The Dow Chemical Company

The Dow Chemical — Q4 2011 Earnings Presentation

58 slides from The Dow Chemical's earnings presentation, Feb 2, 2012

  1. Slide 1: 4Q 2011 Earnings Conference Call

    The Dow Chemical Company 4Q 2011 Earnings Conference Call February 2, 2012

  2. 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

  3. Slide 3: Agenda

    Agenda  4Q and FY 2011 Overview  Financial Update  Strategy In Action  2012 Outlook & Priorities (1) All sales, price and volume comparisons within this presentation are presented excluding divestitures, unless otherwise noted. (2) EBITDA is defined as earnings (i.e., “Net Income”) before intere

  4. Slide 4: Dow Delivers $14.1B Revenue, $2B Cash from Operations

    Dow Delivers $14.1B Revenue, $2B Cash from Operations Due to Focused Interventions  Earnings per share of $0.25 excluding certain items(1) – Certain items included a non-cash tax charge of $0.23 per share  Sales of $14.1B up 5%; increases in all geographic areas – Price increases offset $476MM ris

  5. Slide 5: Dow Delivers $14.1B Revenue, $2B Cash from Operations

    Dow Delivers $14.1B Revenue, $2B Cash from Operations Due to Focused Interventions  Earnings per share of $0.25 excluding certain items(1) – Certain items included a non-cash tax charge of $0.23 per share  Sales of $14.1B up 5%; increases in all geographic areas – Price increases offset $476MM ris

  6. Slide 6: Interventions Create Momentum Exiting 4Q11

    Interventions Create Momentum Exiting 4Q11 12% 78% 10% 76% 8% Sales Volume Change(year on year) 6% 74% Operating Rate 4% 72% 2% 70% 0% -2% 68% -4% 66% -6% -8% 64% Oct-11 Nov-11 Dec-11 Sales Volume Operating Rate 6

  7. Slide 7: Dow Delivers $14.1B Revenue, $2B Cash from Operations

    Dow Delivers $14.1B Revenue, $2B Cash from Operations Due to Focused Interventions  Earnings per share of $0.25 excluding certain items(1) – Certain items included a non-cash tax charge of $0.23 per share  Sales of $14.1B up 5%; increases in all geographic areas – Price increases offset $476MM ris

  8. Slide 8: 2011 Achievements

    2011 Achievements Financial Operational Strategic  Delivered 29% increase in  Demonstrated diligent price  Sales in emerging EPS, ex. certain items and volume management geographies surpassed $19B, Asia Pacific >$10B  Achieved record-level sales of  Drove additional portfolio $60B – 18% increas

  9. Slide 9: Earnings Growth Trajectory Remains Intact

    Earnings Growth Trajectory Remains Intact Margin Expansion / Organic Growth Equity Earnings Growth Synergies / Innovation ~$1.5B of incremental EBITDA $10B $8.4B $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 Compa

  10. Slide 10: 4Q11 Financial Performance

    4Q11 Financial Performance Dollars in millions, except per share amounts 4Q11 4Q10 Net Sales $14,097 $13,771 Net Sales excluding divestitures $14,097 $13,364 Price change in percent excluding divestitures 5% Volume change in percent excluding divestitures --- EBITDA $1,412 $1,756 EBITDA, excluding c

  11. Slide 11: Year-Over-Year Volume Trends

    Year-Over-Year Volume Trends Electronic &  Volume(1) flat, despite -3% Functional Materials Coatings & inventory destocking Infrastructure Solutions -5% across many value Agricultural Sciences 1% chains Performance Materials ---  Emerging geographies Performance Plastics 3% growth totaled 7% Feeds

  12. Slide 12: Year-Over-Year Price Trends

    Year-Over-Year Price Trends Electronic & Functional Materials 3%  Price up 5% Coatings & 6% Infrastructure Solutions  Broad-based gains, Agricultural Sciences 5% 4% rising in all operating Performance Materials 4% segments & geographic Performance Plastics 2% areas Feedstocks & Energy 11%  Increa

