Air Products and Chemicals, Inc. (APD) Q4 2017 Earnings Report, Transcript and Summary

Good morning and welcome to the Air Products and Chemicals' Fourth Quarter Earnings Release Conference Call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Mr. Simon Moore, Vice President of Investor Relations. Please go ahead. Simon R. Moore - Air Products & Chemicals, Inc.: Thank you, John. Good morning, everyone. Welcome to Air Products' fourth quarter 2017 earnings release teleconference. This is Simon Moore, Vice President of Investor Relations. And I'm pleased to be joined today by Seifi Ghasemi, our Chairman, President & CEO; Scott Crocco, our Executive Vice President and Chief Financial Officer; and Corning Painter, Air Products' Executive Vice President, responsible for Industrial Gases. 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. Please refer to the forward-looking statement disclosure on page 2 of the slides and in today's earnings release. Now, I'm pleased to turn the call over to Seifi. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you, Simon, and good morning to everyone. Thank you for taking time from your very busy schedule to be on our call today. We do appreciate your interest in Air Products. The talented, committed and dedicated team of Air Products, our people, delivered an excellent set of results. For the fourth quarter of fiscal year 2017, our earnings per share was up 18% versus last year, and for all of fiscal year 2017, earnings per share was up 12%. This is the 14th consecutive quarter that we have reported year-on-year EPS growth. This is also the third consecutive year that we have delivered earning per share growth of more than 10%. We generated strong cash flow and returned about $800 million of that to our shareholders through dividends. We continue to be the safest and most profitable industrial gas company in the world with EBITDA margins of over 34%. We have a great team that is totally focused on delivering strong performance day-in and day-out. Ultimately, our success is built on providing excellent service to our customers. We are committed to providing them with the right innovations and solutions to make their processes better. Now please turn to slide number 3. You can see the significant progress we have made on improving our safety results, a reduction of 75% in our lost time injury rate. This result is a clear indication that all of our 15,000 employees around the world are totally focused on safety and operational excellence. This focus is also a significant driving force for our strong financial performance. Now please turn to slide number 4 which was our goal for the company. As I explained at the beginning of this call, we have made great progress and are determined to continue to be the safest and most profitable industrial gas company in the world, providing excellent service to our customers. At the end of this call, I'll talk about modification that we have made to our goal to include the diversity and inclusion as a significant part of our goal as we go forward. Now please turn to slide number 5, our overall management philosophy that we have talked to you about many times. We continue to be focused on shareholder value, cash generation, capital allocation and an empowered and decentralized organization. Now please turn to slide number 6, where you can see, the one that you have seen many times before, our five-point plan which is the foundation of our success. Please turn to slide number 7, where I would like to take a few minutes to remind everybody of the progress we have made in the last three years. Specifically, I want to talk about the promises we made three years ago, and the results we have actually delivered. In 2014, we made several commitments to ourselves and to our shareholders. And as I recall, there may have been some skepticism in the investment community at the time, about our ability to deliver these results. So, let's update you on where we are today. Three years ago, we said that Air Products would be the safest industrial gas company in the world. We would be the most profitable industrial gas company in the world. We would divest our non-core assets. We would have the best balance sheet in the industry. And we would deliver 10% earnings per share growth every year. I am very proud of our team for delivering on every one of these promises. On slide 8, you can see the result of the first two commitments. We are today, the safest and most profitable industrial gas company in the world. We have delivered significant improvement in our employee lost time injury rate, and we have an EBITDA margin of 34% which is up 900 basis points versus three years ago. On a slide number 9, you can see our success in divesting on our non-core assets. We sold our chemical business to Evonik for almost 16 times EBITDA, and I'm convinced that this business and the people involved, will thrive in Evonik. We spun-off our Electronics Materials business as an independent company called Versum Materials. The Versum team is 100% focused on the electronic market as a leading material supplier. They have delivered strong results, and the Versum stock is currently trading at almost 14 times EBITDA in fact a higher multiple than Air Products right now. Now please turn to slide number 10, which shows the result of our improved business performance and the successful transactions that we have made. Air Products has the strongest balance sheet in the industry. So we are well positioned to take advantage of the tremendous growth opportunities that we see in Industrial Gases. This is our future growth and as you can see we delivered EPS growth of 10% in 2015, 16% in 2016 and 12% in 2017. Now please turn to slide number 11 to summarize, the hardworking and committed team at Air Products has delivered on what we promised, and what is most exciting to me right now is that we are very well positioned to grow Air Products and create significant further value for our shareholders. We now have the balance sheet to do it. Now please turn to slide number 12 for a summary of our fiscal year 2017 accomplishments. I previously mentioned, the Versum spin and PMD sales. I want to thank the very hard working teams at Air Products, we have successfully executed our major projects. We brought on-stream a very large hydrogen project in India, a large air separation plant in Korea and our seventh large plant in China, providing oxygen to coal gasification. We continue to make great progress on the Jazan project and currently expect on-stream in phases starting in fiscal 2019. The picture at the bottom of the slide shows the six air separation unit trains already erected at the site. And to try to bring a sense of the scale of these huge air separation units, the top picture shows just one of the cold boxes before it was shipped from China to the site. And each one of those small dots that make up the sign CG for our cogen facility is actually one of our people. In terms of safety, in September, we mark one of the most significant safety accomplishments in Air Products history when the Jazan project achieved 19 million (sic) [15 million] man hours of work without any lost time injuries. A great example from one of the very large complicated and challenging projects being executed safely by our teams around the world. We also established a world-class technology center in the Dhahran Techno Valley Science Park to serve Saudi Arabia and the Middle East region. And finally, we continue to win new projects around the world for key customers in the electronics, manufacturing and chemical markets that will drive growth for Air Products and create value for shareholders. I would like to also take a minute to highlight our clear focus on excellence in technology, engineering, manufacturing, procurement and construction, which are all essential to our ability to deliver long-term shareholder value. We are very pleased that Dr. Samir Serhan joined Air Products last year, bringing deep knowledge and experience in the leadership of these critical functions. In alignment with our five-point plan, Dr. Serhan recently lead our teams through a thorough review of the strengths and opportunities in each one of the areas I mentioned above. We are now executing on clear improvements in our plant design, organizational design, work processes, footprint and talent development, while maintaining and leveraging our existing strengths. I am confident that the actions that Samir has taken will sharpen our product line focus, improve our competitiveness and subsequently enable us to deliver on our growth objectives. Now please turn to slide number 13, which summarizes the very exciting project expansion with Lu'An Clean Energy in Shanxi, China. As we announced this 15 September, we will form a $1.3 billion joint venture with Lu'An that will own and operate the air separation units, gasifiers and syngas clean-up system to provide syngas to Lu'An under a long-term agreement. This is a great example of Air Products expanding our scope of supply consistent with our business model. We continue to make good progress on the necessary approvals and are hopeful we can close on the joint venture at some point during fiscal year 2018. However, due to some uncertainty in the timing of the necessary government approvals, we have not, and I would like to stress, we have not included any contribution from Lu'An project in our EPS or CapEx guidance for fiscal year 2018. Now please turn to slide number 14, which shows you the results of our three key metrics for the quarter and year. These are the financial metrics that we use. We remain committed to our goal to be the most profitable industrial gas company in the world, as measured by each of these three key metrics. We remain focused on driving prudent improvements as we move forward. Now please turn to a slide number 15, my favorite slide. It's great to see our margins improve again this quarter, and up slightly versus last year. It also illustrates the 900 basis point improvement versus 3.5 years ago. Now, I would like to turn the call over to Mr. Scott Crocco, our