Good morning, and welcome to Air Products And Chemicals Third Quarter Earnings Release Call. Today's call is being recorded at the request of Air Products. Please note that the 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 Third Quarter 2020 Earnings Results Teleconference. This is Simon Moore, Vice President of Investor Relations. I am 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 atairproducts.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 and return on capital employed. Reconciliations 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 morning, everyone. As always, we thank you for taking time from your busy schedule to be on our As I said last quarter, the true character and leadership of individuals and companies are revealed during times of crisis. And unfortunately, this crisis continues at different levels in different places around the world. Our number one priority has been will continue to be the safety and well-being of our people. We have provided all the necessary protective equipment and instituted protocols focused on the safety and health of our people.
I want to thank our employees for following these procedures and working hard to serve our customers and their challenging conditions. In addition, as we mentioned last quarter, to ensure the peace of mind during this time of highest press with COVID 19, we have not reduced the stat nor cut anybody's salaries. Our people are doing a great job in keeping all of our 750 plants running around the world. All of our corporate and business functions are running smoothly. We continue to bring mega projects around the world and serve our customers and deliver good results despite the significant crisis facing our world.
Our robust business model is proving its resilience globally. Our on-site business remains a stable. In addition, we have maintained our focus on despite the lower volumes. And as you can see, our merchant businesses delivered improved pricing in all of our our strong financial position. Exciting growth opportunities, which there are plenty of.
We continue to execute our growth opportunities, including the $7,000,000,000 Carbon Free Hydrogen projects we announced earlier in July, and a $2,000,000,000 call to methanol project in Indonesia. We remain confident and optimistic week. We can successfully deploy our very strong balance sheet and ongoing cash flow to create significant value for our shareholders. As Scott will explain in more detail later, set a goal for ourselves in 2018 to commit $15,000,000,000 of growth projects by end of 2022. We are actually 2.5 years ahead of schedule.
And as of now, we have already committed almost $16,000,000,000. A great job development team around the world and while we are proud of succeeding our goal, we still have substantial capacity and projects for additional projects to continue our growth path. Please now turn to Slide number 4. I'm pleased that our team stayed focused on working safely throughout these challenging operating conditions. Look at the Slide number 5, which is the goal we set for ourselves in 2014.
I am proud to say that today, air products is the safest and most profitable industrial gas company in the world. On slide number 6, we have showed you many times before, and we continue to believe in our management for large team that cash is king and that prudent capital allocation is one of the most important jobs of any CEO. Slide number 7 lays out our 5 point strategy moving forward with an emphasis on our higher purpose as a company. Now please turn to Slide number 8. Where you can see the exciting, innovative carbon free hydrogen project we announced a few weeks ago.
This is a unique world class project for the produced carbon free hydrogen, 0 carbon 0 footprint carbon hydrogen for the global power, we've invested about $5,000,000,000 to produce green ammonia from wind and solar power in Nune, Saudi Arabia, air products will take all the green ammonia and invest an additional structure to convert the ammonia to carbon free hydrogen and deliver it to bus and truck depots around the world. Therefore, air products overall investment in the total project will be about SEK 3,700,000,000, and we expect the financial tends to exceed our previous commitments. This project is a true game changer for the carbon free hydrogen market, which as we have always said, we expect to grow and we are positioning air products to continue to be the leader in the hydrogen space. On Slide number 9, you can see another great project, our $2,000,000,000 investment in Indonesia, to gasify coal to methanol. Air products will take coal from Bakery and Ithaca and provide methanol and their long term side business model.
Once again, this demonstrates the expansion of our on-site business model enabling us to offer customers a bonus stock and complete solution, providing the products they need from the feedstocks that they have. The fundamental drivers security and energy independence policies like this in Indonesia. Please turn to slide number 10, our gasification strategy. All the projects you see here continue to move forward. There are fundamental drivers creating significant growth opportunities in gasification.
Countries and large companies around the world continue to focus on gasification, to utilize the abundant natural resources they have to produce chemicals and potential fuels and energy in a sustainable manner. We continue to make progress on our important $12,000,000,000 Jazz gasification project for Saudi Aramco. Despite the current challenging times, I am very happy to report today that we have now launched a $7,000,000,000 financing required for this project and we expect to close transaction in October of 2020. Scott will have some more to say about this thing in his portion. As I'm sure the investors and analysts still notice, we have removed the BiTE project from our project list and our backlog.
This was a large coal gasification project in China. We have always talked investors over the past 2 years that we will only do this project if we can get former allocation of core reserves dedicated entirely to this specific project. We have now come to the conclusion that this might not happen in the near future. It might happen later, but it's not happening in the near future. And as a result, we are removing this project from our backlog.
If we ever get the allocation, then we will add it to our backlog. But right now, it is not appropriate to count on it. Now please to slide number 11. Thanks to the hard work of our team and the strength of our business model, our EBITDA margin remained over 40%, which is up 700 basis points from early 2014. Now I would like to turn the call over to Mr.
Scott Crackle, our Executive Vice President And Chief Financial Officer, to provide a financial overview. Scott?
Thank you, Seifi. As Seifi stated earlier, our company's financial position is very strong. Our cash flow generation is very stable, supported by our industry leading on-site business, which represents more than half of our sales. We were able to received by investors and enables us to deploy significant capital into high return projects. Please turn to Slide 12 where you can see a summary of our April issuance of $3,800,000,000 and billion of fixed rate debt raising about $5,000,000,000 of cash in total.
