Good morning, and welcome to Air Products And Chemicals First Quarter Earnings Release Call. Today's call is being recorded at the request of Air Products Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Mr. Simon Moore, Vice President of Investor Relations.
Thank you, Leanne. Good morning, everyone. Welcome to Air Products first 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'll be pleased to take your questions. Our earnings release and the slides for this call are available on our website at airproducts.com. This discussion contains forward looking statements. Please refer to the forward looking statement disclosure that can be found in our earnings release and on slide number 2. In addition, throughout today's discussion, we will refer to various financial measures unless we specifically state otherwise, we are referring to adjusted non GAAP measures, including adjusted earnings per share, adjusted EBITDA, and adjusted EBITDA margin on both the company wide and segment basis and ROCE.
Reconciliations can be found on our website in the relevant earnings release section. Now, I'm pleased to turn the call over to Seifi.
Thank you, Simon, and good morning, everyone. Thank you for taking time from your very busy schedule to be on our call today. To thank everybody at Air Products to again delivering a very strong quarter. We are very pleased with our earning per share of $2.14 for the 1st quarter, up 15% over last year's strong results and the 23rd, I'd like to repeat that, the 23rd consecutive quarter of year over year earning growth. Please now turn to Slide number 3.
Safety is always the most important focus for all of us at Air Products, and our goal continues to be 0 accidents and incidents. I was pleased to see improvement this quarter as our people redoubled their efforts. So that they can move forward toward our ultimate goal of an accident free work environment. The slide number 4 shows our goal and a slide number 5 shows our management philosophy I have discussed with you many times before, so I don't want to take the time to repeat it, but those slides are very important guiding principles that we follow. Now please turn to Slide 6, our 5 point plan that we have discussed with you in detail before, but I do not want to focus on our past performance because frankly, I liked the dreams of the future more than the history of the past.
Our dream of the future is to make sure Air Products will continue to be the safest, most diverse and most profitable industrial gas company in the world providing excellent service to our customers. Our dream of the future is for Air Products to become the largest American chemical company as measured by market capitalization. We will achieve this by focusing on growth driven by our core competencies. Our dream of the future is for Air Products to be the leader in providing solutions to the world's environmental sustainability challenges through gasification of coal, pet coke, and refinery residues, developing solutions to capture CO2 from gasifiers and hydrogen plants and further developing technologies and making Air Products the leader in providing hydrogen for transportation around the world. Our dream of the future is to be a company that has a higher purpose beyond just creating value for our shareholders through improved financial performance.
We want to be a company where people from all walks of life and nationalities come together, work together and feel that they belong and that their contribution matters and are appreciated. A company that is focused on innovation to solve the substantial environmental issues facing our humanity. A company that is passionate and contributes to the well-being of all the communities in which we operate around the world. A global company that brings people from all over the world together to collaborate, improve understanding and prevent conflicts that arise from misunderstanding. We are committed to work very hard to realize our dreams of the future by executing on our you can see our exciting guysification strategy.
We continue to be very focused on successfully executing this strategy and the announced projects. And we are making excellent progress and we continue to be very optimistic about this sector. Slide number 8 summarizes the Gulf Coast Symonial project, we announced earlier in January. As I said, this is the largest US investment in the history of Air Products and winning this project is a direct result of the value of our Gulf Coast hydrogen pipeline the competitiveness of our hydrogen plants and our expertise to develop, build on, operate the largest projects in the history of industrial gas industry. As a result, this project will exceed our commitments in terms of financial return.
Please now turn to extensively about the significant opportunities for capital investment to generate significant shareholder value. At the confident in raising our dividend for to $1.34 per share per quarter is the largest per share dividend increase in our history and will result in almost 1.2 billions directly returned to our shareholders in form of dividend next year. Now please turn to my favorite slide, slide number 10, you can see that our EBITDA margin continues to be more than 40% which is up over 5 1500 basis points from early 2014. Now I would like to turn the call over to Mr. Scott Crocco, our Executive Vice President and Chief Financial Officer, to give you the details of our very good financial
Now please turn to Slide 11 for our first quarter results. Our team delivered another strong start to the year. Volume and price together increased 9% and were up in all three regions. We delivered double digit profit growth despite the soft economic activity around the world. Sales grew modestly to $2,300,000,000 as strong underlying sales were offset by growth and 2% due to the track was modified in December 2018.
