air products & chemicals 2007 Sep18 BofA

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Bank of America 37 th Annual Investment Conference September 18, 2007 Mike Hilton VP and GM, Electronics and Performance Materials

Transcript of air products & chemicals 2007 Sep18 BofA

Page 1: air products & chemicals 2007 Sep18 BofA

Bank of America37th Annual Investment ConferenceSeptember 18, 2007

Mike HiltonVP and GM, Electronics and Performance Materials

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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 or unanticipated contract terminations; 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

$9B in sales FY’06Diverse markets and geographiesPositioned for continued long-term value creation

FY06 Geographic Sales

United States(49%)

Asia(16%)

Europe(29%)

Canada/LatinAmerica (4%)

FY06 Segment SalesROW(2%)Merchant

Gases(31%)

TonnageGases(25%)

Equipment & Energy

(6%)Healthcare(6%)

Chemicals(10%)

Electronics & Performance

Materials(22%)

Chemicals(10%)

Electronics & Performance

Materials(22%)

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Value PropositionValue PropositionProfitable GrowthProfitable Growth

Stability– Long term contracts– Consistent and predictable

cash flows – Strong balance sheet

Earnings growth– Volume loading– Pricing/margins– Productivity

Improving margins– Strong deal quality– Good progress to date– Continued opportunity

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Supply Modes Supply Modes Durable Business ModelsDurable Business Models

Package Gases & Specialty Materials

26%

Onsite/Pipeline34%

Liquid/Bulk21%

10, 15 and 20-year contractsTake-or-pay minimum volumes

Contractual energy pass-throughFormula escalation

3-5 year contractsRegional business

Cost pass-through/surcharges

% of consolidated revenues (excludes Chemicals segment)

Equipment & Services 19%

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A Healthy Report CardA Healthy Report CardThree consecutive yearsThree consecutive years

Sales ($B)……………EPS* ($/share)…….......ORONA* (%) …………..SG&A as % of Sales*....

Balance Sheet………….Shareholder Value…….

9.3%

$2.53

14.2%

“A” ratingDividend increase & share repurchase

$7.0 $7.8 $8.9

* Comparisons are non-GAAP. See appendix slide for GAAP reconciliation.

FY04 FY05 FY06

$2.93 $3.50

10.0%

13.5% 12.2%

11.3%

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Q3 YTD Q3 YTDFY06 FY07 Change

Consolidated Consolidated ’’07 YTD Financials:07 YTD Financials:Continued Solid PerformanceContinued Solid Performance

* Continuing Operations ** Comparisons are non-GAAP, see appendix for reconciliation

Sales ($B) $6.5 $7.5 16%

Diluted EPS ($/share)* $2.56 $3.21 25%

ORONA (%)** 10.9% 12.2% 130bp

SG&A as a % of Sales* 12.4% 11.8% (60bp)

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Electronics & Performance Materials:Electronics & Performance Materials:A natural extension of whatA natural extension of whatAir Products does bestAir Products does best

$2B+ segment under-pinned by technology, innovationFranchise positions / global leadershipStrategic positions with leading customers Operationally excellent global supply chainGlobal process engineering capabilityLeading edge applied technology

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ElectronicsElectronicsContinued Strong GrowthContinued Strong Growth……....

Global Leader~$1.3 billion bulk gas, specialty material and equipment businessDriven principally by: – Semiconductor (~85%)– LCD (~10%)

Strong Volume Growth:– 20% CAGR over last 4 years

Business Trends:– New materials for 45nm– Asia growth– Product simplification & controlling the value

chain

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Performance MaterialsPerformance MaterialsGrowth through DifferentiationGrowth through Differentiation

A global platform with >$700MM in sales#1 or #2 positions in targeted markets– Performance based sale

3 key product lines + new initiatives platforms– Epoxy curing Agents– Specialty Surfactants– Polyurethane Additives

~50% of sales outside of North AmericaFormulated products that drive leadership positionsGlobal supply chain, R&D, applied technology infrastructure

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Electronics & Performance MaterialsElectronics & Performance MaterialsPerformance Metrics Performance Metrics

