Air Products And Chemicals, Inc. · NYSE:APD
Air Products And Chemicals — Proxy Contest (December 2024)
170 slides from Air Products And Chemicals's proxy contest presentation, Dec 17, 2024
Slide 1: Refreshing Air Products
REFRESHING AIR PRODUCTS December 2024
Slide 2: Disclaimer
Disclaimer 1 The information contained herein is provided for discussion and general informational purposes only and does not constitute an offering or the solicitation of the offer to purchase an interest in any investment. The views expressed herein are those of Mantle Ridge LP and its affiliates
Slide 3: Disclaimer (continued)
2 Disclaimer (continued) CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS The information herein contains “forward-looking statements.” Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limi
Slide 4: Table of Contents
3 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated and
Slide 5: Mantle Ridge is a top ten shareholder of Air Products
Mantle Ridge is a top ten shareholder of Air Products, holding approximately $1.3 billion worth of common shares Eleven years ago, at a predecessor firm we played a leading role in helping the Air Products Board effect board change and a leadership transition; this enabled a streamlining of the Comp
Slide 6: Entrenched Status Quo vs Refreshed Board & New Leadership
Entrenched Status Quo Refreshed Board & New Leadership Board Governance & CEO Leadership Board has failed broadly in its duties, including composition, succession, capital allocation, and others Stewardship of a strong, healthy, reconstituted Board to deliver on key duties to shareholders Decade-lon
Slide 7: Entrenched Status Quo vs Refreshed Board: Operational and Financial Performance
Entrenched Status Quo Refreshed Board & New Leadership Operational and Financial Performance Undisciplined capital allocation, pursuing high-risk, low-return non-core projects Restore capital allocation discipline, pursuing projects consistent with the core (including clean hydrogen, structured corr
Slide 8: The Central Question for Shareholders
Best-in-class record on areas of current need: Transparency, integrity and accountability, proper benchmarking Developed best team in industry Disciplined capital allocation Operational efficiency and excellence Industry-best execution Optimizes for shareholder value The Central Question for Shareho
Slide 9: TSR Underperformance and Valuation Discount
21x 28x 25x 15x 17x 19x 21x 23x 25x 27x 29x 31x 33x Oct-19 Feb-20 Jun-20 Oct-20 Feb-21 Jun-21 Oct-21 Feb-22 Jun-22 Oct-22 Feb-23 Jun-23 Oct-23 Feb-24 Jun-24 Oct-24 APD LIN AI 8 TSR Underperformance and Valuation Discount Due to Misguided Capital Allocation, Incompatible With Industrial Gas Principle
Slide 10: Claims vs Actual Track Record: Succession
Claims Actual Track Record Questions Raised for Shareholders “Succession” “The Company is on track to announce the President and related timelines for CEO succession no later than March 31, 2025”1 No true “succession” in sight Age: 80-year-old CEO (2nd oldest in S&P 500) History: decade with no cred
Slide 11: Board Allowed Chairman & CEO to Undermine Succession for a Decade
“…as I have articulated that many times, I fully intend to continue leading Air Products, ensuring that our growth strategy is fully implemented, our mega projects are built, and we are serving our customers with low carbon and zero carbon hydrogen.” - APD CEO, 8/1/2024 Source: Company public filing
Slide 12: APD's Claim ≠ Reality: Metrics Tell the Real Story
24% 29% 0% 10% 20% 30% 40% APD LIN 15% 29% 0% 10% 20% 30% 40% APD LIN 11 (1) MR Adj. ROIC excluding Construction in Progress (CIP). EBIT Margin (’24) ~440bps gap ROIC ex. CIP1 (’24) ~1,440bps gap APD Stated EPS CAGR (’14-’25) Cumulative (’14-’25) (see slide 62) APD’s Claim ≠ Reality Metrics Tell the
Slide 13: Margins Trail Linde and ROIC is Industry Worst
24% 29% 20% 0% 10% 20% 30% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 APD LIN AI PX 43% 13% 13% 0% 15% 30% 45% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 APD LIN AI PX 19% 15% 0% 5% 10% 15% 20% 2019 2020 2021 2022 2023 2024 APD 15% 29% 22% 0% 5% 10% 15% 20% 25% 30% 2019 2020
Slide 14: APD's Assertion that it is "Most Profitable" is Misleading
Source: APD “Create Shareholder Value” presentation, 11/12/2014. Note: APD’s “Adjusted EBITDA” margin includes a 540bps tailwind from JV income with no corresponding revenue. EBITDA margin excluding JV income is below Linde. APD’s Assertion that it is “Most Profitable” in the Industry is Highly Misl
Slide 15: Management has Obfuscated Risk and Returns of Key Large Projects
Lack of disclosure; statements obfuscate record Was this loan provided to prevent customer distress from becoming apparent to APD shareholders? Expansive scope resulted in project delays and loss of “first mover” position Returns are much lower when unlevered and reflecting the time value of money M
Slide 16: Recent Claims of Pivots Following External Pressure
Recent claims of pivots to address issues following external pressure: Board “refresh”: proposed “refreshment” exacerbates entrenchment problem and its consequences “Succession”: proposed “succession” is merely a perpetuation of the status quo Compensation changes: belated, vague, deferred implement
Slide 17: The Board Has Failed Broadly Across Key Responsibilities
16 The Board Has Failed Broadly Across Key Responsibilities Path Forward: Under the stewardship of a strong, healthy, reconstituted Board, Air Products stands to create enormous shareholder value Reset Board will restore balance and independence, implement best-in-class governance practices Managing
Slide 18: Governance Safeguards Have Been Eroded
17 Governance Safeguards Have Been Eroded, Further Entrenching Chairman & CEO Combined role of Chairman and CEO o Consolidates control and creates a lack of independence between operations and oversight o Dangerous if executive wants to stay for life Lead Independent Director not a CEO o Responsibil
Slide 19: Withhold and Vote For Director Recommendations
WITHHOLD Charles Cogut M&A lawyer, limited relevant experience for this business Questionable independence (served as attorney to Rockwood Holdings, Inc. while Seifi Ghasemi was CEO) Entrenchment due to tenure (9 years) VOTE FOR Paul Hilal Experienced steward during corporate transformations and boa
Slide 20: Change is Needed, with a Compelling Solution Proposed by MR
Refreshed board with strong, qualified shareholder nominees Best-in-class executives With the right foundation, Air Products can reach its full potential with meaningful change in three key areas: CEO succession and management Strategy and capital allocation Operational efficiency and strength of th
Slide 21: Executive Chair and CEO Candidates
Executive Chair Candidate: Dennis Reilley “Architect” of Praxair / Linde playbook, with exceptional track record o Linde is the best-in-class industrial gas company: • Exceptional succession, built and led industry-best team, thrived for decades • Highest returns on capital, margins, and total share
Slide 22: Praxair/Linde Playbook: Reilley and Menezes
19% 21% 23% 25% 0% 5% 10% 15% 20% 25% 2018 2019 2020 2021 21 Praxair/Linde Playbook: Authored by Dennis Reilley and Executed by Eduardo Menezes at Best-in-Class Peer “On productivity, deeply ingrained in the DNA of the organization. Every year, we run thousands of projects. We track them, we replica
