Melissa N. Schaeffer
Senior Vice President & Chief Financial Officer at Air Products and Chemicals
Thank you, Seifi. As Seifi mentioned, our business performance -- performed very well despite the macroeconomic challenges this fiscal year. Our onsite business, which generates about half of our total company sales, once again held firm, while our merchant team successfully managed through the significant energy cost increases. Our people worked hard to overcome supply chain challenges across the region, keeping our facilities running and our customers supplied. I would like to thank the entire Air Products team for their hard work and a job well done. Now please turn to Slide 12 for an overview of our full year results. Underlying sales were strong, up 14%, with significant contributions for both price and volume. Overall, price increased 6%, which corresponds to a 15% increase in our merchant business. Year-over-year price improved every quarter in our last -- in our three largest regional segments and across most of our major product lines. Our volume grew 8%, driven by improved hydrogen, new plants, merchant demand and increased sales of equipment activity. EBITDA was up 9% due to favorable price, volume and equity affiliate income, which are partially offset by a higher cost and unfavorable currency. EBITDA margin was down just over 400 basis points and was negatively impacted by over 400 basis points by energy cost pass-through, which drove approximately half the total sales increase but added no profit. The impact of the energy cost pass-through was particularly noticeable in the Americas and Europe, where we have a meaningful hydrogen business. ROCE has climbed steadily in the last five quarters reaching 11.2%, which is 110 basis points higher than last year. We expect ROCE to further improve as we bring new projects on stream and continue to put the cash on our balance sheet to work. Adjusting for cash, our ROCE would have been 13.6% this quarter. Now please turn to Slide 13 for a discussion of our full year EPS. Our full year adjusted EPS from continuing operations was up $1.39 or 15%. Volume was favorable at $0.80 and was particularly strong in Asia and the Americas. The increased sales equipment in our corporate segment also helped drive higher volume.
Price more than offset the significant energy cost increases adding $0.81, driven by our strong price action in our three largest segments. Our other costs were $0.84 unfavorable and were driven by external factors, such as inflation and inefficiencies caused by COVID restrictions in certain parts of China as well as a supply chain disruption across the region. We also incurred additional costs purposefully to support our future growth. These include resources required to develop projects and bring them onstream as well as investments and facilities such as our new helium storage cavern, which will generate significant value in the future. We continue to closely monitor our costs and are focused on productivity actions across our businesses. Currency lowered our earnings by $0.24 or 3% as the U.S. dollar strengthened against most key currencies the latter half of the fiscal year. Since the revenue and cost are denominated in their respective local currencies, this is primarily a translation rather than a transaction impact. Equity affiliate income was up $0.74, primarily due to the first phase of our Jazan project, which contributed as we committed. Our effective tax rate of 18.2% was 70 basis points lower than last year, and we expect an effective tax rate of 19% to 20% in FY 2023. Interest expense was lower, adding $0.05 to earnings, primarily due to a reduced debt balance. Now please turn to Slide 14 for a review of our fourth quarter results. In comparison to last year, we achieved double-digit growth for both sales and profits as our teams worked hard to overcome considerable macroeconomic headwinds. Each region found its own success and achieved better results through its respective key drivers, which will be detailed later in the regional review. Underlying sales were up 17% and with about equal contributions from both volume and price. Volumes are up 9% better, primarily in Asia and Americas, driven by new plants, recovery in hydrogen and better merchant volumes. For the fourth consecutive quarter, we achieved double-digit increase in merchant pricing, which was up 20% compared to last year. As cost pressures persist, we continue to work hard on pricing each region. Currency translated from the strengthening U.S. dollar negatively impacted our results this quarter, reducing sales by about 6% and EBITDA by 5%.
