Air Products and Chemicals Inc
NYSE:APD
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
215.38
332.1
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Air Products and Chemicals Inc
You don't have any saved screeners yet
Good morning, and welcome to Air Products & Chemicals Second Quarter Earnings Release Call. Today’s call 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.
Thank you, Leanne. Good morning, everyone. Welcome to Air Products’ Second Quarter 2020 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 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’ll 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 referred to earnings per share, EBITDA, EBITDA margin 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 and return on capital employed. Reconciliations can be found on our website in the Relevant Earnings Release section.
With the significant social and economic challenges the world is currently facing from the COVID-19 pandemic, we have restructured our call today to focus on the key information we believe is most important to our investors. You can find our Q2 segment slides in the backup section but we won't go through them in detail on the call today.
Also given the significant uncertainty that remains regarding the duration of the crisis, the pace of recovery and the negative impact on the global economy, Air Products is not providing Q3 FY ‘20 EPS guidance. In addition, we believe it is prudent to withdraw our FY ‘20 EPS and capital expenditure guidance and therefore we advise our investors that such guidance should no longer be relied upon. We are not providing new FY ‘20 guidance at this time.
And like all of you we are conducting this call remotely. So during the Q&A, we will intentionally pause to help with any time delay and avoid two people speaking over each other. We appreciate if you would do the same and we also appreciate your patience.
Now I'll turn the call over to Seifi.
Thank you Simon, and good morning everyone. Particularly during these challenging times, we thank you for taking time from your busy schedule to be on our call today. Before we talk about the quarter, I wanted to share some thoughts on the current situation. Please turn to Slide #3. The true character and leadership of individuals and companies is revealed during times of crisis. We are certainly going through a crisis, something that none of us has experienced in our lifetime.
But I am delighted to report to you that the people of Air Products are demonstrating our culture and character to the world. They are responding to the crisis with caring for our fellow employees and our fellow citizens around the world. They are responding with passion to keep our clients operating so that we can provide our customers with the vital products that they need as they are responding with their commitments and dedication to move Air Products forward, no matter what the challenge is.
We have always been a leader committed to safety as our number one priority. In managing through this crisis we have provided the right protective equipment and procedures to protect our people on the frontlines. We are quick to act to limit travel and transition many employees to work-from-home mode to minimize risk. We are also committed to providing financial security for our people. During this crisis, we have not laid off any of our employees or cut their salaries. We will work to maintain this approach as we navigate through this crisis together. We have a strong financial position necessary to care [ph]our people and their families through these unusual times.
Air Products is looking after our customers. Our customers expect us to provide them with the products they need on-time with the right quality and the focus on providing excellent service. I am proud that during this crisis, we have kept all of our 750 plants operating around the world, and I like to repeat we have kept operating all of our 750 plants around the world, a significant accomplishment during these times. We provide products, services, and equipment essential to basic human needs including medical oxygen, helium for MRI machines, products for food freezing, hydrogen for energy, and related equipment critical to energy and medical needs. We are proud to be identified as a critical industry by all the governments around the world.
I want to thank our people on the frontlines for keeping all our plants running and delivering to our customers the product they need. In addition, the rest of our people working from home have helped us maintain our business continuity by keeping key processes running and continuing to pursue and win new projects like the PBF hydrogen plant’s acquisition that we announced in March and closed last week.
Air Products is also a leader in looking after our communities. I am proud of how our teams have mobilized safely and quickly to meet increasing oxygen demand. We are actively supporting medical facilities and the establishment of critical temporary hospitals. We have also made financial contributions, donated critical PPE and equipment, and offered our talents to nonprofit organizations that are meeting so many urgent human needs during this crisis. We are making a difference in people's lives.
Air Products is also a leader in creating and preserving shareholder value. With the prudent management of cash over the last six years, we now had a very strong balance sheet and plenty of cash on hand to weather the current crisis, continue to pay dividend, and invest in attractive opportunities.
I would like to thank our team for their commitment and dedication during these difficult times. Their hard work and our resilient business model allowed us to deliver our 24th, and I repeat our 24th consecutive quarter of year-on-year earnings growth despite the negative impact in the second quarter of about $0.06 to $0.08 of earnings per share from COVID-19 virus.
Now please turn to Slide #4. I am pleased that our team stayed focused on working safely. This is always important and particularly during these challenging times.
Now please go to Slide #5, which shows our goal which remains unchanged.
And now please go to Slide #6, our management philosophy. We have included this slide in every presentation that I have made to our shareholders in the last six years. It is at times like this that one can fully appreciate the value of following this key management philosophy that I have pursued in my 50 years career. Yes, cash is king; and yes, the most important job of the CEO is prudent capital allocation.
We have been focused on generating and preserving cash. We did not waste our cash on frivolous acquisitions or share buybacks, and we saved our cash for a black swan event that we have the cash to take care of our people, to continue to run our business, serve our customers, contribute to the welfare of our communities, and create value for our shareholders.
Now please turn to Slide #7, which is our long-term business strategy. You have seen this many times before. There is no change in this strategy and we will continue to pursue it as stated.
