Good day, everyone, and welcome to Air Products And Chemicals Third Quarter Earnings Release Conference Call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and All Rights are reserved. Beginning today's call is Mr. Simon Moore, Vice President of Investor Relations.
Please go ahead, sir.
Thank you, Vicky. Good morning, everyone. Welcome to Air Products 3rd quarter 2018 earnings results teleconference. This is Simon Moore, Vice President of Investor Relations. I'm pleased to be joined today by Safi Kassemi, 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 Our earnings release and the slides for this call are available on our website at airproducts.com. Please refer to the forward looking statement disclosure that can be found in our earnings release and on Slide number 2. Now, I'm pleased to turn the call over to Seifi.
Thank you, Simon, and good morning to everyone. Thank you for joining us on our call today We certainly do appreciate your interest in Air Products. Their talented, committed, and motivated team at Air Products delivered another excellent set of safety and financial results. Our record adjusted earnings per share of $1.95 is up 18% versus last year. This is the 17th consecutive quarter that we have reported year on year EPS growth and the 5th consecutive quarter, we have delivered year on year EPS growth of more than 15%.
We continue to be the safest and most profitable industrial gas company in the world with a record quarterly EBITDA margin of over 36%. We continue to generate significant cash which supports our robust dividend policy. And we do have the strongest balance sheet in the industry which gives us the ability And most important, we have a great team of hardworking, dedicated, talented and committed people at Air Products who are stayed focused on working hard every day to serve our customers and create value for our shareholders. Now please turn with a reduction of 67% in our last time injury rate and a reduction of 52% in our recordable injury rate. These results can all of our fifteen thousand employees around the world are committed to safety and continuous improvement.
On slide number 4, you can see our goal for the company to be the safest most diverse and most profitable industrial gas company in the world, providing excellent service to our customers. And I want to emphasize the value, a diverse workforce. Now please turn to Slide number 5. You can see our overall management philosophy that we have talked to you about many times over the last 4 years. But it is worth repeating because we continue to be focused on shareholder value, capital allocation, and an empowered and decentralized organization.
Now please turn to Slide 6. It was almost 4 years ago that I shared our original 5 point plan. We have successfully focused on Air Products' core industrial gases business. We have restructured the organization, change the culture, control capital and costs, and aligned our rewards. We have done what we promised to do.
Now please turn to Slide 7. Our journey is never complete and it's time to evolve our 5 point plan to guide us to over to guide us over the coming years. First, in term from the left side in terms of sustaining our lead. We will keep our focus on safety. We have done well, but even one injury is too many.
Accidents don't happen by themselves. Every incident or accident is preventable. We want to be the best in class in everything we do. We need to be the best in class operationally. For example, to make sure our plants are running all the time.
Financial processes, safety processes, everything that we do, we should aim to and we will be the very best in the industry. And productivity. We obviously need to continue to focus on productivity to maintain our margins. 2nd, in terms of deployment of capital. As you have heard me say before, We believe that we have at least $15,000,000,000 of capital to commit over the next 5 years.
This includes cash and debt flow we expect to generate in the next I remain very confident that we will be able to commit the full $15,000,000,000 to very high quality industrial gas projects over the next 5 years. It is obviously to know exactly what will be the breakdown of the $15,000,000,000. But based on our view today, I could see something approximately $1,500,000,000 for acquisitions of industrial gas companies, $2,500,000,000 for asset buybacks, 4,000,000,000 for traditional industrial gas projects such as new liquid oxygen and nitrogen plants, packaged gas depots, high purity nitrogen generators, and a smaller scale oxygen and nitrogen plants, and then about $7,000,000,000 for largest scale energy, environmental and emerging market projects including coal gasification. We continue to execute on our overall growth strategy acquiring the Shell gasification technology and closing on the Lu'An project in the past quarter. The third point is the evolution of our portfolio.
Most of the types of These are when we see good opportunities to invest in liquid capacity around the world. And the same goes for packaged gas opportunities in locations where we are already in that business. However, Given the relative size and number of our in the future. This is good because the on-site business is very stable during the ups and downs of the economic cycle around the world. 4th in terms of changing the culture, This remains a focus of our original 5 point plan that requires more work.
We have to continue to improve our 4s culture meaning safety, simplicity, speed, and self confidence. Pivilburg to further build a committed, diverse and motivated team that brings their positive attitudes and open minds to work every day. And finally, on the last point on the chart on the right, at Air Products we do have The higher purpose is so that everyone feels that they belong and their contribution is recognized. In addition, All of us at Air Products are committed to make good products that benefit all humanity. And we certainly are committed to sustainability.
