining decline primarily relates to EMEA, which had a 4% volume decrease led by on-site customers. Despite the lower year-over-year volumes, operating profit of $2.3 billion increased 15% and resulted in an operating margin of 27.9%, representing an increase of 440 basis points or 350 basis points when excluding cost pass-through. This profit growth was achieved from a combination of higher pricing, fixed payment contracts to mitigate volume decline, and a stable cost structure. Every region achieved triple-digit basis point margin increases when excluding cost pass-through effects. EPS of $3.57 rose 15% from the prior year or 16% when excluding the effects of currency. As Sanjiv mentioned, we remain confident in our ability to deliver an average EPS growth rate of double-digit percentages. Project CapEx is increasing from the larger sale of gas backlog, a trend I expect to continue. However, despite the higher CapEx, return on capital reached another new high at 24.9% as our net operating profit after tax continues to grow at a rate faster than the capital base. Slide 5 provides more color on capital management, including cash trends. Second quarter operating cash flow of $2.2 billion was only up 1% from last year despite the higher earnings. This is due to unfavorable cash tax timing, which increased almost $300 million in the quarter. These outflows will stabilize for the second half, and so I expect the operating cash flow to EBITDA ratio for the balance of the year to be closer to the expected low 80% range. Available operating cash flow, which we define as operating cash flow less base CapEx, remained steady at $1.6 billion per quarter and thus provides ample liquidity to pursue our capital allocation policy, which you can see in the pie chart. Through 6 months, we generated $5.4 billion of capital and returned a little more than half to shareholders while investing the balance back into the business. We believe this is a healthy ratio to achieve quality growth while rewarding owners. To be clear, we are not capital constrained in any way, and thus, we'll pursue all growth investments that meet our criteria. I'll wrap up with guidance on Slide 6. We're raising full year guidance to a new range of $13.80 to $14, or 12% to 14% growth over 2022. This represents an increase of $0.35 on the bottom end and $0.15 on the top end. The top end increase is primarily attributed to the better Q2 results, while the second half assumption is consistent with last quarter. Therefore, the $14 figure assumes no economic improvement for the remainder of the year. The bottom end increased more as we tightened the range from greater confidence in the year. By default, the bottom end assumes economic contractions and more negative volumes going forward. Consistent with prior guidance, this does not represent our economic view, but rather is the baseline for the assumption. Irrespective of what happens, we'll manage the business accordingly. For the third quarter, we're providing an EPS guidance range of $3.48 to $3.58, up 12% to 15% versus the prior year. Consistent with the full year assumption, the top end assumes a flat economy while the bottom end implies more recessionary conditions. Note that foreign exchange is a 2% tailwind for the third quarter but has no impact on the full year. To sum it up, regardless of the economic rhetoric or latest opinion on what part of the cycle we're in, Linde employees will continue to do what they do best: efficiently run the world's leading industrial gas and engineering company while creating long-term compound shareholder value. I'll now turn the call over to Q&A.

Thank you. We will take our first question from Duffy Fischer with Goldman Sachs. Your line is open.

Yes. Good morning, guys. Question off of Matt's comment that we may be getting towards the end of what's been a really nice pricing cycle. If that pricing increase drops back to kind of historic maybe 20-year trend line numbers, how do you continue to grow double digits in that kind of an environment?

Sure, Duffy. This is Matt. I'd like to start by saying that our pricing, as I mentioned, is viewed as a function of inflation, specifically the globally weighted average inflation. So I won't tell you what our pricing will be, as it's more a function of where you think inflation will be. When we look at the last 10 to 15 years, inflation right now is clearly higher than it has been before, particularly when you consider the post-2008 period, where we definitely saw significant disinflation and even deflation. So from that perspective, while we continue to expect that price will align with inflation, and we are seeing disinflation in developed markets, I still expect our overall pricing to remain in line with inflation, which I anticipate will continue to be higher than what we've seen in the last 10 years. Aside from that, we have a lot of other factors, including our backlog startup. We will see what happens with volume. But right now, if we see inflation abate, I believe we could possibly see some volumes start to come back. Furthermore, we will have a strong free cash flow that we will deploy in everything from stock repurchases to acquisitions as mentioned earlier by Sanjiv. Overall, as the economy progresses with pricing and inflation, we may also see industrial production trends that could go in the other direction, reflecting the historical patterns we have observed.

