Dow Inc. · NYSE:DOW
Dow — The Dow Chemical Company — Q1 2012 Earnings Presentation
43 slides from Dow's earnings presentation, Apr 26, 2012
Slide 1: Q1 2012 Earnings Conference Call
Q1 2012 Earnings Conference Call The Dow Chemical Company April 26, 2012 January 4, 2012
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. future. uncertainties Dow cannot guarantee the accuracy of any forecasts or estimates, and we do not plan to update any forward-looking stateme
Slide 3: Agenda
Agenda 1Q 2012 Overview Financial Update Drivers to Deliver Shareholder Value − Feedstock Advantage − Integrated Portfolio − Innovation Agenda − Operating and Capital Efficiency Outlook O tl k 3
Slide 4: Dow Delivers Adjusted EPS of $0.61 Per Share
Dow Delivers Adjusted EPS of $0.61 Per Share 10th Consecutive Quarter of Y-O-Y Top-line Growth; Record Ag Performance Reported EPS of $0.35, or adjusted EPS of $0.61 – Certain items included a restructuring-related charge of $0.25 per share Sales of $14.7B, adjusted sales up 4% – Volume grew 3 p
Slide 5: Momentum Exiting 1Q12
Momentum Exiting 1Q12 Operating Rate Operating rate up 12 points 90% vs. 4Q11 to 84% 85% – March rate was 2 p percentage g 80% pts higher vs. 1Q average 75% 70% Sales up Mar. vs. Feb.(1) 65% – U.S. sales grew 15% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 – Germany up 14% Change in Volume vs.1
Slide 6: 1Q12 Financial Performance
1Q12 Financial Performance Dollars in millions, except per share amounts 1Q12 1Q11 Net Sales $14,719 $14,733 Adjusted Net Sales $14,719 $14,215 Adjusted Volume change in percent 3% Adjusted Price change in percent 1% Adjusted EBITDA $2,089 $2,445 Net Income Available for Common Stockholders $412 $62
Slide 7: Year-Over-Year Volume and Price Trends
Year-Over-Year Volume and Price Trends V l Volume Volume up 3% Electronic & -2% Functional Materials Strong demand in Agricultural Sciences Coatings & --- Infrastructure Solutions U.S. demand up 2% Agricultural Sciences 12% 10th consecutive quarter off Y-O-Y O growth in emerging Performance
Slide 8: Operating Segment View
Operating Segment View Electronic and Functional Materials Sales down 1%; 1% price increase offset by 2% volume decline Dow Electronic Materials overall sales declined on industry softness; however Display Technologies reported strong demand gains in Europe Functional Materials reported record
Slide 9: Operating Segment View
Operating Segment View Agricultural Sciences Record sales of $1.8 billion; record EBITDA of $451MM Volume rose 12%; sales and volume grew in all geographic areas Crop Protection demand up 14%; sales of new crop protection products up 27% Seeds, Traits and Oils posted demand gains of 16% Gr
Slide 10: Operating Segment View
Operating Segment View Performance Plastics Sales flat; both volume and price in line with the year-ago period Dow Elastomers posted new quarterly sales and EBITDA records Dow Electrical and Telecommunications increased sales, with double- digit sales and volume gains in Asia Pacific Strong
Slide 11: Equity Earnings Contract Due to Industry Pressures
Equity Earnings Contract Due to Industry Pressures Equity Earnings from Nonconsolidated Affiliates Dow Corning impacted by ($ millions, excluding certain items) oversupply, pricing pressure $350 in silicon value chain $300 − Industry consolidation in progress $250 − Volume continues to increase $2
Slide 12: Additional Financial Highlights
Additional Financial Highlights 1Q12 working capital vs. 1Q11 − DSO: down 1 day to 43 days − DSI: rose to 75 days due to seasonal builds and turnaround prep Net Debt to Total Capital p (1) of 41.2% − Down 160 basis points vs. 1Q11 − Reduced debt by >$1B in 1Q12 − ~$50MM reduction in interest exp
Slide 13: Agenda
Agenda 1Q 2012 Overview Financial Update Drivers to Deliver Shareholder Value − Feedstock Advantage − Integrated Portfolio − Innovation Agenda − Operating and Capital Efficiency Outlook 13
Slide 14: Clear Drivers to Deliver Shareholder Value
Clear Drivers to Deliver Shareholder Value Largest, most flexible and experienced ethylene producer Feedstock 70% of ethylene production in cost-advantaged regions Advantage Shale gas dynamics & USGC investments drive EBITDA upside of ~$2B/year $ y in 2017 Strategically aligned with key end-