Slide 23: Value Creation Levers with New Leadership
Value Creation Levers with New Leadership Refreshed board with strong, qualified shareholder nominees Air Products can reach its full potential with meaningful changes in key areas of need: CEO succession and management Build team, culture of operational and capital allocation excellence Strategy an
Slide 24: Shares Should Appreciate Significantly with Upgraded Leadership
23 Air Products’ Shares Should Appreciate Significantly with Confirmation of Upgraded Leadership and Governance Source: MR estimates. Current market valuation and consensus estimates per Bloomberg as of 12/12/2024. (1) Applies Unaffected Multiple (current LIN NTM multiple multiplied by APD's 1yr ave
Slide 25: Table of Contents
24 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated an
Slide 26: Industrial Gas Principles and APD's Misguided Strategy
Industrial gas businesses are prized by investors for their unique characteristics – including attractive growth, low risk, and high returns on capital – which have produced predictable “compounders” with double-digit annual total shareholder returns for decades The industrial gas model is driven by
Slide 27: Capital Misallocation Led to Discount on Core Business Value
100 150 200 250 300 350 400 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Mar-24 Jun-24 Sep-24 Value Per Share Core Business Value Actual Share Price (1) Source: Bloomberg, as of unaffected date, 10/4/2024. Core Business Value price calculat
Slide 28: Air Products has Meaningfully Underperformed Peers
50% 171% 93% 111% (20%) 5% 30% 55% 80% 105% 130% 155% 180% Oct-19 Feb-20 Jun-20 Oct-20 Feb-21 Jun-21 Oct-21 Feb-22 Jun-22 Oct-22 Feb-23 Jun-23 Oct-23 Feb-24 Jun-24 Oct-24 APD LIN AI S&P 500 Over the last five years, Air Products’ total shareholder return (+50%) has substantially trailed its industri
Slide 29: Driven by Concerns on Succession, Strategy and Efficiency
28 …Driven by Clear Concerns about Succession, Strategy and Capital Allocation, and Operational Efficiency… Air Products’ lagging share price performance has been driven by shareholders’ concerns about succession and team building, strategy and capital allocation, and operational efficiency Successi
Slide 30: Analyst Commentary on Ghasemi and Hydrogen Spending
29 “For starters, it's useful to know that the CEO who Pershing opened the door for -- Seifi Ghasemi -- was seventy in 2014, which means he's now eighty. If the stock had managed to keep pace with a peer like Linde over the past five years, this allowance might be understandable. The problem is APD
Slide 31: Air Products' Multiple is Dislocated vs. Peers
15x 17x 19x 21x 23x 25x 27x 29x 31x 33x Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22 Feb-23 Apr-23 Jun-23 Aug-23 Oct-23 Dec-23 Feb-24 Apr-24 Jun-24 Aug-24 Oct-24 APD LIN AI Prior to Mantle Ridge’s surfacin
Slide 32: Shares Partially Recovered on Activism and Reactive Pivots
“Air Product’s stock price has already risen by $100 (45%) since 2Q24, narrowing the discount to Linde and restoring a premium to Air Liquide. This has been partly driven by speculation that an activist would emerge, and partly as current management responded to shareholder pressure with its own eff
Slide 33: Shares Rerated on Confirmation of Activist Involvement
“We now rate shares of APD Buy and raise our price target...Our revision reflects mainly the emergence of an activist investor, which will likely result in (A) a brighter spotlight on intrinsic value; (B) changes in corporate strategy; and (C) upward tension on APD’s trading multiples, narrowing the
Slide 34: Table of Contents
33 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated an
Slide 35: 2013 Activist Playbook for Transforming APD
2013 activist playbook for transforming APD o APD margins of ~15% trailed Praxair at ~22% – despite APD having a higher-margin business mix (more on-site, less packaged gas) – due to its significant corporate bloat and matrix organization o Focus on core industrial gas business Mr. Ghasemi was suita
Slide 36: Significant Shift in Strategy and Capital Allocation Began in 2017
Significant Shift in APD’s Strategy and Capital Allocation Began in 2017 35 “…This looks a repeat of Pershing Square's successful intervention in 2013 - following an inconsistent financial performance, missed targets, questions over culture and APD lagging its peers - especially with MR led by Paul
Slide 37: CEO's Tenure: Underperformance vs Linde
CEO’s Tenure: Substantial Underperformance vs. Linde, and Below the S&P 500, Driven by Deterioration in Last Five Years 36 First Five Years (2015 – 2019): Execution of activist cost streamlining playbook, but capital misallocation already beginning Focused on core business: divested non-core assets
Slide 38: Early Margin Progress Has Stalled
0% 5% 10% 15% 20% 25% 30% 35% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 APD LIN AI PX Early years of CEO’s tenure showed meaningful margin progression vs. peers as APD focused on simplifying its organizational structure, eliminating corporate bloat, and divesting non-core asse
Slide 39: Pivot to "Deploy Capital"
“We are now well positioned to deploy capital for growth. Our portfolio actions and the strong cash flow generation of our company provide us with an expected capacity of over $15 billion to invest over the next five years.” - 2018 Sustainability Report “Our concept is going to the same people, who
Slide 40: Capital Misallocation a Persistent Problem
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 APD LIN PX AI Source: Company filings, consensus estimates for 2024 for LIN and AI. Capital Misallocation has Been a Persistent and Sizeable Problem, With Seeds Sown by the 2018 Push
Slide 41: Growth Achieved with Diminishing Returns on Capital
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2018 2019 2020 2021 2022 2023 2024 Reported Adj. ROCE MR Adj. ROIC MR Adj. ROIC ex. CIP Air Products’ Return on Capital on Employed (ROCE) is declining, despite its reported metric benefitting from utilizing a levered return on equity for its Jazan project Grow
Slide 42: ROIC vs Peers
17% 16% 15% 14% 13% 12% 11% 13% 18% 23% 25% 26% 15% 15% 17% 18% 19% 18% 0% 5% 10% 15% 20% 25% 30% 2019 2020 2021 2022 2023 2024 APD LIN AI 19% 18% 18% 17% 15% 15% 13% 15% 20% 26% 29% 29% 17% 17% 20% 21% 22% 22% 0% 5% 10% 15% 20% 25% 30% 2019 2020 2021 2022 2023 2024 APD LIN AI Source: Company filing
Slide 43: Incremental Return on Growth Capex Below Hurdle Rate
<< “10%” MR estimates that incremental unlevered return on growth capex onstream since 2019 is just ~8%, below APD’s stated 10% hurdle. Despite claiming that projects are evaluated on an unlevered basis, APD often compares levered returns to its 10% unlevered return hurdle (e.g., Jazan) The above as
Slide 44: Capital is Far Less Productive
73 243 118 – 50 100 150 200 250 300 APD LIN AI 4x 9x 7x 0x 2x 4x 6x 8x 10x APD LIN AI 21 26 18 – 5 10 15 20 25 30 APD LIN AI 3.1 7.7 4.0 – 2 4 6 8 10 APD LIN AI (1) Invested Capital ex. CIP excludes goodwill, indefinite lived intangibles and construction in progress. For APD, it adds its proportiona