So this is the last quarter we will see a year on year impact. Weaker foreign currencies, primarily the Chinese RMB and euro, lowered sales by another 1%. Volume growth of 6% was primarily driven by modest base business growth, new plants, acquisitions and a short term contract in Asia. Price was up 3%, the 10th consecutive quarter of year over year price increase EBITDA topped $900,000,000 up 14% and EPS of $2.14 was up 15%. EBITDA margin was over up 460 basis points, primarily driven by the higher price and the strong volumes.
Lower energy pass through and the India contract modification contributed about half of the margin increase. Sequentially, profits are down primarily on seasonality in the regions and incentive compensation adjustments primarily in our corporate segment. ROCE continues to improve, up 100 basis points over last year. We're pleased with the almost 300 basis point improvement since 2015, and we anticipate further improvement as we increase earnings Our 4th quarter EPS of $2.14 was up $0.28 per share or 15% driven by strong operating performance. Volume Cost was unfavorable $0.12 as we continued to invest in business development and R&D Resources support our growth strategy.
Equity affiliate income was favorable 0.02 dollars, while non controlling interest was unfavorable $0.02. The non operating factors in total have no net impact this quarter. Our effective tax rate of We continue to expect an effective tax rate of 20% to 21% in fiscal year 2020. Interest expense was $0.07 lower this quarter as we paid off a bond last quarter and adopted new accounting guidance that moves about 9,000,000 Now please turn to Slide 13. We continue to generate strong cash flow.
For the last 12 months, we generated over $2,700,000,000 or $12.30 per share of distributable cash flow. From this distributable cash or $1,000,000,000 as dividends to our shareholders and still have about $1,700,000,000 available for high return industrial gas investments. As Safie mentioned, this strong cash flow enables us to continue to create shareholder value, through increasing dividends and capital deployment. Slide number 14 provides an update on our capital deployment progress. As you can see, we now show over $18,000,000,000 over the 5 year As expected, our total capacity continues to grow as we increase EBITDA.
The over $18,000,000,000 includes almost $10,000,000,000 of additional debt capacity available of investable cash flow between now We will continue to Today, we have a total of about $8,000,000,000 of project and M and A commitments with about $7,000,000,000 remaining to spend on them. So you can see, we have already spent 20% and already committed well over half of our total available capacity. Now, to begin
Thank you, Scott. I'm very pleased to say that we generated excellent results in all our operating geographies. All three regions reported double digit profit growth and significant margin expansion. We are not depending on economic growth around the world, but are meeting our commitments to you through our own actions by realizing value we provide to our customers and by successfully executing high return growth projects. Now please turn to Slide 15, where you can see that our team in Asia has again delivered another set of our standing results.
As we have previously mentioned, trade tensions have not significantly impacted our business, our customers and the Chinese government continues to support Air Products projects and we remain very optimistic about our long term sales increased 11% from last year with volume and price together up 13%. Volumes increased 9%, driven by new projects, base business growth and a short term supply contract. As a reminder, the year on year impact of Lu'An has laps since the project has been successfully operating for more than a year. And actually our merchant pricing increased by 10%, the 11th consecutive quarter of year on year price improvement. Price was positive in all key countries.
Profits and margins were higher, driven by the strong volume and price. EBITDA increased 16% and EBITDA margin expanded 260 points to just over 50%. Sequentially, sales and profits softened from the short term supply contracts was partially offset by productivity. As you would expect, We do anticipate a seasonal slowdown during lunar new year holiday in quarter 2. Now I would like to turn the call back over to Scott to discuss our Americas result.
Scott?
Thank you, Seifi. Please turn to Slide 16 for a review of our Americas results. America's strong pricing trend continued, up 3%. This is the 6th consecutive quarter of year on year improvement. Price was better across all major product lines and in all subregions.
Volume was up 1%, driven by stronger Gulf Coast hydrogen volumes with less planned customer maintenance outages than last year. This was partially offset by persistent economic weakness sales by 8%. EBITDA of 4 supported by better price, higher volume and lower maintenance costs. EBITDA margin of almost 44% was up almost 7 hundred basis points, primarily due to better price, lower maintenance and improved productivity. Energy pass through also contributed about 300 basis points.
