Good morning, and welcome to Air Products and Chemicals Second 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. Please go ahead, sir..

Thank you, Rochelle. Good morning, everyone. Welcome to Air Products second quarter 2021 earnings results teleconference. This is Simon Moore, Vice President of Investor Relations, Corporate Relations and Sustainability.

I'm pleased to be joined today by Seifi Ghasemi, our Chairman, President and CEO; Scott Crocco, our Executive Vice President and Chief Financial Officer; and Sean Major, our Executive Vice President, General Counsel and Secretary. After our comments, we will be pleased to take your questions.

Our earnings release and the slides for this call are available on our website at airproducts.com. This discussion contains forward-looking statements. Please refer to the forward-looking statement disclosure that can be found in our earnings release and on Slide number 2.

In addition, throughout today's discussion, we will refer to various financial measures. Unless we specifically state otherwise when we refer to earnings per share, EBITDA, EBITDA margin, the effective tax rates and ROCE both on a companywide and segment basis.

We are referring to our adjusted non-GAAP financial measures, adjusted earnings per share, adjusted EBITDA, adjusted EBITDA margin, adjusted effective tax rate and return on capital employed. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our website in the relevant earnings release section.

Now, I'm pleased to turn the call over to Seifi..

Thank you, Simon, and good day to everyone. We thank you for taking time from your very busy schedule to be on our call today. To start, I want to acknowledge the united and extraordinary efforts of all of the talented, committed and resilient people of Air Products around the world.

They work hard every day to provide critical products and services to our customers. Our people working in solidarity, and in a determined way, have made it possible for us to keep our 750 facilities around the board operating throughout this unprecedented crisis.

And I want to particularly thank our team, who worked through the very challenging, severe winter storm in the U.S. Gulf Coast.

Our people are the ones who are making it possible for us to continue to deliver our near-term business results, while also, pushing forward to develop, execute, and operate major world-class projects to ensure our growth in the future. Our people are the ones who make our higher purpose real every day.

That is, to help humanity, move forward in a sustainable way, and bring people together to help solve energy and environmental challenges..

Thank you, Seifi. We continue to demonstrate the resilience of our company our business, and most importantly, our people. EPS increased despite the ongoing COVID impact, lower earnings from Lu'An and the extreme U.S. Gulf Coast weather during the quarter.

Our business, which is about half onsite continue to deliver stable cash flow in spite of difficult conditions continuing around the world. Now please turn to Slide 12, for a brief discussion of our second quarter results.

Sales topped $2.5 billion, up 13% compared to prior year, driven by strong prices, higher energy pass-through and favorable currencies. Volume was flat, as the additions of new plants, acquisitions, and increased sale of equipment activities were offset by reduced Lu'An contributions, COVID-19 impacts and the winter storm.

Prices were again up versus prior year, with improvements in all three regions. This is the 15th consecutive quarter of year-over-year pricing gains. Overall, prices were up 2% in total, which represents a 5% increase for the merchant business. COVID-19 continue to negatively impact our business.

We estimate the pandemic reduced overall sales by about 3%, and EPS by about $0.10 to $0.15. The U.S. Gulf Coast winter storm disrupted our customers, interfered with our operations and caused a sharp spike in local energy prices.

However, we were able to mitigate much of the negative impact through operational actions and contractual pass-through to customers. Our people worked tirelessly overcoming these challenges during this time, restarting our plants quickly and restoring supply to our customers, as they also recovered from the weather impacts.

I want to extend my sincere gratitude to our people for a job well done. The adverse weather in addition to having a modest negative impact on sales and profits, also reduced our margin. Higher energy costs pass-through primarily due to the storm decreased the EBITDA margin by about 300 basis points this quarter.

As a reminder, this contractual pass-through increases sales, but not profits. EBITDA of $934 million improved 5%, as favorable price, currency and equity affiliate income more than offset the negative impact of volume, the winter storm in the U.S. and higher development costs.

Operating income was 2% lower, while EBITDA was higher compared to last year, largely due to depreciation on new plants, particularly the PBF hydrogen plants that we acquired last year. ROCE was 320 basis points lower, primarily due to the increase in the denominator from the additional $5 billion of debt.

Sequentially, sales were up 5%, primarily driven by 4% higher energy cost pass-through..

Thank you, Scott. Now please turn to Slide number 16, for our Asia results. Sales increased 6% compared to last year, as favorable currency and price more than offset the weaker volumes. Pricing up in all countries added 1%, which represents a 3% increase for the merchant business.

This was the 16th consecutive quarter of year-over-year price improvement. Sequentially, price was also positive, but rounded to zero. Volumes are down 2%, as higher merchant volumes, I'd like to repeat, higher merchant volumes and new plans partially offset the impact of Lu'An being shut down.