Executive Vice President and Chief Financial Officer, to discuss our results in detail. Then I will come back after comments from Corning and Simon to make some closing remarks and then we will be pleased to answer your questions. Scott? Michael Scott Crocco - Air Products & Chemicals, Inc.: Thank you very much, Seifi. Now I would like to make a few additional comments on our fiscal 2017 results before discussing our fourth quarter results. Please turn to Slide 16. In summary for the year, higher volumes and productivity drove significant profit growth and delivered record EPS. Total sales increased 9%, with underlying sales up 7%. Volumes were broadly higher up 6%, with pricing up 1%. Unfavorable currency reduced sales by 1%, while higher energy pass-through increased sales by 3%. EBITDA of $2.8 billion increased 7%, while our EBITDA margin of 34.1% declined 80 basis points. Excluding the impact of higher energy pass-through, EBITDA margin was up 10 basis points versus prior year. Operating income of $1.8 billion increased 9%, and our operating margin of 21.6% was unchanged. Record earnings per share increased by 12% and our ROCE came in at 12.1%. Slide number 17, shows our distributable cash flow of more than $8 per share. We believe this measure more than EPS is the true measure of the value we're creating for our shareholders. Our distributable cash flow increased as a result of our strong performance in FY 2017, with EBITDA growth more than offsetting higher maintenance CapEx. Free cash flow of $450 million was modestly lower as a result of higher dividend payments, which were up 9%. Now, please turn to slide 18 to review our full year EPS. Year-on-year EPS growth of $0.67, or 12%, was driven primarily by higher volumes and lower cost driven by our productivity actions. Higher volumes added $0.29, as growth across our Gases segments more than offset weakness in LNG. Price of raw materials taken together was favorable $0.03 primarily from Gases Asia. And cost contributed $0.24 as our focused productivity actions in all our segments more than offset inflation. Currency was a negative $0.03 impact. Other non-operating income added $0.10 from interest income. Since this is non-operating, it is not included in our EBITDA or operating income results. All other items totaled $0.04 favorable. Now, please turn to slide 19 for a more detailed review of our Q4 results. For the quarter, we also delivered record EPS. Sales of $2.2 billion, increased 13% versus last year with underlying sales up 11% on 9% higher volumes and 2% better pricing. Higher energy cost pass-through in favorable currency each added 1%. Volumes were higher across all three Gases regions and taken together, the regions had a positive impact on overall volumes of 11%. From a volume standpoint, continued progress on our Jazan project was more than offset by the continued weakness in LNG. Overall pricing improved mainly due to Gases Asia. EBITDA of $769 million improved by 13%. And operating income of $493 million improved by 16% driven by overall higher volumes, productivity as well as Asia pricing. EBITDA margin of 34.9% increased by 10 basis points and was negatively impacted by 30 basis points from higher energy cost pass-through. Excluding this impact, EBITDA margin was up 40 basis points. Operating margin of 22.4% improved by 50 basis points versus prior year. Net income increased by 19% and adjusted earnings per share increased by 18% versus prior year. ROCE of 12.1% declined by 30 basis points versus last year and 10 basis points sequentially. To provide you with some context sequentially ROCE was lower although profits were higher. This is because the denominator of the ROCE calculation has increased. The denominator is based on a five quarter average, and this now includes three quarters with a significantly higher denominator as a result of the gain from the PMD sale. Now please turn to slide 20. Looking at our Q4 cash flows we had a strong finish to fiscal 2017. Q4 distributable cash flow was over $600 million, while our free cash flow was $250 million. Free cash flow was up $100 million versus last year, due to higher EBITDA. Now, please turn to slide 21. Before I discuss our underlying results, I want to spend a moment on several non-GAAP items that totaled a positive $0.39 per share. First, we made a tax selection that allowed us to recognize a tax loss on our Latin American Indura business. This resulted in a $111 million tax benefit, or $0.50 per share. To be clear, this is not reflective of a new loss or charge for this business, but rather the opportunity to recognize tax benefits from previous losses. A $12 million gain on a land sale was $0.03 per share. And finally, $48 million, or $0.14 per share of cost reduction and asset actions that include Dr. Serhan's work to restructure our engineering, manufacturing, and technology organizations. Further details on all non-GAAP items can be found in the appendix slide and the footnotes to our earnings release. Excluding non-GAAP items, our Q4 continuing operations EPS of $1.76 increased $0.27 per share, or 18%, versus last year. Higher volumes broadly increased EPS by $0.09 per share. Pricing and raw materials, taken together, increased EPS by $0.07. China pricing strengthened again this quarter. Net cost performance was favorable $0.06, as our productivity actions and the TSA income more than offset inflation. We are pleased that we delivered on a $100 million productivity commitment this year. As a reminder, included in the cost major factor, is the other income and expense line on the consolidated P&L. As I shared last quarter, we are providing services via transition service agreements, or TSAs, to both Versum and Evonik. The cost to provide these services are primarily in SG&A. The payment we received for these services was about $10 million this quarter and is shown in the other income and expense line. We expect these TSAs to wind down in the first half of 2018 and are committed to taking actions to reduce the costs associated with providing these services. Depending on the exact timing, we may see a brief gap between the end of the revenue from the TSAs and the cost savings. For the quarter, currency and foreign exchange gains and losses net to $0.02 favorable, as we experienced a weaker dollar particularly versus the euro as the trend from earlier this year reversed. Equity affiliate income added $0.02 due to the underlying strength across a number of our joint ventures. Other non-operating income added $0.03 due to interest income. Interest expense was $0.01 favorable as our lower debt balance more than offset higher rates. Tax, non-controlling interest, and shares outstanding reached $0.01 unfavorable. Turning to slide 22, I would like to update you on our capital deployment capacity. We have about $3.7 billion of cash and short-term investments as of September 30. After maintaining a modest operating cash balance, we have about $3.5 billion of cash available to invest. Our debt balance as of September 30 is about $4 billion. As you know, we are committed to managing our debt balance to maintain our current targeted A/A2 rating. We expect this would enable a debt level in the range of approximately 2.0 to 2.5 times EBITDA. Based on a trailing 12 months EBITDA of $2.8 billion, this would support a debt level in the range of about $5.5 billion to $7 billion. So in total, between our available cash and additional debt capacity, we have about $5.5 billion we can deploy today while maintaining our A/A2 rating. As we have mentioned, we also expect to generate over $1 billion per year of investable cash, that is after paying taxes, interest, maintenance CapEx and dividends. So, as Seifi mentioned, over the next three years, we expect to have a total of at least $8 billion available to invest. Now to begin the review of our business segment results, I'll turn the call over to Corning. Corning F. Painter - Air Products & Chemicals, Inc.: Thanks, Scott. Please turn to slide number 23. FY 2017 was a good year across our regional businesses. We grew both sales and profits in all three of them and concluded the year on a high note. In summary, I'd say in the Americas, the profit improvement was driven primarily by higher volumes and productivity. In EMEA, the team overcame currency headwinds through productivity actions. And in Asia, we had great success in both volume and pricing. We made significant productivity gains this year, while at the same time supporting merchant demand growth. For example, our investments in distribution efficiency have helped us absorb the higher distribution costs inherent in our drive to increase our retail business. We ended the year with two quarters of sequential sales and profit growth in each of the three regions, and we delivered record quarterly profits in Q4. I would like to thank our team around the world for all of their dedication and hard work in achieving exceptional safety and business results in FY 2017. Now please turn to slide 24, Gases Americas. Before discussing our results, I'd like to express a special thanks to our operating team in the Gulf Coast. As is our practice, teams of employees volunteered to ride out Hurricane Harvey in our facilities to ensure safe and reliable supply to our customers. Our plants operated extremely well, did not sustain any damage, and we only shutdown plants due to low customer demand, we were able to keep running. Reliability is an important part of our business model and we delivered. Our team did all this safely and efficiently under trying conditions. Well done. The hurricane had little to no impact on costs and only a modest impact on sales. As a result of our people's dedication and the strength of our business throughout the Americas, we are very pleased to report strong results despite the hurricane. For this quarter, sales were at $953 million dollars, an increase of 9% versus last year. Volumes were up 7% while currency and energy pass-through were both up 1%. North American volumes grew on strong hydrogen volumes, as our refinery customers continue to operate at a high-level