Air Products and Chemicals, Inc. (APD)

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Air Products and Chemicals, Inc. (APD)

Goldman Sachs Basic Materials Conference

May 22, 2013 1:45 pm ET

Executives

Corning F. Painter - Senior Vice President of Supply Chain

Analysts

Brian Maguire - Goldman Sachs Group Inc., Research Division

Neal Sangani - Goldman Sachs Group Inc., Research Division

Presentation

Brian Maguire - Goldman Sachs Group Inc., Research Division

Get into the homestretch now. Two more companies left today, and one of them is Air Products. We're happy to have Corning Painter here to give their story.

Corning F. Painter

Thank you, Brian, for that orientation. The concept of right off the bat that you're in for the homestretch though, it does sort of set a certain expectation about time and so forth and going through. But seriously, we do appreciate the chance to be here today, have a chance to share with you guys the Air Products story. I'm joined by Ken Walk, who's our Manager of Investor Relations. I'm the Senior Vice President for Supply Chain. In the world of Air Products, that means I'm responsible for manufacturing, operations, engineering, procurement and EHS.

So as always, today's presentation may contain certain forward-looking statements based on our current expectations of -- I'm sorry, regarding important risk factors. So let me start out with a couple of slides just sort of orientating Air Products and the industrial gas industry, and some of the inherent stability that you see in our business model.

So we're a $10 billion company, but you could see a wide range of end industries that we sell into. And that gives us a certain stability in our cash flow, in our business that's, I think, not able to be enjoyed by all of our colleagues in the chemical industry, that we've got such a diversity in this. And if you look at it, the 2 largest areas for us are energy and chemicals. And in these areas, we're doing things like supplying hydrogen into refineries for clean-burning transportation fuels. We're supplying oxygen in the coal gas suppliers, largely in China today that can feed both the chemicals and the energy segments. We're doing things with LNG technology. We're the world's largest supplier of the LNG liquefiers. Fully 80% of the liquefied natural gas in the world today is liquefied in equipment that we've supplied. So we're very active in that part of the segments today. And I think there's higher growth in that segment today because the energy market kind of acts as an economic driver beyond just that of general manufacturing. And I think what we would say is on the right-hand side of this graph, things like electronics, manufacturing, fabrication, that sort of thing, that it's just a little bit slower economic environment today. And you see that in our backlog. The majority of our backlog is really more related to the left-hand side of this graphic, in the energy and in the chemicals space.

So that's a sense of our business by where the product goes sort of business-wise or segment-wise. If we look at it from a geographic point of the view, you'll see we're also very diversified here, and once again, it gives us a lot of stability. Things can happen in one part of the world where we're not really tied to. Our fate isn't really tied to any one particular market. You can see the United States and Canada represent 40%, so over 60% of our revenue coming from other sources. The number there in Asia, we're particularly proud of, just 5 years ago, that would've been about 17% and we've been able to really move that number up. And this area where there really is, I think, still today probably the most dynamic manufacturing growth environment around. And speaking personally, I lived in the region for 8 years.

And just to shift gears for a second on this slide. If we kind of do a walk around the world, what do we see business-wise, what do we think is going on, because of that previous slide where we're so diversified in the markets that we serve, if I think about our Merchant business where we truck modest quantities of oxygen, hydrogen, argon, nitrogen around to various customers, it tends to reflect the general manufacturing. And so if we start in Europe today, I think what we see is what many companies see, that the economy there is still really in a difficult situation with the volumes perhaps still slightly trending down, just reflecting the overall economic situation there. And then if we go over into Asia, really focusing mainly on China, again, an area which has seen economic weakness compared to their traditional historic growth rates. And I think from our perspective, as we look out into the second half of the year, we would say that, that probably continues in this time frame. We don't see a dramatic change or uptick in that market. And finally, in North America, sort of more of the same there as well, to be honest, that we would say that there is growth, right, and I'd say also there is a decline in the number of customers who are really getting into economic problems or who are dramatically cutting back on their production. Things at the bottom end have sort of stabilized and there is some growth in that space with the stronger customers, but it's not like a super robust growth story. And that then really sets the groundworks for our Merchant Gas business.

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