Merchant volume improvement in the region has been encouraging, particularly in light of the strong rebound, following the expected Lunar New Year slowdown. But, the recovery is not consistent across all product lines. Additionally, we brought on a stream a number of new smaller plants that contributed to our results.

EBITDA was similar to last year, as strong price and favorable currency have offset the impact of lower volumes. EBITDA margin of 46.4% was 330 basis points lower than last year, due primarily due to lower volume driven by Lu'An. Sales and profit were down sequentially, primarily due to a Lunar New Year.

Now, I would like to turn the call back to Scott to talk about our Americas results.

Scott?.

Thank you, Seifi. Please turn to Slide 17, for review of our Americas results. Sales increased 13% compared to last year, as strong price and significantly higher energy pass-through more than offset lower volumes. Volume was down 6%, primarily due to the continuing negative impact of COVID-19, and the winter storm in the U.S. Gulf Coast.

Although, there are signs of overall economic improvements in the U.S., the operating results for U.S. refineries remain below. The winter storm this quarter further reduced the demand for hydrogen in the Gulf Coast, in addition to pressuring the merchant products.

We have also seen some transitory contractual reduction in our hydrogen business recently, as some refineries are reconfiguring their operations to produce renewable fuels. However, such production will use hydrogen once the process is completed.

The uses of hydrogen for renewable fuel per unit is in fact four to five times more than conventional fuel. Price was again better across most major product lines. The 3% increase for the region was equivalent to a 7% increase on the merchant business. This is the 11th consecutive quarter of the year-on-your price improvement.

Higher energy pass-through increased sales by 15%. The higher energy prices through the rest of the quarter were exacerbated by the record high prices during the winter storm much of this contraction the pass-through the customers.

EBITDA reached nearly $450 million, a 6% increase over last year, as better price, higher equity affiliate income and the PBF acquisition, more than offset the volume shortfall, including the adverse impact of the winter storm. EBITDA margin declined 310 basis points.

Higher energy pass-through, which increased sales but not profits, reduced margin by 650 basis points. In other words, margins were up over 300 basis points, excluding the energy cost pass-through impact. Compared to last quarter, Americas volumes increased 2%, following the holiday season, and continued the gradual COVID recovery.

Price also improved 1%. EBITDA improved double digit sequentially, supported by improved volume, lower maintenance and higher equity affiliate income. EBITDA margin was almost flat sequentially, which included a negative 450 basis point impact from higher energy pass-through.

Now, I'd like to turn the call back over to Simon to discuss our other statements.

Simon?.

Thank you, Scott. Now, please turn to Slide 18, for a review of our Europe, Middle East and Africa region results. Our EMEA team delivered another set of outstanding results this quarter. Sales and EBITDA both improved nearly 20% versus last year. Volume plus price was up 7%.

As volume grew 5%, principally due to acquisitions and higher onsite volumes, which more than overcame the adverse impact of COVID-19 predominantly in our packaged gas business. Price increase for the 13th consecutive quarter and was higher across most major product lines and sub regions.

The 2% price gain for the region corresponds to a 3% improvement for the merchant business. Currencies were favorable at 9%, primarily due to the strong euro and British pound. EBITDA jumped 17% and nearly $220 million, supported by favorable price, volume, currencies and equity affiliate income.

EBITDA margin dipped 50 basis points, primarily due to a negative 100 basis point impact from higher energy costs pass-through.

EBITDA was down 2% compared to last quarter, primarily due to seasonally lower equity affiliate income, while margin decreased 220 basis points including a 70 basis point negative impact from higher energy costs pass-through. Now, please turn to Slide 19, global gases, which includes our non-LNG sales equipment businesses, as well as central costs.

Sales increased due to higher sale of equipment project activity, but profit was lower due to business mix and higher product development spending. Please turn to Slide 20, corporate, which includes LNG and other businesses, as well as our corporate costs.

Sales were higher this quarter driven by increased project activities, as we continue to execute multiple large LNG and other projects. Profit dipped slightly on higher corporate costs. Now, to provide some additional thoughts, I'll turn the call back over to Seifi..

Thank you, Simon. Now please go to Slide number 21. Unfortunately, as everybody knows, the world continues to struggle with the COVID-19 pandemic. With widespread vaccination efforts, some regions have been able to reduce the spread of the virus, while others are experiencing an increase in number of cases.

Against this backdrop, we take pride in our ability to deliver consistent earnings and cash flow. Our onsite business, roughly half of our total sales remain stable, and our price continued to be strong. We have also seen signs of improvement in merchant volumes.