Fair enough. And then maybe on the couple of different numbers, we're about a year into the Inflation Reduction Act being passed. And Sanjiv, you've come out with that $33 billion number last fall, and now kind of a more global $50 billion number over a decade period. If those numbers come to fruition, how would you scope when we get to kind of maximum backlog and what that may look like? And then what would kind of the CapEx shape look like over that decade-long period as those projects roll through the backlog?

Sure. There are two parts to the backlog I want to address. I'll quickly cover the clean energy piece first, which you are referring to on the Inflation Reduction Act and other incentives we are seeing around the world, Duffy, and then we'll briefly just talk about the traditional end markets, which tend to get forgotten a bit, but where we are also seeing interesting project pipeline and growth as well. But let’s start with the clean energy piece. I view that backlog today as something that's being fed through our current development. Over the next 5 to 7 years, I expect to see this backlog grow at a steady pace year-on-year, based on our level of activity. We are currently pursuing approximately 200 projects. In the U.S., we think the Inflation Reduction Act is driving a project pipeline for us where we can see decisions on about $30 billion over the next 10 years. And I see that backlog being reflected as those decisions get made in the future. Most of those projects are progressing extremely well in the U.S., Canada, and even in the Middle East and Europe. Project development cycles can take longer; there's typically a lead time of 12 to 24 months from prefeasibility to final investment decision, so the timing can be a bit lumpy. I also expect that over the next few years, decisions worth $9 billion to $10 billion will be made, which are more tangible concerns regarding projects in development. I'll also mention that our traditional end markets are seeing a fair amount of strong proposal activity across many sectors including electronics, metals, energy, and chemicals, with several opportunities arising in decarbonization. Currently, our sale of gas backlog is around $4.4 billion, adjusted for the $1.4 billion associated with the Singapore project. Approximately 50% of that backlog is in our traditional end markets, with continued growth anticipated there, likely pushing the backlog closer to about $5 billion by the end of the year.

Great. Thank you, guys.

And we'll take our next question from Mike Leithead with Barclays. Your line is open.

Hey. Thank you. Good morning, guys. First, I just wanted to ask on EMEA. This business has continued to grow earnings fairly well while European economic and chemical indicators remain quite weak. So can you just talk about what has enabled you to outpace the broader market and how you view sustainability for the sort of earnings level or growth, just in the context of the European economy remaining as it is today?

Sure, Mike. Let's take a step back. A couple of years ago, the EMEA business underwent a significant restructure aimed at resetting their cost base. At that stage, we couldn't predict the war in Russia or the energy crisis; we just felt that it was time to reset. This has put us in a strong position today. There have been many productivity actions deeply integrated across the entire business during this period, alongside managed pricing strategies that proved essential given the energy cost fluctuations. I see the performance of EMEA as solid, and the team's commitment has been commendable. I expect the performance of EMEA to continue, and we will ensure that margins hold or slightly improve as expected.

Great. Thank you. And then just briefly, a housekeeping question on electronics. I believe TSMC delayed the start of their Arizona fab by about a year or so. Would that also delay your sales for that site by an equivalent duration?

My expectation is we will start the TSMC first plant in the second half of this year. Even before the fab actually starts up, a lot of product is needed to ensure the tools are in place and tested. That process has already started. All fabs go through a ramp process, and I suspect TSMC's announcements were probably more related to other negotiations rather than impacting the actual startup of the fab and its ramping up process.