Looking into next quarter, we anticipate higher and above average maintenance spending due to planned life extension work on several facilities. We expect our full year maintenance expense to be within to discuss our other segments. Simon? Thank you, Scott. Please turn to Slide 17 for a review of our Europe, Middle East and Africa results.
Our EMEA business continued to generate strong price, volume and profit growth despite the challenging economic conditions in the region. Volume was up 6%, primarily driven by increased hydrogen volumes in our Rotterdam pipeline system and the CO2 business we acquired last year, while base merchant business volume remains stable. Price increased 3% with improvement across all major products and subregions. This is the 8th consecutive quarter of year on year price improvement. Sales were negatively impacted by 8% from the India contract change, 4% from track was modified in December 2018, so this is the last quarter we will see a year on year impact.
EBITDA of $188,000,000 was up 14% supported by the strong price and volume and EBITDA margin of nearly through contributed about 400 basis points of this improvement. Now please turn to Slide 18, Global Gases, which includes our non LNG Sale equipment businesses as well as central industrial gas costs. Other project activities offset the expected lower results from the successful Jazan ASU sales equipment project. However, we don't expect these other project activities to continue which includes LNG and other businesses as well as our corporate costs. Sales were higher this quarter, supported by contribution from the Golden Pass LNG project.
Profits were flat as the improved contribution from LNG was offset by higher corporate costs as we continue to build Sequentially, results were down as LNG had a lower compensation. We remain very optimistic about additional LNG orders since several major projects around the world that Now, I'm pleased to turn the call back over to Safy for a discussion of our outlook.
Thank you again, Simon. Now please turn to slide number 20 As you all know, and it's pretty obvious, we continue to live in an uncertain world that we at Air Products cannot control. But we do have control over the actions Air Products can take to succeed in a dynamic and changing world. On productivity and creating our own growth opportunities which will allow us to continue to deliver on our promise to investors. EPS guidance of $9.35 to $9.60, which is up 14% to 17% over our strong fiscal year 2019 performance.
As we continue to expect our fiscal and we continue to expect our fiscal year 2020 CapEx to be in For second quarter of fiscal year 2020, our earnings per share guidance is $2.10 to 2 point 20, which at midpoint is up 12% versus last year. Now please turn to slide number 21. At midpoint, our fiscal year 2020 guidance represents 6 consecutive years of double digit earning growth, and 14% average earning per share growth over this time. Thanks to the great team at Air Products, we continue to deliver on our commitments. Our team around the world continues to be very optimistic about the future of Air Products Our 5 point strategic plan will differentiate us and drive our success going forward.
Our safety, productivity and operating performance provide the foundation for our continued growth. We have the financial capacity, the technical position and the talent to take a full advantage of our exciting opportunities, and I'd like to stress that we see we do see a lot of exciting opportunities ahead of us. And finally, please turn to Slide 22. As always, our real competitive advantage is the commitment and motivation of the great team we have at Air Products. This is what allows us to continue to generate our strong performance.
I want to thank all of our 17,000 people around the world for their commitment and hard work and for embracing the opportunities in front of us with energy and a spirit of working together. I certainly am proud to be part of this winning team. With that, now we are delighted to answer
questions. And we'll take our first question from Jeff Zekauskas with JP Morgan.
Thanks very much. Can you describe your volume growth in oxygen and nitrogen in the United States in the merchant area?
We would prefer not to get into that detail, Jess, because that is obviously a very significant competitive information. And they usually do not disclose that. I'm sorry about that, but you bear with us that's we want to stick to that policy.
Okay. You're going to spend for the $4,500,000,000 in CapEx this year. Does that amount of spending lead to some costs coming into the income statement? In advance of the capital projects coming on stream? In other words, are your that you have for this year?
Jeff, you make a very good point. As you noticed from our results, our costs I mean, if you focus on the costs, you see increasing costs. That's not because they have become less efficient. That is because we are building the organization in anticipation of executing these projects. So you are very correct that we will see as you are seeing some increasing costs.
It is not that significant, but it is there and you're very it's very appropriate for you to point it out.
Okay, great. Thank you so much.
Thank you, sir.
And we'll take our next question from Vincent Andrews with Morgan Stanley.
