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Praxair, Inc.
Praxair, Inc. Dr. Anne K. Roby Senior Vice President Citi Chemicals for the Non-Chemist Conference December 1, 2014 Forward Looking Statement This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s reasonable expectations and assumptions as of the date the statements are made but involve risks and uncertainties. These risks and uncertainties include, without limitation: the performance of stock markets generally; developments in worldwide and national economies and other international events and circumstances; changes in foreign currencies and in interest rates; the cost and availability of electric power, natural gas and other raw materials; the ability to achieve price increases to offset cost increases; catastrophic events including natural disasters, epidemics and acts of war and terrorism; the ability to attract, hire, and retain qualified personnel; the impact of changes in financial accounting standards; the impact of changes in pension plan liabilities; the impact of tax, environmental, healthcare and other legislation and government regulation in jurisdictions in which the company operates; the cost and outcomes of investigations, litigation and regulatory proceedings; continued timely development and market acceptance of new products and applications; the impact of competitive products and pricing; future financial and operating performance of major customers and industries served; the impact of information technology system failures, network disruptions and breaches in data security; and the effectiveness and speed of integrating new acquisitions into the business. These risks and uncertainties may cause actual future results or circumstances to differ materially from the projections or estimates contained in the forward-looking statements. Additionally, financial projections or estimates exclude the impact of special items which the company believes are not indicative of ongoing business performance. The company assumes no obligation to update or provide revisions to any forward-looking statement in response to changing circumstances. The above listed risks and uncertainties are further described in Item 1A (Risk Factors) in the company’s Form 10-K and 10-Q reports filed with the SEC which should be reviewed carefully. Please consider the company’s forward-looking statements in light of those risks. Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 2 Agenda – Industrial Gases • Industry Overview • Production • Distribution • Integrated Supply Model • Growth Drivers • Praxair ‘s Strategy and Industry-Leading Results Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 3 Global Industrial Gas Market Total Industry Sales: $76 billion Praxair 14% Other 23% Air Products & Chemicals 13% Taiyo Nippon Sanso 4% Airgas 4% Linde 21% Air Liquide 21% Source: Spiritus Consulting 2013 Excludes non-gas sales such as Praxair Surface Technologies Consolidated industry with four large, global participants Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 4 Industrial Gas Industry Advantages Industrial Gases Commodity Chemicals Competitive Field Local Global Distribution Integrated system Limited scope Price Contract Spot Customer Use Small part of costs Significant cost Raw Materials Pass-through Volatile Growth Steady Cyclical Return on Capital High Low Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 5 What We Do and Products We Supply We supply customers with atmospheric, process and specialty gases, high-performance coatings, and related services and technologies Atmospheric Gases – Produced when air is purified, compressed, cooled, distilled and condensed – Oxygen, nitrogen, argon and rare gases O2 N2 Ar Xe Kr CO2 He H2 He C2H2 Process & Specialty Gases – Produced as by-products of chemical production or recovered from natural gas – Carbon dioxide, helium, hydrogen, semiconductor process gases, and acetylene Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 6 Industrial Gases Critical To Many Industries Manufacturing Metals Energy Chemicals 24% 17% 13% 10% Cutting Welding Glass Automotive Steel production Stainless steel Metal finishing / coating Inerting Refining Natural gas fracking Enhanced oil recovery LNG in Brazil Production Coal gasification