Good morning, and welcome to Air Products And Chemicals Fourth Quarter Earnings Release Conference Call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Mr. Simon Moore, vice president of investor relations.
Thank you, Leon. Good morning, everyone. Welcome to Air Products 4th Quarter 2020 Earnings Results Teleconference. This is Simon Moore, vice president of investor relations. I'm pleased to be joined today by Safi Gisemi, our Chairman, President and CEO.
Scott Crocco, our Executive Vice President And Chief Financial Officer and Sean Major, our Executive Vice President, General Counsel And Secretary. After our comments, we will be pleased to take your questions. Our earnings release and the slides for this call are available on our website at airproducts.com. This discussion contains forward looking statements. Please refer to the forward looking statement disclosure that can be found in our earnings release and on slide number 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 financial measures can be found on our website in the relevant earnings release section. Now I'm pleased to turn the call over to Safie.
Thank you, Simon, and good day to everyone. As always, we thank you for taking time from your very busy schedule to be on our call today. Before we talk about our results this quarter I would like to take to talk about 2020. Please turn to slide number 3. I continue to believe are revealed during times of crisis.
And unfortunately, the board continues to be challenged by the COVID-nineteen crisis. Our number one priority has always been the safety and well-being of our people. We continue to provide them the necessary protective equipment and the right protocols to uphold their safety and health I want to thank our employees for following these procedures and working hard to serve our customers and execute significant projects throughout COVID-nineteen crisis, we have not reduced staff nor reduced the salaries of our people and remain committed to that course of action. Our people continue to do a great job in keeping all of our 750 plans running around the world. Smoothly and productively.
Recognizing the greater needs during this time of crisis We also had increased our commitment to our local communities through our voluntary and financial support. Our robust business model continues to prove its resilience globally. As our on-site business remains stable. As we have mentioned before. In addition, we have maintained our focus on pricing discipline despite the lower volumes.
And as you can see, our merchant business developed improved pricing in all of the the $7,000,000,000 Neoncarbon free hydrogen project, which will enable air products to supply truly carbon free hydrogen to power buses and trucks around the world. When it comes on stream in 2025. This revolutionary and forward looking project will demonstrate on a massive and commercial scale. The possibility of a transportation system of the future based on a totally carbon free source of energy that is the green hydrogen. We also signed a long term on-site contract for a bold escape hold to methanol facility in Indonesia.
This significant project supports Indonesia's focus on energy independence and will produce nearly 2,000,000 tons per year of methanol when on a screen in 2024. We are very excited about the potential for additional opportunities in Indonesia. Now please turn to slide number 4. We continue to create and win mega projects that the world that help our customers meet their most pressing needs for clean and energy and environmental solution and we expect these projects to drive This year, these projects included our largest ever investment in the United States for the Gulf Coast ammonia project in Texas. The acquisition of 5 operating hydrogen plants and a long term hydrogen supply agreement with TBS Energy in California and Delaware and multiple on-site projects for electronics manufacturers in China and Malaysia.
We also began construction of 3 nitrogen plants in the Netherlands and brought on a stream a Streambeck Energy Former and cold box in Louisiana to supply products to our U. S. Gulf Coast pipelines system. We are delighted to be selected for these large new projects, demonstrating our customer confidence in our complete solution. Deliver safely, on time and on budget.
Now please turn to Slide number 5. Our industry leading LNG Technology was selected for major projects in Mozambique, Qatar and Algeria. Our business model supports and enables our strong financial position. And we successfully raised about $5,000,000,000 of debt earlier this year to ensure the already for our exciting growth opportunities. We have significant balance sheet capacity remaining and are continuing to build strong positions in growth markets.
With the board's focus on cleaner energy, we see gasification, carbon capture, and hydrogen, creating profitable growth for air products for many years to come. With our strong cash role. We continue to complement our growth investments by returning cash directly to shareholders through our dividend. And we made new commitments to sustainability. The environment, which we are speaking about in a moment.
Now please turn to slide number 6. I'm very pleased that our team stayed focused and worked safely throughout these challenging years. We obviously always want to see no accidents or incidents, but I'm pleased to see improvement versus our fiscal year 'nineteen safety performance. The following slide number 7, 8 and 9, you can see our gold management philosophy and 5 point plan that we have shared with you many times before. While I'm not going to go through the details of each of these slides, since you have seen them many times before, I have included them as a continuing reminder of air products and labeling focus on cash generation and implementation of our well defined Now please turn to slide number 10, which is our higher purpose.
We are obviously committed to delivering superior financial performance. But our people also know they are supporting a higher purpose in the work they do every day. Our higher purpose at Air Products is to bring people together from all over the board so that they can collaborate and develop innovative solutions to some of the most significant energy and environmental challenges the all states. That is our higher purpose, and it inspires our team and drives us every day. In support of our On Slide 11, you can see our new diversity goals also.
By 2025, Air Product aims to achieve at least 28% female representation in the professional and managerial population the And as we measure our progress, we will continually stretch and drive preferred terms that improve We also recently launched a legal advocacy program for racial and identity discrimination matters. Through this novel program, Air Products, which support employees and their dependents who have been subject to this to such discrimination outside the workplace. These are a few of the specific steps we are taking to continue building our culture of inclusion and belongings. Now please turn to slide number 12, then you can see our 3rd by 30 goal, which means that we intend to reduce our carbon emissions intensity by 1 third by 2030. As I discussed the subject in September, this call focuses on reducing emissions relative to the amount of energy that we are delivering to the world.
It is near term and measurable and holds us accountable for delivering. Now please go to slide number 13 when we show you the key opportunities we have to achieve the 3rd by 30 goal. One very important point is that this code is enabled by and consistent with our profitable business growth opportunities: carbon capture, carbon free hydrogen, low carbon projects, operation on excellence and renewable energy, all support our 3rd by 30 volt. Now please turn to Slide number 14, which highlights our key gasification projects. The fundamental drivers for gadget education are still valid and very relevant today.