We are committed to while continuing to pursue our capital deployment strategy We plan to use this cash to repay about $1,000,000,000 of debt maturing between and to fund the Jazan project as well as our other exciting growth project opportunities. We have announced several strategic investments this quarter. And we firmly believe that investing in high return projects will create more by increasing the dividend As shown in Slide 13, Air Products has delivered 38 consecutive years of dividend increase. Through many periods, of challenging economic conditions. Of our third quarter results.
Our teams around the world We are encouraged to see I would like to thank our a job very well done. Despite the unprecedented disruption caused by COVID-nineteen, our adjusted EBITDA of $880,000,000, closely matched prior year and last quarter. Supported by the stability including price increases, cost management, LNG project execution, and acquisitions. We delivered price improvement in the 12th consecutive quarter of year over year For the quarter, higher price nearly offset lower volume. Was mainly the result of primarily the Chinese RMB, the Chilean Peso, Korean and the euro.
Volume was unfavorable 3% as new plants increased LNG activities and acquired assets only partially offset the negative impact due COVID-nineteen reduced overall sales by about 9% and lowered merchant volume about 14%. Primarily in Americas and Europe. EBITDA margin reached 42.7%. The 5th consecutive quarter points compared to prior year and 240 basis points higher than last quarter. About 140 basis points of the improvement versus prior year was from lower energy pass through, with the rest primarily driven by higher price and lower costs.
COVID 19 negatively impacted EPS by about 35 to $0.40. EPS is down 7%. Despite consistent EBITDA, due to higher depreciation on new plants, including the PBF hydrogen plants. Additional interest expense from the new debt issuance and points from prior year, negatively impacted by about 80 basis points from the step up in the denominator from the additional $5,000,000,000 of debt. Now please turn to Slide 15.
Our third quarter adjusted EPS of $2.01 was down $0.16 per share or 7% despite the negative $0.35 to $0.40 impact from COVID-nineteen. Volume, price and cost together were down by a modest 0.05 dollars, despite the negative COVID-nineteen impact. Cost contributed $0.04 primarily due to lower travel and reduced maintenance activities. We are pleased with the overall positive cost this quarter, even as we continue to invest in the resources future growth. Currency and foreign exchange was $0.05 unfavorable, primarily due to the Chinese RMB Chilea Peso, Korean Yuan and the euro.
Equity affiliate income was down 0 point 0 $2 due to COVID-nineteen. The effective tax rate was 19.3 percent for the quarter, up 70 basis points over last year and had a negative $0.02 impact. We continue to expect an effective tax rate of 20% to 21% in fiscal year 2020. The additional $0.02 reduction in other is primarily due to the higher interest expense associated with the additional $5,000,000,000 We continue to generate strong operational cash flow. Despite COVID 19, global pandemic, again, demonstrating the quality of our business model.
Over the last 12 months, we generated about $2,700,000,000 or about $12 per share of distributable cash flow. From this distributable cash flow, we paid almost 40 percent or over $1,000,000,000 as dividends to our shareholders and still have about $1,600,000,000 available for high This strong cash flow even in uncertain times enables us to continue to create shareholder value through increasing dividends and capital deployment. Now please turn to Slide 17. As I'm sure you will all remember, in 2018, we said we saw significant potential for high value creating capital deployment. In fact, we communicated a 5 year target of committing $15,000,000,000 of new investments by the end of 2022.
I am pleased to say that today after less than 3 years, we have already been able to commit nearly $16,000,000,000 exceeding our original goal more than 2 years ahead of schedule. Despite removing Yang Quang, driven by the large Saudi Arabia and Indonesia projects. Slide number 18 provides additional details on the significant progress we made on our capital deployment this quarter. As you can see, we expect almost $18,000,000,000 of investment capacity available over the 5 year period from FY2018 through FY2022. Our total capacity is expected to continue to grow as we increase EBITDA.
The $18,000,000,000 includes over $9,000,000,000 of cash and additional debt capacity available today
Almost $4,000,000,000
of investable cash flow between now and the end of FY22. And almost $5,000,000,000 already to maintain our current targeted AA280. As Safety said, we continue to sign new projects So our total project and M and A commitments has significantly increased to about $12,500,000,000 with about $11,000,000,000 remaining to spend on them. So you can see we have already spent almost 30% and already committed about 90% of our total available capacity. But to be clear, We still have plenty of capacity
available
2022. And our capacity will continue to increase as EBITDA increases. Now to begin the review of our business segment results, I'll turn the call back over to Seifi.
Thank you very much, Scott. I am very pleased to say that our teams have done an exceptional job proactively responding to the current crisis. All three regions delivered strong price results and higher EBITDA margins this quarter. In addition, our cost cents are under control and they also brought new projects on the stream and acquired assets, which have added to our results. Now please turn to Our volumes in the third quarter were down mainly due to some negative impact from COVID-nineteen and planned maintenance shutdowns in 2 of our large facilities in China.
Our team in Asia has a state totally focused and discipline on pricing, like the rest of the regions. Our merchant pricing in this region was up 4% in This is the 13th consecutive quarter of year on year price improvement in this region. Our EBITDA for the region was down 2% versus prior year, primarily due to unfavorable currency. Adjusted EBITDA margin of 50 percent was up 100 basis points over prior year, driven by price and favorable costs. Now I would like to turn the call back to Scott to discuss America's results.
