Air Products (APD)

On-Site Heavy, Hydrogen Forward

Air Products tests on-site contract economics against clean-energy project risk. On-site plants, built at a customer's site and supplying it under long contracts, brought in 51% of FY2025 sales: $6,180.4M of $12,037.3M (the 10-K's own table rounds it to 52%). Merchant supply, gas trucked to customers in bulk or in cylinders, was $5,336.9M (44%) and sale of equipment $520.0M (4%).

Large on-site contracts run 15-20 years (10-15 years for small on-site plants), with fixed monthly charges and/or minimum purchase requirements. Merchant carries no minimum purchase, so the on-site half of sales supplies nearly all the contracted cash flow. Remaining performance obligations, the fixed charges customers are contracted to pay on on-site and sale-of-equipment contracts, were $26bn at 30 September 2025. The take-or-pay guide sets Air Products' fixed monthly fees, including a 15-year Uzbekistan contract that pays whether or not the customer requires the output, beside Linde's minimum purchases and Air Liquide's explicit take-or-pay.

How the Numbers Read

Pre-tax charges of $3.7bn for business and asset actions took GAAP return on capital to (0.9%). Adjusted return on capital, which excludes them, was 10.1%; Linde's 24.2% and Air Liquide's 11.2% sit on different definitions. The GAAP figure is not usable for trend work while exit charges run through it.

Total debt was $17,698.4M against cash of $1,856.0M at 30 September 2025, so net debt of $15.8bn was 3.1x adjusted EBITDA of $5.1bn (our calculation).

Clean-energy disclosure comes project by project. FY2025 capex was $5.1bn, and in November 2025 the company guided $4.0bn for FY2026. NEOM, a green hydrogen and ammonia project in Saudi Arabia, was 80% complete in February 2025 and 90% by November 2025; in June 2026 Air Products said it was finalising a deal for Yara to market NEOM's ammonia. In January 2025 Air Products said 35% of NEOM's output was sold on take-or-pay, citing a 15-year contract with TotalEnergies for 70,000 t/yr of green hydrogen from 2030.

It has cut the project list twice. In February 2025 Air Products cancelled three US clean-energy projects, announcing a pre-tax charge of up to $3.1bn and booking about $2.4bn in FY2025. On 26 June 2026 it decided to exit the Louisiana Clean Energy Complex, which in November 2025 had targeted start-up in 2028 with $2bn committed, along with a liquid hydrogen plant in Casa Grande, Arizona and smaller projects. It expects a pre-tax charge of up to $2.9bn in its fiscal third quarter of 2026, with cash costs of no more than $925M (8-K, June 2026).

How You Would Value a Business Like This

Value here splits between contracted on-site cash flow, protected by minimum purchases and fixed fees, and project capex that can outrun contracted demand. The method values on-site cash flow year by year over the contract life, with a value for renewal, and puts the merchant remainder on a cyclical multiple. Plants still being built count at what they are expected to earn once running, not at what they cost, so a project without a signed buyer adds capital and debt before it adds value.

What to Watch in the Financials

Whether the charges repeat. The June 2026 decisions bring a second expected charge on top of FY2025's.

NEOM start-up. Delays or unsold output would lower the return on capital already spent.

Capex and debt. Spending against the FY2026 guidance, which was set before the June 2026 exits, and the path of net debt as plants start up.

Remaining performance obligations. How fast the contracted base is recognised against plant start-ups and exits.

Key Risks

Clean-energy execution. Two rounds of exits show capex can move faster than contracted cash flow, and no filed figure totals the remaining hydrogen pipeline.

Debt during build-out. In FY2025 capex matched adjusted EBITDA, leaving nothing from operations for interest, tax or dividends until new plants start paying.

Customer volumes above the floor. Minimum purchases and fixed fees protect the floor; anything above it depends on how hard customers run their plants. Merchant has none.