Air Products & Chemicals Inc. (APD) Q1 2022 Earnings Call Transcript

Air Products & Chemicals Inc  (NYSE: APD) Q1 2022 earnings call dated Feb. 04, 2022

Corporate Participants:

Simon Moore — Vice President of Investor Relations, Corporate Relations and Sustainability

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Melissa Schaeffer — Senior Vice President and Chief Financial Officer

Dr. Samir J. Serhan — Chief Operating Officer

Analysts:

P.J. Juvekar — Citi — Analyst

Steve Byrne — Bank of America — Analyst

Jeff Zekauskas — J.P. Morgan — Analyst

John Patrick McNulty — BMO Capital Markets — Analyst

Chris Parkinson — Mizuho Securities — Analyst

David Begleiter — Deutsche Bank — Analyst

Kevin McCarthy — Vertical Research Partners — Analyst

John Roberts — UBS — Analyst

Michael Sison — Wells Fargo — Analyst

Mike Harrison — Seaport Research Partners — Analyst

Duffy Fischer — Barclays — Analyst

Vincent Andrews — Morgan Stanley — Analyst

Marc Bianchi — Marc Bianchi — Analyst

Lawrence Alexander — Jefferies — Analyst

Presentation:

Operator

Good morning and welcome to Air Products’ First Quarter Earnings Release Conference Call. Today’s call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today’s call is Simon Moore. Please go ahead.

Simon Moore — Vice President of Investor Relations, Corporate Relations and Sustainability

Thank you, Alex. Good morning, everyone. Welcome to Air Products’ First Quarter 2022 earnings results teleconference. This is Simon Moore, Vice President of Investor Relations, Corporate Relations and Sustainability. I’m pleased to be joined today by Seifi Ghasemi, our Chairman, President and CEO; Dr. Samir Serhan, our Chief Operating Officer; Melissa Schaeffer, our Senior Vice President and Chief Financial Officer; and Sean Major, our Executive Vice President, General Counsel and Secretary.

After our comments, we will be pleased to take your questions. Our earnings release and the slides for this call are available on our website at airproducts.com. This discussion contains forward-looking statements. Please refer to the forward-looking statement disclosure that can be found in our earnings release and on slide number 2.

In addition, throughout today’s discussion, we will refer to various financial measures. Unless we specifically state otherwise, when we refer to earnings per share. EBITDA, EBITDA margin, the effective tax rate and ROCE, both on a companywide and segment basis, we are referring to our adjusted non-GAAP financial measures: adjusted earnings per share, adjusted EBITDA, adjusted EBITDA margin, adjusted effective tax rate and adjusted return on capital employed. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our website in the relevant earnings release section. Also, as we shared with you on our last call, this is the first quarter, we reported our results with our new Middle East and India, and our new corporate segments.

Now, I’m pleased to turn the call over to Seifi

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Thank you, Simon, and good day to everyone. Thank you for taking time from your very busiest schedule to be on our call today. I am proud to say that despite significant challenges, including unprecedented energy cost increases and I mean unprecedented. Especially in Europe, supply chain disruptions and the continued adverse effects caused by the pandemic, the talented, committed and motivated people of Air Products, continued to deliver excellent results including earning per share this quarter in the top half of our guidance range.

This quarter we closed on Phase 1 of the Jazan project. This is the single largest project in our company’s history and will create significant value for many years to come. As always, I want to thank our more than 20,000 employees around the ground for standing together, working hard, staying agile and delivering for our customers and shareholders.

Let me start this presentation with our highest priority, which is obviously safety. Please take a look at the slide number 3. Although we have made significant progress in this area since fiscal year 2014, our first quarter safety performance was slightly behind last year. That is not acceptable. Our goal remains zero accidents and zero incidents and we are committed to drive toward that goal across the organization knowing that the right attitude and constant attention to safety is absolutely necessary and required.

Slides number 4, 5 and 6 include our goal, our management philosophy and our five-point plan. We have shared these slides with you before. So, I’m not going to go through the details, but these are the principles that we follow every day. And they will guide us in the future. Now please turn to slide number 7. We are focused on making Air Products the leader in providing solutions to today’s significant energy and environmental challenges through gasification, carbon capture and clean hydrogen.

I am proud to say that we have continued to create and win projects that help customers and countries meet their growing needs for cleaner energy and environmental solutions. Last year, we announced two landmark blue hydrogen projects, one in Alberta, Canada and the other in Louisiana in United States of America, adding to our slate of world-scale mega projects supporting the energy transition.

At the beginning of our fiscal year, this fiscal year, we successfully closed on Phase 1 of the $12 billion Jazan gasification and pilot project, fulfilling one of our major commitments. We continue to expect Phase 1 of this project to contribute $0.80 to $0.85 per share on a full year basis, consistent with what we have committed to you before. We also continue to make great progress on this — our significant project backlog.

Now please turn to the slide number 8. Creating a cleaner future requires experience, investment and innovation on a world-scale. At Air Products, we have the technology, the track record, the capital and the ambition to execute our Board strategy and bringing people around the Board together to collaborate in an inclusive environment and helps solve sustainability challenges. We are living our higher purpose as a company that is our highest service.

Now please turn to slide number 9. It is clear that at Air Products, sustainability is our growth strategy. Sustainability creates our growth opportunities and our growth opportunities support our sustainability goals and focus. We are very proud to help drive the energy transition in particular through our world-scale hydrogen mega projects.

Our NEOM project in Saudi Arabia, Alberta project in Canada and Louisiana project in the United States of America represent almost $10 billion of direct Air Products capital to create a zero and low carbon hydrogen needed to drive decarbonization and accelerate the energy transition. These projects significantly reduce CO2 equivalent emissions for our customers for Air Products itself and for the world. As a first mover, taking real action through these real projects, we can bring a portfolio of experiences and technologies together to provide lower carbon forms of energy, improve our customers’ sustainability and help solve significant energy and environmental challenges. As I said, this is our higher purpose as a company.

In addition, it is important that our commencements are aligned with our strategy. We introduced our Third by ’30 carbon intensity reduction goal more than a year ago. And I’m very proud to say that the major projects we have announced, along with our day-to-day focus on operational efficiency puts us in a great position to meet or exceed this goal by 2030.

But as a company, we are never satisfied with our current performance. Therefore, we are taking another look at our opportunities to make even more meaningful progress towards higher environmental goals and as a purview of our sustainability leadership council, we are reviewing additional areas of opportunity, which could include Scope 3 emissions goal to benefit some avoided emissions and/or other potential scenarios. I expect to share more with you on this exciting topics by mid-year.

