Air Products and Chemicals, Inc. ($APD)

Hello, everybody. Welcome to the 42nd Annual Bernstein Strategic Decisions Conference, both to everybody in the room and those joining us on the webcast. I'm delighted to be joined by the Air Products senior team for a fireside chat. We have both Eduardo Menezes and Melissa Schaeffer on the stage with us today. I'm going to briefly introduce them before getting into the questions. So Eduardo joined Air Products as CEO in February 2025. He's a 40-year veteran of the industrial gases industry and prior to joining Air Products, Mr. Menezes has held a variety of senior executive roles at Praxair premerger and then the combined Linda entity. These included EVP and President of Linda EMEA after the merger, and at Praxair, he held positions including EVP Asia, Europe, Mexico and South America; Head of Global Hydrogen and EVP North America Praxair distribution. Mr. Menezes holds an MBA from the State University of New York and a chemical engineering degree from the Federal University of Rio de Janeiro. And Melissa Schaeffer is the Executive Vice President and CFO. She joined Air Products in 2016 as Vice President, Chief Audit Executive and subsequently progressed through the organization. In 2020, she was appointed VP Finance, GE, MTE, Americas, Middle East and India and appointed CFO in 2021. Prior to joining our products, Melissa held the position of Global Director Internal Audit in [indiscernible] and before [indiscernible], was at Ernst & Young and Siemens. A note to the audience. This is an event for you. It's great spending time with the Air Products team. But we've got the pigeonhole system, the iPad here. So if you do have any questions, please put them in the system. I'll do my best to ask them to the team.

And so with that, should we start from the macro perspective, the Iran war is still top of most investors' minds. I think it would be great if you could give us around the world tour and what you're seeing on the ground and how the impact -- what is the impact that you're seeing.

Okay. Well, it's still an ongoing event, if you want. Of course, the major effect on our business is on the energy side. So of course, we had the closing of the trade of our moves. Energy prices went a little higher in Europe. So we had some effect on that. On the other hand, areas like the U.S., anything related to natural gas is pretty much running at 100% of our hydrogen pipeline in the U.S. is running very strongly. I don't think that affects the, let's say, the overall picture of the U.S. I would say the rest of the market is pretty stable. Everyone is concerned with the inflation that the fuel prices can generate and the effects on the consumer. But so far, we haven't feel -- we haven't felt any effects on the overall UNS market. In Europe, as I said, it's probably the region that is most affected by the events in the Middle East after the Middle East, of course, we've seen some complicated situations in the chemical industry and the refining behaving a little better. It's a region where our products is a little different. It's the only region where we have a packaged gas business. So we have a big component of the retail side. And on that side, I think things are still stable and still okay. In Asia, different perspectives there. China, we've seen -- China is really the country that is holding most of the impact of the LNG crisis, they are regulating the market if you want, replacing a lot of LNG with coal, and that's applying for power and also for chemicals. So we have some business there. I know we talk a lot externally about the coal gasification sites where we operate the coal gasifiers. But we also have a lot of oxygen plants that supply to third parties doing coal gasification. So all these assets are running both capacity today, people are delaying turnarounds and that kind of stuff. The rest of the market in China, no, I don't think it's a [indiscernible] one that it's a very difficult environment with price negative deflation, industrial prices. So continue to be no major effect, no difference caused by the conflict. So in Asia, then you have the electronics side, which is, of course, is booming, but it's completely unrelated to war, there's no effects on that. For our products, the impact in the Middle East, we are not seeing a lot of impact on the ground. We have some our big projects like Jazan, like Neon, they are in the West Coast of Saudi Arabia, so a little far from the areas of conflict. Our operations in the East side of Saudi Arabia in the other countries of GCC, we've seen some impact on the ground at the beginning, but things are basically back to normal at this point. Of course, we have the impact on helium, but that's caused specifically by one company, one supplier, which is Qatar Energy. We are following that very closely. Still no clear dates for the assets to come back on stream. So we are we rebalanced our supply. We are working in a different way. We have this captain the U.S. that we were able to take some products. So Air Products is being able to supply our customers, and we are basically trying to avoid the effects at this point.

