Air Products and Chemicals, Inc. (APD) Q4 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the Air Products & Chemicals' Fourth Quarter Earnings Release Conference Call. Today's conference 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. Simon R. Moore - Air Products & Chemicals, Inc.: Thank you, Jim. Good morning, everyone. Welcome to Air Products' fourth quarter 2016 earnings results teleconference. This is Simon Moore, Vice President of Investor Relations. 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 two of the slides and in today's earnings release. As you know, on October 1, Air Products completed the spin-off of Electronic Materials as Versum Materials, and we continue to make progress on the sale of Performance Materials to Evonik. The Q4 and FY 2016 full-year results we are sharing today include both EMD and PMD in continuing operations. Our guidance for Q1 and FY 2017 does not include EMD and we have provided forward guidance both with and without the PMD business. You will see that we also provided an estimate of the comparable prior-year quarter and full-year Air Products results. We continue to evaluate the progress of the PMD sale to determine when we will report PMD in discontinued operations. 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 busy schedule to be on our call today. We do appreciate your interest in Air Products. I am very pleased to report that our team at Air Products delivered another quarter and another year of excellent results. Despite the sluggish economic growth worldwide and continued currency headwinds, our team stayed focused on executing our strategic Five-Point Plan. For the year, we delivered what we had promised you a year-ago. We had earnings per share of $7.55, which is up 14% over last year and $0.05 higher than the top end of the initial guidance range we provided you last October. As for the quarter, we delivered record earnings per share of $2.01, which is up $0.10 over last year and it is the ninth consecutive quarter that Air Products has reported double-digit earnings per share growth. I think it's important to know that we have been consistent. For the year, we also improved our margins by 400 basis points and our return on capital employed increased 180 basis points to 13.8%. I want to thank the people of Air Products for coming together to prove that they have the determination and the capability to deliver outstanding results and move our company forward to continue to be the best in the industry. Now, please turn to slide number 3. Our safety performance for the year showed improvement over last year, that's good news. However, I do believe that the only acceptable goal for us is zero accidents and incidents. We have the responsibility to our employees and their families to ensure that everybody goes home every day with no injury or incident. At Air Products, safety is the responsibility of everyone. Now, please turn to slide number 4, which is the reconfirmation of our overall goal for the company. We are determined to become the safest and the most profitable industrial gas company in the world, providing excellent service to our customers. Now, please turn to slide number 5. Here, you can again see our overall management philosophy. We believe strongly that cash generation is what drives long-term value. We believe that what counts in the long-term is the increase in per share value of our stock, not the size of our company or growth rates. In addition, Air Products has a significant amount of cash and the effective deployment of that cash is one of my most important responsibilities as the CEO of the company. Now, please turn to slide number 6, our Five-Point Plan that we announced two years ago. Our strong performance is a direct result of our focus on executing this Plan. The first point of Plan is our focus on Industrial Gases, our core business. In September of 2015, we announced plans to a spinoff our Material Technologies business, and we said that we expected to complete that spinoff by end of fiscal year 2016, which was the end of September of this year. Although we changed the scope of this spinoff earlier this year, I'm very pleased to say that many people at Air Products worked very hard to make this happen, and now Versum is a successful, a stand-alone company, trading on the New York Stock Exchange as of October 1. We continue to make progress on the sale of our performance additive materials (sic) [Performance Materials] to Evonik and consistent with what we have said before we are still targeting to close this transaction before the end of this calendar year. I truly believe this is excellent for the employees of the three companies. Air Products will be focused on its core Industrial Gases business and will grow in the future. PMD employees will be core to a world-class material company at Evonik and Versum Materials employees are now an independent best-in-class electronic materials company. And because these are the right strategic moves, I firmly believe these actions will also create shareholder value in the long-term. We also continue to work hard on the fourth point of our Plan, the responsible use of cash and eliminating unnecessary work. Our robust process to review every capital investment of more than $3 million means that we have visibility and control to ensure that we earn a minimum expected return of 10% on all of our projects. We continue to enjoy a strong backlog of projects that will deliver volume, revenue and earnings growth over the next few years. I am very optimistic about the growth potential for our core Industrial Gases businesses, especially opportunities in the large oxygen and hydrogen plants. Now, please turn to slide number 7. There you can see the result of this quarter and the fiscal year for our three key metrics. Once again, for the third consecutive quarter, we are proud to have achieved our goal to be the most profitable industrial gas company in the world as measured by each of these three metrics. We remain focused on driving further improvement as we move forward. Now, please turn to slide number 8. Here you can see a summary of our performance for the year. Scott will go through the details but I just want to point out that despite lower sales due to lower energy and currency, we improved EBITDA margin by over 400 basis points, increased EPS by 14%, and return on capital employed is up 180 basis points to 13.8%. The operational improvement actions we have taken this year and the benefit of restructuring actions we took last year enabled us to deliver these strong results despite the weak worldwide economy and continued currency headwinds. Now, please turn to slide number 9, my favorite slide, where you can see our quarterly progress. As you will note, we have improved our EBITDA margin by more than 900 basis points in the last 2.5 years. On slide number 10, you can see several of our fiscal year accomplishments. The worldwide team at Air Products delivered strong financial results while staying focused on bringing very large projects on-stream successfully, winning new projects, spinning off Versum Materials, and working towards closing the sale of PMD to Evonik. A great example of commitment and focused effort of the people at Air Products. Once again, I thank all of them for their contributions. 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. I would like to make a few additional comments on our fiscal 2016 results before discussing our fourth quarter. Please turn to slide 11. In summary for the year productivity drove significant profit growth despite modest volume growth and currency headwinds. Total sales declined 4%, driven by unfavorable currency and energy pass-through impacts of 3% each while underlying sales increased by 2% driven by higher volumes in Gases-Asia and our Jazan sale of equipment project in Saudi Arabia. Operating income increased 16%; operating margin was up 400 basis points to 23.1%; and EBITDA margin was up 420 basis points to 34.4%, driven primarily by better cost performance. Only 50 basis points of the operating margin increase came from lower energy pass-through. Diluted EPS increased by 14% and our return on capital employed improved by 180 basis points to 13.8%. On slide 12, we show you our distributable cash flow of more than $11 per share. We believe this measure more than EPS is the true measure of the wealth we are creating for our shareholders. As a result of our strong performance in FY 2016, our distributable cash flow increased by $200 million or 9%. This, combined with lower growth capital spending in FY 2016 generated free cash flow of over $900 million, which is up $500 million over last year. Now please turn to slide 13 to review our full year EPS. Year-on-year EPS growth of $0.95, or 14%, was driven primarily by lower cost and improved pricing net of raw material costs. Volume growth in Gases-Asia was largely offset by