with less plant maintenance outages, despite the destructions caused by the hurricane. We also saw positive volume across our other product lines in North America. Latin American volumes were up slightly this quarter versus prior year, moreover economic activity remains weak. The overall pricing impact was slightly positive, but rounded to flat versus last year as higher North American pricing more than offset negative Latin America pricing. EBITDA of $402 million was up 14% as higher volumes, lower planned maintenance costs and our Taking the Lead productivity programs more than offset the hurricane impact on volumes. EBITDA margin of 42.2% was up 220 basis points higher than last year, driven by higher volume and cost savings. Higher energy pass-through reduced the margin by about 60 basis points. So excluding this, the margin was up about 280 basis points. Sequentially, EBITDA was up 9% primarily driven by lower planned maintenance costs and stronger volumes. Now please turn to slide 25. In our Europe, Middle East and Africa business, the volume growth versus prior year and prior quarter was driven primarily by our new hydrogen plant in India that was on-stream for the full quarter. As a reminder, this 100% owned facility is reported in the EMEA segment, while the rest of our India business continues to be reported in Asia equity affiliate income. Versus last year, sales of $515 million were up 24% with volumes up 18%. Currency, primarily the euro, added another 5%. While the new India plant was the strong majority of the volume growth, our LOX/LIN and cylinder volumes were both up mid-single digits with the base business contributing almost 3% to the segment volume growth. Overall, pricing was slightly positive but rounded to flat as slightly higher underlying real pricing was partially offset by customer end product mix. EBITDA of $180 million was up 17% compared to prior year, again primarily driven by the new plant in India. However, the higher merchant sales, productivity and positive currency impact also improved profitability. EBITDA margin of 35% was down 220 basis points versus last year, primarily due to the new India plant. We are very pleased with the returns of this new project in India. But since there is always a significant amount of natural gas pass-through in any hydrogen project and natural gas is particularly expensive here, it is margin dilutive. EBITDA was up 16% sequentially on higher volumes productivity and positive currency. Please turn to slide 26, Gases Asia, where our pricing and sales momentum continued. Sales of $552 million were up 23%, compared to prior year driven by strong volume and increased prices. Volumes were up 17% roughly split 60:40 between new plants, primarily Yitai, and our base business. Merchant volumes were up across all product lines and the LOX/LIN retail to wholesale ratio continued to improve. Sequentially reported volumes were down due to the equipment sale last quarter. We raised prices significantly in the merchant market in China which drove the overall 6% increase for the region. Our team worked hard to raise prices across all liquid businesses and was particularly successful in the spot and wholesale markets. We believe China's government's focus on consolidating the steel industry and its corresponding impact on captive air separation plants, has improved the supply-demand balance. That said, we are closely monitoring this market as spot and wholesale pricing can be volatile. EBITDA of $224 million, was up 31% compared to prior year, driven by the strong volumes and higher pricing. EBITDA margin of 40.6% was up 240 basis points. Finally, please turn to slide 27 for a brief comment on our Global Gasses segment, which includes our air separation unit sale of equipment business, as well as central industrial gas business costs. Sales were up $14 million, while profits were down $10 million versus prior year. We continue to make good progress on the Jazan project. But as you may remember, we recorded a large profit in Q4 of FY 2016 making for a tough comparison for this quarter. Now I'll turn the call back to Simon for a comment on our Corporate segment. Simon R. Moore - Air Products & Chemicals, Inc.: Thank you, Corning. Please turn to slide 28. Our Corporate segment includes our LNG business, our Helium container business and our corporate costs. For the year, segment sales were down about $150 million and EBITDA was down about $90 million, primarily driven by significantly lower LNG project activity. For the quarter, in addition to the weaker LNG business, we also had a negative impact from Helium inventory revaluation. For FY 2018, although we still not yet seen LNG customers moving forward with their investment decisions, we don't anticipate an earnings headwind for the Corporate segment. Now I'm pleased to turn the call back over to Seifi for a discussion of our outlook. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you, again, Simon. Before we take your questions, I would like to make a few comments about Air Products' future. As I discussed earlier, we are very proud of having delivered on our promises from three years ago. And we are excited about the opportunity to build on our success. Our safety, productivity and operating performance continues to be strong. In fiscal year 2018 and beyond, we will continue to focus on productivity, which remains an important factor in delivering our earnings per share growth commitment. As you will recall, three years ago we had stated that we will deliver $600 million of productivity improvement. Up to now we have delivered more than $475 million and we will deliver the balance in the next two years or three years. As you know, our portfolio actions and strong cash flow generation of our company provides us with an expected capacity of over $8 billion to invest over the next three years. I am confident that Air Products will be successful in utilizing our balance sheet to invest in our core Industrial Gases business to create significant value for our shareholders. Let me review the investment opportunities we see for the growth that I'm talking about. First, acquisition of small and medium-sized industry or gas companies or assets from businesses from our industrial gas competitors. The second area of opportunity is to purchase existing industrial gas facilities from our customers to create long-term contracts where we own and operate the plant and sell industrial gases to the customer based on a fixed fee. This is what we call asset buybacks and we see opportunities for oxygen and hydrogen plants around the world in this category. We also see the opportunity to expand our scope of supply to include the operation of existing gasification units and sale of syngas to customers under long-term agreements. Essentially these opportunities are as the same as the traditional onsite business model that we have, something that we do every day, but with existing rather than new production assets. The Lu'An project that we described before is a perfect example of this area of possible growth for us. We expect to do more of these. And the third area of opportunity is the very large industrial gas projects around the world, driven by demand for more energy, cleaner energy and emerging market growth. The Jazan project in Saudi Arabia is a great example of how big these projects can be. The plant we are building in Jazan is the largest project in the history of industrial gas industry with close to $2 billion of capital investment. Some of these new large projects that I'm talking about could also include gasification and syngas supply. We are committed to staying disciplined and won't invest our money unless we are confident the risk return profile will create significant value for our shareholders. Now please turn to slide number 29. Our great team of hardworking, dedicated, talented and motivated employees remain focused on being the safest and most profitable industrial gas company in the world, providing excellent service to our customers. Continuing our positive momentum, we expect to deliver earnings per share of $6.85 to $7.05 per share for fiscal year 2018, up 9% to 12% from our very strong fiscal year 2017 performance. We remain confident in our ability to deliver on our commitment to grow earnings per share by at least 10% each year in the future. For quarter one of fiscal year 2018, our earnings per share guidance is $1.60 to $1.70, up 9% to 16% over the first quarter of fiscal year 2017. We expect our capital expenditure to be in the range of $1 billion to $1.2 billion in fiscal year 2018. As I mentioned before, our EPS and CapEx guidance do not include any contribution from the Lu'An project or any other M&A opportunities that we might execute during the year. We are certainly working on other opportunities that could potentially add to our results in fiscal year 2018, but have not included any other significant acquisition in our guidance. Let me summarize on the slide number 30. I'm proud of the performance that our great team delivered in the last few years. I'm very excited about the potential for Air Products in 2018 and beyond to deliver real growth in our sales and profitability. Please turn to slide number 31. In addition to being the safest and most profitable industrial gas company in the world, we are now elevating our commitment to diversity and inclusion by explicitly incorporating it in our goal. This a natural extension of the culture that we're building at Air Products. I believe this focus on diversity and inclusion will actually contribute to maintaining our position as the most profitable industrial gas company over the long-term. Because, as I've always said, the degree of commitment and motivation of our people is the real sustainable competitive advantage that we have. We want to ensure that we are providing opportunities and the right environment for everyone to contribute and succeed regardless of their gender, color, race, religion, orientation, country of origin or any other dimension of diversity. At this point, we will be delighted to answer your questions.