Yes. Okay. So I've got a few follow-ups to the start. It's quite interesting you hear about -- talk about the chemicals end market. So it sounds like booming in the U.S., Europe and the operating rates holding up in China and then Europe is a little bit affected by outages.

Yes. No, I would say that Europe is a strange point at this exactly moment, right? Because we've seen increasing prices on natural gas, so that goes against them. Of course, the biggest competitor for them is the Middle East, right? So prices went up on the other side. So there is this balance now. But if you have to bet on which side is going to subside first, I think the prices will come down before the natural gas prices will, right? So that's a challenge. And again, we are not a very large supplier of the chemical industry. In Europe, most of our business is on the retail side, the merchant side and our large site plans are a combination between steel and some refining business. So not a lot of presence on the chemical side.

And then North America, to what extent do you think this is -- it's been a common topic, any kind of cyclical recovery? Are you expecting operating rates to stay very high? Or do you think some of -- once the crisis goes down, your hydrogen pipeline flows will slow.

No, I think the pipeline volumes they will stay, I think, hydrogen. The refining business is pretty stable. As you know, there are no new refineries built in the U.S. for decades now. So you basically have this upgrade of existing refineries that create this -- a lot of volume on the hydrogen side. A lot of talks about bringing more heavy crude from Venezuela and other places. We haven't seen that yet, a little bit here and there. But I would say that there are other demands on the hydrogen side and a lot of demand on the renewables side, a lot of renewable diesel, biodiesel. So that is also pushing the demand as well on hydrogens.

Yes. And then Helium, I'd like to talk through a little bit your approach. So do you think the investors are going to see any kind of -- with the short market now fulfilling contracts, any kind of shorter-term pricing? Or are you intending to use that longer use your kind of leveraging your supply for longer contracts?

Well, the helium market was structurally long before this crisis. And we have no doubt that we'll return to that position when the crisis stop or a few months or several months after. It depends on the amount of damage that was done in Qatar, right? So we know the market will be back to be structurally long 6 months from now, a year from now, we don't know exactly when. So our strategy has been, we have this cavern, we have product in the cavern exactly because we were buying more product than we sell, right? So we have this imbalance for several years. We are going to -- we are using that to make sure that we solve that problem. We don't have this imbalance going forward. So we're trying to do that, thinking about the long term, thinking about customers that can sign long-term agreements with us. And of course, the electronic area is a very desirable area because not only they can provide you these long-term volumes, but they also have other demand for other products and other gases that the current helium crisis put us in a good position to also negotiate some of these deals. So we're trying to do that, thinking about the long term. Every company, we're always going to have a little bit of product that we sell in the spot market for distributors. And of course, on that, we are doing the best we can on pricing, but that's not the main objective for us at this point.

Yes. And just a brief -- is your -- I understand your Qatari plant was actually down before the crisis started. Is that back up and operating? Or is it expected to be operating in?

No. I think the -- we know that plant was not damaged. And -- that plan basically, the difference between that one and the 3 plants there. The one that our products runs or not run -- that we buy product from is connected to the local natural gas pipeline supply, right? So it's connected to the supply to ammonia planes to GTL and et cetera. We understand there is some damages on the customer side, but not on the processing side, on the helium side. I would say that what is constraining that today is really the availability of resources to ship product out of that, right? So as soon as -- and they have to finish the maintenance that they were working on. So we expect that to be done midyear now, so very close. But when we can resume shipments, that's the question. Of course, we are all looking at alternatives. And I think I was talking to people in Saudi Arabia this weekend and I think the Jeddah airport, you cannot -- it became one of the busiest cargo airports in the world because everybody thought the same thing, everybody trying to move cargo to the west side of Saudi Arabia. So people are trying to rework the supply chains and find a way to move products out. But on the helium side, not only Air Products, I would say our competitors -- we were fortunate that because of our plant was down, we didn't have a lot of empty containers sit there, but the orders they had. And just to move the empty containers has been difficult.