On Slide #8, you can see our exciting gasification strategy. The fundamental drivers creating significant growth opportunities in gasification remain. Countries and large companies around the world continue to focus on gasification to utilize the abundant natural resources they have to produce chemicals, transportation fuels, and energy in sustainable amounts. At this point, I think it's appropriate for me to update you on our important $12 billion deal, the Jazan projects for Saudi Aramco. Despite the current challenging times, I'm happy to report that we have now completed the discussions regarding the legal documents, and these legal documents are being submitted to the lender’s legal advisor. Therefore, we now expect to go to the market for the $7 billion project financing by the end of May, and we expect to close this transaction by October 2020.
Now please go to Slide 9, which summarizes the PBF hydrogen plants acquisition we announced a few weeks ago. Despite the unprecedented challenges in the world these days I'm proud that we continue to win large on-site opportunities. We have closed on the purchase of the five operating hydrogen plants in California and delivered for $530 million and had started providing long-term hydrogen supply between PBF’s energy refineries. This project will have the returns in excess of the minimum requirements we previously shared with you and it will be accredited to our bottom line this year in 2020.
I'm proud of our team who have both diligently to negotiate, sign and close this deal in less than 30 days. This project is aligned with our on-site growth strategy using our strong balance sheet to acquire, own and operate assets for customers and supply gadgets and their long term contracts. We are pleased to expand our strong relationship with PBF. In addition we are working on many other opportunities around the world so that we remain confident in our ability to deploy our available capital to create significant shareholder value.
Now please turn to Slide 10. Again with the hard work of our team and the strength of our business model, our EBITDA margin remain over 40% which is up over 1500 basis points from early 2014.
Now I would like to turn the call over to Mr. Scott Crocco, our Executive Vice President and Chief Financial Officer to provide a financial overview. Scott?
Thank you Seifi. As Seifi stated earlier our company's financial position is very strong. Our cash flow generation is very stable supported by our industry-leading on-site business, which represents more than half of our sales. Additionally, our cash on hand and limited debt provided an ability to access additional funding as needed. We are confident that we have sufficient resources to meet all our capital deployment opportunities. As you can see in slide 11 we have over $2 billion of cash on hand. We also have an undrawn $2.3 billion committed revolving credit facility available. However, I don't anticipate any need to access these funds.
Meanwhile, our companies leverage is very low. Net debt is about $1 billion and our net debt to EBITDA ratio is a low 0.3 times. This allows us to increase that considerably while still maintaining our targeted AA2 debt rating. Our dividend and capital investment plans remain unchanged. We are committed to rewarding our investors by increasing the dividend and growing the company.
As shown in slide 12, Air Products has delivered 38 consecutive years of dividend increase through many periods of challenging economic conditions and we continue to believe that investing in high return projects will create more shareholder value over the long term than buying back shares. We remain optimistic about our ability to deploy significant capital into our exciting growth opportunities including recent opportunities like the PBF Asset acquisitions. We also have about $1 billion of debt maturing by the end of 2021. So we continue to evaluate the best time to access the debt markets.
Now please turn to Slide 13 for our second quarter results. Our sales and profits grew despite the unprecedented disruption due to COVID-19, demonstrating the stability of our on-site contracts and the geographic diversity of our merchant businesses. Overall, COVID-19 negatively impacted volumes by about 1% and EPS by $0.06 to $0.08 primarily in the Asia merchant business.
The Asia merchant business was down about 25% for about 6 weeks after the new Lunar New Year holiday but recovered in late March. As expected our on-site business remained stable. We also did not see much impact in Europe or the Americas for the quarter but we did begin to see an impact right at the end of the quarter.
Seifi will provide some comments later regarding what we have seen so far in April. Our team in Asia has worked hard managing through the crisis. We are encouraged to see that business gradually return to normal by the end of the quarter. I would like to thank our team for their focus on health, safety and serving our customers reliably; a job very well done.
For the quarter, sales grew modestly to $2.2 billion as strong underlying sales were offset by 5% lower energy pass-through and 2% unfavorable currency. Primarily, the Chinese RMB, the euro and the Korean won. Volume and price improved in all three regions.
Volume increased 6% as new plants overall positive based business, LNG activity, acquisitions and a short-term contract in Asia more than overcame the negative impact of COVID-19. And as I mentioned, our existing on-site business was stable. Prices up 2%, the 11th consecutive quarter of year-over-year price increase.
EBITDA reached almost $900 million, up 8% with higher profits across all three regions. EBITDA margin was again over 40%, the fourth consecutive quarter exceeding the 40% mark, up 260 basis points. About 180 basis points of the improvement was from lower energy pass-through with the rest primarily driven by higher price. EPS of $2.04 was up 6% despite the negative $0.06 to $0.08 impact of COVID-19 and unfavorable currency.
Sequentially, sales and profits were down as a result of reduced activities due to Lunar New Year holidays and the COVID-19 impact. ROCE of 13.5% continues to improve, up 90 basis points over the last year. As Simon mentioned, we don't plan to review the individual segments in detail but I would like to make some summary brief comments on our second quarter performance.
All three geographic regions delivered stronger results with volume, price, EBITDA and EBITDA margin up in each region. Asia's volume was up 6% despite a negative 4% impact from COVID-19. The growth was driven by new plants and a short-term supply contract that we mentioned last quarter. Almost two thirds of our Asia business is on-site which remain stable as we expected. We saw a strong hydrogen volumes for the refining industry in the U.S. Gulf Coast, Canada and Rotterdam. Americas and EMEA only began to see impacts from COVID-19 during the last week of the quarter. Americas EBITDA margin was up 540 basis points with about 350 of that from lower energy pass-through. EMEA EBITDA margin was up 90 basis points primarily from higher price. We also saw LNG driving profit improvement in our corporate segment.