Thank you, and good morning, everyone.
I have a follow-up on the $0.12 of costs increase in the quarter. The investments you're making to grow the business. Jeff obviously just talked about the existing plans. How much of the spend is going towards future opportunities like hydrogen mobility or other things? Just curious on the R and D side of the equation, what it is that you're driving at?
Well, the expenditures are in 2 aspects. One is obviously R and D expenditure, which is, you know, you kind of know about how much we are spending, it is not that huge. But the other thing is actually hiring very high quality experienced people to oversee the execution of these projects that we expect to get. We don't want to get the projects and then look for talents. They are putting the talent in place in anticipation of those projects, which we are sure will happen.
So a significant part of the cost is the hiring and onboarding of all of these people. And there is a substantial number of people that we have brought in especially to strengthen our technology section and our project execution capability.
Okay. That makes sense. If I could just ask a follow-up on the dividend, obviously a very large increase, your record increase. Last year when we talked about it, you mentioned that you'd historically spoken to, your investors about a 2.5% to 3% yield. Obviously, this takes you to about 2.25%.
My assumption is that with the increase in the share price last year, to go back to 2.5% to 3% would have been perhaps unattractive in terms of moving cash flow away from investment projects. But I guess the question is, how should we think about sort of the dividend growth algorithm going forward? Should we be thinking more about keeping the yield 2.25to2.5 or what philosophy can you help us with this year?
That's an excellent question. We obviously take a lot of different factors into consideration when we decide on the dividend. It's not just 2.5 percent of the stock price, but it's also our cash flow. I think you should That has been kind of one guidance and obviously a percentage of the share prices another part. I personally think that we should continue to pay a very healthy dividend, something which is in the order of 2.5 percent of our share price.
And also about half of our free cash. So this year, I mean, we are increasing at 15%. It would have been ridiculous if you had to start now. And we do can't anticipate what the shares price will be. So we make the decision based on a lot of different factors, Ritzen, but overall guidance about half of our free cash or about 2 percent of
from Kevin McCarthy with Vertical Research Partners.
Modification. It looks like your volume grew about 6% year over year. And so I have a 2 part question. First, I was wondering if you could comment as to the effect of new projects in that number versus baseline volume growth. And then secondly, since you're one of the first chemical companies to report this season.
Just wondering if you could comment on which end use markets might have trended better than expected. And if there any that came in lower than your expectation? Thank you.
Thank you, Kevin. Excellent question. In terms of breaking down between organic growth and new projects, our basic approach has been not to disclose that detail. But I would like to specifically answer your second question. Obviously did the forecast.
The reason for that is that the economic growth in Asia was better than we expected. The economic growth in Europe didn't become as bad as we expected because of Brexit. And in the U. S, there was not much of a change and Latin America continues to be disasters. So, overall, as we go forward, We are now a little bit more optimistic about Asia.
Obviously, in the second quarter, you have the Lunar New Year and that dampens the growth, but we expect that to continue as we go forward in the other quarters. And I'm hoping that things were kind of stabilizing Europe and in the U. S, but that's kind of how we see it.
Thank you very much.
Thank you, Kevin.
And we'll take our next question from Christopher Parkinson with Credit Suisse.
Thank you. Can you just give
us a real quick update on your various Saudi projects, primarily, Jazan, the MOUs and just the potential for a pipeline build out. Just any additional framework on Saudi Arabia will be appreciated. Thank you.
Hi, Chris. Chris, obviously, we are very honored and very proud to be given the gigantic project of the integrated gas project in Jazan. That is not only equivalent of a $12,000,000,000 acquisition, but it also is a phenomenal reference in terms of our gasification capability. It is using the shell technology. And it's a gigantic project.
So we are very happy with that. We are making a lot of progress on that. And continue to be very optimistic that we will try that we will be kind of complete financing in this quarter. But you do need to appreciate and I'm sure you do that we are going to go to the market for $7,000,000,000 of debt considering the different events in the board and all of that things might not happen exactly on the date. But the fact of the matter is that we are talking about a 25 year project.
So the impact on air product for the long term is a in deposit. Now whether we actually close in the month of March or whether it is in the month of April, we'll see, but We continue to be very optimistic about that project. As I said, we are very proud of that. And quite frankly, you see that we have not changed our forecast. That means that we still believe that this will happen at the time that we thought at the beginning of the year.