Great. Thank you, guys.

We'll take our next question from Jeff Zekauskas with JPMorgan. Your line is open.

Thanks very much. The multinational oil companies have been outsourcing hydrogen production to industrial gas companies because they believed that their returns on capital were higher in drilling for oil and gas. However, now that the Inflation Reduction Act has been passed, the returns on capital for them for producing their own hydrogen rise due to tax credits. And we're beginning to see over a longer period, the multinational oil companies wanting to produce hydrogen. From your perspective, over the next 10 years, do you anticipate seeing lower hydrogen demand from your traditional hydrogen customers that may back-integrate? Or do you think the dynamic is different?

So Jeff, I'd say that the dynamic from our perspective seems a little bit different. Let's break it down a bit. Historically, companies outsourced hydrogen production due to the economics favoring our operational management. Linde handles hydrogen plants well—it’s core to our business. While I accept your point about financial benefits accruing to oil companies due to the IRA, I suspect that the value of efficient hydrogen production and network optimization will still maintain demand from traditional clients. Our analysis shows that the hydrogen market is poised to grow to about $150 billion over the next 10 to 15 years. The fuel market itself is substantially larger—between $6 billion to $7 trillion. Therefore, even a small slice of that market becomes significant for us. Besides, Linde's installed base of assets and pipeline networks positions us advantageously to meet potential demand, reducing operational risks. While companies are increasingly investing in their hydrogen production, many may still prefer to rely on Linde for efficiency and economies of scale. Our ongoing expansion of hydrogen networks will further enhance this value.

Okay. Thank you for that. Your slides reflect corporate costs being offset by the helium business, which previously lost $300 million back in 2018-2019. Can we conclude that the breakeven point mostly stems from positive helium pricing over time that will continue going forward?

I'll let Matt walk you through the math on this, but I must say I'm not satisfied with the current state of 'Other' and believe it should be outperforming more than it is today.

Hey, Jeff. To clarify what's included in 'Other,' we have several components. Currently, it comprises our Materials Technology business, including coatings and our intercompany helium business. The intercompany helium business sources helium globally and sells it to various regions, along with global corporate costs to manage Linde plc as a whole. While 2018 was a transition year, we prefer to use 2019 as a baseline for consistency post-merger. Therefore, we aim for these businesses in 'Other' to offset the corporate cost of our global organization, and are optimistic we will continue to see that as a result of improved performance and properly managed corporate expenses.

Okay. Thank you.

And we'll take our next question from Nicola Tang with BNP. Your line is open.

Hi, everyone. Just one for me on margins. I understand you see further margin upside into next year at a group level, but could you provide a bit more detail on how that would play out regionally? For example, if pricing normalizes in Europe, is there a situation where European margins might trend down while another region drives overall group margins?

That's a great question, Nicola. We regularly assess margins, and I’ve always communicated our expectation to expand margins year-on-year by 30 to 50 basis points. This quarter exceeded that expectation across all segments, which is positive. Specifically, in the Americas, we've reached margins exceeding 30%. Our EMEA margins also showed remarkable improvement, which is key in light of our restructuring efforts. EMEA has grown approximately 1,000 basis points since the 2018 baseline, demonstrating consistent progression. I am confident that we can continue this focus on margins across regions. Specifically, I've seen an impressive margin growth of about 30% in both EMEA and APAC, which bodes well for our targets. We will keep pushing for this improvement, aiming for continued progress toward our margins goal.

All right. Thank you. It's impressive.

And we will take our next question from David Begleiter with Deutsche Bank. Your line is open.

Thank you. Good morning. Sanjiv, productivity has been a key driver of earnings growth this year. Can you remind us of the quantified figure for that this year? Should we expect something similar in the next year as well?