Slide 45: Earnings Growth Tepid Despite Re-levering
Air Products’ Earnings Growth has Been Tepid Over the Last Five Years Despite Re-levering With Low-Cost Debt (1) Company filings, MR estimates. Dotted box pro forma adjusted for Jazan: estimated impact of project financing on net debt and adds back estimated interest, D&A, and taxes in EBITDA. (2) N
Slide 46: Capex and Dividend Funded With Leverage and Asset Sales
Elevated Capex Spending and the Dividend Have Been Funded With Leverage and Asset Sales 45 Borrowing to fund capex and dividends is reasonable with low leverage, but debt capacity is quickly being absorbed by funding needs. This appears to be why APD has completed and explored asset sales “Air Produ
Slide 47: Decade of Capital Allocation Missteps
46 Decade of Capital Allocation Missteps “We continue to believe in our management philosophy that cash is king and that prudent capital allocation is one of the most important jobs of any CEO.” - APD CEO, 7/23/2023 Misguided Capital Deployed: Opportunities Missed: Mistakes Inadvertently Missed: Air
Slide 48: Table of Contents
47 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated an
Slide 49: Projects of Increasing Risk, Straying From Core
Core Business “Speculative” Traditional IG “Core” Clean H2 Gasification Clean H2 Customer Offtake, Take-or-Pay Limited Market and Commodity Risk Inflation, Energy & Other Pass-through Enhances Moat / Network / Density Mixed Mixed Proven Technology and Outcomes Mixed Mixed Manageable Capital at Risk
Slide 50: Large Speculative Projects Inconsistent with Core
Regardless of whether prior misjudgments were made on ongoing and existing projects, there is substantial capital in the ground and projects should be optimized prospectively with the sole goal of maximizing returns Several speculative projects have been pursued with flaws and risks that are incompa
Slide 51: Project Delays and Cost Overruns
These are unprecedented overruns and delays in the history of the industry Source: Company public filings, conference call transcripts, and sell-side research. Speculative Projects Hampered by Obvious Risks Not Properly Underwritten, Exacerbated by Poor Execution 50 Project Delays NEOM 2020 2025 Dec
Slide 52: Unprecedented Volume of Negative Surprises
Source: Company public filings, conference call transcripts, and Bloomberg. Unprecedented Volume of Negative Surprises Due to Risky Strategy 51 Unprecedented Negative Surprises Driven by Speculative Strategy “...setbacks in its mega-projects strategy saw APD’s share price fall >6% on six results day
Slide 53: Expanded Scope on Non-Core Projects Brings Risks
Expanded scope on APD’s non-core projects comes with material risks, excessive costs and potential negative externalities on the core business. It also lowers the quality and potential trading multiple of the business Note: APD’s CEO made the below comments, then three months later provided LA proje
Slide 54: Different Businesses Trade at Different Multiples
28x 25x 21x 16x 15x 13x 14x 13x 10x 0x 5x 10x 15x 20x 25x 30x Linde Air Liquide Air Products Exxon CF Nutrien Chevron Denbury Yara "When you say industrial gases business, what we are doing is really we are creating an energy company. It's not so much industrial gas, it's creating a source of low-ca
Slide 55: Mixing Businesses With Different Risk Profiles Destroys Value
Mixing Businesses With Different Risk Profiles Destroys Value 54 Industrial Gases Core Gases vs. Speculative Projects Industrial gas businesses are prized by investors for their low volatility, high predictability, diversification, and ability to consistently deploy capital with low risk and high ri
Slide 56: Inconsistent Disclosures on Projects Obscure Returns
In its vague project disclosures, APD mixes multiple different frameworks, ignoring key factors. Project returns should be evaluated on, and reported with, consistent and intellectually accurate frameworks, driving accountability for capital allocation: APD should provide consistent and timely discl
Slide 57: World Energy: Challenged Project With Shaky Customer
World Energy: Extremely Challenged Project With Small, Shaky Customer; Facts Obfuscated, Including APD’s Loan to World Energy to Repay its Debt 56 Apr. 2022: Project announced Nov. 2022: Onstream delayed by ~1 year to 2026 Nov. 2023: APD provided $270mm loan to WE at 15% Nov. 2023: APD acquired exis
Slide 58: NEOM: Excessive Risk, Uncertain Returns
57 NEOM: Excessive Risk, with Uncertain Returns In its NEOM project, APD has taken on non-core scope and introduced excessive risks that are inconsistent with the core business Path Forward: New management is best suited to assess opportunities to de-risk the project and maximize its value. Long-ter
Slide 59: LA Blue Hydrogen: Risk of Scope
Air Products Linde / OCI ASU H2 Production Carbon Capture Carbon Sequestration Ammonia Production IG Player Scope $7.0 billion $1.8 billion 58 LA Blue Hydrogen: Risk of Scope and Competing with Partners and Customers Path Forward: New management is best suited to restore relationships with potential
Slide 60: Table of Contents
59 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated an
Slide 61: APD's Claim ≠ Reality: Metrics Tell the Real Story
24% 29% 0% 10% 20% 30% 40% APD LIN 15% 29% 0% 10% 20% 30% 40% APD LIN 60 (1) MR Adj. ROIC excluding Construction in Progress (CIP). EBIT Margin (’24) ~440bps gap ROIC ex. CIP1 (’24) ~1,440bps gap APD Stated EPS CAGR (’14-’25) Cumulative (’14-’25) APD’s Claim ≠ Reality Metrics Tell the Real Story “Mo
Slide 62: Claims of Most Profitable Company and ~2,000bps Margin Expansion
61 Air Products Repeatedly Claims to Be the “Most Profitable Company in the Industrial Gas Industry”…with Margin Expansion of ~2,000bps From Slide 10 of APD’s FY Q4 ’24 Earnings Presentation: “Now please turn to Slide #10, which is my favorite slide, again demonstrating on long-term performance. Our
Slide 63: EBIT Margin and ROIC Far Below Linde
Adj. EBITDA Margin (incl. JV Income) - FY'24¹ Adj. EBITDA Margin (excl. JV Income) - FY'24¹ Adj. EBIT Margin (excl. JV Income) - FY'24¹ Spread vs. Linde: 350 bps Spread vs. Linde: (110) bps Spread vs. Linde: (440) bps MR Adj. ROIC (ex. CIP) - FY'24¹ Spread vs. Linde: (1,440) bps 42% 38% APD LIN 36%
Slide 64: "Most Profitable" Conflicts with CEO's Prior Framework
Source: APD “Create Shareholder Value” presentation, 11/12/2014. APD’s Assertion that it is the “Most Profitable” in the Industry is Highly Misleading, and Conflicts with CEO’s Prior Framework 63 “And then with respect to most profitable, we mean that we want to be the most profitable as measured by
Slide 65: Margins Expanded Roughly Half the Claimed Level
64 CEO’s Claim: “Margins Have Improved 2,000bps since FY 2014” Reality: Margins Expanded Roughly Half this Level APD’s Quoted Margin Expansion Uses Quarterly Adj. EBITDA Margins (Q4’24 vs. Q2’22) Calculating Using Full Fiscal Year Results in ~25% Less Margin Expansion Excl. the Impact of Higher JV I
Slide 66: Air Products Repeatedly Claims 10% EPS Growth
65 Air Products Repeatedly Claims to Have Grown EPS 10% From Slide 8 of FY Q4 ’24 Earnings Presentation: “Now please turn to Slide #8 where you can see our strong sustained performance over the long term. We have achieved a 10% annual growth rate in our adjusted earnings per share since 2014.” – APD