Now please turn to slide number 10. It shows our EPS growth. While the focus on our strong term prospects, we remain vigilant and motivated to deliver excellent near-term results, consistent with our strategy and what we have already promised to investors. As you can see, we have delivered on one what we promised you in 2014 and achieved an 11% annual cumulative EPS growth on average since 2014 while building a strong foundation for our future growth. The excellent results and key projects we have executed, represent the initial stages of our strategy to advanced award toward the cleaner energy future. I am very optimistic about our company’s prospects to capitalize on these growing opportunities by being a meaningful player in the energy transition.

Now please turn to slide number 11. As a reminder, we do share our earnings growth directly with our customers through our dividend while we continue to invest in growth opportunities. The whole team at Air Products is very proud that we just announced our 48th consecutive year of dividend increase. This tremendous long-term record is a testament to our people and our strength and consistency of our business model.

The most recent increase is 8%, which increases our dividend to $1.62 per share per quarter, which we expect will translate to directly returning more than $1.4 billion to our shareholders in 2022. And as Melissa Schaeffer, our Senior Vice President and Chief Financial Officer will share with you in a moment, we have significant remaining cash flow to support our many project opportunities.

And finally, please turn to slide number 12, still my favorite of the slide, since it captures in one chart, the progression of our business since 2014. We continue to deliver strong underlying results, but our margin declined in recent quarters, primarily driven by higher energy pass-through, which increases our sales, but doesn’t impact profits. Two-thirds of the margin decline from our peak is due to the impact of this higher energy pass-through, but as I indicated last quarter, we are continuing to take action to improve our margins through controlling costs and increasing prices to cover cost increases.

Now I’m happy to turn the call over to Melissa to discuss our results in more detail. Melissa?

Melissa Schaeffer — Senior Vice President and Chief Financial Officer

Thank you. Seifi. Now please turn to Slide 13. Before we discuss the details of our first quarter results, I would like to highlight a few notable items in our reported financials this quarter. As we previously announced, we reorganized our reporting segments starting this quarter. To provide more visibility to our regions, we separated the previous EMEA segment into Europe and a Middle East and India segment. The new segment is made up of our business in the Middle East, which includes the new Jazan joint venture and India. Additionally, we combined global gases with the Corporate and other segment. The historical resegmented financial information is available in a Form 8-K, which we published in December.

We are proud to have completed Phase 1 of the $12 billion Jazan joint venture in late October. This milestone has led to two separate, but related events, which impact our results favorably this quarter. First was the start of the new joint venture known as JIGPC’s ongoing financial contribution, consistent with the contract between the joint venture in Saudi Aramco. An an ongoing basis, our portion of the Jazan joint ventures’ net profit isn’t included in equity affiliate income since we don’t consolidate this joint venture.

We also recognized interest income on the shareholder loans associated with our $1.5 billion investment, which is included in a non-operating income line of our income statement. To be clear, these are loans from Air Products to the joint venture and are a mechanism for us to efficiently fund our contribution. Together, these two income streams drive $0.80 to $0.85 of annual Phase 1 EPS, exactly what we expected and committed to our shareholders and consistent with what we recognized for two months in Q1. We remain on track for closing of Phase 2 in 2023.

Second, a non-reoccurring event of approximately $0.20 and while the transfer of the air separation units supporting the gasifiers at Jazan from our previous ASU joint venture to the Jazan joint venture. This transfer required the final settlement of our ASU joint venture, which previously owned and operated these air separation units and enabled us to recognize a portion of the profits that was deferred when Air Products sold the ASU to the joint venture. This profit was recognized as equity affiliate income. Partially offsetting this and also an equity affiliate income, recorded a loss associated with the ASU joint venture settlement. Our joint venture partner’s share of this settlement loss is reflected as a favorable non-controlling interest item.

Now, please turn to Slide 14 for our first quarter results. Compared to last year, sales increased 26% to nearly $3 billion. Volume and price were strong and together account for 13% of the increase, while the remaining half was driven by higher energy pass-through. Rapidly escalating energy costs continue to negatively impact our business across the regions this quarter. This situation was especially challenging in Europe and Americas as natural gas and electricity costs surged even higher from the already elevated levels we saw last quarter. Simon will share more details, but in Europe, natural gas costs were almost 6 times higher and power costs were almost 4 times higher than the beginning of the year.

Our onsite business, about half of our total company sales has contractual protection from the energy cost increases. The costs are passed onto the customer. Energy cost pass-through drove sales 14% higher, but did not impact our profit. In our merchant business, our teams around the world have quickly executed price actions to help offset the escalating energy costs. For this quarter, prices improved compared to last year and last quarter in all three largest segments: Asia, Europe and the Americas. We were able to recognize a 10% price increase across the merchant business, which translated to a 5% increase in price for the total company. This is our best pricing results in many years.

I would like to thank all our teams for the excellent work they have done in response to such a significant challenge. However, we still have more work to do. We are actively executing against price actions across the regions to recover the unprecedented cost impacts. Volume improved 8%, up in all segments, driven by new assets, hydrogen, merchant recovery and stronger sale of equipment activities.

EBITDA increased 8%, again exceeding the $1 billion mark for a quarter as favorable volumes, prices and equity affiliate income more than offset higher costs. EBITDA margin declined 570 basis points, mostly due to the higher energy pass-through, which negatively impacted our margins about 450 basis points by higher costs, net of price increases contributed to the remaining shortfall. Sequentially, volumes were down 3%, primarily due to the strong sale of equipment in prior quarter. The 2% price increase was a direct result of our ongoing price action.

EBITDA was 4% lower sequentially as better price and equity affiliate income were more than offset by higher costs and lower sale of equipment profit recognition. ROCE was 10.3%. We currently have significant cash on our balance sheet, which will support the major projects we have announced. Adjusting for this cash, our ROCE would have been 13.9%. We expect ROCE to improve as we deploy the cash and bring projects on stream.

Now please turn to Slide 15. Our first quarter adjusted EPS was $2.52, which is $0.40 or 19% above last year. Volume was favorable $0.19 and price net of variable costs was modestly unfavorable $0.04 as our price actions were able to offset most of the unprecedented energy cost increases. For the quarter, our price actions alone before netting against variable costs, contributed about $0.40. Costs were up this quarter.

