Merrill Lynch Chemicals Conference March 31, 2004 James S. Sawyer Senior Vice President and Chief Financial Officer www.praxair.com
Forward Looking Statements The forward-looking statements contained in this announcement concerning demand for products and services, the expected macroeconomic environment, sales and earnings growth, 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, and the impact of tax and other legislation and regulation in the jurisdictions in which the company operates. -2-
Operating Model Drives Growth and ROC Merrill Lynch Chemicals Conference Applications Technology Growth Industrial Gas Praxair Peers S&P 500 Sales 9% 2% 4% (10 year CAGR) Earnings Growth 15% 6% 7% (10 year CAGR) TSR 18% 7% 11% (10 year annualized) Return on Capital (12/31/93-12/31/03) Sales Contracts Density/ Execution Positioned for profitable and sustainable growth -3-
Return on Capital Focus on 10 core geographies Customer contracting strategy Onsite 24% Bulk 31% Packaged 32% Relentless focus on execution Productivity savings > $100MM/yr Six Sigma Operational excellence 14 13 12 11 10 9 8 7 6 Praxair 2003 ROC % Average of Industrial Gas Peers ROC=Net Operating Profit After Tax/Average Capital Return on capital substantially better than peers Source: Bloomberg and company reports -4-
Operational Performance Metrics Indexed unit cost of prod. (capital and power) 110 100 90 80 70 60 50 40 30 Unit Cost of Production 2002 Plants 1996 Plants 150 200 250 300 350 400 450 Plant size (tons per day) Cubic feet per mile Merrill Lynch Chemicals Conference Atmospheric Gases Volume/Trip Per Unit Power Consumption On-stream Reliability Unit Power 99 00 01 02 03 % Availability 100 99 98 97 96 95 94 93 92 95 96 97 98 99 00 01 02 03-5-
2003 Praxair End Markets Food and Beverage 8% Energy 10% Healthcare 10% Manufacturing 22% Metals 15% Applications Technology Productivity Cycle Time Yield Energy Oxyfuel Combustion Hydrogen Electronics 7% Chemicals 11% Aerospace 4% Other 13% Environmental Air Quality Water Treatment Gas consumption intensity continues to grow -6-
Unrivalled North American Network Onsite and Bulk Gases 300 production plants 8000 customer locations 1500 distribution vehicles 11 pipeline enclaves Packaged and Specialty Gases 400 branches >300,000 customers 280 independent distributors San Carlos Vancouver Los Angeles Kingman Edmonton E. Chicago Austin Merchant Plants Carbon Dioxide Plants Specialty Gas Plants Packaged Gases Merrill Lynch Chemicals Conference 2003 --North America Sales: $3,627MM Growth: 8% OP Margin: 15% St Louis Geismar N. Royalton Distributors Helium Transfill Dry Ice Toronto Orlando Bethlehem -7-
North American Indexed Industrial Gas Volume 102 100 98 96 94 92 90 88 86 84 3Q00 4Q00 1Q01 Combined On-site and Merchant Volume 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 Praxair has substantial operating leverage to improving U.S. manufacturing conditions -8-
Refinery Hydrogen Pipeline System TEXAS HOUSTON LCR Valero DEER PARK BP Amoco Valero MONT BELVIEU BAYTOWN ExxonMobil LAPORTE TEXAS CITY GALVESTON PORT ARTHUR Motiva GULF OF MEXICO LOUISIANA LAKE CHARLES Citgo Conoco Merrill Lynch Chemicals Conference BATON ROUGE ExxonMobil GEISMAR To New Orleans Refineries HYDROGEN PIPELINE REFINERIES HYDROGEN PRODUCTION NEW HYDROGEN PRODUCTION MMSCFD Average Daily Volume 29% CAGR 2003A 2004E 2005E 2006E 2007E Sulfur Fuel Specifications Gasoline On-Road Diesel Off-Road Diesel 2004 120ppm 2005 30ppm 2006 15ppm 2007 500ppm 2008 2009 2010 15ppm -9-
