Hi. Good morning. I'm Jeffrey Zekauskas. I analyze chemicals for J.P. Morgan. This morning it's my pleasure to introduce the management of Air Products. Representing Air Products is Eduardo Menezes, who's been CEO for one year. Eduardo had a long tenure at both Linde and before that, Praxair. I think he managed every major geographic region at one time or another for Praxair or Linde. He's come to Air Products to change the direction of the company. He's joined by Melissa Schaeffer, who's Chief Financial Officer since 2021, and Megan Britt, the head of IR in the audience, as is Caitlin Miller, her assistant. The form of our presentation this morning will be a fireside chat. Eduardo, the world's changed with the conflict in Iran. Is this something that's touched Air Products' business or touched either demand or the way your customers are looking for your services? Well, absolutely right. The last 3 weeks have been a little hectic to say the least. I would divide the effects into two categories, right? We have the effects on the ground, in the region. Air Products has a significant presence in the Middle East. It's a combination of, you know, companies that we own 100% that operate in several countries, normally around Saudi Arabia. We have operations in Oman, in Qatar, in UAE, and in Bahrain. We also have operations in Egypt and Israel. They're also owned 100% by Air Products. In the Kingdom of Saudi Arabia, we have several joint ventures that we own between 25%-50%, and those joint ventures, they vary from, you know, the largest traditional industrial gas company in Saudi Arabia that we own 25% for several years now, which is a, you know, not a big number in terms of revenue, but it's a lot of employees in the area. We have the joint ventures with Saudi Aramco in Jazan and in Jubail, and we have the project under construction in NEOM. Overall, we have, you know, directly and indirectly with the joint ventures, thousands of employees in the region. Main concern is the security of our people, make sure that everyone is safe, make sure that you know we are taking the right actions to protect the people and the assets, and that has been a lot of the efforts we have. These are the direct impact. I would say that other than you know a closure in a plant, a small plant here and there, and some issues bringing people from the outside of the region traveling in and out, we haven't feel a lot of impacts on that. You know, the business will suffer over there, although it's a small business for us in terms of top line on what we consolidate. That is the impact in the region. On top of that, of course, we have the impact outside of the region, you know, with the closure of the Strait of Hormuz. Everybody knows about that, QatarEnergy basically stopped shipping LNG, shut down the plants. That has an impact, a significant impact on energy prices in Europe for us, that we have a large operation there. We have the impact in helium that is affecting the global supply, although at this point, our own production out of Qatar was relatively small. We are not being affected directly on that, but indirectly with the entire market. With energy prices, I think energy prices in Europe are $17/MMBtu, on that order of magnitude. Obviously, naphtha values are higher, and so gasoline values go up. How does Air Products prepare for this inflation that it will face in its operations? Are you placing surcharges yet, or you're waiting to see what the duration of the conflict is? Yeah, you have two different kinds of effects there. Natural gas went as soon as they started the war, went to $15 per MMBtu, jumped to $18. Yeah. They tell me it varies every day. Yeah. We have a significant consumption in our hydrogen plants. Those agreements, normally we have a pass-through, so that goes straight to the customer. Uh-huh. You know, we may have an effect if the consumption goes up or down a little bit, but that doesn't affect so much our bottom line. It's more an effect on the pass-through on the revenue side. In addition to that, of course, when you have the natural gas prices going up, energy prices go up, right? We have energy prices, you know, and that affects our air separation side of the business. Yes, More than anything else. On the air separation side, on the large agreements where we have pipelines, we have the same scheme that I described for hydrogen and natural gas, a pass-through. On the liquid business, a little more complicated. We have formulas and we have triggers. We have some cases we have to do surcharges. We try to pass that to the customers as fast as we can. You know, of course, the environment is very complicated right now with this high energy prices in Europe. The part of the business in Europe that's affected, I would imagine, would be the merchant business. Correct. Do you try to move quickly, or there's a natural piece of inflation that begins to pass through so that the, you know, the customer gets to see things, and then what you do is you capture the margin with a lag? Is that the s- Yeah, there. general strategy? Yeah. There is always a little bit of a lag, but we try to keep that to a minimum as much as we can. Mm-hmm. 