Thank you. And we'll take our first question from Vincent Andrews with Morgan Stanley. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Thank you, and good morning, everyone. Just on the merchant pricing in China, obviously nice acceleration from 4% last quarter to 6% this quarter. Where do you think we are in terms of utilization rates there, feels like there's been a very significant uptick in the past few quarters. Do you think we're in the mid 80%s? I felt like you were being a little bit conservative maybe on the outlook, just talking about how it can lump around. But what are you seeing, and what do you think the bull and bear cases on this line item are going forward? Seifollah Ghasemi - Air Products & Chemicals, Inc.: First of all, good morning, Vincent. I'm going to ask Corning to answer the specifics, but I'd just like to say that you have to make a distinction between utilization of the overall industrial gas companies in China and our utilization rate. So, Corning is going to address our utilization rate. Corning? Corning F. Painter - Air Products & Chemicals, Inc.: Yeah. So our utilization rates are in the low 80%s. I think, you're fishing for what we think the larger market might be. But I think, with the dynamic situation in the steel industry, it's difficult to make a precise estimate of where we think overall industry loading is at. Clearly though, the supply-demand dynamic is better than it has been. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Okay. And just as a follow-up. In the Americas, year-over-year there was an issue with lower maintenance expense. But then obviously also the volume came back nicely and I would assume that had an incremental positive impact. So, can you just help us bridge last year to this year and what was the gross positive benefit from the maintenance, or would you say the volume was maybe better anyway regardless of the difference in maintenance year-over-year? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Yeah. Corning? Corning F. Painter - Air Products & Chemicals, Inc.: Yeah. So I would say the volume was a positive for us if we look across the business. Maintenance was a mild positive for us if we look at the fourth quarter. If we look at the full year, relatively flat. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Okay. Thanks very much. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Yeah, Vincent, I'd just like to add that one of the main drivers for our volume growth grow is our hydrogen business. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Okay. Thank you very much. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good.