Countries and large companies around the world continue to focus on gasification to convert abundant natural resources like coal, pet coke, and refinery bottoms. All of these low value raw materials into high value chemicals, transportation fuels, and energy in a sustainable manner using gasification. At this point, I think it's appropriate to specifically give you an update on our largest education project, the acquisition of gasifiers and power plants from Saudi Aramco in Jazan, Saudi Arabia. We continue to work diligently to complete the financing and close all the open contractual terms. But as a result of the COVID 19 situation, these activities are taking much longer than we anticipate Therefore, I would like to repeat on this call what I said on another public call in June through that 2020.
That is my strong advice to investors is to please do not count your chickens until they are hatched as it relates to and the expected financial returns are in line with our expectations Now please turn to slide number 15, where you can see that we have grown our EPS This earning per share by over 10% on average over the last 6 years. And then a slide number 16 is a reminder that while we are continuing to develop These exciting growth opportunities, we have also grown our dividend by 10% on average. Over the last 6 years. This continues our record of raising the dividend every year for the past 30 years and we will provide about $1,200,000,000 in dividends to our shareholders this year. And finally, slide number 17 shows our EBITDA margin, which is obviously my favorite slide, where it shows that the margin is up over 1500 basis points since 2014 and more than 40% EBITDA margin for the 6th consecutive quarter, despite the COVID 19 challenges, this year.
I would like to thank all of our dedicated and hardworking people around the board for staying focused and safely operating more than 7 fifty facilities around the board and serving our customer Thank you again. Now I would like to turn the call over to Mr. Scott Carco, our Senior Vice President, our Executive Vice President and Chief Financial Officer, to provide a financial overview. To start,
Thank you, Seifi. As Seifi stated earlier, our company continues to demonstrate our strengths despite the challenges presented by the pandemic. We have made significant progress in committing our capital announcing mega projects in gas vacation and hydrogen for mobility, and completing a highly successful 5,000,000,000 debt offering. Both of these will support our long term growth. We also won several world scale LNG heat exchanger projects, which will add to our profit over the next few years.
Meanwhile, our business, which is more than half on-site continued to deliver profit growth and stable cash flow in a difficult year. Now please turn to slide 18 for more details on our full year results. Our profits and margins grew despite the adverse effects of COVID 19. EBITDA was up 4% and EBITDA margin increased 200 basis points. Sales were roughly flat at almost $9,000,000,000 as the combined 5% gain in volume and price were offset by nonoperational factors.
Specifically, the lower energy pass through and the India contract modification together decreased sales by 5% but had no real profit impact. The volume growth was primarily driven by acquisitions, new plants, and higher sale equipment activities, including LNG. Which overall more than offset the negative COVID 19 impact. We estimate COVID 19 reduced our sales by about 4% price improved in all three regions and across most major product lines. Price was also the largest contributor to the 200 basis point increase in the EBITDA margin.
ROCE was 140 basis points lower, negatively impacted by the step up in the denominator from the additional $5,000,000,000 Our full year adjusted EPS from continuing operations was driven by the strong 77¢ per share increase in price, the 3rd consecutive year of price improvement. Volumes declined $0.19 as the negative COVID 19 impact was partially offset by acquisitions new plants, and higher sales equipment activities. Different business mix cause volume to be positive on sales, but negative on profits. Again, we estimate COVID 19 reduced full year EPS by about $60 to $0.65. Against this challenging backdrop, we continue to add resources to support our future growth and to maintain Currency was unfavorable $0.07, primarily due to the weaker Chinese RMB, Chilean Peso, and South Korean lawn.
Our joint ventures also had strong underlying business results. Equity affiliate income and non controlling interest together added $0.08. Interest expense was $0.10 favorable. We adopted new accounting guidance this year that moves about $9,000,000 from interest expense to non operating expense each quarter The impact of this reclass, lower underlying debt balance and lower interest rates were partially offset by the cost of our $5,000,000,000 debt issuance. Non operating expense was $0.15 unfavorable due to the accounting change I just mentioned, Our effective tax rate of 19.1 percent roughly equaled last year and we expect an effective tax rate of 20% to 21% in FY 2021.
Now please turn to Slide 20 for a brief discussion of our 4th quarter results. I'll start by commenting on supported by increased sale and equipment project activities and improved merchant volume as economies across the regions gradually began to improve. Price also continued to improve, up 1%. EBITDA rose 6% sequentially, primarily due to the higher volume, better equity affiliate income, and favorable currencies. However, these benefits were partially offset by higher costs, mainly due to additional growth and increased planned maintenance, particularly in Americas.
As we mentioned last quarter, Some of these customer plan maintenance outages were delayed from earlier in FY 2020. And EPS was up 9% with the lower tax rate, partially offset by higher interest expense. Now turning to our results versus last year. Sales of $2,300,000,000 were up 2%, driven by price with improvement in all three Volume was stable as the additions of new plants, acquisitions and increased sales equipment activities compensated for the short phones attributable to COVID-nineteen, customer plan outages, and the end of a short term contract in Asia. Which contributed last year.
EBITDA of almost $940,000,000 was driven by business mix and higher costs, partially offset by favorable price, currency, and equity affiliate income. Volume was flat in sales, but unfavorable in EBITDA due to product mix. EBITDA margin remained above 40%. This is the 6th consecutive quarter, EBITDA margin exceeded 40%. Operating income was down 7%, greater than the decline in EBITDA due to higher depreciation on new plants.
Including the PBF hydrogen plants that we acquired earlier this year. COVID-nineteen reduced overall sales by about 5 dollars and EPS by about $0.15 to $0.20. Now please turn to Slide 21. Our 4th quarter adjusted EPS of $2.19 was down 0 point 0 $8 per share or 4%. With unfavorable volume and cost, partially offset by favorable Volume was unfavorable $0.22, primarily due to COVID-nineteen.
Cost was unfavorable $0.13, as we added currency and foreign exchange contributed $0.03, primarily due to the euro, Chinese R and D, and British pound. The effective tax rate of 16.8 percent was down 3.40 basis points and has a positive 0.09 dollars impact. This was driven by higher As stated previously, we expect our effective tax Equity affiliate income and non controlling interest together were up $0.06 due to strong underlying business results. Interest expense was $0.03 unfavorable as the cost associated with the additional $5,000,000,000 of debt was partially offset by the previously mentioned accounting reclass. This reclass also primarily drove the unfavorable $0.04 in non operating expense.