  13. Slide 13: Drivers of 4Q11 Financial Performance

    Drivers of 4Q11 Financial Performance • Strong price discipline offsets ~$0.5B increase in feedstock costs $0.47 • Operating rate down 9 percentage points due to lower demand, customer de-stocking, working capital management $0.25 • Polyethylene margin compression drove lower equity earnings • Lower

  14. Slide 14: Operating Segment Review

    Operating Segment Review Electronic & Coatings & Agricultural Performance Performance Feedstocks & Functional Infrastructure Sciences Materials Plastics Energy Materials Solutions  Sales were flat as  Sales up 1% as  Record 4Q sales  Sales up 4%,  Sales growth of  Sales up 14%, price gains off

  15. Slide 15: 4Q & FY 2011 Additional Financial Highlights

    4Q & FY 2011 Additional Financial Highlights  Working capital – DSO: 44 days, flat vs. 3Q11; up 1 day vs. 4Q10 – DSI: 64 days, down 8 days vs. 3Q11; up 2 days vs. 4Q10  4Q11 cash flow from operations: $2B  FY cash flow from operations of ~$4B – Retired $4.8 billion of debt in 2011  Net debt to c

  16. Slide 16: On Track to Deliver 2012 Financial Priorities

    On Track to Deliver 2012 Financial Priorities  Generate $8B in cash from Improving Debt Ratios operations in 2011-2012 60% 3.0x  Capital spending in line with 55% economic conditions 2.5x Net debt to EBITDA Net debt to capital – 2012 CapEx < 2011 CapEx 50%  Drive implementation of 45% 2.0x Effici

  17. Slide 17: Agenda

    Agenda  4Q and FY 2011 Overview  Financial Update  Strategy In Action  2012 Outlook & Priorities 17

  18. Slide 18: Clear Drivers Propel Portfolio to Our Targets

    Clear Drivers Propel Portfolio to Our Targets  Largest, most flexible and experienced ethylene producer  70% of ethylene production in cost-advantaged regions Feedstock Advantage  Shale gas dynamics & USGC investments drive EBITDA upside of ~$2B/year by 2017  Strategically aligned with key end-m

  19. Slide 19: Feedstock Advantage Underpins Downstream Profitability

    Feedstock Advantage Underpins Downstream Profitability Deliberate Investments in Ethylene Footprint Dow Benefits as Ethane Cost Declines 70% of Dow’s ethylene produced in cost-advantaged regions Ethane price down more than $0.30/gallon from 4Q11 highs 1,650 95 USGC Ethane Cost (cents/gallon) 2011 Gl

  20. Slide 20: Cycle Drives Ethylene Margin Expansion

    Cycle 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 Continued Favorable Ratio of Crude Oil to Natural Gas 200 40 92 Crude Oil to Natural Gas Ratio 91 90 92 90 90 35 Ethylene, million

  21. Slide 21: Feedstocks & Energy

    Feedstocks & Energy  World’s largest and most experienced ethylene and chlorine producer  Global feedstock flexibility creates sustainable competitive advantage for downstream specialties  Strategy for growth through partnerships  Feedstock prices declining in the U.S. and Canada, while naphtha

  22. Slide 22: Performance Plastics

    Performance Plastics  A powerful and transformed portfolio  World’s largest packaging materials supplier  World leader in polyolefin elastomers technology  Proven innovator in hygiene, medical end-markets  Leading global provider to the electrical and telecommunications industry  Project stead

  23. Slide 23: Performance Materials

    Performance Materials  Leading industry positions with global reach and access to large, attractive end-markets  Diverse products and end-markets with broad application opportunities  Provider of novel building blocks that fuel growth in specialty applications  Expanding pre-eminent global footp

  24. Slide 24: Coatings & Infrastructure Solutions

    Coatings & Infrastructure Solutions  World's largest specialty materials provider, addressing diverse range of high-growth sectors  Driving differentiation and higher margins through innovation  Construction hovers at all-time lows in the U.S.; Europe remains pessimistic  Dow Coating Materials a