We'll take our next question from Christopher Parkinson with Credit Suisse. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC: Thank you. You hit a little on this during your prepared remarks, but can you just kind of give us a little more detail on the update on the Lu'An, just the regulatory process, I guess this is the original four to six months. I guess this the reasoning for excluding it from your fiscal year 2018 guidance. And then more importantly probably as well as the Chinese opportunity that may await once you receive the regulatory approval? Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, Chris. Chris, with respect to Lu'An, the approval that we need is that Lu'An is a state-owned company. Whatever they need to do has to be approved by SESAK, which is the overall controller of all of the assets for all of the state-owned companies in China. That process does take time, it is difficult to make an assessment. We quite honestly had a lot of debate about what to do about this thing and we thought that the best thing is to say that, let's not exclude it in our estimate and then when the time comes and we get approval we will obviously add it. But I'd just like to say that Lu'An on a full-year operating basis, if it was operating for the full year, it will contribute to our bottom-line about $0.25, $0.26. So now, during fiscal year 2017 (sic) [fiscal year 2018] whenever it comes up we will inform you. We expect this process to take about five months or six months, it's just like a little bit like anti-trust approval. But we don't know for sure. But as soon as that happens, and we close, we will let the investment community know, and we will adjust our guidance accordingly. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC: Great. Seifollah Ghasemi - Air Products & Chemicals, Inc.: With respect to other projects in China, obviously we are working on other projects in China and when and if they happen, we will obviously make an announcement. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC: Great. And you hit a little on the merchant pricing, but overall just results across it seems China and India continue to do well. Can you just walk us through rough expectations for Asia? If you have any additional comments by country and I even think of a project or two in South Korea as well. So any additional comments there would be helpful. Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, you know we've been saying this for quite a while, Chris, that we are very positive about growth opportunities in China. India is growing very fast; you don't see the results because we don't consolidate the numbers. We are making very good progress in Korea. We are executing a lot of – so we feel very positive about that region. Corning would you like to add anything? Corning F. Painter - Air Products & Chemicals, Inc.: Yeah. So let me just say, I think in China, it's across many different industry groups where we're seeing success, and you see that in merchant which really cuts across most manufacturing fields out there. In a country like Korea, the overall economy, I would say, is not quite as dynamic as the Chinese, but the electronics one is very strong, and we're well positioned to succeed there and have an active project in Pyeongtaek and are already building the second plant for that. So I think that's where we see the growth in a country like that. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC: Great, thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Sure.