Trucking it across to the Suez not straightforward.

Yes, and finding the ships, the insurance providers and that kind of stuff.

Yes. And then one last one on the high level. Do you think there's going to be any material long-term changes to the industry as a result of this crisis? Or do you think, well, memories will be shortened in the year's time, we'll have forgotten about it?

You're talking about the industry in general, the oil and gas industry, right?

Well, the industrial gas industry.

Yes. But industrial gas is, I think we are a very -- it's a different business because it's very local. At the same time, we're global companies, but the business is very local. So I don't think we'll be -- of course, there is always a question of when people are going to feel comfortable again to invest right? So if the same question you asked about Russia, right? When the crisis started, a lot of the industrial gas companies, they have businesses there. Let's say, you are in the state of crisis for like 10 years now. At one point, we'll win. And if you ask me how long it will take for people to go back, you need to look at history to give you that answer with several years probably.

Okay, great. We're going to move on to strategy. This is the strategic resistance conference. So we'll spend some time on your strategy. So anyway, you joined almost 18 months ago, 40-year veteran. Can you -- what were your first impressions of the company? And how did that form the strategy that you set?

I think our products is the core Air Products is a traditional industrial gas business, not very different from what I was used with, especially on the U.S. side, capable organization with a lot of people with a lot of tenure. So the core of the business is there. I think we diverted from the core of the business a little bit on going on these very large projects. And different things than industrial gases. So when you talk about people in the industrial gas business, we are always comfortable in the gas phase of things. when you start to put liquids or solids like coal gasification is always more complicated. The unit operations are more complicated to run. So we went a little bit on that. And I think the main issue was we broke the model that we went on agreements and on projects that we didn't have form agreements with end customers, right? And that's -- it's an easy thing to fix going forward, right? But we still need to deal with these other projects that we came from the past. So I think bringing back the business to the basics, and I think it's thinking about price productivity and improving our day-to-day operations, I think we are very close to where I want to be at this point. the other piece solving the past problems. It will take the time we'll take to do that.

And just to pick up on that. So you mentioned in the past to the market, 3 plus 3 plus 3 plus 1. So your price and productivity, your volume growth, your project growth and then shareholder returns later down the line. Can you -- is this still the right framing for what you've been trying to do and...

Yes. I think we talked about that -- Melissa can talk better than me about this. But this is more like an approximation, right, just to put the right numbers there. Of course, we're not going to get same numbers every year, right, on all this point. I would say that the market piece is the one that we have less control, right? So we getting 3% there may be a little tough. One year is going to be a little more, a little less, good year may get to that point. the price and productivity is something that we have more control. And I think in good years, we can do significantly better, and we need to do better to compensate when the market is not giving us the balance. In the projects, it seems like an easy task, but it's a lot of hard work to be disciplined to get the right projects to make sure you get this contribution from the projects. And I think that's the math we do.

Yes. No, I think that's spot on. And 1 of the things that we do talk about and as Eduardo said is you don't always get that perfect match of 3, right? And so if you're not getting prices, you've got to go and identify productivity. So there are levers that pull within the algorithm to be able to make sure that it sums to the high single digits, low double digits.

Melissa, if we stay with -- in terms of the kind of pricing approach, has there been changes in KPIs, sales incentives, to kind of unlock that price productivity side? Or what are the new initiatives?

So we have reframed our VPP around certain KPIs, but we've not changed from a pricing perspective the KPIs, right? One of the things we've actually done quite well in Air Products is really go out and get pricing in volatile situations. So if you remember, after the Russian war, with the natural gas and energy prices increased, we were able to go recapture that. The team went out, did what they needed to do, have the right conversations with the customers. We're doing the exact same thing now. It does usually take about a quarter delay to start to see the come through the market, but they -- it's in their DNA. They know how to do this as a well exercised muscle. So they're out there. They're getting prices with the energy increases and we should see that flow through.