Similar to prior quarters, our growth strategy has us continuing to invest in additional resources. The very high and dynamic energy prices in our last in our largest three segments also impacted our supply chain as we incurred higher operating and distribution costs to keep our customers supplied. We had additional discretionary compensation this quarter and a positive settlement of a supply contract last year, neither of which will continue in the future.

The ongoing EPS contribution of Jazan — of the Jazan joint venture this quarter represents two months and is consistent with our commitment, adding to both equity affiliate income and non-operating income. Equity affiliate income increased $0.29 including the ongoing Jazan results, the deferred profit recognition and the unfavorable ASUs joint venture settlement, which I mentioned earlier. Non-controlling interest was $0.07 favorable versus prior year, representing our partner’s portion of the ASU joint venture settlement.

Non-operating income was flat, as the interest income from the shareholder loan associated with the Jazan joint venture was offset by higher pension expense. Our first quarter effective tax rate of 17.1% was 220 basis points lower than last year, including the favorable impacts of Jazan is seasonally lower, primarily due to the additional share-based compensation and we still expect our tax rate to be 19% to 20% this year.

Now please turn to Slide 16. The stability of our business continues to allow us to generate strong cash flow despite the challenging energy environment. Over the last 12 months, we generated about $2.8 billion of distributable cash flow or about $12.50 per share. From our EBITDA of almost $4 billion, we paid interest, tax and maintenance capital. Note that our maintenance capital is a little higher than usual, driven in part by the spending on our new global headquarters, which is now essentially complete.

From the distributable cash flow, we paid over 45% or $1.3 billion as dividends to our shareholders and still have about $1.5 billion available for high return projects. This strong cash flow, even in uncertain times, enables us to continue to create shareholder value through increasing dividends and capital deployment.

Slide number 17 provides an update on our capital deployment. We continue to make great progress in developing and executing our major growth projects. In fact, we see potential opportunities significantly greater than the investment in capacity we show here. With the closing of Jazan Phase 1, we see a reduction in cash on hand and an increase in capital already spent. As you can see, our deployment potential is over $33 billion through fiscal 2027. The $33 billion includes over $8 billion of cash and additional debt capacity available today. Over $16 billion we expect to be available by 2027 and over $9 billion already spent.

We still believe it’s capacity is conservative, given the potential for additional EBITDA growth, which generates additional cash flow and additional borrowing capacity. We will continue to focus on managing our debt balance to maintain our current targeted Aa2 rating. So, you can see, we’ve already spent 27% and have already committed 70% of the updated capacity we show here. We have made great progress and still have substantial investment capacity remaining to invest in high return projects.

Let to begin the review of our business segment results, I’ll turn the call back over to Seifi. Seifi?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Thank you, Melissa. Now please turn to the slide number 18 for our Asia results. Sales were up 9% compared to last year. Volumes grew 4% due to a strong onsite volume as a variety of the small-to-medium sized new plants came on the stream across the region. And Lu’An facility continues to operate at full capacity under the interim supply agreement. We continue to recognize the reduced fee in quarter one, consistent with this interim supply agreement.

We expect this to continue to fiscal year 2022 before returning to the full fee in 2023. We saw the best price performance for Asia in nearly two years. The 3% overall price increase improvement for the region equals to about 8% price increase for our merchant business. Our team has implemented price action in response to higher power costs and general inflation. China’s government has also relaxed it’s power tariff program to allow low cost power costs to fluctuate.

This market-oriented approach may result in more variability in our power cost going forward. We are monitoring this situation very closely. In addition, China’s efforts to reduce energy usage and intensity through its dual control policy continue to impact customer demand and cause isolated disruptions of our plants. This has a very modest negative impact on our plant efficiency and supply chain costs.

This impact was more prominent earlier in the quarter and seem to ease in December. Costs were also unfavorable due to resources that we needed to add to support our new project startups in the region and were higher without the COVID-related government incentives that we received last year. EBITDA was up 2% as better volumes, price and currencies more than offset higher costs. Sequentially, sales and profits were up as a strong price more than offset higher costs.

Now I would like to turn the call over to Simon to talk about our European results. Simon?

Simon Moore — Vice President of Investor Relations, Corporate Relations and Sustainability

Thank you. Seifi. Now, please turn to Slide 19. Before I get into our Europe results and to build on Melissa’s comments earlier, I wanted to share some details related to the unprecedented energy cost increases this quarter. Energy cost climbed throughout the quarter from already elevated levels. Natural gas costs were almost 6 times higher and power costs were almost 4 times higher than the beginning of the calendar year.

While the energy costs have been elevated all year, this quarter saw energy cost more than double from the previous quarter. As Melissa mentioned, our on-site business has contractual pass-through of the higher costs. For the merchant business, our team has delivered significant price actions to partially recover the recent cost increases. I also would like to thank our European team for their extraordinary efforts. Although we are very proud of the work done by our team, our price actions have not fully recovered the cost increase and as Melissa said, we have more work to do. We do believe we will be able to recover the shortfall by the end of the year.

Now please turn to Slide 20 for a review of our Europe results. Sales increased 37% versus last year, volume and price were strong and together grew 14%. However, our profit and margin weren’t favorable this quarter due to the dramatic energy cost increases. The energy cost pass-through increased sales 27%, but did not increase profit. For the quarter, our price actions resulted in a 9% price gain for the region, which corresponds to a 14% improvement for the merchant business. Prices were higher across all major product lines and sub regions.

Volume increased 5%, primarily driven by improved hydrogen and merchant demand. Currencies were unfavorable 4%, primarily due to the weaker Euro against the U.S. dollar. For this quarter, other costs also increased. The very significant energy cost increases also disrupted our supply chain, negatively impacting both plant operating and distribution efficiencies. We also saw inflation, higher maintenance, discretionary incentive compensation and COVID-related costs while we continue to invest in additional resources needed to support our growth strategy.

EBITDA was down 19% as higher costs were partially offset by price increases. Volume was positive in sales, but did not contribute significantly to profit due to unfavorable mix. EBITDA margin was 1500 basis points lower, about 700 basis points of the decline was due to the significant energy cost pass-through increase, while the remainder was mostly due to higher costs, partially offset by price in the merchant business. Compared to prior quarter, EBITDA was 19% lower due to unfavorable business mix, higher costs and lower equity affiliate income. Higher energy pass-through also negatively impacted margin by about 350 basis points sequentially.

Now I would like to turn the call over to Dr. Serhan for a brief discussion of our other segments.

