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Operator: Good morning and thank you for standing by. Welcome to the Linde Full Year and Fourth Quarter 2022 Earnings Teleconference and Webcast. At this time, all participants are in a listen-only mode. Please be advised today’s conference is being recorded. And after the speakers’ presentation, there will be a question-and-answer session. I would now like to hand the conference over to Mr. Juan Pelaez, Head of Investor Relations. Please go ahead, sir.

Juan Pelaez: Thanks, Devon. Good morning, everyone, and thank you for attending our 2022 fourth quarter earnings call and webcast. I’m Juan Pelaez, Head of Investor Relations, and I’m joined this morning by Sanjiv Lamba, Chief Executive Officer; and Matt White, Chief Financial Officer. Today’s presentation materials are available on our website at linde.com in the Investors section. Please read the forward-looking statement disclosure on page 2 of the slides and note that it applies to all statements made during the teleconference. The reconciliations of the adjusted numbers are in the appendix of this presentation. Sanjiv will provide some opening remarks, and then Matt will give an update on Linde’s fourth quarter financial performance and outlook, after which, we will wrap up with Q&A. Let me now turn the call over to Sanjiv.

Sanjiv Lamba: Thanks, Juan, and good morning, everyone. By all measures, 2022 was another successful year for Linde, despite the significant and unprecedented headwinds. I’m incredibly proud how every employee rose to the challenge by not only delivering record financial performance but also living our core values and supporting key initiatives for all stakeholders. And while there are hundreds of daily examples where Linde employees have created real value through their commitment and determination, I’d like to highlight just a few on slide 3. Starting with shareholders. We delivered record financial performance against the backdrop of an energy and inflation crisis not seen in half a century. Three important metrics for our owners: operating margin, EPS and ROC, all reached record highs, both for the fourth quarter and the full year.

In fact, we achieved our ninth quarter in a row of growing EPS ex FX by 20% or more. On top of that, $7 billion, almost 5% of our average market cap, was returned to owners in the form of dividends and share repurchases. We also expanded shareholder focus beyond fundamental results by identifying persistent technical constraints on Linde’s stock valuation. The Board recommended a solution to simplify our exchange listing, which is approved by an overwhelming majority of shareholders. However, achieving sustainable long-term value creation requires more than just a commitment to our owners. We need to successfully integrate all stakeholders, including employees, customers and the very communities we operate in. So on the environmental front, we continue to make great progress, and 2022 was no exception.

Looking at the numbers, we added 50 additional zero-waste sites in 2022, reaching 760 sites around the globe. We reduced absolute Scope 1 and Scope 2 greenhouse gas emissions by over 1 million tons of CO2 versus 2021, despite growing volumes. This is a good start towards our stated goal of reducing 35% greenhouse gas emissions by 2035, which was recently validated by the science-based targets initiative. In addition, through the use of our technology, products and services, we help customers avoid more than 2 times the CO2 emissions from our operational footprint. These achievements have been recognized by the Dow Jones Sustainability Index, CDP and several other independent organizations. And we’re not only committed to reducing our own carbon footprint, but we’re also playing a major role in the global energy transition, which I’ll cover later.

Of course, none of this is possible without the commitment of our employees. When I measure performance and human capital, I first look to our longstanding company values of safety, integrity, inclusion, community and accountability. Our safety performance continues to be best in class as defined by a double-digit improvement over 2021 in lost workday cases and commercial vehicle incidents. Creating a diverse and inclusive environment where employees can achieve their full potential remains a priority for us. In support of this commitment, Linde has recently implemented a number of development programs across the enterprise. We’re currently at 28% for gender diversity, and I fully expect us to exceed 30% by 2030 across the entire organization.

The local nature of our business has also enabled over 500 different community engagement projects, an increase of 25% from 2021. Linde donated more than $10 million to support various charitable and STEM programs, including over $2 million in support of our Ukrainian employees and relief efforts. These highlights represent only a handful of accomplishments during the challenging 2022. However, here at Linde, we have a relentless focus on how to improve, including better positioning ourselves for the future. And while we’ve had four great years since the merger, I’m even more optimistic looking ahead. The $9.2 billion project backlog, which we define as contractual growth project with secured returns, increased $2.4 billion versus the third quarter due to our OCI win, which I’ll talk about shortly.

Additionally, 2022 was another record year for small on-site wins as the 52 new contracts will provide secured revenue for the next decade or more. With this in mind, for 2023, we expect to invest almost $5 billion in CapEx and acquisitions across all three supply modes, enabling high-quality growth while increasing asset density and reliability. Furthermore, we expect to start up over $2 billion in sale of gas projects this year, including our $1.4 billion project with ExxonMobil in Singapore. You’ll recall that this project is expected to start up in phases, beginning this summer. Therefore, we’ll remove it from the backlog sometime during the middle of this year. Of course, it’s difficult to talk about growth today without mentioning key secular drivers.