Slide 67: Reality: ~8% EPS CAGR
66 CEO’s Claim: “10% EPS Growth Achieved” over 11 Years Reality: ~8% EPS CAGR (~50% Cumulative Delta over 11 Years) Source: APD filings. APD sold its Performance Materials division for $3.8bn ($2.8bn after-tax) and spun off its Electronics Materials division – Versum ($1bn dividend / debt exchange)
Slide 68: Management's Claims About Strategy Do Not Match Reality
67 Management’s Claims About its Strategy Do Not Match Reality APD’s Claim ≠ Reality Clean hydrogen is a second pillar, pursued differently than the core Clean hydrogen can be pursued in core-like manner; no need to stray from core characteristics Peers are exclusively pursuing clean hydrogen in cor
Slide 69: Speculative Hydrogen Strategy and "First Mover" Claims
APD Claims that its Speculative Hydrogen Strategy, Which Strayed from Core, Will Generate Higher Returns With “First Mover” Advantage 68 “Number one, is to operate our base industrial gas business in the most efficient way and continue to invest and grow that business, something that we have been do
Slide 70: Clean H2 Projects Can Align with Core
Project Beaumont (Texas) Baytown (Texas) Edmonton (Alberta) Customer Carbon Sequestration Partner Invested Capital $1.8 billion $0.8 billion $0.9 billion Peers, and in some cases APD, are already deploying substantial capital in clean hydrogen projects with customer offtake and low risk. The differe
Slide 71: Questions on APD's First Mover Strategy
In addition to questions about the obvious and sizeable risks taken (e.g., NEOM offtake liability) APD’s “first mover strategy” raises several important questions: In merchant blue and green hydrogen, unlike industrial gases, APD is competing in global commodity markets with lower barriers to entry;
Slide 72: Underwriting Track Record Has Been Poor
Underwriting track record has been poor: return on recent ~$14 billion of capex onstream has been below APD’s hurdle rate (MR estimates ~8%)1 Core industrial gas projects offer high risk-adjusted returns, setting a high bar: returns required to justify risks on speculative projects is extremely high
Slide 73: Table of Contents
72 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated an
Slide 74: Before and After Shareholder Pressure
Topic` Before Shareholder Pressure1 After Shareholder Pressure1 World Energy Attractive returns secured with a strong customer After committing $2bn of capital, including $270mm loan to customer, project on hold due to excessive risk; customer in default, suing customer’s backer; exploring sale Sout
Slide 75: Recent Claims of Pivots Following External Pressure
Recent claims of pivots to address issues following external pressure: Board “refresh”: proposed “refreshment” exacerbates entrenchment problem and its consequences “Succession”: proposed “succession” is merely a perpetuation of the status quo Compensation changes: belated, vague, deferred implement
Slide 76: Pivots Do Not Solve the Underlying Deficiencies
Regardless of whether one believes Air Products will follow through on its stated pivots from missteps – despite its poor long-standing record – doing so does not solve the underlying deficiencies and issues Solving the underlying issues and meeting the prospective needs of the business can only be
Slide 77: The Central Question for Shareholders
Best-in-class record on areas of current need: Transparency, integrity and accountability, proper benchmarking Developed best team in industry Disciplined capital allocation Operational efficiency and excellence Industry-best execution Optimizes for shareholder value The Central Question for Shareho
Slide 78: Executive Chair and CEO Candidates
Executive Chair Candidate: Dennis Reilley “Architect” of Praxair / Linde playbook, with exceptional track record o Linde is the best-in-class industrial gas company: • Exceptional succession, built and led industry-best team, thrived for decades • Highest returns on capital, margins, and total share
Slide 79: The "Dream Team" Integral in Building Best-in-Class Peer
78 The “Dream Team” has been Integral in Building Best-in-Class Peer Dennis Reilley and Eduardo Menezes have been integral as the “architect” and a “key operator”, respectively, of the best-in-class company in the industry During Dennis Reilley’s tenure at Praxair, the company delivered best-in-clas
Slide 80: Dennis Reilley: A Storied Industrial Gas Executive
79 Dennis Reilley: A Storied Industrial Gas Executive Dennis Reilley is an exceptional executive who is the "complete package“ with a clear record of performance in board leadership, succession and team development, culture creation, operations, and capital allocation “Architect” of the modern-day P
Slide 81: Eduardo Menezes: Seasoned Industrial Gas Executive
80 Eduardo Menezes: Seasoned Industrial Gas Executive Eduardo Menezes is recognized as a distinguished leader in the industrial gases sector, having spent over three decades in key leadership roles at Linde and Praxair Last 11 years at Praxair and then Linde were as a direct report to the CEO Steve
Slide 82: Industrial Gases Experience is Optimal for Executive Leadership
The need for expertise in this unique business is heightened by the circumstances: o Incumbent Chair & CEO lacks judgment to counsel and train any executive on key skills needed to restore APD to its full potential, as evidenced by track record on team building and management, strategy and capital a
Slide 83: Priorities for New Leadership
Succession and Talent: o Evaluate talent in place, empower and develop the internal team o Bring back some of many good alumni pushed away under Seifi o Recruit other industry talent that wants to join Capital Allocation: o Focus exclusively on projects with terms aligned with the core business (inc
Slide 84: Market Responded Positively to Proposed Leadership
Market has Responded Positively to Our Proposed Leadership Solution 83 “There is no better-qualified executive in the industrial gas space than Dennis Reilley, who honed the strategy at Praxair to focus on the cost of delivering industrial gases, from plant design to build and operation. Years of co
Slide 85: Problems With the Incumbents' CEO Transition Proposal
There are two clear problems with CEO transition proposed by the Incumbents: Effectiveness of the succession solution over short- and long-term Likelihood of actual succession occurring These problems are even more stark when considering the relevant background: A proposed Successor with no industri
Slide 86: Incumbent CEO as Negotiating Partner
Compromised negotiating position: bargaining position is compromised by motivation to announce transactions, and counterparties know this Not aligned with long-term: Incumbent CEO’s term should end well before delivery on deal terms (offtakes, project completions, etc.), making him non-ideal as nego
Slide 87: Table of Contents
86 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated an
Slide 88: Board Failed for Years on Succession and Leadership
Incumbent Board failed for years to deliver on succession and leadership Following shareholder pressure and activist interest, the Company has stated that it will attempt to hire a credible successor, but that this successor will not be identified until after the annual meeting We proposed an altern