Dr. Samir J. Serhan — Chief Operating Officer

Thank you, Simon. Now please turn to Slide 21 for a review of our Americas results. Sales increased more than 30% versus last year. Volume and price to get about were up 11%, while energy cost pass-through accounted for the remaining increase. Volume grew 8%, primarily due to hydrogen recovery and strong merchant demand. Although our hydrogen business has improved, it has not yet fully returned to it’s pre-COVID levels.

Similar to other regions, Americas also experienced significant energy cost increases versus last year. Our team has done an excellent job raising prices to cover the energy cost increase in this quarter. The 3% gain for the region is equivalent to 9% on our merchant business. Costs were favorable despite inflation and supply chain related challenges and partly due to lower maintenance costs this quarter. We expect planned maintenance activities to pick up next quarter.

EBITDA posted another double digit gain 14% ahead of last year. As better volume, price and equity affiliate income more than offset the higher energy costs. EBITDA margin was 560 basis points lower than last year. Higher energy cost pass-through negatively impacted EBITDA margin by about 700 basis points. In other words, EBITDA margin would have been up, excluding the energy cost pass-through. Sequentially, EBITDA was lower due to higher maintenance costs. Higher energy cost pass-through negatively impacted EBITDA margin by about 300 basis points.

Now please turn to Slide 22. Our newly created Middle East and India segment. Again, as stated before, this segment is composed of our businesses in the Middle East, including the Jazan joint venture and our business in India. Sales and operating income in this segment are modest since our Middle East and India wholly-owned operations are a smaller insight.

However, the segment’s EBITDA is significant since it includes the equity affiliate income related to the jazan joint venture and our India joint venture. Now roughly $70 million increase in equity affiliate income included our share of the Jazan joint venture net profit for two months and the net impact due to the finalization of the ASU joint venture that Melissa previously discussed. Sales and operating income are up compared to last year due to a new facility on stream in India, but are down sequentially due to a favorable contract settlement in the previous quarter.

Now please turn to Slide 23, which addresses our new corporate segment, which now includes our previous global gases segment. This segment includes our sale of equipment businesses, as well as our centrally managed functions and corporate costs. Over the past a few years, our non-LNG sale of equipment businesses had grown considerably and now contributing most of the sales in this segment.

However, the margins of these businesses are typically below our company average. Sales were higher in this quarter, driven by increased project activity, but the profits were lower due to higher corporate costs and without last year’s settlement of a supply contract. At this point, I would like to return the call back over to Seifi to provide his closing comments. Seifi?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Thank you very much, Dr. Serhan. During my nearly five decades in business, I have learned that the Board changes all the time, sometimes in very unpredictable ways, as we have seen in the past several years. Therefore, for an organization, the ability to anticipate, plan and react to change with the speed and resiliency is key to success. I have also learned that all challenges can be addressed by staying focused and united and calm and by working towards a common goal.

That is why I am proud that despite the continuing adverse effects of the pandemic, rising cost inflation, supply chain disruptions and all of the challenges facing us, our people at Air Products have done just what we expected them to do. That is they have adopted to the change and are acting accordingly. This is why we delivered strong results despite all of these challenges.

Our volume, price and profits all grew this quarter versus last year even as we stayed the course and added resources to support our opportunities and world-scale projects for the clean energy future. I truly believe that our company has become even stronger in the past two years and fully expect to deliver significant earnings growth as the economies around the world normalize and our new projects come on stream.

Now please turn to slide number 24. As I said, I remain highly confident of Air Products resilient business model, our strategy and our execution. However, I do have some concerns on the economic backdrop, driven by continued COVID challenge, the impact of supply chain constraints, inflation, energy costs and geopolitical tensions.

Therefore, for quarter two of fiscal year 2022 our earnings per share guidance is $2.30 through $2.40, up $0.11 to $0.15 over last year. For fiscal year 2022, Our earnings per share guidance remains unchanged at $10.20 to $10.40, which is 13% to 15% better than last year. We continue to see our capital expenditure in 2022 to be around $4.5 to $5 billion, including the approximately $1.5 billion for Phase 1 of the Jazan project.

Now please turn to the slide number 25. The opportunities created by the energy transition are immense. That is why through our mega projects in gasification, carbon capture and hydrogen, we are acting as a first mover. We are taking real action through world-scale investments in projects that address significant energy and environmental challenges.

We have the portfolio of experiences and technologies that we can bring together in an optimal configuration for a project. Working with customers and countries around the world, we will deliver low carbon forms of energy and improve their sustainability. In addition to investment and technology, we know that as always the real enablers of this transition are the people who work alongside our customers and bringing our opportunities and projects to life.

At Air Products, we have consciously increased our talent and resources to take on these urgent challenges, adding over 3,000 people over the past two years. As we drive toward a clean energy world, we need talented people to help us accelerate the progress. We are continuing to build a diverse and inclusive culture where our people feel they belong and know that their contribution matters. As I always say, our long-term competitive advantage is the commitment and motivation of our people. I know that through their hard work and contribution, we will continue to succeed.

Now, we are pleased to answer your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] And we’ll go ahead and take our first question from P.J. Juvekar with Citi. Please go ahead.

P.J. Juvekar — Citi — Analyst

Yes. Good morning, Seifi, and the team.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Good morning, P.J., how are you this morning?

P.J. Juvekar — Citi — Analyst

Yeah, a couple of questions. First, can you give us an update on the NEOM project, especially on the downstream side where you will be executing on your own. Is there any update on contract signings. And then this significant disruption that we are seeing in energy pricing in Europe, does that create uncertainty for customers to commit to long-term contracts on that side?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Well, P.J., thank you for the question. The NEOM project with respect to the downstream side, obviously, we are working in developing the infrastructure needed to bring in the green ammonia, crack it and then sell it to our customers. So those projects are underway. in terms of any contract signing and all of that, we have said from the beginning. two years ago, that we are going to be very cautious about saying anything about that because that is an issue of competitive advantage and we certainly don’t want to give all of our secrets away.

With respect to the question that you asked about energy cost, obviously, the significant fluctuation in energy cost and especially them going up, is going to make it more competitive for the green and clean products. So,from that point of view, the level of interest in green hydrogen and blue hydrogen has significantly increased around the world.

P.J. Juvekar — Citi — Analyst

Okay. That’s fair enough and a quick question from Melissa. On Slide 13, you mentioned interest income from loans to Jazan. Can you just give us more details on that loan? Thank you.