economic weakness in Latin America and Europe. And in our sale of equipment businesses, higher Jazan project revenue was more than offset by lower activity in LNG and our other sale of equipment businesses. Price mix improvement of $0.29 was delivered by Gases-Americas, Gases-Europe, and Materials Technologies. And cost contributed $0.94 as focused productivity actions in all our segments more than offset inflation. This was more than enough to overcome unfavorable currency and foreign exchange headwinds of $0.16 and $0.11 unfavorable from items below operating income detailed on the slide. Now please turn to slide 14 for a more detailed review of our Q4 results. Sales of $2.5 billion increased 1% versus last year as higher volumes more than offset lower energy pass-through and unfavorable currency impacts of 1% each. Volumes were 3% higher primarily due to continued progress on our Jazan project. Somewhat offsetting Jazan is softness in LNG and in other sale of equipment businesses as existing projects are completed while less new projects are added to the backlog. In other areas, volumes continued to be higher in Gases-Asia, but were offset by economic weakness in Latin America and Europe. Materials Technologies volumes rebounded nicely this quarter. Pricing was largely unchanged versus prior year. We delivered significant operating leverage again this quarter as EBITDA of $855 million improved by 9% and operating income of $584 million improved by 13%. EBITDA margin of 34.7% and operating margin of 23.7% improved by 250 basis points and 260 basis points respectively as we continue to execute on our Five-Point Plan. All three regional industrial gas segments and Materials Technologies improved margins again this quarter. Lower energy pass-through only contributed about 20 basis points to the operating margin improvement. Versus prior year, net income increased by 11% and earnings per share grew 10%. Now, please turn to slide 15. You've heard Seifi and I talk about our focus on cash flow. So we were pleased to see that our free cash flow was $264 million this quarter, up $138 million versus last year due to higher EBITDA and lower growth CapEx. Turning to slide 16, you can see an overview of this quarter's performance in terms of earnings per share. Before I comment on our Q4 operating performance, I'd like to spend a moment on the non-GAAP items that total $0.17 per share or $44 million pre-tax. We saw Materials Technologies separation costs of $23 million for legal and advisory fees and tax cost. And we recorded a loss on early debt retirement of $7 million as part of our debt for debt exchange to facilitate the Versum spin-off. Also included this quarter is $14 million for position eliminations and pension settlement costs. We expect to see cost action and pension settlement costs continue through next year. Further actions will be part of a second $300 million of operational improvements and other actions to offset stranded cost from our decision to divest Materials Technologies. Further details on all non-GAAP items can be found in an appendix slide and the footnotes to our earnings release. Excluding these items, our Q4 continuing operations EPS of $2.01 increased $0.18 per share or 10% versus last year. Volumes increased EPS by $0.06 per share. Pricing, energy and raw materials taken together contributed $0.03. Net cost performance was $0.13 favorable, primarily driven by our productivity actions. Currency translation and foreign exchange gains combined was $0.02 favorable as currency translation impacts were $0.03 unfavorable and foreign exchange losses from the prior-year of $0.05 did not repeat. Interest expense was $0.03 higher due to lower capitalized interest and a higher tax rate reduced earnings by $0.02. And finally I'd like to make a few comments on our 30 September balance sheet. As you know, as part of the Versum spin, approximately $1 billion of debt was raised by Versum, which was then paid out to Air Products. This payment came in the form of $550 million in cash and was equal to the Versum tax basis and approximately $425 million as part of the debt to debt exchange, which we used to retire commercial paper. This all occurred as planned prior to the end of September. The net effect of these transactions is that Air Products has $550 million more cash and approximately $425 million less debt as of September 30. However, since Versum debt was issued in September, but Versum did not become a separate entity until October 1, Air Products consolidated balance sheet includes the Versum debt. As you can see in total, cash is up about $1 billion relative to June 30 in part due to Versum and also due to cash generation from our business including Jazan. 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. Fiscal 2016 was another very strong year for the Industrial Gas business and I would like to thank the entire team around the world for staying focused on the things we control and in particular, for exceeding our productivity goals. On slide 17, you can see the significant EBITDA margin improvement that we delivered in each of our three regional businesses in 2016, up over 600 basis points in Americas, up over 500 basis points in EMEA and up over 250 basis points in Asia. This strong performance was delivered in a challenging external environment with weak economic conditions and currency headwinds. We stay focused on safety and deliver the benefits from our Taking the Lead productivity program. As you know, our business is inherently local. That is why we moved to a regional structure and incentive plan two years ago. Every employee, every distribution truck, every plant matters. The opportunity to improve our network design touches on all three of these. For example, we recently announced the start up of a new liquid plant in Carrington, UK. This plant is not just more efficient than the old plant, it's sized to allow us to consolidate all Northwest England liquid bulk operations in Carrington and close a second older liquefier that was just 35 miles away. We have made great progress and are even more confident about our ability to deliver future benefits. We're also excited to continue our success in winning new projects. We announced a project in the U.S. and one in South Korea within the last two weeks. Now, please turn to slide 18 for a review of our Gases Americas fourth quarter results. Our profit growth and significant margin expansion was driven by our Taking the Lead productivity efforts across all sub-regions. Sales of $877 million were down 3% versus last year on lower volumes. Latin American volumes were down close to 10%, which lowered overall Americas volumes by 2%. We saw weakness in our packaged gases, equipment and liquid bulk businesses across most of our key geographies in Latin America. North America volumes were lowered overall – lowered overall Americas volumes by 1%, primarily due to a weakness in steel. Sequential volumes were impacted by planned customer maintenance outages. Pricing, energy pass-through and currency were all flat versus prior year. We did see a sequential increase in energy pass-through revenue as natural gas prices increased. Operating income of $225 million was up 8% and EBITDA of $352 million was up 7% versus last year as the benefits of our Taking the Lead operational improvements more than overcame headwinds from lower volumes. Operating margin of 25.6% was up 250 basis points and EBITDA margin of 40.1% was up 350 basis points. Sequentially, margins were impacted by higher natural gas prices and lower volumes. And as I mentioned, we are excited to have signed an agreement with The Chemours Company to supply multiple industrial gases to their titanium dioxide production facility in New Johnsonville, Tennessee. We will build a new plant expected on stream in the fall 2018 that will supply Chemours and also produce additional liquid argon to serve the northern and central regions of the United States. Now, please turn to slide 19. In our Europe, Middle East and Africa business, the team continues to deliver strong profit growth despite continued volume weakness and currency headwinds. Versus last year, sales of $414 million were down 10% on 4% lower volumes, a negative 3% impact from lower energy pass-through and a negative 3% impact from currency. The liquid volumes were down in all four sub-regions with more than half of the decline due to lower wholesale volumes. Packaged gases demand was down broadly. Other than the obvious currency impact, we don't believe the Brexit vote has had much impact on our business this quarter. Operating income of $98 million was up 8% and EBITDA of $154 million was up 2% as our productivity actions more than offset the currency headwinds. Operating margin of 23.7% and EBITDA margin of 37.2% were both up over 400 basis points. Lower energy pass-through improved operating margin by about 70 points meaning that the