Slide 89: Mantle Ridge Did Not Ask for Control (1 of 2)
88 Mantle Ridge Did Not Ask for Control, Rather a Collaborative Board Reconstruction and Succession in Leadership (1 of 2) Despite repeated, clear verbal and written statements to the contrary, the Board chose to hide behind these pretexts rather than engage on the right path forward for APD APD Mis
Slide 90: Mantle Ridge Did Not Ask for Control (2 of 2)
89 Mantle Ridge Did Not Ask for Control, Rather a Collaborative Board Reconstruction and Succession in Leadership (2 of 2) APD Mischaracterizations What APD Claimed What Mantle Ridge Actually Said Demanding to Unilaterally Dictate all Directors “Mantle Ridge’s demands to unilaterally dictate the com
Slide 91: Mantle Ridge's Nominees Fill Critical Needs on the Board
Source: MR analysis, individuals publicly available biographies. Note: Matthew Paull and David Ho not included after announcing that they will not seek re-election to the APD Board. Mantle Ridge’s Nominees Fill Critical Needs on the Board 90 Issues with existing APD Board composition, including limi
Slide 92: Nominees Andrew Evans and Tracy McKibben
Andrew Evans 30 years of experience in capital-intensive energy and utility industry Former CEO of AGL Resources, Inc. (formerly NYSE: GAS) Deep capital allocation experience after serving as CFO of capital-intensive businesses for over a decade at Southern Company (NYSE: SO) and AGL Resources, Inc.
Slide 93: The Board Has Failed Broadly Across Key Responsibilities
Composition: lack of independence and relevant qualifications Structure: Chairman CEO without strong Lead Independent Director Processes: Independent Directors without their own advisors Culture: Deference to Chairman CEO 92 The Board Has Failed Broadly Across Key Responsibilities Path Forward: Unde
Slide 94: Compensation is Outsized and Misaligned
93 Compensation is Outsized and Misaligned (1) Source: 2024 ISS Proxy Analysis & Benchmark Policy Voting Recommendations for APD. (2) Source: Company proxy statements. Linde and Air Liquide both currently have a return on capital metric, as did Praxair and Air Gas prior to acquisitions. Additional s
Slide 95: Lisa Davis – Chair of MDCC
Lisa Davis – Chair of MDCC Failed as Chair of the Management Development and Compensation Committee, which is responsible for executive compensation and succession Established an evergreen contract for APD’s 80-year-old CEO with 5-year term and automatic renewals; “good reason” payout triggers in co
Slide 96: Table of Contents
95 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated an
Slide 97: Air Products Should Thrive: Strong Core Foundation
APD’s core franchise has a strong foundation. Its recent struggles are largely due to mistakes and misjudgments in lower quality projects and costs associated with speculative projects. Adjusting for these distortions from mismanagement reveals a healthy core industrial gas business foundation If AP
Slide 98: Strong Foundation to Accelerate Core Business
Air Products has a strong foundation to accelerate its core business, but it is being obfuscated by speculative projects o Core business can be accelerated and optimized, including efficiency o Produce high returns, with low risk Significant operational efficiency opportunity (350-550bps), driven by
Slide 99: APD Can Enjoy Both Returns and Growth Without Excess Risk
98 APD Can Enjoy Both Returns and Growth Without Excess Risk Industrial gases are both low risk and high return o Importantly, this includes… Traditional gases Gasification Clean hydrogen o …if properly structured and executed (thus core-like) o Projects often provide for an ability to enhance the m
Slide 100: The Linde Model Authored by Dennis Reilley
The Linde Model, Authored by Dennis Reilley at Praxair 99 Relentless focus on cost and productivity Tirelessly visiting and revisiting every aspect of the business, with an eye toward reducing costs and capital intensity Setting a high bar for annual reduction in year-over-year cash cost reductions
Slide 101: Praxair/Linde Approach to Talent and Team Building
Praxair / Linde Approach to World-Class Talent and Team Building 100 Approach to Building and Developing the Right Leadership Values - honesty, results-oriented, empathetic Capability – business acumen, decision making, communication skills, amongst others Curiosity and ambition – able to learn and
Slide 102: Menezes Expanded Linde EMEA Margins
19% 21% 23% 25% 0% 5% 10% 15% 20% 25% 2018 2019 2020 2021 Eduardo Menezes led Linde EMEA, expanding margins by ~550bps in only three years, despite challenges: Second largest region: ~$8bn sales, ~18k empl. Nearly 100% legacy Linde assets: most difficult region to fix and apply Praxair operating mod
Slide 103: Opportunity to Reduce Engineering and Development Costs
102 Significant Opportunity to Reduce Engineering and Development Costs Tied to Non-Core Scope Expansion (1) Fixed cost inflation headwind estimated using Company-disclosed Other Cost impact in EPS bridge disclosure and MR estimate of fixed cost base. (2) Assumes underlying inflation of 6.0% on MR e
Slide 104: Margin Gap vs Linde Bridge
(0.6%) 23.8% 2.6% 2.4% 28.8% 24.4% APD FY'24 Adj. EBIT Margin (excl. JV Income) LNG Equip. Impact PF APD Adj. EBIT Margin (excl. JV Income) Excess Non-Core Costs Remaining Margin Gap vs. Linde Linde Sep-24 LTM Adj. EBIT Margin (excl. JV Income) APD's recently divested, LNG Equip. business inflated m
Slide 105: Identified Margin Opportunities Would Partially Close ROIC Gap
Focusing on the core will enable excess costs tied to expanded scope to wind down over the next few years We believe new, best-in-class leadership can drive additional efficiencies in the core business 104 Identified Margin Opportunities Would Partially Close APD’s ROIC Gap vs. Peers, More Opportuni
Slide 106: Path to Derisk & Maximize Projects
105 Path to Derisk & Maximize Projects that Strayed from the Core Model Ongoing projects: complete, derisk, maximize, and improve disclosure Exact path to derisk and optimize projects will depend on new management’s thoughtful assessment of opportunities for customer offtake, descoping with partners
Slide 107: Restore Credibility to Ascribe Value to Above-Peer CIP
New Leadership Should Restore Credibility and Transparency, Enabling Investors to Ascribe Value to the Above-Peer CIP 106 The book value of APD’s FY’24 Above-Peer CIP is over $30/share (~10% of market cap) Investors have been hesitant to ascribe value to the Above-Peer CIP given frequent disappointm
Slide 108: APD's Valuation Discount Remains Significant
107 APD’s Valuation Discount Was Severe and Remains Significant, Especially When Accounting for the Above-Peer CIP Note: Market valuation data per Bloomberg. Current valuation as of 12/12/2024. (1) Above-Peer Construction in Progress: APD’s reported CIP adjusted for NEOM partner debt and equity less
Slide 109: Advantages and Disadvantages vs. Peers
Advantages vs. Peers Higher exposure to electronics and semiconductors, fastest growing end market Highest exposure to hydrogen, with largest pipeline network Highest exposure to NA, lowest to Europe Smaller scale allows for faster growth algorithm, including higher impact from accretive capex (e.g.