Is that okay, Chris?
That's very helpful. Just as a quick follow-up and a little bit longer term one, just carbon capture was just indistically a clear theme at Davos this year and was basically discussed across that pretty much every global leader, the IEA and plethora of oil companies all at their own partner proprietary technology. Can you just update us on your own thoughts on this front, where your technology is sitting in the broader equation and how you should at least begin to think about this opportunity as it pertains to our products? Thank you.
Chris, we have recognized and made the carbon capture a priority for the company 5 years ago. That is the future. That is a necessity in order to deal with the global warming. And I am very happy to see that responsible people are now actually talking about it, hopefully leave it ahead of the game. That we have been working on different technologies on this.
The first thing is that we do have the technology to capture carbon from hydrogen plants and I think a lot of gasifiers and so on for enhanced storage recovery. We do have a commercial scale planned operating in Port Arthur is one of the biggest in the world and we capture the CO2 and put it in the pipeline there for enhanced oil recovery. That kind of projects you should expect that we will do on a very larger scale around the world. The second thing is sequestration. We have developed technologies on that and we are working on that.
And hopefully in time, we will be able to announce the kind of commercial projects that we are doing. The third and most exciting thing is some new technologies that we are developing. And in respect to carbon capture in a different way, don't want to go through the details of that because I don't think it's appropriate at this stage. We are laser focused on carbon capture. If you look at our annual report, and we make it very clear, we say gasification today, carbon capture tomorrow, and hydrogen full mobility the day after tomorrow.
So those are the priorities of our company, and we are obviously trying to be the leader on that. The same way that they became the leader in gasification.
And we'll take our next question from John McNulty with BMO Capital Markets.
Yes, thanks for taking my question. With regard to coal gasification in China, Can you give us an update on the market there and what you're seeing in terms of interest and demand? I know certainly over the last year or so, there was a lot of demand and a lot of a lot of talk about it. We haven't necessarily seen a lot of new announcements. So I guess, can you give us an update on your confidence in that area?
Well, good morning, John. Hope all is well. We continue to be optimistic about that. We did announce a co gasification project. As I'm sure you saw, and we expect to announce some more in the year to come.
We are working on Juita. We announced the bank and there are other projects. We don't see any slow down on that and we are very optimistic about that, John.
Great. Thanks. And then just a question on the helium markets, can you to kind of what you're seeing in the industry right now and how you're seeing how that plays out through 2020?
Well, John, I think it is not a secret that, supply demand situation in helium is challenging basically, there is not enough supply to meet the demand. And obviously, that has had an effect on the commercial value of helium. And you can and you are seeing that in our results. In terms of 2020, I think that situation will continue. And it is quite possible that that situation will continue for a few years to come.
I don't want to anticipate that because it depends on the performance of the current sources or bringing on a stream of some other sources. But helium is such a small number of sources and so on. So it's very transparent about what's going on. There are not that many places that produce helium. So it's very easy for investors and people like yourself to figure out what's going on.
Great. Thanks very much for the color.
Thank you, John.
And we'll take our next question from David Begleiter with Deutsche Bank.
Thank you. Good morning.
Did you update on the Hawaiian Quang project? It's a large one and it's still, I guess, progressing a little bit slowly here?
Yes. There is no additional update. I have always mentioned that that project is a big project. We signed a memorandum of understanding in November of 2017 when the president was visiting China. That project is moving very slowly.
Some of it is our fault. I have explained that that we want to make sure that there is co allocation we go and invest $1,500,000,000 of our money there. So I think you should expect a slow progress on that project.
Got it. And do you have the merchant price increases for both the Americas and EMEA? You gave us the Asia price increase. Thank you.
Merchant price increases are the ABC Americas is about 7%. Europe is about 5% and Asia is 10%. We usually don't disclose that detail, but since you asked the question, David, I had to answer.
Thank you very much.
Thank you.
And our next question comes from P. J. Juvekar with Citigroup.
Good morning, TJ. How are you?
I'm doing great. Your EBITDA margins were 40%, which is great. If you take out the energy pass through, EBITDA margins were closer to 37% to 38%. And then there was also positive impact of India contract modification. So it seems like you're sort of same story with that monitor in that mid-30s to maybe high-30s range.