  25. Slide 25: Electronic & Functional Materials

    Electronic & Functional Materials  Strong leadership positions in technology-intensive industries  Well-positioned, growing manufacturing and R&D base in Asia Pacific  Electronics industry faces near-term headwinds in the midst of correcting for excessive inventories  Bright spots in media table

  26. Slide 26: Agricultural Sciences

    Agricultural Sciences  Technology-driven growth, led by biotech innovations and novel ag chem products −SmartStax®, PowerCore™, Enlist™ Weed Control System, Sulfoxaflor(1) insecticide  Strengthened channel access, technology penetration through bolt-on seed acquisitions  Goal of $1 billion corn s

  27. Slide 27: Monetizing the Innovation Pipeline

    Monetizing the Innovation Pipeline Products Launched in 2011 Addressing Global Megatrends HEALTH TRANSPORTATION & CONSUMERISM ENERGY & NUTRITION INFRASTRUCTURE • DOW POWERHOUSE™ Solar Shingle • EcoSmooth™ satin conditioning polymer • Solid State Lighting growth platform • EVOQUE™ Pre-Composite Polym

  28. Slide 28: Dow Emerging Geo Investments Capturing Growth

    Dow Emerging Geo Investments Capturing Growth Investments for Growth TDCC Volume(1) Growth 2H 2011 vs. 2H 2010  Sadara will address fast China growing markets in Middle East, E. Europe, Asia Pacific Brazil  Carbon fiber composite JV with AKSA in Turkey Emerging Geo  Thailand: Elastomers, Solution

  29. Slide 29: Levers to Protect Against Economic Uncertainties

    Levers to Protect Against Economic Uncertainties Cash Flow Interventions Action Amount Accelerate Efficiency for Growth $750 Million Execute cost reduction program $750 Million Actively manage capex and growth spending $1 Billion Total $2.5 Billion 29

  30. Slide 30: Levers to Protect Against Economic Uncertainties

    Levers to Protect Against Economic Uncertainties Cash Flow Interventions Action Amount Accelerate Efficiency for Growth$250MM $750 Million Now in motion Execute cost reduction program $750 Million Actively manage capex and growth spending $1 Billion Total $2.5 Billion 30

  31. Slide 31: Levers to Protect Against Economic Uncertainties

    Levers to Protect Against Economic Uncertainties Total Levers $2.5 B Interventions Underway $1B  Efficiency programs Actively Manage $1.5B delivering results CapEx & Growth Additional Spending Levers – Delivered $500MM of cash in 2011 Poised to – Targeting $750MM of cash in 2012 Pull as $750MM Need

  32. Slide 32: Strong Cash Flow Generation with Clear Uses of Cash

    Strong Cash Flow Generation with Clear Uses of Cash Uses of Cash Cash Flow from Operations  Shareholder Remuneration – Raised dividend 67% – 401st consecutive dividend $8 Billion  Deleveraging – Retired >$4B of debt in 2011  Invest for Growth – Partnerships – R&D – De-bottleneck/Reliability 2009

  33. Slide 33: Macroeconomic Outlook

    Macroeconomic Outlook  United States is in recovery mode – Food packaging, transportation, energy industries showing signs of steady growth – Ongoing headwinds in construction; electronics “pause” in 1Q – Competitive energy costs bolster export position – Inventories at all-time lows  W. Europe wi

  34. Slide 34: Earnings Growth Trajectory Remains Intact

    Earnings Growth Trajectory Remains Intact Margin Expansion / Organic Growth Equity Earnings Growth Synergies / Innovation ~$1.5B of incremental EBITDA $10B $8.4B $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 Compa

  35. Slide 35: Dow Integration + Insight + Ingenuity = Growth

    Dow Integration + Insight + Ingenuity = Growth 35

  36. Slide 36: Appendix

    Appendix 36

  37. Slide 37: Macroeconomic Outlook

    Macroeconomic Outlook Continued Demand Growth Developed Emerging Developed Emerging Developed Emerging Flat or Insignificant Demand Growth (+ or -) Middle East / Africa Middle East / Africa Middle East / Africa Western Europe Western Europe Western Europe Eastern Europe Eastern Europe Eastern Europe