underlying operating margin was up 330 basis points excluding lower energy pass-through. Please turn to slide 20, Gases-Asia. Volume growth continues from new plants and our base business, while our productivity actions enhance our profitability. Sales of $449 million were up 5% as volume growth of 7% was partially offset by a negative 2% currency impact. Roughly two-thirds of the volume increase was from new plants including an increase in energy pass-through revenue. Our merchant business was up mid single digits across Asia, and our China retail LOX/LIN business was again up double digits, as we've improved the quality of this business. Despite continuing price pressure in helium there are signs of improvement in the China LOX/LIN business, but we still expect the overcapacity to remain for some time. Operating income of $110 million was up 5% and EBITDA of $172 million was up 4%. The profit growth was slightly muted, as we had a positive on-site customer catch-up payment last year. The increase in energy pass-through revenue is at no margin, and we had headwinds from currency and incentive compensation. Our productivity programs continue to deliver. Operating margin of 24.5% and EBITDA margin of 38.2% were roughly flat versus last year. Sequentially, margins were impacted by higher incentive compensation and higher seasonal power costs. Finally, we just announced earlier this week, a new air separation unit in Ulsan, South Korea to support pipeline and merchant demand growth. We have been serving customers in the region for nearly 30 years and look forward to continuing our excellent track record. I'll close with a brief comment on the Global Gases segment. You'll recall that this segment includes most of our air separation unit sales equipment business as well as costs associated with the industrial gas business that are not region specific. Sales were up, as we recognized over $100 million of revenue from the Jazan ASUs sale of equipment this quarter, which more than offset weakness in small equipment and other ASUs. Segment profits were up as we recognized profit on the Jazan profit. The profit this quarter includes a cumulative catch up related to project activity during the full year. We do expect to book revenue and profit for Jazan in FY 2017. Now please turn to slide 21. And I'll turn the call over to Simon for a comment on our other business results. Simon R. Moore - Air Products & Chemicals, Inc.: Thank you, Corning. As I mentioned earlier, we completed the spin-off of our Electronic Materials business as Versum Materials on October 1 and are making progress on the sale of our Performance Materials business to Evonik. Both of these businesses are included in Air Products continuing operations for Q4 2016. On slide 21, you can see that Materials Technologies, which includes both EMD and PMD continued to show strong results with sales, volumes, profits and margins all up versus last year. Please turn to slide 22 for the EMD results as reported within Air Products. I will make some brief comments and the Versum Materials team will address their results in more detail when they hold their earnings call. Sales of $248 million were up 7% on 7% higher volumes driven by strength in Advanced Materials and Delivery Systems. EBITDA of $83 million was up 5% and operating income of $70 million was up 11% versus last year. Now please turn to slide 23 for a review of our PMD results. Sales of $267 million were up 4% on 8% higher volumes partially offset by 4% lower price. The positive volume was driven by polyurethane additive strength in spray, appliance and construction markets as well as epoxy strength in coatings and non-residential construction markets. Specialty additives volumes were flat as stronger coatings volumes offset weakness due to the temporary shutdown of a specific mining customer in Brazil. Overall prices were down given broader petrochemical driven deflation but this was more than offset by lower raw material costs. EBITDA of $74 million was up 29% and EBITDA margin of 27.8% was up 550 basis points. Operating income of $68 million was up 35%, and operating margin of 25.3% was up 580 basis points, primarily driven by productivity and favorable price/raw material balance. Finally, our corporate segment consists of our LNG and helium container businesses as well as corporate costs which were not business specific. Sales were down versus last year on significantly lower LNG project activity and profits were down as the impact from the lower sales more than offset lower costs. As we've said the lack of customers' decisions on new LNG projects is having a significant impact on our business, about a $0.10 headwind for FY 2016. We expect a further, approximately $0.25 headwind in FY 2017 versus FY 2016. Now please turn to slide 24, and I'll turn the call back over to Seifi for a discussion of our outlook. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you again, Simon. The Air Products team remains focused on implementing our Five-Point Strategic Plan to move us forward as the safest and most profitable industrial gas company in the world. As you can see, we are providing guidance for first quarter and for fiscal year 2017 on two bases, one is with our PMD business and the second is without the PMD business. As I said before, nothing has changed. We continue to make progress on the sale of PMD and we are still targeting to close before the end of this calendar year. However, since we are still going through the regulatory approval process, PMD is not currently in discontinued operations. Therefore, we are providing guidance both including and excluding PMD. You can see that we have also provided an estimate for continuing operation EPS result for quarter one fiscal 2016 and total fiscal year 2016, so that you can compare our next year to what we actually achieved last year. On the basis that excludes the PMD business, which is our core industrial gas business, our guidance for fiscal year 2017 is for earnings per share of $6.25 to $6.50, up 9% to 13% over last year. And also on the basis that excludes PMD, for the first quarter of fiscal year 2017, our guidance is for earnings per share of $1.40 to $1.50, up 3% to 10% over last year. We expect our CapEx, excluding any significant acquisition, to be about $1.2 billion. Our EPS guidance is consistent with this CapEx guidance. In other words, it does not include any acquisitions. And while things could always change, our guidance also does not include any positive effect from share repurchase. I would like to stress these points again. Our guidance is based on our core Industrial Gases portfolio as it is today. Therefore it does not include any upside from any share repurchase or future acquisitions. Our fiscal year guidance is consistent with our long-term goal to improve Air Products earnings per share by 10% per year over the long-term. In the last two years, we have delivered much more than that and we are going to strive to continue to deliver 10% earnings per share growth every year. And despite the weak economy, a key reason we remain confident we can continue to develop a strong performance is the success of our $600 million cost improvement program that we announced two and a half years ago. We have fully delivered the first $300 million, and in terms of the second $300 million we delivered over $75 million in 2016 which is twice what we had promised you before and we expect to deliver another $100 million of cost savings in addition to that in 2017, again ahead of our previous commitments. To wrap up, please turn to slide 25 for our priorities as we move Air Products forward. While we will always stay focused on improving our existing business, the major restructuring of Air Products is behind us and our focus is now on profitable growth. We have the balance sheet capacity now to take advantage of the very exciting growth opportunities we see, including accretive and complementary acquisitions focused on our core Industrial Gases business, and large projects around the world driven by market demand for more energy, environmental improvements, and emerging market growth. And since we'll have a significant amount of cash at our disposal, we can be successful with these large opportunities, while we maintain our current A credit rating and continue our commitment to grow our dividend every year. And finally, we will consider share repurchases, if the market provides a compelling opportunity. Let me say in closing that our people continue to step up and deliver. I want to sincerely thank them for their dedication and commitment, and the hard work that they are doing everyday to provide excellent service to our customers and make Air Products the best industrial gas company in the world. Without their efforts, we would not have been able to deliver these results. And now, we would be delighted to answer any questions that you might have.