Slide 110: Shares Worth $425+ Under Best-in-Class Leadership
109 APD’s Shares Should Appreciate Significantly with Confirmation of Upgraded Leadership and Governance Shares are worth $425+ (>35% upside, present value) under best-in-class leadership Upgrade leadership and governance Optimize core industrial gas business, including profitability Credibly and ex
Slide 111: Market Responded Positively to MR's Proposed Changes
Investors and sell-side analysts have reacted positively to the prospect of change: Market has Responded Positively to MR’s Proposed Changes 110 “Credible new activist emerges. Echoing the concerns we have highlighted since our November 2023 downgrade, a further two activist investors have emerged w
Slide 112: Shares Should Appreciate with Upgraded Leadership
111 Air Products’ Shares Should Appreciate Significantly with Confirmation of Upgraded Leadership and Governance Source: MR estimates. Current market valuation and consensus estimates per Bloomberg as of 12/12/2024. (1) Applies Unaffected Multiple (current LIN NTM multiple multiplied by APD's 1yr av
Slide 113: Table of Contents
112 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated a
Slide 114: Failure to Participate in Industry Consolidation, Airgas
The Air Products/Airgas combination would have been highly value-creating, and Air Products was the most synergistic partner for Airgas. For that reason, Air Products had the advantage winning the deal. Mr. Ghasemi misplayed the approach, threatening Airgas with a hostile bid and ultimately pushing
Slide 115: After Failing to Consolidate, APD Deployed Capital in Larger Projects
After Failing to Participate in Industry Consolidation, APD Began Deploying Capital in Larger Projects 114 2017 – 2020: Gasification Era ~$22bn of project announcements 2020 – Present: Spec Projects Era ~$23bn+ of project announcements Following industry consolidation, Air Products responded by incr
Slide 116: As Projects Struggled, Disclosure Weakened
The Company used to disclose estimated costs and timing for all large projects on its quarterly backlog slide. This level of disclosure is no longer provided quarterly, making it even more difficult for investors to properly value and assess the risks of these projects As Projects Struggled, Disclos
Slide 117: World Energy: "Attractive Returns Secured" Claim
World Energy: Air Products Claims “Attractive Returns Secured” Despite Extremely Concerning Fact Pattern 116 Apr. 2022: Project announced Nov. 2022: Onstream delayed by ~1 year to 2026 Nov. 2023: APD provided $270mm loan to WE at 15% Nov. 2023: APD acquired existing WE facility Nov. 2023: Judge halt
Slide 118: World Energy Tolling Agreement
APD’s contract with World Energy is structured as a tolling agreement. World Energy pays monthly fees to APD, effectively paying APD a fixed percentage return on the total capital spent to build the facility1. Despite large budget increases, APD’s CEO leads investors to believe that this structure e
Slide 119: APD Commentary on World Energy, Aug 2024
Aug. 2024: APD Commentary: “very good relationship”…“feel pretty good about that project”…“on hold until we get our permits” “In terms of our relationship with World Energy, we have a very good relationship with them…Obviously, we have been working with them for a few years. In terms of the standard
Slide 120: World Energy Lawsuit Q&A
Q: “But there was a lawsuit that became public about 2 weeks ago that shows Air Products [loaned] World Energy a good amount of money, that World Energy has since defaulted on. So how do we square that?” APD CEO: “That is the normal course of business. It's a guarantee about certain payment. It is i
Slide 121: World Energy: $2 Billion Bet on a Small Customer
Signs of financial stress at World Energy have been evident for years, but APD has continued to commit more capital (1) Employee count per Boston Globe article, April 2023. Loan applications filed as part of PPP program in April 2020 and April 2021 show World Energy had 200 and 195 employees, respec
Slide 122: Louisiana: APD's Approach Diverged From Peers
APD’s Approach Peers’ Approach Scale / Capital Deployed Per Project $7bn+ <$2bn Scope Full scope, including carbon sequestration and ammonia Core scope (gases), partner with others for non-core Customer Offtake, No Market Risk Contracted, Reduced Capital Risk Low Operational, Technology, Scale Up Ri
Slide 123: Louisiana: Project Scope vs. Peers
Air Products Linde / OCI Air Liquide/Exxon Air Separation Hydrogen Production Carbon Capture Carbon Sequestration Ammonia Production Total IG Player Scope $7.0 billion $1.8 billion $0.85 billion Louisiana: APD’s Project Scope vs. Peers’ APD has taken on much larger scope than its peers, resulting in
Slide 124: Louisiana: Expanded Scope and Failed Execution
Louisiana: Took on Expanded Scope and Failed to Execute 123 The result of Air Products’ increased scope has been budget increases, project delays, and loss of any “first-mover” advantage, with the project expected to come online years behind Linde/OCI Sources: Company public filings, press releases,
Slide 125: Louisiana: Lack of Transparency on Project Costs
124 Louisiana: Lack of Transparency on Project Costs Air Products has not been transparent in detailing or updating the expected project costs of Louisiana, which may be greater than the Company’s formal $7.0 billion estimate “We have done most of the engineering. We are going to start bringing cont
Slide 126: Compete With Wider Ecosystem or Focus on Core Projects
Compete with a much wider ecosystem of potential partners or focus on sizable opportunity in core projects serving ecosystem? Focusing on its narrower core capabilities would align capital deployment with the characteristics of the core business, while supporting an acceleration of clean energy 125
Slide 127: NEOM: Air Products' Project Scope
Description Air Separation Consistent with Core Green H2 Production Technology Risk Ammonia Production Not Core Competency / Competing with Customers Merchant Ammonia Commodity Exposure / Competing with Customers EPC for Project Execution Risk Total Scope (incl. JV) $8.4 billion1 NEOM: Air Products’
Slide 128: NEOM: APD's Investment Thesis has Changed
NEOM: APD’s Investment Thesis has Changed 127 Air Products committed to a 30-year offtake agreement approaching $1billion in annual cost1 before there was clarity on the primary market for future customers. Target markets have evolved both geographically and by industry, leaving APD with only one cu
Slide 129: NEOM: Offtake Liability Created Excessive Risk