Now please turn to Slide 14. Our second quarter GAAP EPS was $2.21 which includes two one-time items; a $34 million gain due to a property sale and a $14 million tax adjustment in India which combined contributed $0.18 of EPS. Our second quarter adjusted EPS of $2.04 was up $0.12 per share or 6% driven by strong operating performance. Volume and price together contributed more than $0.30 despite the negative $0.06 to $0.08 impact from COVID-19. Cost was unfavorable $0.17 due to our continued investment in resources to support our growth strategy coupled with additional planned maintenance and life extension work needed in our facilities mainly in north America as mentioned during our last quarter's call. We do anticipate customers delaying plant averages in the second half of the year.
Currency and foreign exchange was $0.05 unfavorable, primarily due to the Chinese RMB, the euro and Korean won. Equity affiliate income contributed $0.03 while a modestly higher tax rate subtracted $0.02. The effective tax rate was 20.5% for the quarter, up 60 basis points over the last year. We continue to expect an effective tax rate of 20% to 21% in fiscal year 2020.
Now please turn to Slide 15. We continue to generate strong operational cash flow. As I mentioned our EBITDA was up 8% despite the COVID-19 global pandemic again demonstrating the quality of our business model.
Over the last 12 months, we generated about $2.7 billion or over $12 per share of distributable cash flow. From this distributable cash flow we paid almost 40% or over $1 billion as dividends to our shareholders and still have about $1.7 billion available for high return industrial gas investments.
This strong cash flow even in uncertain times enables us to continue to create shareholder value through increasing dividends and capital deployment. Slide 16 provides an update on our capital deployment progress. As you can see we expect about $18 billion of investment capacity available over the five-year period from FY 2018 through FY 2022.
Our total capacity is expected to continue to grow as we increased EBITDA. The $18 billion includes about $10 billion of additional debt capacity available today, over $4 billion of investable cash flow between now and the end of FY ‘22 and almost $4 billion already spent. We will continue to focus on managing our debt balance to maintain our current targeted AA2 rating and as I mentioned earlier, we continue to evaluate the best time to access the debt market.
As Seifi said, we continue to sign new projects. So our total project and M&A commitments are up, to about $9 billion with about $8 billion remaining to spend on them. So you can see, we have already spent over 20% and already committed almost two-thirds of our total available capacity. We remain extremely confident in our ability to deploy this capacity into on-site projects that will create significant long-term shareholder value.
Please turn to Slide 17 for summary of our perspective on COVID-19. We are safely keeping our plants running and we are mobilized to meet our customers’ needs particularly for medical oxygen. Our results this quarter demonstrate the resilience of our business model despite the impact from COVID-19. We have been seeing lower Americas and EMEA merchants volumes in April and expect that to at least impact Q3. We have seen customers delaying planned maintenance activities and we are monitoring for any potential delays that are projects under construction.
Looking forward we are confident that our strong financial position will support our future investment opportunities. Now to provide some additional thoughts in the future I'll turn the call back over Seifi.
Thank you Scott. We have now seen how Air Products performed during the months of January, February and March of 2020. I would like to add that we did have a good month of March despite the evolving crisis in Europe and Americas but I am sure our investors want to know what we are seeing as of today in the month of April. This is what I can share with you. First of all, as I speak to you now just about all of our 750 plants around the globe are operating and supplying essential products to our customers.
52% of our sales, I repeat 52% of our sales that is on-site business around the world is doing well and we expect this to continue. In Asia, our merchant volumes have returned to pre-crisis levels and some product lines are actually higher than last year. In Europe, our merchant volumes are down about 25% in the month of April, although this seems to have improved slightly in the past week.
The main impact in our volumes in Europe is in our packaged gadgets business. In Americas, our merchant volumes are down about 15% in April and seem to be a stable over the last week. Please note that they do not have a packaged gadget business in the United States. Although it is encouraging to see some improvement in the number of COVID-19 cases and a flattening of the curve in certain areas around the world but the only to realize that significant uncertainty still exists regarding the duration of this crisis, the pace of recovery and the negative impact on the global economy.
Given this uncertainty, Air Products is not providing fiscal third quarter EPS guidance and we believe it is prudent to withdraw our prior fiscal year 2020 EPS and CapEx guidance. While we are not providing guidance, I would like to remind you of a framework you can use yourself to think about Air Products business in this complicated time.
Together the stability of our on-site business around the world and the continued normal volumes in Asia we present about 2/3 of our business and we don't expect much impact on this 52% of our sales as we move forward during the balance of the year. For the other ventures which is our merchant business in America and Europe, we do expect an impact in quarter 3 and for the full year, but given the level of uncertainty we are not in a position to quantify, but one way to think about the potential impact is by assuming that the merchant volumes in these parts of the world align with industrial production.
So for example if both Americas and Europe merchants volumes were to be reduced by 25% for a single quarter because industrial production has dropped by about 25% this would impact our Air Products earning per share by about 30% to 35% per share which is 3% to 4% of our annual EPS.