Certainly, David. Productivity is central to how we manage our operations, as you are well aware. For 2022, we undertook approximately 14,000 productivity projects. For the first half of this year, we have already surpassed 8,000 projects. I have confidence in our continuous pipeline of productivity initiatives that will drive results. There isn't a single, significant project; rather, it’s the aggregate of these numerous initiatives that yield results moving forward. We track productivity's impact based on its percentage relative to our cost stack. Currently, we range between 5% to 7% of our cost base, which ultimately contributes to our bottom line.

Very good. And just on the clean energy opportunity, do you have a market share target for Linde over a longer timeframe?

We don’t typically frame our clean energy opportunities in terms of market share. Instead, we focus on selecting high-quality projects that meet our investment criteria, leveraging our asset base and network for competitive advantage. So, the project pipeline estimates of $30 billion over the decade in the U.S. and $50 billion globally are driven by the available opportunity set. Market share will emerge as a function of the quality of the opportunities we choose and execute effectively.

Thank you.

We will take our next question from Tony Jones with Redburn. Your line is open.

Mr. Jones, your line is open. Please unmute yourself.

Hearing no response, we will move to our next question from Peter Clark with Société Générale. Your line is open.

Yes. Thank you. Hopefully, you can hear me. I've got two questions. The first one is in line with the discussion on pricing and inflation; it feels like you still have momentum at least into the third quarter. So I'm just curious about the sequential pricing outlook into the third and fourth quarters. I assume you have something in place. Then regarding the EMEA margin discussion, while I understand that on-site was hit harder, would that improve the margin on mix? How do you see the second half for EMEA in both cylinders and on-site, especially since one of your competitors is feeling more confident about the second-half year-on-year comparisons in on-site, given the very soft comps? Additionally, energy costs are lower in Europe now, which might boost client confidence. How do you see these elements playing out?

Peter, I want to reiterate Matt’s earlier comments about our established history of positive pricing from Linde. We believe that globally weighted inflation is a robust proxy for Linde's pricing trends. In Q2, we delivered 7% globally, while our pricing was between 5% and 6%, slightly ahead. This pricing momentum is fundamentally connected to inflation, and we will persist in ensuring pricing grows sustainably. As for EMEA margins, without diving too deeply into specific business impacts, it’s evident that we have secured some strong margins primarily driven by the productivity and pricing initiatives in place across the region. I fully expect that EMEA’s operational improvements will contribute steadily as we progress, and I think the overall portfolio will deliver the desired margins. I want to remind everyone that we constantly benchmark our operations. Our internal benchmarking holds us accountable. For instance, in 2022, over 10 countries within the Americas achieved margins exceeding 30%, and 17 in Europe did the same. We are driving our internal targets, and margins should reflect this continued commitment.

Thank you. Do you think on-site will perform better in the second half for EMEA?

It's challenging to forecast on-site performance, especially in Europe, particularly for chemicals and energy markets. However, I suspect that metals will continue to demonstrate positive momentum, but predicting performance may be more difficult for chemicals and energy; those factors can fluctuate based on multiple elements, including energy prices and weather conditions during winter.

Okay. Thank you.

We will take our next question from Michael Sison with Wells Fargo. Your line is open.

Good morning, guys. Historically, volume has driven a significant portion of the adjusted EBIT growth, but I see your volumes are down 1%. Despite this, you're generating impressive operating profit and EPS growth. If volumes improve whenever they do, will your leverage improve further? Or will you need to add costs to support the volume increase?

To clarify, our EPS growth is driven by several components, as we have previously discussed. Our base business should deliver about 4% to 6% of that EPS growth target, while backlog contributes around 1% to 3%. Share buybacks also account for roughly 2%. When volumes pick up, some costs will increase, but we rigorously manage productivity during that period as well. This mix of base business, backlog contributions, and share buybacks ultimately comprises the EPS growth algorithm we strive for.

Understood. And for the second half, will your volumes remain similar to the second quarter, or do you anticipate year-over-year growth? I believe you mentioned some sequential adjustments, but what volume growth do you foresee from new projects in '24?

