CREDIT SUISSE FIRST BOSTON 18 th Annual Chemical Conference

Transcription

1 CREDIT SUISSE FIRST BOSTON 18 th Annual Chemical Conference Dennis H. Reilley Chairman, President and CEO September 27,

2 Forward Looking Statements The forward-looking statements contained in this document concerning demand for products and services, the expected macroeconomic environment, sales, margins and earnings growth rates, projected capital and acquisition spending, the impact of required changes in accounting, the impact of accounting and other estimates, and other financial goals involve risks and uncertainties, and are subject to change based on various factors. These risk factors include the impact of changes in worldwide and national economies, the performance of stock markets, the cost and availability of electric power, natural gas and other materials, and the ability to achieve price increases to offset such cost increases, inflation in wages and other compensation, development of operational efficiencies, changes in foreign currencies, changes in interest rates, the continued timely development and acceptance of new products and processes, the impact of competitive products and pricing, and the impact of tax, accounting and other legislation, litigation, government regulation in the jurisdictions in which the Company operates and the effectiveness and speed of integrating new acquisitions into the business. -2-

3 A Company for All Seasons World Industrial Production Growth % Annual Sales Growth* % Annual EPS Growth* % '00 '01 '02 '03 ' Stable during down cycle Strong growth during up cycle *Compounded Annual Growth Rate Praxair Industrial Gas Peers -5 S&P Materials S&P 500 Sources: Global Insight, S&P, Bloomberg Financial outperformance through good times and bad -3-

4 Terms of Trade Drive Return on Capital On-Site/Pipeline Supply - 25% Merchant Liquid Supply - 29% Packaged/Medical Gases - 33% 15 year take or pay contracts Escalation formulas Electricity/Gas, Inflation, Currency exposure 5 year requirements contracts Sourced as by-product from on-site Limited distribution range 200/250 miles Cylinder and equipment rental 40% gases revenues under contract Sourced as by-product from bulk Pricing leverage small fraction of customers costs, but critical to their operations -4-

5 Business Strategy Focus on 11 core geographies Optimize co-product economics Build to leverage regional density Fuel growth platforms Refinery hydrogen Healthcare China, India EOR, Frac-ing 14% 13% 12% 11% 10% 9% 8% 7% 6% 2004 ROC % Drive operational excellence Applications growth Pricing, contracting Six Sigma, productivity Praxair Average of Industrial Gas Peers ROC=Net Operating Profit After Tax/Average Capital Source: Bloomberg and company reports -5-

6 Diverse End Markets 2004 Sales $6.6 Billion Energy 12% Electronics 7% Aerospace Healthcare 4% 11% Manufacturing 21% Food and Beverage 7% End Markets Other 12% Chemicals 10% Metals 16% Energy Healthcare Metals Other Chemicals Manufactu Electronics Aerospace Food & Bev Sales Growth 0% 5% 10% 15% 20% 25% CAGR F Customer diversity delivers growth and stability -6-

7 Applications Technology Drives Growth Growth 20% 15% World Industrial Production (Weighted) Praxair Sales Praxair Net Income 10% 5% 0% -5% F Growing at an increasing multiple of IP -7-

8 Secular Growth in Oxygen Applications Higher energy efficiency 10-15% fuel savings Higher throughput Steel Glass Blast furnace coal injection New oxyfuel burner 10-20% increase Refining Process heaters Less emissions 80-90% NOx reduction Aluminum Utilities Remelting furnaces Reduced NOX emissions PX will commercialize 20+ new application technologies in

9 Hydrogen 2004 Global Sales - $690 MM Strong growth in North America Heavy crude upgrading Low sulfur fuel regulations Strong demand for gasoline and diesel Outsourcing hydrogen supply Canadian synthetic crude Upgrading bitumen Refining Source: EIA and PX estimates API Gravity, Degrees Sulfur Fuel Specifications Gasoline On-Road Diesel Off-Road Diesel Locomotive & Marine ppm ppm ppm ppm 500ppm ppm ppm US Refinery Input Quality API Gravity Sulfur F Sulfur Content, Wt % Expect 20% p.a. growth through