And finally please return to Slide 18. In these challenging times, our competitive advantage as always it is the commitment and motivation of the great team we have at Air Products. Our strong financial position and robust business model will allow us to continue to execute our strategy, to create long-term shareholder value and to increase our debit, as we have done for the past more than 30 years. The projects in our backlog continue as expected and there continues to be significant opportunities to invest in projects in our core business. Most importantly, it will continue to protect our people's health and safety and take care of their welfare and welfare of their families.
Let me end today by thanking our 17,000 people again for their commitment and hard work for demonstrating the true character of Air Products. Our success yesterday, today and tomorrow depends on their dedication and commitment. And I am very proud to say that Air Products team is demonstrating that to the fullest extent under the most extreme conditions.
We are very proud to play a critical role and make a difference to the world during these challenging times by making our plants running and providing critically needed industrial gadgets to keep people alive. This is our higher purpose of Air Products. And to everyone listening today, let us remember that we are all in this crisis together and we will come out of this thing together and we will win together. Stay safe, stay healthy, and now we will be more than happy to answer any questions that you have.
Thank you. [Operator Instructions] We will take our first question from David Begleiter with Deutsche Bank.
Thank you. Good morning.
Good morning David.
Seifi, on Jazan, assuming it closes on October, how should we think about the earnings contribution in 2021?
Obviously, we have given you a guidance about the fact that for every dollar that we invest, we should expect approximately $0.10 of operating profit. So, you can convert that to EPS impact very easily. At this point, I think that's the guidance I want to give you but once we actually close then we will be a little bit more specific.
Very good and just last thing on your on-site business. What's your exposure as refineries reduce their operating rates? You highlighted the stability of your on-site business, is there not some downside risk as we do see lower crude runs by refineries?
No. Our on-site business, as we have always said, we get a fixed monthly fee for running our plants and providing product to our customers whether they are operating at 100%, 90%, or 80%, it doesn't make much of a difference and you have seen that fully demonstrated during the second quarter where there was obviously a lot of pressure on everybody around the world, and in China and all of that, so that doesn't affect us that much.
Thank you very much.
Thank you very much David.
And we'll take our next question from John McNulty with BMO Capital Markets.
Yes. Good morning. Thanks for taking my questions. So, two questions on the backlog. I guess the first would be you have a lot of business coming in on the merchant front that you've listed in your backlog for 2021. I guess, can you give us some color as to your confidence in that demand or that business coming on, and what the impact might be in terms of how we should be thinking about the earnings contribution in 2021?
First of all, good morning John. With all due respect, I would like to disagree with you in terms of the fact that most of those investments in our backlog are in merchant. They really are not. Most of them are in our on-site model. So as a result, I don't expect much of an issue with them as they come in. I think they are mostly on-site business with fixed BFCs.
Got it. At that part, I mean I see the big on-site ones. I guess I was curious because you do have four projects listed that are merchant. I was curious what the likelihood of those coming on and the impact might be?
They did come on, and they are very small in terms of the context of the thing and some of them actually replaces some older plants. So, I don't expect that to be material at all John.
Got it. Okay. And then for the second question, the macro obviously is going to be a lot slower in the short term, and that may have some impact on the ability for new projects to get bid upon and things like that. At the same time, you just won the big PBF project or business. I guess I'm wondering how you're thinking about the on-site opportunities out there and if we should be thinking about the project backlog expanding as we kind of go throughout the year or kind of staying level to maybe going down a bit? How should we be thinking about that?
I think you should be thinking on that part of our business that it's business normal, and actually the current crisis might actually create opportunities that some of the people who were reluctant to sell some of their kind of industrial gas plants that they own, that they might be thinking about maybe divesting of those and generating some cash. So, I actually think that our -- the pace of what we have been doing is continue and maybe actually accelerate.
Great. Thanks very much for the color. Be safe.
Thank you. Thank you very much John.
And we'll take our next question from Kevin McCarthy with Vertical Research Partners.
Yes. Good morning. Seifi, on listening to your comments, it sounds like your business in Asia is recovering nicely. If that is the case, would you expect earnings to improve sequentially in the fiscal third quarter in Asia relative to what you just posted in the second quarter?
First of all, good morning Kevin. Yes, I do. Our business in Asia is doing fine right now, and as I said in my comments, some of the product lines are actually higher than last year. So, I do expect an improvement in our Asia segment next quarter.
Okay. That's helpful. And then, Seifi --
Yes, go ahead.
Sorry to interrupt. As a second question, I was wondering if you could elaborate on the decision to discontinue your capital expenditure guidance as distinct from your earnings guidance. It looks like the year is half done. I imagine a lot of these projects are already underway. Are there particular sources of uncertainty that have emerged now that might call into question the fate of individual projects or what is the rationale there?
Kevin, that is driven by just one project which is Jazan. As I said we expect that project to close in October. Now if it closes on September 28, the capital expenditures which is significant will be in our 2020 numbers. If it closes on October 2nd, it will be in 2020- 21. That is why we didn't want to, since we don't know exactly when the project is going to close, that is why we didn't give that guidance so that we don't create an issue of having said something and it becomes a few -- one week or two weeks back and forth and it would significantly change that. That investment is not $200 million, it's billions of dollars. So, as a result that is why we wanted to shy away from confirming the capital expenditure Kevin. That's the only one actually.
Understood. Thank you so much.
Thank you.
And we will take our next question from Vincent Andrews with Morgan Stanley.