Let's break it down by region. In the Americas, we saw flat performance for Q2, adjusted for customer outages in the U.S. Gulf Coast and some softer electronics sales. Customers in the U.S. Gulf Coast are now back online, so we expect positive sequential volume growth for Q3. For the U.S. package business, we saw mid-single-digit growth in Q2, with manufacturing showing some upside. We forecast similar performance as we go into Q3. Overall, I’d expect a modest upside from the HyCO business with steady volumes across the board, possibly flattish as we move into the third quarter. For APAC, the picture is mixed; India continues to show growth, but overall Asian performance remains softer, particularly in ASEAN. This could dampen growth further this year. When it comes to EMEA, I foresee volumes holding steady without significant improvement.

Thank you.

We will take our next question from Vincent Andrews with Morgan Stanley. Your line is open.

Thank you and good morning, everyone. Matt, I might be overthinking this a little bit, but could you help me better understand historically? Your guidance midpoint assumed no economic growth; now the high end assumes no economic growth. What prompted you to adjust that framework?

Yes, Vince. If you go back far enough, we have bounced a little bit around on that; sometimes the high end, sometimes the middle. It’s just a function of our planning cycles based on the quarters we have left and the trends we are observing. Right now, I'd say the fact that the high end aligns with no growth, it's just how the numbers came together, and as you know, we will continue to improve wherever we can.

Okay, fair enough. If I could ask about pricing: can you help us think about the pricing you achieved in Q2 and your expectations for Q3? How much of that relates to prior price initiatives versus new initiatives?

Certainly, Vince. Pricing is incredibly local across nearly 100 countries, driven by individual contracts. There’s ongoing price adjustments based on unique contract structures globally. While historical pricing initiatives create a foundation, we are continuously adjusting pricing according to localized factors. We expect to carry some pricing momentum, but as developed nations experience disinflation, we do encounter tougher comparisons. That said, inflation varies widely across the globe, and you can anticipate both consistent adjustments and new pricing initiatives happening continuously.

Okay, very helpful. As usual, I really appreciate it.

We will take our next question from Patrick Cunningham with Citi. Your line is open.

Good morning. Thanks for taking my question. In June, you announced contracts with Wanhua for decarbonizing ASUs. Can you size the potential there for Linde, both in terms of backlog and the addressable market? Would future investments need to include additional investment in decarbonization, or are you indifferent from that standpoint?

Let me address the first question regarding decarbonization. Over the last 30 years, we have executed contracts with numerous clients for large ASU decarbonization. However, I wouldn’t say there’s a broad, expansive market for decarbonizing ASUs. Our approach is very selective—it's about deep integration with high-quality customers in specific markets. In this instance, we're pursuing opportunities with a few projects but won't expect significant contributions to backlog from decap initiatives. Regarding your second question, on the investments in decarbonization: we have the technology and operating expertise necessary to capitalize on decarbonization opportunities where we already have a longstanding relationship with customers. If we have a long-term relationship, we see room for value in deploying our technology, so it makes tremendous sense for us to leverage our carbon capture technologies. We can develop strong partnerships for sequestration or chemical utilization alongside those leads for decarbonization projects. Some opportunities present themselves in regions, like China, where transitioning to renewable energy sources from conventional sources can be beneficial. That could lead to a win-win setup as we move forward.

Very helpful. Thank you.

We will take our next question from Kevin McCarthy with Vertical Research Partners. Your line is open.

Yes, good morning. On slide 13, you provide some helpful pie charts that describe your backlog composition. I am curious how you expect those pies to evolve over the next year or two. For instance, EMEA has been fairly small historically, but would you anticipate that growing significantly as clean energy projects increase? Additionally, within Asia Pacific, what is the mix of clean energy versus more traditional projects in your discussions, and how do you foresee that evolving?

