Dow Inc. · NYSE:DOW
Dow — Investor Day (February 2019)
47 slides from Dow's investor day presentation, Feb 25, 2019
Slide 1: New Dow Sell-Side Analyst Meeting
NEW DOW SELL-SIDE ANALYST MEETING February 25, 2019
Slide 2: Jim Fitterling, Chief Executive Officer
NEW DOW JIM FITTERLING Chief Executive Officer, Dow Chief Operating Officer, Materials Science Division, DowDuPont
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 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 • Industry-leading low-cost, low-risk profile • Disciplined returns-driven approach to capital allocation • Favorable fundamentals in our core value chains New
Slide 5: 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 6: 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 7: FY18 Performance Highlights; Stronger Resilience 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 8: 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 • Industry-leading low-cost, low-risk profile • Disciplined returns-driven approach to capital allocation • Favorable fundamentals in our core value chains New
Slide 9: 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 10: 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 • Industry-leading low-cost, low-risk profile • Disciplined returns-driven approach to capital allocation • Favorable fundamentals in our core value chains New
Slide 11: 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 12: 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 13: 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 • Industry-leading low-cost, low-risk profile • Disciplined returns-driven approach to capital allocation • Favorable fundamentals in our core value chains New
Slide 14: 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 15: 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 16: 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 17: 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 18: Path Forward
PATH FORWARD
Slide 19: 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 20: 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 21: Thank You
THANK YOU
Slide 22: Financial Strength, Flexibility & Discipline
FINANCIAL STRENGTH, FLEXIBILITY & DISCIPLINE Howard Ungerleider President and Chief Financial Officer, Dow Chief Financial Officer, DowDuPont
Slide 23: New Dow's Financial Goals
NEW DOW’S FINANCIAL GOALS Disciplined capital allocation and strong credit profile across the cycle Operating return on invested capital > 13% Grow bottom-line faster than top-line Cash flow conversion of ~90% 23
Slide 24: 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 25: 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 26: 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 27: 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 28: 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 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: 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 31: 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 32: Thank You
THANK YOU
Slide 33: New Dow Modeling Considerations
NEW DOW MODELING CONSIDERATIONS Neal Sheorey Vice President, Investor Relations February 25, 2019
Slide 34: 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 35: 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 36: 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 37: 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 38: 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 38
Slide 39: 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 $8.
Slide 40: 2019 Modeling Considerations – Income Statement Items
2019 MODELING CONSIDERATIONS – INCOME STATEMENT ITEMS TAILWINDS VS. FY 2018 • Wave 1 incremental USGC capacity contribution FY 2019 – New Dow Basis (~600 kta vs. 2018) • Cost synergy savings and stranded cost removal Corporate Op. EBIT ~$(325)MM (~$800MM) – ~75% will be realized in 2019 • Reduced pe
Slide 41: Thank You
THANK YOU 41
Slide 42: 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 43: 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 44: 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 45: Safe Harbor Statements (Continued)
SAFE HARBOR STATEMENTS (CONTINUED) Cautionary Statement about Forward-Looking Statements, continued Merger of Equals Effective August 31, 2017, pursuant to the merger of equals transaction contemplated by the Agreement and Plan of Merger, dated as of December 11, 2015, as amended on March 31, 2017 (
Slide 46: 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 47: 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