PRAXAIR, INC. Hydrogen: The Growth Story Continues Charles Miller, Vice President Dan Yankowski, Vice President February 9, 2005 Page 1 Deutsche Bank Houston, TX 2/9/05
Forward Looking Statements The forward-looking statements contained in this announcement concerning demand for products and services, the expected macroeconomic environment, sales, margins, earnings growth rates, and other financial goals involve risks and uncertainties, and are subject to change based on various factors. These include the impact of changes in worldwide and national economies, the cost and availability of electric power, natural gas and other materials, 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, the impact of tax, accounting and other legislation, litigation, government regulation and the effectiveness and speed of integrating new acquisitions into the business. Page 2 Deutsche Bank Houston, TX 2/9/05
Full Year 2004 Results ($MM) Full Year 2004 2003 % Sales $6,594 $5,613 17% Operating Profit $1,103 $ 922 20% Operating Margin 16.7% 16.4% Net Income $ 697 $ 585 19% Diluted EPS $2.10 $1.77 19% Sales Comparison YOY Sales Growth +17% Volume +9% Price +2% Natural Gas +1% Acquisitions +2% Currency +3% After Tax ROC 1 12.5% 12.8% ROC reduced by 0.6% due to German acquisition Cash flows from $1,243 $1,137 9% Operations Capex 2 $668 $644 4% 1) Non-GAAP measure. See Appendix. 2) 2003 Capex excludes $339 million purchase of leased assets Page 3 Deutsche Bank Houston, TX 2/9/05
Operating Model Drives Growth and ROC Applications Technology Customer Value Growth Praxair S&P 500 Sales 9% 4% (10 year CAGR) EPS Growth 11% 8% (10 year CAGR) ROE * 19% 14% (10 year average) Return on Capital TSR 17% 12% (10 year annualized) Commercial Terms Capture Value Efficient/Reliable Low Cost Supplier Shareholder performance exceeds S&P 500 * ROE = Net income before accounting changes/shareholders Equity Page 4 Deutsche Bank Houston, TX 2/9/05
Sustainable Growth Business Model 2004 Sales Distribution Method On-Site 25% Merchant 29% Energy 12% End Markets Aerospace Healthcare 4% 11% Manufacturing 21% Other 13% Packaged Gases 33% Electronics 7% Food and Beverage 7% Other 12% Chemicals 10% Metals 16% Price is a fraction of customer value Terms capture above average ROC Page 5 Deutsche Bank Houston, TX 2/9/05
Applications Technology Drives Growth AIR QUALITY Low Nox Combustion Hydrogen for refining VOC treatment Carbon dioxide recycle Hydrogen for fuel cells WATER QUALITY Oxygen/Carbon Dioxide wastewater treatment Nitrogen extrusion cooling Carbon dioxide in grain storage Oxygen in paper production ENERGY SAVINGS CoJet gas injection system Oxy-fuel combustion Helium recycle Cryo-mechanical freezing Metal bonding Over 65% of revenue is from applications that increase energy efficiency or improve environmental performance Page 6 Deutsche Bank Houston, TX 2/9/05
Key Praxair Hydrogen Facilities 2004 Global Sales - $690 MM* Production capacity 850MMSCFD Canada Chicago Pittsburgh Spain Italy California U.S. Gulf Coast China - Caojing (Q2 2005) SMR - 25 PSA - 31 POX - 2 2005 Sales forecast to approach $900MM *2 100MMSCFD SMR s started up in Q3 04 Page 7 Deutsche Bank Houston, TX 2/9/05
North American Refinery Hydrogen Demand Hydrogen Used Per Barrel of Oil (Cubic Feet) 2004 2008 Gulf Coast 434 582 Outside Gulf Coast 359 553 Hydrogen Used Per Day (Billion Cubic Feet) Gulf Coast 3.3 9% CAGR 4.8 Outside Gulf Coast 3.9 11% CAGR 6.1 Total Demand Growth (BCF) Gulf 1.5 Non Gulf 2.2 Total 3.7 60% to 70% of Total Demand Growth will be outsourced Source: Praxair Estimate, includes Canada Page 8 Deutsche Bank Houston, TX 2/9/05
Hydrogen Growth by Source North American Demand 2004-2008 1200 1000 MMSCFD 800 600 400 200 Non - Gulf Gulf 0 Hydrocrack Diesel and Hydrotreating TarSands 2006 diesel regulations driving significant demand through 2008 Page 9 Deutsche Bank Houston, TX 2/9/05
North America Hydrogen Growth Drivers Low sulfur fuel regulations Strong demand for gasoline and diesel Heavy crude upgrading Outsourcing hydrogen supply Upgrading hydrogen production technology Canadian synthetic crude Upgrading bitumen Refining Sulfur Fuel Specifications Sulfur On-Road Fuel Specifications Off-Road Locomotive Gasoline Diesel On-Road Off-Road Diesel Locomotive & Marine Gasoline Diesel Diesel & Marine 2004 120ppm 2004 120ppm 2005 30ppm 2005 30ppm 2006 2006 15ppm 15ppm 2007 2007 500ppm 500ppm 2008 2008 2009 2009 2010 15ppm 20102011 15ppm 20112012 15ppm 2012 15ppm Strong demand growth will continue Page 10 Deutsche Bank Houston, TX 2/9/05
Outsourcing Hydrogen Supply Advantages Hydrogen Value Can often build plant more cost effectively Can revamp existing hydrogen plants to meet world class performance standards Plant Operation and Reliability Operate the facility with well trained, experienced staff Pipeline Connections Synergies of connected facility for supply and demand Outsourcing advantages drive increased hydrogen growth Page 11 Deutsche Bank Houston, TX 2/9/05
