The Dow Chemical — Q4 2015 Earnings Presentation
54 slides from The Dow Chemical's earnings presentation, Feb 2, 2016
Slide 1: 4Q 2015 Earnings Conference Call
The Dow Chemical Company 4Q 2015 Earnings Conference Call February 2, 2016 The Dow Chemical Company
Slide 2: SEC Disclosure Rules
SEC Disclosure Rules Regulation G The attached charts include information that does not conform to generally accepted accounting principles (GAAP). Management of the companies believe that an analysis of this data is meaningful to investors because it provides insight with respect to comparisons of
Slide 3: SEC Disclosure Rules
SEC Disclosure Rules Important Information About the Transaction and Where to Find It In connection with the proposed transaction, The Dow Chemical Company (“Dow”) and E. I. du Pont de Nemours and Company (“DuPont”) will cause Diamond-Orion HoldCo, Inc. (“Diamond-Orion HoldCo”), to file with the Sec
Slide 4: SEC Disclosure Rules
SEC Disclosure Rules Some of our comments today include statements about our expectations for the future. Those expectations involve risks and uncertainties. Dow cannot guarantee the accuracy of any forecasts or estimates, and we do not plan to update any forward-looking statements if our expectatio
Slide 5: Agenda
Agenda • 4Q and Full Year 2015 Overview • 4Q Segment Results and 2016 Modeling Guidance • 2015 Achievements and Earnings Growth Drivers • 2016 Outlook and Focus 5
Slide 6: Dow Achieves Record 4Q, Full Year 2015 Results
Dow Achieves Record 4Q, Full Year 2015 Results 13th Quarter of YoY Quarterly Op. EPS and Op. EBITDA Margin Growth • Operating EPS rose to $0.93 – up 9% • Volume1 increased 4% with gains in all geographies 9th consecutive quarter of growth on a year-over-year basis • Operating EBITDA increase of mo
Slide 7: Financial Performance Metrics (on a trailing twelve month basis)
Financial Performance Metrics (on a trailing twelve month basis) Operating EPS Operating EBITDA ($MM) Cash Flow ($MM) $4.00 $10,000 $9,000 FCF TTM CAPEX TTM $3.50 $7,500 $9,000 $3.00 $6,000 $2.50 $8,000 $4,500 $2.00 $3,000 $7,000 $1.50 $1,500 $1.00 $6,000 $0 $5,000 Excluding the impact of K-Dow Targ
Slide 8: Agenda
Agenda • 4Q and Full Year 2015 Overview • 4Q Segment Results and 2016 Modeling Guidance • 2015 Achievements and Earnings Growth Drivers • 2016 Outlook and Focus 8
Slide 9: Agricultural Sciences
Agricultural Sciences Aggressive Self-Help in Challenging Macro Environment Quarterly Financial Performance $250 16% Competitive Environment with Weak Commodity Prices $225 • New Crop Protection product sales increased 6% YTD led by spinetoram insecticide and ISOCLAST™ Active Insecticide, offsetting
Slide 10: Consumer Solutions
Consumer Solutions Record Op. EBITDA Growth Driven by Differentiation in Semiconductor, Pharma and Automotive Quarterly Financial Performance $310 35% Dow Automotive Systems – Customer-Focused Solutions Drive Demand $290 • Structural adhesives and elastomer technologies drive unit margin growth $270
Slide 11: Infrastructure Solutions
Infrastructure Solutions Quarterly Financial Performance Strength in Construction and Water; $250 20% Weakness in Energy and Monomers $225 18% $200 (in millions) Dow Building & Construction – Innovation Drives Demand 16% • Margin expansion driven by strength in construction chemicals sectors and $17
Slide 12: Performance Materials & Chemicals