Now please turn to Slide 22. We continued to generate strong cash flow, underscoring the stability of our business. Our higher driven by timing and higher maintenance CapEx, driven in part by spending
on our new corporate
headquarters. For the full fiscal year 2020, our distributable cash flow of $2,600,000,000 or about $12 per share is comparable to prior year. From this distributable cash flow, we paid over 40% or $1,100,000,000 as dividends to our shareholders and still have nearly $1,500,000,000 available for high return industrial gas investments. This strong cash flow even in uncertain times enables us to continue to create shareholder value Slide number 23 provides additional details on our capital deployment. We have substantial investment capacity remaining.
Some of the spending in our backlog extends beyond FY22, and we will generate more cash and borrowing capacity as projects come on stream. As you can see, we expect almost $18,000,000,000 of investment from FY2018 through FY22. The $18,000,000,000 includes over $9,000,000,000 of cash and additional debt capacity available today, about $3,000,000,000 of investable cash flow between now and the end of FY22. And over $5,000,000,000 already spent. We will continue to focus on managing our debt balance to maintain our current targeted AA2 rating.
With a few new projects signed and some coming on stream, our total project and M and A commitments remained around $12,500,000,000 with about $11,000,000,000 remaining to spend on them. So you can see, we have already spent 30% and already committed over 90% of the capacity we show here. Now to begin the review of our business segment results, I'll turn the call back over to safety.
Thank you, Scott. Before I talk about Asia, I would like to make a few comments about our overall performance. I'm very proud to say that our teams have performed exceptionally well responding to the current crisis Our three regions continue to deliver strong pricing and our full year EBITDA margins increased in each geographic segment despite the significant COVID-nineteen impact. I have full confidence that our teams will execute our business strategy and run our businesses very efficiently in the coming months. Now please turn to Slide 24, which is our result in Asia.
Compared to last year, our 4th quarter volumes were down 5% mainly due to the continuing adverse effect of COVID-nineteen, the impact of the customer outage and a short term contract that contributed last year. Pricing was positive for the 14th, and I'd like to repeat 14th consecutive quarter and EBITDA margin for the quarter was 46.3%. Now, I think it's appropriate if I give you more information about the customer outage that I just mentioned. In Asia, our largest customer is LuAN called to liquid facility in China. After successfully operating for over, 2 years.
The customer schedule a planned shutdown, and I'd like to assess planned shutdown update facility for a normal and a expected maintenance turnaround earlier in 2020, actually in June, 2020. We successfully completed this major maintenance activity by theendofSeptember so that That is the negative impact for our results that I just mentioned. In the last quarter, the plan was basically down on for a scheduled maintenance. But I also would like to add that as of today that I'm speaking, our cost has not yet formally asked us to restart the plant due to COVID-nineteen and market conditions. Any further delay in the free start of this facility will obviously have an impact on our sales to this customer in fiscal year 2021.
And we are in the process of working with the customer on this issue. We will update you on the status of this situation when we announce our first quarter results in January 2021. Now I would like to turn the call back over to Scott to talk to you about our Americas results. Scott? Thank
you, Seifi. Please turn to Slide 25 for a review of our Americas results. Sequentially, merchant recovery and the full quarter impact of the PBF hydrogen plants acquisition more than offset the planned maintenance outages and drove volume 4% higher. Price was also up 1% with improvements across key product lines. EBITDA was flat as increased plan maintenance activities offset the positive volume and price impact.
Compared to prior year, volumes were down 3%, primarily driven by the effect of COVID-nineteen. While planned maintenance outages of our hydrogen facilities were largely offset by the PDF acquisition. Maintenance outages postponed by our customers from earlier in the year and some modest repairs due to damage caused by Hurricane Laura increased our maintenance activities this quarter. America's strong pricing trend continued, up 2% versus last year for the segment, or 5% for merchant. This is the 9th consecutive quarter of year on year price improvement.
Price was better across all major product lines. As expected, the On-site business, which accounts for about 2 thirds of the region's sales, remained stable. EBITDA of $411,000,000 remain unchanged from last year as better price and the TDF acquisition compensated for lower merchant volumes and higher planned maintenance activities. EBITDA margin was up 110 basis points versus last year, primarily driven by price. While sequentially, margin was down 340 basis points, mainly on increased maintenance.
Now I would like to turn the call back over to Simon to discuss our other segments. Simon?
Thank you, Scott. Now please turn to Slide 26 for a review of our Europe, Middle East and Africa region results. Sales increased 18% sequentially, driven by an 11% increase in volume and 6% favorable currency. Merchant Recovery and acquisitions both supported the double digit volume improvement, while currencies were due to the favorable euro and British pound. EBITDA also climbed 18% sequentially, driven by the volume uplift, together with favorable currency and seasonally better equity affiliate results.
Costs were unfavorable primarily due to planned maintenance outages in our Hydrogen facilities and higher power costs, which we expect to recover in the future. Compared to last year, volumes remained flat as acquisitions and other growth offset the adverse impact of COVID 19 and the planned maintenance outages. Also compared to last year, price was again up increasing 2% for the region improvement. EBITDA of $200,000,000 was up 4% supported by strong price and favorable currency but partially offset by product mix and increased maintenance cost. Now please turn to Slide 27, Global Gases, which includes our non LNG sale of equipment business as well as central costs.
Sales increased due to higher sale of equipment project activities but profit is lower due to business mix and higher project development investments. Please turn to Slide 28, corporate which includes LNG and other businesses as well as our corporate costs. Sales and profits were higher this quarter, driven by LNG project activities, including the Golden Pass And Mozambique LNG Projects. During the fourth quarter, we were also awarded the massive Qatar gas project and the replacement project for Sonatrack, which will both further add to our results in the near future. Now to provide some additional thought on the future, I'll turn the call back over to Savi.