We'll take our next question from Don Carson with Susquehanna Financial.

Good morning, Seifi. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, Don. How are you doing?

Very good, thank you. Question on the underlying business, you've had a pickup in volume growth. I think you were 6% for the year, but you were 9% for the quarter. If you strip out some of the new projects like India, it would appear that you're seeing some accelerating momentum in your base business in merchant and cylinder gas globally. Is that the case and how do you feel about that momentum as 2018 unfolds? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, I think that is the case quite honestly, when you look at what our competitors have announced, you get a sense for that. So overall, we are seeing positive signs for the overall industrial gas industry. And based on what we see right now, we are obviously positive for 2018, but anything can happen. But in general, there is a positive environment for all of us. Corning, you want to add? Corning F. Painter - Air Products & Chemicals, Inc.: Maybe just to clarify for that. In our base number, you know, India is in our equity affiliate. So the biggest driver you're seeing in there is really in the other areas. And if I was going to look in a region like Europe, the base business up 3%. and that's both package gases, which has been on a rebound for us for over a year. But the liquid bulk is a more positive trend for us. So I'd say mildly improving conditions, and that we're seeing that across many of the industries that we serve.

And Corning, how about in North America as opposed to Latin America, are you seeing an improvement in merchant business as well? Corning F. Painter - Air Products & Chemicals, Inc.: Don, to be clear, most of the improvement we saw was really in the HyCO space for us. I'd say we clearly had positive LOX/LIN volume growth for the quarter, but it was modest. Seifollah Ghasemi - Air Products & Chemicals, Inc.: The growth in the U.S. is very modest.

Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you.

We'll take our next question from Jeffrey Zekauskas with JPMorgan.

Hi good morning. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, Jeff.

Hi. There were $48 million in restructuring charges. Are those cash charges, or non-cash or what's the split? And in the funds flow statement there was $165 million annual benefit from other adjustments. Is that something that we'll repeat next year or it won't? Seifollah Ghasemi - Air Products & Chemicals, Inc.: I think, the best person to answer this, is Scott. Scott? Michael Scott Crocco - Air Products & Chemicals, Inc.: Sure. Hi, Jeff. This is Scott. So, in terms of the costs for the restructuring, yeah, there'll be cash costs that we'll see. We saw a little bit in this quarter, but most of it that will be seen early part of next year. So yes, there will be a cash cost that's in there. And the other thing in terms of the cash flow statement and a comment on the other tax election. So as I've mentioned, we took a restructuring over South America business that allowed us to recognize a loss that partially offset the gain for Evonik. So, we also saw a benefit, that could be $111 million of benefit to the cash flow statement, about a third of that came for forward in the fourth quarter and the other two-thirds will be in the second quarter, is when we expect to see that.

Okay. And then was the contribution from Jazan in the fourth quarter similar to what it was in the third quarter or different? And did you notice that Praxair signed a deal with BASF in the syngas area in Louisiana. And do you think that that shows that the syngas area is now sort of identified by the industrial gas industry generally and will become more competitive over time? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, with respect to the Jazan thing, I think there wasn't much of a difference between the third quarter and fourth quarter. And then with respect to the syngas, they did announce that they are doing something with BASF on syngas though quite honestly, a month ago, we did – about a month and a half ago, we are building bigger project for Huntsman in the same area. It's a very large HyCO unit providing CO to their MDI unit. So, I think, the idea of providing – they've been providing basically syngas to most of these companies when they build SMRs. The part that we are getting into is when that syngas is being converted to other materials like liquids or diesel fuel and so on, we are getting involved in that part and I'll leave it for the other company to come and if they are getting into that or not.

Okay. Good. Thank you so much. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you.

We'll take our next question from Duffy Fisher with Barclays.

Yeah. Good morning, fellas. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, Duffy. How are you?

Good. Just question again on Jazan, to follow-on there a little bit. That has been sequentially somewhat lumpier times since we've undertaken it. Can you give us any guidance as we go through this year, should we expect meaningful lumpiness and can you help us with which quarters might be up or down significantly if that's the case? Seifollah Ghasemi - Air Products & Chemicals, Inc.: I don't expect any lumpiness because quite honestly that project is going very smoothly. The reason that it was lumpy last year in 2016 was because we were not taking any profit for a while, just making sure that the project is real and is on-stream. But during the course of 2017, it has been very kind of not very lumpy and we don't expect that to be – we expect that to be smooth for the balance of 2018.

Okay. And then just on Lu'An, you talked about kind of that $0.25 of profitability the first year, should we think about that as a baseline that would then grow roughly in line with what Air Products does kind of 10%-plus, or is there some natural synergies there that would mean year two and year three should see meaningfully faster growth than what the base company would see? Michael Scott Crocco - Air Products & Chemicals, Inc.: Seifi. Seifollah Ghasemi - Air Products & Chemicals, Inc.: The agreement that we have on Lu'An is like our other onsite agreements. It is a fixed BFC. So, the profitability of that business is going to be approximately $0.25, $0.26 on an annual basis, and it will be the same in the future except for some adjustments for inflation. So, that's – it's not a business that is going to grow beyond adjustments that we have agreed with other side for inflation. So that is the good thing because it's not going to go down, it's going to be consistent and it's fixed fee that we charge to Lu'An for providing syngas. Thank you.

Terrific, thank you guys. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Sure.

We'll take our next question from P.J. Juvekar from Citi.

Yes, good morning. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning P.J.

Seifi, your backlog of $1.5 billion was – it's quite strong in Asia, but has only two projects on the U.S. Gulf Coast. So when the industry adds investment on the Gulf Coast, do you expect to see more projects down the road in your backlog? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Yes if there are projects done in the Gulf Coast, when they would happen, we expect to get our fair share of the market. Yes. But there are not that many projects being executed in the Gulf Coast.

Okay. And the long-term question for you, Seifi. You know a lot about lithium and electric cars, given your background from Rockwood. Do you think that electrification of automobiles will be negative for hydrogen assets for the industry? And you could end up with some stranded assets down the road? Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: No, not at all, I actually the way I see that P.J. is that I think that the industry, I'm not an expert, but I tell you my view. I think the industry is going to shift to electric for sure. But then people are going to find out that now they have to generate the electricity. And certain countries like China, they have a lot of coal that they can burn, it's called clean coal gasification, which is great for us, to use the coal and create clean electricity. But there are countries like Japan, how do you generate electricity in Japan? That is why in Japan, and you look at Toyota, they are not working on electric cars, they are working on hydrogen cars, because they don't have coal to generate electricity and they don't want to do nuclear. I see the transition over time by internal combustion engine, electric cars and eventually hydrogen. So we are very bullish on that and we are, as you know, the leader in this field. And this is a long-term thing, it will happen 15, 20 years from now. But right now we are very active in this area and we see actually a very great future for hydrogen cars, which would be a better solution in the long-term than electric cars.

