Dow Inc. · NYSE:DOW
Dow — Non-Deal Roadshow (March 2019)
51 slides from Dow's roadshow presentation, Mar 18, 2019
Slide 1: New Dow Pre-Spin Investor Roadshow
NEW DOW PRE-SPIN INVESTOR ROADSHOW March 2019
Slide 2: Spin-Off Overview
SPIN-OFF OVERVIEW Key Items When-Issued: DOW WI Ticker Regular Way: DOW Exchange NYSE Distribution Ratio 1 share of Dow Inc. for every 3 shares of DowDuPont Inc. When-Issued Trading Begins March 20, 2019 Record Date March 21, 2019 Distribution Date April 1, 2019 “Regular Way” Trading Begins April 2,
Slide 3: New Dow: A Compelling Investment Opportunity
NEW DOW: A COMPELLING INVESTMENT OPPORTUNITY HIGHER EARNINGS & CASH FLOW HIGHER VALUE • Reduced cost structure • Greater financial & capital discipline • Suite of low-risk growth projects • Streamlined, focused portfolio • Cycle discipline • Lower volatility vs. peers • Lower capex • Higher ROIC • H
Slide 4: New Dow: A Compelling Investment Opportunity
NEW DOW: A COMPELLING INVESTMENT OPPORTUNITY Low-risk, profitable business growth – in our control $2B to Near-Term EBITDA Upside vs. FY18 Accelerated bottom-line growth with synergies & productivity $3B Path to sustainably higher ROIC across the cycle >13% ROIC Target Across the Cycle Better earnin
Slide 5: Near-Term Priorities
NEAR-TERM PRIORITIES PROFITABLE DISCIPLINED CAPITAL LOW-COST BEST OWNER GROWTH ALLOCATION OPERATING MODEL MINDSET Capitalize on growth and Prioritize lower-risk, faster- Achieve best-in-class Implement most value- value-add materials science payback projects, with cost structures creating strategies
Slide 6: New Dow Is a Better and Stronger Company
NEW DOW IS A BETTER AND STRONGER COMPANY • Focused, streamlined and resilient portfolio • Significant earnings growth drivers in place today • Disciplined returns-driven approach to capital allocation • Industry-leading low-cost, low-risk profile • Favorable fundamentals in our core value chains • P
Slide 7: Streamlined and Focused Business Portfolio
STREAMLINED AND FOCUSED BUSINESS PORTFOLIO MORE FOCUSED PORTFOLIO COMPOSITION RE-ALIGNED BUSINESSES RETAINED BUSINESSES • Ag • Home & Personal Care • Focused, singular business model • Electronic Materials • Coatings & Monomers • Water • Polyurethanes (incl. Europe CAV, • Microbial Control Construct
Slide 8: Powerful Scale and Leading Positions
POWERFUL SCALE AND LEADING POSITIONS PERFORMANCE MATERIALS INDUSTRIAL INTERMEDIATES PACKAGING & SPECIALTY PLASTICS & COATINGS & INFRASTRUCTURE Coatings & Packaging and Hydrocarbons & Consumer Solutions Polyurethanes & CAV Industrial Solutions Performance Monomers Specialty Plastics Energy LAA LAA LA
Slide 9: Well-Positioned to Outperform
WELL-POSITIONED TO OUTPERFORM DRIVERS OF UPSIDE LEVERAGE DRIVERS OF DOWNSIDE RESILIENCE Lower-risk portfolio with reduced volatility – product Focused portfolio, aligned to growing market & process differentiation, market/application verticals participation, global reach, vertical integration Suite
Slide 10: FY18 Performance Highlights vs. Peers
FY18 PERFORMANCE HIGHLIGHTS OUR STRONGER RESILIENCE VS. PEERS(1) FY18 Revenue & Volume Growth(1) FY18 Capex / D&A (%)(3) Revenue Growth 11% Volume Growth Peer Average: 106% 6% Rev Peer Average: 7% 76% Vol Peer Average: 4% Peer 1* Peer 2* DWDP MatCo Peer 3 Peer 4 Peer 5 Peer 6 DWDP MatCo Peer 6 Peer
Slide 11: New Dow Is a Better and Stronger Company
NEW DOW IS A BETTER AND STRONGER COMPANY • Focused, streamlined and resilient portfolio • Significant earnings growth drivers in place today • Disciplined returns-driven approach to capital allocation • Industry-leading low-cost, low-risk profile • Favorable fundamentals in our core value chains • P