  38. Slide 38: Electronic & Functional Materials

    Electronic & Functional Materials Dollars in millions 4Q11 4Q10 Sales $1,063 $1,059 Price 3% Volume (3)% EBITDA $234 $277 Equity earnings (included in EBITDA) $32 $30 4Q11 Sales 4Q11 Trends vs. 4Q10 Dow Electronic Sales Price Volume Materials Dow Electronic Materials  -  Functional Materials   

  39. Slide 39: Coatings & Infrastructure Solutions

    Coatings & Infrastructure Solutions Dollars in millions 4Q11 4Q10 Sales $1,561 $1,547 Price 6% Volume (5)% EBITDA $177 $251 EBITDA, excluding Certain Items(1) $237 $251 Equity earnings (included in EBITDA) $102 $96 (1) See Supplemental Information regarding these items. 4Q11 Sales 4Q11 Trends Dow Bu

  40. Slide 40: Agricultural Sciences

    Agricultural Sciences Dollars in millions 4Q11 4Q10 Sales $1,344 $1,276 Price 4% Volume 1% EBITDA $145 $72 Equity earnings (losses) (included in EBITDA) $1 $(1) 4Q11 Trends vs. 4Q10 Sales Price Volume Dow AgroSciences    40

  41. Slide 41: Performance Materials

    Performance Materials Dollars in millions 4Q11 4Q10 Sales $3,550 $3,405 Price 4% Volume - EBITDA $225 $337 EBITDA, excluding Certain Items(1) $344 $449 Equity earnings (losses) (included in EBITDA) $(11) $7 4Q11 Trends (1) See Supplemental Information regarding these items. vs. 4Q10 Sales Price Volu

  42. Slide 42: Performance Plastics

    Performance Plastics Dollars in millions 4Q11 4Q10 Sales $3,659 $3,879 Price 2% Volume (8)% Volume (excluding divestitures) 3% EBITDA $667 $942 EBITDA, excluding Certain Items(1) $667 $947 Equity earnings (included in EBITDA) $32 $72 (1) See Supplemental Information regarding these items. 4Q11 Trend

  43. Slide 43: Feedstocks & Energy

    Feedstocks & Energy Dollars in millions 4Q11 4Q10 Sales $2,846 $2,506 Price 11% Volume 3% EBITDA $175 $152 Equity earnings (included in EBITDA) $115 $113 4Q11 Sales 4Q11 Trends Chlor- vs. 4Q10 Alkali/Chlor- Vinyl Sales Price Volume EO/EG Chlor-Alkali/Chlor-Vinyl    Energy  -  Energy Ethylene Ox

  44. Slide 44: Reconciliation of Non-GAAP Financial Measures

    Reconciliation of Non-GAAP Financial Measures Three Months Ended Dollars in millions 12/31/11 12/31/10 EBITDA $1,412 $1,756 - Depreciation and amortization 741 755 + Interest income 14 13 - Interest expense and amortization of debt discount 331 368 Income Before Income Taxes $354 $646 - Provision fo

  45. Slide 45: Supplemental Information

    Supplemental Information Results in the fourth quarter of 2011 were impacted by the following items: • Pretax charges totaling $77 million for asset impairments and related costs in the Polyurethanes business. The charges were included in "Cost of sales" in the consolidated statements of income and

  46. Slide 46: Supplemental Information

    Supplemental Information Results in the fourth quarter of 2010 were impacted by the following items: • Pretax charges totaling $91 million for asset impairments and related costs in the Polyurethanes business, the Epoxy business and Dow Automotive Systems. The charges were included in “Cost of sales

  47. Slide 47: Supplemental Information

    Supplemental Information Certain Items Impacting Results In millions, except per share amounts Pretax Impact (1) Net Income (2) EPS - Diluted (3) Three Months Ended Three Months Ended Three Months Ended 12/31/2011 12/31/2010 12/31/2011 12/31/2010 12/31/2011 12/31/2010 Excluding certain items (non-GA

