Barclays Chemical ROC Stars Conference - The Dow Chemical Company Howard Ungerleider
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Barclays Chemical ROC Stars Conference
The Dow Chemical Company
Howard Ungerleider
g
President, Performance Plastics Division
May 3, 2012
January 4, 2012
SEC Disclosure Rules
Some of our comments today include statements about our expectations for the
future Those expectations involve risks and uncertainties.
future. uncertainties Dow cannot guarantee
the accuracy of any forecasts or estimates, and we do not plan to update any
forward-looking statements if our expectations change. If you would like more
information on the risks involved in forward-looking
forward looking statements
statements, please see our
annual report and our SEC filings.
In addition,
addition some of our comments reference nonnon-GAAP
GAAP financial measures.
measures
Where available, a reconciliation to the most directly comparable GAAP financial
measures and other associated disclosures are provided on the Internet at
www.dow.com/financial.
™Trademark of The Dow Chemical Company or an affiliated company of Dow.
--“Adjusted
“Adj t d earnings
i per share”
h ” iis ddefined
fi d as earnings
i per share
h excluding
l di ththe iimpactt off “C
“Certain
t i It
Items.”” S
See S
Supplemental
l t l IInformation
f ti att the
th end
d off
the release for a description of these items, as well as a reconciliation of adjusted earnings per share to “Earnings per common share - diluted.”
--“Adjusted sales” is defined as “Net Sales” excluding sales related to prior-period divestitures.
--EBITDA is defined as earnings (i.e., “Net Income”) before interest, income taxes, depreciation and amortization. Adjusted EBITDA is EBITDA
excluding the impact of “Certain Items.” A reconciliation of EBITDA to "Net Income Available for The Dow Chemical Company Common Stockholders" is
provided in the Appendix.
2
Agenda
1Q 2012 Overview
Drivers
Di t Deliver
to D li Shareholder
Sh h ld Value
V l
− Feedstock Advantage
− Integrated Portfolio
− Innovation Agenda
− Operating and Capital Efficiency
Outlook
3Dow Delivers Adjusted EPS of $0.61 Per Share
10th Consecutive Quarter of Y-O-Y Top-line Growth; Record Ag Performance
Reported EPS of $0.35, or adjusted EPS of $0.61
– Certain items included a restructuring-related charge of $0.25 per share
Sales of $14.7B, adjusted sales up 4%
– Volume grew 3%; price rose 1%
– 10th consecutive quarter of year-over-year sales growth
– Agricultural Sciences grew 14%, reached new sales record
– U.S. sales up 5%
– 10th consecutive quarter of y
year-over-year
y demand growth
g in emerging
g gg geographies
g
EBITDA of $1.7B, or $2.1B excluding certain items
– Agricultural Sciences EBITDA of $451MM represents new quarterly record
– Functional Materials; Polyglycols, Surfactants and Fluids; Dow Elastomers and Dow
Automotive Systems all posted first quarter EBITDA records
Reduced
educed deb
debt by >$1B;
$ ; interest
e es eexpenses
pe ses dec
declined
ed nearly
ea y $50
$50MM
4Year-Over-Year Volume and Price Trends
V l
Volume
Volume up 3% Electronic & -2%
Functional Materials
Strong demand in
Agricultural Sciences Coatings &
---
Infrastructure Solutions
U.S. demand up 2%
Agricultural Sciences 12%
10thconsecutive
quarter off Y-O-Y
O
growth in emerging Performance Materials 2%
geographies
Performance Plastics ---
– Led by Middle
E t Af
East, Africa,
i India
I di
and E. Europe Feedstocks &
7%
Energy
-5 0 5 10 15
Price 5%
Price up 1%; Partially offset ~$120MM increase in raw material costs