Slide 12: Idiosyncratic Drivers Provide Earnings Upside Potential
IDIOSYNCRATIC DRIVERS PROVIDE EARNINGS UPSIDE POTENTIAL MULTIPLE VALUE LEVERS DIRECTLY IN OUR CONTROL… …WITH INCREMENTAL UPSIDE $200MM- $600MM- $400MM • JV improvements – MEGlobal USGC $1,100MM capacity add; Sadara ramp, product $200MM- mix improvements, debt restructure $350MM ~$500MM • Continuous
Slide 13: Continued Cost Reductions Drive Bottom-Line Growth
CONTINUED COST REDUCTIONS DRIVE BOTTOM-LINE GROWTH DOW’S CUMULATIVE COST SYNERGY SAVINGS COST SYNERGY SAVINGS BREAKDOWN Defined plans in place; ~$300MM SG&A and R&D Variable Cost expect ~75% of savings to be realized in 2019 ~$500MM 20% 25% INCOME FIXED / >$850MM STATEMENT VARIABLE BREAKDOWN(1) BREA
Slide 14: New Dow Is a Better and Stronger Company
NEW DOW IS A BETTER AND STRONGER COMPANY • Focused, streamlined and resilient portfolio • Significant earnings growth drivers in place today • Disciplined returns-driven approach to capital allocation • Industry-leading low-cost, low-risk profile • Favorable fundamentals in our core value chains • P
Slide 15: New Dow's Disciplined Capital Allocation Framework
NEW DOW’S DISCIPLINED CAPITAL ALLOCATION FRAMEWORK CREDIT GROWTH DIVIDEND SHARE PROFILE INVESTMENTS POLICY REPURCHASES • Strong investment-grade • Lower-risk capex spending • Industry-leading long-term • Share repurchases are a credit profile across the payout ratio target across consistent part of
Slide 16: Delivering Our Target Capital Structure
DELIVERING OUR TARGET CAPITAL STRUCTURE Operating Year-End 2018 At Spin Target Cash Balance(1) ~$5B ~$3B ~$3B Financial Debt(2) ~$20B ~$18B ~$16B Net Debt(2) ~$15B ~$15B ~$13B Target Adjusted Gross Debt(3) to EBITDA Across the Cycle of 2.5x – 3.0x (1) Year-end 2018 cash balance reflects the expected
Slide 17: A Strong & Flexible Balance Sheet
A STRONG & FLEXIBLE BALANCE SHEET ~$12B OF LIQUIDITY AT YEAR-END 2018 MANAGEABLE DEBT MATURITY PROFILE We plan to: • Extend ~$2.5B of term Cash & Cash loan to 12/2021 • Pay down ~$2B with de- Equivalents $ billions Revolver leveraging payment $2.5 $2.7B $5B $2.0 $1.8 $1.7 $1.5 $0.3 $0.5 Committed 20
Slide 18: Disciplined Growth Investments With Lower Risk
DISCIPLINED GROWTH INVESTMENTS WITH LOWER RISK CAPEX PROFILE Drive rigorous, criteria-based prioritization ~$4B/year $3.9B • Hold capex budget ≤ D&A; near-term target of Avg IRR: >13% ~$2.8B or less per year for at least the next 3 years D&A: ~$2.8B/year $2.5B • Lower risk and lower capital intensit
Slide 19: Targeted Levers to Drive Higher EBITDA-to-CFFO Conversion
TARGETED LEVERS TO DRIVE HIGHER EBITDA-TO-CFFO CONVERSION CASH FLOW OPPORTUNITY (vs. 2018) Merger-Related Reduce integration, separation and Costs restructuring costs ~$1B ~$100MM for every Net Working Capital Drive net working capital efficiency 1 day improvement Pension Contributions Reduced volun
Slide 20: Strong Financial Position Enables Leading Shareholder Remuneration
STRONG FINANCIAL POSITION ENABLES LEADING SHAREHOLDER REMUNERATION DIVIDEND PAYOUT RATIO (2013-2017 AVG) Dividend Policy • Targeting industry-leading long-term dividend payout ratio across the cycle of ~45% of Op. Net Income 45% • Provides attractive dividend and profitable growth S&P Chems (2013-20
Slide 21: Our Financial Goals & Compensation Are Aligned With Shareholders
OUR FINANCIAL GOALS & COMPENSATION ARE ALIGNED WITH SHAREHOLDERS Disciplined capital allocation and strong credit profile across the cycle LEADERSHIP COMPENSATION Operating return on invested capital > 13% Management METRICS incentives squarely • ROIC aligned with Grow bottom-line faster than top-li
Slide 22: New Dow Is a Better and Stronger Company
