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air products & chemicals 16 May 2007 Goldman Sachs


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air products & chemicals 16 May 2007 Goldman Sachs

  1. 1. Mike Hilton VP/GM Electronics and Performance Materials Goldman, Sachs and Co. May 10, 2007
  2. 2. Forward-Looking Statements NOTE: This presentation contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s reasonable expectations and assumptions as of the date of this presentation regarding important risk factors. Actual performance and financial results may differ materially from those expressed in the forward- looking statements because of many factors, including those specifically referenced as future events or outcomes that the company anticipates as well as, among other things, overall economic and business conditions different than those currently anticipated and demand for Air Products’ goods and services during that time; competitive factors in the industries in which it competes; interruption in ordinary sources of supply; the ability to recover unanticipated increased energy and raw material costs from customers; uninsured litigation judgments or settlements; changes in government regulations; consequences of acts of war or terrorism impacting the United States’ and other markets; the effects of a pandemic or epidemic or a natural disaster; charges related to portfolio management and cost reduction actions; the success of implementing cost reduction programs and achieving anticipated acquisition synergies; the timing, impact and other uncertainties of future acquisitions or divestitures or unanticipated contract terminations; significant fluctuations in interest rates and foreign currencies from that currently anticipated; the impact of tax and other legislation and regulations in jurisdictions in which Air Products and its affiliates operate; the impact of new financial accounting standards; and the timing and rate at which tax credits can be utilized. The company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this presentation to reflect any change in the company’s assumptions, beliefs or expectations or any change in events, conditions or circumstances upon which any such forward-looking statements are based. 2
  3. 3. Air Products At a glance $9B in sales Diverse markets and geographies Positioned for continued long-term value creation FY06 Geographic Sales FY06 Segment Sales Canada/Latin Tonnage ROW Merchant America (4%) Gases (2%) Gases (25%) Asia (31%) United States (16%) (49%) Equipment & Energy Healthcare Europe (6%) (6%) (29%) Electronics & Chemicals Performance (10%) Materials (22%) 3
  4. 4. Value Proposition Profitable Growth Stability – Long term contracts – Consistent and predictable cash flows – Strong balance sheet Earnings growth – Volume loading – Pricing/margins – Productivity Improving returns 4
  5. 5. A Healthy Report Card Three consecutive years FY04 FY05 FY06 $7.8 $7.0 $8.9 Sales ($B)…………… $3.50 $2.53 $2.93 EPS* ($/share)……....... 9.3% 10.0% ORONA* (%) ………….. 11.3% SG&A as % of Sales*.... 12.2% 14.2% 13.5% Balance Sheet…………. “A” rating Dividend increase & Shareholder Value……. share repurchase 5 * Comparison is non-GAAP. See appendix slide for GAAP reconciliation.
  6. 6. Consolidated 1H Financials: Continued Solid Performance 1H FY06 1H FY07 Change Sales ($B) $4.2 $4.9 16% Diluted EPS ($/share)* $1.66 $2.05 23% ORONA (%)** 10.6% 11.9% 130bp SG&A as a % of Sales* 12.3% 11.8% (50bp) * Continuing Operations 6 ** Comparisons are non-GAAP, see appendix for reconciliation
  7. 7. Tonnage Gases Investments Drive Growth Industrial gases via FY’06 Performance large on-sites or vs. Prior Year: pipelines to refining, chemical, metallurgical Sales $2.2 billion industries up 28% Growing hydrogen franchise position; Op. Inc. $341 million gasification and new up 39%* oxygen technologies Strong volumes from six new refinery hydrogen plants (35% capacity increase) and base business growth 7 * Comparisons are non-GAAP
  8. 8. Equipment & Energy LNG Drives Growth Air sep, hydrocarbon FY’06 Performance recovery/purification, vs. Prior Year: natural gas liquefaction, helium distribution Sales $537 million equipment; future up 45% energy technologies Op. Inc. $69 million Oil and gas, utilities, up significantly* chemical, metals markets Driven by orders for liquefied natural gas (LNG) heat exchangers and air separation units 8 * Comparisons are non-GAAP
