Dow Inc. · NYSE:DOW
Dow — The Dow Chemical Company — Q4 2013 Earnings Presentation
49 slides from Dow's earnings presentation, Jan 29, 2014
Slide 1: The Dow Chemical Company 4Q 2013 Earnings Conference Call
The Dow Chemical Company 4Q 2013 Earnings Conference Call January 29, 2014 The Dow Chemical Company Revised on February 11, 2014
Slide 2: 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 3: Agenda
Agenda 4Q and FY 2013 Overview Financial Update Driving Near-Term Shareholder Value CEO Priorities 3
Slide 4: Dow Reports 4Q13, Full-Year 2013 Results
Dow Reports 4Q13, Full-Year 2013 Results 4Q13 adjusted earnings per share of $0.65, up 97% – Adjusted sales grew 4% driven by gains in all operating segments except Feedstocks & Energy – Adjusted EBITDA up 31% year-over-year; EBITDA margins expand 300bps – Cash flow from operations totaled $2.2B i
Slide 5: Agenda
Agenda 4Q and FY 2013 Overview Financial Update Driving Near-Term Shareholder Value CEO Priorities 5
Slide 6: 4Q13 Financial Performance
4Q13 Financial Performance Dollars in millions, except per share amounts 4Q13 4Q12 Net Sales $14,386 $13,917 Adjusted Net Sales $14,386 $13,807 Volume change in percent +3% -- Price change in percent +1% -- EBITDA $2,325 $125 Adjusted EBITDA $2,102 $1,606 Net Income Available for Common Stockholders
Slide 7: Drivers of 4Q13 Financial Performance
Drivers of 4Q13 Financial Performance Key Drivers in the Quarter $0.65 Volume growth in Latin America, North America and Asia Pacific $0.33 Margins expanded in an increasing H&E environment Improving global ethylene fundamentals led to higher equity earnings from JVs in Kuwait and Thailand C
Slide 8: Operating Segment View
Operating Segment View Electronic & Functional Materials Sales up 3% on volume growth in Asia Pacific and North America Dow Electronic Materials reported volume growth in Asia Pacific and North America, driven by strong demand in OLED materials and Interconnect Technologies Functional Material
Slide 9: Operating Segment View
Operating Segment View Agricultural Sciences Record 4Q sales and EBITDA on strong farmer demand for new technologies Sales grew 13%, led by double-digit growth in North America and Latin America Crop Protection revenue rose 11%; new crop protection products up 23%; FY13 Crop Protection sales u
Slide 10: Operating Segment View
Operating Segment View Performance Plastics Adjusted sales increased 8% on double-digit gains in Latin America, Asia Pacific and North America Dow Packaging and Specialty Plastics achieved price gains in all regions; volume growth in the flexible food and specialty packaging, hygiene and medical
Slide 11: Financial Achievements
Financial Achievements Cash Flow from Substantial Debt Dividends and Operations GrossReduction Debt Reduction Repurchases Billion ($) Billion ($) Billion ($) Record cash flow $9.0 from operations $24.0 $2.0 $8.0 $1.8 $23.0 $1.6 $7.0 $22.0 $1.4 $6.0 $21.0 $1.2 $5.0 $20.0 $1.0 $4.0 $0.8 $19.0 $3.0 $0.
