Positioned for Growth: SAP Update / Supply Chain Optimization

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1 Positioned for Growth: SAP Update / Supply Chain Optimization Andy Cichocki Senior Vice President, Distribution Operations and Business Process Improvement

2 Creating Value for Customers Through the Right Gas Supply Modes Our full range of gas supply modes enables our customers to optimize their production processes and reduce total costs Packaged Gases Bulk Gases Cylinders Dewars MicroBulk Bulk, Tube Trailers Onsite, Pipeline 28

3 The Right Gas Supply Chain Onsite Pipeline Merchant Bulk ASU/CO 2 Plant Bulk Trailer Airgas Internal Supply Chain Large Cylinder Quantity Airgas Customer Supply Chain Fill Plant Standard Cylinder Quantity End Users Delivery Truck Retail Branch Customer Pick-Up 29

4 Optimizing Our Gas Supply Chain Through Airgas Merchant Gases Sourcing Responsible for procuring all gas product supply: Nitrogen, oxygen, argon, CO 2, hydrogen, & helium Constantly managing the balance between purchasing, producing, and swapping product nationwide to achieve the lowest landed product cost for Airgas Production Manage 16 air separation units (ASUs) ~10% of U.S. production capacity Strategic, disciplined approach to adding ASU capacity Recently announced new ASU in Chicago area Expect to add capacity via new ASUs opportunistically Manage swap arrangements access to other ASUs Market/manage pipeline/on-site gas generator systems Distribution Manage all bulk logistics from center based in Cleveland Optimized delivery system for all bulk products 300+ bulk delivery vehicles 14,500+ bulk tanks 30

5 Logistics Center Cleveland, OH 24/7 operation Customer demand forecasting Scheduling Demand planning process Optimized daily delivery scheduling Across all available spigots & terminals New dynamic routing capabilities in test phase Implementing cost-effective proprietary telemetry system Leading the integration of regional bulk distribution integration into AMG Today, more than 15,000 deliveries/month Key metrics Customer service interruptions Lowest landed cost Volume/mile Cost/mile 31

6 Welding and Safety Products and Services Important complement to our customers gas needs Full-service offering is a significant competitive advantage for Airgas Welding Hardgoods Red-D-Arc Welderentals Safety and PPE Airgas On-Site Safety Services Welding machines Filler metals Gas apparatus Abrasives / other Welder rentals (50,000 unit fleet) Generator rentals Dry ice blasting Head-to-toe protection Respiratory protection Fall protection Gas monitoring Breathing air Equipment rental and repair On-site safety coordination 32

7 The Right Hardgoods Supply Chain Drop Ship (Large Volume) Original Equipment Manufacturers Airgas Distribution Center (Intermediate Volume) Airgas Internal Supply Chain End Users Airgas Customer Supply Chain Airgas Branch (Small Volume) 33

8 SAP Implementation Update Safety and welding hardgoods infrastructure (regional distribution centers, buying centers) converted in FY2011 Seamless operations for 2½ years All regional distribution businesses will be successfully converted to SAP by March 2013 Approximately $4.3 billion revenues and 7,800 users Various acquisitions already effectively integrated Business units merged into Airgas USA LLC as of respective conversion dates Gas production and other businesses to follow Future schedule TBD Initial focus on highly-integrated support businesses 34

9 Ongoing Focus on Improving Efficiency in Core SAP Business Processes Business Support Centers (BSCs) More effective BSC/region interaction Streamlined price and customer master file management Branch operations Improved billing accuracy & timely error resolution Solidifying branch standard operating procedures (SOPs) Daily work daily for superior customer service Training/re-training branch and branch support personnel 35

10 Announced SAP-Enabled Benefits Benefits identified & quantified to-date in 3 key areas = $75 to $125 million incremental run-rate Operating Income by end of CY2013 Confident in ability to achieve previously stated targets Business Support Centers established Critical mass for leveraging SAP business processes Total Access evolving rapidly Successfully targeting sweet spot accounts Complementary management of select larger accounts in concert with regional field sales Strategic Pricing Represents earliest impact area of benefit Initial processes implemented in roughly 50% of regions Developing internal capabilities for sustainability 36