I’d like to remind everyone that a few years ago, we stated how we would leverage the secular driver of electronics capacity expansions and win more than our fair share of high-quality projects. Our current project backlog of Tier 1 electronics customers validates that strategy as we continue to lead the industry. I view clean energy opportunities as being no different. I expect to win more than our fair share of high-quality projects across the energy transition spectrum. We are already partnering with global leaders and actively developing large-scale projects with contractual terms and conditions and scope that you’ve become accustomed to with Linde. This approach is consistent with what I mentioned last quarter. Of course, it never hurts to reiterate.

First, we intend to partner with subsurface experts for all underground operations. We’re not geologists. Secondly, all projects will follow our investment criteria. In other words, earn a commensurate return for the risk undertaken. And finally, we will stick to our core, which is management of industrial gases. We have no interest to own or speculate on globally traded chemicals. Rather, we’ll have offtakers for our products. Our recent win with OCI perfectly aligns with these principles, which you can find on slide 4. We will invest $1.8 billion as the long-term supplier of nitrogen and blue hydrogen into OCI’s ammonia facility with terms and conditions and a return profile consistent with our traditional on-site contracts. OCI is an expert in ammonia production, logistics and marketing, something Linde doesn’t want to engage in.

In addition, we are partnering with a world-class oil and gas company for the CO2 sequestration. This blue hydrogen project is a great start, and we have several more large-scale energy projects under development. These opportunities follow our traditional gas model and involve partners that are global leaders in their space. In addition, we will continue to execute in our base business, managing pricing, productivity and increasing density across all three supply modes because we recognize that our owners appreciate the resilience of the industrial gas model. Overall, 2022 was another stellar year despite the many headwinds. We achieved new highs across several key financial metrics whilst relentlessly focusing on our core values. This is the fourth year in a row of double-digit EPS growth, and I see no reason why this won’t continue.

Stated simply, I have confidence that we will deliver strong results irrespective of economic and geopolitical climate. From my vantage point, I’ve never been more confident about Linde’s future. I’ll now turn the call over to Matt to walk you through the financial numbers.

Matt White: Thanks, Sanjiv. Please turn to slide 5 for an overview of the fourth quarter results. Sales of $7.9 billion were down 5% from prior year and 10% sequentially. Note that underlying sales increased 7% year-on-year but decreased 2% sequentially. So, there are several moving parts distorting the trends. First, you can see FX down 6% year-on-year due to the strong U.S. dollar. This trend has already started to reverse as evidenced by the flat sequential impact. I’ll speak to guidance at the end, but based on current FX levels, we might have some upside going forward. Divestitures from GIST and the deconsolidation of Russia resulted in a 4% and 2% headwind when compared to prior year and the third quarter. We’ll lap that part of this in June and the rest in September, although I do expect a sequential tailwind in the first quarter from our U.S. acquisition of nexAir.

The engineering business decreased 4% from last year and 3% sequentially. The prior year variance is driven by Russian projects, and the sequential decline is from timing of a U.S. project. I expect a few more quarters of engineering volatility as they resolve and subsequently lap suspended Russian projects. While we ceased all Russian activity in July of 2022, we continue to reconcile balance sheet liabilities upon reaching settlements with our vendors and former customers. Cost pass-through trends are starting to stabilize with a 2% increase over last year but 3% drop sequentially. As you know, this represents the contractual pass-through of energy costs and has no effect on operating profit dollars. However, this will impact operating margins as we gross up or down sales and variable costs.

Volume is down 1% from last year and 4% sequentially. This — prior year, economic weakness in EMEA and severe weather conditions in the U.S. more than offset growth in APAC and project start-ups. Most of the slower volume came from pipeline customers. So, there’s a larger impact to sales than profit given the contractual fixed payments. Versus the third quarter, volume decline is coming from weather impact to U.S. pipeline customers, EMEA’s softer economy and normal seasonal impacts from Southern Hemisphere LPG. We saw a larger-than-normal amount of U.S. pipeline customer outages toward the end of the quarter from weather. This mostly occurred in December, but the vast majority of customers are back to their seasonal run rates. Therefore, this is not expected to be an issue going forward.