Performance Materials & Chemicals Divestitures and Equity Earnings more than Offset Growth in Targeted End Markets Quarterly Financial Performance $700 30% Industrial Solutions – Equity Company Results and Divestitures $600 Offset Core Business Margin Improvement $500 25% • Lower EBITDA driven by eq
Slide 13: Performance Plastics
Performance Plastics Record EBITDA on Solid Demand for Differentiated Products Quarterly Financial Performance $1,400 35% Dow Packaging and Specialty Plastics – Record PE Volume • Record quarterly PE volume led by packaging sales into emerging end markets, 28% 30% including double-digit gains in Asi
Slide 14: Modeling Guidance
Modeling Guidance PDH, Dow Corning, LA3 tailwinds – PDH full-year impact, Dow Corning and LA3 in 2H16 Productivity program – incremental >$300MM in 2016 building on $345MM of savings in 2015 End-markets – YoY volumes expected to be modestly up in targeted end markets Ag sector expected to be down 3-
Slide 15: Agenda
Agenda • 4Q and Full Year 2015 Overview • 4Q Segment Results and 2016 Modeling Guidance • 2015 Achievements and Earnings Growth Drivers • 2016 Outlook and Focus 15
Slide 16: 2015 Achievements
2015 Achievements • DowDuPont • Portfolio Management Dow Chlorine Products • JV Restructuring ANGUS Strategic MEGlobal AgroFresh Univation Technologies Sodium Borohydride Dow Corning Others • Delivered 12% increase in operating EPS • Reduced net debt to capitalization • Achieved oper
Slide 17: Progress Against 2013 Strategic Roadmap
Progress Against 2013 Strategic Roadmap Strategic Review Conducted in 2013 Goals Outcomes Since 2013 • 10% operating EPS growth over long-term Operating EPS growth of 18% per year Increased operating ROC to 12.1% • Operating ROC at 3% above cost of capital Net debt to operating EBITDA of 0.9x
Slide 18: External Metrics Validate Dow's Value Creation
External Metrics Validate Dow’s Value Creation EVA1 Momentum (3-Year) Lower Working Capital and Asset Base A 1.5% • Enhanced ERP systems for greater visibility DOW 1.4% • Warehousing and logistics optimization B 1.2% C 1.0% • Site consolidation D 0.5% • Order to cash streamlining E 0.4% F -0.3% Syne
Slide 19: Near-Term Earnings Growth Drivers
Near-Term Earnings Growth Drivers Projects Delivered Near-Term Mid-Term Dow Louisiana Dow Corning TX Ethylene Freeport Productivity Sadara Ethane Silicones and USGC PDH Program Flexibility Derivatives • Delivered • Successfully • First product • Construction • Cost synergies of • Ethane cracker with
Slide 20: Agenda
Agenda • 4Q and Full Year 2015 Overview • 4Q Segment Results and 2016 Modeling Guidance • 2015 Achievements and Earnings Growth Drivers • 2016 Outlook and Focus 20
Slide 21: Market Outlook
Market Outlook • North America consumer markets remain strong; Europe demand is rising; Latin America is mixed • China demand driven by consumer needs and is growing • Packaging and polyethylene value chain supply/demand dynamics still tight with upside • Commodity environment weak as supply surplus
Slide 22: Forward Focus: 2016 Priorities
Forward Focus: 2016 Priorities 1 Deliver operating and financial plan 2 Close the Dow Corning transaction by mid-year 2016 3 Accelerate DowDuPont key stage gates • Close merger in 2H16 • Define accelerated synergy capture plans • Deliver intended spins Driving Increasing Results; Delivering Sharehol
Slide 23: Slide 23
Slide 24: Implementation Planning – Indicative Milestones