Thank you. And we'll take our first question from Robert Koort from Goldman Sachs. Christopher Evans - Goldman Sachs & Co.: Hey, good morning. This is Chris Evans on for Bob. Impressive guide given that it doesn't include the cash deployment, could you kind of talk us through the moving pieces that get you that double-digit core growth? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Yes, absolutely. As I said, we are committed to deliver an additional $100 million of cost savings. That by itself is about $0.35. And then in addition to that, we have new plants that we have built, that are continuing to come on-stream, so we will have organic growth. Therefore, the combination of productivity and organic growth that we see based on the plants that we see coming on-stream, that is what gives us the confidence to deliver the results that we're talking about next year. Because that means that next year, we are not making any assumptions for any significant economic growth worldwide, we will have a currency headwind, but we feel very good about our productivity programs. Our people did a great job in delivering the $75 million more than that last year. We are confident that we will get that and on top of that with the growth rate that we see, we are – as you know, we have always been committed to promise what we can deliver and usually deliver more than what we can promise. Christopher Evans - Goldman Sachs & Co.: Thank you. And then, obviously can you comment on the potential impact of another round of consolidation among the global major gas companies? Do you think the regulatory environment is supportive of that deal, and what kind of would be the impact if it went through? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, I don't want to comment on what other people are doing or might do, but Air Products is focused on a strategy which is based on organic growth and productivity improvement, and we will continue to execute that strategy. What other people might do, I don't think it will have much of an effect on us at all. Christopher Evans - Goldman Sachs & Co.: Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you.