Pricing actions remain robust with an 8% increase from 2021 and 2% from the third quarter. These increases are broad-based and aligned with the weighted inflation rate. Operating profit of $2 billion resulted in a record 25.3% operating margin. Excluding pass-through, operating margins expanded both sequentially and year-over-year in all gas segments as pricing effects net of cost inflation continue to improve underlying business quality. The engineering segment had an abnormally high operating margin this quarter due to favorable project timing. Recall that engineering follows a percent of completion accounting method. Customer cash deposits are held on the balance sheet as liabilities until we have the contractual right to bill the customer, at which point the liability is recognized on the income statement as revenue.

This quarter, we settled a large contract, enabling us to retain all related cash deposits, thus recognizing the remaining liability as current period revenue. I do not expect this margin to be sustainable beyond this quarter. A lot of you are likely wondering how to model engineering going forward given the recent performance. I believe the best approach is to use the sale of plant backlog as the next 3 to 4 years of revenue with average profit margin in the low- to mid-teen percent. During times of rising backlog, cash inflows and margins tend to be higher, whereas in a declining backlog, it’s usually the opposite. However, the current situation is deviating from this pattern due to the significant project wind-down from sanctions. So, we still may have a few more volatile quarters ahead.

EPS of $3.16 increased 14% from last year or 20% excluding FX. As Sanjiv mentioned, this is the ninth quarter in a row of 20% or more EPS growth ex FX. Operating cash flow is down versus prior year and sequentially. This is almost entirely driven by engineering project timing. Please turn to slide 6 for a review of 2022 capital management. Operating cash flow was $9 billion for 2022 or 82% of EBITDA, consistent with our multiyear average. The business continues to deliver steady levels of cash in any economic environment. You can see to the right how we invested that cash, aligned with our stated capital allocation policy of growing the dividend, reinvesting in the business and using leftover cash for share repurchases. During the year, we invested $3.3 billion while returning $7.5 billion back to shareholders.

We anticipate a meaningful step up in 2023 for new business investments while raising the dividend and maintaining a healthy share repurchase program. I’ll wrap up with guidance on slide 7. For the first quarter, we’re providing an EPS range of $3.05 to $3.15, an increase of 4% to 8% versus prior year or 9% to 13%, when excluding FX. Sequentially, this range assumes that recovering U.S. pipeline volumes and an acquisition are mostly offset by China seasonality and lower engineering profit. Full year guidance is expected in the range of $13.15 to $13.55, representing an increase of 7% to 10% or 9% to 12% when excluding an estimated 2% FX headwind. Both ranges assume no material change in economic conditions at the midpoint. Furthermore, we’re estimating a 4% FX headwind for the first half year and flat for the second half, although recent trends have been better.

At this time, we believe it’s appropriate to remain cautious against the backdrop of an uncertain environment. If the economy grows, we’ll have upside. And if not, we’ll take actions to mitigate like we did in 2020 and 2022. Our job of management is not to predict what will happen, but instead, execute in a volatile world and deliver on our commitments. I’ll now turn the call to Q&A.

Operator: Our first question comes from Duffy Fischer with Goldman Sachs.

Duffy Fischer: Yes. Good morning. A couple part question just around the new project announcement. So, historically, a lot of the fertilizer companies used captive production. So one, I’m just wondering with this outsource, does that indicate that maybe either moving to an ATR or something in the IRA or just connected to your pipeline? Does that give you guys an advantage, particularly in the industry in general with outsourcing hydrogen going forward? And then, I just — on the project itself, so the way to think about it, your $0.10 of op profit for every dollar of capital, we should put in about $180 million run rate kind of whenever we think that starts up in 2025. Is that a fair way to think about this?

Sanjiv Lamba: Thanks, Duffy. So, let me just take a step back and tell you why projects like this become attractive to have Linde as a partner with. And in the OCI project, as an example, there are a few things that work in our favor. And then, that kind of translates into your question as to why outsource versus captive. Linde brings a number of things to the table: one, EPC capability with a successful track record executing very large and complex projects; integrating different technology packages. You referenced ATRs. ATRs are new for many people to operate. I mean we already operate one and clearly — at our own facility. So that advantage is something that then becomes available to people who are thinking about that outsourcing model.

Add on to that the reliability that we’re able to bring, which a single captive standalone unit does not have. We, of course, hope the hydrogen pipeline up to our U.S. Gulf Coast system and to the cabin that has the ability, obviously, to store excess hydrogen at times when we are able to produce more; and strong operational expertise in managing the ATR ASU complex. I mentioned to you already operate one at Clear Lake and obviously adds to that whole piece. Ammonia players, in my mind, are increasingly seeing Linde as a very complementary partner, supporting their efforts to start their expansion programs on blue and subsequently green as well. You put all of that together, I think it’s a compelling argument, Duffy. As far as the return profile is concerned, and I heard some numbers there, I’d say to you the way we think about returns — and again, this goes back to our disciplined capital and investment criteria, our — for us, double digits unlevered post-tax returns is how we would assess a project like this.