As we look forward, although we still see uncertainties ahead, our confidence in major economies around the world is growing, particularly in light of the increasing pace of vaccination. Therefore, we have resumed providing EPS guidance this quarter. As I mentioned earlier, Lu'An has asked us to restart our facilities.

And we expect Jazan to close during this fiscal year. However, there remains some uncertainty to the exact timing of these events, therefore, they are providing or EPS and CapEx guidance, excluding Jazan and Lu'An restart.

In other words, the restart of Lu'An and the financial close of Jazan, if they happen within this fiscal year, they will be accreted to the guidance that I'm giving. For Quarter 3 of fiscal year 2021, our earnings per share guidance is $2.30 to $2.40 per share, which is up 14% to 19% over the last year.

And the guidance for our fiscal year 2021 is $8.95 to $9.10, up 7% to 9% over last year. We see our CapEx at approximately $2.5 billion for this year, again, excluding Jazan. Meanwhile, we continue to execute our other projects, bringing them on stream and finalizing agreements with our customers.

We are committed to the capital deployment strategy and to growing our pipeline of our projects. Please turn to Slide number 22. As always, the success of our strategy is rooted in the great team we have at Air Products.

We believe strongly that our only sustainable long-term competitive advantage is the degree of commitment and motivation of our people, the people who work hard every day to bring our strategy to life. I am very proud to be working with this team.

Our deep commitment to sustainability creates exciting growth opportunities, driven by the energy transition to a lower carbon board. Our gasification, carbon capture and hydrogen growth platforms are at the core of this transition.

In the past five years, our differentiated strategy and our core competencies have positioned Air Products to lead across these areas. Now, at this time, we are very pleased to answer any of your questions..

Thank you. And our first question today will be from Kevin McCarthy with Vertical Research Partners. Please go ahead..

Good morning. Seifi, I wanted to get your updated thoughts on capital allocation. If you were to look out over the medium to longer-term, let's say five years, how would you expect to allocate capital among three buckets? The first would be green hydrogen, the second gasification, and the third, traditional projects, such as ASUs and SMRs..

Well, good morning, Kevin. Thank you for your question. I see that, we are focused on gasification, carbon capture and hydrogen, and obviously, our underlying standard business.

We think that our underlying business will require an investment of approximately $500 million to $700 million, $800 million with all of these smaller plants and generators, and all of that, to grow with the overall economy in the world.

Then in terms of the other three opportunities, in terms of capital allocation, I don't want to kind of prefer one over the other, because it depends different parts of the world.

Obviously, we're not going to spend any money on significant gasification project, in some of the more developed our gasification, for example, Europe or the U.S., but there will be coal gasification projects in India and Indonesia and the other and China.

Carbon capture is going to require a lot of capital and that will be very, very prevalent in, I foresee in Europe, and in the United States, specifically. And then, obviously, green hydrogen and blue hydrogen, it will be all over the board. So, I would have a balance of them.

But since these are all mega projects, for a year or two, one of them might be higher than the other one. But in the course of five to 10-years, if you take all of the capital allocation, I think that most of the capital will go to carbon capture, then hydrogen, and then gasification..

Thank you for that. Yes. Thank you. And secondly, if I may Seifi, you mentioned that some of your hydrogen customers are reconfiguring to produce renewable fuels.

How much of that do you expect to occur? And, what is the net benefit? It sounds like the reconfigured refineries would consume a lot more hydrogen, so just trying to get a sense of what that benefit could be to you over time?.

The benefit could actually be very positive. The only caveat over here is that there is a lot of talk about this thing, there is a lot of interest in it. But, I'm a conservative person, I want to wait and see how many of these projects actually do materialize.

But as I think, as Scott mentioned, and he was talking about the Americas, the intensity of hydrogen requirement per barrel of renewable diesel versus a barrel of ordinary diesel is almost four to five times. So, if these refineries in a major way convert to renewable diesel the demand for hydrogen will actually go up.

But again, I just don't want to get ahead of ourselves, because there is a lot of talk, but we'll see how many of these projects will actually materialize..

Thank you so much..

Thank you very much, Kevin..

Next we move to David Begleiter with Deutsche Bank..

Thank you. Good morning..

Good morning, David.

How are you?.

I'm well, thank you.

Seifi, just on Jazan, once the financing is complete, should the project start up immediately? And also, has your expected return on the project comes down during this period of discussion and negotiation?.

You're talking about Jazan?.

Yeah..

Okay. First of all, if I may answer the second part of your question, we had given some general guidance about the profitability of this project to the investors almost two years ago. During the period of the negotiations and so on, that expectation is still correct.