Slide 15: Ethylene Industry Dynamics Remain Strong
Ethylene Industry Dynamics Remain Strong Dow EBITDA Growth from Ethylene Derivatives Drivers Persistently Favorable Oil-to- a-to-Ethane Ratio Gas Ratio Crude oil $110+ $110+…leading leading to high naphtha costs Upward pressure on ethylene derivative prices Nat gas forecast ~$4/mmbtu $4/mmbtu
Slide 16: Feedstock Advantage Bolsters Downstream Profitability
Feedstock Advantage Bolsters Downstream Profitability K F Key Future t IInvestments t t Feedstocks & Energy Driven by downstream needs Performance Plastics – St. Charles cracker: YE 2012 Performance – PDH in Texas: 2015 Ethylene Packaging Dow Elastomers – New cracker in Freeport: 2017 Dow El
Slide 17: High-Growth, High-Margin Portfolio
High-Growth, High-Margin Portfolio Normalized Normalized Trailing 4 Quarters Operating Segment Revenue EBITDA EBITDA Growth Target Margin Target Margin Electronic El t i &F Functional ti l 2x GDP ~25% 24% Materials Coatings & Infrastructure 1.5x GDP 20-25% 19% Solutions Agricultural Sciences 1.5x GD
Slide 18: Dow's Portfolio Can Pivot to Optimize Returns
Dow’s Portfolio Can Pivot to Optimize Returns Shorter-Term Integration Value Drivers Ability to arbitrage within and across multiple value Optimization of chains price and volume Geographic Breadth Exposure to fastest growing markets; Investments address growing middle-class Energy Longer Term Longe
Slide 19: Monetizing the Innovation Pipeline
Monetizing the Innovation Pipeline Addressing Megatrends ENERGY Commercializing Today DOW POWERHOUSE™ Solar Shingle CONSUMER & EVOQUE™ Pre-Composite LIFESTYLE Polymer Technology $33 Billion* Pipeline Refuge Advanced® powered NPV, with by SmartStax® >500 Projects AGRICULTURAL ENLIST ENLIST™ W
Slide 20: EVOQUE Technology: Commercializing In All Key Regions
EVOQUE™ Technology: Commercializing In All Key Regions C stomers ha Customers e validated have alidated technolog technology / commerciali ation underway commercialization nder a Customer sampling and testing taking place 20 5 5 10 3 Paints P i t formulated f l t d with ith Dow D hidi hiding technol
Slide 21: On Track to Achieve Efficiency and Cost Targets
On Track to Achieve Efficiency and Cost Targets Total Levers $2.5B Interventions Underway $1B On track to deliver $250MM of Actively Manage $1.5B cost reductions in 2012 CapEx & Growth Additional Spending Levers – April 2: Announced selective downsizing / shutdown of assets to Poised to reduce str
Slide 22: Strong Cash Flow Generation and Clear Uses of Cash
Strong Cash Flow Generation and Clear Uses of Cash Shareholder Sh h ld Remuneration: R ti R i d di Raised dividend id d 28% Deleveraging: Reduced >$1B of debt in 1Q12 Invest for Growth: Prudent investments for organic growth Cash Flow from Operations Dividend Payout Ratio* 100% 80% Average Pay
Slide 23: Agenda
Agenda 1Q 2012 Overview Financial Update Drivers to Deliver Shareholder Value − Feedstock Advantage − Integrated Portfolio − Innovation Agenda − Operating and Capital Efficiency Outlook 23
Slide 24: Macroeconomic Outlook
Macroeconomic Outlook Asia showing improvements – Solid demand growth in South East Asia – Post-tsunami recovery in Japan – Stabilization St bili ti iin Chi China as governmentt policies li i shift hift tto d domestic ti growth th United States sees recovery – Improvement in consumer confidence
Slide 25: Earnings Growth Trajectory Remains Intact
Earnings Growth Trajectory Remains Intact Margin Expansion / Organic Growth Equity Earnings Growth Synergies / Innovation Dow’s Next Level of Earnings $15B ~$1.5B of incremental EBITDA $10B $8.4B $7.5B $5.5B Near Earnings 2009 2010 2011 Term T P Power 25
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Slide 27: Appendix
Appendix 27
Slide 28: Macroeconomic Outlook
Macroeconomic Outlook Continued Demand Growth Developed Emerging Developed Emerging Developed Emerging Flat or Insignificant Demand Growth (+ or -) Middlle East / Africa Middlle East / Africa Middlle East / Africa Wesstern Europe Wesstern Europe Wesstern Europe Easstern Europe Easstern Europe Easste
Slide 29: Electronic & Functional Materials
