Industrial Gases R&D and InnovationAre we investing enough?

Nigel Lewis – Spiritus Group

gasworld Conference Budapest - May 2015

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Profile

• 25 years with The BOC Group and The Linde Group– BOC

• Business Manager Packaged Gases, Benelux• Commercial Director, UK• Managing Director, Indonesia• Marketing Director, Global Bulk and Onsite gases• Group M&A Director

– Linde• Head of Strategic Marketing, Bulk Gases• Head of Product Management, Merchant & Packaged Gases

– Spiritus• Consulting projects

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Spiritus consulting projects

For industrial gases clients

• Detailed review of global R&D programmes and expenditure

• Review of supply and demand for bulk gases across key European markets

• Global 5-year forecast for small onsites business by region and application

For suppliers to the industry

• Demand forecast for cryogenic tanks and tankers by region and customer

• Demand forecast for ASUs by region

• Demand model cylinders

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R&D spending : a caveat

• Reported R&D spending by industrial gas companies is net of grants received from Government-backed programmes

• There is significant grant-funding in the USA and to some extent in the EU

• This will tend to understate actual levels of R&D spending and the impact may be greater for Praxair and Air Products than for Linde and Air Liquide

• Nonetheless the numbers reported are what shareholders and analysts see!

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Industrial Gases R&D spendGlobal leaders

2010 2011 2012 2013 2014 -

100

200

300

400

500

174 186 188 186 187

94 98 101 92 106

60 65 76 74 72

87 85

98 101 106

€ million

415434

463 453471

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Share of R&D expenditure vs share of sales 2010-2014

Air Liquide Linde Praxair Air Products

32% 33%

19%16%

41%

22%

16%

21%

% Sales 2010-2014

% R&D 2010-2014

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R&D trend has been constant as % sales

2010 2011 2012 2013 2014

1.2%

0.6%

0.8%

1.4%

1.0% 1.0% 1.0%0.9% 1.0%

1.6%1.5%

1.6% 1.6%

R&D spend as % sales

Linde

Praxair

Air Liquide

Air Products

Industry average

CEFIC chemicals average

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Why so low?

• Very few ‘breakthrough’ technologies

• Patent protection for applications hard to enforce

• Growth historically driven by M&A, geographic expansion and productivity

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Advantages of global reach

• Can focus R&D where critical mass exists

• Where innovation is encouraged by local market conditions– Eg LNG/CNG Sweden and Australia

• Spending is amortised over a global market

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Patent Filing Trend

2010 2011 2012 2013 20140

50

100

150

200

250

300

350

232 235

269 263 260

301332

316 321

287

LindeAir Liquide

Typically 50% of patents relate to

core business

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Approaches towards R&D have shifted

Past Today

Resources deployed In-house Mix of in-house and broad networks of external collaborators

R&D centres Single major centre – perhaps split gases-engineering

Satellite centres closest to global experts

Collaboration Customers and suppliers Academics, government, research institutes as well

Funding Self funding + some gov’t grants

Multi-participant programmes ; venture capital

Description R&D Innovation; open innovation

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Linde R&D trend – Gases vs Engineering

2010 2011 2012 2013 20140%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

EngineeringGases

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Broader range of R&D activities

Gas app

s50%

Plant Eng.25%

Other25%

R&D spend past

Gas apps 25%

Plant Eng. 25%

Healthcare 15%

Hydrogen energy 15%

Other energy

10%

Other incl electron-ics 10%

R&D spend present

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Innovation is the key theme

2010 2011 2012 2013 20140

50

100

150

200

250

300

Example: Air Liquide R&D and Total Innovation expenditure (€m)

Other InnovationR&D

Broader innovation networks

Major R&D centre gases

Major R&D centre

engineering

Satellite gas applications

centres

University researchers

Industrial Customers

Suppliers

Venture CapitalGovernment Programmes

Licensing in and out

Think tanks

Hospitals + Medical

Research Centres

Internal network

External network

Example: Air Liquide ‘more than 60% of R&D projects were conducted as part of public-private partnerships in 2014

Competitions

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16

Current innovation themes

• Productivity

• Cylinders

• Energy

• Healthcare

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Innovation - productivity

• Plant efficiencies– Turbomachinery– Cold box optimisation– Steam reformer process

• Supply chain– Dynamic scheduling– Tank optimisation– Asset tracking

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Core innovation business themes merchant gases

• Customer-focused packages– Lightweight– Integrated valves and regulators– Smart displays and alarms– Connected– Ease of use

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ENERGY

• CO2 use and capture from coal gasification / power station projects

• Energy from waste– Biogas– Electricity

• LNG• Enviro-friendly H2

production

• Hydrogen storage technologies

• Liquid Air for energy storage

Production Storage Distribution

• H2 refuelling• LNG and CNG

distribution– Fleets– Ships– Industrial

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Healthcare

• Respiratory medicine– Sleep apnoea– Chronic respiratory disease– Neonates

• Mobile cylinders and smart cylinders• Remote monitoring of patient / telemetry• Centres for respiratory care• New applications for medical gases• Infusion therapies

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Conclusion

• R&D is just one component of innovation• Internal R&D spending as % sales is stable and

likely to remain so• Innovation spend has shifted from gas

applications and engineering to include growth platforms – current and future

• Innovation networks are more broadly spread and complex – but potentially much more supportive of growth!

Thank You

www.spiritusgroup.com