Unidentified Analyst: Okay, thank you.
Operator: We’ll move next to Mike Leithead from Barclays.
Mike Leithead: Great. Thank you. Good morning. First, I want to circle back on Louisiana. You just answered an earlier question, I think, talking about pricing the product appropriately to get your double-digit return upon startup, which is great. But when should investors expect the signed off-take agreement to help us get a bit more comfortable with the revenue stream from the projects?
Seifi Ghasemi: Well, on that point, I have been very kind of — very clear about what is our philosophy. We could have signed agreements, long-term agreements for selling that product two years ago. But we always said that we do not want to do that because as we go forward, it is going to become very clear to prospective customers that there are not that many plants or sources of low carbon – the level of low carbon intensity, hydrogen and blue ammonia that we are going to produce. And therefore, the value of our products will go higher. We are not in a hurry to sign long-term agreements. The demand is going to be there. But right now, if you are negotiating with any of these prospective customers, to be very frank, they give you a list of 20 projects that, oh, wait a minute, I can buy from this guy in the Middle East and this guy in Louisiana and this project and this project.
All of those projects are paper projects. Nobody is doing anything. We are the only people who are actually building a plan. So we have another two years, three years before these plants come on stream. We should not be in a hurry to go and sell this stuff cheap just because that makes everybody feel happy. We – our business, our goal, our responsibility is to make as much money as we can for the shareholders. We think the value of these products will become higher as we get closer to where the demand is there, and there is not that many people who are supplying it. So do not expect for us to come in and make a big announcement about selling this product in the near future, because we are just not going to do that. We believe that the demand is there.
Our customers know that the demand is there. It’s just a little bit of a game about at what point people are going to come to the table, and we just don’t think that right now is the time to do that. But obviously, at some point in time, we do want to sell the product, there’s no question about that. But it’s just the fact that we are trying to get the maximum value for the very unique product that we are going to be making. Nobody else in the world is producing this kind of product. And by the time this plant comes on stream, there is nobody else who is going to be producing this product at this scale because nobody has made the commitment and it takes a long time to develop these projects and build these projects.
Mike Leithead: Thank you for the very thoughtful answer. And then second, just a quick follow-up on cash flow maybe for Melissa. I think operating cash flow the past two years is about $3.2 billion, whereas CapEx is running about $5 billion, and the dividend is about $1.5 billion [indiscernible]. So leverage is obviously moving a bit higher short term. When in your multiyear outlook, would you expect that to peak out? Or when should we start to see operating cash flow helped by the project start to move meaningfully higher in your view?
Seifi Ghasemi: I’ll make a general comment, and then I’ll turn it over to Melissa to give you more details if necessary. But fundamentally, we have always been telling you that we are committed to maintaining our A rating. That means that we will not lever the company more than about 3.5 times. If we ever get to that stage, we’ll stop doing projects. We are going to be responsible. We have significant opportunity. And as Melissa has shown you on the other slides, we still have a lot of headroom to lever the company before we run out of cash. But if we ever get to the stage, I just want to make the point, if we get to the stage that we are getting to the limit of 3.5 times then we would slow down on the projects. We are not going to be irresponsible and try to lever the company because we are very committed to our A rating. That is the general comment. Specifically, Melissa, do you want to add to that?
Melissa Schaeffer: Sure. Thanks, Seifi. Hi Mike, how are you? So as you mentioned, we do continue to have very strong cash flow to support our ongoing business. We do continue to increase dividends, which is our commitment and we are executing against our global project backlog. With that situation, because of the cash outlay, we do expect to go to the debt market this year — this fiscal year. With that being said, as we bring these assets on stream, we will, of course, naturally be delevered. So that will be a decrease in our leverage and obviously, we’ll continue to maintain at A/A2 rating as Seifi mentioned. So again, likely will go out this year with the cash needs, but we do feel very comfortable that we will stay within that two times leverage so that we can maintain our AA2 rating.
Mike Leithead: Great. Thank you so much.
Seifi Ghasemi: Thank you.
Operator: Jeff Zekauskas from JPMorgan. Your line is open. Please go ahead.
Jeff Zekauskas: Thanks very much. The working capital was a use of $424 million this year and your undistributed earnings of equity method investments was negative $260 million [ph]. So if you add that up, that $685 million, that was pulled away from cash from operations. And so your cash flow was flat year-over-year. For 2024, what do you expect the $3.5 billion, $4 billion, more than $4 billion is working capital and outflow or an inflow? Can you explain your cash flow dynamics for next year?
Seifi Ghasemi: Good morning Jeff, as usual you are asking a very good and a very detailed question. And I’m going to refer that details to Melissa to give you some color on that. Melissa?
Melissa Schaeffer: Yes, absolutely. Thanks, Jeff. I appreciate your questions, and you always definitely have very interesting and detailed questions. So as we mentioned, we do still have a very strong cash inflow. This year, we had a few significant large cash outflows, including the closing of our Phase 2 for Jazan that happened in January. However, with that being said, working capital is still being largely funded by our ongoing influent trade activities. This year, as we mentioned, we do expect to have CapEx at around $5 billion to $5.5 billion, which is not far off where we were this year, including the closing of the Jazan joint venture. So we are very comfortable given our current cash flow that we will be able to meet ongoing working capital needs as well as execute against our growth strategy.
Unidentified Analyst: Okay. All right. For my follow-up, if your investment in Louisiana is going to be $7 billion, is that $7 billion to be spent by 2026? And so should we assume that your CapEx in 2025 and 2026 should be higher than the $5 billion to $5.5 billion range you’ve got for 2024?
Seifi Ghasemi: Yes, I’ll take that question. We have announced officially today that we expect the project cost to be $7 billion. We have not announced that we expect that Air Products will spend $7 billion of building the project. We can, as we go forward and we sign long-term agreements to sell the product, we can and we will seriously consider like we did with NEOM to lever the project and finance the project. So you might end up that out of the $7 billion our actual cash outlay for the project might be $2 billion, $2.5 billion, $3 billion, not $7 billion. So there is a possibility of doing that. Please don’t forget that. So we are — we have the capacity to spend our own cash, but we would rather project finance these products so that we have more cash for future projects.
And this — they have demonstrated, we did this with Jazan, where it was a $12 billion project and the project finance that. We have done that with NEOM. And there is a good possibility, I’m not saying 100%, but there is a good possibility that we will do that with this project, which is a very interesting project and very amenable to having project finance. Okay, Jeff?
