The Dow Chemical Company Citi Basic Materials Conference. Howard Ungerleider Vice Chairman and Chief Financial Officer

Transcription

1 The Dow Chemical Company Citi Basic Materials Conference Howard Ungerleider Vice Chairman and Chief Financial Officer November 29, 2016

2 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 forwardlooking statements if our expectations change. If you would like more information on the risks involved in forward-looking statements, please see our Annual Report and our SEC filings. In addition, some of our comments reference non-gaap financial measures. Where available, presentation of and reconciliation to the most directly comparable GAAP financial measures and other associated disclosures are provided on the Internet at Trademark of The Dow Chemical Company or an affiliated company of Dow. Operating earnings per share is defined as earnings per share excluding the impact of Certain Items. See Supplemental Information at the end of the earnings release for a description of these items, as well as a reconciliation of operating earnings per share to Earnings per common share diluted. EBITDA is defined as earnings (i.e., Net Income ) before interest, income taxes, depreciation and amortization. Operating EBITDA is defined as EBITDA excluding the impact of Certain Items. Operating EBITDA margin is defined as Operating EBITDA as a percentage of reported net sales. 2

3 Agenda Q3 Financial Highlights & Volume Growth Productivity & DowDuPont Synergies Growth Investments Dow s Enhanced Earnings Growth Trajectory 3

4 Dow Delivers 3Q16 Operating EPS of $0.91, up 11% Achieves Four Full Years of YoY Operating Earnings Growth & Margin Expansion Financial 16 th consecutive quarter of YoY operating EPS and EBITDA margin expansion Highest 3Q operating EPS in a decade Record 3Q operating EBITDA of $2.5B >$900MM of cash returned to shareholders in the quarter Operational Strategic 6% volume increase, ex. M&A; growth in all geographic areas 12 th consecutive quarter of YoY volume growth, ex. M&A $76MM in productivity savings in the quarter, reaching $254MM YTD Operating EBITDA margin expanded to 20% Dow Corning integration firmly on track; run-rate cost synergies of >$200MM Sadara multi-feed cracker and third PE train commenced operation LA-3 expansion underway; unit scheduled to start up in 4Q TX-9 cracker >85% mechanically complete; remains on track for mid-2017 startup Further progressed Day 1 readiness for DowDupont; finalized cost synergy plans 4

5 Agenda Q3 Financial Highlights & Volume Growth Productivity & DowDuPont Synergies Growth Investments Dow s Enhanced Earnings Growth Trajectory 5

6 Consistent Track Record of Productivity and Cost Discipline 2012 Announced in 3Q12 Headcount reduction: ~3,000 $1.75B cost out 2015 Announced in 2Q15 to further streamline the organization and optimize the company s asset footprint post-dcp Headcount reduction: ~2,200 $1B cost out $600MM delivered through 3Q16 Program duration: 2Q15-4Q Announced in 2Q16 as part of DCC ownership restructure; includes asset and business actions to improve competitiveness Program duration: 2Q16 2Q18 Headcount reduction: ~2,500 $400MM run-rate >$200MM run-rate at 3Q16 DWDP Announced in 4Q15 as part of merger of equals and intended separation into three publicly traded companies Program duration: 100% run-rate 24 months after close $3B run-rate 70% run-rate after 12 months >$2.5B of Productivity Savings Over Past 4 Years; Additional Cost-Out Prior to DWDP 6

7 Agenda Q3 Financial Highlights & Volume Growth Productivity & DowDuPont Synergies Growth Investments Dow s Enhanced Earnings Growth Trajectory 7

8 Building Blocks Platforms Solutions Narrower and Deeper Market Focus Enabled by Technology Platforms, Operational Excellence and Flexible Integration ADVANTAGED BACK-INTEGRATION WORLD-CLASS SCIENCE AND ENGINEERING CAPABILITIES NARROWER, DEEPER END-MARKET PRESENCE Ethylene High-Throughput Research Catalyst Discovery & Ligand Synthesis Polymer Science Packaging Transportation Propylene Silicones Material Science Formulation Sciences Process Engineering High-Performance Computer Modeling Application Development Infrastructure Consumer Energy/Water Durables & Industrial Consumer-Driven Demand in Core End-Markets Propels Growth, Driven By Sustainable Urbanization Trends in Emerging Geographies Excludes Electronic Materials, Agricultural Sciences, Hydrocarbons and Energy, and Includes Dow Corning Silicones 8