Moving on, we'll take our next question from Duffy Fischer from Barclays.

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

Good. Thanks. Probably the biggest question I am getting on your guys lately and Seifi, I'd love to get your color on this is, obviously assuming that the deal to Evonik goes through, you guys will be sitting on a big pile of cash come next year. How should we think about your ability to employ that, maybe over the proceeding 18 months or so? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Obviously, we are committed to do that. We – sitting on top of a little bit of cash for a rainy day is okay, but sitting on top of $3 billion of cash is obviously not what we intend to do. We do have – we believe we do have plans to deploy that cash properly, we are not in a hurry to do that, we are not going to do anything rash, but we feel very good about that.

Okay. And then there has been a lot of noise in China this year around some of the rules and regulations in coal mining, the number of days they can run plants has changed a couple of times. Has that impacted at all the way you view the long-term coal gasification opportunity or has that impacted any of the current business you have in that industry? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, Duffy, I honestly think that there is a little bit of a confusion about what those rules are. What we see from those, we are close to that, we are on the ground. We see absolutely no effect and actually we see positive developments. We are very optimistic about those big projects, we think they will happen and we don't see anything in the Chinese government policy that would affect the kind of things that we want to do in terms of clean coal and coal gasification in China.

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

Moving on, we'll take our next question from Vincent Andrews from Morgan Stanley. Vincent S. Andrews - Morgan Stanley & Co. LLC: Thanks and good morning, everyone. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, Vince. Michael Scott Crocco - Air Products & Chemicals, Inc.: Hi, Vincent. Vincent S. Andrews - Morgan Stanley & Co. LLC: Hi. So, Latin America, you called out some weakness and then also EMEA had minus 4% volume growth. It seems like those were a little bit weaker sequentially than at least we thought. Can you just talk about what dynamics are there and then what might have changed, particularly I guess on Europe and the minus 4% volume? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Absolutely. I think, I'd like Corning to address that. Corning, please? Corning F. Painter - Air Products & Chemicals, Inc.: Yeah. Thank you. So, as I said in my comments, the big challenge there was in the liquid bulk area. If we think about the merchant business, there is two spaces, packaged gases and liquid bulk. Packaged gases for sometimes have been impacted just by slowing construction activity, metals fab. But, we saw a drop-off in this quarter in liquid bulk larger for us than what we had in packaged gases. But more than 50% of that was in wholesale volumes, and that goes a little bit to our drive, to just start driving an improved quality of our business, and our goal moving forward would be not to reload that business with wholesale volumes, instead shift that to retail volume for us. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Corning, you might want to also mention about the effect in Europe, about the effect of August in terms of sequentially. Corning F. Painter - Air Products & Chemicals, Inc.: Yeah, fair enough. So, if we think about in the purely sequential look we go through – you just have to keep in mind that the holiday season in Europe is in this previous quarter with August. So, I think, that's a big part of the drop off there. If you're looking at the raw numbers, you've also got the impact that shifted with currency with the Brexit vote, which is the one part of that, that we've seen. And I would say, overall, you take through and you say shifting to a more of a retail based net business. I think, we're well positioned there. Vincent S. Andrews - Morgan Stanley & Co. LLC: So, with this drop off in wholesale volumes, should we assume that there is going to be some volume weakness for the next couple of quarters until you lap that? Corning F. Painter - Air Products & Chemicals, Inc.: I wouldn't see – yeah, I wouldn't see that coming back overnight agreed. Vincent S. Andrews - Morgan Stanley & Co. LLC: Okay. Thanks very much. Corning F. Painter - Air Products & Chemicals, Inc.: Especially as we are pushing that to retail volume. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thanks.

Moving on we'll take our next question from P.J. Juvekar from Citi.

Yes, good morning, Seifi. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, P.J. How are you today?

Good. So for a long time, Industrial Gas executives believed that big M&A is not possible, but that notion is being challenged. Do you have any interest in big M&A or would you rather sit back and buy any pieces that may come out? Seifollah Ghasemi - Air Products & Chemicals, Inc.: P.J., I don't want to comment on what our competitors are doing, but we think pursuing big M&A among the four major industrial gas companies is a foolish idea and we are not going to pursue foolish ideas. So we are not going, we don't have any plans to participate, we'll sit back and if anything happens, there certainly will be a lot of pieces that comes out. We have a lot of cash that would be kind of Christmas for us if it happens.

Great. Really thank you for that color. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you sir.

And just a quick question on your CapEx, which is going up in 2017 versus 2016, as you start up some of these projects. What kind of EPS contribution do you expect from new projects in 2017? Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: From the projects that are – any future projects that we do whenever we announce the CapEx, you should assume that will have a minimum of 10% return. We have made that commitment. The projects that we have on-stream coming on in 2017 will be a combination of the new projects we have approved like Big River Steel and a combination of projects which were approved many years ago. That combination of the two as I said the new ones will have 10% and the old ones will probably have an average of about 5% return.

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

Moving on we'll take our next question from David Begleiter from Deutsche Bank.