Sales

0

500

1000

1500

2000

2500

2004 2005 2006 2007E

Operating Income & Margin

0

50

100

150

200

250

2004 2005 2006 2007E0.0%

3.0%

6.0%

9.0%

12.0%

15.0%$MM $MM

10% CAGR

• Strong top line growth over the past 4 years

• Excellent profit and return improvement

• Near term focus on further improvement:

Electronics Performance Materials- continued strong hit rate - mix improvement - portfolio restructuring - growth in adjacent

markets

Asia (40%)

North America (40%)

Latin America (2%)Europe

(18%)

Revenue by region ($, FY07F)

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Our FYOur FY’’07 Commitments07 Commitments

Achieve 12.5% ORONA this yearCapture profitable growthImprove Healthcare performance Simplify ElectronicsRestructure ChemicalsDrive productivity to thebottom line

Add Photo

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Beyond 2007Beyond 2007Growth LeversGrowth Levers

Large ($25MM+) projects on stream …10 in 2008– 6 in Tonnage– 4 in Electronics

Geographical Expansions– Central and Eastern Europe– Middle East– India– Asia

New applications/products/markets– Energy– Performance Materials

Productivity– Expand gross margins– Electronics/Healthcare/Europe business

improvement– Leverage SAP

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Beyond 2007Beyond 2007Sustainable DoubleSustainable Double--Digit GrowthDigit GrowthAt Superior ReturnsAt Superior Returns

Targeting EPS growth between 10-15%

6-7% Market growth

2-4% New geographies/applications/products

2-4% Productivity/margin expansion

10-15% Total

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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Appendix:Appendix:Non GAAP ReconciliationNon GAAP Reconciliation

($ Millions, except per share data)

FY04 FY05 FY06 FY04 FY05 FY06(1) FY04 FY05 FY06Sales 7,031.9 7,768.3 8,850.4 7,031.9 7,768.3 8,850.4SG&A 956.2 1,013.6 1,080.7 39.4 38.5 995.6 1,052.1 1,080.7SG&A% of Sales 13.6% 13.0% 12.2% 14.2% 13.5% 12.2%

Diluted EPS - Continuing Ops $2.66 $3.06 $3.29 (0.13) (0.13) 0.21 $2.53 $2.93 $3.50

(1) Global cost reduction plan charge

Non GAAP MeasureGAAP Measure Proforma adjusts

Stock Option Expense

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Appendix:Appendix:ORONA NonORONA Non--GAAP ReconciliationGAAP Reconciliation

$ MillionsQuarter Ended Jun-05 Sep 05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07

Operating Income Operating Income 257.6 258.0 253.5 282.6 291.9 232.9 332.3 324.7 364.6 Proforma Option Expense (11.1) (14.9) Global Cost Reduction Plan - - - - - 72.1 - - - Op Inc ex Global Cost Red/incl Option Expense 246.5 243.1 253.5 282.6 291.9 305.0 332.3 324.7 364.6

AssetsTotal Assets 10,309.8 10,408.8 10,624.9 11,032.5 11,290.8 11,180.7 11,500.0 11,878.0 12,568.8

Less Investment in Equity Affiliate 661.3 663.7 679.4 718.2 736.4 728.3 765.6 796.2 817.9

Less Current Assets Disc Ops 103.0 100.7 100.5 102.5 83.3 - - - - Less Non-Current Assets Disc Ops 142.1 133.5 130.7 128.5 126.4 - - - -

Net Assets from Cont Ops 9,403.4 9,510.9 9,714.3 10,083.3 10,344.7 10,452.4 10,734.4 11,081.8 11,750.9

ORONA ex Global Cost Reduction Plan with Option Expense in all periods4 Qtr Trailing Op Income 939.0 947.6 974.4 1,025.7 1,071.1 1,133.0 1,211.8 1,253.9 1,326.6

5 Qtr Avg Net Assets from Cont Ops 9,421.3 9,511.2 9,627.2 9,699.1 9,811.3 10,021.1 10,265.8 10,539.3 10,872.8

ORONA ex Global Cost Red. Plan w/ Option Exp. 10.0% 10.0% 10.1% 10.6% 10.9% 11.3% 11.8% 11.9% 12.2%ORONA for the Quarter (Op inc x 4 / 2 pt avg net assets) 10.3% 10.3% 10.5% 11.4% 11.4% 11.7% 12.5% 11.9% 12.8%