Implementation Planning – Indicative Milestones 4Q15 2016 2017-2018 Signed Hart Scott S4 ROW Share- Close Stand Up SpinCos1 Complete Spins1 12/11/15 Rodino Filings Competi- holder 2H16 Filings 1Q16 tion Vote 1Q16 Filings 2Q16 1Q16/ 2Q16 CLOSE Drive close of transactions Prepare to operate MergeCo Op
Slide 25: Joint Implementation Planning
Joint Implementation Planning Joint Executive Steering Team Dow Representation DuPont Representation Andrew N. Liveris – CEO Ed Breen – CEO Jim Fitterling – COO Nick Fanandakis – CFO Howard Ungerleider – CFO Stacy Fox – General Counsel Charles J. Kalil – General Counsel David Bills – SVP Corp. Strat
Slide 26: Appendix
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Slide 27: 4Q15 Financial Performance
4Q15 Financial Performance 4Q15 4Q14 B/(W) Net Sales ($MM) $11,462 $14,384 $(2,922) Sales ex. Acquisitions and Divestitures ($MM) $11,351 $13,411 $(2,060) EBITDA ($MM) $4,963 $2,053 $2,910 Operating EBITDA ($MM) $2,390 $2,416 $(26) EBITDA Margin 43.3% 14.3% +2903 bps Operating EBITDA Margin 20.9% 16
Slide 28: 2015 Financial Performance
2015 Financial Performance FY15 FY14 B/(W) Net Sales ($MM) $48,778 $58,167 $(9,389) Sales ex. Acquisitions and Divestitures ($MM) $48,543 $56,892 $(8,349) EBITDA ($MM) $13,326 $8,944 $4,382 Operating EBITDA ($MM) $9,596 $9,337 $259 EBITDA Margin 27.3% 15.4% +1,194 bps Operating EBITDA Margin 19.7% 1
Slide 29: DCP Transaction Rewards Shareholders
DCP Transaction Rewards Shareholders • $1.5B in equity redemption Total consideration >$4.8B • $2.9B debt reduction and cash • >$0.4B reduction in pension liability Cash Debt Equity Total Cash Received1 $1.2B Total Debt Reduction $1.7B Total Equity Redemption $1.5B Significant driver in Dow’s reduct
Slide 30: Market Pulse – 4Q15 Heat Map
Market Pulse – 4Q15 Heat Map Eastern Europe, ME, 4Q’15 Up 3X GDP or greater Western Europe Developing Asia Flat Demand Growth Developed Asia Latin America US & Canada Africa, India 4Q’15 Down Double digit or greater Lower Participation >$1B Participation in 2015 ex. Market Divestitures Construction
Slide 31: Dow's Industry Leading Feedstock Flexibility
Dow’s Industry Leading Feedstock Flexibility Enables Optimized Feedslate Economics Increasing U.S. Ethane Capability Nearly Half of European Ethylene from LPG in ‘15 Dow U.S. Dow Americas Volume Dow North America 90% Produce Ethylene 2015 From Ethane Capability to 80% 70% 2014 60% 50% 40% 2013 2012
Slide 32: Agricultural Sciences
Agricultural Sciences Dollars in millions 4Q15 4Q14 Sales $1,603 $1,856 Adjusted Sales* $1,586 $1,769 Adj. Price (9%) Adj. Volume (1%) EBITDA $186 $222 Equity Earnings/(Losses) (included in EBITDA) ($17) $1 Operating EBITDA $220 $222 Equity Earnings excl. Certain Items (included in Operating EBITDA)
Slide 33: Agricultural Sciences
Agricultural Sciences Dollars in millions 2015 2014 Sales $6,381 $7,290 Adjusted Sales* $6,348 $7,161 Adj. Price (8%) Adj. Volume (3%) EBITDA $1,432 $962 Equity Earnings/(Losses) (included in EBITDA) ($15) $4 Operating EBITDA $859 $962 Equity Earnings excl. Certain Items (included in Operating EBITD
Slide 34: Consumer Solutions
Consumer Solutions Dollars in millions 4Q15 4Q14 Sales $1,052 $1,124 Price (7%) Volume 1% EBITDA $304 $325 Equity Earnings (included in EBITDA) $38 $196 Operating EBITDA $296 $243 Equity Earnings excl. Certain Items (included in Operating EBITDA) $30 $41 4Q15 Sales 4Q15 Trends vs. 4Q14 Dow Automotiv