11 CY2013 Continued Focus on SAP Business Processes and Announced Benefits, and Early Work on Next SAP-Enabled Benefits As SAP implementations wind down in CY2013, we are committed to effectively leveraging our new capabilities Capturing initial strategic pricing benefits Rapidly expanding the Total Access platform Maturing the Divisions & BSCs Cylinder production & utilization Enhanced training Improved reporting tools Inventory and production controls Key metrics for continuous improvement Robust plant and branch-level reporting & business analytics Utilizing internal benchmarking to identify best practices and productivity opportunities We will also begin to focus on the next areas of SAP-enabled benefits Sales channel optimization Hardgoods distribution efficiencies 37

12 Hardgoods Distribution Efficiencies Leveraging our regional distribution center (DC) infrastructure for small package welding hardgoods Migrating certain hardgoods-only deliveries from DC-tobranch-to-customer to DC-direct-to-customer 38

13 Illustration: Welding Hardgoods Flow Path Although safety products are often shipped directly from DCs to customers, welding hardgoods typically follow a more traditional, higher cost path Traditional path: DC to Branch to Customer (~95% of Airgas welding hardgoods sales) Distribution Center DC-to-Branch Transportation Airgas Branch Branch-to-Customer Transportation Customers Optimal path: Direct to Customer (~5% of Airgas welding hardgoods sales) Distribution Center DC-to-Customer Transportation Customers 39

14 Welding Hardgoods Flow Path Optimization Begins with a holistic view of the supply chain with decisions tied to profitability Supply Chain Vendor Inbound freight DC Outbound freight Branch Customer Decisions Mix Quantity Price Service Prepaid versus Collect Cost Service Space Functionality Service Value Added Frequency Fleet Cost Service Backroom Layout Allocation of Space Labor Planning Service Assortment Category Management Merchandising Support Key flow path drivers Delivery cost, customer preference, order quantities, lead time, product availability Initial opportunity: Roughly 14% of branch shipments involve only welding hardgoods 40

15 Additional Operating Efficiency Opportunities Cylinder productivity/efficiency Optimized dock stock from tighter fulfillment processes Improved cylinder maintenance, staging and redeployment of excess assets Fill plant engineering and automation for productivity, quality, safety & compliance Reduced capex Significant opportunities given substantial activity levels ~300 fill plants, 39 million cylinders filled annually 3.2 million customer cylinder deliveries per year 1.3 million cylinder re-qualifications performed annually by Airgas retest facilities 41

16 Additional Operating Efficiency Opportunities (cont d) Gas distribution/logistics optimization Next generation of fleet routing/scheduling Airgas Merchant Gases route optimization based on lowest landed cost Improved bulk customer demand forecasting Potential model for future cylinder distribution On-board computers for route optimization Increased customer service Improved fleet efficiency and vehicle utilization Enhanced driver safety Fleet visibility - driver location, accident events, delayed time at customer, review delivery routes 42

17 Airgas Refrigerants Andy Cichocki Senior Vice President, Distribution Operations and Business Process Improvement

18 Airgas Refrigerants Built for Success , acquired 3 leading refrigerants businesses in U.S., which brought to Airgas: Operations and reclamation expertise Established distribution network to wholesalers, contractors and end users Enhanced offering to existing customers Launched Coldfront program in 2009 to promote cross-sell through Airgas regions FY12 total refrigerants sales $130M 44

19 History of HCFC Phase-Out Proposed EPA ruling would essentially accelerate phase-out of HCFC- 22 (R-22) volumes to levels approaching 2015 levels 2003 US restricts Imports and production 2010 No New R-22 Equipment Allowed 100% 50% 0% Year % Minimum Reduction 13 SEER % Minimum Reduction % Minimum Reduction Mlbs (19%) of imports/production eliminated by EPA stepdown Stop R-22 Production 45

20 Implications of HCFC Phase-Out Many commercial and residential HVAC systems requiring R-22 will remain operational for years Can t simply switch gas, must invest in new system Reclamation capabilities will become essential driver of volume and pricing growth during scarcity Recent dynamics reinforce strategic rationale Airgas uniquely positioned as leading reclaimer, recycler, and distributor of R-22 46

21 Proprietary Reclamation Technology Enhancing Airgas Leading Position and Profitability Refrigatron (a.k.a. The Tron ) Internally developed & deployed by Airgas R&D Automated analysis, evacuation, bulking and cylinder preparation increases quality, efficiency and safety 7 minute process vs. > 60 minutes traditionally Significant capacity for reclamation growth 47

22 Refrigerants Recap Built on product-line adjacency acquisitions Distribution platform with national reach 1-2 day delivery anywhere in U.S. Strong cross-sell Investment in proprietary technology drives efficiency and profitability Scalable reclamation & bulking operations Market dynamics favor Airgas long-term 48