In summary, at Air Products, we do bond to do more than with our original 5 point plan and are confident that we will continue to deliver with our updated 5 point plan as delineated on this slide number 7. Now please go to Slide number 8. It shows the result of our 3 key metrics for the quarter. We remain committed to our goal to be the most profitable industrial gas company in the world as measured by each of the 3 key metrics. Now please go to Slide number 9.
Since I have started as the Chairman, President and CEO of Air Products, more than 4 years ago, I have stress the fact that we are committed to deliver at least 10% per year growth on our EPS over the long term. You can see that we have delivered better than that in the last 4 years And we by at least 10% over the coming years. Please turn It is great to see our record margin Now, I would like to turn the call over to Mr. Scott Crackle, our Executive Vice President and Chief Financial Officer, to results or to discuss our results in detail. Scott?
Thank you very much, Safie. Before I review our results, I want to provide an update on our external independent auditors. Air Products has had a long and productive audit relationship with KPMG since 2002. Given their tenure of 16 years as our auditors, the audit and finance committee of our board felt it was a good governance practice to initiate a competitive Deloitte and Tush will be Air Products' external auditor, beginning with our fiscal year 2019. APMG will continue as our auditor through the completion of our fiscal 2018 audit.
I would like to and that there are team members we have worked with over the years, and I look forward to working with the Deloitte team. Now, please turn to Slide 11 for our Q3 results from continuing operations. Sales of $2,300,000,000 increased 6% versus last year on 3% higher volumes, 1% higher price, and 3% higher currency. We saw solid volume increases across all three regions partially offset by lower activity from the Jazan project in Global Gases. Excluding Jazan, volumes were up 7% with about 5% from new plants.
Sequential volumes were up on strength in Americans and seasonality in Asia. Versus last year, pricing was up 1%, primarily driven by the China and Europe merchant businesses. Positive currency was driven by the euro, British pound and the Chinese EBITDA of $820,000,000 improved by 13%, driven by the higher volumes, positive pricing, currency, and equity affiliate income. EBITDA margin of 36.3 percent was up 220 basis points. Net income was up 19% and adjusted earnings per share were up 18% versus prior year.
ROCE of 12.2 percent was flat versus last year as our significant profit increase offset the larger denominator which increased as a result of the Q3 FY 'eighteen has 5 quarters that include the PMD gain, while Q3 of FY 'seventeen only had two quarters with the PMD gain. You can see the real improvement more clearly in the sequential 40 basis point increase. Please turn to Slide 12. Our record adjusted Q3 continuing operations EPS of $1.95 increased $0.30 or 18% versus last year. Overall, higher volumes increased EPS by $0.18 per share.
Price and raw materials taken together increased EPS by $0.04. Net cost performance was unfavorable as productivity was again offset by a few factors, including planned maintenance costs, inflation, and the end of continue to see higher costs in strategic areas focused on pursuing our exciting growth opportunities. Currency and foreign exchange was $0.05 favorable, primarily due to the euro, British pound and the Chinese RMB. Equity affiliate income added $0.05 primarily due to underlying strength in Mexico and Italy. The overall tax rate was Act increased EPS by about $0.10, which is more than previous quarters due to higher profit contributions from our U.
S. Business. For the full year 2018, we now expect to see a Non controlling interest was a $0.04 headwind. This is primarily due to a gain shared with our partner which resulted from a customer terminating Interest expense, shares outstanding and other nonoperating income totaled $0.02 unfavorable. Now please turn to Slide 13.
We had another strong cash flow quarter with over $500,000,000 of distributable cash flow. And almost $300,000,000 of investable cash and over $2,000,000,000 of distributable cash flow. From the $2,200,000,000 of distributable cash flow we paid $864,000,000 or almost 40 for high return investments would like to update you on As of June 30, we have about $3,000,000,000 of cash is about 3.9000000000 and are committed If we move our debt level to about 2.5 times EBITDA, this would allow us to borrow an additional $4,000,000,000. So in total, we have about $7,000,000,000 we can deploy today, while maintaining our AA2 rating at a debt level of 2.5 times. This capacity increases to about $8,500,000,000 at a debt level of 3 times EBITDA In addition, we have been that is after paying taxes, interest, maintenance CapEx and dividends.
So over the next 5 years, we expect to have $15,000,000,000 available to invest, which does not include extra capacity Now to begin the review of our business segment results, I'll turn the call back over to Safie.