Thank you, Seifi. Thank you, Seifi. Please turn to Slide 20 for a review of our Americas results. America's strong pricing trend continued, up 2% versus last year. This is the 8th consecutive quarter of year on year improvement.
Price was better across most major product lines. Sequentially, price was up but rounded to 0. Dollars, while lower energy pass through and unfavorable currency reduced sales by another 6% and 2%, respectively. Overall volumes were down 5% as the effect of COVID-nineteen which reduced merchant volumes by 15% was partially offset by other growth including the PBF Hydrogen plant asset acquisition. As expected, the On-site business which accounts for about 2 thirds of the region sales remain stable.
The merchant volumes in June did show some modest improvement. EBITDA of $411,000,000 was flat compared to last year, and lower planned maintenance activities, some of which were delayed into the 4th quarter. EBITDA margin approached 50%, up 5.50 basis points with energy pass through contributing about half of this increase. 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 21 for a review of our Europe, Middle East and Africa region results. Our EMEA business continued to deliver strong price despite the challenging COVID-nineteen related economic conditions in the region. Price increased 3% with improvement across all major products and subregions. This is the 10th consecutive quarter of year on year price improvement.
Price was also up sequentially but rounded to 0. Volume was down 7% as the adverse effect of COVID 19 and maintenance outages more than offset positive on-site business. Merchant volumes were down about 20% with weaker demand from packaged gas customers. For the quarter, COVID-nineteen lowered sales about 13%. Sales were also negatively impacted by 6% from lower energy pass through and 3% from unfavorable currency.
EBITDA of $170,000,000 was down 11% as the weaker volumes and unfavorable currency was only partially offset by strong price. EBITDA margin of nearly 40% improved over 100 basis points as energy pass through contributed about 200 basis points. Similar to the Americas results, we did see some modest recovery in Europe merchant volume toward the end of the sales increased due to higher sale of equipment projects at activities, but profit is lower due to higher project development costs as we continue to invest to support future projects. Please turn to Slide 23, corporate, which includes LNG and other businesses as well as our corporate costs. Sales and profits were higher this quarter, driven by LNG project activity, including the Golden Pass and Mozambique LNG Projects.
Now to provide some additional thoughts on
Thank you, Sanu. I do not need to tell any of you about the current crisis and a significant impact on the world and global economy. You see it and read about it every day. The COVID-nineteen recovery is very mixed around the world with some areas back to normal activity, some slowly recovering and some, unfortunately, seeing significant community spread and having to implement or reinstate restrictions. They are clearly living in uncertain times, and that makes it very difficult to make any reasonable projections for the future.
Therefore, we are not providing any guidance for our fourth quarter performance. But I can, and we'll tell you about what we are seeing so far in the month of July. As of today, 21st July, the 52% of our sales that is our on-site business is doing well we expect this to continue. In Asia, our merchant volumes are at similar levels as we saw in October in quarter 3. In Europe, our merchant volumes have been improving and are now down about 10% so far in July versus last year.
In the Americas, where we see the greatest uncertainty on the future economic recovery, our merchant volumes are down about 10% so far in July this last year. As a reminder, we do not have a packaged gadget business in the United States. However, we do expect higher maintenance costs in the fourth quarter as a number of planned outages by our customers that delayed from quarter 3. I would also like to add that although we are concerned about the short term effect of COVID nineteen and its impact on the world economy. We do not see any slowdown on the demand for our growth opportunities, the megawatt projects around the world hydrogen permeability, gasification, carbon capture, and all of that.
Therefore, I remain continues to remain very optimistic about prospects for future growth for air products. Now please turn to Slide number 24. Now more than Ener, our real competitive advantage is the commitment and motivation will allow us to continue to execute A top priority is the ongoing growth of our dividend also. We are committed to increasing our dividend as we go forward. The projects in our backlog to create long term shareholder value.
Most importantly, we will continue to protect our people's health and safety and take care of their welfare and their families. Let me end today by thanking our 17,000 employees around the world for their dedication and commitment. Walmart will drive us forward. We are proud to play a critical role and make a difference to the world during this challenging time and into the Tiochit. That is our higher purpose and air products.
All of us and air products, we all stand together to make a difference.
Thank
And we'll take our first question today from Vincent Andrews with Morgan Stanley.
Thank you, and good morning, everyone or good afternoon, I guess, almost. Just want to understand maybe starting in Europe, the EBITDA percentage decline was a little bit more than in the other regions. Is that just sort of the math of the lower margins in that in that region versus the other 2? Or was there a mix issue or any incremental color you can provide on that?
Good morning, Vincent. No, it is just the fact that it is a lower margin than the other parts of the wood. I would like to ask Scott, do you have any additional comments on that?
No, nothing more. We did have, an outage of one facility, but there's nothing of systemic issues or anything like that. Just as you mentioned, lower margin business overall.
Okay, very good. Place. We had a lot of conversation about decaptivation opportunities. And I'm just wondering if that's still something that's, front of front of plate, the opportunities we all thought were big 3 months ago, maybe have come gone as the financial markets have recovered.
No. I think those opportunities are still there, Vincent. It's just that some of them take a long time for it to happen, but we don't see any slowdown on those. And some of those, these applications are fundamental, the strategic decisions by some of our customers of divesting of their noncore business. It's not so much driven by COVID or cash flow issues.
I mean, Saudi Aramco doesn't have any cash flow issue, but they do want to gets rid of some of your noncore assets or other companies. So we continue to look at those and if anything happens, obviously, we'll tell you.