Slide 35: Consumer Solutions
Consumer Solutions Dollars in millions 2015 2014 Sales $4,379 $4,639 Price (7%) Volume 1% EBITDA $1,048 $1,130 Equity Earnings (included in EBITDA) $91 $281 Operating EBITDA $1,107 $1,048 Equity Earnings excl. Certain Items (included in Operating EBITDA) $83 $126 2015 Sales 2015 Trends vs. 2014 Dow
Slide 36: Infrastructure Solutions
Infrastructure Solutions Dollars in millions 4Q15 4Q14 Sales $1,705 $1,959 Adjusted Sales* $1,705 $1,956 Price (16%) Volume 3% EBITDA $161 ($104) Equity Earnings/(Losses) (included in EBITDA) $67 ($178) Operating EBITDA $235 $244 Equity Earnings excl. Certain Items (included in Operating EBITDA) $55
Slide 37: Infrastructure Solutions
Infrastructure Solutions Dollars in millions 2015 2014 Sales $7,394 $8,429 Adjusted Sales* $7,394 $8,426 Price (14%) Volume 2% EBITDA $1,021 $817 Equity Earnings/(Losses) (included in EBITDA) $203 ($6) ) Operating EBITDA $1,122 $1,165 Equity Earnings excl. Certain Items (included in Operating EBITDA
Slide 38: Performance Materials & Chemicals
Performance Materials & Chemicals Dollars in millions 4Q15 4Q14 Sales $2,381 $3,912 Adjusted Sales* $2,381 $3,154 Adj. Price (21%) Adj. Volume (3%) EBITDA $3,144 $636 Equity Earnings/(Losses) (included in EBITDA) ($6) $54 Operating EBITDA $423 $636 Equity Earnings excl. Certain Items (included in Op
Slide 39: Performance Materials & Chemicals
Performance Materials & Chemicals Dollars in millions 2015 2014 Sales $11,973 $15,114 Adjusted Sales* $11,973 $14,096 Adj. Price (16%) Adj. Volume 1% EBITDA $5,479 $2,193 Equity Earnings (included in EBITDA) $225 $322 Operating EBITDA $2,070 $2,193 Equity Earnings excl. Certain Items (included in Op
Slide 40: Performance Plastics
Performance Plastics Dollars in millions 4Q15 4Q14 Sales $4,617 $5,465 Adjusted Sales* $4,523 $5,340 Adj. Price (26%) Adj. Volume 11% Adj. Price (18%) excluding Hydrocarbons & Energy Adj. Volume 5% EBITDA $1,562 $1,194 Equity Earnings (included in EBITDA) $46 $57 Operating EBITDA $1,302 $1,194 Equit
Slide 41: Performance Plastics
Performance Plastics Dollars in millions 2015 2014 Sales $18,357 $22,386 Adjusted Sales* $18,155 $22,261 Adj. Price (23%) Adj. Volume 5% Adj. Price (16%) excluding Hydrocarbons & Energy Adj. Volume 6% EBITDA $5,399 $4,422 Equity Earnings (included in EBITDA) $220 $257 Operating EBITDA $4,802 $4,422
Slide 42: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Three Months Ended Twelve Months Ended In millions 12/31/15 12/31/14 12/31/15 12/31/14 Operating EBITDA $2,390 $2,416 $9,596 $9,337 Certain Items 2,573 (363) 3,730 (393) EBITDA $4,963 $2,053 $13,326 $8,944 - Depreciation and amortization 600 692 2,521 2,
Slide 43: Supplemental Information - 4Q15
Supplemental Information - 4Q15 Certain Items Impacting Results In millions, except per share amounts (Unaudited) Pretax Impact (1) Net Income (2) EPS - Diluted (3)(4) Three Months Ended Three Months Ended Three Months Ended 12/31/15 12/31/14 12/31/15 12/31/14 12/31/15 12/31/14 Operating Results - a
Slide 44: Additional Supplemental Information – 2015
Additional Supplemental Information – 2015 Certain Items Impacting Results In millions, except per share amounts (Unaudited) Pretax Impact (1) Net Income (2) EPS - Diluted (3)(4) Twelve Months Ended Twelve Months Ended Twelve Months Ended 12/31/15 12/31/14 12/31/15 12/31/14 12/31/15 12/31/14 Operati