Melissa Schaeffer — Senior Vice President and Chief Financial Officer

Yeah, absolutely.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Melissa –that’s a very, very complicated transaction and I’m not sure she can — she will be able to answer all of your — details of your question on the call. We can always have another call with you on this slide to give you the details, but I turn it over to Melissa to say what she can on this call. Go ahead, Melissa.

Melissa Schaeffer — Senior Vice President and Chief Financial Officer

Yeah, thank you very much, Seifi. Thank you, P.J. for the question. So as Seifi mentioned, it is complex, but just a quick highlight. So, as we mentioned during our statements, about one-third of the contribution from the JIGPC joint venture is in non-operating income. This is the interest income on our investment as a shareholder loan. So, this is just our efficient way of funding the joint venture.

P.J. Juvekar — Citi — Analyst

Thank you.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Okay, P.J.

P.J. Juvekar — Citi — Analyst

Yes, thank you. Seifi.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Sure.

Operator

We’ll go ahead and move on to our next question from Steve Byrne with Bank of America. Please go ahead.

Steve Byrne — Bank of America — Analyst

Yes. Thank you, Simon, you made a comment about in the European segment, you expect to recover costs with price actions by year-end. Just wanted to drill into that a little more. Can you comment on what fraction of your merchant business has this pass-through in it. Perhaps, it’s small, but do you have it in place in some. But in order for you to recover it by year-end, are you — do you have more price actions that you have yet to announce or is there a lag effect or do you expect cost to come down? Just would like to better understand that.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Sure. It’s actually pretty straightforward, what happens is that we anticipate energy cost increases and we announce price increases. But energy prices have been going up significantly higher than our anticipation. Therefore, we need to take a delayed action to increase prices to recover what has happened in the past. That is why there will be a delay in recovering the cost.

We will take the action, but obviously from the time we take the action and invoice the customer, until we get the money and all of that, there is a delayed action. But fundamentally we can’t increase prices every day, they do that every quarter and what we anticipate that for the first quarter of this year, it was significantly lower that what actually has been. So, now we have increased prices starting January 1st and we will increase prices starting April 1st and as we go with different customers and that is why there is a lag.

Steve Byrne — Bank of America — Analyst

And any of them have pass-through in the contract?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

For the merchant business, a lot of it is not the contract. The pass through which is per contract is for our onsite business. That is pass-through that hasn’t affected our results and all of those pass-throughs have happened. That is why our results on our on-sites are very good. On the merchant side, which in Europe is approximately 60% of our business that is where we execute the price increases. And over there, most of the contracts do not have kind of official pass-through is the merchant business.

Steve Byrne — Bank of America — Analyst

Okay. And one more for you Seifi. It seems like your focus and goals on energy has kind of expanded to beyond hydrogen to include carbon capture now. My question for you is, do you see this as a business development for our products that could be completely independent of hydrogen i.e. working with customers to perhaps capture carbon from combustion sources. That’s a completely different approach and perhaps that could drive increased sales of oxygen. Just where would you like to see that particular business go for Air Products?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

That is an excellent question. At this point in time, we are doing carbon capture in order to produce green — I mean blue hydrogen specifically. So, I don’t see us branching into that, but if that becomes a very attractive sector and we have the technology, we take a look at it, but right now, we are doing carbon capture, those projects in conjunction with producing blue hydrogen.

Steve Byrne — Bank of America — Analyst

Okay. Thank you.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Thank you, sir.

Operator

And we’ll move on to our next question from Jeff Zekauskas with J.P. Morgan. Please go ahead.

Jeff Zekauskas — J.P. Morgan — Analyst

Hi, thanks very much. You were $2.52 in the quarter and so if you annualize that that’s $10.10 and your guidance says $10.20 to $10.40 and the December quarter is probably a seasonally weaker quarter. So, it doesn’t seem like you expect very much progress or maybe you’re really at the top of your range or a little bit beyond that. Why are your earnings higher this year. Energy costs are coming down in Europe. You’re passing through prices. Shouldn’t you have higher returns this year?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Jeff, the thing is that everything obviously depends on your view of the world and in terms of what will happen. Look at this quarter we had high expectations for this quarter, but then COVID came in and Europe got shut down and energy prices went up significantly higher. I’m not shy to say that I am very concerned about some of the geopolitical tensions, what would be the implications of that for energy prices. Heavens forbid if anything happens with your chain and so on, what will that do to Europe energy.

So as a result, we are trying to be balanced and give people projections that we realistically believe we can make. Now you can say, we are conservative, but we might not be. But we didn’t see any reason at this point in time, considering what has happened in the first quarter to change our guidance. Now if next quarter, things change, we will obviously share any thoughts that we have this year.

Jeff Zekauskas — J.P. Morgan — Analyst

And then secondly, I’m always puzzled about your corporate EBITDA line. Can you give us any insight into what that number might be over the next three quarters? Does it change much? Is there a certain level? And then for Melissa, the undistributed earnings of equity method investments in the quarter were $1.17, what should that number be for the year order of magnitude?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Okay. Jeff, I’ll answer your first question and Melissa will answer your second question. The thing is that that corporate sector obviously from my point of view, I’d like to see there the number to be basically EBITDA thing to be balanced that means that we make enough money on the other parts of the business in order to balance our corporate overhead. That’s our goal. But obviously because it is — some of is it sale of equipment, it goes up and down quarter-by-quarter. But overall, we would like to see that number to be just flat, zero basically. If we don’t make money, we don’t lose money. So with respect to your second question. Melissa would you like to address that, please.

Melissa Schaeffer — Senior Vice President and Chief Financial Officer

Yeah. Thank you. Seifi. Jeff. I think you’re referring to the undistributed earnings of equity affiliates in the cash flow statement. So, this is cash from…

Jeff Zekauskas — J.P. Morgan — Analyst

Yes, exactly, right.

Melissa Schaeffer — Senior Vice President and Chief Financial Officer

Yes, thank you. So, this is cash from the operating activity from the joint venture. So, as the dividends are distributed later this year, which we fully expect, they will go through the investment section.

Jeff Zekauskas — J.P. Morgan — Analyst

Thanks so much.

Melissa Schaeffer — Senior Vice President and Chief Financial Officer

Thank you.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Okay, Jeff.

Operator

We’ll move on to our next question from John McNulty with BMO Capital Markets. Please go ahead.