And we'll take our next question from Ian Sheehan with SunTrust.
Thank you. So you've exceeded your goal, your prior goal for capital deployment, do you think that means that you should be more aggressive with the next target? And when might we see that?
Well, thanks for the comment. I'll take it as a positive comment. We have always said that if you do the math and take the projects that we have announced, calculate the EBITDA for them, and then obviously our capacity goes up and so on. You can come up with the fact that their product can invest $30,000,000,000 in total. And so we are just going to continue doing what we are doing.
And as our promise you last time, next summer, we will give you another 5 year plan in terms of what we want to do for the for another 5 year period, not at the edge achieved our goal. But then the opportunities are there. They are very significant and we are not running out of capacity and so on. The math that Scott is doing is very appropriate, but he is only allowed to use our current last 12 month EBITDA. And I'm sure you have done the math, a lot of the investors have done the math, and they said, I'll say to you, you're going to spend $30,000,000,000.
And I said, yes, it's possible. So we continue to be very optimistic. Thank you.
Now if the U. S. Corporate tax rate is raised to 28% after the presidential election.
What impact might that have on your effective tax rate or what
can you say maybe about any possible earnings impacts you see from changing of tax policy?
What you are very familiar with the impact it had when the number went down, so you can just reverse that. And you would also need to realize that more than 60% of our business, almost 70% of our business is outside the United States. And therefore, the tax rate in the U. S. Does affect our result, but it's not as significant as if you had 100% of our business in the U.
S. But you had a very clear reference point. I mean, when it was reduced you saw how much it benefited us. We were very open about that. Thanks, Stacy.
Thank you. And our
next question comes from Kevin McCarthy with Vertical Research
Partners.
Good morning. I think you made a comment that a customer plant maintenance activity is likely to have an impact on your earnings in the fiscal fourth quarter. Can you elaborate on that in terms of the size of the impact and which regions you're seeing that activity?
Good morning, Timmy. First of all, that is a comment between it about Americas. In the U. S, there's some plan, as you know, our maintenance shutdowns are detainment by the customers, we can't take our plan down unless they take the paper. Some of the customers decided they were going to do that in the U.
S. In the our fiscal year third quarter. Now they have decided to do it next quarter. So that comment is related to Americas. Only.
And the effect of that is some we are they always very transparent. We do that, but it is not a through your effect.
Thank you for that safety. And then as a second question, I'd be very interested to hear your outlook on China as it relates to potential new projects Obviously, you've taken YK out of the official budget for now. At the macro level, it would seem that tensions are rising between the U. S. And China.
What are you seeing on the ground and how would you assess potential for meaningful new projects in the region over the next
We don't see any significant change. We are a global company. The Chinese look at our as a global company. We have invested more than $10,000,000,000 in China since 1988 in the last 33 years that we have been dead our business is very local. And therefore, at least up to now, the so called tensions between the two countries hasn't affected us at all.
And there are plenty of opportunities that we are pursuing there. The fact that we took YK out, I've been talking about that for the last 3 years, to the investor that it was just a matter of the coal allocation and we don't want to do a big project in China, if you're not assured of the coal supply of coal. So don't read into that as if our opportunities in China has reduced or anything like that. Now we are working on projects in China as we are working. Anybody else in the world.
And we'll take our next question from Steve Byrne with Bank of America. And sir, your line is open. You may have us on mute.
Sorry about that. So some of the Japanese utilities have been testing ammonia as a feedstock blend for power production. And Just wanted to know if you had a view on the technical feasibility of that concept, say, versus a hydrogen blend in with natural gas. Could the ammonia actually reduce NOx? And do you see feasibility in delivering ammonia into this end market from your Saudi project as opposed to the dissociation requirement to sell hydrogen in for fuel cell recharging stations?
Thank you for your question. Number 1, technically, just feasible, but with respect to us, we were very, very clear, Wendy announced the loan project that we are not in the business of selling ammonia. We are selling carbon free hedges So whether it is technically feasible or not, those are not the applications that we are looking at because we don't think they are as highly value added as additional for mobility. Our ammonia for us is just a transport medium to take the hydrogen gas Saudi Arabia and convert it to something that can be transported. So we are in the business of selling hydrogen, not ammonia, whether it is green or blue or anything like that.
That's not our business.
And just a question about yes, sure. Thank you. Just to follow-up on the Indonesia project, like the Saudi project, there's a component here that's moving downstream into synthetic chemistry. And just wanted to hear your comfort level with that or what you do to mitigate that risk of moving into a new unit operation there? And would it be reasonable to assume that you do so because you're expecting maybe a higher return on that investment?
Well, first of all, we are not getting into the methanol base as you know, very well. The only thing that we have added to our scope is building the plant and operating the plant. Product is going to be solved by other people and the variations, and that is the responsibility of other people. In terms of the unit operation of methanol, obviously, are running methanol plants all over the world, but we did realize that we did not have that experience directly. And that is why we made strategic alignment with Halder Topso, who is the leader in production of ammonia and metronome and all that.
And therefore, we are using their technology and their help in enabling us to do that part of the unit operation without any risk.
And next, our next question will come from P. J. Juvekar with Citi.
Hey, TJ. How are you doing? Just my trend.