And are you actively investing in hydrogen cars or creating hydrogen assets for hydrogen powered cars? Seifollah Ghasemi - Air Products & Chemicals, Inc.: We are actually investing, yes, quite a bit in – not in the production of the hydrogen cars, but in production of fueling station and creating fueling stations, so that when you have your hydrogen car, you can go like a gas station and fill your car with hydrogen. We have some of those operational. If you are in Los Angeles, we can show you those where it says Air Products and you can actually drive there and fill up your car with hydrogen. We are working on hundreds of these, we are working on those in the United States, in California. We have a joint venture now, with Shinwa in China to do this. We are working on this thing in Japan. We are working on this thing in Europe. Yes, we are active. I think of all of the industrial gas companies, we are the most active in this area.

Thank you very much. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you.

Take our next question from Kevin McCarthy with Vertical Research Partners.

Good morning. You know Seifi, over the past year in particular we've seen a lot of environmental-related supply constraints across various industries in China. If I look at your volume numbers in Asia they're up 17% I think you indicated two-thirds of that was new plants, so maybe you know mid-single digits baseline growth. And so my question is are you seeing or not seeing any impact from some of those supply constraints broadly in China? Or put differently, would your volume numbers in Asia be even better were that not the case? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Yes, the environmental constraints in China are very beneficial to us, because one of the effects of the environmental constraints is the shutting down of a lot of inefficient steel industry, which is basically elimination of our competitors because those are small steel companies. Each had an air suppression unit and there was a competitor. So from that point of view it's positive. The second thing is that China is moving in a big way towards clean coal technology and that is why you see all of these gasification projects. That is why we are focused on them. So overall, we are benefiting from the constraints that they are putting there. That is why, when we talk about growth in the future. You always see that we talk about energy, about environment and about emerging markets. So, that is a very positive trend for us. And fortunately, we are in a leading position of us coal gasification and we will see a lot of benefits and a lot of big projects in the future.

Thank you for that. And then, second question on EMEA. A volume of 18% there, what would that number have been, were it not for the new plant in India. How would you characterize the baseline growth regionally in EMEA? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Corning? Corning F. Painter - Air Products & Chemicals, Inc.: That would have been 3%.

Okay. Thank you very much.

We'll take our next question from Bob Koort with Goldman Sachs. Robert Koort - Goldman Sachs & Co. LLC: Thanks very much. Just a quick one, I'm wondering if there are any rays of hope out there on the LNG side? I think you said it's not going to get worse, but I guess we've seen oils rally 25% or 30% here in the last three or four months. Is that something that might start some increased activity? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, Bob. Bob, I said our LNG base basically is right now, is not making any money. We have restructured the business in such a way that we wouldn't lose anything. So we are at the bottom. Anything that happens will be on the upside. Depending on whom you talk to the industry and I'm sure you are very much – very knowledgeable on this thing, different people take different views. We are prepared to live with – we have said that 2018, we don't expect any improvement, but in 2019, 2020, I think it will come back because no matter how you look at it, the world expect – the world is going to need LNG. So, it's just a matter of riding through the cycle. But fortunately, for us the worst is over. Robert Koort - Goldman Sachs & Co. LLC: And Seifi, you characterized that China changed behavior towards some of these end markets or production assets helping you. Is there also some scope that, as we've seen in some industries, these will only be temporary adjustments, or do you think there is actually some permanent closure over there that's giving way to some sustainability in these trend? Seifollah Ghasemi - Air Products & Chemicals, Inc.: We are very optimistic that these are permanent thing, but Corning, you want to make some comments? Corning F. Painter - Air Products & Chemicals, Inc.: Yeah. I think that the underlying megatrend in China and their approach to steel and all of that is going to continue. I do think it could be a little bit bouncy between now and then and especially, let's say, in some of the wholesale business areas. Of course, we're moving more towards retail. But I think the underlying mega-trend is going to be sustained for some time. Seifollah Ghasemi - Air Products & Chemicals, Inc.: It's going to be good for us. Robert Koort - Goldman Sachs & Co. LLC: Got it. Thanks, guys. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Sure.

We'll take our next question from David Begleiter from Deutsche Bank.

Good morning, Seifi. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, David. How are you these days?

Well, thank you. Seifi, just on your 2018 guidance, I believe that you're looking for a $0.65 EPS increase at the midpoint. Do you have an earnings bridge to get from 2017 to 2018 for the $0.65? Seifollah Ghasemi - Air Products & Chemicals, Inc.: David, the Air Products used to do that, I told them to stop that, because we don't want to give too much information to our competitors. But basically, what is that $0.65, that $0.65 consists of productivity that we will continue to deliver. It will consist of new plants coming on-stream, which is not a lot if you exclude Lu'An. And then it will come from what we believe will be some modest growth in volumes and some modest growth in pricing. And then you add all of that up and come up with the $0.63. We obviously feel very confident that they can deliver that; otherwise we wouldn't put it in our guidance. But those are the key elements, but we don't break it down anymore as we used to do.

Very clear, and just on capital deployment Seifi, you know it's a – you know, you can't discuss it all happens. But is it more likely to be second half – first half and second half or vice versa in terms of when the next project or two might be announced for that $1 billion-plus of deployments? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, what do you want me to say David?

First, I'd like to say first half. Seifollah Ghasemi - Air Products & Chemicals, Inc.: We're trying. Okay, thanks.

Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Yeah.

We'll take our next question from Steve Byrne with Bank of America Merrill Lynch.

Hi, good morning. You had this price increase announcement about a month ago when your North American merchant business in the 10% to 20% range. Can you just comment on what's the average term of your North American merchant contracts, and therefore the percentage that might be up for renewal in any given year? And do you see this market tight enough for that to flow through upon contract renewal, or the risk of losing some of these accounts? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Corning will answer that. Corning? Corning F. Painter - Air Products & Chemicals, Inc.: Yeah, so let me speak about the term and then be a little more coy on the pricing just because I think of the competitive situation there. So, the term typically is five years, so you can think of about 20% of it coming up in any given year. Different contracts have different clauses in it, some get rolled before the five-year-period is up and so forth. So I would just say we work pricing hard, and that announcement is part of our overall pricing program, but I'd really not like to go into specifics around that.