10 Gulf Coast Hydrogen System TEXAS HOUSTON LCR Valero DEER PARK BP Amoco Valero LAPORTE MONT BELVIEU BAYTOWN ExxonMobil TEXAS CITY GALVESTON PORT ARTHUR Motiva GULF OF MEXICO LOUISIANA LAKE CHARLES Citgo Conoco BATON ROUGE ExxonMobil GEISMAR HYDROGEN PIPELINE REFINERIES HYDROGEN PRODUCTION SALT CAVERN HYDROGEN STORAGE 310 miles of pipeline 50 customers refining and chemicals Connected to 85% of refining capacity 600 MMSCFD production capacity, 700MMSCFD by Q Capital investment underpinned by long-term contracts Pipeline enclave delivers high reliability and high return on capital -10-

11 Gas Well Fracturing and Services Praxair N 2 Plant CO 2 Plant Marshall Green River Ft Dodge Walden PekinWhiting Toledo Lawrence Tight sands Marmet Coal bed methane Tulsa Shale Decatur Gas Brandon US Rockies rig count has increased 75% since 2002 CO 2 and N 2 widely used to fracture low permeability formations Praxair best positioned Location Expertise Relationships Additional pipeline services $200 MM revenues expected to grow 25% p.a. -11-

12 Enhanced Oil Recovery Projects OIL RECOVERED (bbls) Primary Stage - Gravity Drainage Recovery % of Original Oil in Place Typical EOR Production Curve Water - Flooding EOR Sources: Falcon Environmental TIME PEMEX Samaria Oil Fields >6500 TPD of nitrogen injection N 2 injection and new wells expected to recover additional 470 MM barrels of oil and 540 BCF of natural gas through 2018 Start-up Q Occidental Petroleum 1100 TPD N 2 nitrogen injection Start-up Q Samaria Fields Long term potential to recover 120 B barrels of oil in NA -12-

13 South America 2004 Sales - $866 MM Manaus #1 position 60% market share in Brazil Export industries very competitive Natural gas business driving growth More natural gas than oil Conversions from alternative fuels Praxair participating actively JV with Petrobras for LNG distribution First plant: Q start-up Praxair Plants CNG Cylinders Paulinia Rio de Janeiro Sao Paulo LNG Liquefaction plant, on-stream in 2006 Kits New capital investment indexed to USD Brazil Natural Gas Pipeline Network Existing Proposed -13-

14 Asia 2004 Sales - $487 MM Four country focus China, India, S. Korea, Thailand China 2004 Sales $125MM China Investment and ROC (On major projects) 14% 12% 10% 8% 6% 4% 2% 0% Leading position in steel, semiconductors and petrochemicals % -4% Positioned with leading producers Cumulative Investment ROC India Non-Captive Industrial Gas Market ($260 MM) India 2004 Sales $110MM Economy gaining momentum Gas industry growing double-digits Praxair #1 position strong relationships Praxair 42% Competitor 1 Competitor 2 (JV) Source: Praxair Estimates Expected sales growth of 15-20% p.a. -14-

15 Increasing Productivity Gains Sources of Cost Savings Six Sigma # of projects and % of workforce trained ($MM) Procurement Plant Operations Business Process Total F # of projects % of employees trained 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Accelerating productivity initiatives using Six Sigma -15-

16 Process Engineering Lowers Capital Costs Cryogenic High Purity Oxygen 2004 Plant Projects Variance From Budget Cost -3% Unit Cost Schedule Power Efficiency +1% +1% Plant Capacity - TPD -3% 0 3% Flawless execution assures that expected returns will be achieved -16-

17 Robust Cash Flow Generation Operating cash flow 9% CAGR Capital spending discipline Increased hurdle rates Core geographies Uses of free cash flow Dividends Selective acquisitions Share repurchases Debt reduction $1,300 $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 Free Cash Flow ($MM) $1243 $ Operating Cash Flow Free Cash Flow (1) CAPEX (2) 1) Non-GAAP measure. Free cash flow equals operating cash flow minus capital expenditures. 2) Excludes Leased Asset Purchase in

18 Why Praxair? Strong, sustainable, organic growth Diverse end markets and applications technology High return on capital Long term customer retention Substantial free cash flow generation Capital and operating discipline Strong corporate governance -18-

19 CREDIT SUISSE FIRST BOSTON 18 th Annual Chemical Conference Dennis H. Reilley Chairman, President and CEO September 27,