Slide 12: Modeling Assumptions
Modeling Assumptions Slow global growth expected to continue in 2014 Strong margins continue in Performance Plastics and Electronics and Functional Materials Margin expansion expected in all segments ex. Feedstocks and Energy Equity Earnings will remain steady around the ~$1B level Previously announ
Slide 13: Agenda
Agenda 4Q and FY 2013 Overview Financial Update Driving Near-Term Shareholder Value CEO Priorities 13
Slide 14: 2013 Achievement Highlights
2013 Achievement Highlights Financial • Adjusted EPS growth of 31% • Reduced debt by ~$3B; decreased interest expense by $170MM – net debt to EBITDA at 1.4x • Increased declared dividends and repurchases ~30% • Received cash payment of $2.2B for K-Dow award Operational • Generated record cash flow f
Slide 15: Strategic Pathway
Strategic Pathway 2006 2006 Approved Strategy: Drive R&D and technology to add value in growth markets; JV feedstocks, exit commodity merchant sales Annual strategic checkpoints with Board Alignment Invested $1.7B/yr in R&D Increased leadership in key specialties via targeted bolt-ons Market A
Slide 16: Statement on Strategic Review
Statement on Strategic Review On February 11, 2014, Dow filed the following addendum to the Company’s fourth quarter and full-year 2013 earnings teleconference materials: Dow’s Board and Executive Management team, in conjunction with external advisors, previously and recently conducted an evaluation
Slide 17: Significant Portfolio Change Drives Higher Earnings
Significant Portfolio Change Drives Higher Earnings Electronics, Coatings 2006 2013 Acquisitions & Organic Growth: ~$18B $49B Water, Ag, Food, Pharma $53B* ~$14-15B Divestments (Actual and Announced) e.g. Styron, Polypropylene, TRN Refinery, Chlorine carve-out Geographical Sales 20% in ‘06 35% in
Slide 18: Strategic Pathway Post-2013 Review
Strategic Pathway Post-2013 Review Chemicals Perf. Coatings & Electronic & (part of the Feedstocks Mat. Perf. Performance Agricultural Infrastructure Functional & Energy reporting Materials Plastics Sciences segment) Solutions Materials $4-5B Revenue 15% of Dow’s NBV 40 plants 11 sites 2,000 employe
Slide 19: Driving Near-Term Growth and Margin Expansion
Driving Near-Term Growth and Margin Expansion Electronic & Functional Mats Customer-focused solutions with a firm cost discipline Preferentially invest in growth markets such as electronics, energy, water, food and pharma Innovate with customers and brand owners, aligned to consumer trends − Hea
Slide 20: Driving Near-Term Growth and Margin Expansion
Driving Near-Term Growth and Margin Expansion Coatings & Infrastructure Implement cost improvement plans and innovate for growth Lower, less volatile costs from PDH investment provides ~150 bps Productivity improvements deliver ~150 bps Construction market recovery strengthens and accelerates
Slide 21: Path to Higher and More Consistent Earnings
Path to Higher and More Consistent Earnings Select Markets Maximize Value Productivity (Operational (Operational& &Financial) Financial) (Narrower and Deeper) (Investments) Select high-value Enhance competitive Manage growth markets advantage working capital Provide science- Prioritize high-return D
Slide 22: Dow's EBITDA Roadmap
Dow’s EBITDA Roadmap Productivity >$10.0 Strategic Market Investments Alignment $8.4 Invest for growth in businesses aligned $7.5 to attractive, high-value markets Adjusted EBITDA(1) - $B Enhance competitive advantage through targeted innovation Maximize value through prioritized integrations
Slide 23: On the Path to $10B+ EBITDA Near Term
On the Path to $10B+ EBITDA Near Term Near-Term Controllable Growth Catalysts 2014 2015-16 2017 $50-$100MM >$350MM >$450MM/yr >$250MM/yr ~$500MM >$1.5B/yr NPV>$1B over 2013 in 2014-15 run-rate run-rate annually run-rate St. Charles Cost Louisiana TX Ethylene Freeport U.S. Enlist Ethylene Savings Eth