'Cause, you know, you never know what the volumes will be after that, so you can be unfair to the customer, to yourself if the volumes fluctuated, you know, between the time you observe the increase in cost to the time that you're able to pass that to the customer. You spoke of QatarEnergy closing its LNG operations or suspending them for a time, and of course, they're a large supplier of helium. You know, when you think about the helium industry, you have caverns and Linde has caverns, Air Liquide has caverns. You know, if you look across the world, how much helium is in those caverns relative to the global market? Yeah. I think you can find information on the size of the cavern, the theoretical size of these caverns. How much is inside the cavern is something that we only know for ourselves, right? Yes. Yeah. Yeah. We have no clue of h ow much our competitors have in their caverns. It's a relatively new, you know, new thing for the industry 'cause before we had the BLM that had a big dome that, you know, basically worked as a storage. I think when the BLM started to dwindle, you know, the companies tried to understand what to do. I think, Air Liquide was the first one to put a cavern in Germany, which, you know, was a little bit of a different place. We were the second ones to put a cavern. We opted to do that in Texas. Again, a cavern is a. We do a lot of work to take helium from natural gas to purify and to liquefy that, right? You're storing large volumes of liquid is not practical, you know, for the temperature and the cost of doing that. Yep. You need to store as gas in a cavern like that. You need to take the liquid, basically pump and vaporize or vaporize and compress, but you need to store that in a cavern in a gas phase. Mm-hmm. You need to take out of the cavern and you need to liquefy that again. Mm-hmm. What we elected to do in U.S., we had big liquefaction plants in the center of the country, in Kansas and the Panhandle of Texas, that were designed for operating with the BLM reserves. We basically have a structure that we have the cavern in Texas, and if we need to get product out of that cavern, we take the product in the form of gas. We have some special transportation equipment that we bought, and we designed and bought specifically for that in a gas phase that moves the product to Kansas, and then we can re-liquefy the product and put back in the supply chain. It is a little bit of a complicated scheme takes some time to basically put that in motion and we did that since the war started and we, you know, will try to run our liquefaction plant at full capacity as we used to have many years ago. We still run the plant, you know, independent of all that 'cause we still have a little bit of a supply there in the area. We're gonna run that plant at the full capacity using these high pressure tube trailers of gas that we'll bring from Texas there. When I think about the cavern storage space for the industry, it looks to me like it's about a year's worth of helium supply if the caverns were full. Do you think that's fair? I think globally, a little less than that. You know, we didn't design and build this cavern for others, right? We did it. No, for yourself. for our own supply. Mm-hmm. Yeah, that's correct. If you take the entire global volume and all the caverns together, I don't think we get there and I think the largest one that was commissioned by our competitor in Texas. Yeah. I think was relatively recently. I have no idea how much product they have there, but it's not very likely that it's full, you know, you need to assess that. Yeah. No, no. Qatar's output I thought was about 55 million cubic meters out of a 176 million cubic meter market. If the industry can liquefy, and if its caverns are maybe 60% full, in theory, there should be enough to cover the shortage over even a very extended period of time. Do you think that's fair? Or do you think conditions are different? Yeah. Again, I know my numbers. I know for us it's true. Mm-hmm. I think for the others, I don't know how much. You know, the assumption of if the cavern is full is very big. Yeah. I don't know how much liquefaction they have associated with each of these assets. Mm-hmm. This is not a market that's different from air separation that we have the control of the molecule, the control of the production chain. Basically, helium is a byproduct from natural gas, right? One of our biggest sources was Algeria, and our plant in Algeria was down for several months. We're very lucky that this plant is back, you know, the last two weeks. Mm-hmm. Right? We don't control the sources, right? That's. I keep saying that the helium market became much more volatile in the last few years when the BLM went away. I think Air Products is doing the right things, thinking about the security of supply for our customers, and that's what we're focused on. We will be able to continue to supply our customers. When we have Algeria, you know, full in the supply chain, and we have the liquefaction in the U.S. full in the supply chain, we'll have even a little more that we can take over, you know, volumes from that are not being supplied by others. It's not that much, and I don't know the position from the others to know if the entire market will be in balance. I think there is a lot of people talking about that a lot. I think at the end of the day, the most critical customers, the industry will find a way to keep them supplied the next few months even if the conflict goes forward. You're gonna have some hiccups here and there, and you're gonna have some less vital sectors that will suffer a little more than the you know electronics or MRIs and that kind of stuff. Do you hold helium inventory for the large