# To our shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_APD_2017/NYSE_APD_2017.mmd` · pages 7-13_

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To our shareholders \( ^{*} \) 

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## Seifi Ghasemi

Chairman, President and Chief Executive Officer of Air Products, and recipient of the 2017 biennial International Palladium Medal from Société de Chimie Industrielle

*The results included in this letter are non-GAAP. See reconciliation to GAAP results within Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of the accompanying Form 10-K. Fiscal years 2015 through 2017 are presented on a continuing operations basis. Fiscal year 2014 is presented as previously reported, including the results of the former Materials Technologies segment.

## My fellow shareholders,

I am very proud of the talented, committed and dedicated team at Air Products, our people, who delivered another set of excellent results in fiscal 2017.

Record adjusted diluted EPS of \(6.31 increased 12 percent, our third consecutive year delivering greater than 10 percent adjusted diluted EPS growth. Adjusted EBITDA of \)2.8 billion increased seven percent over the prior year on strong volumes and productivity. Adjusted EBITDA margin of 34.1 percent declined 80 basis points but increased 10 basis points versus prior year excluding the impact of higher energy pass-through. We also generated strong cash flow and returned about $800 million of that through dividends.

## Strong Execution

Ultimately our success is built on providing excellent service to our customers. We are committed to providing them with the right innovations and solutions to make their processes better.

During the year, our teams worked diligently to successfully execute major projects around the world for our customers. We brought on-stream a world-class hydrogen project in India, a large air separation unit (ASU) in Korea and our seventh ASU in China providing oxygen for coal gasification. We continue to make great progress on the Jazan project in the Kingdom of Saudi Arabia and currently expect onstream in phases starting in fiscal year 2019. We also established a world-class technology center in the Dhahran Techno Valley Science Park to serve Saudi Arabia and the Middle East region. And we continued to win new projects around the world for key customers in the electronics, manufacturing and chemical markets that will drive growth.

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## Promises Made, Promises Kept

Three years ago, we made very specific promises to you, our shareholders. Working together, the Air Products team has delivered on every one of those promises.

## Three years ago we said:

<table><tr><td>We would be the safest industrial gas company in the world.</td><td>Done</td><td>We are the safest industrial gas company, with a 75 percent improvement in our employee lost-time injury rate over the past three years. This is a clear indication that our 15,000 employees around the world are focused on safety and operational excellence. This focus is also driving our strong financial performance.</td></tr><tr><td>We would be the most profitable industrial gas company in the world.</td><td>Done</td><td>We are the most profitable industrial gas company, with an adjusted EBITDA margin of more than 34 percent, an increase of 900 basis points from three-and-a-half years ago.</td></tr><tr><td>We would divest non-core assets.</td><td>Done</td><td>We sold our Performance Materials business to Evonik for 15.8x EBITDA. We also spun-off our Electronic Materials business as Versum Materials; they have delivered very strong results and are thriving as a leading electronic materials company.</td></tr><tr><td>We would have the best balance sheet in the industry.</td><td>Done</td><td>Air Products has the strongest balance sheet in the industry, and we are well-positioned to take advantage of tremendous growth opportunities in industrial gases.</td></tr><tr><td>We would deliver adjusted diluted EPS growth of 10 percent every year.</td><td>Done</td><td>We delivered adjusted EPS growth of 10 percent in 2015, 16 percent in 2016 and 12 percent in 2017.</td></tr></table>

We have a great team that is totally focused on delivering strong performance, day in and day out. What is most exciting to me right now is that we are very well positioned to grow Air Products and create significant further value for you, our shareholders. We have the balance sheet to do it.

## Pursuing Growth

Our portfolio actions and the strong cash flow generation of our company provide us with an expected capacity of over $8 billion to invest over the next three years. We see strong investment opportunities for growth:

• First, acquisitions of small- and medium-sized industrial gas companies or assets or businesses from other industrial gas companies.

• Second, purchasing existing industrial gas facilities from customers to create long-term contracts where Air Products owns and operates the plants and sells industrial gases to customers based on a fixed fee. We see opportunities for oxygen and hydrogen plants around the world in this 'asset buyback' category. We also see the opportunity to expand our scope of supply to include operating existing gasification units and the sale of syngas to customers under long-term agreements. Essentially, these opportunities are the same as the traditional on-site business model that we have—something that we do every day—but with existing rather than new production assets. The Lu'An project we announced in September, which is featured on the cover of this report, is a perfect example of this area of growth for us.

• Third, executing very large industrial gas projects around the world driven by demand for more energy, cleaner energy and emerging market growth. The Jazan project is a great example of how big these projects can be, representing close to $2 billion of capital investment. Some of these new large projects could also include gasification and syngas supply. For example, in November, we signed an investment cooperation agreement with Yankuang Group for a $3.5 billion coal-to-syngas production facility to be built in Yulin City, Shaanxi Province, China.

We are committed to staying disciplined, and we will not invest unless we are confident the risk/return profile will create significant value for you, our shareholders.

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## To our shareholders

Air Products will be the safest,
most diverse and most profitable
industrial gas company in the world,
providing excellent service to our
customers.

## Elevating Diversity and Inclusion in our Goal

In addition to being the safest and most profitable industrial gas company in the world, we elevated our commitment to diversity and inclusion by explicitly incorporating it in our goal. This is a natural extension of the culture we are building at Air Products. I believe this focus on diversity and inclusion will contribute to maintaining our position as the most profitable industrial gas company over the long term, because, as I've always said, the degree of commitment and motivation of our people is the real sustainable competitive advantage that we have. We want to ensure we are providing opportunities and the right environment for everyone to contribute and succeed, regardless of gender, color, race, religion, orientation, country of origin or any other dimension of diversity.

## Acknowledgments

In closing, I want to thank those who have supported us throughout the year and helped us achieve our success.

To our customers ... In serving you, we serve our higher purpose, supplying products that benefit the environment and help you to be more efficient and sustainable. Providing you with innovative products and excellent service is the reason Air Products exists and underpins everything we do. Thank you for giving us your business.

To our employees ... It is an honor and privilege to work with the great team at Air Products. You delivered excellent safety and financial performance and are continuing to drive for simplicity and self-confidence in everything you do. Thank you for never being satisfied. I know you share my passion to implement our culture of safety, simplicity, speed and self confidence, so that we continue to be the best in the industry.

To our shareholders ... Thank you for your confidence and trust in Air Products. Our priority remains creating superior value for you.

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Seifi Ghasemi

Chairman, President and Chief Executive Officer of Air Products