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

Very good, thank you, very good. Seifi just looking again 2017 in terms of pricing benefits in 2017, how should we think about those from an EPS perspective? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, David, as you know very well, we cannot, should not and would not comment on pricing. I think I would be very hesitant to start giving you any specific number but you would expect that, that is one of the things that we do. We are focused on improving productivity, we are focused on improving our pricing and our pricing can improve not only by increasing prices to cover inflation, but it will improve based on what Corning was talking about in change of the mix, in terms of going from wholesale to direct sale and all of that. So there is some element of pricing in next year's guidance, yes.

Very good. And just on the deployment of the cash and the capital, as you bid for these projects, are they competitive bid situations or are they more one-off negotiated transactions you're looking at? Seifollah Ghasemi - Air Products & Chemicals, Inc.: David, I think you should assume that everything we do is a competitive situation. I don't think that for these large projects, any of the customers would just want to do a private deal with us. But we are prepared for that, we bring a lot of value to our customers not only in terms of pricing, but in terms of all of the other services we provide. So we're prepared for competition, but we remain very optimistic that we have an advantage, and we have won a lot of projects, some of it unfortunately we cannot announce, because our customers would like to keep that confidential. But we are winning more than our fair share of projects in the last two years. I'm not worried about that at all.

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

Moving on, we'll take our next question from Jeff Zekauskas from JPMorgan.

Thanks very much. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, Jeff.

Hi, good morning. By what percentage is Jazan complete? And for your Indian hydrogen project of 165 million cubic feet per day, I mean that comes on in phases, how much comes on in 2017? Seifollah Ghasemi - Air Products & Chemicals, Inc.: We expect our project in India to come on-stream approximately in the first half of – calendar 2017. So there will be less than half a year contribution from that project in our 2017 numbers. As for Jazan, we have made progress, and I will be hesitant to publicly talk about percentage complete. But I can say that we are moving on plan on schedule on that project, and we are obviously very optimistic and our people are delivering on that. And we have a great customer in Aramco, they are being very helpful to us and they are pushing us obviously to get the project done as soon as possible and we are on plan.

And then for my follow-up. If it turns out in the course of 2017, there is nothing that you are able to buy. And it also turns out that your share price is flat, would your share price then represent a compelling opportunity at the end of the year or it wouldn't? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, it depends on what the share price is. I mean if you are asking me that would we buy shares at $133, I'm not sure I want to comment on that, but...

Okay. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Anything – Jeff, you know better than I do the events in the world, I mean what is the market going to look like two weeks from now. A lot of things can happen. So we – the good thing is that we have the cash and we will watch what happens.

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

Moving on we'll take our next question from Christopher Parkinson from Credit Suisse. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC (Broker): Perfect, thank you. Just an extension of your comments right there, you've obviously spoken about kind of the key macro and some of the political risks in the context of capital deployment, but can you just give us an update on how you're actually thinking about this versus let's say three months to six months ago, are there any changes in your expectations overall opportunities or evaluations broadly particularly outside of the U.S.? Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, I guess, I would have to characterize it that I am more optimistic than I was six months ago about our ability to deploy the cash. But I do want to stress that there are certain events in the world that can change everything upside down, and I think it's very prudent for us rather than jumping in and doing something this minute to give ourselves a few months to see how everything settles down with the U.S. election, and with the Brexit and all of that, and then we will make the appropriate moves. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC (Broker): Thank you. And as a quick follow-up, within the Gases in Asia, you're seeing some decent volume growth, and you are now holding price flat on both a year-over-year and a sequential basis. Can you just talk a little bit more about the broad drivers in the market specifically, any changes in merchant capacity and/or strategy that's helping the overall results? Thanks. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Corning, would you like to...? Corning F. Painter - Air Products & Chemicals, Inc.: Yeah. So let me answer that. I'm not sure, I'm going to go into all of our strategy and want to discuss that in a public setting, but maybe just to give you a little bit more color to it. So there remains significant overcapacity in the market and there remains probably over 5,000 tons to 10,000 tons of capacity that's either under construction or it's been idled or people delayed startup. So I think the overcapacity story is there for a while but a positive thing for us has been for several years now, we've made a strong drive to drive the retail portion of this business and you could see that's been working for us and that gives us an improvement on the mix. All in all I would say the pricing environment in LOX/LIN is slightly improved, you don't see that in the overall number because of the impact of helium. I just say, we didn't put that in the prepared comments because I'd really like to see how this plays out a few quarters into the future before we declare a trend there. So all in all though, I'd say that's positive, it's positive for us to be able to get the retail volume growth and I think that's all in all a very good thing for Air Products going forward, a lot of confidence in the team there. Seifollah Ghasemi - Air Products & Chemicals, Inc.: If I may just add to Corning's comment that we are very happy to be in China and we think we have a very good future here. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC (Broker): Thank you very much. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thanks, Chris.

Moving on, we'll now take our next question from Steve Byrne from Bank of America Merrill Lynch.

Yes, thank you. Seifi, you mentioned in your remarks, your pipeline has some large oxygen and hydrogen opportunities in it. Can you just comment on what portion of those would you see as standalone plans versus potential pipeline bolt-on projects? And how would you see the – those opportunities relative to where they've been over the last few years, are they – are there more or less and where? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Most of the opportunities that we see are in U.S. Gulf Coast and in China, and some in Europe. Most of the opportunities are – some of the opportunities are on our pipeline and especially our hydrogen pipeline, but a lot of the opportunities are standalone plants, large plants, supplying significant amounts of oxygen and hydrogen – and nitrogen to coal gasification, refineries, and all of that live features (54:14) and project. There are not that many there you are – as you might say we are hanging on a liquid capacity.