As we look forward, unfortunately, we continue to see COVID-nineteen crisis deepening and effect and adversely affecting the people and economies of most of the world. Then I spoke to you in late April of 2020. The daily cases of COVID-nineteen in the U. S. That about 35,000 and the number of board bought cases per day was about 80,000.
Today, this situation is a lot worse. The number of cases in the US is around 120,000. And for the board, it's almost 600,000 cases a day. Therefore, it is very difficult, if not just plain impossible, to make any reasonable projection about the course per share guidance or CapEx guidance for our fiscal year 2021. We hope the outlook is less uncertain in January.
And if that is the case, we will provide guidance. We are not shying away from guidance, but we are being very open with you that we just don't know as we sit here today in terms of what the course of economic activity will be. However, I want to share with you what we are seeing so far this quarter that is the month of October and as of today in November. The 52% of our sales, that is our on-site business, is doing well and we expect this to continue. The other 48% is our merchant business around the board, and this is where we are today in each area.
In Asia, our merchant volumes are approximately where they were at this time that last year. So Asia has recovered and we see good results there. In Europe, we are seeing the impact of recent COVID-nineteen surge with merchant volumes down 5% to 10% as of today. Versus last year, mainly due to our packaged gases business in Europe. In Americas, and fortunately due to the significant increase in COVID-nineteen cases, merchant volumes are down about 5 And I would like to remind you that we do not have a packaged gadget business in North America.
And now please turn to slide number 29. Every day, but certainly in these challenging times, Our real competitive advantage is the commitment and motivation of the great team we have at Air Products. Our business model and a strong financial position will allow us to continue to execute our strategy and create long term value we are committed to the growth of our dividend every year. The projects in our backlog are moving forward as expected. And we continue to create and win some of the most significant projects And as we do, we will continue to protect our people's health and safety and take care of their welfare and the welfare of their families.
We are 100% committed to them. In closing, I'm going to say thank you. 1st, to all of our employees around the world for their dedication and commitment. Our employees are playing a critical role and making a difference to the world during these challenging times. I also want to express my tanks to our customers, innovating along side you, our customers, preserve our higher purpose, supplying products that benefit the environment and help you to be more efficient and sustainable.
Thank you for your continued confidence and trusting us. And finally, to our local communities around the world, I want you to know that we will continue to support you and stand together with you, especially during these difficult times. Now we are pleased to answer any questions that
And we will take our first question from Jeff Zekauskas with JP Morgan.
Thanks very much. So if you have a question about the Jazan project, is the sole issue the financing of the project or are there unclarities in the financial terms with Aramco? That need to be settled.
This is a very big acquisition, $12,000,000,000. Supporting documentation for this thing is I'm not exaggerating too much about 4 or 5000 pages. I cannot represent you that we have agreed to every single term and dotted every T and crossed every eye. There are still items that, lawyers are going back and forth with. On this project.
That is why I felt very strongly that I should be very upfront with our investors as we always are to tell you exactly where we are. We are not done with this thing. Financing is it still going on? As you know, we launched the financing back in July. That is proceeding, but the the whole thing is not 100% done, and I just wanted to be very clear with the investors exactly where we are.
That's our job at these calls to tell you exactly where they are and how we see things. Now the situation can change 2 weeks from now, and we can announce that we have signed this thing. But I just want you to know that as of right now, this is where we are.
Okay. And with the LUAN project, Since there's a, I don't know. There's some volatility in Air Products' financial return, does that mean that the LUAN project isn't structured as a conventional on-site contract in that if you were receiving a fixed fee or something like that, there wouldn't be that volatility. Can you explain the difference between the Lou Anne tracked in a standard on-site contract.
Jack, again, that's an excellent question. The different contract the other on the board are not exactly the same. Yeah. With Lu Anne, the only diff one of the differences is that we have agreed with the customer that during the times of planned shutdown, that this is a very complex facility. I'm sure you know better than I do that once every 2 or 3 years, we have to shut it down and do a complete maintenance.
We have been running that facility at 99% capacity for two and a half years. Therefore, there was time to shut it He shut it down in June, and it took us about 3 months to do a maintenance, which is the largest maintenance of a gasification facility around the world. We very successfully completed that. But our agreement with the customer was during the planned shutdown, we wouldn't charge them feet, even planned truck down. Yes.
Okay. Alright.
Thank you so much. Yes. Thank you. Thank you.
And we'll take our next question from Duffy Fischer with Barclays.
Yes, good morning. Just a follow-up on Luanne. If they decide not to restart it, because of economics, would that non payment continue forward as part of this or would that take or pay start to kick in? And I guess the color to that is if you just put all the capital into kind of refurb it, how far out of the money are they on economics with that plant today and what needs to happen for that to move to a better economic situation?
Again, Duffy, as I said, repeat obligated to tell you exactly where we are right now. We are not indicating with you guys that there is any significant issue with this facility. They had the shutdown, and they, as of right now, they haven't asked us to start it up. If they never shut it down, they have an enforceable contract and they will go and they have to live up to the contract terms and conditions that we have like any other facility. As you know, the other day shall that they are going to shut down the refinery in, covent in Louisiana.
So over there, we supply them. We have a contract. We'll deal with that. So what we are trying to tell you is that, look, this is the situation that this customer, because it is a very big customer I felt obligated to bring that up to the attention of the investors.
Very fair. And then, maybe just on the actual results, for the quarter, if you look, margins step down from Q3 to Q4, even though the COVID hit was bigger in Q3 than it was in Q4, So as we think about going forward in modeling for 2021, is the margin structure of Q4 more indicative of a baseline we should use or was Q3 more indicative?
Well, it obviously depends on COVID and all of that. I think Q3 is more indicative than Q4. But fundamentally, Duffy, there is one other thing that is going on which I'm sure you appreciate is that VR Air Products is not in a cost cutting mode that be there in 2014 2015. We are in a growth mode. That means that we are hiring people and all of that in order to support our growth.
Airport in the short term, our costs are going be higher. And then once all of these big plants come on a stream, then the costs relative to the margins and so on will come down. So we are, we are not a company where we are in the mode of cutting costs and all of that. We also made a conscious decision which is different from a lot of people, but I feel very strongly about it, that under the COVID conditions, when all of our people are under a lot of stress worrying about the health and safety of their families that I didn't want to cut their salaries or lay them off. That was a conscious decision on our part.