Is that a good range going forward? And how will the new coal gasification project and your build own operate model impact those margins in the future?
Order of magnitude, your math is correct. And we expect the margins to sorry, the margins to continue to be in the range that you mentioned. But as we do these bigger projects, that will improve That has that will have a positive effect on those margins. Sorry, I'm losing my gross a little bit, but So overall, you should expect that our margins will stay at around 38, 37 40, 49, I mean, 39, 40 around that range.
Okay. Well, why don't you take a breath? Let me a question to Scott.
Good. Thank you.
Hey, working capital was a drag and I'm sure there partly driven by new projects start ups, but your receivables were down, payables were up. Can you sort of shed more light on working capital drag and how much of that impact is from new startups?
Yes, sure. Thanks the question, P. J. Our DSO is about 52 days, so we're in good shape and we constantly monitor it. What you're seeing this quarter is really driven by the timing between our SOE opportunities and some of the timing difference between when we're earnings versus the collection of cash.
So nothing systemic and we'll see that bounce around. So but thanks for the question.
And our next question comes from Mike Harrison with Seaport Global Securities.
Hi, good morning.
Good morning, Mike. How are you?
Doing well. Thank you. I wanted to ask about the Asia business and you referenced the short some additional detail on how much that was contributing to revenues in the quarter and how we should think about that contribution for
it, but it's not material and it's not going to change any that much.
All right. And
Yes, go ahead.
The other question I had is on hydrogen. I believe you mentioned you called out strength in the Gulf Coast as well as in Europe, just wondering if you can provide any sense of what's driving that. And then it sounds like Just looking for clarification, it sounds like the turnaround activity was maybe a little bit lower than you expected. But maybe maintenance costs go up in Q2 and net net about normal in terms of overall maintenance activity for the full year. Is that do I understand that correctly?
Yes. Number 1, I think as Scott mentioned in his comments that we expect the higher maintenance costs in the second quarter because of the timing. But for the year, we expect our maintenance costs to be, but number that we have, discussed with you before, which is also a magnitude,252, $50,000,000 a year. And with respect to hydrogen demand, it is not huge, but we do see some less because of the IMO 2020 as people need more hydrogen in order to clean up the fuel.
All right. Thank you very much.
Thank you.
And we'll take our next question from Duffy Fischer with Barclays.
Yes. Good morning, Fellas.
Hi, Duffy. How are you?
Good. Thanks. First question is just around the capital It looks like you're going to increase your capital spend about 300% per quarter, if you kind of go up to Q4 or the Q1 number to get to your annual number. What does that end up doing to your tax rate as you shift your geographic footprint over time?
I'd like Scott to answer that, but while he's, kind of putting his thoughts together, obviously, you know, that the reason for that is because we expect a big chunk of capital expenditure because of Jazan Lending close. So that is one of the reasons that the number kind of looks, you know, this quarter, it was this and suddenly it's going to go up. That is because of percent. In terms of the effect, in terms of our tax, I don't think it is material, but I'd like Scott to comment on that.
Yes, sure. Thanks, Duffy. So as I think I mentioned in my prepared remarks, for the year, we expect it still to be in the 20% to 21% book effective tax rate. And obviously, that'll move around quarter to quarter. Be dependent on where how much money we make and where we make it.
But even going forward on the other side of the Jazan, I would still put it in that sort of range. I will also mention though, so that's a book tax rate. From a cash tax perspective, we've historically seen in the mid teens And similarly, it depends on where and how much we make, but I would expect it to maybe be the mid to upper teams on a cash tax basis, okay?
Great. Thanks. And then in what was a resoundingly good quarter, the most eye popping number to me was the 10% pricing in the merchant business in Asia. Can you just talk about the supply demand dynamics? How strong that market feels and how resilient that kind of pricing momentum feels going forward?
We feel optimistic about that. You know, you obviously appreciate the nature of the industry and they don't want to comment on pricing. So I don't want to say too much, but we continue to think that there is a good supply demand situation that that kind of pricing continue.
And we'll take our next question from Jim Sheehan with SunTrust Robinson Humphrey.
On your return on capital employed number, a little over 13% and expanding, where do you think that number can get to after some of the very large project startup over the next few years?