electronics customers, or do they keep their own inventory on hand? In most cases, the customers don't own the containers, so the industrial gas companies own the containers. We will have whatever containers we have at the site, you know. Mm-hmm You know. In some locations because of the structure of supply, 'cause we supply directly to some very large customers with containers. We also supply our own transfill units where we take helium from large containers and we put in smaller dewars and cylinders and so forth. For example, in Europe we have a place where we have a certain inventory of containers, of full containers, you know, because we don't have, you know, helium production in Europe. It comes from Qatar, it comes from the U.S. or from Algeria. So we have some inventory. But you're talking about, you know, high single digit number of containers, you know. That can help the industry. I think that all the competitors do the same. I think that will help the industry for a period of few weeks but f you go for months, you know, the inventory, you know, really will be consumed. You know, I think a helium consultant made a comment that since the conflict began, helium prices were up between, I don't know, 20% and 40%. Mm-hmm. That's not the industrial gas spot price. That's the price of buying helium from a raw source. Is that correct? No. Or if you're- I think it's a consultant, so you take it to the value of that. You know, there are spot sales from some of the sources. Of course, we, you know, if they have a spot sale, they will go up. I'm not in that market. I'm not buying spot product in the market. Mm-hmm. You know, a lot of our contracts are long term, so they have prices. The ones that are not, we are pricing them, you know, as we normally do in our activities every day. Has your helium business changed very much in terms of prices or volumes since the conflict began? Or it's so small- No, you cannot change that much in two weeks, Jeff. It's, you know, it's an 85-year-old company. In two weeks, we don't change that much. Okay. Maybe a last question on helium. Can you tell us just a little bit about the Gardner business that you have, and a little bit about, you know, how many containers are shipped either per day or per year, and how Air Products fits into the helium supply chain? Well, Gardner is a company that has been producing these helium containers for decades now. It in fact was an acquisition by Air Products. I don't know, seventies or eighties. Hmm. It's right there in Allentown, you know, right next door. The entire helium market globally, I would say, you know, has a couple thousand containers that were built during the history that are still in activity. We probably have, you know, a very significant piece of that that was built by Gardner, right? Historically, we keep that business, you know, on the side. We produce containers for our products is our first priority. If we have capacity, we'll produce containers for others as well. Mm-hmm. You know, their specialty is not really only helium, right? It's deep cryogenic. Cryogenics of helium and hydrogen. Mm-hmm. They produce also liquid hydrogen containers, liquid hydrogen tanks, which are very specialized as well, you know, for the temperatures that they operate. Yeah. Thank you for that. Since the conflict began, you know, there's been all kinds of oil prices, different refinery values. When you look at your business in North America, have the volume patterns changed recently? Our volumes have been very strong, but I'll let Melissa, you know, comment on that as well. The next three weeks, if we have any changes on that. Well, yes. The last three weeks is a little bit of a near term. What we did see even leading up to the war was actually we saw the refineries running very strong. Our HyCO business in the U.S. has been running very, very strong. We've got a HyCO asset in Europe that was also running very strong. We have continued to see those volumes increase both before and during, during the crisis. The chemical industry, you know, do you detect a change in their operating rates in the U.S.? A little too early to say. I think the U.S. will be, you know, one of the areas that will gain with this crisis because of the natural gas prices. Yes. They should be operating at higher volumes. Mm-hmm. It's, you know, a little too early to say. It's a little too early to say. Some of the PMIs for January and for February were positive for g- Unit. for goods production in the U.S. Did you detect a change in your business, or since the PMIs were so negative in December and November, was it more a reaction to that weaker period? It's a good question. You know, we actually have seen pretty strong volumes in the Americas. We saw relatively strong volumes in Q1. We've seen that continue to progress in January and February. Obviously, we're you know, getting too close to the end of the quarter. We'll be assessing the full quarter. Yes, the answer is we have seen volumes increase in the Americas. Now, if that's a short-term, you know, phenomenon, we'll see. It seems like sequentially we have seen volumes continue to be pretty strong in the Americas. The industrial gas industry has been characterized over a multi-year period by positive pricing and generally weak volumes or flattish volumes. In the case of Air Products, I think your sequential prices have been flat for three quarters in a row. Now, sometimes when you calculate it, there's