  9. 9. Merchant Gases: Leveraging Strong Demand Industrial gases, FY’06 Performance certain medical / vs. Prior Year: specialty gases supplied to a variety Sales $2.7 billion of markets up 10% Liquid bulk, Op. Inc. $470 million packaged gases, up 18%* small on-sites Strong volume performance in all regions of the world, supported by new customer signings and price increases despite hurricane impacts 9 * Comparisons are non-GAAP
  10. 10. Healthcare: Focused on Improvement Respiratory therapies, FY’06 Performance home medical vs. Prior Year: equipment, infusion services for patients in Sales $571 million their homes up 5% Anticipate future Op. Inc. $8 million improvement from higher down significantly* U.S. volumes and lower operating costs Operational issues in the U.S. and higher start-up costs from a new U.K. home oxygen contract 10 * Comparisons are non-GAAP
  11. 11. Electronics & Performance Materials: A Winning Combination Specialty / bulk gases / FY’06 Performance chemicals, services and vs. Prior Year: equipment for electronics; performance chemical Sales $1.9 billion solutions for various end up 12% markets Op. Inc. $195 million Surface science expertise up 48%* delivers performance Strong volumes driven by semiconductor and flat-panel display market demand and Tomah3 Products acquisition 11 * Comparisons are non-GAAP
  12. 12. Electronics & Performance Materials Innovation-based business model $2B segment under-pinned by technology, innovation Franchise positions / global leadership in: – Fluorine chemistry – Surface chemistry – Managing materials in high-purity environments – Specialty additives for formulated products Deep understanding of how our customers create value for their customers – Silicon-based manufacturing (ICs, displays) – Formulated systems (coatings, foam, adhesives…) APD technology provides context for new business – Critical mass of our technology investment – Enter into new fields with credibility, fresh view & extensive capabilities 12
  13. 13. Performance Materials Dimensions A global platform with >$700MM in sales 3 key product lines + new initiatives platforms ~50% of sales outside of North America Formulated products that drive leadership positions Global manufacturing, R&D, applied technology infrastructure 13
  14. 14. Electronics Dimensions ~$1.3 billion bulk gas, specialty material and equipment business Driven principally by: – Semiconductor (~85%) – LCD (~10%) Strong volume growth: – 20% CAGR over last 4 years Business trends: – Asia growth – Product simplification & controlling the value chain 14
  15. 15. Electronics & Performance Materials: A natural extension of what Air Products does best Customers – Long-term relationships that leverage APD global business infrastructure Supply Chain – World class network of facilities and supply positions in critical geographies – Operationally excellent systems delivering the highest quality and reliability at the lowest cost Process – Engineering skills to take solutions from lab to world- scale production – Acquisition integration and improvement Applied technology – Knowledgeable people with deep industry understanding who can identify, quantify and solve customer problems 15
  16. 16. Steady Progress to ORONA Goal 12.5% ORONA Improvement 11.5% 10.5% 4 Qtr Rolling Avg 9.5% Q1'05 Q2'05 Q3'05 Q4'05 Q1'06 Q2'06 Q3'06 Q4'06 Q1'07 Q2'07 Q3'07 Q4'07 16 * see appendix for ORONA calculation
  17. 17. Our FY’07 Commitments Add Photo Achieve 12.5% ORONA Capture profitable growth Improve Healthcare performance Simplify Electronics Restructure Chemicals Drive productivity to the bottom line 17
  18. 18. Beyond 2007 Growth Levers Large ($25MM+) projects on stream…9 in 2008 – 6 in Tonnage – 3 in Electronics New geographies – Poland/Central and Eastern Europe – Asia New applications/products/markets – Energy – Performance Materials Productivity – Expand gross margins – Electronics/Healthcare/Europe business improvement – Leverage SAP 18
  19. 19. Beyond 2007 Sustainable Double-Digit Growth at Superior Returns Targeting EPS growth between 10-15% 6-7% Market growth 2-4% New geographies/applications/products 2-4% Productivity/margin expansion 10-15% Total ROCE well above our cost of capital +3-5% More Focused, Less Cyclical, Higher Growth, Higher Returns 19
  20. 20. Thank you tell me more
  21. 21. Appendix: Non GAAP Reconciliation ($ Millions, except per share data) GAAP Measure Proforma adjusts Non GAAP Measure Stock Option Expense FY04 FY05 FY06 FY04 FY05 FY06(1) FY04 FY05 FY06 Sales 7,031.9 7,768.3 8,850.4 7,031.9 7,768.3 8,850.4 SG&A 956.2 1,013.6 1,080.7 39.4 38.5 995.6 1,052.1 1,080.7 SG&A% of Sales 13.6% 13.0% 12.2% 14.2% 13.5% 12.2% Diluted EPS - Continuing Ops $2.66 $3.06 $3.29 (0.13) (0.13) 0.21 $2.53 $2.93 $3.50 (1) Global cost reduction plan charge 21
  22. 22. Appendix: ORONA Non-GAAP Reconciliation 22