And then one for you Seifi. One of your long-term plans was just a culture change at Air Products. How would you assess where you are at now? Do you see more to go there or has there been a sufficient amount of change in the overall company organization? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, on that front, I'm obviously pleased with the improvements that we have made, but I think there is more room to go. As I always tell our people, I'm happy where we are, but I'm never going to be satisfied. Whatever we are we can do even better than that. I think the people have responded very well. I'm very proud of the team. I always say that I'm very, quite honestly, very proud and honored to be part of this team. But there is still room to go. We have 15,000 people in this company and to claim that we have reached every one of them with the new culture would be an exaggeration. So, we do have more work to do, but we have made a lot of progress and I think the best example of that is our safety record because that we need the participation of all of the 15,000 people. And obviously, our financial performance. And it's not easy to improve the EBITDA margin of a company like Air Products, the size of Air Products, by 900 basis points in three years unless you had the full cooperation and support of all of the people. So I thank them for that. But as I said, there's always more room to go.

Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you.

And we'll take our next question from John Roberts with UBS.

Morning. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, John.

As the Jazan equipment sales ramped down, and with LNG at a low level, does it make sense to roll the global segment at some point into the regional segments and maybe take out some more overhead? Seifollah Ghasemi - Air Products & Chemicals, Inc.: No, the global thing is just what we report. It's not a different sector that somebody is running with their staff or anything, John. That's just how we report it to you, because I did not want to allocate corporate overhead to the regions. So that, it stands out and you can take a look at it and we can challenge it every day. But it's not an organization that if we kind of roll it into other things we would save any money.

Okay, I withdraw the question then. Any opportunities for Air Products to own 100% of Jazan? I mean, it seems like Saudi Arabia is more in a monetization mode as a country and obviously Air Products is in an investment mode here. Is that a possibility or you don't see that down the road? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, the thing is that if the 75% of Jazan that we don't own was owned by the Government of Saudi Arabia. I think we might have an argument on that. But the 75% that we do not own is owned by a private company, ACWA Energy, and they like Jazan as much as we do. So, unless we are willing to go and offer them a very high price, I think they like where they are. And certainly that company is a very strong company, and they are not suffering from cash. So, I think the possibility is very low, John.

Okay. Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you.

And we'll take our next question from Jim Sheehan with SunTrust.

Good morning. With respect to your cash flow focus and distributable cash flow for the outlook for 2018, where do you expect your maintenance CapEx level to be relative to $377 million in fiscal 2017. Seifollah Ghasemi - Air Products & Chemicals, Inc.: I think we are in solid ground to say that it would be around $400 million. Scott? Michael Scott Crocco - Air Products & Chemicals, Inc.: Yeah, I agree. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Yeah. Michael Scott Crocco - Air Products & Chemicals, Inc.: Roughly flat to this year. Seifollah Ghasemi - Air Products & Chemicals, Inc.: About $400 million.

Thank you very much. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you, Jim.

We'll take our next question from Mike Harrison with Seaport Global Securities.

Hi, good morning. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Hey, Mike, how are you these days?

Doing well. Thank you. Corning, can you quantify what was the hydrogen growth in the Americas and maybe give a little bit more color on the impact that the hurricane had. Was it all just lost volume or did you end up getting some unusual spot sales because competitors may have been out or people needed hydrogen in unusual places? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Mike, this is Seifi. I am certain that Corning can quantify exactly what the growth in hydrogen was, but he is not going to do that, because we don't want to give that information away. I'm sure you understand that, Mike, right?

Understood. And then I was wondering if you could comment on the progress that you're making in replacing the merchant revenue that was related to Airgas, just kind of update on what kind of impact you expect from the loss of that business and the timing of when it hits you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: That was a contract where we were not making a lot of money on it. So I'm not sure there was a huge loss on that. But, Corning, you want to – I don't think we're going to quantify anything for you, but Corning do you want to make any general comment? Corning F. Painter - Air Products & Chemicals, Inc.: Yeah. So, we're working hard to replace that volume and we've had modest volume growth, as I talked about earlier, in terms of LOX, LIN and LAR and so we continue to work that. You'll see a full quarter impact of that next quarter. Seifollah Ghasemi - Air Products & Chemicals, Inc.: And we have taken that into consideration...

Absolutely. Seifollah Ghasemi - Air Products & Chemicals, Inc.: ...obviously when we gave you our guidance. Corning F. Painter - Air Products & Chemicals, Inc.: Yeah.

And we'll take our next question from Laurence Alexander with Jefferies.

Hi, there, two quick ones. Can you characterize bidding activity and in particular whether the Lu'An JV returns are comparable to what you're seeing on new bids or if they're above average? And secondly, with reference to your discussion about hydrogen cars, are you seeing any shift, particularly in Europe, about carbon taxes and therefore renewed interest in your technology around Carbon Capture? Seifollah Ghasemi - Air Products & Chemicals, Inc.: With respect to Lu'An, I mean, we have told you that the Lu'An returns are – we don't take any projects less than 10%, so Lu'An is higher than that. With respect to Carbon Capture in Europe, we are seeing some legislation, but I think Corning is very informed on this thing; he can give you an answer. Go ahead. Corning F. Painter - Air Products & Chemicals, Inc.: Yeah. Let me just say, just a few weeks ago I was in Europe talking with a major customer about a Carbon Capture project. I think the conditions are always going to require government support and that's not fully in place, but the opportunities enough there that we're in direct conversations with people about it.

Okay. Thanks.

And we have no further questions at this time. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Okay. With that, I would like to thank everybody for being on our call today. 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. Have a very nice day and all the very best.

And that does conclude today's call. Thank you for your participation. You may now disconnect.