The speaker, Juan Pelaez, welcomes the participants to the Linde Full Year and Fourth Quarter 2023 Earnings Teleconference and Webcast. He introduces the other speakers, Sanjiv Lamba and Matt White, and mentions that the presentation materials are available on the company's website. Sanjiv Lamba gives opening remarks, highlighting the company's success in the past year and attributing it to the hard work and dedication of Linde employees. He also mentions the importance of a disciplined operating rhythm and maintaining a results-driven culture.

Slide 3 of the presentation outlines the key areas that are important for running a leading industrial gas company, including having a top-notch team, supporting the environment, and positioning the business for future growth. The company has made progress towards its goal of a diverse and engaged workforce, reduced greenhouse gas emissions, and has a major project in the works for producing blue hydrogen. The company also expects to win new projects worth billions of dollars in the next three years. There has been some confusion regarding IRA regulations, but the company expects future projects to primarily use 45 Q credits and may consider smaller green hydrogen projects for merchant demand.

The company has achieved success in both clean energy projects and traditional onsite merchant small onsite investments. The management's primary goal is to increase shareholder value, which is best represented by total shareholder return (TSR). The four most important financial metrics for creating shareholder value are EPS growth, operating cash flow growth, operating profit margins, and return on capital (ROC). Linde has led in all of these metrics in the industry, despite challenging economic and global conditions. The company's TSR has almost doubled that of other industry members and the S&P 500 index.

Linde has consistently outperformed benchmarks and delivered positive outflow for five consecutive years, proving their ability to create long-term shareholder value regardless of the economy. In the fourth quarter, sales grew 5% and operating profit was 14% above last year, with a 27.4% operating margin. Economic conditions were stagnant, but Linde's performance culture and compensation programs helped to optimize metrics and correlate to superior TSR and positive outcomes.

In the fifth paragraph of the article, the author discusses the operating margins of the company, noting a 130 basis point expansion from last year but an 80 basis point decline from the previous quarter due to factors such as seasonality and engineering projects. The author expects global operating margins to continue expanding in the future and mentions a one-time unfavorable impact from the devaluation of the Argentinean peso. Despite this, EPS was 14% higher than last year due to factors such as pricing and backlog contribution. The company also had disciplined capital management, with a return on capital of over 25% and strong operating cash flow of $9.3 billion.

The company has a longstanding capital allocation policy that prioritizes maintaining a single A rating, growing the dividend, and investing in projects that meet their criteria. They returned $6.4 billion to shareholders through dividends and share repurchases while investing $4.7 billion back into the business. Management is responsible for ensuring that capital is invested for an appropriate risk weighted return. The company is initiating 2024 full year EPS guidance and for the first quarter, they expect a range of $3.58 to $3.68. The company will manage what matters most to create shareholder value regardless of what 2024 brings. The call is now open for Q&A.

The speaker discusses the outlook for China in terms of industrial production and electronics, stating that China is about 7% of their total sales and profits. They have been seeing a lack of momentum and have taken actions to address this. They do not expect a significant recovery in 2024, with some end-markets being stronger than others. Chemicals had a solid Q4 and may see a mild recovery in the first half of the year, while steel has been shrinking and shrank by 4% in Q4.

The company does not expect any changes in steel production due to the slow recovery of the property market. Manufacturing has been stagnant, but there has been growth in the automobile, EV, battery, and solar cell industries. Electronics has also seen a mild recovery, but geopolitical risks in China may affect this sector. The company plans to continue implementing pricing actions to improve margins in 2024. Global industrial production is expected to remain flat.

Sanjiv Lamba discusses the company's outlook and new projects, but declines to comment on helium production in Russia. He reiterates the company's guidance for EPS growth and mentions various factors that will contribute to it, including share buybacks and management actions. In response to a question, he explains that the company is not currently focused on large green hydrogen projects due to pricing and long-term contract criteria.

Tony explains that there are two main factors that need to improve for large onsite green hydrogen projects to be feasible: the reliability and 24/7 operation of electrolyzer technology, and the capital efficiency. He believes that it will take about 5-7 years for these improvements to be made. In the meantime, smaller and medium-sized electrolyzer complexes will be built to serve merchant demand, and liquid hydrogen is also being developed.

The company is increasing its focus on liquid hydrogen technology to support small and medium-scale green hydrogen development. The speaker mentions that their return on capital is strong, but they are also pursuing low return but value-creating opportunities for top-line growth. They prioritize investments based on IRR and believe that maintaining a high ROC while growing EPS and OCF is the best strategy for shareholder value creation. They anticipate a decline in ROC as they embark on more capital-intensive growth for energy transformation.