Good. Good. So I had a question on your green hydrogen project in Saudi Arabia. You mentioned that the opportunity is huge, and you can keep repeating that project. Then you also have this gray hydrogen, what you call gray hydrogen on the Gulf course from natural gas.
And then you have the more polluting coal gasification. I guess my question is if the hydrogen opportunity is so big, then why tie up the capital in more polluting coal gasification?
Fijay, you're asking an excellent question, but it is very much, I don't want to oversimplify it, but it is like, when people go buy a car, Some people like to buy Rolls Royce and some people like to buy a denture, and some people like to buy a Toyota Camry. Therefore, we are there to serve the market. People are going some people are going to say, I don't care about CO2 emissions. I just want the hydrogen because voided about pollution in my own specific city. Therefore, gave me hydrogen, and I don't care how it is made.
And some people might say, no, I don't brew hydrogen and some people say, no, I don't carbon free hydrogen. Therefore, we are the largest producer of hydrogen in the world and therefore, we feel obligated to have all three options available and sell it to the market. As I said, it's just right. Not everybody wants the same thing. And therefore, as a result of that, we don't want to kind of walk away from business by saying, no, we only sell carbon free hydrogen.
Why not? The other things, we are making selling hydrogen right now, gray hydrogen in California for mobility, and it's very profitable. Motion, we continue doing that. If the customers demand that. So that is our philosophy to be able to sell an spectrum of customers.
Little bit like a yes, you know what I mean. Yes, thanks, please.
Yes. Thanks for that color. That's helpful. And a question for Scott. Scott, can you go over sort of the merchant pricing in the quarter in different regions?
Thank you.
Yes, sure. Scott, do you want to answer that?
Sure. Absolutely. Let me answer it both in terms of the merchant on the segment as well as what we refer to as so called merchant on merchant. So for the company, overall, pricing up 2%. And you know that, that is all merchant because there's not really any pricing on business.
So let me give you from a total company perspective, 2%. And then Americas was 2%, Europe was 3% in Asia was 2%. That's the total price. Let me now put it to you on a merchant on merchant basis. The company was 4, it's roughly twice, but the way it doses 4% merchant on merchant for the company 5 for Americas 4 for EMEA and 4 for, agent.
Hopefully that answers your question.
Thank you, BJ.
And our next question will come from Mike Sison with Wells Fargo.
Hey guys, nice quarter. I appreciate the insight on the COVID impact and EPS, some of that's cost, some of that's volume. Can you maybe just frame what needs to happen to get all that back in, I guess, next year? Is it possible to get that back next year? Just kind of thinking through how to rebuild some of that, earnings power.
But the thing is that, next year, you know that we have our costs under control. So we are not going to have any issues with costs. Then our on-site business is going well and it will continue going well. Then it all becomes the issue of Midstream bonds You know that we are committed to pricing. That is a principle that I've been talking about in every call, we are committed to that.
And you see that we are delivering 4% price increases during the time that the board is basically shut down. So we are committed to that. Then the only thing that is there is the volumes and merchant volumes and the merchant volumes as We have always said it directly related to industrial production activity in different regions. So right now, China is was back to normal. So next year, it did actually our team did be better than this year because they are talking about now China growing about 8%.
I had a conversation with very high level person last night that was predicting about 8% growth in China. So I think that will be there. And then you need to kind of figure out how would Europe come out of this thing and how would the Americas come out of So we are very much at the mercy of that. I mean, if you want to have a rosy picture that there will be a vaccine and everything will be back to normal, which are always the case. Then we'll be doing great next year.
Plus the fact that in addition to that, in terms of growth of our EPS, please don't forget that if we are able to close Jazan, which we announced the fact that we are in the market the financing sometime in October, then that will give us a significant boost in terms of EPS in 2021. Okay.
Got it. And then just quick follow-up. You gave us European And Americas Merchant for July. You guys have better visibility than we do. Any thoughts on where you think it could go in August or September?
Well, I don't know where it will go because it's just like a little bit in the last time we had our results. It was a question of where America seems to be on demand, but now we bend out away. But, I don't want to predict that, but I honestly right now, I don't see any reason why it should get worse, but who knows?
And our next question comes from Duffy Fischer with Barclays.
Hi, Duffy. How are you?
Good. Thanks. First question, just on your $15,000,000,000 plus of commitment now, It's been a couple 3, 4 year journey. If you go back to the beginning of that, how did it turn out different? Obviously, you probably had a preconceived notion of what that $15,000,000,000 employed would look like.
What was different about it? Our returns versus what maybe you thought originally geographic split versus original and then kind of end markets versus original?
The thing that turned out differently, you're asking an excellent question. Number 1, hydrogen for mobility came sooner than I thought. I thought the hydrogen for mobility will be more like 2023, 2024, but fortunately, the labor to put that project together and announce it. Then the other thing is that the so called asset buybacks ended up to be bigger than we thought. Because, I, at the time we announced it, I didn't expect us to do a $12,000,000,000 buyback from Saudi Aramco with the Jazan project.
So those are the 2 main things that has, was a little bit different than what we talked, which has allowed us to be 2.5 years ahead of schedule.
Great. Thank you. And then, just one follow-up on the project or maybe 2 parts to it 1, when do you need to order your long lead time equipment for that project? And 2, what infrastructure needs to be put in place by the country before you're able to start doing what you need to do, whether that's ports, or electric power, streets, what do we need to see on the ground happen there first before you start to put your capital in?