Secondly, the first part of your question, once we close on this thing, the day we close, the next day we will get our fixed fee, and therefore it will be accretive to our EPS..

Very good.

And just on the Lu'An, do you expect the same level of earnings post this current restart, as you had prior to the project going down back, I think last June?.

No, I think we explained to you that we renegotiated the contract, we renegotiated that. We have a structure for if the plan is down, but we get paid. We have a structure for when the plant is up and running for a period of time and then we get back to full payment for the original contract. So there's kind of three levels..

Thank you..

Thank you, David..

We'll move on to Vincent Andrews with Morgan Stanley..

Thank you and good morning..

Good morning.

How are you?.

I'm very well, thank you. I hope the same with you. You mentioned that the purchase of the other 50% of the Chinese JV that you didn't own, you made it sound like that was going to be sort of a trigger that would lead to the announcement of other gasification projects.

I'm just curious if you could elaborate on sort of what is the significance of owning that other 50%, therefore, maybe it allows you to do some other projects?.

Because then you don't have to consult with somebody else in terms of what we do and what we don't do. Because when you are 50-50 joint venture, you have to have a consensus, when you are going to do different projects in different parts of the world, and different people have different preferences.

But, then it is 100% own, then we can decide on our own what we want to do, therefore, I think that is why I said if they facilitate us in terms of getting additional projects..

Okay. And if I could also ask you on the guidance for the back-half of the year, maybe specific to the Americas.

Are you assuming any meaningful improvements for your refinery customers and/or for helium volumes?.

Not particularly. No, for neither one. We are assuming that things will be approximately -- there might be some improvement, but that is not the driver for the forecast. We are taking a conservative approach here..

Very good. Thank you very much..

Thank you..

We'll move on to Jeff Zekauskas with JPMorgan..

Hi, good morning..

Good morning, Jeff..

I was hoping you could clarify some of the dynamics in the Americas business. There was some kind of penalty from the storm. And there was some order of magnitude benefit from the acquisitions that you've made.

If you look at the volume exclusive of the storm and the acquisitions, what might it have been during the quarter?.

The volumes would have been down..

Yes, I know that..

You are referring to our hydrogen business, Jeff, right?.

No, I'm referring to the consolidated volumes in the Americas, that is what would they have been exclusive of acquisitions and exclusive of the storm?.

I think our merchant business. I mean, our Lux Linen business would have been kind of flat, and then our hydrogen business would have been lower. Because, as you know, we have some refineries like the shell refineries, which was a customer shut down. And then, out of the 100% volume, some of the volume on the pipeline is not contracted long-term.

It is a spot sale. And the refineries considering their level of operation being low, they had cut back on their spot sales. So the hydrogen volumes would have been lower, especially on the Gulf Coast..

The equity income in that division was $32 million in the quarter. And maybe it was up $10 million year-over-year and $10 million sequentially.

Why was the equity income so high? And is that an unusual number?.

The equity income is so high just because I explained that last time, because our equity affiliate in America is Mexico. And Mexico, unfortunately, because of COVID the demand for oxygen was phenomenal.

Just the way it is right now in India and the way it is in Brazil, quite frankly, that is why some of our competitors are having very good results because of that. It's a very unfortunate situation. But, I mentioned last quarter that if you are in the medical business right now, Mexico, Brazil, India will make you a lot of money.

And we saw that benefit in our joint venture in Mexico..

Okay, good. Thank you so much..

Thank you..

We'll move on to Bob Koort with Goldman Sachs..

Yes, good morning. It's Mike here actually, sitting in for a Bob..

Hi, Mike..

Hey. Good morning. Your favorite Slide number 11, I noticed that the EBITDA margin appeared to have declined like three consecutive quarters, and you seem to be gaining price. So just kind of trying to reconcile how you gain in price losing margin.

So how should I think about the margin going forward?.

Well, I think you should -- you're on the very right track, and let's look at the causes. Number one, the margin comes down when Lu'An is shut down, because Lu'An is a very, very high margin business. So, that Lu'An by itself has a significant effect than it is now.

The second thing is that when natural gas prices go up, we end up showing more sales because we are buying natural gas and then the customer reimburses us for that. But, it shows us higher sales, but it doesn't affect the profit line. So if natural gas, every dollar of natural gas going up, affects our sales by $350 million immediately.

So, if natural gas prices continue to go up, then our margins -- for our hydrogen business looks lower, because the profit doesn't change, but the sales go up. So, those are the two effects that you need to think about.

So as we go forward, if natural gas prices come back to the levels they were, and if Lu'An starts up, then you're going to see our margins go up. So, I still feel very good about our margins. We haven't seen a fundamental change in the profitability of our business..