And then on the productivity side, where are we in the journey there? Obviously, it looks like headcount is changing and some of the unprofitable projects are coming out. But what's the next stage for that part of the element?

So we started the productivity journey in '23. We started to see that we had taken on probably too many headcounts as part of this mega project frame that the previous CEO had put into place. And so we started taking actions then. To date, we've taken about a little more than 10% of the organization out. We still have room to continue to do so. We have a goal to be able to take out about $100 million this year alone, where you have about $50 million for the first 2 quarters. So we're right on track. We do think that we will see that continue to flow through '27, but that should really be the end of the productivity for this exercise. Obviously, we're always looking for productivity, whether it's headcount or efficiencies in the organization. But that's something that we will continue to do. But as part of this program that will end in '27.

Yes. It's not only headcount, right? We put a lot of attention on reduce our power consumption, reduce our natural gas consumption and improving our distribution. We are rebuilding our global productivity organization. We have a global organization, not very big, but that really pushes this efficiency projects to the regions and make sure that we are able to replicate projects that we do in one region or another region. So there is a good effort and our product is not different from what I before when trying to get this productivity beyond headcount.

Okay. So we'll change tack to a different part, growth. Let's start with the fun bit, space. So I think can you give -- so obviously, you're a core supplier to NASA's commercial space company. Can you give our audience a little bit of background into what the space business does, the market share? And what kind of growth you're seeing and expecting and how you expect the business to progress?

Yes. Well, products is involved in the space program since the late we're supplying liquid hydrogen, lipid oxygen to NASA and helium for the space program for many, many years. That that part of the program didn't change that much. So still a significant supply on that side. Of course, the biggest change in the last few years is the commercial launches, right? So -- and this is an area that I would say is in flux right now. So you've seen the size of the rockets, the amount of products that they use being changed very quickly. And it's not only the one that everybody talks about, but there are several others as well. But I would say that the -- where this is going to go, it's not very clear at this point, right? So if you look at one very large NASA rocket that would take 600 tonnes of liquid oxygen, and they were driven by liquid hydrogen and so forth. The rocket that we've seen being launched, I think, 2 weekends ago, that rocket, I think, carried -- I think it was like close to 5,000 tons of propane. So -- it's like 80-20 oxygen to methane, right? So close to 4,000 tons of oxygen. So when you get to these numbers and people saying, "Oh, I'm going to -- at one point, I'm going to be -- and NASA I would launch like 4 rockets a year, right? And these people are talking about launching one every other day or one a day or whatever, right? So you start to get into volumes that become impractable to basically move product from trucks. And today, we do not do that for NASA either. You don't come and bring a truck straight to the rocket, right? We have tank that you fill the tank and then you do the transfer a few hours to fill the rocket. But now when you talk about these kind of volumes, you would need a truck, if you launch every other day, you need a truck every 5 minutes. So it doesn't work like that. So the entire industry is trying to understand how this is going to work. They have [indiscernible] to build things by themselves and not a normal commercial practice. So we have our business with NASA. We have our business for the company. So -- we -- I think this project we announced is like a token. We're putting the first project outside of Cape Canaveral, very different building for to building taxes, for example, right, very regulated in Florida, difficult to find power and so forth and permits in Texas, a little different from it [indiscernible] a private home place. But we see a lot of growth in both costs and we are trying to prepare for that. But it is a different rationale, and it's a merchant business. It's not a [indiscernible] business.

Well, do you think it does start to be in terms of the volume ramp-up you've described -- do you think it starts to become an onsite business?

It will -- at one point, you need that solution, right? But and I think they are doing that by themselves. They're building a plan by themselves in Texas as well. They're part of supplies being outside, but they're building on themselves. So at 1 point, you're going to need to work on all that. But again, to do that in the Cape and the safety regulations and the ability to get power, it will need some thought process behind that, and we'll need to see how that is going to go.