NEW DOW IS A BETTER AND STRONGER COMPANY • Focused, streamlined and resilient portfolio • Significant earnings growth drivers in place today • Disciplined returns-driven approach to capital allocation • Industry-leading low-cost, low-risk profile • Favorable fundamentals in our core value chains • P
Slide 23: Location and Integration Drive Competitive Advantage
LOCATION AND INTEGRATION DRIVE COMPETITIVE ADVANTAGE DOW’S STRATEGY REMAINS BEING 2017 GLOBAL CASH COST CURVE(1) $800 PREDOMINANTLY INTEGRATED ON ETHYLENE Ethylene Cash Cost, USD/MT $600 Asia Pacific Dow Europe Latin America 68% $400 Dow Latin Europe U.S. pricing tracks spot; America EUR pricing Dow
Slide 24: Global Polyethylene Supply / Demand Remains Favorable
GLOBAL POLYETHYLENE SUPPLY / DEMAND REMAINS FAVORABLE KEY TAKEAWAYS GLOBAL POLYETHYLENE SUPPLY / DEMAND(1) • Polyethylene is a global product 160 100 category, with demand growing at Estimated 200-300 bps ~1.4x global GDP improvement in 140 operating rate • Strong operating rates and growing Polyeth
Slide 25: Polyurethanes Industry Fundamentals Remain Favorable
POLYURETHANES INDUSTRY FUNDAMENTALS REMAIN FAVORABLE MDI & PO TRENDS FAVORABLE IN THE NEAR-TERM KEY DIFFERENTIATORS OF DOW’S PORTFOLIO +• All PU components projected to grow at 1.0-1.5x • As #1 global producer(1) of PO, Dow is well-positioned to + global GDP in the near-term benefit from favorable i
Slide 26: Siloxanes & Silicones Fundamentals Remain Robust
SILOXANES & SILICONES FUNDAMENTALS REMAIN ROBUST HIGH OPERATING RATE PROJECTED FOR THE NEAR-TERM • Above-GDP growth projected in the near-term GLOBAL SUPPLY & DEMAND(1, 2, 3) • Attractive sector with addressable market segment >$20B and balanced supply/demand fundamentals 3,000 100% • China consumpt
Slide 27: Segment Level Modeling Considerations
SEGMENT LEVEL MODELING CONSIDERATIONS Historical Volume Growth Op. EBITDA Margins(1) (vs. Global GDP) Near-Term Drivers = 4Q18 Margin • Coatings & Performance Monomers margins have Performance 16% 23% upside potential of 500 bps, driven by improvement plan Materials & ~1.5x • Several incremental sil
Slide 28: New Dow Is a Better and Stronger Company
NEW DOW IS A BETTER AND STRONGER COMPANY • Focused, streamlined and resilient portfolio • Significant earnings growth drivers in place today • Disciplined returns-driven approach to capital allocation • Industry-leading low-cost, low-risk profile • Favorable fundamentals in our core value chains • P
Slide 29: Enterprise Quality Considerations
ENTERPRISE QUALITY CONSIDERATIONS Industrial Intermediates Performance Materials & Segment Packaging & Specialty Plastics & Infrastructure Coatings POINTS OF DISTINCTION 2018 EBITDA $4.9B $2.6B $2.2B • Idiosyncratic levers – Wave 1 and 2 growth (Form 10)(1) projects and cost synergies Polyethylene P
Slide 30: Dow's Investment Thesis vs. Peers
DOW’S INVESTMENT THESIS VS. PEERS Growth Levers Stability Corporate Cost Incremental Growth Cross-Cycle Capital Return Cost Synergy Savings Diversity Reductions Investments Resilience Framework 30
Slide 31: Consumer Solutions: Expanding Growth Opportunities With Silicone Hybrids
CONSUMER SOLUTIONS: EXPANDING GROWTH OPPORTUNITIES WITH SILICONE HYBRIDS Silicone + Polyethylene Silicone + Acrylics Sustainability Driver $100MM Key Growth Areas Addressing Personal Care Trends Silicone enables greater use revenue by Multiple Markets Superior film-forming resistance of recycled pol
Slide 32: Coatings & Performance Monomers: Metal Packaging
COATINGS & PERFORMANCE MONOMERS: METAL PACKAGING CANVERATM Polyolefin Dispersion A novel technology enabling replacement of BPA containing epoxy coatings in metal packaging MARKET OPPORTUNITY Polyolefin Mitigation of Dispersion ~30% Materials of Concern SOM Technology Delivering value to various met