The speaker discusses the company's confidence in their decision-making regarding IRR and maintaining healthy levels of operating margin and ROC while also pursuing growth projects. They mention that the consumer gas backlog is driven by both traditional onsite projects and decarbonization projects, with a focus on winning projects in countries like India. The manufacturing, metals, chemicals, and refining sectors are expected to see growth in the backlog.

The company is seeing momentum in decarbonization projects for both chemicals and metals, which will result in about $8-10 billion in projects being signed and added to the backlog. The 2024 CapEx of $4.525 billion is driven by the energy transformation and the ROCI project, as well as other projects that will be coming online in the near future. The company's CapEx is divided into base CapEx and project backlog, with the latter being for growth projects that meet certain criteria.

In the paragraph, Sanjiv Lamba discusses the higher CapEx and the company's execution, which has caused an increase in sales. He addresses a question from Josh Spector about EMEA's margins and explains that despite negative volume trends, the team has managed to achieve profit growth. He also mentions one-time costs and expects to see margin improvement in 2024. In response to a question from Stephen Richardson, he discusses the drivers of TSR mentioned in the script.

The stability of the business and growing dividend over the years has been appreciated by the speaker. They ask about the two levers of buyback and dividend, and if the buyback is agnostic to the stock value. The speaker believes that buyback is an important part of their capital allocation and contributes to their EPS growth target of 10%. The other speaker mentions that both buybacks and dividends are important to shareholders, but they will not promise a high dividend yield. They aim to grow the dividend annually, and also grow the capital base of the stock.

The company will not commit to a dividend yield and instead plans to continue buying back stock due to excess cash and attractive opportunities. They view all uses of capital equally and prioritize long term prospects. Buybacks also instill discipline and serve as an alternate use of capital if investment criteria are not met. Both dividend growth and buybacks are important for capital allocation. In the EMEA region, the company has seen strong performance and productivity despite weaker onsite volumes, but they are aware of potential risks from deindustrialization in the future.

Matt White and Sanjiv Lamba discuss the growth and profitability of EMEA for their company. Despite not being a major growth region, EMEA has seen steady profit growth and a resilient base business. The European Union's push for decarbonization is expected to lead to future project opportunities. Overall, EMEA will continue to be an important industrial gas market for the company and contribute to EPS growth.

John McNulty asks Sanjiv Lamba about the customers and premiums for liquid green hydrogen. Sanjiv explains that large onsite customers are interested in low carbon intensity options and are willing to pay a premium for reliability. He also notes that green hydrogen technology is improving and that long-term off take agreements are needed to support its development.

The speaker discusses the current state of small green hydrogen customers and how they are primarily focused on mobility. They also mention that there are some small mandates for green hydrogen in chemical processes, but these are minor. They note that while people often talk about gigawatts in relation to hydrogen, the reality is that most facilities are much smaller, around 20-30 megawatts. This scale is not yet large enough to attract larger onsite developments. The speaker also mentions that the company's backlog for both plant sales and gas sales has increased by 50% in the last two years, and they are unsure if the sale of gas will continue to increase at a similar pace. They suggest that there may be more opportunities for clean energy in the sale of gas, but it is unclear if this will result in a faster increase in sales.

Sanjiv Lamba, during an interview, stated that the company's backlog for clean energy projects is expected to continue growing and will likely result in a $8 billion to $10 billion increase in the backlog. This number is weighted and may not all translate into actual projects. The company also has a pipeline of over 200 projects, which will feed into this backlog. In terms of incumbency and new projects, the company plans to invest $3 billion in retrofitting and repurposing existing assets for carbon capture and blue hydrogen production. This is part of a larger plan to invest $30 billion in the US over the next decade.

The speaker discusses the expected economic growth in 2024 and how it relates to their end-market trends. They mention that their backlog, pricing, and base volumes will all influence this growth, with the backlog expected to increase by 1-2%. They also mention that they are taking an overall assumption for base volumes, similar to how they have approached it in the past.

The speaker, Sanjiv Lamba, mentions that China is a small part of their business but India is an important market for them. They have been in India for 90 years and are well positioned to win opportunities there. However, they also keep an eye on China and try to get their fair share there as well. The speaker also mentions that food and beverage is up 9% year-over-year, with most processed food companies showing a decline in volume. They attribute this growth to the CO2 market, specifically in food freezing and beverage carbonization.

The company's CO2 pricing has helped support innovation in food freezing, leading to strong growth in the food and beverage market. The CEO expects this trend to continue and notes the importance of application development and the use of gases in food freezing. The pricing of CO2 and the 45Q policy do not have a direct link at the moment. The call concludes with the CEO thanking everyone for their participation.

This summary was generated with AI and may contain some inaccuracies.