They could have cut their salaries like a lot of other people did. They could have made a lot of people off, but they decided not to do that. Obviously, the concept points of that is that our margins go down. But we felt that it is better to take a hit on our margins, but at the same time, demonstrate to our people that we are with them for the long term. We are not operating the company based on trying to be heroes and announce the result this quarter.
We are building the company for the next 30 years. Our people have sacrificed. They have got up every morning in the middle of COVID going to running our facilities and I just want it to be absolutely supportive of him. That means that we take a hit as you have seen, but I think that is well justified and that is our policy and that is what we will do as we go forward. Thank you very much, Sophie.
And we'll take our next question from Steve Byrne with Bank of America.
Yes, good morning.
Good morning, Stacy.
When you look back at this last fiscal year relative to what your expectations were a year ago, Obviously, you had the COVID impact of $0.60 to $0.65. Jazan has been delayed and therefore not contributed to the fiscal year. I'm curious what else would you highlight as as being meaningfully different than what you were expecting for the fiscal year?
Steve, you're asking an excellent question. We had given a guidance of about $9.35 for the year. If you take Tazan contribution out. And you know that was about $0.50. If you take the COVID contribution out, which is about 60¢.
We delivered 838. So we basically delivered what we had, kind of committed to. So other than those 2, there was no surprises. There was no nothing unusual that the I want to highlight. I think we got the pricing.
We got the the our plants kept running. We didn't shut down any facility. And there wasn't anything unusual. That is why Steve, you know, I'm not giving guidance, but I don't want that to be that we are in any day shape of concern or form concerned about the performance of Air Products. Obviously, COVID-nineteen will have its impact.
We might to go into another lockdown and all of that. But fundamentally, Air Products is doing great. We have great bunch of people. They are motivated. They have demonstrated.
Please remember, we checked all of our 750 plans operating during the COVID. Even at the height of the crisis, even today, and served our customers. So I feel very good about the company, and I feel very confident about the future.
Thank you for that. And following your announcement of the news flow on green hydrogen has certainly surged. And in particular, quite a bit recently on green ammonia, either out of Australia or CF Industries, but I would say that they're kind of targeting different end markets than you have highlighted for Neon. And I was just curious whether any of that might have led to any change in your dialogue with potential customers with respect to the green ammonia coming out of Neome, longer term, and any expectations on your part on when you might be able to line up some contracts for that project.
Thank you for the question. We are getting more and more optimistic and more and more excited about, green hydrogen and green ammonia project. But at the same time, There is a lot of emphasis on hydrogen in general, blue hydrogen and green hydrogen. We are the largest producer of ordinary hydrogen, which comes from hydrocarbons. You know, I call that gray hydrogen, We are the largest producer, and as people need that, we will provide that.
There is significant interest in so called blue hydrogen or blue, I mean, ammonia and hydrogen go together because ammonia is a day of transporting hydrogen around but blue ammonia is becoming very popular for countries and places where they only care about the CO2 emission. They said that, look, you can make me, ammonia in Indonesia, then call, do whatever you want, But if you capture the CO2, and I can certify that the ammonia that I'm using doesn't have the CO2 has been collected. It's a blue ammonia, then I can use it and get the credit for not putting CO2 in there, which they are right. So that is what is called blue ammonia. And then the ultimate, I mean, that is the middle one.
And then the ultimate one is obviously green ammonia that we are going to produce in land. So to me, it's like, anodegasoline, which is gray hydrogen, let, you know, ordinary gasoline, which is a blue colonial, and then premium, which is equivalent to green hydrogen. We play in all of these sectors. Newom is focused on green hydrogen, but we do have projects that you're working on blue ammonia on blue hydrogen and obviously gray hydrogen. So the main thing that I think is significantly encouraging is the board is beginning to see what they have been saying for 4 or 5 years.
That hydrogen in one form or another is going to play be the energy of the future. Everybody is not talking about it. I'm very happy about that. But the important thing is that the I think we have a lead because we have actual real projects doing these things. But we are very excited about all of those opportunities that you mentioned.
And we'll take our next question from Vincent Andrews with Morgan Stanley.
Hi. Thank you for taking our question. This is Angel Castillo on for Vincent. I'm sorry to belabor to the point, but just wanted to ask on Jazan. So you went from an uncertain timeline to hoping to finish and close everything in October.
As you look today, it looks like we're a little bit more of kind of back to uncertainty. So just curious, you talked about the terms and conditions did something change between when you last talked about this and now that makes it more uncertain beyond just kind of ongoing COVID, or as you think about the risk profile of the project going forward, did the risk profile change?
I mean, the world is changing every single day. I mean, the oil prices go up and down. The financing markets change. People change in different companies and all of that. All I'm saying about Jazan is that I just do not want the investors to have in their model for 2021, but it is that they have a dollar a share something like that and count on that.
All I'm saying is please, to use my exact board, don't count your treatment before wait until we announce that we have done this before you put that in your absolute model. That's all I'm saying is that because everything changes every day. I mean, look at that. We have a presidential election. There's a possibility we have a new president There is a possibility.
We have a new foreign policy. There is a possibility of a lot of different things. Nothing is 100% My obligation is that every quarter, even I'm in front of you, to tell you exactly what we know. And what we know right now is that we haven't closed on this acquisition. And I just wanted to make sure you know that.
Understood. And then maybe just back to the quarter on the business, as we think about 4Q, could you just give us a sense for what merchant volumes were versus kind of your broader business by region? And as we look at the trends that you mentioned and highlighted thus far in 1Q, could you talk about that different end markets as well and what you're seeing there?
Well, on that one, in my prepared remarks, I mentioned something already that for you that as of today, 11th November, the way we see our business is that our Asia volumes are back to where they were in 2019. Asia, especially China, there is no COVID issue. It has recovered, and our business is doing fine there. So that's what we said. In Europe, unfortunately, there is a significant surge, as you know, very well, in COVID-nineteen, that is creating a the situation when governments are putting restrictions.