rounding, and so things can kind of move up or, you know, change. Can you talk about the last three quarters of pricing and why pricing seems to be flattening out for the industrial gas companies, if it is? Yeah, I think there's a lot of things that go on this math, including helium. That was under significant pressure in terms of pri- Yes. ... in terms of price for the last several quarters. Melissa, you can You know, I think that's spot on. What you're seeing right now, Jeff, is really just the helium story, right? Pricing has taken a hit on helium, which we've talked about, right. For the last couple of years, we've seen pricing take a hit on helium. Non-helium pricing, however, has been pretty strong. We've seen improvements in both the Americas and Europe in non-helium pricing. Yeah. Asia is still pretty flat on the non-helium space. In the Americas and Europe, we are seeing appreciation in pricing. I believe last year, when you gave your outlook for fiscal 2026, you said, you know, "Helium is tough for us. You know, maybe it will hurt us by $150 million." I think 95% of your helium business is contracted under long-term contracts. Correct. Because of those contractual obligations, is that forecast still realistic for this year as a base case because of the way the contractual terms worked? Yeah, I think it's a little early to say, Jeff. When we give the forecast, we include in the forecast our expectation of several renewals of these agreements during the year, right? Yes. You know, that is included in the math. That's awesome. Now with this crisis, I would say that we have a better chance to renew these contracts in a better terms than we anticipated before. Yeah. Mm-hmm. Again, it's only two or three weeks, and we need to see. Mm-hmm You know, what the effects will be. Maybe you can give us an update on the NEOM project. You know, what's the status? Mm-hmm. Where is it in its construction? Has it been slowed by the conflict in the Middle East or- No. not really touched very much? No, it hasn't been touched that much. I would say that you know, the only concern we have right now is for people moving in and out of the region. You know, traveling is a little bit restricted now, so we put a lot of procedures for that. We're trying to facilitate that, but you know, there is an effect on that. But at this point, we don't expect that will have an effect on the schedule of the project. The project is basically three different sites, one for wind power generation, one for solar, and the other site, the biggest site is where we have the electrolyzers, you know, the hydrogen generation, the ammonia plant, the ammonia tanks, and so forth. I would say that the two power sites are almost complete at this point. The solar is basically done. The wind, I think we have 1 or 2, you know, less than 10 turbines to finish. The transmission powers, you know, the transmission towers are done. On the power side, we're very close to be completed right now, which is what we had to do because this is a very complicated startup process and that we cannot start the plant without having the power, right? We are generating our own power. This is done. The construction on the main site is very advanced. I would say that we have several areas that are already in commissioning. We are commissioning the air separation plant. We are commissioning you know the tanks, the flare, the things like that. We will progress with that commissioning during this year, and the intent is to start making ammonia by the end of the year and get to full production some point in 2027. It is a first-of-a-kind plant. You know, it's never built anything before this size. The aspects of having renewable power and the obligation that we have on ourselves to produce ammonia 100% of the time with renewable power, right? Which is, you know, varies from day to night, from wind to no wind, and so forth. This is all new in the system, so we are working on all that. It is, you know, I think we have images on our website. It's a fantastic project from an engineering point of view. Mm-hmm. You know, we're not gonna be done until we're done and the product is in the tank. I think the capacity of NEOM is 1.1 million tons of ammonia. You know, call it a million tons. Air Products hasn't really disclosed exactly what it buys the ammonia for. I don't know, maybe it's $500 a ton and maybe ammonia's order of magnitude is $600 a ton, so maybe you'll make $100 a ton. Is the general expectation that maybe you'll make $100 million a year from NEOM when it's fully up and running, plus or minus a little bit? It's on a $5 billion EBITDA base, so, you know, in, you know, in terms of Air Products. You know, it's a large project. Mm-hmm For Air Products, you know, that's the rough math. Yeah. Well, first of all, the plant can make a little more than that. I think the expected volume is around 1.1 million tons. The plant is, I think, rated for 4,000 tons a day, so you can do the math. Yep. It's because you have to count on these fluctuations on day, night, and power. Yes. Yep. and so forth, right? Yep. Net production, you know, around 1.1 million. That's the expectation at this point. Yeah, the price is something that we keep very, you know, undisclosed if you want for now. It is a new product. You know, it's the first large-scale green ammonia plant in the world. You are doing your math with what you think the price is there versus what the market price is for