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John Mc Glade President and CEO Lehman Brothers 2008 Industrial Select Conference February 11, 2008
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John Mc GladePresident and CEOLehman Brothers2008 Industrial Select ConferenceFebruary 11, 2008
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ForwardForward--Looking Statements Looking Statements NOTE: This presentation contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management’s reasonable expectations and assumptions as of the date of this presentation regarding important risk factors. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors, including, without limitation, overall economic and business conditions different than those currently anticipated; future financial and operating performance of major customers and industries served by Air Products; the impact of competitive products and pricing; interruption in ordinary sources of supply of raw materials; the ability to recover unanticipated increased energy and raw material costs from customers; costs and outcomes of litigation or regulatory activities; consequences of acts of war or terrorism impacting the United States’ and other markets; the effects of a pandemic or epidemic or a natural disaster; charges related to portfolio management and cost reduction actions; the success of implementing cost reduction programs and achieving anticipated acquisition synergies; the timing, impact and other uncertainties of future acquisitions or divestitures; unanticipated contract terminations or customer cancellation or postponement of sales; significant fluctuations in interest rates and foreign currencies from that currently anticipated; the impact of new or changed tax and other legislation and regulations in jurisdictions in which Air Products and its affiliates operate; the impact of new or changed financial accounting standards; and the timing and rate at which tax credits can be utilized. The company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this presentation to reflect any change in the company’s assumptions, beliefs or expectations or any change in events, conditions or circumstances upon which any such forward-looking statements are based.
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Air Products Air Products At a glanceAt a glance
$10B companyDiverse markets and geographiesPositioned for continued long-term value creation
FY07 Geographic Sales
United States(44%)
Asia(17%)
Europe(32%)
Canada/LatinAmerica (5%)
FY07 Segment SalesROW (2%)
MerchantGases(34%)
TonnageGases(31%)
Equipment & Energy
(6%)Healthcare
(7%)Electronics &
Performance Materials(22%)
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Supply Modes Supply Modes Durable Business ModelsDurable Business Models
Package Gases & Specialty Materials
25%
Onsite/Pipeline36%
Liquid/Bulk21%
10, 15 and 20-year contractsTake-or-pay
Contractual energy pass-throughFormula escalation
3-5 year contractsRegional business
Cost pass-through/surcharges
Equipment & Services 18%
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Transforming Air Products
Morefocused
Lesscyclical
Higherreturn
Higher growth
66
Transforming Air Products
Lesscyclical
Higherreturn
Higher growth
Global organizationGlobal segmentsCapex discipline
Morefocused
77
Transforming Air Products
Morefocused
Higherreturn
Higher growth
Sold amines, emulsions and HPPCTonnage a greater % of our portfolioElectronics restructuring
Lesscyclical
88
Lesscyclical
Transforming Air Products
Morefocused
Higherreturn
Poland, China, India, Western Canada, Middle EastHydrogen for clean fuelsOxygen for environmental and energy sectorsElectronics market leadership
Higher growth
99
Lesscyclical
Transforming Air Products
Morefocused
Higher growth
Price and margin improvementSAP driving productivity acceleration High margin offerings and applications
Higherreturn
1010
Lesscyclical
Higherreturn
Higher growth
Morefocused
Morefocused
Lesscyclical
Higherreturn