And it almost sounds like your main competition is going to be whether they outsource or whether they in-source.

That's always the case for our industry. Our customers, our main customers, our steel customers are the same. Our chemical customers are the same, they always have the option to build and operate, and we need to do something better than they can do themselves, and we need to convince them, right? So that's always a challenge in our industry. I think the industry does a good job being able to get scale. And that's why we convince customers to buy instead of our own by building a larger scale and bringing some other credits to the projects, and it's not going to be any different case.

Yes. And then last space question. What would you say to investors is the best way to track your space business? Is it should we be monitoring launches? Or is it California? Obviously, you're very strong because your industrial footprint there, more than other places.

Yes, I think we made this announcement for a new plant there. As I said, a lot of our business today is hydrogen and helium. Hydrogen here is different because it's a product that travels more. But it's a question of you can use hydrogen or you can use a dollar propylene on another few. So we are working on all that. We're going to try to keep people informed. But it's still -- I know it's a very interesting subject, but it's still a very small segment for the industry, right? So we still have to work to see. And how big it will be, it's really a question of how many launches you have at some point [indiscernible] you have.

So moving from a small business now to a bigger business, Electronics, which I think is 17% of your revenues. The question I often get with the semis business is that when is the next stage of growth coming? When do you think kind of fab CapEx has been negative for a couple of down year-on-year for a couple of couple of years and you've got the customers going performing very, very strongly. When do you think we start to see more renewed growth from this business?

You mean renewed growth in the sense of...

Yes, acceleration.

I think we are the bill of that, right in the middle of the largest CapEx sanitary have seen, right? So on the fab side and the demand for industrial gases. It's an interesting industry, right, because the demand keeps growing on the -- and they're using more gases and they're using larger amount of gases, right? So I think we talked about this project. We announced in Korea. It's probably the largest site globally for one company for semiconductors. We build the plant for the first phase, and the plant we're going to build now for Phase 5 is probably 6x or 3x the size of Phase I, 3x the size. So it gives you an idea, right, how much bigger these projects are getting and they are growing very fast. So I think the that site, if you take the product from all the industrial gas companies supplying that site is probably larger than the volume of nitrogen is sold in the entire Gulf Coast of the U.S. So to give you an idea of it's really a completely different scale than we ever seen before.

And just to give the audience a sense. If I've done my math right, on the kind of 5, 6x bigger, that's probably close to $1 billion of CapEx from your perspective to get this or...

We need to go away from these things about talking specific CapEx about specific projects. But we made the point that this is the largest project we ever did in electronics. And I think before we announced a project in Taiwan, also multiphase project that was $900 million. So this is larger than that project.

Yes. Okay. So on...

But again, it's a 4-year project, right? So people sometimes they go and say, "Well, you have these projects and your capital allocation? -- if you think about it as a 4-year project, it's not exactly [indiscernible] -- but it's -- when you look at the CapEx commitment for us, it's -- and you think about that we talk about, we want to have close to $2 billion in projects every year. This is not a very large project, not even close to be the majority of [indiscernible].

Okay. So we'll stay with large projects, and we'll talk about Louisiana blue. So the market is expecting an update. So my understanding is that you've had bids to construction bids to the Board. And then since the market we've had no -- pretty much no communication since, it looks like the vast the construction bids to go and do more homework. Would this be a kind of fair summary then?

You are telling me things I don't know. We didn't talk to the -- we don't have the -- we didn't take to the board yet. We're going to -- we're working on the project. We're working with our suppliers. We're working for our customer. We are trying to finish everything for the next board in July, and then we'll try to make a final decision.

And can you just talk a little bit about the decision, how you frame the decision? So if it turns out that it's a more expensive project that you announced in December, that mean that you won't go ahead or could the other party involved in the project? Could the terms change perhaps?