Jim, that's a good question. We have always said that our target is 15%. We would like to get it to 15%. And I think in time, we will get there. Actually, as we spend more cash, that number will go up because the way we calculate the return, it includes the cash.
So if tomorrow we spend all the cash on projects, that, that number will enhance. Other people don't include the cash because so as a result of that, I mean, you understand the dynamics of the top of the line and the bottom of the line. But fundamentally, we are looking forward to increasing that number to 15% and Scott has a comment that wants to add. Yes, just want to build on that already, if you take a
look at our cash on hand, if you were to look at it on a net debt basis, net of the cash, it's already almost 16% roughly.
Terrific. And on your pricing trends, you've been very disciplined about raising prices and it looks like the supply demand balance is supporting that. Just curious if you're starting to see any signs of market share loss as a result of your pricing execution?
I don't want to claim that we have not had any market share loss, but it has not been significant or material. But we might have some. And we were very open about this thing in February of last year when we said that we are need to recover one, but there might be some here and there. I don't want to claim, we haven't lost anything, but it isn't anything that would force us to change our strategy.
Thank you very much.
Thank you Jim.
And our next question will come from John Roberts with UBS.
Thank you. Is the sequential pricing just rounding down to 0 or is it close to a half percent or so so that the year over year pricing for the overall company will stay up near 3% over the next few quarters?
John, you really do your homework. I'm very impressed that you have So that detail, a lot of credit to you, it is a rounding down. It is actually up sequentially.
And then,
if you built a bridge between the December quarter earnings and the March quarter earnings here. You mentioned that the lunar new year will be a sequential headwind. Could you talk about sequentially from an earnings perspective, any other puts and takes as we go from December quarter to March quarter?
Well, the thing is that when we give you the guidance, obviously, we needed to look at everything. And we debated this thing quite a bit yesterday, quite honestly. And that is the dynamic of the Lunar New Year, which we always we don't know exactly how it will work out. And then there is obviously the headline in the papers that you see about this virus thing. So how would that develop and how the effect of that?
That is why we decided to take the 2 into consideration and expand the range. We usually give you guidance within $0.05. This time, we are giving you guidance within $0.10. So, that is our thinking right now that our best judgment. Okay.
Thank you. Thank you.
And we'll take our next question from Jonas Oxgaard with Bernstein.
Hi, good morning guys. Good morning. How are you?
I am great. I was hoping to get some help tying some numbers. It's a 2 parter, if you don't mind. But the first one is you announced the $500,000,000 project, a few weeks ago. And I see in your CapEx, you raised it by $500,000,000, but you had some other announcements in the quarter as well, like South Korea project.
So where did the CapEx from South Korea and others go? Or did some projects fall out?
No. I don't think anything has far out. Simon does these numbers in detail. So Simon you like to comment, please?
Sure. Jonas, sorry if we miscommunicated. I think our CapEx guidance, our expected spending for the year has not changed quite frankly. You could also, you could also expect that when we give you CapEx guidance, it may include projects that haven't yet been announced, but we're highly confident about. I would also just add that Gulf Coast, Tibonia, we just announced that there wouldn't be a huge amount of spending in this fiscal year anyway.
Also, I meant the long term, committed and spent the, what is it, 10,300,000,000?
Sure. So, obviously, we continue to, spend money on projects. They continue to come on stream, and so that number has come up a little bit.
Yeah. But the question is the number came up $500,000,000, which is exactly the project you announced in the Gulf Coast, right? Yet there were other announcements in that same quarter that apparently didn't make it into the sum total?
It's because some of the projects come on a stream and then they come on a stream, they are taking off of the, off of what they say as backlog.
And Jonas, I would guess I would just point to the fact that when we give you a backlog number, it may include a times project that we haven't announced yet if we're highly certain of them.
Oh, okay. That makes sense. The other thing I was trying to tie was the the guidance for the year didn't change even though you beat pre handedly. Is that from the slipping of Jazan, or how should I think about that?
Well, it's becoming, we need to put everything together, but obviously, this quarter our results are better than expectation, right? We have told you 205 to 210 and we delivered 2 14. So as a result, we feel better about our base business, and therefore, but there are the timing of the Jazantin. So at the end of the day, we made the judgment that overall we should be able to meet our commitment.