Jeff Zekauskas — J.P. Morgan — Analyst

Yeah, good morning. Thanks for taking my question. Seifi. Just a question on the European energy issues. So, it sounds like, if I’m understanding and I guess that’s what I want to clear up. What you’re putting through, it’s not a surcharge or anything like that, it’s more of a direct pricing. So, if we start to see energy prices subside, as we get past kind of the winter months, etc., it sounds like that would be a reasonable windfall for you as the pricing is going through as the energy is coming down? Am I thinking about that right? Or is there some other nuance to consider?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

First of all, good morning, John. Hope all is well with you. We haven’t talked to you for a while. With respect to the question that you’re asking, you always get it right. That is exactly what we are trying to do. That means that we are increasing the prices and then hopefully as energy cost goes down, we expect to keep some of those prices at because to make up for the fact that we didn’t get enough of it in the previous quarters. So, you are right, if energy prices go down, if they go down then we will have an upside. But that’s a big if. John. But that is exactly right, you have it — you are thinking about it exactly the way we are trying to execute.

John Patrick McNulty — BMO Capital Markets — Analyst

Got it, okay. And then just a question on the Third by 30 carbon intensity goal that you have, I guess when you think about the three big hydrogen projects, the two big blue ones and the green one, does that actually get you to that target already or is there more to do there. And I guess tied to that, are there projects going forward that Air Products might not do just because of the carbon intensity around them that in the past they might have. So, say whatever it’s a big coal gasification project where there’s no carbon capture or something like that. Does that — does the target like this preclude you from actually going after that type of business? I guess, how should we be thinking about that?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Well, John, that is an excellent question. First of all, in my comments, various months, you read through it, I was saying that look at the projects that we are doing. We think we can meet that target and exceed it and therefore we are going to give you an update by mid-year. So, you’re right, I mean, we are doing a lot of good projects and that would help us.

With respect to your second question, it depends on how the contracts are structured, because countries will come to us, have some to us and said, I want you to do this project, it’s coal gasification and you are not responsible for the CO2, I give you the raw material and you give me the product, you address the total and the CO2 is my responsibility.

If people are willing to do it like that, as they have been, then we do the projects because then we are not adding any [Indecipherable] but if it turns out that we are doing a projects then the CO2 is our responsibility then we would think twice about doing it. Sure, because we are about reducing CO2 and not adding to it, But there are circumstances that the customers, the country comes to us and says, look, I want to take the call and make meth on a lot of it and I’ll take responsibility for the CO2. Okay, John. That’s it.

John Patrick McNulty — BMO Capital Markets — Analyst

Got it. Very helpful, Thanks very much Seifi.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Thank you.

Operator

We’ll go ahead and move on to our next question from Chris Parkinson with Mizuho Securities. Please go ahead. Chris, your line is open.

Chris Parkinson — Mizuho Securities — Analyst

Sorry about that, I was on mute. Can you just give us a bit of a broader, if you’re in the situation of China, Lu’An as well as some just very quick updates [Indecipherable], just how should investors be thinking about the cadence of these projects? Thank you very much.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Good morning, Chris. But the thing is that I gave you an update on Lu’An that the project is — the plant is operating at full scale and all of that and we had consciously given a break for the — to the customers for two years for a lot of good reasons and we expect that to be going back to normal at the October of 2022. The other projects are being executed on plan. We don’t expect any major issues with those. So up to now, we are — we don’t have any significant disruption that we need to talk about.

Chris Parkinson — Mizuho Securities — Analyst

Got it. Thank you. Just a very — yeah, no, that’s very helpful. And just as a very quick follow-up. Prior to COVID, there was a lot of talk and obviously there were some project signs across Central and Southeast Asia, it seems like you still have a very large opportunity in Indonesia and there’s still several projects being decided on in India. Could you just give us a quick very quick update on your overall thought process and how this would potentially fit in to the APD’s backlog? Thank you.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Well, they have decided not to talk about those projects and there are a lot of them as you alluded to until we sign a final contract. So we don’t want to announce MOUs or we don’t want to announce every time that I have a video conference with the Minister or anything like that. So, those — the opportunities are there and then those contracts get to their stage that they are definitive contracts then we will obviously announce them. But those projects are there. We haven’t seen any slowdown.

Chris Parkinson — Mizuho Securities — Analyst

Thank you.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

But they are delayed because of COVID in terms of getting to their final stage of the contract, but I expect that they will.

Chris Parkinson — Mizuho Securities — Analyst

Understandable. Thank you so much.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Thank you, Chris.

Operator

We’ll take our next question with David Begleiter with Deutsche Bank. Please go ahead.

David Begleiter — Deutsche Bank — Analyst

Thank you and good morning.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Hey, David. How are you?

David Begleiter — Deutsche Bank — Analyst

I’m doing well. How are yourself?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Very good.

David Begleiter — Deutsche Bank — Analyst

[Speech Overlap] You mentioned the delays in implementing or capturing the pricing this time around. Why is that the case that because of the sharp rise in energy prices? Are you seeing similar cadences like competitors in delaying or extending captures until the end of the year.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

David, I’m very glad that you asked the question. When we say this today, please, it is not as if we are delayed in crude price increases. We are probably, let’s say here is the month of — end of April, right? And our team gets together and say we anticipate that prices in June, July and August, the price of energy will go up 10%. Therefore, we announced a 10% increase on prices on June 1st, right? If the price during that quarter of June, July and August goes up 20%, then we have fallen behind. Then in the month — the next quarter, now we need to raise the prices 30% to catch up with that. But then the energy prices — so what our issue in Europe has been that every time we anticipate price increases, the actual price increases goes way beyond. There was no way that we would have predicted, no way that natural gas prices in Europe will go up 6 times. There was no way that we would have predicted that the electricity cost in Europe will get to $0.20 — at $0.20 a kilowatt. So that is the delay. It is not as if you’re delayed in action. It is the fact that our anticipation of price increases were lower because we thought it was pretty robust, but the real word got ahead of us.

That is why we are lagging behind. We think that we will see a significant improvement in the performance of our business in Europe in this — in the quarter we are in. I fully expect that, but who knows what happens with the energy costs. That is our inability, that is where we are falling short in terms of ability to predict energy prices, but nobody could do that because they have been so unprecedented. And if I — if at the beginning of last year you would have told somebody that electricity costs for Air Products will go from a few cents to $0.20, and we would be — we would, we would have thought that was unreasonable. But that’s to me, it has worked out. I hope I made myself clear, David, rather than doing a lot of talking.

David Begleiter — Deutsche Bank — Analyst

Very clear. And just from Melissa or Serhan. Melissa, what was the net impact of the transfer of the — ASU assets this quarter, the net impact?