Okay, thanks for the color.

And just as a follow up, looking at Lu'An, when we think about commissioning, is that a process that you think about in terms of weeks or months? And once that facility is back online, is there some type of break in period that they have to run at reduced rates? Or can they ramp that facility up fairly quick?.

Well, the thing is that, with the plant that has been shut down and you start it up, you never know which pump works, which pump doesn't work. But, as I mentioned in my comments, as of this morning, we do have one of the gasifiers online for supplying their product to our customers.

And I'm hoping that the other three will come on stream in the next few months. We don't want to be too specific, because we can stock up and one pump can have a failure, and then you have to recommission or change the pump and all that. But overall, it's not going to take years, it's going to be a relatively short period of time..

Okay. Thank you..

Thank you..

Next, we'll hear from John McNulty with BMO Capital Markets..

Yeah. Thanks for taking my question. Hey, Seifi..

Good morning, John.

How are you doing these days?.

Good, good. Yeah. And hopefully you are as well. So I guess, a little bit of a follow-up on Lu'An. This year has obviously been a lumpy year with it, with a kind of not getting paid full out, like the contract being rejiggered a little bit, while it was down.

I guess, is there a way to think about, how -- if the total payout in fiscal '21 versus fiscal '22 will look out in terms of overall earnings contribution?.

Fiscal '21, which is the one we are in right now, next is fiscal '22 right? But this year, I mean, we haven't made a lot of money in Lu'An, because the plant has been shut down for six months, and now we are starting it up. So, I think that fiscal year '22 will be significantly better than '21 barring any plant breakdown or anything..

Okay. So it should be back to kind of the $0.25 contribution or something in that range.

Is that the right way to think about it?.

I don't want to confirm that, because it depends on how much we run and all of that. But John, the biggest issue over here was the fact that people thought that gasification is dead, the plant will be shut down forever. But, we always said that's not the case, we always said that this is due to change in management and so on.

And that has proven to be correct. So, the fact is that the customer wants the plants running, the plant is valuable, it is going to produce products. And now how much is our profitability in '22, I'm sure it's better than '21, but it also depends on how we run the plant and how many times we can keep the gasifiers on the stream and all of that.

So, I don't want to give you a definite prediction. Obviously, we will give you a much more accurate prediction in October, when we give you our guidance for 2022..

Got it. Fair enough. And then, maybe just as a follow-up, you spoke to merchants business starting to pick up and seeing signs of the macro kind of having some pull there.

Can you speak to what that means for bidding activity around, either the gasification side or some of the traditional on site business? Are you starting to see increases in bidding activity or demand and interest from kind of the larger scale customers at this point? And how should we think about that, in terms of filling up the backlog and contract announcement, as we look through the rest of this year?.

John, the demand for those kind of projects never slowed down during the COVID. It continued to be very strong, it continues to be very strong. And we are very optimistic about the deployments and targets. As Scott mentioned, that we have almost 95% delivered two years in advance. And we are very bullish on that.

We see a lot of very large projects that we are working on, and I think those will bear fruit as we go forward..

Got it. Thanks very much for the color..

Thank you, John..

We'll move on to Mike Harrison with Seaport Global Securities..

Hi, good morning..

Good morning, Mike.

How are you?.

Doing well. Thanks, Seifi. I wanted to ask you about the Asia business, it sounds like you saw a strong recovery following the typical Lunar New Year shutdowns. But, I believe you said that markets are recovering at different rates, or maybe that the recovery has been a little bit uneven.

So, can you give us a little bit more color on what you saw in Asia coming out of Lunar New Year?.

That's a very good question, actually, In that, what I said was that we saw a very strong recovery in China and other places after the Lunar New Year. The thing that I said is that the recovery is not even across all product lines, that specifically means that our Lux Linen business is coming on strong, our Oregon business is coming in strong.

But that is not necessarily true about our helium business in that part of the board, and that is because some of our -- because we have that -- as you know, we are holding very firm to our pricing strategy. And as a result, we might be losing some market share there..

Alright. And then, within the electronics market, it seems like that is set up to see very strong demand over the next couple of years. But as I look at the onsite facilities that you're going to be starting up in the coming years, really just looks like the Samsung plants in Korea.

Can you talk about your activity within the electronics market, and whether there are some additional onsite opportunities that maybe aren't listed there on that slide, or that you plan to book over the coming months or years?.

The demand for electronics and electronics onsite business for high purity nitrogen is very strong. We are participating in that. We have won a lot of contracts, some of that we cannot announce because the customer doesn't want to announce it. Because they want to keep that plants kind of confidential.

