industrial gases - linde plc
TRANSCRIPT
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Page 1Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Industrial GasesA Unique and Profitable Business Model
Chuck McConnell Vice President
Citigroup Chemicals for theNon-Chemist ConferenceNew York CityDecember 4, 2006
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Page 2Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Global Business/Regional Market Strength
Other 20%
Taiyo Nippon Sanso 5%
Praxair 15%
Air Liquide 24%
Air Products and Chemicals 12%
Linde 12%
BOC 12%
Total Industrial Gases Sales: $48 billion
Source: JR Campbell & Associates, Inc. 1/2006
Few global players
*Consolidated as of September 2006
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Page 3Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Industrial Gases by Market and Product
Aerospace3%
Chemicals11%
Electronics7%
Energy12%
Food & Bev7%
Healthcare11%
Manufacturing21%
Metals16%
Other12%
End Markets*
*Praxair 2005 Sales $7,656 MM
By Product
Oxygen 29%
Nitrogen 21%Argon 12%
Other 7%
Carbon Dioxide 9%
Acetylene 8%
Hydrogen 6%
SpecialtyGases 6% Helium 2%
Source: SRI Consulting, Praxair estimates
Atmospheric and process gases are fundamental to industry
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Page 4Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Air Separation – Cryogenic Distillation
Air Filtration &Conditioning
Purify Liquefy by cooling to
-320 °F
Separate by
distillation
Air
Oxygen-297 °F
Argon-302 °F
Nitrogen-320 °F
78% N221% O21% Other Gases
First commercialized in 1896 Continuous improvements and enhancements
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Page 5Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Air Separation – Non-Cryogenic
First commercialized in 1960
Oxygen
Adsorbent
VPSA PLANT
Air
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Page 6Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Process Gases – A Chemical Feedstock
Hydrogen (H2)
Carbon Monoxide (CO)
Carbon Dioxide (CO2)
CH4 + ½ O2 2H2 + CO Partial OxidationCH4 + H2O 3H2 + CO Steam Methane Reforming
CO + H2O H2 + CO2 CO Shift
Produced “on- purpose” or from purified waste streams
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Page 7Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Basic Molecules with Many Uses
Attributes MarketsProductsOxygen O2
ReactiveLife Sustaining
Steel, Chemicals, Environmental, EnergyHealthcare, Welding
Nitrogen N2
InertCryogenic (cold)Pressurized
Semiconductors, Chemicals, PackagingFood Freezing, Oil & Gas Recovery
Argon Ar
Inert At High Temperatures
Stainless Steel, Welding, Basic Steel Making, Lighting
CarbonDioxide CO2
SolubilityInertCryogenic (cold) Pressurized
Beverage CarbonationWelding, Steel, Chemicals, PackagingFood Freezing, Dry Ice Oil and Gas Recovery
ChemicalFuel
Refining, Chemicals, MetalsSpace Program, Fuel Cells, Alternative Energy
HydrogenH2
Cryogenic (cold)InertLifting
MRI, Fiber Optics, Scientific ResearchDiving Breathing Mixtures, WeldingBalloons
Helium He
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Page 8Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Applications Technology Drives GrowthGrowth
♦ PRODUCTIVITY
♦ ENERGY SAVINGS
♦ ENVIRONMENTAL
-5%
0%
5%
10%
15%
20%
2001 2002 2003 2004 2005
Market Drivers
World Industrial Production (Weighted)Praxair SalesPraxair Net Income
Growing at an increasing multiple of IPGrowing at an increasing multiple of IP
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Page 9Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Energy and Conservation Technologies
Steel Blast furnace coalinjection
Glass
Higher energy efficiency−10-15% fuel savings
Higher throughput
−10-20% increase
Less emissions
−80-90% NOx reduction
New oxyfuel burner
Refining Process heaters
Aluminum Remelting furnaces
Utilities Reduced NOXemissions