And... Seifollah Ghasemi - Air Products & Chemicals, Inc.: Yes, sir.

Yeah, thank you for that. Just with respect to your $100 million cost reduction target in fiscal 2017, can you just comment on what are the key projects that will be driving that? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Those key projects are under the title of what we call Taking the Lead project that Corning has been leading and they are absolutely focused on operational improvements in our production and in our distribution and some – and those are the main key areas. But, I'd like to comment – Corning to comment – elaborate on that please? Corning F. Painter - Air Products & Chemicals, Inc.: We've tried to in each of the recent earnings releases just give a concrete example of one thing that we're working on. The reality of this business though it's a very distributed business, right? We don't have world class plants where you export all around the world from one site, we have over 700 plants. And so it's a business of transactions and many plants and as Seifi says sometimes, the 10,000 little things. And so a big part of this is motivating the team and keeping ourselves focused on executing across those 10,000 things. I'd say that the move towards a regional structure has dramatically improved that, including the operating control in the region and the move to an incentive plan based on that same regional structure has been a big part of this as well, but all of that together really comes down to just the commitment of the people and the focus to deliver on this. Seifollah Ghasemi - Air Products & Chemicals, Inc.: If I may just add to that, as we have said many times before. We do have very detailed programs region by region, in terms of what they need to do. Based on what we accomplished in 2016, I am very confident that we will deliver at least $100 million next year. Michael Scott Crocco - Air Products & Chemicals, Inc.: If I could just jump in on this because this is a topic we're really happy about. We're all wearing in this room, these buttons, right with our four S's, the new culture at Air Products, and we have those plans just like Seifi talked about. And we beat them. And I think it goes one of those S's for us is speed and those regional teams we got out of the way, they were empowered, they were motivated, and they went and they got it done. And I think we are very proud around the world of what these groups have done. But I think it's a sign, right of embracing a new culture here at Air Products.

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

Moving on, we'll take our next question from Kevin McCarthy from Vertical Research Partners.

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

My question relates to – good morning. With regard to Jazan what sort of incremental profit contribution might we expect in the fiscal 2017 versus 2016? And perhaps you can elaborate on the fourth quarter you just reported, and the shift from a red number to a black? I think the press release indicated a cumulative catch-up? Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Sure. I obviously cannot and should not comment on the profitability of the Jazan project. For 2017, we do not have a significant amount of contribution, but it – there will be some contribution. And quite honestly, it will depend on the exact progress that we make on all of that. But there will be some. In 2016, we did not recognize, although we were recognizing sales throughout the year, we did not recognize profit, because we wanted to get some kind of a, more of a sure footing that the project is moving forward. As you know, there has been a lot of talk about shutting down projects in Saudi Arabia and all of that, and we wanted to make sure that this project doesn't get cancelled, and then we would have to reverse profit on all of that. But then by fourth quarter, it became obvious that we have made enough progress that you should recognize some and that's what we did.

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

Moving on we'll take our next question from John Roberts from UBS.

Thank you. How big is electronics now for the remaining gases business, and were your nitrogen sales to electronics roughly up in line with Versum or the EMD volume numbers that you presented? Seifollah Ghasemi - Air Products & Chemicals, Inc.: The size of that business order of magnitude is about $0.5 billion, and we were up 11%. So, we are doing well there.

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

Moving on, we'll take our next question from Mike Sison from KeyBanc.

Hey, guys. Seifi, when you gave your outlook for 2017, you highlighted cost of new projects and – and is there upside in the event the industrial world does get better? And maybe just kind of your thoughts that doesn't sound, do you think it could get better, is it stable, is it getting worse? Just surprised that, you wouldn't add that as a component of potential growth next year. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, the thing is that, as compared to, and I mean we are operating the same boat compared to our competitors. I mean, we are delivering double-digit growth while other people are showing negative growth, so we are doing something right. With respect to next year, we are – there is a possibility that we will do better than what we have given you as a guidance depending on the economy and all that. But I just want to remind everybody that, we are dealing with some significant worldwide events that we have to see how they will develop. We have given you a guidance on the basis that barring any significant disruptions, we will be able to deliver that and we have – that's the way we operate. Now, the economic conditions can get better once the U.S. election is over and people are not sitting on the fence, then, yeah, it is possible that we will do better than that. But the one thing that I can assure you is that, we don't operate on the basis of just delivering the guidance. We do our best to deliver whatever we can. That's kind of our goal.

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

Moving on, we'll take our next question from James Sheehan from SunTrust Robinson Humphrey.

Good morning. A question on the opportunity to buy captive ASUs. Could you say, do you think the multiple for such acquisitions would be higher, lower or the same as other M&A opportunities. And also could you frame any synergy potential of such captive ASU acquisitions? Seifollah Ghasemi - Air Products & Chemicals, Inc.: On that one, unfortunately, I can't give you a general answer, because it will depend on the specific situations. But what you said can apply, and it can be a specific situation that there is significant synergies. Because we already have two plants there and an addition of another two plants or three plants will add value. So, sorry, that I can't give you a general answer, but you can be, rest assured that we would only do those, if they are in line with our goal of getting a return on our – on the capital that we employ which is not less than 10%.

Great. And can you also give us a sense for any stranded cost that you still have in 2017? What the timeframe would be for eliminating those and how they affect the cadence of your earnings progression in 2017? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, we have said that those stranded costs could be in the order of magnitude of $20 million. We have programs for eliminating those in the next year and a half and our guidance obviously reflects that those costs are still with us and we need to work to eliminate those.