Some of them are actually doing lockdowns and all of that. Therefore, our volumes, as of today, there is 5% to 10 percent lower than last year, especially significantly lower in our patches which is very logical and understandable because that is the most susceptible to economic activity. In the United States, Again, as you know, COVID cases have gone up. People are getting a little bit more conservative about the business activity and our merchant volumes are down 5%. Not down 10% but in Europe, mainly because we don't have a packaged gas business in the United States.
So that's where we are.
Thank you.
And we'll take our next question from Kevin McCarthy with Vertical Research Partners.
Yes, good morning. Safie, it seems like you have a lot going on in the LNG arena. You referenced I think you used the word massive, to describe the cutter project and then Mozambique, Algeria and U. S. Can you give us a sense for 2 things, the capital required for these projects and what the, what the earnings tailwind could be from them in fiscal 2020
Kevin, we are very optimistic about our LNG business. Obviously, they have picked up a lot of quarters and we think that they outlook for this business is very positive. You obviously know better than I do that this business is cyclical. Right now, we think we are on the upcycle. Obviously, for the last 2, 4 years, we've been on the down cycle.
In terms of the capital, the great thing about these projects is that the return on capital is infinite because we don't put any of our capital. We get paid for what we are doing. It's sale of equipment. So whatever the money that we make is return on capital employed of the plant and the facilities that we have that we don't sell the new plant, then we get a new order. So the return on capital on these projects are very, very, very high.
Thank you for that. And then as a second question, I wanted to ask about the sequential margin pattern EBITDA margin pattern in the Americas in the 4th quarter versus the 3rd. That was down 3.40 basis points. Think in prepared remarks, you indicated there was increased maintenance activity. Did that explain all of the change there?
Were there other factors in particular, I'm wondering if, the hydrogen business affected the percentage margin?
Kevin, you are very right about main effect being the maintenance cost. The maintenance cost is driven. We don't have control of that. I mean, if you have control of the cost the maintenance. So we don't have the control over when that happens because that can only happen during the time that the customer decides to shut down their refineries.
Obviously, a lot of the refineries considering what was going on with the market, they decided to take their shutdown during the summer when there was not a lot of, I mean, I you know, the situation in the market in the marketplace for refineries. So that is what we got to hit. But are there other hits Please don't forget that when they report Americas, if it grew South America, obviously, South America is not doing very well. It was a combination of other factors, but the main factor was the maintenance cost as you mentioned.
And we'll take our next question from Bob Koort with Goldman Sachs.
Thank you, Sophie. I think you've highlighted that you're still plugging away at Indonesian opportunities. I guess it was a news flip that maybe you could Som and Perd Amina, we're going to sign a deal with you this month. Can you give us some insight into that?
Bob, good morning. You are obviously very up to date about the latest team that comes out from any part of the world. But, the one lesson that we have learned from Jazan is that it is better not to say anything the final contract rather than announce something and then have to explain why it is delayed. As a result of that learning from that, I have no comment about what is coming out of Indonesia. Once we have a deal, we will let you know there is a lot of rumors going on, but I don't want to comment, on that one day or another until we actually have anything to announce.
And if you have anything to announce, you will announce that.
Fair enough. I'm wondering on Neom, when do you think you might be able to formally announce some offtake agreements for the green hydrogen with truck or bus depot customers.
We don't intend to make any announcement. Sorry to be careful going and cut out, but I'm just making a point. We do not tend to start announcing whom we signed the contract for and so on because, they just obviously don't want to help people with mortgages. I mean, we if you're going to be very confidential about that, Thank you, Bob. Thank you.
Question from P. J. Juvekar with Citi.
Hey, good morning, TJ. How are you, my friend?
Good, good. Can you talk a little bit about the health of the refinery customers on the Gulf Coast, given that low two-1-1 margins, the light heavy spreads have come in, what's the outlook for hydrogen volumes into refining.
Well, TJ, you and your people and a lot of other people know a lot more about that than me. So I'm not an expert to be able to comment on that. The only thing that I know is that, you know, when you look at the US refining capacity of somewhere between, I don't know, 18,000,001,000,000 barrels a day. You have already had announcements about shutdown of about 800,000 barrels, which is about 4%. Now, has there been enough of a demand destruction to justify that or is that going to come back and create shortages?
Or is more needed. I really don't know. I don't know, you know, how to comment on that. But the main thing is that what we have seen up to now hasn't had any material effect on our business. And as we go forward, we do not expect any material effect on our business.
Based on what we know today.
Okay. Fair enough. And then on the CCS type projects, carbon capture projects, is that like a stepping stone before we really get into green hydrogen? And do you expect to see more of these carbon capture projects coming on and what's your experience there? I should say expertise there.
And, can you just talk about your position there?
Well, we think that things will move in peril. I think people will continue to need great hydrogen. Just to clean up the transportation system in the cities, no matter how the hydrogen is produced, then they will need blue hydrogen which means that it will drive blue hydrogen and blue ammonia, which will drive a lot of carbon capture opportunities. And obviously a green hydrogen. So I think all three of them will go in parallel.
We are playing in all three of them. Obviously, as I said, the largest producer of Grey Hydrogen in the world. We have a lot of projects, working on cabin capture, whether it is for production of ammonia or whether it's production of blue hydrogen and all of that. And then the time comes, we will announce them. And, we obviously are very much involved in, production of, green So I think there is opportunities for all three of these.
And quite frankly, you will see projects announced by us and of different people for all of these, activities. Because fundamentally, I think there is a massive fundamental change in the public opinion, especially in Europe, even in the US, even in China, Korea, Japan, everywhere, a fundamental move that the world is getting warmer global bombing is not a joke. It is a fact. It is science based, and we need to do something about that. And as a result, all of these projects will go forward.
And I think everybody would make announcements and everybody would want to play in it because that is the future.
And our next question comes from John Roberts with UBS.
Thank you. CFI, this may not be big, but you acquired a company called ACP. In Europe for dry ice and carbon dioxide. Do you think there are going to be any spikes in that business like we had in helium? Are we facing some shortages with vaccine distribution?
