Air Products recently published its Annual Report, which included an overview of 2009 from John McGlade, Chairman, President and Chief Executive Officer of the company, and an insight into what we can expect in 2010.
In a letter detailing last year’s trials and tribulations, McGlade addresses the company’s shareholders, starting, “Last year as I wrote this letter, I spoke of great uncertainty and volatility as the world’s financial markets and economies collapsed.”
He added, “A year later, as the global economy begins to recover, I reflect not on this difficult past year, but on the bright future we have because of the tough but necessary actions we took in response to the global recession.”
Throughout the year, quarterly financial earnings results released by Air Products reported actions taken to offset negative economic effects and improve margins.
McGlade continued by referring to these actions, stating, “They have positioned us to capitalise on the many growth opportunities we see in front of us and to deliver on our goals of double-digit earnings growth in 2010 and a 17 percent margin in 2011.”
Air Products ended the fiscal year at $8.3bn in sales, down 21% from the previous year’s $10.4bn.
Underlying sales declined 8%, with raw material and natural gas pass-through and currency accounting for 7% and 6%, respectively.
“Globally, our principal manufacturing markets declined by 11% year over year,” McGlade noted.
“As you look at the results, you can see the impact of the global recession on our performance. Despite these difficulties, Air Products maintained its positive cash flow and strong balance sheet, and we increased our dividend for the 27th straight year. This speaks to our financial strength and stability.”
In addition to cost reduction actions taken in order to drive to a sustainable, low-cost structure, the company shifted its technology spending to focus on applications that would deliver growth and productivity.
It also completed the divestiture of its US Healthcare business, and took ‘significant actions’ to simplify its Electronics business, with the goal of improving its returns and reducing its cyclicality.
McGlade gave specific details stating, “Our global cost reduction plan brought savings of $50m in fiscal 2009, and we expect to achieve more than $150m in 2010, with annualised savings of approximately $180m in future years.”
He added, “Capital expenditures were $1.5bn in 2009, up slightly from 2008, as we continued to see good opportunities for profitable investment.”
McGlade said the company expects to bring on more than $1bn in new projects, principally in its Tonnage business, and anticipates capital expenditures to be in line with 2009.
“While we expect modest global manufacturing growth this year, we foresee improved loading and earnings growth in our Merchant and Electronics and Performance Materials businesses,” he commented.
He noted a rebounding in the Electronics industry in 2010, from the severe downturn it experienced last year, and claimed the company’s Performance Materials business should also see a boost, due to the various economic stimulus packages that have been initiated around the globe.
As will be true for many companies in the coming years, the main opportunities McGlade sees for Air Products are those related to the environment and sustainability.
“For us, this results in opportunities that include hydrogen for cleaner-burning transportation fuels, oxygen for clean and efficient combustion, gasification and capture of carbon emissions, and electronic gases for thin-film photovoltaic manufacture,” he commented.
“For example, the global increase in demand for transportation fuels has led refiners to invest in converting their refineries to make more gasoline, diesel fuel, and jet fuel and to use heavier, more sour crude sources. Both of these factors have driven higher demand for our hydrogen, as refiners strive to meet clean air regulations and market demand.”
“We are not stopping there. We are focused on advancing the development of hydrogen as a transportation fuel of the future with over 110 fuelling stations in 16 countries worldwide. We are the leader in demonstrating its capabilities as a solution to environmental concerns.”
“The demand for clean energy does not end with transportation fuels. Energy providers are continuing to look for new technologies that meet consumer demands without a significant impact on the environment.”
“Here again, we are focused on solutions that can enable cleaner-burning coal or other distressed fuels. Our work on developing carbon capture and purification technologies, coupled with our role as a leading supplier of largescale oxygen facilities, means we are equally well positioned to participate in the growth in energy demand that will occur as the economy recovers.”
He concluded by saying that the Air Products team have weathered a challenging business and economic climate in 2009, adding, “We firmly believe we have taken the steps to ensure our success as the global economy recovers and well into the future.”
“While our outlook for economic growth in 2010 is not robust, we see the actions we have put in place, the new plants coming onstream, and the continued benefits from our cost reductions as key to achieving our goals of double-digit EPS growth and improving margins.”