Thank you, Scott. Now please turn to Slide 15, our Gases Americas where we continue to deliver strong sales and profit growth. Sales increased 16% versus last year, driven by higher volumes positive pricing and favorable currency impact. Volumes were up 6% excluding the impact of the one time equipment sale last year. Volumes were actually up 16%.
If we exclude the equipment sale, as I said. New projects were responsible for about 3 quarters of this 16% increase. While gas's business and acquisitions were roughly equal to the rest of the business. I believe at the beginning, I said gas is Americas. I mean, I meant gas is Asia.
So there's no confusion. I'm talking about our business in Asia. I wish our America's business that is not the case. Okay. Pricing for the region was up 4% versus last year, the 5th consecutive quarter of year on year improvement.
Which was primarily driven by better supply and demand situation in China's merchant market. The strong volumes, higher pricing and favorable currency more than offset the prior year equipment sale headwind and drove the nearly 30% increase in EBITDA. EBITDA margin was strong and up 400 basis points. Sequentially, both volume and price increase increased as China emerged from the Lunar New Year holiday. As mentioned in our last call, we closed the WAN project during quarter 3.
The team is making great progress as we bring the 4 gasifier trains on stream in stages. As we shared in April, we still expect about $0.04 earnings per share contribution in fiscal year 2018, and we expect the plan to be at full run capacity by the end of September and therefore expect at least $2.5 per share of accretion in 2019 from the Lu'An project. Now I would like to turn this call back to Scott to discuss our Americas results, please.
Thank you, Stacy. Please turn to Slide 16 for a review of our GASES Americas results. For the quarter, sales grew 2% with 6% higher volumes, partially offset by lower energy costs pass through. Hydrogen demand remains strong and our new plant in Baytown, Texas supported increased sales. Underlying merchant volumes were positive, partially offset by a wholesale contract we terminated in Q4 of FY 2017.
Excluding this, our overall volumes would have been up 8%. The overall pricing impact This negative mix, for example, includes higher U. S. Government helium sales that are lower than average prices. EBITDA was up 4% compared As we finance to support contract renewals.
Our team executed a significant amount of work safely and effectively. And as I mentioned earlier, we no longer have the cost reimbursement for our Port Arthur CO2 capture project. However, as expected, partially offsetting these higher maintenance costs customer terminating a contract for an old Flu gas desulfurization plan. We also saw improved equity affiliate income with strong results in Mexico. EBITDA margin was up 80 basis points due to the positive margin impact of the lower energy cost pass through.
As we move into Q4, we expect maintenance costs to be lower sequentially, but higher than prior year since maintenance activities were significantly lower than average Now, I would like to turn the call back over to Simon to discuss other segments. Simon?
Thank you, Scott. Please turn percent volume increase. Price improved 3% while energy pass through and currency were up 2% and 7%, respectively. Demand for hydrogen in the EMEA region was also strong. Our new hydrogen plant in India, on stream during a portion Q3 last year drove about 10% of our volume growth and our Rotterdam franchise also contributed.
As a reminder, the India plant was fully on stream in Q4 last year, so we don't expect a year over year benefit in Q4 of FY 2018. Base merchant volume improved 2% supported by liquid bulk and packaged gases growth and a few small acquisitions. The robust activity in the merchant market also translated into higher pricing. The 3% uplift in price was predominantly due to pricing actions success in packaged gases. This represents our best pricing performance in many years.
EBITDA was up 19 higher merchant volume, positive price and favorable currency. EBITDA margin of 33% was down 160 basis points However, excluding the new plan in EBITDA margin was actually up over 100 basis points. Now, please turn to Slide 18 for a brief comment on our Global Gases segment includes our air separation unit sales equipment business as well as central industrial gas business costs. Sales and profits were down as we get 18, while we now also expect profits to be down slightly for the year. We continue to make great progress on the Jazan project as we have said, expect on stream in phases early in fiscal 2019.
Now please turn to Slide 19 for a brief comment on our corporate segment, which includes our LNG business, our helium container business and our corporate costs. Although LNG project activity remains weak, sales increased slightly compared to prior year, but overall segment profits were flat. We continue to see signs of renewed interest in future LNG projects but do not expect this to translate to an earnings tailwind in the near future. Now, I'm pleased to turn the call back over to Safie for a discussion of our outlook.
Thank you, Simon. Our team around the world is very excited about Air Products' future. Our safety, productivity and operating performance continue to provide the foundation of our continued growth and the evolution of our 5 point plan provides the framework to drive our the opportunities and the team to successfully win key growth projects Let me just address the current state of global trade relations and tariffs. Very simply, we have not and I'd like to express it to stress, we have not seen any impact on Air Products at this point. Our business is local, so we don't have any direct exposure to import export tariffs.