Syngas production Process control spec gases Food & Bev 8% Carbonation Freezing Inerting Aquaculture % of Praxair 2013 sales Electronics Healthcare Gases Atmospheric O2 N2 Ar Process H2 He CO2 Rare Xe Kr Ne SiH4 High Purity 8% 8% Semiconductor Photovoltaics Flat Panel , spec gases Hospitals MRI Anesthesia Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 Spec Gases N2O CO Blends 7 Industrial Gases Product Lines Local Products Oxygen Nitrogen Sources Feedstocks vvvvvv Air Separation Distribution Modes Pipeline Tanker Cylinder/ Dewar Air + Power Natural Gas or Crude Hydrogen Crude Carbon Dioxide Natural Gas Fields Global National Argon Hydrogen Steam-Methane Reforming Carbon Dioxide By-product Helium US Government Helium Reserve Rare Gases Air Separation By-product NG Processing Plant Air + Power Management of diverse and complex set of products Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 8 Hydrogen Steam Methane Reforming Process Feedstock Natural Gas / Naphtha Louisiana, U.S. Feedstock Processing ■ Sulphur removal ■ Heavy hydrocarbon processing Reformer Island ■ ■ ■ ■ Steam Syngas Shift H2 PSA Catalytic gas reforming Catalyst Mechanicals Tube material ■ Converts CO to H2 and CO2 ■ Hydrogen purification Hydrogen to Customer Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 IG Opportunities in US Petchem Industry Natural Gas/Liquids Chemical Products IG Sales Intensity Fuels (via GTL) O2 ++++ Methanol H2 / CO +++ Ammonia H2 N2 +++ Acetic Acid CO O2 ++ Ethylene Oxide/Glycol O2 ++ Ethylene H2 O2 POX or ATR Ethane Cracking SMR H2 PSA H2/CO H2/CO GTL Fuels Methanol Basic Chemicals CO Acetic Acid H2 N2 O2 Ammonia Ethylene Oxide/Glycol Fertilizers Polyester Vinyl Acetate (Source) Potential for $1B to $2B in IG industry capex going forward SMR steam methane reforming POX partial oxidation ATR autothermal reforming GTL gas to liquids Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 PSA pressure swing adsorption 10 Industrial Gas Touch-points in Refining H2 O2 H2 CO2 Crude Distillation Gasification H2H2 LPG Coking Hydroprocessing H2 H2H2 N2 Cat Reforming Hydrocracking O2 O2 Sulfur Recovery Catalytic Cracking O2 N2 O2 Gasoline CO2 Distillate (Diesel Jet Fuel) Steam Utilities/Waste-water Fuel oil other Steam H2 CO2 Refining Process Praxair provides a suite of products, and technologies and services Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 11 Helium – a Process Gas in Limited Supply Global Helium Supply 100% Others 90% 80% Known Prospects Helium Key End-Markets MRI (20%) Lift (15%) Fiber Optics (10%) Electronics (10%) Welding (10%) Leak Detection (7%) Qatar 70% 60% Algeria 50% US Refined 40% Private Crude 30% 20% 10% BLM 0% 2014 2020 US Helium Supply Diversified sourcing and global management of growing demand Source: Internal analysis Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 12 Air Separation Process Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 13 Air Separation Units (ASU) Salt Lake City, Utah U.S. Volgograd, Russia YongIn, South Korea ASU for large on-site customers Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 14 Merchant Liquid Supply Systems Sized for customers’ specific requirements Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 15 Packaged Gas Smaller individual volumes; significant metal fabrication/welding Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 16 Transportation Vehicles Tube Trailers Liquid Trailers Pallet Truck Micro-bulk Praxair Services Truck Box Truck Serve different volume needs of customers with efficiency Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 17 Distribution – Pipeline Systems Facilities Pipelines Oxygen Praxair Whiting Praxair Nitrogen Customer Hydrogen Argon Praxair East Chicago Praxair Burns Harbor Praxair Lakeside BATON ROUGE WESTLAKE PORT ARTHUR LAKE CHARLES MONT BELVIEU GEISMAR ST. CHARLES HOUSTON DEER PARK Facilities Pipelines H2 Production / Customer Oxygen Nitrogen TEXAS CITY H2 Cavern Hydrogen Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 18 Advantages of Integrated Supply Model CUSTOMERS High On-Site (27%) Air Separation Unit # of Transactions / Contract Flexibility Packaged (30%) Capital Intensity / Volume Pipeline Merchant (34%) Filling Plant Low CONTRACTS Low Long-term: 15 – 20 years Take-or-pay provisions ensure base