Gains in Electronic & Functional Materials, Agricultural Sciences, Feedstocks & Energy
5Agenda
1Q 2012 Overview
Drivers
Di t Deliver
to D li Shareholder
Sh h ld Value
V l
− Feedstock Advantage
− Integrated Portfolio
− Innovation Agenda
− Operating and Capital Efficiency
Outlook
6Clear Drivers to Deliver Shareholder Value
Largest, most flexible and experienced ethylene producer
Feedstock 70% of ethylene production in cost-advantaged regions
Advantage Shale gas dynamics & USGC investments drive EBITDA upside of
~$2B/year
$ y in 2017
Strategically aligned with key end-markets and megatrends
Integrated Driving growth synergies across divisions, particularly in
P tf li
Portfolio Performance Materials and Performance Plastics
Expanding presence in emerging geographies to capture growth
Innovation strength on display across enterprise
Driving
g Our
Innovations commercializing today and poised to accelerate
Innovation Pipeline NPV at $33B, tilted toward implementation
Agenda ~$2B EBITDA expected from innovation by 2015
Operating & Focus on productivity (output/unit), gross margin growth,
reliability as we scale
Capital Driving accountability, greater employee engagement, motivation
Efficiency Targeting to deliver $1B in cash from interventions in 2012
7Ethylene Industry Dynamics Remain Strong
Dow EBITDA Growth from Ethylene Derivatives Drivers
Persistently Favorable
a-to-Ethane Ratio
Oil-to-Gas Ratio
Crude oil $110+
$110+…leading
leading to
high naphtha costs
Upward pressure on ethylene
derivative prices
Nat gas forecast ~$4/mmbtu
$4/mmbtu
Naphtha
Structurally long NGL’s expand
USGC margins
$6 billion in upstream
p
investments in infrastructure
Rising PE / Ethylene Envelope
5 years Current Next 2 2+ years Operating Rates
ago years >90% operating rate leads to
improved pricing power
Dow’s
o s USGC Investments
est e ts Are
e Perfectly
e ect y Timed
ed
8A Tale of Two Worlds
Industry Integrated Polyethylene Cash Margin by Region
Near-record margin on U.S. Gulf Coast
in sharp contrast to W. Europe and Asia
40
30
ound
Cents per po
20
10
0
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12
Quarterly averages based on CMAI, Dow, April 2012
‐10
10
USGC Blended Feedstock W. Europe Asia
9Cycle Drives Ethylene Margin Expansion
Every $0.01 per pound expansion in ethylene margins boosts Dow EBITDA by $200MM
Ethylene Industry Operating Rates Forecast to Rise
200
92 92
91 90
90 90 90
160 88
86
85
Ethylene, millions of tons
84 84
e, %
120
Operating Rate
80
80
70
40
0 60
2005
2006
2007
2008
2009
2010
11E
12E
13E
14E
15E
201
201
201
201
201
Ethylene Production Nameplate Capacity Operating Rate Actual / F'cast
S
Source: CMAI,
CMAI Dow
D
10Feedstock Advantage Bolsters Downstream Profitability
K F
Key Future
t IInvestments
t t Feedstocks & Energy
Driven by downstream needs Performance
Plastics
– St. Charles cracker: YE 2012 Performance
– PDH in Texas: 2015 Ethylene
Packaging
Dow Elastomers
– New cracker in Freeport: 2017 Dow Electrical &
Hydrocarbon Telecommunications
Feedstocks Hygiene & Medical
…
Downstream Use of Key Feedstocks Natural Gas Performance
100% Materials
Propylene Amines
80% Polyglycols,
Surfactants & Fluids
60% Oxygenated Solvents
Epoxy
40% Polyurethanes
…
20%
Brine Chlorine Advanced
0% Materials
Ethylene Propylene Chlorine
Coatings
Specialties Commodities
Performance
Monomers
…
11Dow’s Portfolio Can Pivot to Optimize Returns
Shorter-Term Integration
Value Drivers Ability to arbitrage within and across multiple value
Optimization of chains
price and
volume
Geographic Breadth
Exposure to fastest growing markets;