This is a traditional industrial gas project, no different to any other that we do, and that’s how we would then factor the return coming back into the returns you would see hitting the EPS.

Operator: Our next question comes from John McNulty with BMO Capital Markets.

John McNulty: Maybe just another one on the blue hydrogen opportunities. You’re in a position now where you’ve got a partner on the carbon sequestration side. I guess, when we think about the Q45 credits or the value of them, so maybe there’s some negotiation there, I guess, how should we think about how much you capture as part of this carbon capturing that you set up versus how the sequestration gets allocated? Is there a way that we should be thinking about that or a rule of thumb? I’m sure every contract is going to be a little bit different, but your partner sounds like it’s going to be a steady and long-term one.

Sanjiv Lamba: Exactly. So Duffy, let me just — sorry, John, let me just start off by quickly kind of identifying. As you saw on slide 4, there are three components to this deal coming together. There is a customer who is the offtaker. We’ve defined that as a core part of our strategy. Without an offtaker, we don’t develop these projects. There is the Linde scope, which is the ASU, the ATRs and the carbon capture equipment that we are investing in. The 45Q is linked back to the entity that captures the CO2. In this instance, obviously, when you think about how the project moves forward in examples like this, we are working with numerous partners, developing multiple project streams like this. At the moment, we are in advanced conversations with a number of partners for this very project.

And essentially, what we’re agreeing with them is potentially what you could call a tipping fee, where we would have structures which allow them to take the cost of transmitting and injecting the CO2 for storage underground and obviously managing that on a permanent basis. So, that’s how you would structurally see it. Obviously, the 45Q benefits are part of that discussion and negotiation that we are currently pursuing with a couple, three different carbon sequestration experts.

Operator: Our next question comes from Mike Leithead with Barclays.

Mike Leithead: I’ll stay on the theme and ask another one on the OCI project. You mentioned it will connect to your existing pipeline. For your existing customers on that pipeline, I assume you’re currently supplying them traditional gray hydrogen. I’d assume there’s also now an opportunity to sell them blue hydrogen at some price or value premium. Am I thinking about that correctly? And then, when you think about your base returns or hurdle rates for this project, would those incremental home upshift opportunities, the blue hydrogen on the pipeline, be considered in your base returns, or is that, call it, potential upside from here?

Sanjiv Lamba: So Mike, you’re right that there is some excess blue hydrogen that we will have out of this facility. We’ve obviously scoped for that. The linkage into the U.S. Gulf Coast hydrogen pipeline network is both space, right? It works as a reliability factor, very attractive for OCI, at the same time, gives me the opportunity to take that surplus blue hydrogen and put it back into my system. We have demand for that blue hydrogen. And yes, there is a premium. In the past, I’ve explained between gray and blue, the premiums that exist, and we will be putting that into the pipeline for customers who are moving onto blue hydrogen and have the willingness to pay for it. So to that extent, whatever surplus we have, we have factored that into our economics.

As you’d expect, we tend to be fairly conservative around how we model some of that stuff, and you will see that also here. Is there a potential upside longer term? There is always going to be as that transition to blue hydrogen happens.

Operator: Our next question comes from Nicola Tang with BNP Paribas.

Nicola Tang: Thanks, everyone. Hi. I’m getting off theme. I’d like to ask a little bit about the buyback actually. I see that it stepped down a little bit from the usual sort of $1 billion per quarter in Q4, which I assume was due to restrictions around ahead of your AGM. If I understand correctly through the delisting process, there may be a few restrictions around your ability to pay dividends or do a buyback until you get the approval from the Irish court. So, can you just sort of clarify whether that you see any constraints in terms of your buyback or timing of the dividend around the delisting period? Thanks.

Sanjiv Lamba: Nicola, I’m going to headline that by saying I don’t see any constraints, but I’ll ask Matt to just give you a little more color on that.

Matt White: Sure. Hi, Nicola. So, to your two questions, I think, first, just on the buyback pace. Yes, we were — since this is classified as a merger of the actual structure, we were essentially out of the market entirely for most of the month of December. We are back in as our traditional 10b5-1, and then it will open up again to active buybacks in a couple of days. So that would drive some of the quarterly reductions given that we needed to be officially at. As far as the Irish distributable reserves, which you’re referring to on dividends and buybacks, as you know, this is the same process we went through on the original merger between Praxair and Linde AG. It is a somewhat perfunctory exercise, especially now that we have a track record in history. So, we don’t see this as any issue. We are well ahead of it, and this will not affect the dividend. It will not affect the buybacks. And we’ve got that well accounted for. So, there’s no concerns on that in my part.