Sean, you're asking me a very good question. I really don't want to opine on that because it depends on the market development and all of that. And I really don't want to make too much comments about our involvement with the vaccine because we have confidentiality agreement with the people that we are working on.
All right. Secondly, Shell recently announced it's going to close 8 of its refinery sites. And I assume we'll see some other closures. Do you have any, refinery hydrogen contracts coming up for renewal in the next couple of years with refineries that might be closing?
Well, the only that we know that disclosing is the, I mean, we know that Shell Martinez is closing. We had a contract there. And you know that Shell Independence is closing Those are the ones that they know. Anything else that might come out, might come up, but these things are not going to be material, to air products because quite frankly, we don't make that much money selling hydrogen to Shell anyway. So even if they close, it's not going to drive us out a lot of profit.
And we'll take our next question from Mike Sison with Wells Fargo.
Hey, good
morning. Safie, can you talk about some of the other drivers for earnings growth in 'twenty one, you should have some pricing, cost savings, potentially, you should have other projects, I think, in the hopper. So, you know, even if Jazan and Luan are delayed, you know, there there are are are there other things that helps keep EPS on the positive trend.
Good morning, Mike. That's an excellent question and you're absolutely right. We see very positive trends in 2021 for air products in LNG. I don't really want to comment on pricing because we don't make forward looking statements about pricing, but you have seen our track record of what we have done. Our merchant pricing, merchant pricing in all of the regions was up about 5% even in the last quarter.
They were in COVID and all of that. So LNG, pricing, and then we do have other projects, other new projects are going to come on the stream. So for, as a result of that, as I said, I'm very, positive about our results for the next year. It's unfortunate that because of this uncertainty, at this point in time, we are not able to give you you know, some kind of a guidance, but I hope that by January, we will be able to do that. But we do have a lot of good things going for us.
Got it. And then just a quick follow-up on Indonesia. Can you maybe remind us why that region or area is attractive for for growth for capital growth going forward?
Indonesia has made a fundamental decision at the highest level at the level of their president that they are going to use coal, their natural resource, to produce chemicals such as methanol or DNE in order to reduce their dependence on imported oil and reduce their commitments to foreign currency because they have to buy these things. If they make them internally, they don't have to use foreign exchange. They have made that decision. Therefore, as a result of that, I think you are going to see a lot of co gasification projects in Indonesia, And we hope that with our technology and all of that, we would be at play a leading role in that.
Thank you.
Thank you.
And we'll take our next question from David Begleiter with with your bank.
Thank you.
Good morning. Stacy, just on Jazan, what's a timeline here in terms of your negotiations with Aramco and Aramco starting up there portion of the refinery that needs the product from Jazan?
Good morning, David. I hope I'll reserve the view on your family. But, yes, David, know, I I really don't want to put a timeline on this thing because I don't know. I I mean, it can be a month from now, it can be 4 months from now. It can be 6 months from now.
I I don't know. I don't I I think, we will, it would not be appropriate for us to put a timeline on this thing. But, everybody knows exactly where we are and what we are doing. So I just wanted to be very open about that.
And just on Luanne, first, when did you get less get paid by the customer? And when will why is the customer not operating yet given market demand in China appears to be doing fairly well as we speak?
Well, because we took the shutdown, the brand is shut down. We are starting up some of the parts of the plan to keep the plan to, you know, generate the steam and all of that to make sure that teams don't freeze and those kind of things to keep the plan that it stays that it can be restarted. The customer, I mean, right now, the supply demand situation, the price of oil and all of that, I mean, maybe they have decided that right now, they need don't need the product and so on. I'm not into the minds of the customer, and they don't want to force them under another. It's their decision.
But, I don't want to represent either to you that they have a major structural problem or anything like that. We just feel obligated on these calls. It's our we feel responsible to tell you what we know as the time that I'm speaking to you right now. So the situation can change 2 weeks from now or 3 weeks from now. But as of right now, they haven't decided to formally start up the plan.
Thank you.
And we'll take our next question from Jonas Oxgaard with Bernstein.
Hey. Good morning. Thank you. I I was I was hoping to take one more stab Zane, if you don't mind. But between which parties is the sticking point here, are you in Aramco or the JV partners, the banks.
Like, wait. Who is the negotiation really held up by?
Well, I wouldn't want to say held up. It is taking a long time, but at the end of the day, we have 3 different parties. It's Saudi Aramco for sure, obviously, because they are the customer, But in a funny way, it is interesting because Saudi Aramco is also a partner with us in the joint venture we have put together to do the acquisition. So as you know, the structure of the joint venture that is going to do the acquisition is products with the majority shareholder, Akua Power and Saudi Aramco themselves. So that is the joint ventures that is negotiating with Saudi Aramco go about the acquisition.
The acquisition is, as I said, $12,000,000,000, exactly what is included, but is not included, what the returns are, but the terms of conditions of the financing and so on. Those are all of the complicated issues that need to be finalized. And, and then you have all of the banks who are committing to supply $7,000,000,000 and they have their term sheets. They have their term conditions. When do they get paid?
Who gets paid first? At what time did they get, paid? How much of the dividend goes to them, how much of the dividend comes to the joint venture, what is the final interest rate that they want to charge, How is it related to Rybaud? All of these things, it, that all of these things takes time considering, unfortunately, the situation that nobody can really physically get together with people and do things in 2 hours that doing the video conference becomes a little bit of more of a challenge, that is what is taking time. So at the end of the day, all the parties have to agree.
I mean, even if we finalize everything and everything and everything, it's Saudi Aramco, which is not done yet, But even if you do that, then they have to deal with the banks and finalize everything with the banks in terms of their requirement and their requirement so on, obviously, changes, you know, now what is the view of the banks based on the recent election in the U. S. What do they see? How do they see the future? These are all of the complications and a deal like this.
It's just like any other major acquisition.
Interesting. Thank you.
A different question, if you don't mind, both your big competitors are talking about biogas into green hydrogen. Now if if I remember correctly, you you guys built a biogas hydrogen facility in Japan. Like, 5 years ago or 3 years ago. Did you learn something from that project? And and is there a reason that you're not talking about biogas today?