We have not seen consumers changing their behavior. And as I mentioned earlier, we are very pleased to close the LuAN joint venture in China earlier this quarter as we expected. There is no doubt that there is uncertainty in the world. And while we cannot predict or control worldwide political or economic developments. We do have control over the operational performance and growth of Air Products.
And we are confident we will continue to deliver on the commitments that we have made. Now please turn safest, most diverse and most profitable industrial gas company in the world, providing excellent service to our customers. That continues to be on goal. Continuing our positive momentum, we have again increased our guidance for the year. To a range of $7.40 to This is up $0.10 from the guidance we gave you last quarter.
Our new guidance represents 17% to 18% growth over our very strong fiscal year 2017 performance. As I said, we remain confident in our ability to deliver on our commitment to grow our EPS by at least 10% each year for Our earnings per share guidance is $1.95 to $2, up 11% 14% over last year. We continue to expect our capital expenditure to be in the range of $1,800,000,000 to $2,000,000,000 in fiscal year 2018. Now please turn to Slide 21, I've talked about this many times. I don't need to repeat that.
And please turn now to Slide number 23. You can see that we believe very strongly that our real competitive advantage is the degree of commitment and motivation of the great team superior safety and operational performance. I do want to thank all of our 15,000 employees around the world for the total commitment and hard work, and I'm very proud to be part of this winning team. Now we are delighted to
you. And we will take our first question today from Bob Koort with Goldman Sachs. Please go ahead.
Thanks very much. I was curious the strength in affiliates. You mentioned it was a big part of the U. S. Or the Americas business.
And I noticed overall up nearly 40%. Can you give us some color on what's going on there? And then maybe also, Safeway, when you were giving your capital allocation potential buckets acquisition of gas assets is the affiliates considered in that bucket? Thanks.
Bob, good morning. Thanks for your question. On, I'll ask your question number 2 first and make a comment on question number 1 and then turn it over to Scott to elaborate. On question number 2, when we talk about the $15,000,000,000 of investment capacity. That does not include any acquisition or anything by our affiliates.
That's just air products. Then with respect to your question number 1, we have always said that we see a strong economic activity in India, and that has obviously contributed to affiliates. And we had some obvious growth in Italy and Mexico, which are our big equity affiliates. But Scott, would you like to expand on
that I'll just emphasize what you already said. It's broad based, Bob. It's good fundamental business performance in Mexico. In Italy, in India, and actually, some of our smaller ones in Asia as well. So real good performance across the board this quarter from our equity affiliate.
All right. Thanks guys.
Thank you, Bob.
Next is Jeff Zekauskas with JPMorgan. Please go ahead.
Your volumes in the Americas were up 6 And your volumes in Americas have been pretty good through the 1st 3 quarters of the year. That is all of the numbers that have been comparable, but your operating income has been pretty flat. I was wondering what's behind that and that your results versus your competitors seem to be, to show much slower growth in EBIT. And maybe to rephrase Bob's question, your equity affiliates income was $24,000,000 and the Americas versus 14 in the year ago. Is the 24 number a new run rate or is there something unusual about that?
$24,000,000 level?
Okay. Well, there is nothing unusual about the run rate, first of all, Jeff. So we expect our liquidity to do well. With respect to the Americas, we have an issue in terms of mix That means that our volumes are up because we are selling more to customers who have a lower price, basically. That is the fundamental reason why you don't We are not particularly excited about that, but that is the explanation.
Overall, Geoff, you know, the business very well. Fundamentally, our prices is going to be the same as other people's prices. We are not going to fall behind on that, because if our prices are lower, we will get significantly higher volumes. But I'd just like to turn it over to Scott to get expand on what I said.
Thanks, Heath. I just wanted to build it. I think I made some comments in the prepared remarks. In Americas, just recall, we have a very leadership position in hydrogen. And we saw some, maintenance plan turns, the team did a great job of executing this, but that's driving costs up year on year.
So that's also a reason why you don't see the operating income growth consistent with the top line, okay?
Okay, good. Thank you so much.
Thank you.
Next is Don Carson with Susquehanna Financial. Please go ahead.
Yes. Safie, a question on your capital allocation buckets. I noticed that share repurchase continues to not be on that list. And just wondering, especially post air products not participating in any of the Praxair Linde sales in Europe or the Americas, whether you've rethought your approach to share repurchase?
