Nippon Sanso Holdings Corporation (NSHD) intends to continue spending big on gas production infrastructure as well as hoping to make further acquisitions to strengthen its position in the global industrial gas market.
On its latest earnings call, the Japan-based firm, which is the world’s fourth-largest industrial gas company, said mergers and acquisitions (M&A) and capital expenditure were high on the agenda. It especially wants to expand its presence in Australia, Asia, and Europe.
In December last year, NSHD announced two buyouts in Australia and Spain respectively. The A$770m Australian deal, to buy Coregas from Wesfarmer, should grow its business there by about 50% once it completes later this year. While financial details were not disclosed, the company said that these and other deals might knock its ability to meet its 0.7x debt-to-equity target. However, executives stressed that strategic acquisitions take priority over short-term financial ratios.
Read more:Nippon Sanso reports mixed global results amid economic shifts
“When an opportunistic acquisition comes along where we can improve our market position, we’ll have to make decisions that sometimes will deviate from our goals and targets,” said Alan Draper, Executive Vice-President. “But we think, in the shareholder interest, it’s a much better opportunity to get this acquisition [rather] than focusing solely on debt-to-equity.”
Beyond buying companies, NSHD is ramping up gas infrastructure investments, particularly in Asia, where demand for nitrogen generation equipment and air separation units (ASUs) is rising. CEO Toshihiko Hamada noted that while there is no single large-scale project driving this increase, multiple projects across the region are contributing to a ¥10bn ($67m) of extra capital spend.
“In Asia, [with] nitrogen generation equipment or air separation units, we have been receiving quite active enquiries,” Hamada said. “This is not derived from a single large-sized project, but rather there are a number of projects [landing], primarily in Asia.”
In the US, NSHD reported stable demand for on-site oxygen and nitrogen supply, despite slight declines in overall gas volumes. The company is also navigating rising construction costs, particularly in civil engineering, but says that firm pricing agreements for 70% of project costs is helpng to manage budget risks.
“The biggest cost increases have been in civil engineering, but we secure firm quotations for about 70% of costs before approving projects,” Draper said. “There might be some exposure to the civil work, which causes some higher cost. But for the most part we’re trying to maintain and manage the budget that we provide.”
The firm is also positioning itself in clean energy markets, with hydrogen projects in India and a major ASU development in Texas with 1PointFive, a subsidiary of Oxy Petroleum. The company said these projects carry low financial risk and align with its long-term sustainability strategy.
“As we mentioned after the Vertex issue that we had last quarter, we basically looked through all of our portfolio,” Draper said. “The largest project that we have that we’ve disclosed is NRL (Numaligarh Refinery Limited) in India – that’s a hydrogen project. It’s a quasi-government project in a regular refinery. We deem it extremely low risk from an impairment perspective.”