My friend, you are talking about have no problem. We are actually doing some projects in Europe related to hydrogen involving biogas. They don't have anything against but it is quite honestly ridiculous for anybody to assume that bio there will be enough biogas to power 200,000 trucks on the board. That is where, I mean, they are involved on those projects, but those are biohazard at a specific location for making 2 ton a day of hydrogen. We have those plans.
We continue to have that. I have no issue with that. But for anybody to claim that they can build plant produce 6 and a ton a day of hydrogen based on biogas, that is, that would be a joke.
And I'll be
happy to do
this in a bigger scale. Thank you very much.
And we'll take our next question from Chris Parkinson with Credit Suisse.
Great. Thank you. So Stacy, you
mentioned a few opportunities in the which we've seen. It seems like there are also some opportunities in India that despite being in the COVID world are still likely moving forward. Could you just kind of hone in on whether or not these would also be a prime opportunity as well? Thank you.
Thank you very much, Chris. Hope all is a good deal. Chris, We definitely see opportunities in India. India has been very much on the record with the Prime Minister talking about coal gasification. And right now, actually, India does have a request for quotation for a very giant COGASification project in India.
And obviously, we are participating on that. We expect India to do, co gasification significant amount of co gasification in the future. And we will definitely participate on that, whether we win it or not, we'll see, but, we think that India will definitely do co gasification because they are at the same place like Indonesia, They are seeing China right now where China is converting 280,000,000 ton a year of coal into chemicals And as a result, that has given them significant opportunity to massively reduce their dependence on oil. And I think countries, so I can Indonesia and India see that their leaders are very much committed to that. It's just a matter of these things becoming reality through their systems.
But yes, we do see opportunities in India. And as I said, it is a live project, a very big project, probably about $3,000,000,000 of investment that is being publicly bid and we are participating on the bidding process.
Great. And just as a quick follow-up, just a lot of us have obviously been talking about HD for mobility and just obviously trying to identify some potential key markets in Europe. But just quick question for you. Do you believe investors are also under appreciating the ammoniablue ammonia opportunities in Northeast Asia? And if so, why?
Well, I think that, you know, I don't, you know, investors are very smart and they will catch up delivery I think the reason is that people haven't been paying a lot of attention to some of the details, going on. Japan has been talking about, ammonia as a source of their hydrogen for many years. They had authorized their, trading companies to go and look for that. But they specifically Japan is specifically is very much focused on blue ammonia because they want they are not so much concerned about getting being free of hydrocarbons. They want to have use hydrogen or ammonia where the CO2, which is produced by making the ammonia is captured.
Because they are focused in meeting their requirement for the Paris Accord for CO2 reduction. So they are focused on what is called blue ammonia. And the reason they were focused on ammonia is that they, intention, at least for now, think it can it will change, but right now, the big plan is I'm going to buy ammonia it will be blue ammonia. Therefore, the CO2 is captured. And then I'll take that ammonia and inject it into my power plant.
Just during the ammonia in the power plants. And as a result, I'm going to be producing electricity which is carbon free. It doesn't put any CO2 in there because the ammonia which was produced didn't have CO2 was kept And therefore, and then I would use the electricity which is produced to drive my cars and so on. That is their intention right now. I think they will come to the conclusion that that is not enough because what are you going to do about your buses and trucks?
Because they cannot run on electricity. So at some point in time, they will need green hydrogen anyway. But I think right now, that is what they are very much focused on. Then the other thing that they were focused on is that, okay, I can take the ammonia and burn it, generate electricity, and then I will heat up all of my buildings and all of that did electricity and I claimed that that electricity is CO2 free. But that is the focus that's part that is so much discussion about brew ammonia for, Japan.
And we are obviously very, very aware of it. We have been it for 4 or 5 years and we are looking at projects to supply them.
Great. Thank you very much.
Thank you, sir. We have gone 26 Hapeno past, how many are there more questions left? Operator.
And we currently still have two questions.
Okay. That's fine. We'll take that. That's okay. Go ahead.
And our next question will come from Mike Harrison with Seaport Global Securities.
Hi. Good morning. A quick one on on the impact that you saw from Hurricane, can you maybe strip out what impact you saw there, separate from the maintenance outages, just wondering if you had an impact from power outages in that Lake Charles area, and any other impacts on your Gulf Coast pipeline network?
Good morning, Mike. I'll follow-up with you. Mike, there was an impact, but it is not material. I mean, it's in the order of $4,000,000 or $5,000,000 of impact, not $40,000,000 or $50,000,000. So that's why we didn't talk about but there was an impact.
Unfortunately, there has been 3 of them, which have hit the same area. Our Westlake plant was out for a while, but the impact on our bottom line is not significant.
All right. And then in the past during times when steel bill utilization rates have been or when some of those mills are taking downtime, it has impacted your ability to produce merchant argon Can you talk about what you're seeing in argon supply and demand and whether you're seeing elevated costs to move some of that lar around?
Not taking maturity of my fund. Thank you, Mike.
Okay.
And our last question comes from Laurence Alexander with Jefferies.
Hi, good morning. And sorry, just a very quick one then. In the core on-site business, do you have any regions or any end markets where bidding activity is improving? Let me just make sure I understand. Then you say bidding and improving, that means that there are more people scheme for bids and all of that.
Exactly. In the core, like what people think of as the traditional industrial gas businesses? Yes. I would like to point out in two areas. One is obviously electronics.
We are seeing a lot of activity there. There's a lot of people talking about building new fabs, both in the U. S. And in China and in other parts of the world. And then the second one is obviously a lot of, you know, inquiries about, green hydrogen flu hydrogen at Blue ammonia and all of that.
Those are the 2 significant areas. Well, thank you very much. And with that, I would like to thank everybody for being on our call today. We very much appreciate your interest. Please stay safe, stay healthy, and we look forward to talking to you, next for our results next quarter.
Thank you for taking the time. All the best.
And that does conclude today's conference. Thank you for your participation. You may now disconnect.