Matt White : Yeah. Thanks, Sanjiv. And exactly, to start off, IRR is the primary criteria for incremental investment decisions and ROC, as you know is the – basically the accounting metric on the back end. And when you think about where ROC has been and as Sanjiv mentioned in the prepared remarks, we believe that maintaining an industry-leading and healthy ROC and operating margin while growing EPS, while growing OCF is the best combination for shareholder value creation and ultimately, relative TSR outperformance. So, while they are of course at theoretical limits, 25% we think is a healthy number. Obviously, the pricing has helped the non-capital intensity of our growth has helped. We are embarking on a more capital-intensive growth as we look out on some of the energy transformation and we see that as good growth.
It meets our investment criteria. So therefore, I would see the ROC number, yes, plateauing now as it is, maybe even declining a little bit. But we view that okay as long as we continue to make the right decisions on IRR which we feel very confident about. So for us, it’s more about maintaining healthy levels and maintaining leading levels while growing the organization. But we are not going to let those metrics as either operating margin or ROC inhibit our decisions for good growth projects, they never will.
David Begleiter : Thank you.
Operator: And we will take our next question from Vincent Andrews with Morgan Stanley. Your line is open.
Unidentified Analyst: Hey, this is [Indiscernible] for Vincent. So I think your consumer gas backlog was up a little bit over 10% versus last quarter and just kind of comparing versus the slide deck it looks like the manufacturing share of that backlog is the highest it’s been in sometime. So, maybe can you just talk a little bit about how you see the backlog trending over the next few quarters? And how that will kind of be spread out over the various end-markets? Thank you.
Sanjiv Lamba: Sure, Vince. So, consumer gas backlog is today driven by a couple of factors, right? We kind of split that into a traditional onsite which is what you are referencing as an example for manufacturing metals, chemicals, energy, et cetera and then the decarbonization portion of our backlog, which is growing and my expectation is that that will continue to grow as we move forward. What we are seeing some overlap in that. So there are chemical companies obviously who are looking at decarbonization. We are developing a number of projects alongside with them and we will see that play into the backlog and of course that will kind of boost the chemical side of things. What I’d say, we are winning a – more than our fair share of projects at the moment in countries like India, which are more traditional end of the market.
That’s where you are seeing the manufacturing, metals, chemicals growth and refining growth actually pick up a little bit more. We are obviously seeing the decarbonization projects around both chemicals as I referenced earlier, but also some developments around metals which might follow in due course, as well. So, that’s kind of what you should expect to see in terms of momentum and that momentum will translate into projects that are currently in the pipeline, getting signed up in the next few years as I’ve mentioned. About $8 billion to $10 billion of that and then translating into the backlogs.
Unidentified Analyst: Okay. Thank you.
Operator: And we will take our next question from [Indiscernible] Your line is open.
Unidentified Analyst: Good morning. And sorry if my question has already been asked and my line dropped a few times. I am just wondering one quick one on CapEx. What is driving your 2024 CapEx for $4.525 billion? Is it guarantees related to the recent award you announced or that this indicate an acceleration of growth for 2025 and 2026? Thank you.
Sanjiv Lamba: Matt, do you want to talk to?
Matt White : Sure. So, as I mentioned earlier, a lot of the energy transformation we are seeing a little more capital-intensity. So ROCI project for one, which is our largest project that we have won. We are in the early stages about ordering equipment. That will drive the CapEx. We are also on the final projects that will be coming onstream into the back end of this year, into next year. So that’s also driving a higher component. But when you think about our CapEx in general and break it down, we tend to have about $2 billion plus towards what we call our base CapEx, which is a little over a half is for growth projects. But growth projects that do not meet our disciplined backlog definition. And the remainder, in this case would be roughly another two plus billion will be for our project backlogs.
So that is contractually committed. It has defined returns and it has contract terms to ensure we get our return like things they have certain FX fees. So therefore, the higher CapEx, we feel quite good about. We feel good about our execution that we are undertaking. And so it’s really just a function of the wins we had causing that increase.
Operator: And we will take our next question from Josh Spector with UBS. Your line is open.
Josh Spector: Yeah, hi, good morning. I had a question around EMEA. So, margins were down sequentially, but sales were roughly flat and when you talk about the variant, you talk about the lower onsite volumes which I think about lower margin relative to the mix and pricing was up. So I am just curious if you could explain the driver of the margins in the quarter? And then also just your outlook for next year, margins up, flat sequentially, what you are expecting there? Thanks.
Sanjiv Lamba: Josh, as you know, EMEA hasn’t seen a lot of growth. So one of the things they’ve done tremendously well and I give the team credit, we are having been really one of the profit growth stories over the last three to four years despite having negative volume trends in that same period. So, they’ve actually done a tremendous job of just managing that. So, let’s go to the fourth quarter which is what your question is and I think basically the point I think that I want to make over there is, there are some one-time costs alongside the volume decline that we’ve seen over that actually impact that volume for the fourth quarter. My expectation is in terms of outlook, my expectation is in the first quarter we will be back with the three handle on that volume and I think my – the momentum that the EMEA team has built around managing the profit growth, my expectation would be that we’ll continue to see margin improvement in 2024 as well.
Operator: We will take our next question from Stephen Richardson with Evercore ISI. Your line is open.
Stephen Richardson : Thanks. Good morning. Sanjiv and Matt, just one of you could talk – dig in a little bit on the drivers of TSR that you talked about in the script. Clearly, the business is showing a huge amount of stability and I appreciate that the dividend has been growing at a healthy cliff year-over-year for the last couple of years. Can you just talk about, is you – if you think about the two levers there, is the buyback is it agnostic to the value of the stock? Is it – do you think about that in terms of the buyback amount like us when getting at is your dividend coverage ratio is very healthy and has continued to improve? And so, is there not a place where you could consider kind of rebasing the dividend higher just considering the stability of the business? Thanks.
Sanjiv Lamba: I’ll just address the buyback piece in the last, Matt to kind of give you our – a more pumping of the response there, Steve. But essentially the share buyback piece we see as being an intrinsic part of our capital allocation. We think it’s an important part of how we deploy and return capital back to our investors and I think it has been and continues to be a very important part of the capital allocation philosophy that we’ve deployed in the business. And therefore reflected in the EPS growth targets that we’ve set for us as well, which is 10 plus percent EPS growth as I said earlier. I feel pretty confident about pushing forward on that 10 plus percent EPS growth despite all the challenges around, et cetera that people talk about, because we know that we have the levers in place to make sure that we get done. Matt, do you want to cover other TSR drivers?
Matt White : Sure. Yeah, and obviously both the buybacks and dividends are important. We have shareholders that value both. On the dividend, we commit to growing it every year and to your point we have very healthy ratios that enable us to continue to grow that. But one thing I will never promise is the dividend yield. Absolutely not, that makes no sense. If we do our job well every year, we grow the dividend with a healthy cliff. But we also grow the capital base of the stock. Therefore, we will never commit to a dividend yield. On the buyback side, this is because we have such excess cash in the organization and we see a very attractive opportunity to continue buying our stock back. I can tell you I’ve been asked many times $180, $280, $380 on intrinsic valuation and questions like that.
