# To our shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_APD_2018/NYSE_APD_2018.mmd` · pages 9-15_

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To our shareholders \( ^{*} \) 

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## My fellow shareholders,

I am very pleased to report that Air Products had another excellent year. We delivered very strong safety and financial performance, and we made significant progress implementing our new Five-Point Plan and creating shareholder value.

I am very proud of the talented, committed and dedicated team at Air Products, our people, who delivered these results in fiscal year 2018.

Our performance is detailed in this Report, but I would like to point out some of the highlights.

## Seifi Ghasemi

Chairman, President and
Chief Executive Officer of Air Products

## Safety

Safety is a moral responsibility. I am very proud that over the past four years, we have driven a 71 percent and 50 percent reduction in our employee lost-time injury and recordable injury rates, respectively. This is only possible when our people around the world are committed to safety and continuous improvement.

## Financial Performance

For fiscal year 2018, record adjusted earnings per share (EPS) of \(7.45 increased 18 percent over the prior year, the highest annual adjusted EPS in Air Products' history and our fourth consecutive year delivering greater than 10 percent adjusted diluted EPS growth.

We continue to be the most profitable industrial gas company in the world, with the highest adjusted EBITDA margin.

Having the strongest financial position in our industry allows us to continue to commit a significant amount of capital to grow Air Products into the future. We generated over $10 per share of distributable cash flow this year and returned about 40 percent, or almost $900 million, to our investors via dividends.

* The results included in this letter are non-GAAP. See reconciliation to GAAP results on pages III-VII.

## Adjusted earnings per share

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Adjusted EBITDA margin trend

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## Strategy for Success

Over the past several years, our strategic Five-Point Plan has guided Air Products' success. Our journey is never complete, and so we have taken the Five-Point Plan to the next phase to shape our growth in the coming years. This evolved Five-Point Plan is our roadmap for driving safety, inclusion, profitability and sustainability as we grow:

Sustain the lead: Our goal has not changed. We want to be the safest, most diverse and most profitable industrial gas company in the world, providing excellent service to our customers. To sustain this lead, we will keep our ultimate focus on safety – every incident or accident is preventable, and our goal is zero. We also want to be best-in-class operationally in everything that we do. We also continue to drive productivity to maintain our margins.

Deploy capital: Over the next five years, we have at least $15 billion of capital to commit to high quality industrial gas projects; in fact, we have already committed over $7 billion. This includes cash and debt capacity available today and the investable cash flow we expect to generate. We are committed to managing our debt balance to maintain our current targeted A/A2 rating.
Evolve portfolio: We will continue to invest in our merchant business where we see good opportunities. Meanwhile, we are evolving our portfolio to more large, on-site projects, and we are creating step-change growth opportunities through syngas/gasification and complex megaproject execution. This year, our team continued to prove their ability to execute the largest and most complex projects in the history of our industry, successfully completing megaprojects around the world.

Change culture: We are continuing to drive our culture change, building a team that works together and wins together. This remains a strong focus for us – creating an environment where people feel included and respected, so they can give their best effort. We must continue to improve our "4S" culture, meaning safety, simplicity, speed and self-confidence. Having a committed, diverse and motivated team that brings positive attitudes, open minds and a collaborative spirit to every task is key.

Belong and matter: As we work hard every day to create value for our shareholders, we are also fulfilling our higher purpose—creating a work environment where people belong and matter, producing products that improve the environment and our customers' processes, and promoting collaboration among people of different cultures and backgrounds all over the world. In summary, at Air Products, we want to do more than just make money. We want to bring talented people together to innovate solutions for the challenges that face us, our customers, and our world.

Five Point Plan: Moving Forward

<table><tr><td>Sustain the lead</td><td>Deploy capital</td><td>Evolve portfolio</td><td>Change culture</td><td>Belong and matter</td><td>Deploy and matter</td></tr><tr><td>Safest, most diverse, and most profitable</td><td>Strategically invest significant available capacity</td><td>Grow onsite portion</td><td>4S</td><td>Inclusion</td><td></td></tr><tr><td>Best-in-class performance</td><td>Win profitable growth projects globally</td><td>Energy, environment and emerging markets</td><td>Committed and motivated</td><td>Enjoyable work environment</td><td></td></tr><tr><td>Productivity</td><td></td><td></td><td>Positive attitudes and open minds</td><td>Proud to innovate and solve challenges</td><td></td></tr></table>

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## To our shareholders

## 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, we achieved a critical milestone at our Jazan, Saudi Arabia air separation unit complex, reaching mechanical completion with zero lost-time injuries over 25 million work hours. We also completed the first year of operation of the large industrial gas complex for the BPCL refinery in Kochi, India, a complex that took 10 million work hours to build and where we also had zero safety incidents. We successfully closed on and started-up the Lu'an air separation unit and gasifier joint venture in China, which is supplying syngas to Lu'an for their chemical production. We opened a new world-class steam methane reformer in Baytown, Texas that provides carbon monoxide and hydrogen to Covestro and other customers along our U.S. Gulf Coast pipeline network. We won additional projects in China, Korea, India, Louisiana and Texas for customers in the electronics, chemical and manufacturing markets. And we continued to invest in our core competency by developing engineering and technology centers in Saudi Arabia, India and China.

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

## Pursuing Growth

Our portfolio actions and strong cash flow generation have enabled us to spend or commit about half of the $15 billion we can invest between fiscal years 2018 and 2022. I remain confident in our ability to deploy the rest of this capital into high-return industrial gas projects, primarily in our onsite business.

One area of tremendous opportunity is gasification, a market Air Products has been involved in for many years. The process uses oxygen plus coal, liquids or natural gas to produce syngas, a combination of carbon monoxide and hydrogen. The syngas can be used to produce chemicals, diesel fuel, high-end olefins, polymers, hydrogen or power. Gasification has significant benefits in that it enables an environmentally friendly way to use plentiful, lower value feedstock.

This past year, we announced four projects where Air Products would own and operate the gasifiers and syngas cleanup and provide syngas or related products to our customers. In addition to the Lu'an project, we announced the $8 billion gasifier/power project in Jazan, the same site where we finished building the world's largest air separation unit complex. We expect the Jazan gasifier/power project to come onstream in late 2019. We also continued to make progress on the $3.5 billion air separation unit/gasifier project to provide syngas to Yankuang in Shaanxi Province, China. We expect our ownership of the joint venture to be 55-60 percent, with onstream in 2022. We also announced an agreement for the first 100 percent Air Products gasifier project to provide syngas to Jiutai in Hohhot, China, also expected onstream in 2022.

Gasification technology is key to our strategy, and that is why we pursued the Shell and GE capabilities. The Shell technology is being used in the Lu'an and Jazan gasifiers – a well proven technology, with hundreds of gasifiers built in recent decades. Meanwhile, the GE gasifier technology is complementary; there are specific feedstock and product situations for which one technology or the other is better suited. What is important is that these two technologies put us in a great position to win, build, own and operate more large gasification onsite projects in the future.

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## 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 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 trusting us and giving us your business.

To our employees . . . It is an honor and privilege to work with the great team at Air Products. Thank you for never being satisfied in executing against our Five-Point Plan. Being the biggest industrial gas company in the world was never our end goal; being the best has always been. In this time of significant transition for others, we have a unique opportunity to continue our drive forward with our focused strategy and take Air Products to a benchmark level of success.

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

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