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

Moving on, we'll take our next question from Don Carson from Susquehanna Financial.

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

Very good, thank you. Question on your FX assumptions within your guidance. Currency was a $0.16 drag in fiscal 2016, you got some sterling exposure. Just wondering what kind of headwind you're assuming in your 2017 guidance? Seifollah Ghasemi - Air Products & Chemicals, Inc.: I think the number is about $0.05, but the expert on this is Scott. So, Scott? Michael Scott Crocco - Air Products & Chemicals, Inc.: Yeah, that's a tall order Seifi. Hi, Don. So, just to remind everybody how we look at currency. We don't try to speculate, we take the latest rates and we just project that forward. So, when we do that from where we are today into 2017, and then compare full year 2017 against 2016, we'd have a headwind of about $0.05 to $0.10, that's for the full year. And then on a quarter basis, we do the same approach, just move things sideways. We would have, in the first quarter, both sequentially as well as versus prior year in Q1, about a $0.01 to $0.02 headwind, principally driven by the pound.

And then on the project Seifi, you mentioned that you're still working through some projects that were signed before you arrived. Are those pretty much over by the end of 2017, and what's the total – where does the backlog stand today versus where it was at the beginning of fiscal 2016. Seifollah Ghasemi - Air Products & Chemicals, Inc.: We had a detailed chart on this thing, on the slide that we have... Michael Scott Crocco - Air Products & Chemicals, Inc.: Slide 29. Corning F. Painter - Air Products & Chemicals, Inc.: Slide 28. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Yeah, slide 28. So, you can see – and I'm sure you know very well, which ones they signed before and which ones they signed after. They will not all be over in 2017 because some of them are delayed and it will drag on into 2018 also.

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

Moving on, we will take our next question from Michael Harrison from Seaport Global Securities.

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

Seifi, you mentioned that you felt like you were gaining – winning more than your fair share of new projects in large on-site business. I was wondering if you can talk about the North American merchant business and what you're seeing in terms of new account growth there? And in particular, can you maybe comment on what the core LOX/LIN volume look like in the quarter and what the outlook is for fiscal 2017? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Sure. I think Corning can answer that very easily. Corning? Corning F. Painter - Air Products & Chemicals, Inc.: Yes. Thank you for the question. So, LOX/LIN if we were going to look at that let's just say it's the most generic product goes into the most – largest number of industries it's probably the best sort of bellwether of everything. Year-on-year that was flat for us, however sequentially we were up about 2% so showing some positive momentum there. Even in that year-on-year flat however, I'd say that during the course of the year, we did make some adjustments in our portfolio as part of our Take the Lead program. We also had one situation, not exactly the same as Carrington what I talked about but where we did shut down a liquefier and we're able to shift some load around but that also did involve shutting some customers. So, all in all I think, approximately the best indication is just the sequential moving forward which gave us 2% and I see that as a net positive for us and I think a pretty good reflection of what's going in North America.

All right. And then you mentioned that within the corporate segment that LNG business was going to be a $0.25 EPS headwind next year. Is there anything that they could change in the market, that could swing that or do you have pretty good visibility based on the projects that are in the pipeline now that that's going to be weaker no matter what happens? Seifollah Ghasemi - Air Products & Chemicals, Inc.: No. I think, the guidance that we have given you about $0.25 is based on what we see, but there are things that can happen that can change that because a lot of these projects. We have won the projects, but the oil and gas companies have put a hold on them as you know very well because of the situation. They can change if the oil prices significantly change. They can change their mind, they can release those and therefore, we can start working on them. So the possibility of that, I don't see being great but it is possible.

Yes. Seifollah Ghasemi - Air Products & Chemicals, Inc.: But the $0.25 is real and it is based on what we have. So I'm glad that you brought that up because if you take that $0.25 into account, then we're actually giving a pretty good guidance in terms of growth next year, but that's based on what we see right now.

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

And moving on, we'll take our final question from Laurence Alexander from Jefferies.

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

Congratulations, you've got a pretty good engine going now with this business. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you.

A longer-term question, as your business mix continues to shift towards being more and more on-site, have you had any indication from either your large customers or from the rating agencies that their tolerance for leverage would change given the better – should the better or more stable mix of the business? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, that is something that we are hoping that would be the case but we have to wait and see, but we are pushing towards more on-site because then you get a more stable revenue growth and a more stable profitability, but we are paying attention to all parts of our business whether it's large on-sites or merchant business and our packaged gases business in the areas of the world where we are strong. So we are not neglecting any part of the business but the trend seems to be more towards the large on-sites. And obviously if we win one of those projects it adds a lot to that part of the business.

And then just lastly, are you seeing sort of – as you have early discussions with customers about the next cycle of projects in 2018, 2020 and so on. It looks as if the size of projects just keeps getting larger. Will we get to the point where you're seeing sort of one-off, $500 million to $1 billion project agreements? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, I can actually see bigger than that. There are projects that you would, like Jazan $2 billion and there are projects that might require $4 billion. So you're right, the trend is towards larger projects and that is why having the balance sheet that you can do those projects becomes very important and that has been our target because we saw that trend before and that is one of the reasons that we wanted to restructure and make sure that Air Products has a bulletproof, solid balance sheet that we can take on those mega projects. You're very right about that.

Okay. Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Okay. With that I would like to thank everybody for being on the call. Thanks for taking time from your busy schedule especially today with all of the announcements 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 best. Thank you.

And again, that will conclude today's conference. We thank you for your participation.