PX commercializes 20+ new application technologies per year
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Page 10Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Helping Customers Reduce their Environmental Footprint
AIR QUALITY• Low Nox Combustion
• Hydrogen for refining
• VOC treatment
• Carbon dioxide recycle
• Hydrogen for fuel cells
WATER QUALITY• Oxygen/Carbon
Dioxide wastewater treatment
• Nitrogen extrusion cooling
• Carbon dioxide in grain storage
• Oxygen in paper production
ENERGY SAVINGS• CoJet® gas injection
system
• Oxy-fuel combustion
• Helium recycle
• Cryo-mechanical freezing
• Metal bonding
HEALTHCARE• Respiratory oxygen
“Making Our Planet More Productive”
Over 65% of revenue is from applications that increase energy efficiency or improve environmental performance
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Page 11Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Three Distribution Methods – Fully Integrated Business
15 year take or pay contracts
Escalation formulas – Electricity/Gas, Inflation, Currency exposure
Price recovers fixed and capital costs
High renewal rate
On-Site/Pipeline Supply - 26%*
Merchant Liquid Supply - 30%*
5 year requirements contracts
Sourced as co-product from on-site plants
Limited distribution range – 200/250 miles
Packaged/Medical Gases - 33%*Cylinder and equipment rental
40% gases revenues under contract
Sourced as co-product from bulk sources
% of 2005 Sales of $7,656MM
Gases are not commodities!
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Page 12Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Oxygen Systems – Modes of Supply
99.5
LiquidOxygen
Cryogenic
10 TPD5 TPD 500TPD
VPSAPurity % O2
Volume
Customer demand matched with optimum supply systems
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Page 13Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Praxair: Strongest North American supply system
WV
OH
WV
OH
BC
Alberta
Saskatchewan ManitobaOntario
Quebec NewBrunswick
ME
VTNHNY
PA
WV VA
OH
MI
WA
OR
CANV
ID
MT
WY
CO
UT
AZNM
TX LAMS AL GA
SC
NCTN
KYMOKS
OK
NE
SD
NDMN
WI
IA
IL IN
FL
MA
AR
BC
Alberta
Saskatchewan ManitobaOntario
Quebec NewBrunswick
ME
VTNHNY
PA
WV VA
OH
MI
WA
OR
CANV
ID
MT
WY
CO
UT
AZNM
TX LAMS AL GA
SC
NCTN
KYMOKS
OK
NE
SD
NDMN
WI
IA
IL IN
FL
MA
ARIllustrative 200 Mile Radius
Production and Distribution Density…
On-site and Bulk Gases300 production plants8000 customer
locations1500 distribution
vehicles11 pipeline enclaves
Packaged andSpecialty Gases
400 branches>300,000 customers280 independent distributors
Distribution LocationsHomecare Locations
Helium Transfill
Dry Ice
Merchant Plants
Specialty Gas Plants
Distributors
Pipeline Systems
Carbon Dioxide Plants
…drives reliability, growth, and returns
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Page 14Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
On-site Pipeline Supply
MITTAL
BP - AMOCO
MITTALUSS BETA
REPUBLIC
INDUSTRIAL STEELCONSTRUCTION
USS
PX LH2
MITTAL
MITTAL
Pipeline LegendOxygenNitrogenHydrogen
CALUMET
RIVER
SAFETYKLEEN
PRAXAIREAST CHICAGO
PRAXAIRLOW PURITY
PRAXAIRBURNS HARBOR
PRAXAIRWHITING
PRAXAIRLAKESIDE
Lake Michigan
MITTAL
BP -AMOCO
MITTALUSS BETA
REPUBLIC
INDUSTRIAL STEELCONSTRUCTION
USS
PX LH2
MITTAL
MITTAL
Pipeline LegendOxygenNitrogenHydrogen
CALUMET
RIVER
SAFETYKLEEN
PRAXAIREAST CHICAGO
PRAXAIRLOW PURITY
PRAXAIRBURNS HARBOR
PRAXAIRWHITING
PRAXAIRLAKESIDE
Lake Michigan
Pipeline enclaves offer highest returns and customer reliability
Praxair Chicago Area Pipeline Enclave
Current Hydrogen SourcesNew Hydrogen Plants
Nitrogen PipelineOxygen PipelineHydrogen Pipeline
Praxair Gulf Coast SystemCurrent Hydrogen Sources
New Hydrogen PlantsNitrogen PipelineOxygen PipelineHydrogen Pipeline
Praxair Gulf Coast System
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Page 15Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Business Environment Is Positive for Industrial Gases