Operator: Our next question comes from Jeff Zekauskas with JPMorgan.

Jeff Zekauskas: With all of the winter storms, did Linde itself have operational issues in hydrogen in the fourth quarter?

Sanjiv Lamba: Jeff, the impact of the winter storm was primarily on our on-site customers, resulting in customer outages. We were there to support them with whatever nitrogen requirements, et cetera, were there, but the outages were at the customers’ end.

Jeff Zekauskas: Great. Thank you so much.

Operator: Our next question comes from David Begleiter with Deutsche Bank.

David Begleiter: Thank you, Sanjiv. Back to the OCI project, should we think about the 45Q tax credit as additive to your low-double-digit return or is it embedded in that assumption?

Sanjiv Lamba: It is — David, it’s embedded. So obviously, the relevant portions are appropriately embedded into the economic model. And obviously, double digit, as you know, is a wide range. So, it’s an attractive project for us the way it comes together.

David Begleiter: Very good. And you mentioned last quarter about 30 projects you’re working on, I think, in the U.S. on the back of the IRA implementation. Would we stand in additional projects, like OCI be announced perhaps in the next few months or a few quarters? Thank you.

Sanjiv Lamba: David, I’ve mentioned that we have a large number of projects we’re working on. We’ve said that we had visibility over a decade now of about $30 billion in overall terms of decisions that we expect to be making. I also mentioned that I see $7 billion to $9 billion of decisions on projects for investment over the next two to three years. And that, despite the $1.8 billion that we’ve now announced, I still see that $7 billion to $9 billion number as being robust in terms of decisions over the next two to three years.

Operator: Our next question comes from Peter Clark with Société Générale.

Peter Clark: Again, it’s going back to the OCI a little bit. I mean, obviously, that plays to your strengths. You can see that with the infrastructure, the pipelines and everything. Obviously, there’s a lot of talk now coming out of Europe, though with a response to the IRA. And I see your footprint there. It’s not quite the same as the Gulf Coast. You don’t have the hydrogen pipelines, the same expense and stuff. Just wondering how you see your advantages there, if there is a real risk.

Sanjiv Lamba: So Peter, I’m going to give you the example of Germany and Leuna where we have exactly the — that we have here in the U.S. Gulf Coast. Peter, can you hear us?

Peter Clark: Well, I think — yes. I’m saying in Europe, you don’t have the same pipeline infrastructure that you have on the Gulf Coast. So…

Sanjiv Lamba: We do. And I was going to give you an example of Germany and Leuna where we have exactly the same structure, multiple customers, pipeline network, serving refineries and chemical companies in that industrial network. So, that’s an example of where we have incumbent strength. In fact, we are building our electrolyzers there to provide some green into that very pipeline network. So, that’s one example where we do have the ability to expand and use that incumbent position that we have as a leverage to win more into that industrial activity and the part that we operate in Leuna in Germany. So, that’s an example in Europe. What I’d say also to you is I think the nature of the projects in Europe is going to tend to be quite different, where there will be a complex producing product and then putting it into a pipeline network.

Our ability, therefore, to participate in these islanded developments remains very strong. And I can also tell you that of the number of projects that I referenced previously in response to David’s question, I see a number of those currently being developed in Europe as well.

Peter Clark: Got it. Can I add — just sneak one in on trading? Just on Europe, obviously, the margin shot up. You had the volumes down. A lot of that was the on-site business. So I presume that helped you with the margin. But effectively, how you see the price/cost argument in terms of pushing the selling price through against the energy cost situation now? Because I presume most of it is through and you caught that up. So just how you see that progressing in ’23? Thank you.

Sanjiv Lamba: So Peter, the way I think about energy costs and their implications for our business is twofold, right? In terms of power cost and natural gas costs, anything that happens in terms of it going up or down gets accounted for in our contractual cost pass-through mechanism. So, if that moves up and down, yes, you will see some shifts happen as a result of that. For the rest, the way we recover inflationary impact and the way we manage our business is pricing. And as you know, we’ve got a 30-year track record now of positive pricing. And I see no difference — nothing different to suggest that there’d be any different as we move forward. If fuel costs go up, we manage that through a pricing mechanism. That’s the cost inflation piece.

If other costs go up, we manage that through a pricing mechanism as well. One of the things that we do is we manage that through product pricing and not only surcharging. And therefore, the stability of that pricing longer term is quite sound. And we feel pretty good about where it stands and how we’ll be able to cope with that as we move forward.