Higher growth
Transforming Air Products
The APDTransformation
The APDTransformation
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Merchant GasesMerchant GasesContinued Strong PerformanceContinued Strong Performance
Sales
0
500
1000
1500
2000
2500
3000
3500
2004 2005 2006 2007
Operating Income & Margin
0
100
200
300
400
500
600
700
2004 2005 2006 200710.0%
12.0%
14.0%
16.0%
18.0%
20.0%$MM $MM
Revenue by region ($, FY07)
Europe PG
North America
ROWEquipment
Europe LB
Asia
12% CAGR
• Continue delivering double-digit growth
- Solid growth in Asia
- Expanding in Eastern/Central Europe
- New offerings success
• Ability to achieve 20% operating margins
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Electronics & Performance MaterialsElectronics & Performance MaterialsSolid Margin ImprovementSolid Margin Improvement
Sales
0
500
1000
1500
2000
2500
2004 2005 2006 2007
Operating Income & Margin
0
50
100
150
200
250
2004 2005 2006 20070.0%
3.0%
6.0%
9.0%
12.0%
15.0%$MM $MM
11% CAGR
Asia (40%)
North America (40%)
Latin America (2%)Europe
(18%)
Revenue by region ($, FY07) • Excellent profit and return improvement
• Continue delivering double-digit growth
• Achieve 15% operating margins
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Tonnage GasesTonnage GasesExciting Growth OpportunitiesExciting Growth Opportunities
Sales
0
500
1000
1500
2000
2500
3000
3500
2004 2005 2006 2007
Operating Income & Margin
050
100150200250300350400450
2004 2005 2006 200710.0%
12.0%
14.0%
16.0%
18.0%
20.0%$MM $MM
Investment by Region
North America
Asia
Europe & Middle East
16% CAGR
• Significant profit growth and improvement in capital returns
• Significant large plant bidding opportunities (both H2 & O2) continue
• Continued 10%-15% H2 growth
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Plaquemine
Geismar
Lake Pontchartrain
Convent
Cosmar
Taft
Geismar10
NolaNew Orleans
Chalmette
LouisianaBaton Rouge
BPCarson
ShellWilmington
DominguezChannel
Conoco PhillipsWilmington
Conoco Phillips Carson
VAN NESSAVE.
SepulvedaBlvd
Anaheim Street
91
LongBeachArpt.
190th
St.
Carson H2
Wilmington H2
710
405
405
110
1
110
SouthernCalifornia
APD HyCO facilitiesH2 pipelineCO pipelineSyngas pipeline
1414630630
1414
1616
2121
CN RAIL Edmonton,Canada
SherwoodPark
Petro-CanadaImperial Oil
1616
Mont Belvieu
Port Arthur
Bayport
Battleground
Pasadena
City of Houston
Clear Lake
Baytown 2
LaPorte
Texas City
10
45
610
Lake CharlesBeaumont
225
73
6910
Zwijndrecht
To Moerdijk
Europoort
Pernis
Botlek
Rotterdam
40
40
Corunna
Suncor
Shell Refinery
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ST.CLAIR RIVER
Air Products Canada
SarniaCanada
ValeroWilmington
Texas
Strong Hydrogen Pipeline PositionsStrong Hydrogen Pipeline Positions
SF BayRefineries
TarragonaRefinery
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Tonnage GasesTonnage GasesWorldwide Leadership in GasificationWorldwide Leadership in Gasification
A leading O2 supplier to gasification facilities
Design, build, own and operate units for syngas, H2 and CO for pipeline systems:– NG-based POX units– Syngas cleanup/separation
Recent wins:– Duke Energy– Eastman in Texas– Wison II in China – BP clean power in California
0
5,000
10,000
15,000
20,000
25,000
APD Comp X Comp Y Comp Z
O2 for Gasification/ ATR Customers(TPD)
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Italy
$480M
Equity Affiliate Income $114MEquity Affiliate Income $114MFY07 Revenues 100% basis $2BFY07 Revenues 100% basis $2B
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South Africa$135M
India
$90MThailand
$85M
Mexico
$550M
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Sales ($B)………………EPS* ($/share)…….......ORONA* (%) …………..ROCE* (%)……………..SG&A / Sales (%)*……
Balance sheet………….Shareholder value…….
A Healthy Report CardA Healthy Report CardFour consecutive yearsFour consecutive years
9.4%$2.52
14.3%
“A” ratingDividend increase & share repurchase
$6.9 $7.7 $8.8
* Comparisons are non-GAAP. See appendix slide for GAAP reconciliation.