Thank you and good morning everyone. First, if you could just clarify Seifi at the end of your comments about how April was going and you talked about, if merchant volumes were down 25% was that -- it'd be a 3% to 4% hit to EPS or a $0.34 hit to EPS and then I have a real question.
So first of all good morning Vincent. Number one, what I said is that if the industrial production drops 25% and as a result of that both Europe and Americas dropped 25%. That is not the case as we see. As I said European volumes as we see in April down 25% but in the U.S. it is only 15% but I just wanted to give you some guidance that, if both of those things drop 25% for the quarter then the impact for the quarter will be about 30% to 35%. $0.30 to $0.35 which is 3% to 4% of our total EPS approximately for the year. So the effect will be $0.30 to $0.35 for that quarter. Assuming that everything goes down 25%, yes.
Okay, that's very helpful. And then if I could just ask on the merchant gases side of the equation. There have been some reports in the U.S. and in Europe about shortages of CO2 in the U.S. as a function of corn ethanol plants not having co-product production. Is that something that you're seeing and that the company is going to be able to -- be a solution provider for that missing CO2?
Just to put it in context, CO2 first of all, your statement is absolutely correct. But in terms of Air Products CO2 is 1% of our sales in the U.S. and 5% of our sales in Europe. Europe doesn't have a problem now. So in the U.S. it is a very. very small part of our business. So it's not going to have any kind of a material impact on our business. And we're not going to be able to do something to help the situation because it's such a small part for us.
Thank you very much.
Thank you.
And we'll take our next question from Mike Harrison with Seaport Global Securities.
Hi. Good morning.
Good morning Mike. How are you doing?
Doing well. I hope you're well as well Seifi.
Yes. Safe and sound.
I wanted to maybe continuing on the question related to CO2 shortages. Just talking more broadly about your business. Can you talk about any supply chain or logistical issues that you may have encountered as a result of COVID? Any additional costs associated with shortages or availability or needed to move product around at higher cost or in less efficient ways than normal.
Related to CO2 as I said, for us it's such a small business. We haven't seen much of an impact on our business and we haven't had to do anything significantly unusual.
I mean more broadly speaking though when it comes to LOX/LIN or Argon or anything else?
No, on LOX/LIN or Argon and all of that thanks to the outstanding efforts of our people. They get up in the morning. They go to work. Obviously, they wear the properly protective equipments, but they have kept all of our plants running, all of our supply chain and we haven't had any issues of not delivering to a customer or not being able to meet customer demand. I'm very proud of that and we have kept our company running and we have supplied products to all of our customers with no shortages and no disruption.
All right. I wanted to also ask about the impact of lower plant maintenance. You mentioned that a couple of times that's customer maintenance and plant downtime. What does that mean to you guys in terms of your own maintenance cost and are these discretionary maintenance projects or why is there a decline?
We indeed have a plant like hydrogen plan that is supplying a refinery. We obviously can only take our plant down for maintenance. Then they take their refinery down because if we take our plant for maintenance and refinery is operating then we will create a distraction for the refinery. So we coordinate our down times very, very closely with the refinery. So what we are saying is that some of the refineries might decide to move their maintenance to another quarter and as a result of that we would not take our plant down. As a result of that we would not have to do the maintenance and therefore that might be a favorable impact on our [indiscernible].
Understood. Thank you for clarifying.
Thank you, sir.
And we'll take our next question from Steve Byrne with Bank of America.
Yes. Good morning. You're still getting 2% to 3% overall price in each of the regions, which is driven by merchants or less than half of your revenue given that in a couple of the region now you're seeing a contraction. Are any of those merchant customers asking you to renegotiate price or pushing back on that, so it's just a general question about your outlook for pricing in this slowdown.
Good morning Steve. Excellent question. Let me just be very specific. You're right, the numbers that we publish is for all of our business but I can give you an idea have been open about this thing before. In terms of price increases for our merchant business year-over-year Americas was up 6%, Europe was up 5% Asia was up 6%. So those are the facts in terms of the second quarter. Now what is going to happen in the future we have a policy of not to comment on prices for the future in terms because of the nature of our industry. So I'm sure you understand that I wouldn't do that because it's not appropriate but those are the facts in terms of what we have seen up to now.
And Scott, you mentioned that, not about of this available capital deployment capacity this $18 billion you've committed like you said two-thirds of it. That is a five year window that is fixed and you're now halfway through that five year window. At what point do you kind of put that on a rolling five-year forward basis because your future contribution of that is shrinking and is this lower oil environment doing anything to your outlook for gasification of coal?
I will answer that question Steve. You're right. We have committed two-third. We have another almost 2.5 years to go to commit the other one-third. In terms of giving you a rolling five years, yes we will do that but we did not do that now. We will do that probably next year to give you a view for the next five years after 2022. With respect to the nature of the projects or any of the slowdown quite frankly, we don't see any reason for the slowing down of those mega projects that we are very much attached to as a result of the virus thing at least at this stage. So we continue to remain very optimistic about the robust nature of our fundamental strategy as we go forward in terms of focusing on gasification, carbon capture and hydrogen for mobility.
Thank you Seifi.
Thank you Steve.
And our next question will come from Jeff Zekauskas with JPMorgan.
Hi, good morning Seifi.
Hi, good morning Jeff. How are you today?