Matt White: And Peter, this is Matt. I would just add to Sanjiv’s point. I mean, I think a good indication to see these changes you’re looking for are the sequential trends. So, when you look at EMEA sequential trends in this most recent quarter, you can see that, to Sanjiv’s point, pass-through is negative 6%. That is the energy pricing, that is the natural gas pricing coming down, yet pricing was up 4%. So, we’re still seeing stability in the pricing levels. But of course, we are seeing large reductions in the pass-through as that energy comes in.

Operator: Our next question comes from Kevin McCarthy with Vertical Research Partners.

Kevin McCarthy: Sanjiv, would you comment on your expectations for China as they emerge from the Lunar New Year holiday? What are you baking in there in terms of baseline demand trajectory for ’23? And then, I’d welcome any thoughts on non-China, Asia as well, taking into account your ExxonMobil project start-up in Singapore.

Sanjiv Lamba: Sure. So Kevin, just talking about the APAC business overall, and I’ll just walk you through APAC more broadly. That would give you the color that you’re looking for. Again, we had solid pricing, as you saw. We had record operating margins. They are up at 26.5%. I’ve said to you folks before that there’s a target on the back of the Americas business, and APAC and EMEA are moving in that direction to try and bridge that gap. Sales were pretty strong in electronics, in particular, across APAC followed by chemicals energy and then a bit of manufacturing. It is a story of two halves, if you will. Ex China, again, electronics, very strong chemicals, engineering, energy and manufacturing also extremely strong, some seasonal impact of LPG business in South Pacific that you would normally expect.

We see that level stable, and I’m seeing that in January, the same momentum carrying through. In China itself, in the last quarter, we saw steel automotive being reasonably weak. The Chinese New Year, obviously, in January kind of impedes our ability to really see how that recovery is going to come through given the reopening that’s been touted now. I think the next couple of weeks, I’m watching carefully to see how that trend shapes up, and that’s really going to determine what that long-term view on China is going to be. I said last year that I expect moderated growth out of China, and that’s kind of what we’ve considered in our guidance.

Operator: Our next question comes from John Roberts with Credit Suisse.

John Roberts: Is Linde interested in the disassociation of ammonia back to hydrogen and nitrogen? And I don’t know if any of the OCI ammonia is targeted for export for local disassociation, but I’m more interested in general. Since there are a number of blue ammonia projects underway by companies who don’t sell hydrogen and nitrogen and I guess, there could be some extra cargoes that will be available eventually in that market.

Sanjiv Lamba: John, I’ll answer that in two parts. Let’s talk about technology, and then I’ll talk a little bit about the commercial side of things. As far as technology is concerned, Linde has some really good technology around backtracking, which is cracking that ammonia back to get — disassociate and get hydrogen back. And we are, in fact, running pilots as we speak on some new catalysts and some new developments over there to make that a lot more efficient as a process. We’re running with one of the largest oil and gas companies in the world kind of doing that — those trials. So, I feel very good about the technology we have. I feel very good about that particular project that we’re running through, and you’ll hear more on that in the weeks ahead.

As far as the commercials are concerned, I really struggle with this. The reality is for us to make ammonia blue or green, we put a lot of energy into that process. We get the ammonia molecule. We’ll then move that molecule from point A to point B in a large ship. We will then take it to a storage at the other end, and we will back-crack it. The amount of energy loss that you see in that entire process makes the economics not viable in my mind. I don’t see — so for me, direct ammonia usage, either on the fertilizer front or direct as a fuel injection or fuel blending, makes a lot more sense in the near term. As technology changes and improves and as the energy balancing work that we are doing, in fact, in our pilot continues to improve, then it becomes a little more viable longer term.

Operator: Our next question comes from Steve Byrne with Bank of America.

Steve Byrne: Can you provide a little more granularity on how you got the 21% sales growth in electronics year-over-year given that end market that’s clearly slowed?

Sanjiv Lamba: Steve, when a fab has been constructed — and we’re talking about solid contracts with long — Tier 1 players across the world. When a fab is constructed, they have to manage that operational elements to a point, right? So that capacity utilization works in our favor. And we are actually growing that market both in terms of ramp-ups that are happening on new fab that came up two or three years ago, and we continue to ramp our gases into increasing production that is happening over there. And in addition to that, we also continue to improve some of the molecules that we bring into these fabs given the new technologies that are there. We call them electronic special gases. That — we are continuing to see growth over there as well. And of course, I’ll always add that there is a good strong pricing element to that.