Melissa Schaeffer — Senior Vice President and Chief Financial Officer

And that was about $0.20 [Phonetic].

David Begleiter — Deutsche Bank — Analyst

Thank you.

Operator

And we’ll take our next question from Kevin McCarthy with Vertical Research Partners. Please go ahead.

Kevin McCarthy — Vertical Research Partners — Analyst

Good morning. On Slide 15 you provided a helpful disaggregation of the EPS growth. And as I read it, it looks as though you’re recovering the vast majority of the energy cost increases in terms of the $0.04 drag from price net of variable, then below that there is a $0.21 headwind from other costs. Can you speak to what costs are residents in that $0.21 number and how you would expect that to trend over time?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Hi, Kevin Very good question. The thing is that there is a list of about 30 items in there and we can go through that with you offline in terms of some of that — some of that has got to do with the fact that we had some one-off benefits last year. So when you compare this year to last year, those numbers look even — look as if the cost have gone up significantly, but there is no question that the — our underlying costs are higher because of all of the money that we are spending in the development of the projects that — the mega projects. I mean, each one of these projects takes $5 million $10 million to develop.

As I said before, we have added 3,000 people to our organization in order to deal with that. Now, as some of these projects become investment projects and approved by our Board and some of these costs will go into capital rather than just being charged to the bottom line, while life is going on, they are charged to the bottom, they bear ongoing cost. So I don’t expect the number to be as big as it is this quarter, but underlying, we probably have $20 million, $30 million a year of additional costs because of what we are doing the mega projects.

Kevin McCarthy — Vertical Research Partners — Analyst

I see. That’s very helpful. And then secondly, you raised your dividend by 8% yesterday. If I look at the EPS guidance that would suggest potential for growth of 14% at the midpoint. Can you speak to the delta between those numbers? What is — what is the thinking behind adopting a more measured pace for the dividend relative to what you contemplate for earnings.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Well, again, thank you for the question, Kevin. We thought 8% is pretty robust. You’re saying that your dividend is not growing as much as your EPS, but we obviously want to have some cash for growth, but there is another measure that we have talked about, this is not how we decide on dividend, we have a lot of factors into that. But overall, we have always said that we want the dividend to be something between 2% to 2.5% of the stock price in terms of our dividend yield.

So if you take it $1. 62 [Phonetic] times 4 and divided by the stock price, we are at around about 2.3%, 2.4%. So that’s another measure. But as I said, that’s not the only day that we decide on EPS, there is a lot of factors in terms of cash flow and all of that. But that’s — and besides that we are way ahead of everybody else in our sector in terms of dividends. So we didn’t want to overdo it, Kevin.

Kevin McCarthy — Vertical Research Partners — Analyst

Yes, thank you for that reminder.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Thank your.

Operator

And our next question comes from John Roberts of UBS. Please go ahead.

John Roberts — UBS — Analyst

Thank you, Seifi.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Hi, John.

John Roberts — UBS — Analyst

Good morning. You mentioned your power costs in China might fluctuate more. Are the merchant contracts in China any different than your merchant contracts in Europe and elsewhere that you might have a harder time dealing with those fluctuations?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

I don’t think so, John. I mean, at the end of the day this is all a function of the competitive environment and the utilization of your facilities. In China right now our utilization of our merchant facilities is in mid-80s. So at mid ’80s if the power cost go up, I think we will have the ability to pass that through.

John Roberts — UBS — Analyst

And I think it was mentioned that pension costs actually went up, it was a bit of a contributor to the headwind, is going down for a lot of other companies because of interest rates going up and good plant performance last year. Why would your pension be going up?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

There is a lot of reason because we have a lot more people. They have 3000 more people that we need to, people say that okay you need to provide for these people and so on, but we don’t have too many defined pension plans. But I’d like to see if Melissa has anything else to add to that. This is a function of actually is doing all the numbers, how long people are going to live and all of that, you know, all of that. But Melissa, do you have anything else to add.

Melissa Schaeffer — Senior Vice President and Chief Financial Officer

Yeah, thank you, Seifi. Because of where we are in our funding, we are going through a derisking glide path and that is a portion of the reason that you’re seeing that change.

John Roberts — UBS — Analyst

Thank you. Okay.

Operator

And we’ll take our next question from Mike Sison with Wells Fargo. Please go ahead.

Michael Sison — Wells Fargo — Analyst

Hey, good morning. Nice quarter. I think — guess, given, given high energy costs, like [Indecipherable] cost and industrial gases tend to be used as sort of an efficiency aid for a lot of facilities. Is this environment good for the fundamental demand for industrial gases over the next couple of years? I mean, will it sort of more bigger — many projects such as general demand for oxygen, nitrogen, etc.?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Well, and for that to materialize, we need to get COVID to go away, so that the economic activity goes up, and then usually inflationary environment is a good thing for industrial gases usual, but not always. But we — we think that if the inflationary environment continues and we are able to increase prices and then if the cycle turns and we keep some of those price increases that might be positive and its very difficult to quantify that right now.

Michael Sison — Wells Fargo — Analyst

Got it. And a quick follow-up in Europe, EBITDA was down about $40 million, is that the delta that you need to just offset with pricing over the next couple of quarters?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Yes, most of it, yes. Great. Thank you. Thank you.

Operator

And our next question comes from Mike Harrison with Seaport Research Partners. Please go ahead.

Mike Harrison — Seaport Research Partners — Analyst

Hi, good morning.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Good morning, Mike.

Mike Harrison — Seaport Research Partners — Analyst

Seifi, I was wondering if you can give a little bit more color on the impact of dual control in China on your Asia volumes, as well as the margin impact, you mentioned some plant efficiency and supply chain was also impacted. And then it sounds like maybe the dual control policy is evolving. You said you’re watching closely. So do you expect a similar impact in Q2 or maybe not as bad?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Mike, in my comments I tried to shed some light into that by saying that, first of all the impact — there was an impact, but it was not material in the first quarter. The impact was a lot more in the month of October, then it turned out to be in the month of November and December, and it seems that the harshness with which the government was trying to implement that being back in September, October has subsided a little bit and as a result we don’t expect any material effect of that on all that results in the next quarter.

