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Oct 13, 2005: CEO Forum with John P. Jones III of Air Products and Chemicals

John P. Jones III, chairman, president and CEO of Air Products and Chemicals Inc., was the featured speaker at the Oct. 13, 2005, AmCham Russia CEO Forum, a series promoting dialogue between CEOs of American blue-chip companies and senior executives of leading Russian, American and international companies working in Russia. Jones joined Air Products and Chemicals Inc. in 1972 through its Career Development Program and now heads the company, which has annual sales of $7.4 billion, assets of $10.0 billion and a worldwide workforce of nearly 20,000 employees.

Although Air Products has annual revenues in excess of $7 billion and is ranked 281^stin Fortune’s list of 500 largest companies in the U.S., many outside the industries you serve are unfamiliar with what you do. Can you cite a few examples of how people are touched by your products every day?

Air Products, headquartered in Allentown, Penn., is one of the world’s leading suppliers of industrial gases and specialty chemicals. These are predominantly sold to other manufacturing companies for use in their own products and production processes, for many of which they are absolutely essential.

Major users of our industrial gases include energy and chemical process industries, electronic component manufacturers, metals producers and food processors with many global household names in these sectors amongst our top customers. A significant innovation for our global gases business in recent years has been growth in the healthcare market where today we actually provide oxygen services to some 400,000 patients in their own homes. Major users of our chemicals include agricultural intermediates, paints & coatings, furniture and adhesives & sealants.

What specifically does Air Products do in Russia? What opportunities have led you to target this market?

We have been active in Russia for many years, both as a supplier of specialty chemicals as well as gas separation equipment. More recently we have made our first direct investment in an industrial gas generation plant dedicated to supply a major new glass production facility near Moscow.

Historic experience around the world has shown that the industrial gas market grows at a significantly higher rate than industrial output during the growth phase of economic development. Secondly, due to the specific characteristics of most industrial gases, they have to be supplied from local plants rather than shipped long distances or from other countries. These factors drive towards the opportunity for investment in local gas production centres.

Where do your Russian operations fit within your overall strategy for Air Products’ future growth?

Today around 50 percent of our sales come in our four growth platforms: Electronics, Healthcare, and Refinery Hydrogen & Energy Solutions in gases and Performance Materials in chemicals. The energy wealth of Russia could provide specific opportunities for our energy platform.

We have operated in Western Europe for over 50 years and this region accounts for nearly 30 percent of global sales, compared with 50 percent in the U.S. We first moved into Central Europe over 10 years ago with investments in the Czech Republic, Slovakia and Poland. As with many companies, geographically Asia has provided us with the highest growth in recent years and now represents some 15 percent of sales. We see Russia and Eastern Europe as at the early development stage that we saw a few years ago in Asia, with the potential to accelerate to higher and sustainable growth than developed economies.

What changes, if any, will Russia’s WTO membership (assuming that within the next few months membership becomes a reality) have on your operations in the country?

We welcome the moves toward restructuring and liberalization of the Russian economy, which we believe will benefit both domestic markets and consumers and the global economy. There are still issues to be addressed, but we believe the structure and positive momentum WTO membership will bring to the Russian economy will help create attractive investment opportunities for Air Products.

Which challenges face Air Products’ operations in Russia? Are your plans contingent on U.S. and Russian energy policies?

Energy is key to our business both in terms of our own operations, with power and natural costs being a major part of any gas company’s cost base, but also as a driver for opportunities with our customers. We see Russia as potentially amenable to a number of our energy solutions, ranging from tonnage gas plants to supply refineries and chemical producers through liquefied natural gas (LNG) heat exchangers, where we are the number one supplier in the world, and others, such as plants for gas to liquids. Managing the transition of Russia’s energy markets toward deregulation, combined with increased exploitation of its massive resources, presents major challenges and opportunities for the Russian authorities and companies, as well as Western businesses like ourselves.

Compare your preconceived notions on doing business in Russia to your outlook today. What held true? What did not?

Our discussions with members of the American Chamber have been very valuable in showing that different business practices are commonly found in Russia from those normally used by Western companies. However we have been very encouraged to see that such western companies can operate successfully within this environment without damaging their integrity.

We have been impressed by the progress that Russia has already made in the restructuring and modernization of its economy. We are firmly convinced that Russia will not go back and can continue on a path to greater prosperity and opportunities for its own people supported by foreign investors such as Air Products.