Good. Very good. So as I understand your products whether Air Products on-site volumes grow or they contract. That piece of the business is irrelevant to year-over-year EBITDA changes excluding currency and acquisition. The real lever is in merchant volumes and merchant prices. So in a world in which merchant volumes really move down, can you flex your cost structure down in order to cushion the effects to your products or it's difficult to flex your cost structure?
Well, Jeff first of all you understand our business very-very well. Secondly you're asking an excellent question. My response to that is that if, the driver for growth of Air Products this we are committed to 10% the year EPS growth is not the merchant volumes going up and down. It's investment in new opportunities and new projects coming down the stream. That is what has been driven our business. If you look at our past five years we have the cumulative average growth rate of 15% on EPS. That is driven. It was driven some by the cost structure that we took out and made ourselves more efficient. And we are done with that. As we go forward the main driver is going to be the new projects that we are bringing on the stream and they are going to be significantly accretive and that is why no matter what happens to our merchant business I am still very optimistic that we will be able to grow our EPS 10% a year as we move forward on the long term.
Thank you for that. In gasification projects in China people gasify in order to produce ammonia, methanol and fuels. And in the world that we live in today. I don't know if people need more ammonia or methanol and fuels. Maybe they do if you want to be more independent in China. So in a world in which oil prices are now say within range of $25 to $40 a barrel to be conservative if it's the case that those projects in China still make sense and when you look at your, say, Lu'An for example -- how is that client sharing in the world where energy prices are down sharply
Well, Jeff this is the general discussion we have always had is that these projects are not driven by financial, driven by national security. Oil might be $2, $10 or $20 but coal 3% softer coal which is sitting in the ground is worth zero. So when you take that and convert that to chemicals, it still pays to do that. That is why we believe that these projects will still continue. And then the other thing is that in terms of our gasification, please remember and this very well that you are not just talking about coal gasification. You are talking about gasification of pet coke. People are not going to be able to burn pet coke, 6% pet coke is not going to be something that people are going to consume. You have to convert that to something else and the only way to do that is gasification, of the bottom of the barrel in the refinery is 6%.
And you cannot sell it to ships because of IMO 2020. Then you have to gasify. So the gasification is not just coal. Right now the biggest gasification project that we are doing is the $12 billion project in Jazan, that has nothing to do with the coal. It is the gasification of the bottom of the barrel of the refinery. So when we talk about gasification, it's a combination of all of these things and that's why we continue to remain optimistic whether oil is $25 or $40 or $60.
Thanks very much Seifi. Please take care.
Thank you very much Jeff. I appreciate that and by the time I have had the lot of time to play chess. I am sure you are doing the same thing. Take care.
Take care. Okay.
And we will take our next question from John Roberts with UBS.
Thank you and glad you are all sounding pretty healthy.
Thank you John. I hope you are very healthy too.
Yes. Thank you. European merchant is down 25% in April. How much more than the 25% decline is packaged gas down and how much less than the 25% decline is both liquid down?
Well, approximately packaged gadget is down about 40% and liquid is down about 16% approximately.
Okay. Thank you. And do you have any hydrogen customers operating below their contracted requirements and do you anticipate any of your hydrogen customers suspending operations temporarily?
They do not. I mean, I'm sure some of your hydrogen customers might be operating below capacity but we haven't seen a drop on hydrogen volumes from our pipeline but I don't know in the future that might be the case but it doesn't affect as Seifi has discussed before.
Thank you.
Thank you.
And we will take our next question from Robert Koort with Goldman Sachs.
Thank you. Good morning.
Good morning Bob.
Seifi you have only talked about maybe doing asset acquisitions and it seems like I know some of the JVs include a component of that. But this PBF was the first meaningful one that was solely asset and not a gas supply and rolling in your project work but what is the pipeline look of other asset acquisition opportunities and are you handicapping please suggest your next big capital project will be an asset acquisition or a new gasification projects?
Probably an asset acquisition.
And can you give us an update on YK? Is there any progress there at some point we need to formalize a delay in your expectations of when that project will come on screen?
Yes. The thing is that unfortunately as I mentioned I think on your January call, we were supposed to have a big meeting on that thing in the month of February in China but obviously that didn't happen. The issue with that project has not changed. It's still the issue of coal allocation and we are going to kind of put a target for ourselves that by the time that we announce our results at the end of October we would give you a definitive answer about whether that project is go or no go.
Got you.
We are still optimistic that that is going to be a real project but I do promise you that by the end of October we will give you a definite answer on that rather than just keeping it kind of in suspense?
Perfect. Thank you.
Thank you.
And our next question will come from P.J. Juvekar with Citigroup.
Yes, good morning Seifi.
Hey P.J. How are you doing?
I am doing well. Seifi is all your on-site business on facility fees or is there some business maybe some old business that was struck at a certain operating rate below which take or pay begins to kick in? So I guess what I am asking is, is there any cyclicality in your on-site business?
No. No material cyclicality. No there isn't. As you have seen during 2008 and as we have demonstrated in the last few months. It's a pretty robust business. So maybe we have structured P.J.
Okay. And then when I look at your volume growth, what was the same store volume growth for Air Products overall and particularly in Asia, you gave COVID impact but can you take out the impact of new project start-ups? And so just trying to get same-store sales?