return Pass-through escalation formulas for energy and inflation preserve return throughout project life Medium-term: 3 – 7 years Requirements contracts with mix of open contracts, formula and other terms that anticipate changing market conditions Low-cost energy purchase & efficient production drives profitability Short-term: 1 – 3 years or purchase order contracts Bundle gas, rent, services, equipment and technology to maximize customer value High Integrated supply and contract terms drive high return on capital Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 19 Secular Growth Drivers… Oil and gas services Water treatment Refinery hydrogen Per Capita Industrial Gas Consumption (% of US) Gasification 100% Energy Increasing gases intensity Decades of Organic Growth 23% Emerging Economies Environment 13% 10% 2% Air emissions Infrastructure development Modernization U.S. China Mexico Brazil India Source: Spiritus Consulting and internal analysis …provide sustainable growth Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 20 O2 in Steel Production O2 Intensity per ton of Steel Index Direct Reduced Iron 150 Nat Gas + O2 Coke to Pulverized Coal Injection + O2 Hot O2 Burner Productivity CoJet System Stove Oxygen 100 1995 Dilute Oxygen Combustion 2000 2005 2010 2015 Innovation key contributor to oxygen demand growth Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 21 From Daily Life in the Kitchen… 2 Food and Beverage Seafood, poultry, meat, bakery goods, fruit and prepared foods all benefit from Praxair’s cryogenic freezing or chilling technologies using carbon dioxide or nitrogen. Carbon dioxide for carbonation in beverages. For airbags; welding Water Carbon dioxide used in water treatment Lighting Specialty gases Windows Krypton improves insulation qualities Microwave, Oven, Refrigerator Printed wiring boards soldered in nitrogen, route information to display panel. Argon used in stainless steel production. Knives, Faucet … Steel is melted using Praxair’s oxy-fuel combustion technology Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 Insert food pi 22 To Daily Life in the Living Room… TV and Electronics Argon shielding gases used to weld metal frames Flowers Kept fresh with nitrogen Vase Oxygen used in glass production Rare-gas & specialtygas mixtures used to develop display panels Literature Oxygen used in paper production Nitrogen keeps circuit boards clean Praxair Surface Technology coated screws are used to extrude the plastic coverings used on wire and cable. Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 23 …To the Edge of Technology Engine and Drivetrain Components Heat Treating – N2, H2, Ar Production Equipment Machine Tools Welding – Packaged Gases Bodies/Frames Welding and Cutting – Ar, CO2, He, N2 Hydroforming – N2 Lighting Specialty Gases Windows Glass Combustion, Float Bath Inerting – O2, N2, H2 Assembly (OEMs) Welding (MIG, TIG, Plasma, Laser) – Ar, CO2, He, N2 WWT – O2, CO2 Electronics Circuit Boards – N2 Climate Control Systems Welding, Cutting, Heat Treating – Ar, CO2, He, N2, O2 Tires – N2 Wide applications in automobile production Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 24 Praxair Snapshot Industrial Gas (IG) major, largest in Americas Industry leading 22% operating margin and 13% return on capital* IG critical to customer but small slice of costs … reliable supply is key Long-term contracts with take-or-pay clause Integrated across supply modes Diverse end-markets and geographies Differentiators Disciplined investments in core IG drive density and returns Execution culture Constant focus on price and productivity Strong cash flow generation and disciplined capital allocation 2013 Sales By Segment Asia 13% Europe 13% South America 17% PST North America 52% 5% By End Market By Supply Mode Other 9% Packaged Gases On-Site 30% 27% Merchant 34% Other Food / Bev 9% Electronics 8% Healthcare 8% 8% Chemicals 10% Manufacturing Aerospace 24% Energy Metals 3% 13% 17% Consistently leading the industry in profitability and return on capital •Praxair 2013 non-GAAP measure; refer to Annual Report for reconciliation Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 25 Sustaining a Competitive Advantage Strategy Select geographies – best footprint Core industrial gas Sale of gas model Technology