Praxair benefiting from secular growth trends- Energy production- Energy efficiency- Emerging markets – Brazil, China, India
Our backlog is unprecedented
2001
24 26
Backlog Bidding
37
63
Backlog Bidding
2006
High growth environment for at least 3 to 5 yearsHigh growth environment for at least 3 to 5 years
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Page 16Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Increasing Secular Growth
2010-2015Asia Energy
and H2
2000-2005EnergyEfficiency
2005-2010Applications TechnologyIndustrial Production
0.0%
5.0%
10.0%
1995-2000
Praxair Sales Growth
Growth in Asia, Energy
& H2, and alternative
energy technologieswill fuel large
O2 and H2growth
# of GlobalSuppliers
10 7 4
A bigger share of a bigger pieA bigger share of a bigger pie
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Page 17Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Energy – Refining Demand for Hydrogen
Heavy crude upgrading
Planned refinery expansions to process heavy crude
Replacing refineries old reformers
Locomotive & Marine
Sulfur Fuel Specifications
GasolineOn-Road
DieselOff-Road
Diesel2004 120ppm 2005 30ppm2006 15ppm2007 500ppm 500ppm200820092010 15ppm20112012 15ppm
Low sulfur fuel regulations
Source: EIA and PX estimates
US Refinery Input Quality
API Gravity Sulfur
30.030.531.031.532.032.533.033.534.034.535.0
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
F
API
Gra
vity
, Deg
rees
0.85
0.97
1.09
1.21
1.33
1.45
Sulfu
r Con
tent
, Wt %
BP
D (M
M)
15
17
19
21
23
25
2005 2010 2015
North American Refining Capacity Forecast
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Page 18Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Energy – Oil and Gas Enhanced Extraction
Global expansion driving energy demand
Easily accessible oil and gas resources declining
Higher prices
Increased drilling activity
Allows unconventional resources to be produced
Enhanced oil recovery and well fracturing opportunities Source: Occidental Petroleum
Oil Production Curve
Primary Stage
--
Oil
Rec
over
ed (b
bls)
~10%
-
Recovery % of Original Oil in Place
Secondary Stage
Typically Water
Flooding
>20%TIME
EOR
~15-20%
Expanding our energy reserves
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Page 19Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Unlocking Energy with Industrial Gases
Power (IGCC)*
Praxair OpportunitiesMarket DriversMarket
Clean CoalCO2 emissions
Large ASU’sCO2 capture technology
Gasification
RefiningHeavy crude processingEnvironmental - pet coke
conversion
H2 and O2 supplyPipeline infrastructure
Industrial/Chemical
Alternative to natural gasproduction of H2/CO or Fuel
Large plant O2 and N2Hydrogen
High energy prices drive alternative technologiesHigh energy prices drive alternative technologies*Integrated Gasification Combined Cycle
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Page 20Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
100
Leading position in China– 11 JV’s and 13 subsidiaries
Shanghai
NanjingNanjing
GuangzhouGuangzhou
Shanghai Chemical Park (BP, BASF, Bayer)
Daya Bay (Shell/CSPC)
BeijingBeijingTianjin
Petrochemical Parks– Shanghai, Caojing– Daya Bay, Nanhai
Nanhai
Samsung
Electronics – Beijing– Shanghai
SMIC(Semiconductor)
QingdaoQingdao
CO2 Plant Other
Bao Steel JVMetals– Shanghai– Guangzhou
Praxair China – Develop Key Pipeline Complexes
2005 Sales $185MM*2010F Sales $500MM**Combined Sales
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Page 21Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Expanding Presence in India
Owens Corning
Hospet Steel
SAIL Durgapur
Jindal Steel
Haldia Petrochem
Unique situation – few global playersUnique situation – few global players
Tata Steel II April 2008
SAIL Durgapur April 2008
Owens Corning July 2007
Hospet Steel Aug 2006
Tata Steel
St Gobain
2005 Sales $120MM2010F Sales $300MM