  48. Slide 48: Certain Items Affecting Results

    Certain Items Affecting Results Certain items decreasing EBITDA by operating segment In millions Three Months Ended 12/31/11 12/31/10 Electronic & Functional Materials - - Coatings & Infrastructure Solutions $(60) - Agricultural Sciences - - Performance Materials (119) $(112) Performance Plastics -

  49. Slide 49: Reconciliation of Non-GAAP Financial Measure

    Reconciliation of Non-GAAP Financial Measure Twelve Months Ended Dollars in millions 12/31/11 12/31/10 EBITDA $7,785 $7,200 - Depreciation and amortization 2,883 2,962 + Interest income 40 37 - Interest expense and amortization of debt discount 1,341 1,473 Income Before Income Taxes $3,601 $2,802 -

  50. Slide 50: Supplemental Information

    Supplemental Information In addition to the item described above for the fourth quarter of 2011, results for the year ended December 31, 2011 were unfavorably impacted by three items: • Pretax charges totaling $31 million for integration costs related to the April 1, 2009 acquisition of Rohm and Haa

  51. Slide 51: Supplemental Information

    Supplemental Information Certain Items Impacting Results In millions, except per share amounts Pretax Impact (1) Net Income (2) EPS - Diluted (3) Twelve Months Ended Twelve Months Ended Twelve Months Ended 12/31/11 12/31/10 12/31/11 12/31/10 12/31/11 12/31/10 Excluding certain items (non-GAAP measur

  52. Slide 52: Certain Items Affecting Results

    Certain Items Affecting Results Certain items increasing (decreasing) EBITDA by operating segment In millions Twelve Months Ended 12/31/11 12/31/10 Electronic & Functional Materials - $(8) Coatings & Infrastructure Solutions $(60) (20) Agricultural Sciences - - Performance Materials (119) (71) Perfo

  53. Slide 53: Principal Joint Ventures

    Principal Joint Ventures Although Dow participates in many joint ventures, the most significant joint ventures from a financial perspective are: Compañía Mega S.A. Dow Corning Corporation EQUATE Petrochemical Company K.S.C. The Kuwait Olefins Company K.S.C. MEGlobal The SCG-Dow Group Univation Techn

  54. Slide 54: 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 54

  55. Slide 55: Preliminary Results for Principal Joint Ventures

    Preliminary Results for Principal Joint Ventures Principal Joint Ventures - Total Dow Proportionate Share Dollars in millions Dollars in millions 4Q11 4Q10(1) 4Q11 4Q10(1) Sales $3,963 $3,784 Sales $1,889 $1,813 Adjusted Sales(2) $2,938 $2,961 Adjusted Sales(2) $1,433 $1,444 EBITDA(3) $1,181 $937 EB

  56. Slide 56: Global Operating Rates as a Percent of Capacity

    Global Operating Rates as a Percent of Capacity Year QTR YTD 2008 1Q 86% 86% 2Q 83% 84% 3Q 76% 82% 4Q 64% 77% 2009 1Q 68% 68% 2Q 75% 71% 3Q 78% 74% 4Q 76% 74% 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% Operating rate is calculated on fixed cost

  57. Slide 57: Hydrocarbon / Energy Price Index

    Hydrocarbon / Energy Price Index U.S. NON U.S. GLOBAL YEAR QTR YTD QTR YTD QTR YTD 1976 100 100 100 1977 103 99 101 1978 104 100 102 1976 = 100 1979 116 120 118 1980 137 133 135 270 1981 145 126 136 1982 143 117 130 1983 150 111 129 250 1984 153 109 129 1985 147 103 123 1986 140 102 120 1987 147 114

  58. Slide 58: Global Hydrocarbon / Energy Purchased Unit Cost Index

    Global Hydrocarbon / Energy Purchased Unit Cost Index QTR YTD 1976 100 1977 110 1978 116 1979 1980 162 218 1976 = 100 1981 241 700 1982 235 1983 233 1984 222 1985 205 600 1986 140 1987 149 1988 147 1989 154 500 1990 174 1991 161 1992 153 1993 142 400 1994 143 1995 150 1996 166 1997 166 300 1998 131

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