No, we have not because, I mean, share repurchase obviously, what does it do for you? It artificially improves your EPS. We are taking the position that of the cash that we generate. We are giving half of that in dividend to the investors. So it's not as if you're holding all the cash.
So half of that is going to a very generous dividend policy that we are saying, we give 2.5 percent of the stock price as dividend. The other half we believe very strongly that we have opportunities to invest that capital on projects that they will create significantly more value for the shareholders than buying the shares back. So that is that is our position that hasn't changed. And we do not see any change in the outlook for the deployment of the capital. So therefore, that's where we are.
Okay. And then a follow-up, you noted that you're had record EBITDA margins in the quarter. Are you now at an inflection point given the strong base business volume growth at the incremental loadings are generating very strong incremental margins. So should we look for continuation of this strong EBITDA margin performance?
Obviously, we are very pleased with the EBITDA margin for the quarter. But, for the long term, we have always talked to investors please, when you make models for our product, our EBITDA range is going to be somewhere between 33% to 36%. Not going to go down and it will be within that range. Some quarters like this quarter, we had 36.3. I hope it repeats every quarter, but I don't want to give the impression that our margins are now suddenly going to be several basis points higher than what our run rate has been for the last few quarters.
And obviously, now our EBITDA margins are almost 300% better than the next people, okay?
We'll go to David Begleiter with Deutsche Bank.
Thank you. Good morning. On Americas pricing, you said, so again, positive in the quarter. Any acceleration versus prior quarters you've announced a lot of price increases. And is that positive North American pricing are up around 2% or more or less?
It's about 2%. But the thing is that usually they don't like to make too many comments about pricing, but we obviously fully understand that higher prices means higher profits. That's what our organization is focused on that. But they need to have a balance between what we can charge and what the supply demand situation is. But our utilization rate in the U.
S, please consider that it is still in the around 77%, 78%. Now in places that our utilization rate is about 80% like in China, we are getting significant price increases as you see. And so if you're on the $15,000,000,000
of capital deployment, thank you for the breakdown. If you did it by geography or by country, how would that break down roughly speaking in your best estimate?
Well, I mean, it's very difficult to kind of pinpoint that, but the order of magnitude, obviously, we would like to invest as much as they can in the U. S, but Right now from what we see order of magnitude, probably about 2.5 will be in the Americas, about maybe 2.5 3,000,000,000 in Europe, including Russia, and then the balance of it in Asia Pacific. Was anything that we invest in India is with Equity affiliates and it's not part of the numbers that I've given you?
Thank you very much.
And we'll now go to Duffy Fischer with Barclays. Please go ahead.
Yes. Good morning, Fellas.
First question
is just on the India plant and its impact on the margins in EMEA. It sounded like you were negative 160 year over year, but you said you would be up 100 bps without that. 260 bps of Delta seems like a lot of influence from one plant. Can you just walk through the economics and why that's such a big hit to that region?
Well, since Simon was talking about Europe. I'll have him answer that.
Go ahead. Yes, thanks Duffy. So two things to remember. First of all, this is a great project. Very, very good returns on this project.
But the natural gas prices are extremely high in India. I think they're in the range of $12 per 1,000,000 BTUs. So you have a very large hydrogen plant, very high natural gas prices So that has a pretty significant dilutive effect on the margins. And I think you've seen that over the last few quarters. We also, by the way, had some additional energy pass through in Europe.
And just one final point is in Q4, we'll lap this so you won't see a year over year delta next quarter.
Okay. Thank you. And then, just to go back to the buckets on the capital allocation, in the $7,000,000,000 that you called out as being large energy projects, how much of that would actually be coal gasification in China versus all other?
Definitely. You know, I give more details and obviously, the investors want even more details, you know, we we have gone a long way by actually breaking down that, but out of the $7,000,000,000, I expect approximately $5,000,000,000 will be in China.
Great. Thank you guys.
Yes. Thank you.
And we'll go to PJ Juvekar with Citi.
Yes, hi. Good morning, Safi.
Good morning. How are you, Vijay?
Good. So what are merchant utilization rates in Europe and Asia where you are seeing positive pricing? And how does that compare to Americas where pricing is still flat? I know you mentioned in the response to earlier question that you're in America just selling with lower price, not lower price, but lower price customers. But can you just compare the utilization rates?
Sure. Our utilization rate in the Americas is around 77% to 78%. Utilization in Europe is around 80%. In China, the industry utilization is around 55 60%. But Air Products utilization date, because we haven't built a lot of merchant plans, our utilization in China right now is at around 82% to 84%.