Okay. Thank you very much.
Thank you, John.
And we'll take our next question from Mike Sison with Wells Fargo.
Hey, guys. Nice quarter. You noted that Luan is, has anniversary. I think it's your first sort of major gasification project. Can you maybe talk about what you've learned from running it for a year?
Any positive surprises, negative surprises? Obviously, it's done well. Just kind of wanted your thoughts on how that has done over the last year?
Well, thank you for asking that question because I it to brag about it a little bit. Quite honest, we have had a very positive experience. Number 1, our expectation of the amount of time that we can keep the project online when we started and FIFA will tell you gasifiers or something like 85%, 86%. They have had those gas buyers online for more than 95 percent of the time. So that is very good news.
The second thing is that in terms of financial performance is exactly as thought. And the third thing is that we have learned a lot by operating these, shell gasifiers firsthand. And we are seeing some positive impacts that we will incorporate in the future projects And I'm also very proud of our people that we gave them this and we had to put in something 500 new people on this thing. We have operated this thing notching on board very safely and very efficiently. So it has been a very positive experience and it significantly has increased our confidence in taking on new projects.
Got it. Thank you. And then just one quick one on the range for the year. Just curious at the high end, what do you think needs to happen to sort of be close to that end versus sort of the midpoint or the lower end?
We need to get lucky with the economy. And close Jazan in time.
And we'll take our next question from Steve Byrne with Bank of America.
Yes, Sophie, if a partner were to come to you and offer you either an excess supply of energy or maybe a renewable energy supply do you have the capability of producing hydrogen from electrolysis?
Yes, we do. And we already do that. We have the capability and, we are pursuing projects in that of that nature.
And when you look out longer term, Cephi, in your in this pursuit of hydrogen for transportation, how would you would you rank that technology versus the standard of methane reforming versus this more recent project with using ammonia as a carrier of hydrogen?
I think that the board is moving toward green hydrogen. And green hydrogen is obviously using solar and then electrolysis of water to produce hydrogen. We think that is the future and a significant number of projects will be done in that way. And that is where we are building our capability. You're very right.
That is the future. We definitely think that is the future. On the ammonia thing, is obviously a specific issue, which is transportation of hydrogen. But you should think that people would use solar in order to make green hydrogen and then take that green hydrogen, convert it to ammonia and then send to Japan.
And with respect to carbon sequestration, Is that Gulf Coast Symmonia project of yours have any requirements on you to sequester the CO2?
No, not the Gulf Coast thing. We got the permit, we are not recovering to at that plant at this time.
Yes. I was really referring to the long term contracts for this ammonia. Is there any any component of that that is expecting that the carbon to be sequestered?
No, there is no such requirement. Okay. Thank you. Thank you.
And our next question comes from Lawrence Alexander with Jefferies.
Good morning. 2 quick ones. Can you help us with the, effective tailwind for next year from the projects that are lapping next year and then the new projects coming on just so we can get a sense for how much of a deceleration compared to this year. Is implied by the backlog. And secondly, on Carbon sequestration, I think a lot of the environmental debate focuses on the relative costs versus mitigate coming out at about 5 to 10 times the cost of mitigating through, for example, tree planting.
But obviously Carbon's sequestration has the virtue that it's a project you control. Can you give us a sense for how you're thinking about sequestration versus mitigation and how quickly you can bring down the cost of the sequestration technology?
I think all of these questions that you are asking in terms of the carbon capture and so on depends on the location that you are and this part of the world you are and what are the incentives and all of that. So It will be difficult to give you a general answer. With respect to your first question, with respect to I do not see any drag on our results. Next year as a result of the project. So I'm not sure I fully understood your question.
We expect that for 2021, our EPS will grow another 10% versus 2020. We don't expect any deceleration. Thank you very much. With that, I think that was the last question that, people had signed up for. So I would like to thank everybody for being on our call.
Thanks for taking time from your very busy schedule to listen to our presentation. We appreciate your interest and we look forward to discussing our results with you again next quarter. In the meantime, have a great day and have a nice quarter and expect some good results from their products when we announce our results next quarter. Thanks again. Have a nice day.
And that does conclude today's conference. Thank you for your participation. You may now disconnect.