Slide 24: Clear Cash Priorities
Clear Cash Priorities Stronger balance Non-strategic Accelerate Share Record cash flow Repurchases sheet business and from operations Expanded to 1.4x net debt to asset divestitures $7.8B in 2013 EBITDA $3-4B in 2013-15 $4.5B $8.0 4.0 $7.0 3.5 Increased Cash Flow from Operations ($B) $6.0 3.0 Divide
Slide 25: Agenda
Agenda 4Q and FY 2013 Overview Financial Update Driving Near-Term Shareholder Value CEO Priorities 24
Slide 26: CEO Priorities
CEO Priorities Intense focus on operational discipline and business-specific ROC value drivers to generate ongoing strong cash flow Drive further margin expansion and earnings growth Build on cost savings momentum with additional productivity gains to drive efficiency and cash flow Accelerate narrow
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Slide 28: Electronic and Functional Materials
Electronic and Functional Materials Dollars in millions 4Q13 4Q12 Sales $1,130 $1,098 Price (1)% Volume 4% EBITDA $226 $155 Adjusted EBITDA $226 $211 Equity earnings (included in EBITDA) $31 $13 Equity Earnings, ex-CI (included in EBITDA) $31 $21 4Q13 Sales 4Q13 Trends Dow Electronic vs. 4Q12 Materi
Slide 29: Coatings & Infrastructure Solutions
Coatings & Infrastructure Solutions Dollars in millions 4Q13 4Q12 Sales $1,738 $1,577 Price (1)% Volume 11% EBITDA $113 $36 Adjusted EBITDA $173 $129 Equity earnings (included in EBITDA) $38 $(46) Equity Earnings ex-CI $38 $35 4Q13 Sales 4Q13 Trends vs. 4Q12 Dow Building & Performance Construction S
Slide 30: Agricultural Sciences
Agricultural Sciences Dollars in millions 4Q13 4Q12 Sales $1,774 $1,566 Price (2)% Volume 15% EBITDA $177 $156 Equity earnings (included in EBITDA) - $(2) 4Q13 Trends vs. 4Q12 Sales Price Volume Crop Protection Seeds, Traits and Oils 29
Slide 31: Performance Materials
Performance Materials Dollars in millions 4Q13 4Q12 Sales $3,391 $3,355 Price 1% Volume 0% EBITDA $398 $(137 Adjusted EBITDA $421 $267 Equity losses (included in EBITDA) $(18) $(25) 4Q13 Trends vs. 4Q12 4Q13 Sales Sales Price Volume Amines - Chlorinated Organics Dow Automotive Systems
Slide 32: Performance Plastics
Performance Plastics Dollars in millions 4Q13 4Q12 Sales $3,855 $3,677 Adjusted Sales $3,855 $3,567 Price 7% Volume (2)% Adjusted Volume 1% EBITDA $1,617 $803 Adjusted EBITDA $1,160 $829 Equity earnings (included in EBITDA) $80 $33 4Q13 Sales 4Q13 Trends Dow Elastomers Dow Electrical & vs. 4Q12 Tele
Slide 33: Feedstocks & Energy
Feedstocks & Energy Dollars in millions 4Q13 4Q12 Sales $2,427 $2,582 Price (6)% Volume 0% EBITDA $238 $186 Adjusted EBITDA $217 $193 Equity earnings (included in EBITDA) $140 $152 4Q13 Trends 4Q13 Sales vs. 4Q12 Sales Price Volume Chlor- Chlor-Alkali/Chlor-Vinyl Alkali/Chlor-Vinyl Energy
Slide 34: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Three Months Ended In millions 12/31/13 12/31/12 EBITDA ex certain Items $2,102 $1,606 Certain Items $223 $(1,481) EBITDA $2,325 $125 - Depreciation and amortization $689 $680 + Interest income $12 $15 - Interest expense and amortization of debt discount
Slide 35: Supplemental Information- 4Q13
Supplemental Information- 4Q13 Certain Items Impacting Results In millions, except per share amounts (unaudited) Pretax Impact (1) Net Income (2) EPS - Diluted (3) Three Months Ended Three Months Ended Three Months Ended 12/31/2013 12/31/2012 12/31/2013 12/31/2012 12/31/2013 12/31/2012 Adjusted to e
Slide 36: Certain Items Affecting Results - 4Q13
Certain Items Affecting Results - 4Q13 Certain items increasing (decreasing) EBITDA by operating segment In millions Three Months Ended 12/31/13 12/31/12 Electronic and Functional Materials - $(56) Coatings and Infrastructure Solutions $(60) $(93) Agricultural Sciences - - Performance Materials $(23