First of all, in terms of long lead items, we are already talking to their people, to people. And then secondly, In terms of what needs to happen in Saudi Arabia, they just need to give us a piece of land. That's it. We are going to be self sufficient there, we are going to build everything. We are going to build the power plant.
We are going to build the hardware, desalination plant. We are going to build the roads. We are going to build the 4th and the whole thing. So we are not dependent on anything specific happening there.
Great. Thank you, guys.
And we'll take our next question from Jeff Zekauskas with JP Morgan. Thanks very
much. Safety, I think you said that Neon project will have 4 gigawatts of power. Do you need 4 gigawatts of power to supply a 1,200,000 ton ammonia plant? Or can you talk about that the point of that amount of power generation?
Well, yes, you are asking me, 1st of all, I'll reserve with you. Secondly, you're asking me a question that gets me into confidentiality and all of that. With our RAM partners. You obviously do not need 4 megawatts of power to produce 650 tonne a day of package. That is very easy to calculate.
You know that every kilogram of hydrogen requires approximately 60 kilowatts that can be calculated and then we say 75%. And that means you need to multiply by about 2, just to make sure that you have enough power to run your facilities. And then it's not difficult to calculate how much power the ASU needs or the Memorial plan needs. So you obviously do not need the 4 megawatts. Therefore, there are other plans for the excess that I cannot talk about.
So the, so the economics of the project are complicated because there may be other dimensions to it other than hydrogen production.
Which would be accretive to what it is?
Yes.
Anything else with the additive evidence effect?
Okay. Thank you so much, Safi. I hope you're well.
Thank you. Thank you very much.
And we'll take our next question from Jonas Oxgaard with Bernstein.
Good morning. Hey. How are you?
Nova, thanks for sneaking in last name here. Question on the CapEx. So you mentioned that, some of the CapEx in your backlog is going to be spent pretty far in the future. So can you give
us a little bit more of
a cadence of how much cash do you have available to spend over the next 2 to 3 years?
And as of right now, Scott, you're sitting on $6,000,000,000 of cash. It's not a little bit more than that. And we do generate a lot of cash even after paying dividends. And you said, oh, here's the slide. So we have plenty of cash.
To do all of the projects we have talked about and still continue to pay dividend and increase the dividend.
Yes, I guess more wondering about how much room there is to sign up more projects with near term cash outlays or is what you have now, what should we get for the next couple of years?
No, no, no, no, there's plenty of room because we can always go and issue additional bonds because our EBITDA goes up. We have plenty of room. The company right now are net debt is about less than 0.5 EBITDA. So we have a lot of room, Mike. I think that's a very important point to make that we are not constrained for additional growth, and you should expect us to continue to announce mega projects as we go forward.
We are not slowing down.
Okay. And I'm curious, Daniel, you put your backlog in the context of your target. Are you going to take an opportunity to update the target to change the time frame of it?
Yes, next summer, we can do that. Next summer, we'll give you another 5 years, right?
Okay. Thank you very much.
So that you have visibility through 2020 6 or some process. Any other questions?
And next we'll go to Chris Parkinson with Credit Suisse.
Great. Thank you. Savi, can you just further speak about the proposal for your HRS strategy? And then also your technological positioning and just how it varies versus what others are now progressively proposing with their own projects? Obviously, in some cases in a much smaller scale, you know, it's fairly clear that distribution will be integral to anybody's strategy, but from your perspective, you know, what makes your ultimately your value chain proposal different other than just the green the fully green aspect of it?
Well, the thing is that what makes you unique is the fact that we have come up with a practical solution that you can actually execute. I mean, people are talking about a lot of different theories, but we have come up with a way of taking green hydrogen and actually converting you to something that can be transported and delivered to a different state in whether it is in Frankfurt or, Tokyo or Shanghai. I mean, that is the innovation. And the fact that hydrogen refuting stations are self sufficient. That means we are not going to require power from the grid, which is not clean power.
And we are not going to require power from the grid to run the compressors because those compressors use a lot of power in order to put hydrogen into a truck. You need to raise the pressure to about £10,000 per square inch. That decodes a lot of compression. So if somebody says that, I'm going to connect you to grid, all that requires a lot of voltage and a lot of electricity. And secondly, that grid, how was the power produced from that grid?
So what they have come up with is a unique thing that we just don't touch anything related to carbon. Produce the hydrogen and put it in somebody's truck. Some people put a lot of value on that. As I said before, to another answer to another question, some people might say, no, I don't care how you make the hydrogen. I just want you to make it somewhere else, and then I want to convert the buses in my city to hydrogen because then there is no pollution in my city, but the fact that the vote is getting warm and that somebody else is from.
But that is the uniqueness of the known project is that they have come up with something practical that 4 years from now you can actually deliver hydrogen carbon free to a truck, wherever it is. It's not a theory. It's a practical way of doing.
Got it. Thank you. And then just second question, just there's also been a lot of chatter about carbon capture and people thought it was a long way off, but then again, everybody thought about hydrogen as well. If we just look at we know you have proven technology, So we know there's a demand pet spectrum that's evolving in the state of California, which could arguably apply to PBF and then also a few different areas, which are already being explored in Northwest Europe, just how should we think about these opportunities in terms of your own technology, competitive positioning? And does your enthusiasm some up or down versus even just a few months ago, because it appears there's clearly something here as well.
We are very, very enthusiastic about carbon capture. We have a lot of projects in development. And when the time comes, we will announce them, we have we are very excited about that because that is another significant solution because if you can capture carbon and kind of create, you can create blue editing. You can capture carbon. You can make blue methanol.