Project Start-upDate
St Gobain II Nov 2005
Tata Steel I Oct 2005
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Page 22Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Unique and Profitable Business Model
No commodity pricing
Long-term contracts – high renewal rates
Raw material cost pass-through
No speculative capex
High value, low cost product – reliability is key
Production/distribution density drives returns
Applications technologies drive growth above Industrial Production
Strong secular growth trends – energy production and emerging markets
Record project backlog – Unprecedented number of opportunities
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Page 23Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Net Present Value of Project Annuity Streams
17%
PipelinecomplexNPV $62
20%
Pipelinecomplex w/
bulk and pkgNPV $85
Plant saleNPV $7
NPV $40
14%8%
Stand-aloneon-site
15 y
ear N
PV @
8%
($M
M) Example: $100 MM Project Investment
Project Internal Rate of Return
Plant sale has same completion and performance risk, but low NPV without ongoing annuity stream
We prefer the risk/reward of building high density, high return franchises
We prefer the risk/reward of building high density, high return franchises
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Page 24Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Increasing Free Cash Flow
Praxair Free Cash Flow 1996-2006F ($MM)
$400
$800
$1,200
$1,600
1998 2000 2002 2004 2006F
$1725F
$1075F
Operating cash flow 10% CAGR
Capital spending discipline
Uses of free cash flow−Dividends −Selective acquisitions −Share repurchases−Debt reduction
Operating Cash Flow CAPEX(2)
Free Cash Flow (1)
1) Non-GAAP measure. Free cash flow equals operating cash flow minus capital expenditures.2) Excludes Leased Asset Purchase in 2003
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Page 25Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Financial Outperformance1-Year 5-Year CAGR
PraxairPraxair 17% 8%Sales
S&P500S&P500 8% 4%
Praxair 21% 11%PraxairEarnings
S&P500 12% S&P500 7%
22%
5%S&P500
TotalShareholderReturn
Praxair Praxair
S&P500
21%
1%
Praxair continues to outperform the S&P500Praxair continues to outperform the S&P500Source: Bloomberg – 12/31/00 – 12/31/05 Sales per share, Diluted EPS from Continuing Operations
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Page 26Citigroup Chemicals for the Non-Chemist Conference - NYC 12/04/06
Principles of Sustainability
Governance and IntegrityFoster a culture of integrity and accountability throughout the company through rigorous compliance with all laws, and by establishing and following effective corporate governance practices.
Customer CommitmentContinuously develop new products and applications that help our customers improve their productivity, energy efficiency and environmental performance. Provide the highest levels of service, reliability and quality to our customers.
Environmental ResponsibilityContinue to improve the efficiency of energy consumption. Reduce the intensity1 of air emissions, including greenhouse gases.
Employee Safety and DevelopmentMaintain a safe work environment with a goal of zero accidents. Provide training and career opportunities that allow employees to develop to their fullest potential. Increase the diversity of our workforce so that it is more representative of the communities in which we operate.
Community SupportHelp to improve the welfare and future of the communities in which we operate by sharing our knowledge, expertise and resources related to environmental protection, and community health, safety and security.
Financial PerformanceContinuously improve our financial performance and provide attractive returns to our shareholders. Generate operating cash flow to reinvest in business growth and pay dividends.
1Intensity is per-unit-of-production measure
2006 CLIMATE LEADERSHIP INDEX