Major Growth Areas in North America Significant growth areas outside of the Gulf Coast Page 12 Deutsche Bank Houston, TX 2/9/05
Providing Service and Value to Refiners Improved hydrogen efficiency and recovery Recover hydrogen that is downgraded to fuel Improve process gas efficiency Optimize on-site hydrogen generation Build hydrogen plants with world class technology Integrate new facilities to match refinery needs Focus on reliability and efficiency Praxair Refinery Team Experience 2001 Now 15 yrs 300+ yrs Praxair global hydrogen sales forecast to grow 20% p.a. through 2010 Page 13 Deutsche Bank Houston, TX 2/9/05
Gulf Coast Hydrogen System TEXAS LOUISIANA LAKE CHARLES BATON ROUGE ExxonMobil HOUSTON LCR Valero DEER PARK LAPORTE MONT BELVIEU BAYTOWN ExxonMobil PORT ARTHUR Motiva Citgo Conoco GEISMAR To New Orleans Refineries BP Amoco Valero TEXAS CITY GALVESTON HYDROGEN PIPELINE REFINERIES GULF OF MEXICO HYDROGEN PRODUCTION NEW HYDROGEN PRODUCTION 2004 340 miles of pipeline 50 customers refining and chemicals Connected to 3.3 MM bpd of refining capacity 600 MMSCFD production capacity TX and LA Well positioned for customer growth Page 14 Deutsche Bank Houston, TX 2/9/05
Gulf Coast Pipeline Facilities Pipeline control system 24 hour manned center Monitoring of customer flows Monitoring plants and pipeline equipment Production optimization Real Time optimizer Natural gas management Match customer demand with production capability State of the art technology Page 15 Deutsche Bank Houston, TX 2/9/05
Praxair Gulf Coast Hydrogen Growth Average Daily Volume MMSCFD 1,000 800 600 400 200-23% CAGR 2004A 2005E 2006E 2007E 2008E Expect several additional SMR s to be sited in 2005 Page 16 Deutsche Bank Houston, TX 2/9/05
New Port Arthur, TX Steam Methane Reformer Page 17 Deutsche Bank Houston, TX 2/9/05
Robust Cash Flow Generation Operating cash flow 9% CAGR Capital spending discipline - increased hurdle rates 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 $400 Free Cash Flow 1996-2004 ($MM) 1996 1997 1998 1999 2000 2001 2002 2003 2004 Operating Cash Flow CAPEX (2) Free Cash Flow (1) 1) Non-GAAP measure. Free cash flow equals operating cash flow minus capital expenditures. 2) Excludes Leased Asset Purchase in 2003 Page 18 Deutsche Bank Houston, TX 2/9/05
Dividend and Earnings Growth 0.80 0.70 0.60 0.50 CAGR (1994-2004) Dividend 16% EPS 11% 0.40 0.30 0.20 0.10 0.00 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 * *Proforma assumes Q1 dividend rate for full year 2005 Dividends per share ($) Dividend increased 20% in Q1 2005 Page 19 Deutsche Bank Houston, TX 2/9/05
Financial Outlook 1 First Quarter 2005 Full Year 2005 Diluted EPS in the range of $0.56-$0.58 Sales and operating profit growth in the range of 11-15% Diluted EPS in the range of $2.33 to $2.45 Effective tax rate of 26% CAPEX of $700 750MM 2005 EPS expected to grow by 11-17% inclusive of integration charges, higher interest and higher tax rate 1) This excludes the effect of expensing stock options, expected to begin in Q305. Praxair estimates that this will reduce diluted EPS by about $0.02 per quarter. Page 20 Deutsche Bank Houston, TX 2/9/05
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 Page 21 Deutsche Bank Houston, TX 2/9/05
Principles of Sustainability Governance and Integrity Foster a culture of integrity and accountability throughout the company through rigorous compliance with all laws, and by establishing and following effective corporate governance practices. Customer Commitment Continuously develop new products and applications that help our customers improve their productivity, energy efficiency and environmental performance. Provide the highest levels of service, reliability and quality to our customers. Environmental Responsibility Continue to improve the efficiency of energy consumption. Reduce the intensity 1 of air emissions, including greenhouse gases. Employee Safety and Development Maintain a safe work environment with a goal of zero accidents. Provide training and career opportunities that allow employees to develop to their fullest potential. Increase the diversity of our workforce so that it is more representative of the communities in which we operate. Community Support Help to improve the welfare and future of the communities in which we operate by sharing our knowledge, expertise and resources related to environmental protection, and community health, safety and security. Financial Performance Continuously improve our financial performance and provide attractive returns to our shareholders. Generate operating cash flow to reinvest in business growth and pay dividends. 1 Intensity is per-unit-of-production measure Page 22 Deutsche Bank Houston, TX 2/9/05