It's obviously the growth is related to new projects but we usually do not quantify that because then we will be giving too much information. But obviously during January, February and March, merchant volumes in China were down, just like they are going to be down in this coming quarter in Europe and the U.S. but we did have new projects coming on a stream and as a result it may not fall. [indiscernible] in answering the other question that the main growth driver for Air Products is all of the work we have done in the past six years with new projects that are beginning to come on screen and that you are going to see a lot of that coming on screen in 2021, ‘22, ‘23 this would put us in an excellent position.
Right. Now I agree. But just in times like this will be helpful.
Thank you.
And we will take our next question from Christopher Parkinson with Credit Suisse.
Great. Thank you. So just a quick question on the recent PBF deal. It appears it obviously came together fairly quickly. But can you just address on how long you have been targeting these assets? And then also just, how should we be thinking about the long term optionality, potential optionality in terms of carving capture in California as well the potential to leverage your pipeline network? Just any additional color there? Thank you.
Thank you very much Chris. First of all with PBF, we have known these people very well. They are an excellent company and we have a very good relationship with them. We have been supplying them hydrogen for long time. So the subject of acquiring their hydrogen plants has been discussed in the last two or three years but it became, we made a specific offer to them. I can tell you historically we made a specific offer to them in October. At that time they didn't want to, they took their time to take a look at it and then finally in March we made it even more specific offer which they were interested in taking a look at it but their requirement was that if we can do the transaction on a speedy way which we said we can and as a result we did it during the time that we did.
In terms of the other question that you have with respect to carbon capture opportunities, obviously in California there are significant incentives for -- if you can capture carbon and obviously we have a lot of steam methane deformers and now we have even more steam deformers in California that do generate CO2 and therefore it makes sense for us to take a look at whether we can capture the CO2 from these things and do something with it whether it is enhanced oil recovery or sequestration or whatever to capture some of that value. So yes, we are looking at that.
And just also, could you just very quickly just hit on just in terms of end markets do you see any variance in terms of merchant volumes thus far? I understand it's linked to IT, but just any end markets worth highlighting and then just also a quick update possibly on just your healthcare business and also non-medical helium demand would be appreciated. Thank you.
Sure in terms of the market sectors obviously the oxygen demand for hospitals, the demand has gone up. We do not have a huge business on that in the U.S. but we did have a very big business for hospitals in Spain and Italy and in some other parts of Europe. So the demand for oxygen is obviously up because of the situation. Food freezing demand has relatively kept up pretty well. Obviously the areas where you see a reduction in demand is basic industries and especially a smaller industries that use for oxy fuel burners and all of that for all of the manufacturing. And in terms of helium, the helium -- most of the helium goes with MRI machines and that hasn't slowed down.
Thank you.
Thank you.
And we will take our next question from Duffy Fischer with Barclays.
First question is just can you help break out the decremental margin differential between the European business and the U.S. business just because there you have package here you don't. So if we're putting different declines in revenue based on IP from those two regions how should we think about either like on an EBITDA percent basis or an EBIT percent basis differential and decremental margins?
You're asking me to give you a lot more detailed information that we usually give to people but overall if you want to do the kind of calculation that you want to do there isn't a huge amount of difference between their margins. Americas is higher than Europe but it is not as if one is 10% and another one is 40%, there are not too different let me put it that way.
Okay. Fair enough. And then just the last one, in the working capital line this quarter it seemed like you ate about $200 million more in cash than you have historically in the second quarter. What happened there and is that something we should think about repeating or is that kind of a one-time thing that will end up going away?
Well, and that's one on that question I would like to turn it over to Scott who knows more about it than I do to answer that. Scott would you like to take that question please?
Sure happy to and hello Duffy. First of all it's not systemic. There's nothing in there related to the COVID-19. What it is, is just some larger timing of some larger payments particularly in our sales equipment business and some of those contracts. So that's nothing large and not something we expect to continue.
Great.
Duffy, Scott is saying is that it has nothing to do with actually physical inventory and so on. It's just some of the accounts payable, accounts receivable kind of a thing.
Okay. Great. That's good. Thank you guys.
Thank you. Appreciate that. Stay well Duffy. Okay. Are there any other questions?
There are. And we will take our next question from Mike Sison with Wells Fargo.
Hey guys glad you all are safe.
Thank you. Thank you Mike.
Seifi, I think you noted that, Asia merchant we covered in [indiscernible] was down for six weeks and sounds like maybe in week seven, week eight things are covered. Can you maybe walk us through kind of what happened when you talk to customers that allowed the merchant business to be recovered in kind of seven to eight weeks and if those events sort of transpire here in Europe and in the U.S.? Do you think we could be covering that sort of similar time period?
Well, I think on that what I can say is that obviously China did a great job in terms of dealing with the virus. I mean they had a hard shutdown which affected volumes and all of that significantly but they took the pain and they contained the virus and then they opened the society back up in a normal day and the volumes came back.
So in Europe and in the U.S., we acted responsibly the way they did and have a hard shut down and then open up to our society responsibly and will come back but I just hope that we do the same thing that they did in China. The Chinese did a great job in containing this virus. It started there but the statistics in terms of the number of cases they have and right now the Chinese society is functioning normally and that is why our volumes are up and actually there are people who argue that actually this Chinese economy might benefit from what is going on because if Europe and the U.S. have issues to deal with and industrial production and so on is down then China has to make up for that and also for their own demand. So the Chinese economy might actually become better than it was before but I mean it all depends in terms of how we end up handling the situation in the U.S. and in Europe and how we come back from there.