Product line advantage Lowest total cost of ownership Innovations for customers Execution People Safety High performers Operational discipline Disciplined operators Capital investment Detail-oriented Productivity Nimble and adaptive Integrated supply Contract management Build density Project execution Excellent leaders Non-hierarchical Integrity and compliance High performance culture…drives future results Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 26 Innovation Overview Priorities Supply System Optimization ASU and HyCO cost reduction Product line designs for high construction costs Impact ~3% per year lower cost to serve Sustain productivity savings Productivity Operational efficiency 5%+ per year Enhanced reliability Applications Technology New growth applications Global replications Drive top-line growth Innovation programs aligned with business priorities Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 27 Applications Meeting Customer Needs Steel Cement, Glass Energy Refining • Energy savings Material Processing • Environmental compliance Food • Productivity • Cost reduction Aerospace Water Welding Electronics Spec Gas Healthcare Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 Pharmaceuticals 28 The Americas: Unrivalled Integrated Supply Network Existing Facility Pipeline Backlog 2013 Sales $6.2B 52% of Praxair Solid growth fundamentals: manufacturing, energy, chemical and metals Packaged gas acquisition opportunities ■ Growth opportunities – Expanding domestic demand and infrastructure projects – Vast mineral and hydrocarbon resources U.S. petchem proposal activity Growing & building density * P/T = cost pass-through 2013 Sales $2.0B 17% of Praxair ■ #1 or #2 position in 8 out of 9 countries Best positioned & preferred supplier Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 29 Europe & Asia 2013 Sales $1.5B 13% of Praxair 2013 Sales $1.5B 13% of Praxair Existing Facility Pipeline Backlog ■ Right-sized costs in the South ■ Density and efficiency improvement with Italian acquisition & France divestiture ■ Growing in the North, entering Russia Deliver strong margin leverage Growth Opportunities Refining Environmental Chemicals Application technologies Energy efficiency Density focus…profitable growth Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 30 20 Years of Growth and Outperformance EPS 13% CAGR Financial Leverage: High ROC and cash flow OP 11% CAGR Operating Leverage: Price + productivity > inflation SALES 8% CAGR 1993 1996 1999 2002 2005 2008 2011 2014YTD Continued focus on growing EPS faster than revenue Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 31 Cash Flow Projections Cash Flow Generated from Operations ~24% of sales Asia South America North America Cash Flow Distributed ~11% of sales Cash Flow Invested Europe ~13% of sales Asia Share Repurchase South America Dividends North America Europe Balanced use of cash to maximize return to shareholders Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 32 Consistent Outperformance Strategic Focus Operating Margin* (% of sales) 22% Praxair Operational Excellence 14% 15% Disciplined Capital Allocation Industry Average 9% 13% Return on Capital 1992 1996 2000 2004 2008 2013 10 year average Operating Cash Flow Growth (index 1992 = 1.0) Praxair 11% CAGR 2x Industry Average Praxair Comp 1 Comp 2 Comp 3 1992 1996 2000 2004 2008 2013 Recession Leading value creation in the industry Source: Factset Industry Average ex-Praxair *Praxair non-GAAP measure; refer to Annual Report for reconciliation Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 33 Sustainable Development Aligned with Business Strategy 2013 Achievements Business Drivers Economic Environmental 2X GHG benefit ENERGY vs. total GHG emissions Social Safety Record 5X better than U.S. industry average $3 Billion revenue from ENVIRONMENT Eco-Portfolio >50 million EMERGING ECONOMIES people served with safe drinking water Sustainable Productivity >1 Million beneficiaries more than 20% of total productivity savings from community engagement (cumulative, 2009-2013) EXECUTION Praxair has been a member of the Dow Jones Sustainability Indices for 12 consecutive years. Citi Chemicals for the Non-Chemist Conference – NYC 12/01/2014 Praxair has been a member of CDP for 7 consecutive years. 34
