Industrial Gases R&D and Innovation Are we investing enough? Nigel Lewis – Spiritus Group gasworld Conference Budapest - May 2015

Profile 25 years with The BOC Group and The Linde Group BOC Linde 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

Spiritus consulting projects For industrial gases clients For suppliers to the industry 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 Demand forecast for cryogenic tanks and tankers by region and customer Demand forecast for ASUs by region Demand model cylinders

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!

Industrial Gases R&D spend Global leaders 471 463 453 434 415

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

R&D trend has been constant as % sales CEFIC chemicals average Air Products Air Liquide Industry average Praxair Linde

Why so low? Very few ‘breakthrough’ technologies Patent protection for applications hard to enforce Growth historically driven by M&A, geographic expansion and productivity

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

Typically 50% of patents relate to core business Patent Filing Trend Typically 50% of patents relate to core business

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

Linde R&D trend – Gases vs Engineering

Broader range of R&D activities

Innovation is the key theme

Broader innovation networks Internal network External network University researchers Major R&D centre gases Suppliers Industrial Customers Licensing in and out Satellite gas applications centres Hospitals + Medical Research Centres Think tanks Major R&D centre engineering Competitions Government Programmes Venture Capital Example: Air Liquide ‘more than 60% of R&D projects were conducted as part of public-private partnerships in 2014

Current innovation themes Productivity Cylinders Energy Healthcare

Innovation - productivity Plant efficiencies Turbomachinery Cold box optimisation Steam reformer process Supply chain Dynamic scheduling Tank optimisation Asset tracking

Core innovation business themes merchant gases Customer-focused packages Lightweight Integrated valves and regulators Smart displays and alarms Connected Ease of use

ENERGY Production Storage Distribution H2 refuelling 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 H2 refuelling LNG and CNG distribution Fleets Ships Industrial

Healthcare Respiratory medicine Mobile cylinders and smart cylinders 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

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