Innovate or Perish: Managing the Enduring Technology Company in the Global Market

Profitability of Air Products (APD) and Companies in Our Chemicals Market Segment

Using annual report data, we have estimated average profitability of several comparable companies. The summary is shown in Exhibit 9A.1.

Exhibit 9.A.1. Average Profitability of Several Companies

	Profit before Tax
Company	EBT (% of Sales)	FY
Air Products	9.0	2003
Air Liquide	13.1	2002
Praxair	14.0	2003
BOC	10.6	2003
Rohm & Haas	6.5	2003
Average	10.6

Air Products is a gas and chemical supplier. Our industrial gas competitors (Air Liquide, BOC, Praxair) are pure gas suppliers. Rohm and Haas represents a pure industrial/specialty chemical company.

Additionally, a recent study^[14] of 126 chemical companies concluded the weighted average long-term profit margin (EBT) to be 11.1% over the period 1990–2000.

^[14] Goldscheider, R., et al. “Use of the 25% Rule in Valuing IP,” les Nouvelles, December 2002, p. 123.

The conclusion from these studies is that APD makes, on average, 10% to 11% profit before taxes on all of our products. Some products are old and have low margins. Some products are new and have high margins; however, some new products have low or negative margins because there have been unanticipated costs. Therefore, for discussion purposes, a round number of 10% EBT will be used.

One may argue that we will commercialize only alliance-bred products with projected margins higher than 10%. There will be products in which the projected margin at the time of making the commercialization decision is more than 10 %. However, ...