Mike Harrison — Seaport Research Partners — Analyst

All right. And then in terms of the inflationary environment, as you look at some of your committed projects and the capital associated with them, are you seeing higher costs for labor and equipment, steel, other materials increase the capital costs associated with those projects and do those higher costs then get passed on to the customer through some change in the base facility charge or do they end up eating into returns if your capital costs are higher?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

First of all, when we did some of these projects we obviously have made provisions for possible inflation on all of that. But at the end of the day, it is a fact that some of the costs are going up. In terms of how much of it we can pass on to the on-site customer and so on is very much dependent on the details of the contract that we have negotiated with their specific customers. So I cannot make a general statement. But overall, there is pressure on us to be very diligent to make sure that we stay on top of the costs for our projects and all of that and make sure that they don’t eat into our returns as you alluded to.

Mike Harrison — Seaport Research Partners — Analyst

All right, thank you very much.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Duffy Fischer with Barclays. Please go ahead.

Duffy Fischer — Barclays — Analyst

Yes, good morning.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Good morning, Duffy.

Duffy Fischer — Barclays — Analyst

A question around your new segment in the Middle East and India. If you look at $103 million of EBITDA and you normalize for having Jazan for the full quarter and not changing the JV structure, what would like a normalized EBITDA run rate be for that segment?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Well, to some extent you can calculate it in the sense that for the first quarter — two months of Jazan, so for the next quarter you have three months of Jazan. And most of that drop is Jazan, so you can kind of triangulate to that approximately, they’ll come up with that number you’re looking for.

Duffy Fischer — Barclays — Analyst

Okay. And then going forward how variable will that EBITDA number be, is there seasonality in it or they’re going to be lumpy quarters where you’ve got turnarounds and stuff like that or will it be in a very tight range and you kind of just print the same number of quarter over quarter until you move on from Phase 1?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

I expect that number to be pretty stable because it’s basically a facility fee, now I don’t expect that to change significantly and our maintenance costs shouldn’t change that significant.

Duffy Fischer — Barclays — Analyst

Terrific. Thanks, guys.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Thank you.

Operator

We’ll go ahead and move on to our next question from Vincent Andrews with Morgan Stanley. Please go ahead.

Vincent Andrews — Morgan Stanley — Analyst

Thank you. Good morning, everyone.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Hey, good morning.

Vincent Andrews — Morgan Stanley — Analyst

Thank you. Seifi I’m reading about, there’s about $9 million in infrastructure grants in the U.S. that are going to come out. Is it fair to assume that you’ll be positioning the company to get some part of that for a hydrogen project?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

We will try for sure.

Vincent Andrews — Morgan Stanley — Analyst

In what order of magnitude do you think that could be?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

I know — I have, and I have no idea, because it depends on what gets allocated, how much of that will be for hydrogen, where the locations will be, what would be the criteria. I mean, we are — maybe these projects as you know there is sometimes a lot of strings attached that some of it might not be acceptable to us and all of that. So it is very, very difficult to project at this stage because they have just started, they have just started. They obviously are engaged with the Department of Energy, because they have some real hydrogen projects, it’s not theoretical. But I have really no visibility into what that number could be or should be.

Vincent Andrews — Morgan Stanley — Analyst

Okay, and just as a follow-up. There was a comment in the prepared remarks about Americas hydrogen still being below pre-COVID levels. Can you give a rough approximation of how below pre-COVID levels you are?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Something in the order of magnitude of about 5%, something like that. Dr. Serhan, you want to add to that.

Dr. Samir J. Serhan — Chief Operating Officer

Yeah, I do Seifi, its around 5% to 10% from about two years ago.

Vincent Andrews — Morgan Stanley — Analyst

Thank you. Thank you very much.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Okay.

Operator

And we’ll move on to Bob Koort with Goldman Sachs. Please go ahead. Bob, your line is open. And Bob, are you on mute. Okay, due to no response, we will move on tour next question from Marc Bianchi with Cowen. Please go ahead.

Marc Bianchi — Marc Bianchi — Analyst

Hey, thank you. Good morning.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Hi.

Marc Bianchi — Marc Bianchi — Analyst

The question came up earlier. Hey, Seifi. The question came up earlier about annualizing the EPS and getting $10, but if I try to take out all the one-time Jazan and the recurring contribution of Jazan, it sort of looks like to me that the the second half EPS implied in the guidance is up about 15% to 20% from the first half, just in the underlying business, which seems like a big ramp. I know there’s some favorable seasonality in there and you’ve got some pricing initiatives to recover some of the energy costs, but could you talk to maybe components of that improvement, how much is seasonality, what’s anticipated in terms of the energy recovery, those sorts of things, I’m curious for some more color?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Sure. I mean, there is two guidelines. Obviously, we go through all of these things before we give you a guidance and because of what you said that’s why we didn’t change our guidance for the year. But, number one, we have — you know the results for the first quarter, we have given you guidance for the second quarter. So you can add it up and you get to what we expect to make in the first half. Usually from a seasonality point of view, approximately, if you take all of the years, we make about 47%, 48% of our profit during the first half and 52% to 53% of it during the second half. So that is the seasonality kind of a thing that you can take a look at.

And then the other thing is that we do expect that we will get ahead of this energy cost in Europe a little it, and therefore recover some of that and therefore the performance of our European sector will be better. When you look at this, this quarter, actually the performance of our business in Asia and in the United States was very good. It’s just that Europe that hurt our results. So if you put the combination of the seasonality and the recovery in Europe, then we have a reasonable chance of doing the guidance that we have given.

Marc Bianchi — Marc Bianchi — Analyst

Okay, that’s all I had. Thank you so much.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Well, thank you very much.

Operator

We’ll go ahead and take our next question from Lawrence Alexander with Jefferies. Please go ahead.

Lawrence Alexander — Jefferies — Analyst

Good morning. In your European online business are you receiving any kind of performance bonuses for running at higher operating rates and helping customers be more energy efficient given the high electricity prices that they’re facing?

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Nothing that’s substantial because over there those customers on our onsite business are obviously paying for the higher energy costs. We are not receiving any special compensation or anything like that, they are just paying for the additional energy costs and they get our fees or contract.

Lawrence Alexander — Jefferies — Analyst

Thank you.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Thank you.

Operator

And we have no further questions. With that, that does conclude our question-and-answer session. I would now like to turn back over to our presenters for any additional or closing remarks.

Seifi Ghasemi — Chairman, President and Chief Executive Officer

Well, thank you very much everybody for participating in our call. We appreciate your attention and your good questions, and the wish you good health and success for the balance of the quarter and look forward to talking to you next quarter. Thank you, again.

Operator

[Operator Closing Remarks]