Yes, I cannot -- if we start speculating, we're never going to end, right? So this project, the main issue of this project, like I said in the beginning, is the fact that we decided to build a plan without a customer, right? So we decided to build an ammonia plant and the products would be [indiscernible] so we are doing all the homework we can to be sure that we have a feasible project. Our customer is doing the same on that side. I would say that at the current prices of ammonia, any project would be printing money today, but that's not how you need to think about that. So we're working on all that. It's a complex project. And I think the right way to think about it is if it's a good project, we'll do it. If it's not a good project, we're not going to do it. That's the thought process.

I think that's very clear. NEOM, so the other major project that you referred to. So can we just -- firstly, a quick update on construction on the progress and still targeting first volumes next year?

Yes. We are basically done with the power generation side. So we have like close to 4 gigawatts of renewable power between wind and solar. So this is basically done. We are energizing the substations. And that's part of the plan. It's -- the most challenging technical part is really the electrolyzers and the hydrogen plant. So -- and we need the power to start commissioning that. So -- and the commissioning is -- when you think about -- we build a lot of hydrogen plants, -- we build a hydrogen plant sometimes we supply ammonia. And we have one SMR, one equipment that will generate hydrogen. In this case, we have 110 electrolyzers, right? And you cannot commission 110 at the same time. So you need to go one by one, and you cannot start commissioning the ammonia loop before we have a certain amount of hydrogen running. So we're working on -- the plan is in place. Everything is going according to the plan. It is technically a very challenging project because it's the first time that we're building something like this. So we are aware of the challenges or working on them. And we are expecting to have first ammonia maybe at the beginning of next year. How fast we're going to be able to get to full production, that's where we are working on. but we're going to be next year for sure.

And just a question from the audience on NEOM. What is the range of outcomes at NEOM, I think in terms of -- probably in the context of the yard, the deal that you've kind of preliminary agreed with Yar in terms of marketing the volumes?

I think we already explained that to everyone that this project only exists because our products took the risk of taking the product. So we have a 30-year deal to buy the entire production of ammonia. So at basically a fixed price because there is no variation on the raw material cost. And the potential outcomes is the difference between the market and that, right? So if it was easy to solve, if I could have someone taking over that and paying a premium for that, it would be done at this point. But today, of course, the ammonia prices are very high. but that's the challenge that we have. I think with time because there is no -- not meaningful escalation from the prices we pay, the more the time goes on, the better this project will look like, right? But carries this ammonia risk price, which is exactly what we are trying to insulate ourselves from on the project.

All right. I'm going to stay with the audience because this is also a question I wanted to ask, and we're going to go to culture. And this is for Melissa. What are the biggest changes that you've seen in terms of strategy or culture or even financial management since Eduardo joined?

You want me answer that right in front of them.

Yes.

So I would say there are a couple of things. First, we talked about productivity discipline, right? And so we talked about headcount, but it's really much more than headcount that Eduardo has a focus on. It's kind of the energy management, supply chain efficiencies. And so that broader refocusing of the organization to efficiency, I do think it's at our core in our DNA, but he really brought that refocus to the organization. I think another piece, number two would be really focusing on our core, right, our core business. I think the organization got distracted with these large projects that we just talked about. And it's really refocusing the organization on how to be competitive at what we do best, the core industrial gas. And an example of that is Eduardo came in and actually restructured our engineering organization. An example is our air separation unit and gasification technology is now centered under our Asian organization who do things on time, on budget religiously. They take it personal when there's a dollar overrun. And so we've now taken that organization and say, okay, here's where we're going to deploy our air separation product lines from and make that more competitive. And I would say the final piece is a relentless focus on capital discipline. And so we have multiple conversations on projects and are fully focused on making sure that they meet our risk return criteria. And people know that there is a threshold that Eduardo will not go under, and they know that they've got to be able to have and structure the deals to meet those expectations.

I want to pick up a little bit on the reliability point as well because that's always been a market complaint about Air Products is that some of the projects that you've done before your tenure with Eldorado were over budget, delayed and you've seen that in the underperforming. What measures have you -- how have you changed the organization to stop that from happening?