Got it and then just follow up, yes, and just quick follow up when you think about the volume merchant declines in Europe and Americas, how much of that is driven by actual plant shutdowns meaning a full shutdowns, kind of revert, auto and aerospace and other areas, is -- how quickly does that come back? Is that the bulk of the decline?
But that is obviously the bulk of the decline also the consumer is not consuming the stuff and people are not producing that but I just like to add that we feel we can be never during our calls comment on the current month. We don't comment on things in the middle of the quarter but we decided to do that because of the focus that everybody has and we gave you the numbers as we see them in April.
We are not projecting that those numbers will continue. We are not projecting that Europe will go down 25% the next month. We just told you what you see at this moment because we don't know how it's going to proceed. Next month if Europe decides to open up some of the areas because they feel more confident that 25% might become 10%. So the main reason that we didn't give you guidance is because we just don't know and we don't want to get ahead of ourselves but please take what we said in the context of what we are seeing. We are not projecting for you. We are not projecting that the U.S. merchant volumes will be down 25%. We just gave you an example of that. I've told you exactly what we see as of right now.
Got it. Thank you.
Thank you very much.
And our next question will come from Jim Sheehan with SunTrust.
Thanks. Good morning. So you noted that you have the top priority still of increasing your dividends and over the past many years you've increased it at a 10% annual rate or compounds rate. Would you expect your dividend increase this year to be this similar to prior years or would you change the amount of dividend increase given the uncertainty of the current environment?
Well, the decision of how we increase the dividend and how much we'd increase it by is obviously the decision by our board of directors and the board considers all of the different circumstances before we make that, they make that recommendation. But the one thing that I can tell you for sure is that we definitely are not decreasing the dividend and my intent is to recommend to the board to increase the dividend. The issue is by what percentage and that I cannot kind of give you a number for that. We will see how it is but you see our historical performance and we definitely are not going to decrease the dividend and the amount of increase, we would like to increase it, I would like to increase it and the amount of increase will be something that our board will decide in January as we usually do.
Thank you very much.
Thank you.
And our next question comes from Jonas Oxgaard with Bernstein.
Well, good morning Seifi.
Hey good morning. How are you doing these days?
Oh! Not bad. Although if you're bored with chess I have a couple of kids I can lend you. They will keep you occupied.
No, I never bored with Chess. I love playing the game.
Good escape. Two questions if you don't mind. The first one is on Jazan, so my understanding from your last call was that you expect the gasifiers to be up and running shortly and the ASUs are obviously already running. So what happens to the project when everything is actually running but ownership is still with Aramco? Does the earnings that come in your payoff corporate debt or how should we think about that?
Well, first of all I don't want to speak for Aramco but the gasifiers are not running. Yes. But the [indiscernible] again like any other deed is that then be closed transaction whether the gasifiers are running or not or the whether the refinery is running or not then Aramco owes us the monthly fee. That's the way it works. So upon the close of the transaction but if it is the state of the refinery we will get our monthly fee and therefore it will impact our EPS.
Okay.
Is that okay? Yes, thanks.
Yes. That's okay but ASUs are running already right and they are owned by you still, aren't they?
ASUs are still owned by us and they are still running. They are being commissioned. They are not yet supplying oxygen for production to the refinery yet. But they are, but the important thing is that they are getting the BFC per our contract with Aramco or the ASU, which we own 25%.
Okay. Perfect. Thank you. Then separate question. So you referenced helium demand being strong but since we're now reducing oil and gas production and we're already in what looks like a global helium shortage, how do you see the helium supply demand evolving over the next year if crude price stays where it is?
Well, first of all helium demand -- there are two main drivers for helium demand. One main driver is obviously the MRI machines and unfortunately those things are in more demand than they were before. Then the other core helium balloons, birthday parties and all of that that is its flexible demand and depending on the price that business goes up and down. So in terms of helium demand we have not seen a significant reduction on the demand and as you said the supply is still tight but I would like to be excused from making too many comments about helium because itself it is sensitive subject considering the market and all of that and I don't want to get ahead of ourselves and making too many comments about that.
Okay. Thank you.
Thank you very much. Appreciate that.
And we will take our final question from Laurence Alexander with Jefferies.
Okay.
Well, then very quickly on carbon sequestration. Do you have the skill set to do the sequestration component yourselves or is that something you need to do a JV on?
I'm sorry you cut out in the middle of your questions. Would you please repeat that?
Sure. So on carbon sequestration, is just very quickly is on carbon sequestration you mentioned earlier projects in the pipeline do you have, does the Air Products have the skill set to do the sequestration steps themselves or is that something that would need to be outsourced or JVed?
If you're talking, we obviously know how to capture the carbon and clean it up and all of that. Then the question becomes if just if we are doing EOR we just put it in a pipeline and it goes for EOR. If it is a question of sequestration know-how for the sequestration obviously belongs to some of the companies like Schlumberger they could use and all of that and obviously in those kind of situations we will be either using them as subcontractors or something like that. I mean I don't want to get too much into the details of that but you know the system very well and how it works. Yes.
Thanks.
Thank you very much. Okay with that since that was the final question, I would like to thank everybody for being on our call. Thanks for listening to our presentation. We appreciate your interest and look forward to discussing our result with you next quarter and as I said earlier please stay safe, stay healthy and all the best to all of you. And thank you again.
And that does conclude today's conference. Thank you for your participation. You may now disconnect.