Investments address growing middle-class
Energy
Longer Term
Longer-Term IIndustry
d t Breadth
B dth
Consumer &
Value Drivers Lifestyle Agriculture, Packaging
Investments Electronics, Transportation, Infrastructure
aligned with Agricultural
long-term S
Solutions
megatrends Technology Breadth
Infrastructure & Deep reservoir of technologies and know-how
Transportation to deliver new solutions for our customer
12A Transformed Plastics Portfolio
The New Performance Plastics
JV PET
Performance
Styrene Monomer Packaging
Sttrategic Globaal Markets
Polystyrene
SBS Hygiene & Medical
ABS
Divested
Polycarbonate
Elastomers
Synthetic Rubber
Thermoplastic Polyurethane Electrical &
P l
Polypropylene
l Telecommunications
Strengthening Global Polyethylene Franchise
Regional
Marke
Industrial & Consumer
Adhesives & Specialties
ets
Functional Polymers
Dow Elastomers
Added
Techno
Portfo
Dow Wire & Cable
PP Licensing & Catalyst
ology
Specialty Packaging & Films
olio
13
®™Trademark of The Dow Chemical Company (“Dow”) or an affiliated company of DowPortfolio Focused On Fast-Growing, Value-Add Markets
Dow Performance Dow Hygiene Dow Electrical &
Dow Elastomers
Packaging & Medical Telecommunications
• World’s
World s largest packaging • Recognized leader • Largest producer of • #1 materials supplier
materials supplier with large global and Polyolefin Elastomers in the Americas, #2 in rest
• Proven track record of regional brand owners (POEs) of world
innovation • Global demographics • Positioned for growth • Positioned for growth
• Largely aligned with position business for with strong demand for in underground cable
fl ibl packaging
flexible k i significant growth soft touch attributes,
attributes installations and
continued inter-material infrastructure installations
• Leader in the push for • Leveraging capabilities in
substitution and ongoing in emerging markets, and
sustainable packaging Elastomers, fibers,
growth of transportation renewal projects in
solutions polyolefin dispersions and
industry worldwide developed markets
technology
Product Technology Segments Product Technology Segments Product Technology Segments Product Technology Segments
• Barrier Resins • Back Sheets • Impact Modification • Insulating Compounds
• Specialty Films • Nonwoven Fibers • Calendared Membranes • Jacketing
• Tie Layers • Sealants • Hot Melt Adhesives • PVC Plasticizers
• Sealants & Peelable Seals • Binders • Soft Touch • Bio
Bio-Based
Based Dielectric
• Extruded Profiles Transformer Fluids
14Proven Track Record of Innovation
Dow launched its
revolutionary INSITE™
Technology in the early
$17B in new 1990s
revenue since 1993
This breakthrough
catalyst technology
brought new levels of
performance to
polyolefins
Revenue
Dow has been awarded
eight R&D 100 Awards for
products from the INSITE
platform
Revenue growing at This technology has
$2B annualized created $17B in new
run rate revenue since launch
Current run rate of $2B in
revenue per year from
INSITE-enabled products
1990 1993 1996 1999 2002 [ 2005 2008 2011 ]
15% CAGR
15Addressing Value Chain Needs With World-Class IP
ENLIGHT™ Encapsulant Films $1B Market Opportunity
Demand for photovoltaic (PV) modules continues to grow at 25 percent
per year
G
Global PV market is expected to grow to $70
$ billion in 2013
High performance ENLIGHT™ encapsulant films are displacing
traditional PV films
In 2012, Dow is building two new plants, tripling our films capacity
Al d collaborating
Already ll b ti with
ith lleading
di global
l b l solar
l panell manufacturers
f t on
next generation technology