Steve Byrne: And if I could, on the OCI blue ammonia project, the 2025 start-up does seem quite ambitious. Is construction already underway? And maybe particularly for your partner, does your contract with them take effect in 2025 if their plant is not on stream? And at the other end, your — is your partner for sequestration well on their way to getting a classic injection well? Can you comment on those perhaps key bottlenecks?

Sanjiv Lamba: Sure. So, these projects typically take many months to develop, in some cases, years. And so, we have been working on this project for a while, Steve. So, that’s the reason why we are reasonably confident about getting this up and running in 2025 and in commercial production. So, I feel pretty good about where things stand with that. Having a local engineering organization with ability to do EPC on very complex projects obviously helps and is a competitive advantage from a Linde perspective. Our customers have obviously been working on their project for a period of time as well and are well advanced in terms of their own construction activity. So again, for you, good watching that. And I am not concerned about delays on their end.

Having said that, contractually, we always protect ourselves, and we have date certain contracts to ensure that we are — if we have done the investments and done the construction that we needed to do that we are able to then ensure that our facility fees or facility charges are then paid to us on a date certain basis. Coming on to the downhole activity. We are talking to at least three, if not more, very competent world-class companies that are experts in carbon sequestration. And those discussions are progressing well. And obviously, you would expect us to do some diligence around their ability to get permits sake, where they stand in that process. Some have already applied. Others are fairly advanced in terms of their preparation. Again, we feel good about how they are kind of in terms of readiness to manage the sequestration when it comes to the pipeline.

Operator: Our next question comes from Vincent Andrews with Morgan Stanley.

Vincent Andrews: Just sticking with that global end-market trend slide, two aspects of it. One, is this going to be the last quarter of difficult healthcare comparisons? And should that yellow box start to turn green? And then secondly, the other piece within industrial actually had the worst sequential sales growth. So, what in particular within that other bucket was driving that minus 6% sequentially?

Sanjiv Lamba: Right. So, we are about lapping the COVID volumes. Vince, you’re right that we will see that largely lap now. I think the point that you can also note is a sequential movement on that suggests that we are actually headed in the right direction. You’ll see that green — the greening up of it, if you like, in the quarters ahead. So, that looks pretty much in — along the expectations we have for that. As far as the rest is concerned, clearly, we — there are sequential elements over here that have a range of different things. Matt has referenced most of this. I’m going to just highlight a couple of them, so I make sure that I cover that. One, we told you that U.S. on-site business saw customer outages due to the winter storm in the U.S. That obviously affected between metals and chemicals and energy.

We have — and again, you’ve heard this before, but I’ll just repeat it. Our January trends look very good. Most on-site customers are back to seasonal run rates, in line with expectations or even slightly above. We mentioned that in our Q1 guidance already, as you might have seen. So, feeling pretty good about where that trend is in terms of the developments out of the Americas that you saw. As far as EMEA, I’ll just briefly cover and let you know that from our perspective, there has been lower economic activity across EMEA for the course of this year, has been especially true on the on-site business given the volatility on the energy costs, customers in metals, chemicals and energy, obviously, impacted by that. So, volumes were down versus previous year as far as our on-site business portfolio was concerned.

But again, having strong contracts and high-quality customers helps, and you can see that in the EMEA margin, which hit that 25% mark, which was a target that I’d set for them as they moved down that journey to try and bridge the gap to the Americas margin. As far as Europe is concerned, sentiment is, of course, improving. And given the stability in energy pricing, we’re starting to see some volume creeping up slowly as far as that on-site business that I mentioned to you earlier on. But of course, they still remain below previous year levels, and we’re just waiting and watching how that all shapes up.

Vincent Andrews: And just to that other end market, which is the bottom one on that slide, under industrial, is there anything specific in that other piece?

Sanjiv Lamba: Matt, do you want to take this?

Matt White: Yes. Sure, Vince. So a couple of things on other. Generally, what it represents, clearly, items that wouldn’t fit in the categories above it represents a competitor or it would represent distributors that we don’t have an actual end market identified. It is the smallest percent, so large moves could shift it. In this particular case, it’s the seasonal component of LPG. That’s the big driver since that is a sort of a retail component of our Southern Hemisphere business. And that just shows on the year-over-year, right? You can see the year-over-year is still up slightly. This is mainly driven by the seasonality component of some of that residential LPG component.

Operator: Our next question comes from Tony Jones with Redburn.

Tony Jones: I just wanted to ask about volumes. With the good visibility you have over the next couple of quarters, do you think some of the new projects ramping up will offset slower end-market trends, particularly EMEA, and maybe even the U.S., if things deteriorate from here?