NEOM: APD Offtake Liability Created Excessive Risk 128 There are two relevant components of the NEOM project with two very different risk/return profiles for APD. The offtake APD was willing to take from the JV shifted risk from the JV to APD alone (risks should have been underwritten by customers v
Slide 130: NEOM: Customer Offtake Disclosure is Opaque
NEOM: Customer Offtake Disclosure is Opaque 129 Q: “I wanted to ask a question on the NEOM offtake. There's just been some chatter, I guess, more recently around some finer details around that contract. So you highlighted take-or-pay. You mentioned you're comfortable with the returns. I guess some o
Slide 131: NEOM: 20% Return Disclosure Was Removed
NEOM: 20% Return Disclosed in Preliminary Proxy was Removed 130 APD’s disclosure on the expected returns of NEOM has been opaque and has changed over time. APD included in its preliminary proxy a disclosure which stated that the Total “offtake” would generate a “20% return on invested capital“. This
Slide 132: Peers Understood APD's Strategy was Misguided: Offtake
Peers Understood that APD’s Strategy was Misguided: Offtake 131 Air Products Linde Air Liquide “We should not be in a hurry to go and sell this stuff cheap just because that makes everybody feel happy…We think the value of these products will become higher as we get closer to where the demand is the
Slide 133: Peers Understood APD's Strategy was Misguided: Gasification
132 Peers Understood that APD’s Strategy was Misguided: Gasification, Including China Air Products Linde Air Liquide “And I know there is a lot of skepticism [on gasification], a lot of the skepticism is obviously fueled by our competitors who are not doing this, but 2 or 3 years, they will be doing
Slide 134: Table of Contents
133 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated a
Slide 135: Rather than Fix Projects, APD Considered Selling Korea
Rather than fix the underlying issue with ongoing projects, which would alleviate any leverage or investment capacity concerns… Descope or modify ongoing speculative projects with risk profiles that are not consistent with the core business, including the $7bn+ Louisiana Blue Hydrogen …Air Products
Slide 136: APD Sold LNG at a Low Multiple
Rather than fix the underlying issue with ongoing projects, which would alleviate any leverage or investment capacity concerns… …Air Products sold off its LNG business for a very low after-tax multiple of normalized earnings 135 Rather than Fix the Problem…APD Sold LNG at a Low Multiple Stated Multi
Slide 137: Normalizing ROIC Definitions Across Peers
12% 0% -2% 11% 3% 15% 2024 - Company Metric Goodwill + Indefinite Intang. Proportional JV Debt MR Adjusted ROIC Construction in Progress (CIP) MR Adj. ROIC, Ex. CIP 0% 5% 10% 15% 20% 25% 30% 35% 0% 0% 26% 3% 29% 26% 2024 - Company Metric Goodwill + Indefinite Intang. Proportional JV Debt MR Adjusted
Slide 138: Return on Growth CapEx Has Been Subpar (1 of 2)
MR estimates APD’s return on Growth CapEx that has come on-stream since 2019 has been ~8%. MR’s analysis includes APD’s portion of Jazan on an unlevered basis: Source: Company filings, MR estimates. (1) Company reported growth CapEx adjusted to include MR's estimate of APD's portion of Jazan's proje
Slide 139: Return on Growth CapEx Has Been Subpar (2 of 2)
Source: Company filings, MR estimates. (1) Company reported CIP adjusted to exclude NEOM project financing and partner equity. (2) Jazan on-stream CapEx adjusted to include APD's share of the project financing. 138 Return on Growth CapEx has Been Subpar (2 of 2) APD Adj. Growth CapEx ($ bn) APD Impl
Slide 140: Not All Returns Are Created Equal
Not All Returns Are Created Equal 139 Quoted project returns should be consistent and clear in the way they are calculated and presented Project returns and their adequacy should be evaluated with a consistent framework: Is stated return a levered or unlevered return? Does stated return properly cap
Slide 141: Levered vs. Unlevered Returns
Not All Returns Are Created Equal: Levered vs. Unlevered 140 APD often fails to differentiate between levered and unlevered returns when evaluating the success of onstream projects and/or the risk of future projects. The impact of leverage can be substantial and needs to be transparently presented I
Slide 142: Time Value of Money
Not All Returns Are Created Equal: Time Value of Money 141 APD often cites “run-rate, cash-on-cash” returns that fail to acknowledge the economic impact of the time value of money. For projects with significant latency between initial development and completion (and thus positive cash flow), calcula
Slide 143: Jazan: Mixing Levered vs. Unlevered Return
Source: Company filings, conference call transcripts and MR analysis. Levered return calculated as Net Income / Equity based on APD’s guidance of $1.35 EPS and $2.4bn of equity. Unlevered return calculated as NOPAT / total invested capital assuming a 22% tax rate and 5% interest rate on APD’s $3.7bn
Slide 144: NEOM: Levered vs. Unlevered and Offtake Gap
NEOM: Illustrative Levered vs. Unlevered, Time Value of Money on Development, and Gap in Cash Flows between Onstream and Offtake 143 APD has not adequately addressed the risk of projects coming onstream ahead of the start date of offtake agreements. NEOM comes onstream three years in advance of the
Slide 145: Table of Contents
144 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated a
Slide 146: Engineering & Development Costs – Key Takeaways
Engineering & Development Costs – Key Takeaways 145 APD significantly increased engineering and development (E&D) resources to pursue large, non-core projects including: o Large Scale Green H2 (NEOM) o Sequestration (Louisiana) o Ammonia synthesis (Louisiana) o Sustainable Aviation Fuel (WE SAF) Tho
Slide 147: E&D Costs Drive "Other Cost" Headwind
Engineering and Development Costs Have Been a Driver of the Significant Ramp in the Company’s “Other Cost” Headwind 146 10K MD&A Highlights Cost Headwind to P&L: “The higher costs were driven by inflation, planned maintenance, and incentive compensation, as well as project development and other cost
Slide 148: Headcount Progression vs. Peers
Note: Annual results are based on fiscal year results for APD and peers. (1) Excludes indexed impact of energy pass through to revenue. APD’s Significant Investment in Building Non-Core Capabilities is Obvious When Looking at Headcount Progression vs. Peers 147 APD’s employee headcount growth far ou
Slide 149: APD is Underearning due to Engineering Costs
148 APD is Underearning due to Ramp in Engineering Costs for Spec Projects with No Current Revenue (1) Fixed cost inflation headwind estimated using Company-disclosed Other Cost impact in EPS bridge disclosure and MR estimate of fixed cost base. (2) Assumes underlying inflation of 6.0% on MR estimat