FY04 FY05 FY06
$2.92 $3.49
10.0%
13.6% 12.3%
11.4%
FY07
$10.0
$4.37
12.5%
11.8%9.9% 10.5% 11.6% 12.7%
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($Millions, Continuing Operations)Fav/(Unfav) vs.
Q1 FY08 Q1 FY07 Q4 FY07*
* Comparison is non-GAAP, see appendix for reconciliation
Solid underlying growth (excl. Equipment & Energy)Driving margins & ROC higher
Sales $2,474 9% 1%SG&A as a % of Sales 12.0% 10bp 10bpOperating Income $372 17% 5%Operating Margin % 15.0% 100bp 40bpNet Income $257 16% 2%Diluted EPS $1.16 17% 4%ROCE 12.3% 70bp -ORONA 12.5% 80bp 10bp
Consolidated Q1 FinancialsConsolidated Q1 FinancialsDelivering Leverage Delivering Leverage
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Outlook for Industrial GasesOutlook for Industrial GasesContinued StrengthContinued Strength
Global outlook for gases tracking on forecast
Future demand drivers are strong– High energy costs efficiencies– High capital costs debottlenecking– Environmental pressures new applications
Well positioned globally with market leadership– Hydrogen for clean fuels– Oxygen for gasification– Electronics
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Air Products Value PropositionAir Products Value PropositionProfitable GrowthProfitable Growth
Stability– Long term contracts– Consistent and predictable
cash flows – Strong balance sheet
Growth– Growing project backlog– High bidding activity– Energy opportunities
Improving returns– Margin improvement– Productivity– Increasing dividends– Share buyback
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2008 and Beyond2008 and BeyondSustainable DoubleSustainable Double--Digit GrowthDigit Growthat Superior Returnsat Superior Returns
Targeting sustainable double-digit EPS growth– 15% to 19% EPS growth in FY 08
● Targeting 300bp margin improvement over 3 years– Cost reduction and SG&A improvement– Accelerated productivity– 100 basis points in FY 08
Targeting a ROCE 3% to 5 % above our cost of capital
More Focused, Less Cyclical,More Focused, Less Cyclical,Higher Growth, Higher ReturnsHigher Growth, Higher Returns
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tell me morewww.airproducts.com
Thank you
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ORONA = Operating Return on Net AssetsOperating Income
Average (Net Assets – Equity Affiliate Investment)
ROCE = Return on Capital Employed(Oper Inc BT + Equity Affiliate Inc BT)x(1- ETR)
Average (Debt + Equity + Minority Interest)
ROCE … more inclusive– Equity Affiliate Income– After Tax
Return On Capital MeasuresReturn On Capital MeasuresTransitioning to ROCETransitioning to ROCE
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Non GAAP ReconciliationNon GAAP ReconciliationEPS and SG&A as a % of SalesEPS and SG&A as a % of Sales
Diluted EPS FY04 FY05 FY06 FY07Income from cont. ops. - GAAP as Reported $2.65 $3.05 $3.28 $4.67 Proforma stock option expense ($0.13) ($0.13) Global Cost Reduction Plan $0.21 $0.04 Pension Settlement charge $0.03 Gain on contract termination ($0.11) Donation/sale of cost investment ($0.09) Tax adjustments ($0.17)Non GAAP EPS $2.52 $2.92 $3.49 $4.37
($mm) FY04 FY05 FY06 FY07
Sales $6,932 $7,673 $8,753 $10,038
SG&A $951 $1,008 $1,075 $1,181Proforma Stock Option SG&A $39.4 $38.5 Non GAAP SG&A $990 $1,047 $1,075 $1,181
SG&A as % of Sales 14.3% 13.6% 12.3% 11.8%
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Appendix Appendix –– GAAP reconciliationsGAAP reconciliationsContact Sue Delong, Air Products Investor Relations department, for more detail and reconciliations– 610 481 5775– [email protected]