gray ammonia, right? Right. It's a simple math and that you can think that way. Of course, our objective, we didn't build that plant to sell ammonia at gray ammonia prices, right? That would be a mistake, right? Mm-hmm. You could have made a mistake, but not on that on purpose, right? The objective here is to sell that as a premium, right? How much we're gonna be able to sell as a premium on year one is a question mark, but I can guarantee you the number is gonna be lower than the number that we're gonna be able to sell year five or year 10 or year 15. Mm-hmm. There will be a progression in the margin, because our cost is basically fixed for the duration of the agreement because we don't have a variable cost. Mm-hmm. It's all back integrated. You know, we're working very hard to maximize the numbers. You know, it's there are a lot of announcements in this industry. I think two days ago, there was a big announcement, you know, from other people. No one can show you a plant that is really under construction. Mm-hmm. That is really gonna be there. Frankly, you know, very difficult to find a place better positioned to do this project than Saudi Arabia, you know, because of the wind and solar characteristics, the value of the land and so forth. I think we're gonna have a project that in the long term will be a very good project for Air Products. Short term is difficult to forecast, and we are gonna work as much as we can to make as much as we can. But your math is based on current prices, which by the way, are higher than that now. Yeah. No. No. you know, because of the It's true. conflict as well. We will need to see what happens then. It sounds like you aspire to earning more than $100 a ton. It's simple math. We talked about that. The total project $8 billion-$9 billion, you know, I think $9 billion. If you take 30% of ownership of our products, right? You know, $100 billion is not the right number for if your investment is $30 billion. Right. Yeah. It's not that difficult. Is the basic plan to sell ammonia up until 2030, rather than hydrogen from the plant at NEOM, and then you'll see what the status of your TotalEnergies relationship is in Europe? Because you're obligated to provide them with hydrogen on the site. Yeah. We'll know way before 2030 what we'll be doing in terms of hydrogen in 2030. 2030 is the date to date from the EU for the new legislation that you have to use RFNBO fuels. You know, there is a directive from the EU that has been transposing by each country. There is a delay in the process. Now they tell us that they're gonna have the transposition done by the summertime. Hopefully by some point at the end of the summer of this year we'll know, you know, how much demand will be in Europe for this product. We have to wait for that to understand, and we're gonna need to make investments in the you know to transform this ammonia into hydrogens, right? In the meantime, we need to do something with the ammonia that we're buying. Mm-hmm. Since 2027, so that's why we're working on that. Of course, you know, even after that, if the market is better for ammonia than it is for hydrogen, that's what we're gonna do. Mm-hmm. It's not, you know, we don't have an obligation to go one way, one direction or another. We need to do the best we can for our own shareholders. Is the contractual arrangement with Total an arrangement where either party can decide not to go forward with the arrangement if it's economically unfeasible for either party? It's not economically unfeasible if the legislation doesn't support the project the way we want the project to go forward. It's related to what will be the legislation in each country. It's for the countries where they have operations and they're interested in having hydrogen supply. Mm-hmm. If they do not have a refinery in Portugal, it doesn't matter what the legislation is for Portugal. Just for Mm-hmm you know, mainly, Belgium, well, the Netherlands, Germany and France. Mm-hmm. which are the biggest targets here. Of course, there's your Darrow project with, you know, the Europeans. When you think of where you were with Yara when you first negotiated the agreement and you think of where you are now, you know, how is your attitude toward the project different? That is, what understandings do you have, or how do you think about the project differently now than when you did when you first announced it? No, it's. You know, what we're trying to do is really a partnership, a strategic partnership between, you know, the largest hydrogen producer in the world with the largest ammonia producer in the world. We're not doing that thinking about the short term. We're not talking about that thinking about only one specific agreement. We're doing that thinking about, you know, what we can do together. I think the level of cooperation is very high. We are working together on the understanding of, on the development of the project. The contracts that we have with engineering companies. You know, Yara's participating, you know, helping with the design and giving their opinions on things that we should have done. We are trying to work together in this phase, and I think nothing changed at this point. We're gonna get to a resolution by midyear. Mm-hmm. You know, if both sides believe that we have a feasible project, we're gonna go forward. If we don't, we're not gonna go forward. It's simple. Okay. Okay? Thank you very much. Thank you. Thank you for your attention.