You can make blue urea. You can't yes, I mean, the carbon capture is very, very essential part of everything because no matter how many norms we build, the world has 1,200,000,000 cars running around. So carbon capture and hydrocarbons are still going to be used And if you can find a way of capturing the CO2, that can be a huge business. We have always said that, and we continue to work on that and develop the projects. For that.
And I think in the next 2 or 3 years, you will hear about us coming up with real commercial proposals on that.
And our question will come from David Begleiter with Deutsche Bank.
Thank you. Safie, just on Jazan, if it assuming closes in October, how should we think about the earnings ramp up in fiscal 2021 from Jazan?
Well, with Jazan, when it comes on, it is going to, I mean, if we close, we close and then get our BFC and we have given you some guidance, how much capital we are employing, you know, the It's the kind of the rule of thumb of $0.10 of operating income, the dollar of investment. And then you can calculate what the effect will be
Very good. And just in China, I'm sorry, just China and hydrogen Yes. One of your competitors has announced a couple of MOUs with respect to China and hydrogen in the last week or so. What's your strategy and should there be multiple players and winners for hydrogen China going forward?
Well, the thing is I don't want to make any comments about what our competitors are doing. I mean, they should answer that. About what is the difference between an MOU and a signed contract and what is aspirational project and a real project. But that That's up to them. I don't have any comments about that.
But in terms of our prospects in China, we are working on many, many, many, many opportunities in terms of supplying hydrogen. We are building hydrogen fueling stations there. Most of them are so called gray hydrogen, but that is what they want. They are not, in China, they are not yet too enthusiastic about green hydrogen. They seem to be happy.
They are more focused than cabin capture and so called blue but we are there. We are working. And as I said, we want to supply the whole spectrum. They actually have a lot of activity in terms of, high region fueling the stations in China. I think if you count them, you probably are working on 120 projects But we don't put out any time to do something.
We don't put out the press announcement. Thank you very much. Thank you, sir.
And our next question will come from John Roberts with UBS.
Thank you. And I'll only ask one since we're going along here. I think you said merchant volumes were down 10% in North in the Americas and in EMEA in July. Were they down about 10% in June as well? Are we plateauing here?
In terms of the improvement in merchant volumes?
Approximately, that's a correct statement.
Thank you.
How
are you doing, John, by the way? Doing okay?
Very good. Thank you. And you sound well also. So thank you very much.
Thank you. Thank you, sir. Appreciate that.
Yes. Our next question will come from Bob Koort with Goldman Sachs.
Oh, well, the thing is that, absolutely, given that we wouldn't have ended the conference call and from you. I'm sure it's a difficult one, but I'm getting myself ready for you.
I want to ask you, on the call, gasification. You guys did a good job of assembling technology.
You
had the capital available. You had the willingness to do it. When we look at the screen hydrogen effort, I mean, I suppose also that your capital availability is an advantage It sounds like you've got some electrolyzer technology that's an advantage, and you've certainly shown a willingness to do it. But I would also suspect there's a long list of others that want to break into this market. So what do you see as your Sauce.
What is your competitive advantage here? Is it the relationships? Is it the technology? Is it the capital? Give us a sense why Air Products is fit to win here?
Well, Bob, excellent question. The thing is that in order to make it bring about a cloud like no one. What you need, number 1, you need to have a billing partner who is going to give you access to a location, which has the sun and the wind. That means you need to have access to the government. You need to convince the government.
This is not something that you go there and you buy a piece of property and try to do something like that. You need land quantities of area, and you are going to be doing things in very sensitive areas and all of that. So That is the first requirement. And with with Naomi, I think we were able to do that. It's very difficult to come up with And if there are places in the world that might have those kinds of capabilities, you need to have a relationship and be able to convince the government, to support.
That's the first. The second thing is obvious see the idea of how to do this thing. Now that we have announced it, I guess everybody says, well, I knew all about it, yes, we can convert it to ammonia. But I think that was what sold in our own project because we demonstrated to the Saudi Arabian government, which is really known, that, look, we are talking about a practical problem. We are not just talking about, okay, we make hydrogen gas and then your daydreaming about the fact that someday somebody will build a ship to, liquefied and take it to the market.
It was a real solution there and a real project. Then the third thing is that we have tied up with the largest and most credible producer of, electrolyzers. There is no other company in the world right now that can match the capacity of thyssenkrupp. In making these stuff. So and they have announced, as you know, we have an exclusive arrangement with them.
So That is the second thing. And then the third thing is obviously, the fact that we have been doing hydrogen fueling and we have more than 50 patents. To actually hard digit fueling the stations and how you put this stuff in somebody's trunk at 10,000 PSI. And therefore, those are the competitive advantages that we have. But the most important thing is being the 1st structure, and that is what we have done.
So it's a little bit like gasification because right now, any country, believe me, any country or anybody, anywhere in the world. And I have examples of this. Anybody in the world who is thinking about gasification, whether it is a country, whether it is a company, whether it is a chemical giant or it. Refinery Giant, they pick up the phone and call their products, and that gives you significant advantage. And we hope to be the same thing with respect to and solidarity efficacy.
We need to hope to be the same thing with hydrogen And don't underestimate it. A lot of other people wanted to do it on their own. It wasn't as you see, you had only one.