But, we are not losing any market share in that area. We have the proprietary products, which are actually very competitive. And we remain very bullish in that area..

All right. Thank you very much..

Thank you..

Next, we'll hear from Mike Sison with Wells Fargo..

Hey guys, good morning..

Hi, good morning.

How are you?.

Good. Looking at your capital deployment scorecard going back a couple of years, and that remaining to be spent is just goes up every year, which is good.

It shows that you're growing the business obviously, but what do you think we start to see that come down, meaning that you have more meaningful projects coming in? And do you envision that it actually gets to zero at some point?.

You're talking about our capital expenditure?.

Yeah, the remaining to be spent line item..

Oh, that is going to grow my friend. It's not going to come down. We are going to continue to invest heavily for the next 10, 15-years because the opportunities are huge. Our financial capacity is there. And we are not going to be buying shares. We will maintain our dividends and increase it. But we are not going to waste our money buying shares.

We are going to invest in high return projects, which there are plenty of them for us. And what we will do is that in a few months, we are going to give you a plan for the next five years, the same way that we did in 2018. In 2018, we said between '18 and '23, we will spend about $15 billion, we're way ahead of that.

And in a few months, we will give you a plan for 2020 -- a 10-year plan, 2018 to 2028..

Got it. And then quick follow….

So, don’t expect -- yeah, go ahead..

I understand. For 2022, I know it's early to give specific guidance.

But do you think investors should be adding Jazan and Lu'An back to their 2022 outlook, particularly, as we look at the value of the company going forward?.

Well, if everything goes fine, and we are totally successful in bringing Lu'An online and we signed all of the final contracts and finish the financing 2022 will be a good year, because then Jazan and Lu'An will be there compared to this year..

Got it. Thank you..

That’s not a bad assumption. Thank you..

We'll move on to Duffy Fischer with Barclays..

Yes. Good morning, fellas..

Good morning..

Just a question, last weekend, Wall Street Journal had an article talking about delays at the greater NEOM project. And I get that your project can't be separate from the city itself.

But just want to see if you guys are seeing any of those types of delays as you're moving forward, kind of where are you with purchasing long lead time equipment? And when will we start to see that capital from the neon actually rolling through your cash flow and your balance sheet?.

First of all, I don't want to make any comment about the BR ] NEOM project, because I don't know enough about it, and that's not something that we are involved in. The one thing that I can confirm is that our project has nothing to do with the city, whether the city is delayed or built or not built, it doesn't affect our project at all.

We are self-contained, we are going to prepare, desalinating our own water. We are going to produce our own power. And so, we are totally self-contained. So, any kind of any issues with the city will not affect our project. In terms of our project, we have placed orders for some of the long tail items, and we are making progress.

And in terms of cash flow, it is -- already, we're spending money on that project right now..

Great, thanks. And maybe if we could jump to helium. I know there's notionally some new capacity coming online, but it seems like demand for helium is picking up strongly.

Can you walk us through how you would view kind of the next one, two, three years just supply demand in the helium market globally?.

So on that one, I think the number of sources of helium and all of that. The biggest question about supply demand in helium is not a secret. It is what is going to happen to the project that Russia is doing, so called Amur project. That project will produce a lot of helium when it is online.

The issue is, when is it going to be online? Is it going to be end of 2021, 2022, 2023? At what rate that is in Siberia and all that. So I don't want to make any predictions on that. But that is the only other major project that is underway..

Great. Thank you, guys..

Thank you..

Next we'll hear from John Roberts with UBS..

Thank you. You mentioned some temporary hydrogen headwinds as those refiners reconfigured to biodiesel.

Do the hydrogen contracts allow for suspension of volume, if they have extended downtime to reconfigure?.

Good morning, John. No, it does not allow for that. Our contracts or takeoff pay, so while people contemplate different things that doesn't affect our contracts, John..

Okay.

And then, can you give us a very short quick update on the other three gasification projects, Jiutai, Debang and Indonesia?.

They are on a schedule, on plan..

Okay. That's good. Thank you..

Thank you..

We'll move on to Steve Byrne with Bank of America..

Yes. Thank you. Seifi, I found your response to Kevin's capital allocation question interesting, where you highlighted carbon capture as being potentially the largest bucket.

And I wanted to just drill into that a little bit, would you say that is potentially the largest because of the interest in it as from customers that see it as a way to meet some carbon reduction targets, in a relatively inexpensive way? Or would you say that, you have something to bring that's really somewhat differentiated in the capacity of either your technology or your access to these CO2 rich streams coming out of the SMR, is that you could target? And, just anything that you might have to add on that with perspective of any limitations to where you can sequester the CO2?.