Slide 33: Coatings & Performance Monomers: General Industrial
COATINGS & PERFORMANCE MONOMERS: GENERAL INDUSTRIAL Waterborne Freight Container Coating Low-VOC, reliable, and easy-to-use MARKET OPPORTUNITY Solventborne Coating Waterborne Coating ~80% VOC Reduction Applying Dow Waterborne Solutions to Replace Solventborne System MARKET DRIVERS VOC reduction Sust
Slide 34: Polyurethanes & CAV: ComfortScience
POLYURETHANES & CAV: COMFORTSCIENCE Customized Solutions to Capture SleepTech Opportunity MARKET OPPORTUNITY Foundational Polyols ComfortScience Systems 3X 35% SOM1 of 5B lbs. 10% SOM(1) of 2B lbs. Unit Margin Microclimate Consumer comfort drivers aligned to MARKET DRIVERS Temperature, Humidity, Fre
Slide 35: Polyurethanes & CAV: InsulationScience
POLYURETHANES & CAV: INSULATIONSCIENCE Sustainable Solutions to Deliver Fresh Food MARKET OPPORTUNITY MDI / Foundational Polyols Cold Chain Systems 3X Unit Margin Continued leadership in Cold MARKET DRIVERS Chain industry Food Scarcity Food Waste Increasing Sustainability Population Low GWP Solution
Slide 36: Polyurethanes & CAV: StructuralScience
POLYURETHANES & CAV: STRUCTURALSCIENCE Durable, Easy-to-Use Infrastructure Solutions MARKET OPPORTUNITY MDI / Foundational Polyols PU Elastomer Systems 5X Unit Margin Delivering value to a range of innovative MARKET DRIVERS tailor-made infrastructure applications Ease of Application Durability Regul
Slide 37: Industrial Solutions: Our Solutions in Action
INDUSTRIAL SOLUTIONS: OUR SOLUTIONS IN ACTION SUSTAINABLE TEXTILES ECOFAST™ Pure Sustainable Textile Treatment Unique, brighter colors on cotton textiles while reducing water, energy, dye and chemical use Cotton Pretreated with ECOFAST™ Pure • Unique, brighter colors • Up to 90% fewer chemicals used
Slide 38: Packaging and Specialty Plastics: Market-Driven Polyethylene Solutions
PACKAGING AND SPECIALTY PLASTICS: MARKET-DRIVEN POLYETHYLENE SOLUTIONS ADDRESS CONSUMER PREFERENCES Value Chain Material Science Application Development Converter Equipment Manufacturer Brand Owner Process Catalyst Research Research R&D 100 Award Finalist Edison Retailer Award Winner Dow Customers D
Slide 39: New Dow: A Compelling Investment Opportunity
NEW DOW: A COMPELLING INVESTMENT OPPORTUNITY Low-risk, profitable business growth – in our control $2B to Near-Term EBITDA Upside vs. FY18 Accelerated bottom-line growth with synergies & productivity $3B Path to sustainably higher ROIC across the cycle >13% ROIC Target Across the Cycle Better earnin
Slide 40: Thank You
THANK YOU
Slide 41: 2017-to-2018 EBITDA Bridge Showcases Our Unique Levers
2017-TO-2018 EBITDA BRIDGE SHOWCASES OUR UNIQUE LEVERS MULTIPLE LEVERS MORE THAN OFFSET HEADWINDS … AND WE ADVANCED FURTHER TO ENABLE US TO DELIVER 11% EBITDA GROWTH… IMPROVEMENTS ~$200MM ~$(750)MM ~$450MM • Delivered 6% volume growth Sadara eq. >$750MM earnings up ~$450MM $9.1B $80MM YoY ~$(100)MM
Slide 42: Changes We Will Make at Spin
CHANGES WE WILL MAKE AT SPIN NEW DOW FINANCIALS VS. DWDP FINANCIALS Shift to Operating EBIT as primary profit metric Add-in Dow standalone Corporate expense Shift to market-based internal transfers Incorporate arms-length contracts with DuPont & Corteva 42
Slide 43: Financial Bridge: DWDP to New Dow Form 10
FINANCIAL BRIDGE: DWDP TO NEW DOW FORM 10 (POST-SPIN DOW BASIS) Performance Industrial Packaging & Materials & Intermediates & Corporate Total Specialty Plastics Coatings Infrastructure FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 MatCo Op. EBITDA $1.8B $2.2B $2.3B $2.5B $4.7B $4.9B N/A N/A $8.