Despite this headwind, EBITDA increased 10% as favorable price, volume and equity affiliate income more than offset higher costs. The 450-basis point decline in EBITDA margin was primarily attributed to energy cost pass-through, which impacted margins by about 450 basis points. Sequentially, volumes improved across all segments and price increased primarily due to actions in our Europe segment. EBITDA was up 6% sequentially, absorbing 3% of currency headwinds, and favorable price and volume more than offset higher costs. Now please turn to Slide 15. Our fourth quarter GAAP EPS was $2.56 per share and included a negative impact of $0.32 for two non-GAAP items, both of which were noncash. First, we recognized a $0.27 per share loss on the divestiture of our business in Russia, which we exited as a result of the Russia's invasion of Ukraine, as we had previously announced. This charge is separately presented as business and asset actions on our P&L. We also recognized a loss of $0.05 per share for the impairment of two small equity affiliates in Asia, which is included in the equity affiliate line item. Excluding the non-GAAP items, our fourth quarter adjusted EPS was $2.89 per share, an increase of $0.38 or 15% from prior year. We achieved this excellent result despite a negative $0.15 or 6% currency impact. Price, volume and cost together contributed $0.46. Volume contributed $0.33 and was particularly strong in Asia and America. Price, net of variable costs, was favorable $0.39 with Asia, Europe and the Americas each achieving significant price improvements. Price has improved throughout the year due to the outstanding efforts of our regional teams who helped us improve our pricing, net of variable costs, from a modest negative impact in the first quarter to a positive impact in each quarter's since then. Other costs were $0.26 unfavorable. Almost half of the cost increases this quarter were due to higher incentive compensation, which is performance-based and reflective of our strong results. The remaining increase was primarily due to inflation supply chain disruptions, higher planned maintenance and the addition of resources needed to support our growth. Currency was negative $0.15, and which was about $0.05 worse than we had expected when we provided Q4 guidance in July. The Jazan joint venture drove the improvement of equity affiliate income.
However, many of our other equity affiliates compared unfavorably due to the strong performance last year, in part due to the lower medical oxygen demand for COVID this year. Now please turn to Slide 16. The stability of our business allows us to generate strong cash flow despite the challenging environment. In fiscal year 2022, we generated more than $3 billion of distributable cash flow or almost $14 per share, which is up 15% compared to last year. From our distributable cash flow, we paid over 45% or roughly $1.4 billion as dividends to our shareholders. This leaves more than $1.7 billion available for high-return projects, 20% more than last year. This droves cash flow, especially in uncertain times, enable us to continue to create shareholder value through increasing dividends and capital deployment for high-return projects. Slide 17 provides an update of our capital deployment. As you see, our capital deployment potential has increased to about $37 billion through fiscal 2027. The $37 billion includes over $8 billion of cash and additional debt capacity available today, more than $17 billion we expect to be available by 2027 and $11 billion already spent. We still believe this capacity is conservative given the potential for additional EBITDA growth, which would generate additional cash flow and additional borrowing capacity.
As always, we continue to focus on managing our debt balance to maintain our current targeted A/A2 rating. So you can see, our backlog has grown to nearly $20 billion, which will provide substantial amount of growth in the future. We have already spent 30% and have already committed 73% of the updated capacity we show here. We have made great progress and still have substantial investment capacity remaining to invest in high-return projects. We believe that investing in these high-return projects is the best way to create shareholder value for the long run. We continually evaluate our capital deployment options and determine the best way to use available cash entrusted to us by our shareholders. Before I turn the call back to Seifi, I would like to mention that starting first quarter of fiscal 2023, we will exclude the nonservice pension impact from our adjusted results. These nonservice-related components and our defined benefit plans, including effects of the changing interest rates and movements of the capital markets, are unrelated to our operations. By excluding these items, we believe that we can better provide visibility to our underlying results. The recap of earnings per share by quarter for fiscal year 2021 and 2022 are included in our reconciliation tables available on our websites. The EPS guidance for the first quarter and the full year of fiscal 2023, which Seifi will discuss in more detail later, reflects this change. Now to begin the review of our business segment results, I'll turn the call back over to Seifi. Seifi?