Well, thank you for the question. And also, thank you for providing the answers, because you kind of answered the question by saying that we are in a unique position, we are operating the largest carbon capture facility in the world right now, operational. We have been running it for several years.

We captured a million ton a year of CO2 from the semis that we have in Port Arthur. So, we know how to do this thing. Secondly, is that we have many, many SMR that put out CO2, therefore, the CO2 is there that can be captured.

The other thing is the fact that there is significant focus on this because by capturing CO2, you can make blue hydrogen, and therefore the transition to the hydrogen economy can happen very quickly using either carbons. And a lot of people are very interested in that.

People who make hydrocarbons are very interested in finding a way to produce hydrogen, capture the carbon and say, here's a hydrogen which is almost is not as good as green hydrogen, but it is hydrogen with significantly reduced carbon footprint. So, that is why I am -- I think that there will be a lot of big investments in that area.

And we are very well-positioned with our core competency, with the plants that we have around the world to be a major player on that. And we intend to be a major player on that. Our goal is very simple, gasification, we have put ourselves in a position that we are the major, the leading company for gasification.

Any gasification project in the world, probably Air Products will do that. We plan to be the leader in blue hydrogen, which means CO2 capture, and we plan to be the leader in green hydrogen, which we already are with the plant that we're building in NEOM..

And Seifi, just one on your outlook for the fuel cell buses. We talked about this tour of U.S.

cities, and I just wanted to get your view on whether that opportunity is potentially more attractive in the U.S., because these cities can start with grey hydrogen that's relatively less expensive than if it were sourced from natural gas in Europe at three times the price? Is it the attraction starting gray? Or do you see longer-term the fuel cell buses in regions like Europe is potentially larger, in that green hydrogen could be more comparably cost and priced relative to gray? A - Seifi Ghasemi Look, you're raising an excellent question.

The issue is that in terms of the economics, you would expect that the U.S. will be ahead of Europe, because of the cheap natural gas that we can convert and all of that, that you can capture the carbon and have blue hydrogen and all of that. But then, there is the fundamental element of the government interest.

And what we are finding out is that the governments in Europe are a lot more committed to green hydrogen. They are really committed to green hydrogen, not blue. They want green. And as a result, I think our hydrogen business, our green hydrogen business, the biggest potential will be in Europe, rather than in the U.S., or any other part of the world.

That's the way it is developing right now. But things can change. Government policies can change. I mean, if in the United States, all of their states, or at least the majority of the states adopt the LCFS plan that California has put in place, then you are going to see a boom in terms of hydrogen in the U.S.

But I don't know whether that happens or if that happens. But in Europe, we see that. And then in Japan, they are going with the idea of taking blue ammonium and putting it in their power plants to reduce their carbon footprint. So the different parts of the world are doing different things. But what you are delineating is a very logical economic thing.

But on top of that, you have to put the layer of the where the government pressure is. And I think for a project like NEOM, the biggest potential market will probably be Europe..

Okay. Thank you..

Thank you..

Next, we'll hear from Marc Bianchi with Cowen..

Thank you.

First question relates to the guidance, just wanted to confirm how you're handling the COVID impact the $0.10 to $0.15 that you cited for the past two quarters for the remainder of the year?.

So, we are expecting that the COVID impact would be a little bit less in the U.S. because of the vaccination, and an improvement in Europe because of the vaccination. And then in China and the rest of Asia, that COVID impact is not as significant anyway.

So we have kind of considered some improvement because of COVID impact, but still having in mind that there will be some..

Great. Thanks for that. And then I wanted to follow up on the carbon capture. It would appear that -- you responded to the earlier question discussing blue hydrogen, but it would appear there's quite an opportunity for stacking some of these carbon capture credits for renewable diesel.

And obviously, there's a higher hydrogen content there I think you mentioned. Why aren't we seeing that occur right now? You mentioned there's a lot of talk about projects, but maybe things aren't happening. I'm curious what bottlenecks might exist.

And if that involves perhaps some takeaway capacity for CO2 that maybe needs to be built by someone else, before those can move forward?.

Well, let me just focus on making sure I understood your question correctly. You're saying how come these renewable diesel projects are not happening faster? I think the main reason is that right now, the only place where it makes sense to sell renewable diesel and still be profitable is in California.

So people I mean, Valero when they are producing this thing in Texas, they don't sell it in Texas, they sell it in California, because if they sell it in Texas, they would lose money. Because just the cost of the raw material for making renewable diesel is probably $2.5, $3 a gallon.

So, right now everybody is making teams to go to California and sell it in California. And therefore, people are sitting down and saying how many-- how much capacity does California have? Because if you add all of these renewable diesels, in four or five years 100% of the diesel sold in California will be renewable.