Yes, that's helpful. And is there meaningful differentiation in technology for electrolyzers? I know you mentioned touch Pissen Crump and you get the alkaline. Is that competitive or is there advantages disadvantage to proton exchange or solid oxide or is that a stage gating part of the process here or do you think that's not something worth spending a bunch of time if we're on the outside looking in
Bob, I think this is public information. The people who have this technology First and Crook, it's been doing this thing for 60 years. They have been doing it for making chlorine and all of that. So Data Technology is very known, and their manufacturing capacity is very developed. Obviously, Siemens is talking about their 10 technology.
We did look at that, and we decided that, Thyssenkrupp was a better option for us at this stage. Now would that can technology develop in something later on? It might or it might not, it's not. The other people are smart operation research professionals doing things. There's nobody there, which is, quite honestly, credit.
Got it. Thanks so much, Sophie. Appreciate you squeezing me in.
Thank you. Absolutely, Bob. Anytime. Hope it's always there with you and your family. Okay.
Next question, is there any?
Our next question will come from Mike Harrison with Seaport Global.
Good morning, Ryan. How are you doing?
Doing well. Thank you, Seifi. Generally, we think about your merchant business as being more profitable when you have higher utilization rates. Yet, you seem to have delivered really good margin per foreman tier, even though you saw double digit merchant declines in the Americas and in Europe. So can you provide a little bit of detail or color on what actions you were taking to prevent the merchant decline from having a more pronounced impact on your margins?
Tricing, my friend.
Focus on pricing. We are not focused on volumes. We are focused on prices. And if you lose market share, we lose market share. That if that is the philosophy that we announced about two and a half years ago, you know, very well.
And we said that looked time has come for us to increase prices on our products because we haven't increased prices for 10 years. Our costs are going up. We are spending a lot of money on development. Our costs of driving the trucks, our drivers cost more, our operators cost more and all of that. And therefore, we have been very focused on pricing, and that is what is driving the And you can see the pricing.
I mean, when you look at the history of the industrial gas businesses in the last 10 years, there aren't that many places, but even under normal times, people got 4% charge increases every quarter.
All right. And then maybe a question for Scott. Just the contribution of the PBF Energy acquisition in the quarter from a revenue standpoint in Americas?
I didn't take that question because I don't think Scott will answer that question because we don't want to disclose that. But Mike, you can calculate that, right? It told you, it's $530,000,000. And you keep saying that the minimum thing is $0.10 for every dollar of cap So you can calculate that very easily, right? And you know our tax rate is about 20% in So you can come to the conclusion and then figure out that it was in the quarter for about a month and a half and we come up with a number.
But we don't want to go through the details of that because we do not want to exactly talk about the profitability of that project.
Understood. I think I was speaking more in terms of the revenue contribution, just trying to break out what was truly organic versus what was driven by an acquisition?
On that one, you can't make a good guess trend, but we cannot go there. Sorry about that. You need to give us a break at least once in a while, okay.
Understood. Thank you very much.
Thank you much.
And our next question will come from Lawrence Alexander with Jefferies.
Good morning. Thanks for squeezing me in. Just a quick question then on the return on capital on projects or the conversion rule of thumb, the $0.10 for every dollar of CapEx, that's been sort of an industry benchmark for several decades. If you look at the size of the addressable markets that you now have access to, your technology position, your process know how, does everything you're bringing to the table to help make this all possible? When we look at the next wave of projects, so not the market creation projects, but the next wave after that, Should we expect the return on capital that Air Products can get to go higher because of technology, value and process know how?
Or should we or is there something going on in the industry where the $0.10 is a good rule of thumb for the next decade?
We are going to do better than 10¢. You're right. The next wave is going to be more profitable. Yes. Thank you.
Okay. Thank you. Thank you. Sure.
And our last question will come from John McNulty with BMO Capital Markets.
Hey, Seifi. Thanks for taking my question. So you have a lot of future EBITDA coming on projects that are won't be really materializing over the next couple of years. It's really more of a 23 to 25 kind of timeframe. And it looks like a growing portion of your business is actually going to be tied into joint ventures at least relative to kind of past levels.
So I guess with that, should we be thinking about how EBITDA flows through to your cash flows similarly on those joint ventures Or is there anything that maybe holds back some of that cash? So when we start trying to compound things and look forward, we should maybe be haircutting it a little bit. How should we be thinking about
John, you're asking a very, very good question. Can I just make a comment? Not everything is going to come history in 2023, 2024. We are going to have a lot coming on the stream in 2021. It concludes Japan.
Then in 2022, we have to retire and several other projects that come on steam. So this is going to be a continuous growth, so we don't have a big hole The other thing about the EBITDA and the joint ventures, obviously, it depends. And you don't have too many joint ventures, but the joint ensures that we have. Some of them, we can consolidate. Some of them, we cannot consolidate.
And the issue that becomes a very complex calculation and all that. But, I don't think you want to take too much of a haircut on the EBITDAs because we did get most of it.
It. Perfect. Thanks for the clarification.
And we currently have no further questions in the queue at this time. I'd like to turn it back to our presenters for any additional or closing remarks.
Thank you. So I would, in closing, I would like to thank everybody for being on our call. Thank for listening to our presentation. We appreciate your interest, and we look forward to discussing our results with you again next quarter As I said earlier, please stay safe and healthy and looking forward to talking to you in 3 months. All the best.
Thank you.
And that does conclude today's conference. Thank you for your participation. You may now disconnect.