Slide 44: 2019 Modeling Considerations – Income Statement Items
2019 MODELING CONSIDERATIONS – INCOME STATEMENT ITEMS TAILWINDS VS. FY 2018 • Wave 1 incremental USGC capacity contribution FY 2019 – New Dow Basis (~600 kta vs. 2018) • Cost synergy savings and stranded cost removal Corporate Op. EBIT ~$(325)MM (~$800MM) – ~75% will be realized in 2019 • Reduced pe
Slide 45: Wave 1 Incremental Contribution
WAVE 1 INCREMENTAL CONTRIBUTION First Full Quarter Project Capacity of Contribution Gas-Phase Debottleneck 75 KTA 1Q17 Packaging & Specialty Plastics ELITE Solution PE 400 KTA 4Q17 Incremental contribution Next-Gen LDPE 350 KTA 2Q18 in FY 2018 of ~650 KTA (~1.3B lbs. at 90% op rate) NORDEL EPDM 200
Slide 46: Wave 2 Incremental Adds Within Capex ≤ D&A
WAVE 2 INCREMENTAL ADDS TO BE EXECUTED WITHIN CAPEX ≤ D&A Est. Timing of Project Capacity Contribution Timed with TX-9 Ethylene Expansion 500 KTA 1Q20 MEGlobal startup USGC Solution PE 600 KTA 2H22 Incremental contribution of P&SP Western Europe PE 450 KTA 1H22 1,400 KTA (~2.8B lbs. at 90% operating
Slide 47: 4Q18 Results Highlight Our Resilience vs. Peers
4Q18 RESULTS HIGHLIGHT OUR RESILIENCE VS. PEERS(1) Week-by-Week Order Book Progression in Dec-2018 EBITDA Growth (4Q18 vs. 4Q17) 5% Order postponements reflected DWDP MatCo Above-peer resilience -12% volume growth Indicative YoY significant reduction in buying activity at end of 4Q18 0% Peer 1 -18%
Slide 48: Safe Harbor Statements
SAFE HARBOR STATEMENTS Cautionary Statement about Forward-Looking Statements This presentation contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1
Slide 49: Safe Harbor Statements (Continued)
SAFE HARBOR STATEMENTS (CONTINUED) Cautionary Statement about Forward-Looking Statements, continued Non-GAAP Financial Measures This presentation includes information that does not conform to U.S. GAAP and are considered non-GAAP measures. Dow’s management believes that these non-GAAP measures best
Slide 50: Non-GAAP Reconciliation
NON-GAAP RECONCILIATION Reconciliation of Pro Forma Income Before Income Taxes to Pro Forma Operating EBIT and Pro Forma Operating EBITDA In millions 2018 2017 Pro Forma Income Before Income Taxes $ 3,868 $ 1,342 + Interest expense and amortization of debt discount 1,062 915 - Interest income 79 68
Slide 51: General Comments & Definitions
GENERAL COMMENTS & DEFINITIONS General Comments Unless otherwise specified, all financial measures in this presentation, where applicable, exclude significant items. Discussion of results for DowDuPont’s Materials Science Division is based on the combined reported results of the Performance Material