Electronic & Functional Materials Dollars in millions 1Q12 1Q11 Sales $1,121 $1,134 Price 1% Volume (2)% EBITDA $243 $257 EBITDA, excluding Certain Items(1) $260 $257 Equity earnings (included in EBITDA) $19 $24 (1) See Supplemental pp Information regarding g g these items. 1Q12 Sales 1Q12 Trends vs
Slide 30: Coatings & Infrastructure Solutions
Coatings & Infrastructure Solutions Dollars in millions 1Q12 1Q11 Sales $1,703 $1,732 Price (2)% Volume - EBITDA $204 $250 EBITDA, excluding Certain Items(1) $245 $250 Equity earnings (included in EBITDA) $22 $68 (1) See Supplemental pp Information regarding g g these items. 1Q12 Sales 1Q12 Trends P
Slide 31: Agricultural Sciences
Agricultural Sciences Dollars in millions 1Q12 1Q11 Sales $1,838 $1,606 Price 2% V l Volume 12% EBITDA $451 $406 Equity earnings (included in EBITDA) $1 $3 1Q12 Trends vs. 1Q11 Sales Price Volume Dow AgroSciences 31
Slide 32: Performance Materials
Performance Materials Dollars in millions 1Q12 1Q11 Sales $3,473 $3,541 Price (2)% Volume - Volume (excluding divestitures) 2% EBITDA $332 $564 EBITDA, excluding Certain Items(1) $518 $564 1Q12 Trends Equity losses (included in EBITDA) $(17) $(5) vs. 1Q11 (1) See Supplemental Information regarding t
Slide 33: Performance Plastics
Performance Plastics Dollars in millions 1Q12 1Q11 Sales $3,591 $4,043 Price - Volume (11)% Volume (excluding divestitures) - EBITDA $718 $981 Equity earnings (included in EBITDA) $34 $62 1Q12 Sales 1Q12 Trends Dow Elastomers vs. 1Q11 Dow Electrical & TTelecommunications l i ti S l Sales Pi Price V
Slide 34: Feedstocks & Energy
Feedstocks & Energy Dollars in millions 1Q12 1Q11 Sales $2,935 $2,588 Price 6% V l Volume 7% EBITDA $198 $248 Equity earnings (included in EBITDA) $125 $155 1Q12 Trends vs. 1Q11 1Q12 Sales Chlor‐ S l Sales Pi Price V l Volume Alkali/Chlor‐ Chlor-Alkali/Chlor-Vinyl Vinyl EO/EG Energy Ener
Slide 35: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Three Months Ended Dollars in millions 03/31/12 03/31/11 EBITDA $1 708 $1,708 $1 942 $1,942 - Depreciation and amortization 679 731 + Interest income 6 7 - Interest expense and amortization of debt discount 329 377 Income Before Income Taxes $706 $841 -
Slide 36: Supplemental Information
Supplemental Information Results in the first quarter of 2012 were impacted by the following items: • Pretax restructuring charges of $357 million. On March 27, 2012, the Company’s Board of Directors approved a restructuring plan as part of a series of actions to optimize its portfolio, respond to c
Slide 37: 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 03/31/2012 03/31/2011 03/31/2012 03/31/2011 03/31/2012 03/31/2011 Adjusted to exclude certain ite
Slide 38: Certain Items Affecting Results
Certain Items Affecting Results Certain items decreasing EBITDA by operating segment In millions Three Months Ended 03/31/12 03/31/11 Electronic and Functional Materials $(17) - Coatings and Infrastructure Solutions $(41) - Agricultural Sciences - - Performance Materials $(186) - Performance Plastic
Slide 39: 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. MEGl b l MEGlobal The SCG-Dow Group 39
Slide 40: Emerging Geographies
Emerging Geographies Dow defines emerging geographies as the following: Eastern Europe, p including g Russia Asia Pacific, excluding Japan, Australia and New Zealand Latin America India Middle East Africa 40
Slide 41: Preliminary Results for Principal Joint Ventures
Preliminary Results for Principal Joint Ventures Principal Joint Ventures - Total Dow Proportionate Share Dollars in millions 1Q12 1Q11 Dollars in millions 1Q12 1Q11 Sales $3 743 $3,743 $3 800 $3,800 Sales $1 823 $1,823 $1 854 $1,854 Adjusted Sales(1) $2,835 $2,950 Adjusted Sales(1) $1,400 $1,460 EB
Slide 42: Reconciliation of Equity Earnings
Reconciliation of Equity Earnings 2002 2003 2004 2005 2006 2007 2008 2009 Quarterly Average Equity Earnings excluding certain items $10 $81 $231 $241 $240 $281 $197 $181 Equity Earnings excluding certain items, items for the year 40 322 923 964 959 1,122 787 724 Certain items: Dow Corning Restructur
Slide 43: Global Operating Rates as a Percent of Capacity
Global Operating Rates as a Percent of Capacity Year QTR YTD 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% 2012 1Q 84% 84% 43
The Dow Chemical Company — Q1 2012 Earnings Presentation on 6ix