So That is where we are. And you can obviously correlate pricing to the utilization rate. I mean, obviously, we are selling a commodity in locksmith, and that is totally subject to supply demand.
Great. Thank you for that. And your acquired shell coal gasification technology, has that improved your competitiveness in bidding for coal gasification projects? And are there any projects outside of China that you're looking at?
P. J, I cannot now that the deal is closed, this has been a fantastic deal for us and it has created significant opportunities and we are seeing a lot of things that we didn't see before. So I'm very happy with that acquisition. In addition to that, that has opened up significant opportunities outside of China. Yes.
We are very pleased with the acquisition was the right thing to do. We have gotten a lot of very capable and very talented people, and that has given us, I think at the end, it will give us significant competitive edge.
Any particular regions outside of China?
Side of China, it will be, it is places like Indonesia, Australia, Middle East, Europe, it's all over the place, and the United States. But please, when I talking about Shell, I just need to clarify. We bought 2 technologies from Shell. 1 is for coal gasification and the other one is for liquid gasification. The liquid gasification is also important because Vijay, as you know, very well, a lot of the refineries need to upgrade the bottom of the barrier because of the IMO 2020.
One of the ways to solve the problem of dealing with household residues is better than coking it is to use that liquid and gasify it. That is what Saudi Arabia is doing with the Jazan project. So that, I think, a bit open up opportunities for us because we own the shell technology for liquid gasification.
Great. Thank you for that explanation. Thanks.
Thank you, sir.
We'll go to Christopher Parkinson with Credit Suisse.
So clearly hydrogen, hydrogen appears to be the key driver of the positive momentum in volumes. Can you sit on the some other key end markets as well? Is anything surprising to the upside or downside versus your initial expectations at the beginning of the year? And then just also any long term comments on your outlooks for you hit on this a little on energy and then also environment? Thank you.
Well, thank you very much, Chris. In terms of the day to day things, obviously, the R seeing economic development in the U. S, which is helping with the utilization rates a little bit. Although it's not as robust as we hope, but, in China, the growth has not slowed down. And we are growing very well there.
In India, we don't consolidate, but the growth rates are very good. And quite frankly, as I think I have mentioned to you before on one on one, Europe has been a surprise on the positive side. Because quite frankly, we thought that with the Brexit and all of that, that European Economy will suffer, it has not So as a result, I mean, it's not growing very fast, but it is tightening, and you can see that the pricing is, improving So those are the overall, the positive things. Then with respect to the very big projects, Yes, we are very optimistic about that. There is significant activity with respect to big projects in China and in Middle East, in Russia, in the U.
S. So we see a lot of so called megawatt projects
Great. And you've also been successful in establishing a portfolio, which lends itself to the on-site utility type model. Can you just remind us of your longer term goals in terms of projected earnings stability just with any details or consideration for both the composition of your backlog and projected capital deployment? Thank you.
Sure, Chris. Obviously, if you go on my wish list, I hope that 5 years from now, 75% of our business is on-site. And I think that will probably with the way that we are deploying the capital. Our base business, merchant business and packaged gases business will continue to grow. We are not going more on-site at the expense of that business.
But that business, which is our liquid business and our packaged gases business, is going to grow with the global GDP, 2% 2.5%, 3.5% a year. But our ambitions are higher than that, we want to grow the company by more than 10% as they have done in the past 4 years. That means that by default, although our base business is not is continuing to grow our on-site business will grow faster. Therefore, when you put it all together, hopefully by 2023, 75% of Air Products business will be on-site, which will be very stable and very profitable in terms of not only margins but also in terms of return on capital employed.
And we'll go to Steven Byrne with Bank of America Merrill Lynch.
Perhaps, Simon pulled a fast one on you and changed the order of the slides and moved the Asia segment to be discussed first instead of last, but I suspect from your commentary about capital allocation by region was intentional, would you say in this 5 year plan that could become your largest segment?
Well, first of all, I'd like to make a comment. I just landed from a 14 hour overnight flight. And I just came to the office. So I think you need to give me a little bit of a break for not, having mixing up gas as Americas and gas but Simon was at the slides in the right order, but I just when I was looking at it, I just as that gas is America's headed and gas is Asia. But right now, when you look at our, America's business, I think you have to disclose that.
That's about a $4,000,000,000 business. Our Asia business is right now running at around 2.22.3. With the with the capital deployment programs that we have, our America section will grow, but I think in 5 years, I don't expect Asia to be dabbling size, but it might. It might become our biggest region by 2023, 2024. And right now we are I mean, if it grows with the kind of EBITDA margin that we have, which is 43%, that would be very
good. Okay. And trust me, Safia, that was just all in fun. But with respect to Asia in your your outlook for coal gasification. Obviously, it's a strong market opportunity in terms of demand and you have technology.