Bio-Based Transformer Oils $2B Market Opportunity
Vegetable oil-based transformer oil is safer for utilities
>98% biodegradable, non-toxic, made from renewable resources
Durability
y extended byy 8X in presence
p of vegetable
g oil-based fluids
Leveraging IP and know-how from Dow Electrical &
Telecommunications, Dow AgroSciences & Dow Specialty Fluids
Complete compatibility with existing transformers and fluids
16Monetizing Dow’s Innovation Pipeline
Products Launched in 2011
Addressing Global Megatrends
CONSUMER & AGRICULTURAL INFRASTRUCTURE &
ENERGY
LIFESTYLE SOLUTIONS TRANSPORTATION
• DOW POWERHOUSE™ Solar Shingle
• EcoSmooth™ satin conditioning polymer
• Solid State Lighting
g gggrowth p
platform
• EVOQUE™ Pre-Composite Polymer Technology
• Spinetoram in Argentina and Chile
• New ENDURANCE™ insulation for power cables
• ENLIGHT™ Photovoltaic Encapsulant Films
• PASCAL™ Technology – new polyurethane energy efficiency solution
for appliances
• VORATRON™ ssystems
stems for electrical encaps
encapsulation
lation
Innovation has delivered ~$400MM of incremental EBITDA since 2009
~$2B expected from innovation in 2015
17On Track to Achieve Efficiency and Cost Targets
Total Levers $2.5B
Interventions Underway
$1B On track to deliver $250MM of
Actively Manage $1.5B cost reductions in 2012
CapEx & Growth Additional
Spending Levers – April 2: Announced selective
downsizing / shutdown of assets to
Poised to
reduce structural costs
Pull as
$750MM Needed
Execute Cost Efficiency programs delivering
R d ti
Reduction
results
Program
– Delivered $500MM of cash in 2011
$750MM
$ $1B
$ – $200MM off cash
h delivered
d li d in
i 1Q12
Accelerate Already
Efficiency for – Targeting $750MM of cash in 2012
In Motion
Growth
18Strong Cash Flow Generation and Clear Uses of Cash
Shareholder
Sh h ld Remuneration:
R ti R i d di
Raised dividend
id d 28%
Deleveraging: Reduced >$1B of debt in 1Q12
Invest for Growth: Prudent investments for organic growth
Cash Flow from Operations Dividend Payout Ratio*
100%
80%
Average Payout Ratio
60%
$8 Billion 40%
20%
0%
2005
2006
2007
2008
2010
2011
2009*
1981-1990
1991-2000
2001-2010
Pro Forma*
2009 2010 2011 2012 2013 2014 2015
*Dividend Payout Ratio defined as common stock dividends divided by net income excluding certain items. In 2009, the ratio exceeded 100%.
Pro Forma equals the 2Q12 dividend rate of $0.32 annualized, divided by trailing four quarters net income excluding certain items.
19Agenda
1Q 2012 Overview
Drivers
Di t Deliver
to D li Shareholder
Sh h ld Value
V l
− Feedstock Advantage
− Integrated Portfolio
− Innovation Agenda
− Operating and Capital Efficiency
Outlook
20Macroeconomic Outlook
Asia showing improvements
– Solid demand growth in South East Asia
– Post-tsunami recovery in Japan
– Stabilization
St bili ti iin Chi
China as governmentt policies
li i shift
hift tto d
domestic
ti growth
th
United States sees recovery
– Improvement in consumer confidence
– Tailwinds from abundant access to low-cost natural gas
– Healthy indicators across a variety of sectors.
W. Europe faces headwinds
– Positive signs in Germany
– Ongoing
g g structural competitive
p issues across the region
g
Demand growth expected to gain momentum
throughout
g the remainder of the year
y
21Earnings Growth Trajectory
Margin Expansion / Organic Growth
Equity Earnings
Growth Synergies / Innovation
~$1.5B of
incremental EBITDA
$10B
$8.4B
$7 5B
$7.5B
$5.5B
Near
2009(1) 2010 2011 Term
(1) Pro forma, reflecting the combination of historical information of Dow and Rohm and Haas Company.
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