Yes. As Melissa said, on the traditional projects, right, we when you look at Air Products, we really didn't have that problem in Asia, right? I think our Asia organization was insulated from that. Air Products made a decision to move the fabrication of cold boxes to China 20 years ago. And I can tell you that I've been in a lot of shops. And I think our shop is first class, is second to none. I've never seen a best shop than the products, the one that we run in Caojing close to Shanghai. So I think we have very good things that were done on that area. When we went to U.S. and Europe, because we took an engineering organization from 1,000 people to 5,000 people, right? We opened an office in India. We had at some point more than 2,000 people in India doing projects for U.S. and Europe and without really a deep knowledge of the culture of Air Products, the culture for industrial gases. And that create issues on the business, right? So we're simplifying everything. We're putting -- we have a gentleman from China now running all our industrial -- our operation engineering piece from China. The engineering, the cold boxes, everything will come from there. And reality is where volume is and creativity, innovation comes from volume, right, and that you need that. So I think from that perspective, we're going to do very well. On the hydrogen side, we haven't built a lot of hydrogen plants, but Air Products had alliances before for 20, 30 years. We have very active ways of partners to build that plant. We went away from that. We are working on bringing that back and making the things simpler. But it's -- we still have -- we're lucky that we still have people in the organization that from the past, they understand all that. So we're making the changes and getting back to be very predictable and reliable on our capital projects. But I'm talking about capital projects in the range that industrial gas company should be doing, right? So when you talk about this project in Korea that we talk about being $1 billion, if you pick a number, it's not one project, right? We're building 7, 8 plants in 4, 5 years, right? So -- but that's the size of projects we do. The very large projects is a completely different animal. And I don't see us doing a lot of these projects going forward, right? I would say that Daro is an exception because I already bought $2 billion in projects. So it's a different situation trying to deal with. But I see the size of projects and our products will be different to be smaller projects that we can execute reliably with a team that replicate that time after time and time again.

And then one more people question. I think you referred to it, I think, perhaps earlier in that answer is that the team is very similar to the below you had very similar before you took over. And the results of their products certainly has been better, the growth is accelerating. How have you been able to get the more performance? Is it just the institutional memory and that they remember how it was and you're unlocking that again?

Well, it's a combination of things, right? I think it's part of that. We have more changes than you believe and you can see from the outside. But we also have -- and I think it's a question of disciplined approach to the business, right? So even if we have a great month and we don't have anything very exciting to talk about. We have full month reviews for other business 1 day a month, right? We have another day a month that we look at all the projects and the execution. We have another day a month that we look at new projects and capital proposals, right? So this discipline of spending the time and people understand that you're looking at the assumptions and the reality is that Products was probably approving these projects in a very small group of people. And trust me, if I believe that the people in the business today were involved in some of these projects, they wouldn't be in the business anymore. Unfortunately, that we have a very small group of people approving these projects and moving these things that was not -- the experienced people of Air Products were not involved in the decision before.

Very clear. Okay. We're going to have to move to the current trading, and we have to ask this question as part of the job. So the first quarter of your fiscal year '26, 11% EPS growth; second quarter, 19% EPS growth the first half, 15% EPS growth, pretty good first half. But the third quarter guidance is 5% to 8% EPS growth in FY '26, 8% to 10% EPS growth. Given what you've been saying earlier about we should expect to see more pricing or the volume progression seems to be pretty solid. Can you put the context of the kind of guidance that you've given and what you've been saying today?

Yes. I think you also need to remember that our products always have these issues that the first half was always much weaker than the second half of the year, right, in Air Products. And we are trying to put the discipline to try to eliminate these things. Of course, there is a lot of turmoil at this point. It's very difficult to predict what's going to happen in some of the areas. So when we had to do the forecast for the balance of the year, we elected to keep the numbers that we had before. And we need to see what the effects will be in H in other areas, right? So -- but there are a lot of -- we have a little bit of, as I said, some of the turnarounds in China were transferred to the second half that helped us in the first half that will hurt us on the second half. But Hopefully, we'll do better, but we need to give a forecast that we feel we can comply with independently of the conditions in the market.