Then what do you do? So people need to get themselves comfortable that this policy that California has will be picked up by Oregon and Colorado and New York and all that, which I think it will be.

But until it is done, I think you're not going to see a significant growth on this thing, because people are going to say, well, how am I going to -- where am I going to sell it..

And just following on to the other part of the question, related to carbon capture opportunity.

Is there a bit of a chicken and egg problem there, where the infrastructure might not be in place to take the captured carbon to wherever it's going to be stored or sequestered? And how do you see the market sorting that out?.

But, you're very right, because then people talk about capturing carbon. So we can capture carbon for you anywhere there is a plan, which puts out CO2 out of an SMR or a chemical unit, we know how to capture that. That's the easy part. The question is that, what do you do, once you have captured it. You need to have a place to sequester it.

And the biggest question is that where is it possible to sequester it, where is it possible that there is enough poorer space to do that. That is the major question that will come into play in terms of how many of these projects can you do, where can they be done and all of that..

Thank you very much, Seifi..

Well, thank you..

We'll move on to Stephen Richardson with Evercore ISI..

Hi, good morning. Just want to come back quickly on Lu'An if you might. I just want to confirm what we're hearing this morning, which is that when you're fully through commissioning, and when you're running the before gas fires, and appreciate this products run at a very, very high utilization rate historically.

But, Seifi, is what you're saying that whenever you hit that run rate, will the contribution be substantially similar from Lu'An is what it's been historically? Meaning, there hasn't been any change to the commercial terms or the economics from Air Products perspective?.

Well, that is the question that I tried to answer before that when we renegotiated or reconsidered the arrangements with Lu'An -- I don't want to go through all of the details, because the customer doesn't want us to disclose that. We said that we have come up with three stages.

One is when the plant is shut down, what did we get? The second thing is that, when the plant is up on a stream, what do we get for a certain period of time, and then we go back to the original contracts.

So, I do not want to represent to you that if we come on a stream 100% in 2022, we will make as much money the $0.25, as we did in 2019, it will be less than that. How much less than that, I cannot disclose it. But there is a period of time, where we have agreed to reduce our fee to help the customer.

But then, the overall return on the project is still as good if not better, because the customer has agreed to extend the term of the contract, which means that our return on capital for the length of the contract is still intact..

Okay, thank you. Yes, that's clear. Thank you. And one follow up Seifi if I may. I mean, you've been through, obviously, a lot of conversations over the last two to three quarters, both on Jazan and Lu'An. And it's clearly taken a lot of the markets focus.

I was wondering if you could maybe just talk a little bit about, lessons learned about how you'll talk about projects going forward, the way in which you think about products in the backlog, and kind of the best way to communicate these variabilities, which will come up from time to time with the market and your investors going forward?.

Well, the one lesson that I have learned all my life, it's not just -- is that you always need to tell people the truth at the time that you are talking to them. And therefore, maybe we overdid it, maybe it could have been handled differently. But, I believe we handled the right way.

In November of 2020, I was very concerned about Lu'An, and I was very concerned about Jazan. And I told the investors. Now, I did explain to them put the caveat in them that some people didn't listen to us that look, I don't think these are -- this is what I know right now. But this doesn't mean it's the end of the world.

This doesn't mean that it's the end of gasification. This doesn't mean that we are not going to do Jazan. But some people took it like that, and our stock got hit by $50. But quite honestly, if I had to do it again, I would always tell the investors what we know at the time that we're talking to you. And we should be transparent.

But I think maybe we can do a better job. We can always do a better job, maybe we can do a better job of putting it in the right context, not to kind of create patterns. But, one other thing that I'm sure the investors appreciate is that, as we go forward with all of these big projects, and so on, these kinds of things is normal that it happens.

It's just my request to the customers and to the investors is please just don't panic. I mean, we will tell you what it is. And, make a judgment based on the facts rather than suddenly other people who have always been saying that gasification doesn't work.

And then we said, Lu'An is shut down, and they said, look, I told you so, this is it, this is the end of it. Nothing else is going to happen. These guys are going to the wrong track. But again, as I said, we will always tell you exactly what we know at the time we talk to you..

Thank you..

Thank you, sir. We are significantly over time.

Can we say this is the last question, please?.

Yes, fair enough..

Do we have another question?.

No. At this time, I will….

No other call, then that's the right time to end this. Well, I'd just like to again, thank everybody for being on our call, and listening to our presentation. We sincerely appreciate your interest and we look forward to discussing our results with you again, next quarter. And as I said earlier, please stay safe and healthy. And all the best. Take care.

Thank you..

And that will conclude today's call. We thank you for your participation..