Slide 150: Management Attempted to Deflect Attention from P&L Drag
With Investors Increasingly Aware of the P&L Drag from Pursuing Non-Core Projects, Management Attempted to Deflect Attention 149 “… we are investing in the future projects and a lot of the cost -- those development costs, we cannot capitalize and therefore, that number will be with us.” - APD CEO, 5
Slide 151: Table of Contents
150 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated a
Slide 152: Before and After Shareholder Pressure
Topic Before Shareholder Pressure After Shareholder Pressure World Energy Attractive returns secured with a strong customer After committing $2bn of capital, including $270mm loan to customer, project on hold due to excessive risk; customer in default, suing customer’s backer; exploring sale South K
Slide 153: Pivoting: World Energy
152 Pivoting in Response to Shareholder Pressure: World Energy “Attractive returns secured by new agreements…” - APD February 2024 Investor Presentation “The return on the project is fixed. We are going to get a return on the capital that we spent, no matter what the capital is.“ - APD CEO, 2/5/2024
Slide 154: Pivoting: South Korea
153 Pivoting in Response to Shareholder Pressure: South Korea “US industrial gas maker Air Products and Chemicals Inc. has put its South Korean unit up for sale for an estimated 5 trillion won ($3.6 billion), investment banking sources said on Wednesday. Air Products and Chemicals has selected Citig
Slide 155: Pivoting: Share Repurchases
154 Pivoting in Response to Shareholder Pressure: Share Repurchases Before Shareholder Pressure After Shareholder Pressure Air Products will never repurchase its own shares “We will maintain our dividend and increase it, but we are not going to waste our money buying shares.” - APD CEO, 5/10/2021 “I
Slide 156: Pivoting: New Projects
155 Pivoting in Response to Shareholder Pressure: New Projects New speculative projects, without customer offtake at inception, may be pursued before existing projects have offtake; amount of capital deployed in APD’s hydrogen “second pillar” could be $100bn over ten years “For us, in the next 10 ye
Slide 157: Pivoting: Louisiana
156 Pivoting in Response to Shareholder Pressure: Louisiana “When you own the entire value chain, including the pore space, the entire $85 a tonne 45Q benefit accrues to Air Products, whereas for other players when they play in different parts of the value chain, they're sharing margins with others
Slide 158: Pivoting: NEOM Offtake
157 Pivoting in Response to Shareholder Pressure: NEOM Offtake “We have basically told people that do not expect any announcement about any offtake until about a year or 1.5 years before the plants come onstream. And the main reason for that is that we believe that as we get closer to the deadlines,
Slide 159: Pivoting: North Texas
158 Pivoting in Response to Shareholder Pressure: North Texas APD in process of obtaining permits and completing preliminary engineering, will “definitely” build the facility and will pursue other mega green hydrogen projects in the US ” …we are in the process of getting the permit and doing the pre
Slide 160: Pivoting: Engineering and Development Cost Pressure
159 Pivoting in Response to Shareholder Pressure: Engineering and Development Cost Pressure Air Products is absorbing substantial costs through its P&L from the buildup of engineering and development resources Engineering costs have not impacted the P&L; unclear position on magnitude of development
Slide 161: Table of Contents
160 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated a
Slide 162: WITHHOLD: Charles Cogut
WITHHOLD: Charles Cogut Questionable independence – Mr. Cogut has an existing relationship with APD’s CEO going back over a decade – Served as Mr. Ghasemi’s M&A attorney when Mr. Ghasemi was CEO of Rockwood Holdings, Inc. (NYSE: ROC) – Deals in which Mr. Cogut is directly named: • Sept. 2012: ROCS’
Slide 163: Board Failures on Succession and Compensation
Failed on succession – Established an evergreen contract for APD’s 80- year-old CEO with 5-year term and 4-year termination notice – Failed to establish succession plan for COO (there is none currently) and CEO – Prior successor candidates have left (e.g., Dr. Serhan, Ms. Ffolkes, Mr. Painter) Faile
Slide 164: Incumbent Director Concerns: Age, Independence, Entrenchment
Age: 80 years old – Second oldest CEO in the S&P 500 after Warren Buffett – Over two thirds of S&P 500 companies have instituted mandatory retirement age limits for Directors, typically between 72 and 75 Lack of independence between Chairman and CEO – Combined role results in inappropriate influence
Slide 165: Lead Independent Director Failures
Age: 74 years old – Over two thirds of S&P 500 companies have instituted mandatory retirement age limits for Directors, typically between 72 and 75 Failed as Lead Independent Director – Responsibilities include standing up to Chairman and CEO, leading effort to maintain healthy Board composition, st
Slide 166: Table of Contents
165 Table of Contents I. Executive Summary – The Need for Change 3 II. Underperformance of the Incumbent Board and CEO 24 III. Capital Misallocation Has Destroyed Significant Shareholder Value 33 IV. Higher-Risk Projects, Poorly Executed, Have Adulterated the Core Business 47 V. CEO Has Overstated a
Slide 167: FOR: Andrew Evans
FOR: Andrew Evans 30 years of experience in capital-intensive energy and utility industry Public company CEO – 2016 – 2018 President & CEO of AGL Resources, Inc. (formerly NYSE: GAS) – Helped grow the company from $2 billion in enterprise value until its sale to Southern Company for $12 billion – Gr
Slide 168: FOR: Paul Hilal
Long-term shareholder perspective – Mr. Hilal has significant experience as a value investor and capital allocator, which would provide the Board with valuable financial acumen and experience from the perspective of a long-term owner-steward Experienced steward during corporate transformations – Mr.
Slide 169: FOR: Tracy McKibben
FOR: Tracy McKibben 168 20 years of experience in energy transition – Ms. McKibben’s extensive experience in the energy transition industry enables her to critically evaluate the Company’s projects from a place of expertise – As an investor and entrepreneur, Ms. McKibben has acquired, constructed, a
Slide 170: Dennis Reilley: The Complete Package
Dennis Reilley is an exceptional executive who is the "complete package“ with a clear record of performance in board leadership, succession and team development, operations, and capital allocation “Architect” of the modern-day Praxair (now Linde) model, the top performer in this unique industry – Di
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