Slide 45: Certain Items Affecting Results- 4Q15 and 2015
Certain Items Affecting Results- 4Q15 and 2015 Certain items increasing (decreasing) EBITDA by operating segment In millions Three Months Ended Twelve Months Ended 12/31/15 12/31/14 12/31/15 12/31/14 Agricultural Sciences ($34) $— $573 $— Consumer Solutions 8 82 (59) 82 Infrastructure Solutions (74)
Slide 46: Supplemental Information
Supplemental Information Results in the fourth quarter of 2015 were impacted by the following items: • Pretax charges of $144 million for asset impairments and related costs, including the shutdown of manufacturing assets and facilities in the Dow Building & Construction business, Energy & Water Sol
Slide 47: Supplemental Information
Supplemental Information Results in the fourth quarter of 2014 were unfavorably impacted by the following items: • Pretax charges of $73 million for asset impairments related to the Dow Electronic Materials business. The charges were included in "Cost of sales" ($23 million) and "Other intangible as
Slide 48: Supplemental Information, continued
Supplemental Information, continued In addition to the items described on the previous slide for the fourth quarter of 2015, results for the year ended December 31, 2015 were impacted by the following items: • Pretax restructuring charges of $375 million. On April 29, 2015, Dow's Board of Directors
Slide 49: Emerging Geographies
Emerging Geographies Dow defines emerging geographies as the following: Eastern Europe, including Russia Asia Pacific, excluding Japan, Australia and New Zealand Latin America India Middle East Africa 49
Slide 50: Principal Joint Ventures
Principal Joint Ventures Although Dow participates in many joint ventures, the most significant joint ventures from a financial perspective are: Dow Corning Corporation EQUATE Petrochemical Company K.S.C. The Kuwait Olefins Company K.S.C. The Kuwait Styrene Company K.S.C. Sadara Chemical Company The
Slide 51: Preliminary Results for Principal Joint Ventures
Preliminary Results for Principal Joint Ventures Principal Joint Ventures - Total Dow Proportionate Share Dollars in millions (unaudited) Dollars in millions (unaudited) 4Q15 4Q14 4Q15 4Q14 Sales $3,720 $4,553 Sales $1,685 $2,005 Adjusted Sales(1) $3,009 $3,426 Adjusted Sales(1) $1,399 $1,548 EBITDA
Slide 52: Preliminary Results for Principal Joint Ventures
Preliminary Results for Principal Joint Ventures Principal Joint Ventures - Total Dow Proportionate Share Dollars in millions (unaudited) Dollars in millions (unaudited) 2015 2014 2015 2014 Sales $16,128 $18,979 Sales $7,232 $8,357 Adjusted Sales(1) $12,356 $14,248 Adjusted Sales(1) $5,672 $6,416 EB
Slide 53: Reconciliation of Equity Earnings
Reconciliation of Equity Earnings 2005 2006 2007 2008 2009 2010 2011 2012 Quarterly Average Equity Earnings excluding certain items $241 $240 $281 $197 $181 $278 $259 $175 Equity Earnings excluding certain items, for the year 964 959 1,122 787 724 1,112 1,137 698 Certain items: Dow Corning Restructu
Slide 54: Global Operating Rates as a Percent of Capacity
Global Operating Rates as a Percent of Capacity Year QTR YTD 2011 1Q 83% 83% 2Q 84% 83% 3Q 83% 83% 4Q 72% 80% 2012 1Q 83% 83% 2Q 78% 81% 3Q 83% 81% 4Q 78% 81% 2013 1Q 82% 82% 2Q 78% 80% 3Q 82% 81% 4Q 82% 81% 2014 1Q 83% 83% 2Q 82% 83% 3Q 88% 85% 4Q 86% 85% 2015 1Q 84% 84% 2Q 84% 84% 3Q 86% 85% 4Q 86
The Dow Chemical Company — Q4 2015 Earnings Presentation on 6ix