Sanjiv Lamba: Tony, as I said, the volume trends that we were looking at in January look really good. And I mentioned the on- site customers in particular, we’re seeing them back at seasonal run rate that I would expect them to be at or slightly above that. More broadly around manufacturing, we’re also seeing a snapback after the holiday period, so the seasonal impact. And kind of watch out for what happens beyond that. Again, January showed us a good clear path to that in the U.S. as well. In Q4, our packaged goods, if I look at the gases and hard goods, both grew sales double digits, and we are seeing momentum continue into January on that as well.

Operator: Our next question comes from P.J. Juvekar with Citi.

P.J. Juvekar: Yes. Good morning. Sanjiv, in the past, you talked about three buckets of capital. I think decarbonized Linde was $3 billion, decarbonized customers was $10 billion, and then greenfield projects was $20 billion. Are the returns on — in these three buckets kind of similar to each other? And then, how do you go about forecasting long-term hydrogen price given that these could be 20, 30-year projects and hydrogen costs have been coming down substantially? Thank you.

Sanjiv Lamba: P.J., let me talk about the hydrogen price quickly and then we can talk about the three buckets and how we look at them. So, as far as hydrogen price is concerned, we’ve been in the hydrogen business for about 50 years now. So, we’ve got some long-term experience around hydrogen pricing. In terms of how we think about hydrogen pricing, we look at our projects, the capital that we put on the ground and look at, as I said before, double-digit unlevered post-tax IRRs to make sure that those projects stand on their feet. You walk that back into the hydrogen pricing. And obviously, given that we lead the hydrogen market, both in the U.S. and elsewhere in the world, we feel pretty good about being very competitive in terms of what we bring to offer.

Now, the hydrogen price development that you’re referencing over here is largely going to be that variability is largely going to come on the green side of things, a lot of scale-up needed. Green is neither scalable today, nor is it cost-effective today. Even with the PTC of $3 per kg that might come out of the IRA, I would say to you that the inflection point for green isn’t quite there yet. I see a journey of at least 5 to 7 years there. But you’re right. You’ll see some pricing curves on that will kind of develop in the next 5 to 7 years to make it — get to a point of inflection on volumes. The three buckets that we spoke about, you’re right, they are three different buckets. There are two specific elements in there that you can think about the first.

When we have assets on the ground in the U.S. Gulf Coast, as an example, today, when we add capture capability to that and then work with the sequestration partner to put a downhole, there is an existing asset base on to which I’m adding a little more incremental capital and getting the leverage of that installed base that I have. So clearly, the return will look more attractive. For the rest, whether it’s decarbonizing our customers or new markets, we are largely setting up new assets, which will be just as we have in the OCI case, in an ASU plus an ATR plus carbon capture. You put that together, we would then again look for a traditional industrial gas contract structures and return profile where we would expect to have returns commensurate with the risk that we undertake.

So, that’s how I would kind of say to you that those two buckets would really play out.

Operator: Our final question comes from Christopher Parkinson with Mizuho.

Christopher Parkinson: On the last earnings call, you had a very helpful slide for, I’m sure you remember, it was the IRA and accelerating the U.S. clean energy transition. Can we just hit on actually one of the smaller buckets, the decarbonized Linde? It seems like you have a lot of projects, $3-plus-billion opportunity, fairly low-hanging fruit. How should we be assessing those opportunities in terms of your prioritizations versus, obviously, the — I’d say short, intermediate and longer opportunities with customers as well as new markets? Thank you.

Sanjiv Lamba: Thanks, Chris. So, that bucket, and I referenced this briefly to P.J.’s question earlier on as well. That bucket is installed assets that we have today. There are about 11 to 13 assets that we have on our list for that, $3 billion spend that we talked about. And really, I expect that in the midterm, we will be looking at decarbonizing that. There are two drivers for that. One, we’re seeing conversions and demand buildup of blue hydrogen across our existing network. So clearly, we want to make sure our assets are ready and able to supply that. The second, remember that from a sustainability point of view, we’ve made a commitment that we will bring absolute reductions to our Scope 1 emissions, which are coming from that installed base of steam methane reformers that we operate in the Gulf Coast.

So, we will be tackling that both from a point of creating economic value, but also living up to our sustainability commitments that we made in reducing absolute scope on emissions. In the midterm, you’ll see actions on all of that.

Operator: That concludes today’s Q&A session. I now turn the call back over to Juan Pelaez for closing remarks.

Juan Pelaez: Devon, thank you, and thanks to everyone, for participating in today’s call. If you have any further questions, feel free to reach out. Have a safe day.

Operator: That concludes today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.