I think that's spot on. We had forecasted a quite significant turnaround in Q2 that, again, as Eduardo said, did get pushed to Q3 and even over to Q4. Another piece is we're still cautious about the underlying in Asia, and I'm cautious about chemicals and the underlying in Europe. I think that hopefully, we'll see upside on that, but we need to be able to see that because in the first 2 quarters, the underlying was pretty flat versus prior year. One of the things that I also need to note is, obviously, on helium, we're maintaining our 4% headwind. We've been able to, as Eduardo had guided the team to do is really shore up longer-term supply. So we won't see the large fluctuations that we've seen over the last couple of years at helium, it's really showing up in getting more sustained growth on the volumes, but that comes with some concessions on pricing. So that's what you're seeing a little bit in that 4% headwind is some of the.

A lot of the headwind comes from renegotiations that we made even before the price. So that's part of the issue there. But if you understand the business, right, so our large customers can be BAA or the T20 guys, but we also sell to people that are distributors that will fill balloons, right? So in a crisis like that, they come -- the first thing they do, they come to you and they ask for more volume, right, because they want to make -- of course, we're being careful on that. We are working on all these aspects of the business. But we are trying to manage that for the long term, but we'll try to see whatever position we can do in the short term to make a little more money, we'll do it, but the priority is the long term.

Yes. And then just to follow up on that. So if -- so European and Asian, but it sounds like North American volumes should be pretty strong to offset this. So you have -- yes, you've got more difficult comps, but the 5% to 8% still sounds pretty conservative. to...

I understand the point, but I hope you understand all the balls in there as well. As Melissa said, one bankruptcy in Europe is -- we have to count on that. You have -- we have the decision that we need to make in there, right, that if we cancel the project, we have an effect on capitalized interest and other things that we have. So we have all these balls in the air, and we try to make a judgment on the forecast that we believe is aggressive, but not over.

Understood. Okay. I'm going to go back to the audience for a closing question. with all the activity around data centers and AI, what is the impact of APD on data center growth? I think we covered that one. But maybe more, how is AI being used and the opportunities at Air Products?

Lisa was just talking to me about it, case, so I'm going to ask...

So we've got AI largely across the organization, people are using AI as part of their everyday productivity. So that's kind of the table stakes, right? Eduardo made the decision to provide Copilot to the entire organization. So that innovation from the ground up is fantastic. We are also seeing it in productivity, for example, I own shared business services for our organization. I was actually in Kuala Lumpur last week and the innovation that those teams are bringing through the utilization of AI and automation is fantastic. We're seeing reductions in cost, but also improvements in productivity for those organizations. We're also utilizing AI, and this is just a few examples. power management, supply chain efficiencies. And so we're trying to really bring it from that grassroots that we started with to more of that transformational AI. And we've got programs throughout the organization really focused on that.

But not only that we gave people the normal copilot thing, but the grigentic version, right? We have probably 6,000 licenses out of 20,000 employees. So 1/3 of our employees, they have this more sophisticated ability to create agents to -- we have training programs. So we're trying to have a bottoms-up movement. And at the same time, we're taking very large pieces of the business like power management and we have structured corporate projects on that on the other side.

Okay. And then closing question for the last 34 seconds. The legacy Eduardo. So you've come in, made some changes, things are progressing. Where do you want to really be longer term? How do you want to be remembered towards the end of...

I went to a Jazz school, right? So Jazz school, in the first grade, you in the religion class, you AC the test. The P will give 9 out of 10. And you'll guess them why and 10 is only for Gods. -- you need to be humble and you need to understand all we are here is trying to give a small contribution and the company is here for 85 years, and none of us will matter 85 years from now. So we all need to understand.

Excellent. Well, a pleasure to thank you everybody, for joining, and thank you, Eduardo. I really enjoyed this.

Thank you.

Thank you. Thank you.