Healthcare: Multiple Growth Opportunities North American Sales $600 $500 $400 $300 $200 $100 $360MM Selective Acquisitions? 10% CAGR 3% new starts 7% organic Expected Growth Rates: Organic Growth 7% Institutional Homecare New Starts 3% Acquisitions 0-20% Total 10% + Acquisition Discipline High % respiratory $0 2003 2007 Institutional Homecare Geographic overlap Valuation inclusive of rate cuts -10-
Praxair Europe 28 air separation plants 4 specialty gas plants 3 key pipeline enclaves More than 100,000 customers 2003 --Europe Sales: $699MM Growth: 19% OP Margin: 24% NETHERLANDS GERMANY BELGIUM FRANCE Sales (MMEuros) 600 500 400 300 1999 2000 2001 2002 2003 180 160 140 120 100 OP (MMEuros) PORTUGAL SPAIN ITALY Sales OP Strong market position in the fast growing Southern Europe region -11-
South America South America #1 position Export industries very competitive Domestic recovery beginning New contracts indexed to US$ LNG Distribution 2003 --South America Sales: $708MM Growth: 12% OP Margin: 16% Brazil has insufficient oil and excess natural gas Natural gas consumption constrained by lack of distribution infrastructure Joint venture with Petrobras to liquefy and distribute LNG 60% Industrial 40% Auto -12-
Praxair China Strategy Leading position in steel Baosteel Shaoguan Meishan Leading position in semi-conductors 46% of contracted N2 Shanghai - SMIC & Tailong Beijing - SMIC 300mm wafer fab Shell Nanhai Complex Shell & CNOOC $4.3B O2, N2 & Ar supply 57% GDP 31% GDP 2003 -- Asia Sales: $389MM Growth: 20% OP Margin: 16% Beijing Tianjin Nanjing Shanghai Caojing petrochemical park 50/50 JV with Air Liquide BP, BAYER, BASF & SINOPEC $8B O2, N2 & H2 supply Guangzhou Shaoguan -13-
China - Profitable Growth Investment and Return on Major Projects 350 300 14% 12% Investment ($MM) 250 200 150 100 50 10% 8% 6% 4% 2% 0% -2% ROC Cumulative Investment ROC 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003-4% Improving return on capital -14-
Capital Investment 2004F: About $700 MM Growth 60% - Maint. 30% - Cost Reduction 10% Growth CAPEX by Segment Growth CAPEX by Market 5% 15% 10% 25% 20% 50% 15% 5% 15% 5% 10% 25% North America Europe PST/Other South America Asia Chemicals Energy Manufacturing Other Electronics Food &Beverage/ Healthcare Metals -15-
Robust Free Cash Flow Generation Merrill Lynch Chemicals Conference Operating cash flow 11% CAGR Capital spending discipline - increased hurdle rates Uses of free cash flow Dividends Debt reduction Selective acquisitions Share repurchases $1,200 $1,100 $1,000 $900 $800 $700 $600 $500 $400 Free Cash Flow 1996-2003 ($MM) 1996 1997 1998 1999 2000 2001 2002 2003 Operating Cash Flow Free Cash Flow (1) CAPEX (2) (1) Non-GAAP measure. Free cash flow equals operating cash flow minus capital expenditures (2) Excludes Leased Asset Purchase in 2003-16-
What We are NOT Doing Dilutive acquisitions Projects at or near our cost of capital Spending CAPEX ahead of demand Project financing One-off plant sales A highly disciplined approach that mitigates risk -17-
Leader in Corporate Governance 2/9/04 - For the second time, Praxair has received the highest rating from GovernanceMetrics International. Only 22 companies out of 2,100 received this rating 9/4/03 - Praxair was selected as an index component of the Dow Jones Sustainability World Index Praxair ranked in the 94 th percentile of S&P 500 by Institutional Shareholder Services 9 of 10 independent directors. All members of audit, compensation, governance and nominating committees are independent Quarterly meetings of non-management directors Rotation of board committee members and chairpersons every 3-5 years Exceeding the requirements of Sarbanes-Oxley and NYSE -18-