But would you also say that you in the competitive bidding process it's maybe a little less intense, particularly on bids that include the gasifier in addition to the air separation units?
That is not the case. They just lost the big coal gasification project to one of our competitors. I obviously don't want to mention who it is, but, if people are telling you they are not pursuing gynecore gasification in China, you should ask them again. Everybody is there. Everybody is eager to win a project.
And as I said, we just last month, we saw we cost co gasification project in China, in Southern China to one of our competitors who claims they are not that excited about China. So everybody is there, my friend. Nobody when people look at these projects and the size and the profitability, they are not going to give us a break. They are following us where we are going. Thank you.
Next is John Roberts with UBS.
Thank you. First, a question about pricing in Europe and then maybe a follow-up on the environmental CapEx allocation that you've got. In Europe, that record 3% price increase, I can't imagine that CO2 kind of contributed to that. And I would think Praxair and Linda are not being that aggressive on price given they're in front of regulators. So what's allowing you right now to achieve that kind of price versus in past periods?
Well, I would say good execution, but again, since Simon made comments about Europe, I don't know if you'd like to answer that.
Yes. So John, obviously, we can't speak to what the competition is doing. The team is working hard on pricing in the Europe region and we did emphasize that we saw a lot of strength in packaged gas here this past quarter. So, quite frankly, good job by the team.
Yes. And from CO2, it was very not significant.
On the $7,000,000,000 that you're going to put into energy environmental, obviously environmental in the past with Tees Valley and some of the earlier projects, you're probably not headed down that path again, but what are you thinking about there when you say environmental?
What we are talking about is projects that would take the, would help with solving environmental tissue The biggest thing that we are referring to is number 1, this IMO 20, where people have to do something with the bottom of the bear. And the second thing that we are talking about is coal gasification which is a much more environmentally friendly of using the coal rather than burning it in a power plant to generate power.
Okay. So you're including coal gasification when you say environmental?
Yes.
Okay. Got it. Thank you.
Next is John McNulty with BMO Capital Markets.
With regard to the backlog, it seems like it's been kind of static here for, I guess, the last quarter too. And I know you have a number of opportunities that you highlighted I guess, at least in terms of where you think the capital is going to get deployed. I guess, how are you thinking about the timing of when we may start hearing about some of these and getting the contracts to kind of the finish line. And I think you mentioned it in the beginning. That you didn't see the tariff issues necessarily having any impact.
And so I guess what's holding up to some of the announcements on this or is it just simply a timing issue?
Well, John, you're putting me in a position that, especially my lawyer is sitting there and saying, don't make too many forward looking statements here, but they are working on RPC on a lot of projects, but quite frankly, John. This is a formal call. This is not a casual conversation. I'm the chairman of the company, and I'm saying that they feel very confident about deploying the capital. So I can only say that if I see a backlog of projects that we are working on.
Now when are they going to come to flotation and when are they going to be able to announce them? I mean, I obviously can't mention, can't predict that, but we definitely have a robust number of projects that we are definitely working on. No question.
Fair enough. Thanks very much for the color.
Thank you, John.
And we'll go to Vincent Andrews with Morgan Stanley.
Thank you, and good morning, everyone. And Safia, I hope you can get some good sleep tonight. You're probably pretty tired. Just looking at, slide 24, the project slide. And I know you guys are out of the, telling us what the EPS contribution is from new projects, but you've got a bunch of stuff that's scheduled to come online in fiscal 2019.
So as we think about our models, if you can give us any update or any color sort of on first half, second half, second quarter, 4th quarter, just sort of any sense or dimension around the startups there?
Well, on that one, and one thing that we have said and we stand behind that is that we want to grow EPS at least 10%. So you should expect that our guidance for 2019 will be 10% higher than 2018, I mean, unless the board falls apart. But But other than that, in terms of the specifics, I think we are, very specific in terms of the timing of these things, but to break it down by quarter, well, these are plants, new plants startup, the customer has to be ready and all of that. So I would be a little bit hesitant to start pinpointing it by quarter, but overall, as I said, overall, on overall basis, obviously, we need the contribution of these projects in order to deliver the 10%. And, Simon, do you like to
Yes, just obviously Vincent, again, reminded us that we have made a specific commitment around the Lu'An project that we'd expect that to deliver at least 20 dollars next year.