Slide 37: Supplemental Information – 4Q13
Supplemental Information – 4Q13 Results in the fourth quarter of 2013 were impacted by the following items: • Pretax charges of $194 million for asset impairments and related costs, including the shutdown of manufacturing facilities, in the Chlor-Alkali/Chlor-Vinyl business, Dow Building and Constru
Slide 38: Supplemental Information – 4Q12
Supplemental Information – 4Q12 Results in the fourth quarter of 2012 were impacted by the following items: • Pretax charges of $22 million for implementation costs related to the Company's restructuring programs. The charges were included in "Cost of sales" ($1 million) and "Selling, general and ad
Slide 39: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Twelve Months Ended Dollars in millions 12/31/13 12/31/12 EBITDA ex certain items $8,362 $7,453 Certain Items $2,183 $(1,862) EBITDA $10,545 $5,591 - Depreciation and amortization $2,681 $2,698 + Interest income $41 $41 - Interest expense and amortizatio
Slide 40: Supplemental Information- 2013 Full Year
Supplemental Information- 2013 Full Year Certain Items Impacting Results In millions, except per share amounts (unaudited) Pretax Impact (1) Net Income (2) EPS - Diluted (3) Twelve Months Ended Twelve Months Ended Twelve Months Ended 12/31/2013 12/31/2012 12/31/2013 12/31/2012 12/31/2013 12/31/2012
Slide 41: Certain Items Affecting Results- YTD
Certain Items Affecting Results- YTD Certain items increasing (decreasing) EBITDA by operating segment In millions Twelve Months Ended 12/31/13 12/31/12 Electronic & Functional Materials - $(73) Coatings & Infrastructure Solutions $(60) $(134) Agricultural Sciences - - Performance Materials $(23) $(
Slide 42: Supplemental Information – YTD
Supplemental Information – YTD In addition to the items described above for the fourth quarter of 2013, results for the year ended December 31, 2013 were impacted by the following items: • Pretax charges of $31 million for implementation costs related to the Company's restructuring programs. The cha
Slide 43: Supplemental Information- YTD (continued)
Supplemental Information- YTD (continued) In addition to the items described above for the fourth quarter of 2012, results for the year ended December 31, 2012 were impacted by the following items: • Pretax restructuring charges of $357 million. On March 27, 2012, the Company's Board of Directors ap
Slide 44: 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 43
Slide 45: 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. Map Ta Phut Olefins Company Limited MEGlobal Sadara Chemical
Slide 46: Preliminary Results for Principal Joint Ventures
Preliminary Results for Principal Joint Ventures Principal Joint Ventures - Total Dow Proportionate Share Dollars in millions (unaudited) 4Q13 4Q12 Dollars in millions (unaudited) 4Q13 4Q12 Sales $4,714 $4,506 Sales $2,118 $1,994 Adjusted Sales(1) $3,625 $3,315 Adjusted Sales(1) $1,648 $1,503 EBITDA
Slide 47: Reconciliation of Equity Earnings
Reconciliation of Equity Earnings 2002 2003 2004 2005 2006 2007 2008 2009 2010 Quarterly Average Equity Earnings excluding certain items $10 $81 $231 $241 $240 $281 $197 $181 $278 Equity Earnings excluding certain items, for the year 40 322 923 964 959 1,122 787 724 1,112 Certain items: Dow Corning
Slide 48: Global Operating Rates as a Percent of Capacity
Global Operating Rates as a Percent of Capacity Year QTR YTD 2010 1Q 83% 83% 2Q 80% 82% 3Q 86% 83% 4Q 81% 83% 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% 47
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The Dow Chemical Company — Q4 2013 Earnings Presentation on 6ix