Thanks, Kevin. I expect the backlog to continue to grow, as we've set out in multiple statements. Regarding mixes from clean energy projects, we've outlined that we anticipate around $30 billion in the U.S. and about $50 billion globally as a result of the IRA. In terms of proportions, I expect approximately 60% of that to occur in the Americas, with EMEA and APAC sharing the other 40%. Interestingly, EMEA may hold a larger portion due to ongoing projects there. As for APAC, the decarbonization efforts lag behind the Americas and EMEA. Thus, we expect the timeline for substantial projects in Asia Pacific to extend by approximately 3 to 5 years.

Okay. Thank you very much.

We will take our next question from Laurence Alexander with Jefferies. Your line is open.

Just a housekeeping question on packaged gases. How is pricing for rental fees evolving in Europe and the U.S. compared to inflation? Is it moving at a low single-digit rate regardless of inflation background, or has it been adjusted higher in response?

Both the U.S. and Europe have consistent rental pricing strategies. We strive for more than just inflation recovery in our pricing for rentals, and we've maintained that policy for several years. Our rental fee adjustments often exceed general inflation rates, reflecting our commitment to aligning costs with market changes.

Okay. Thank you.

And we will take our next question from Steve Byrne with Bank of America. Your line is open.

Yes. Continuing on the packaged gases question: post the nexAir acquisition, what would you estimate your share of the U.S. packaged gases business to be? How would you compare your pricing power in that business now versus liquid bulk? Also, any trends in hard goods or other indicators that might offer insights into the U.S. economy?

Steve, the nexAir acquisition has enhanced our footprint significantly in the Southeast U.S., where growth and investment are thriving. My sentiment is that we don't disclose specific market share figures, but we believe our share is not where it should be. We have solid pricing power and have demonstrated consistent margin improvements in this business over the years. Regarding hard goods, while we see some positive growth in consumables, equipment sales have softened.

Thank you. Regarding clean energy, could you roughly estimate the sizes of the buckets like blue hydrogen production and sales, green hydrogen, oxyfuel opportunities, and ammonia-based decarbonization? How would you size those relative to each other?

For Linde, the best way to view our clean energy opportunities is by categorizing them into three key buckets: mobility, industrial applications, and energy carriers. Mobility, which encompasses hydrogen refilling stations, accounts for about 10% of our opportunity pipeline. The majority at 60% comprises industrial applications focused on blue projects, with a smaller portion of green projects. The last 30% is attributed to using hydrogen as an energy source, including liquefaction and transformation into ammonia or methanol. Carbon capture and sequestration roles are integrated into our industrial and energy applications, thereby representing a subset of our broader opportunities.

Thank you.

And we will now take our final question from John McNulty with BMO Capital Markets. Your line is open.

Thanks for taking my question. Sanjiv, I just wanted to follow up on your earlier answer regarding clean hydrogen opportunities in the Middle East. How would you characterize them? Are they primarily for domestic use, or are they geared toward export? If it's the latter, do you see any subsidies, perhaps from Europe or Asian demand, that could enhance the economics for those projects?

Yes, John. We're observing opportunities geared towards both domestic use and exports within the Middle East. For instance, we're collaborating with Aramco and Schlumberger on a carbon capture project that may become the world's largest. The initial phase involves capturing 11 million tons of CO2 annually, expanding to 54 million in later phases. This is part of domestic decarbonization for Saudi Arabia. Additionally, we're excited about potential blue ammonia projects in the region. The economics for blue ammonia production are highly competitive, which, while not broadly incentivized, may receive specific project-related support from the government. The output from these projects will be divided roughly into one-third for local markets and two-thirds for export, making them competitive on a global scale.

Got it. Thanks very much for the insights.

Thank you again for participating in today's call. If you have any further questions, please feel free to reach out. Have a safe day. Take care.

And ladies and gentlemen, that will conclude today's conference call. We thank you for your participation, and you may now disconnect.