Sure. Okay.
Thank you. And just as a follow-up, there was something written during the quarter about a CO2 shortage in Europe like it was an issue within your results. But, any comments there vis a vis your results?
Well, the reason is that we are not very big CO2 in Europe. So the whole event didn't have too much of an impact on us at all.
And next is Kevin McCarthy with Vertical Research Partners.
Good morning. This is Matt on for Kevin. If we were to rewind to this time last year, the company was discussing the possibility of participating in remedy assets divestitures from Praxellinda about like $1,000,000,000 in revenue. Since then Messer and Nippon sound so, seemed to have secured the divested assets, but kind of walk through what were the primary reasons for why you ended up taking a pass on the businesses given just the capital deployment targets the company has?
We didn't take a pass. The regulators decided to give us a pass. Yes, we would have we have always said, we've been interested in that, but the regulators decided that, we should go do other things.
No, that's helpful. Thank you. And then, I might have missed this. I was jumping around a little bit, but, gas is global, kind of showed a nice sequential uptick in EBIT. Despite the ongoing headwinds from lower demand sales, what was behind the improvement there?
Yes. And again, I would just point out that the technical term for Jazana is lumpy. So it just moves around a little bit, especially sequentially.
All right. Thanks, Simon.
Sure. Thank you.
We'll go to Jim Shannon with SunTrust.
Good morning. Could you remind us about what you're expecting from currency that's incorporated into the fourth quarter guidance?
Scott, sure. Hi, Jim. How are you? So, we're at about, $0.20 earnings per share versus prior year through three quarters. And our view as always is we just assume things kind of move sideways from where they are as we're closing the quarter.
And so if we look at that, we think it's going to be flat, maybe a modest headwind. In the fourth quarter versus the prior year given where the currencies are now.
Thank you. And could you comment on which end markets you're seeing the most strength in besides refining?
We don't usually comment by markets, but overall in the U. S, it's really most of the sectors whether it is food, whether it is a steal, whether it is all of the other things in China, it is obviously consumer demand for products that we have and around the world. So it's a mix. It's not any, very particular market that suddenly has started contributing to our bottom line. As you know, we have more than 60,000 customers around the world.
So it's we do not see any significantly one sector growing 10%. It's just across the board. And that's the good thing about our company because we have exposure to all of these businesses.
And we will go to Lawrence Alexander with Jefferies.
A very quick one, and given the end of the call is can you characterize how your cash tax rate will evolve as your mix shifts around the world or as the types of projects shift? Was that seems to be affecting the conversion of EBITDA growth into distributable cash flow?
Well, that's a very good question. And since it's a difficult question, I'll give you this time to answer.
They have actually your comment around forward statements, right? So if I just ground again for, this year, in terms of a book for the fourth quarter, we're thinking about 20. So come in for the year in total a little bit about above 'nineteen. And then as we go forward from a, cash tax perspective, obviously, we were focused on making more money in all parts of the world. About 400 or so cash taxes for this year.
And early indications, you could assume roughly about the same for next year. Again, it depends on the amount, so that depends on, the location I think in terms of, a percent of cash taxes as a percent of pretax earnings, kind of the high teens is what we would say going forward a reasonable assumption at this point, okay.
Okay, perfect. Thank you.
Thank you.
Welcome to Mike Sison with KeyBanc.
Hey, guys. Nice quarter. Thank you, volumes volumes have been pretty good this year. And just one of your general thoughts, do you think this industrial economy is kind of you know, at a pretty good level, is it getting better? Is it, when you think about heading into 'nineteen?
Well, right now, the way we see it, China is going to continue to be a strong. If you don't see any sign of a slowdown there, I hope Europe stays where it is. Which means that although it's not growing very fast, it's not going down. And the U. S, obviously, depends on the effect of the tax cut and all of that, but right now, it looks okay.
So go ahead.
Oh, sorry. Just to the quick one on 'nineteen, how much volume will come from project coming on stream. I don't know if I apologize if I missed that earlier.
Well, I can't give you an exact number on that because then you pretty quickly figure out, but should do next year. But overall, I we usually don't give that number out. So if you excuse us for that, We don't like to break that down because then people can figure out exactly what the return on the projects are and all that.
Okay. Thank you.
Well, thank you. With that, I think there are no more questions. And We just like to thank everybody again for being on the call. Thank you for taking time from your busy schedule to listen to our presentations. We very much appreciate your interest, and we look forward to discussing our results with you again next quarter.
Have a great day and all the best.
Everyone for your participation and you may now disconnect.