9 Transportation Global SAAR Infrastructure Packaging Global PE Consumption USGC Investments Bolster Narrower & Deeper Focus in Key Markets Global Spend (B$) 1 Per Capita (lbs) 1 Demand for PE Grows at 0.5 lb/yr per Capita Global Spending Grows $150B per Year 4,500 3,500 2,500 1, USGC Derivatives Gas Phase De-Bottleneck (TX) Power Transmission and Distribution, Telecommunications Silicones Other ELITE High Performance Food Packaging, Health & Hygiene Propylene Next-Generation LDPE Protective and Specialty Packaging, Medical Next-Generation NORDEL Transportation, Consumer Durables, Construction (MM units) 1 Urbanization Drives Mobility (+2.2MM Units a Year) Bi-Modal De-Bottleneck (LA) Pipe & Fitting, Caps & Closures High Melt Index Elastomers Hygiene Non-Wovens, Consumer Goods, Flexible Packaging Capturing High Return Growth Opportunities in the Americas 1. Source: IHS, Nov. 21,

10 Attractive Growth Markets & Technology-Driven Solutions Sadara Meeting Consumer-Driven Demand in Emerging Geos Food Packaging Est YoY Impact to Dow Specialty Packaging Hygiene and Medical Automotive Infrastructure Construction Sadara Revenue: ~$1.5B Equity Earnings: Flat Perf. Plastics tailwind offset by Perf. Materials and Chemicals start-up costs Cash used in investing activities: ~$350MM lower Modeling Considerations ~90% of Sadara s revenue and 35% of its equity earnings flow through the Dow P&L Minimal working capital impact as inventory, A/P and A/R offset Sustainable Urbanization & Growing Middle Class Fuel Growth 10

11 Silicones Growth Platform Has a Natural Fit Within Dow Seamless Business Alignment; Adds High-Margin Revenue in Targeted End-Markets Transportation Broader set of materials for differentiated solutions Consumer Heightens sensory experience in personal care offerings Electronics Enhances component manufacturing and device assembly Construction Increases design freedom and improves durability Energy Diversifies heat transfer fluids for energy efficiency Coatings & Additives Enrich and control desired properties in end-uses Growth Synergies Finalized innovation playbook to achieve $100MM target Expanded addressable market ($4B) in fast-growing sectors consumer care, infrastructure, transportation, packaging 11

12 Agenda Q3 Financial Highlights & Volume Growth Productivity & DowDuPont Synergies Growth Investments Dow s Enhanced Earnings Growth Trajectory 12

13 Earnings Growth Showcases Power of Dow s Business Model Innovation and Integration Deliver Higher, More Consistent Earnings Track Record of Growth, Integration & Portfolio Enhancements Innovation & Integration Shift Earnings Trajectory Narrower focus on packaging, transportation and consumer care market sectors Shifted earnings mix to more consumer-driven exposure Upgraded packaging value chain participation; revamped auto franchise; grew coatings and construction franchises Divested low ROC, non-strategic assets since 2009 $15B revenue divested $1.6B EBITDA divested $17B pre-tax equivalent realized Short- and long-term earnings growth drivers firmly in place Revitalized R&D engine to drive organic growth, customer intimacy and further upgrade mix Integrated capabilities from Dow Corning Enhanced cost competitiveness and integration strength with growth investments in USGC, Saudi Arabia and Asia Instituted consistent focus on productivity and cost savings Dow Operating EBITDA ($ billion) 1 $10 $9 $8 $7 $6 $5 $4 $3 $2 7-Year Avg Operating EBITDA CAGR: 1% Below-GDP Growth Above-GDP Growth Source: Dow 10-K filings; 2016 data represents 3Q16 trailing 12 months. 13

14 Total Shareholder Return Strategic Shifts Have Yielded Enhanced Shareholder Returns Average Operating EBITDA ($B) Average Operating Cash Flow ($B) $8.6 $9.6 $7.2 $6.7 $5.6 $5.1 $3.9 $ Q16 TTM Consistent EBITDA Growth Q16 TTM Enhanced Cash Flow Profile 1 Established track record of earnings and cash flow growth over past 4 years 18% operating EPS CAGR bps operating ROC expansion 2 $14.6B of cash 3 returned to shareholders through share buybacks and paid dividends TSR outperformance vs. S&P 500 Further shareholder benefits from industrydefining DowDuPont merger and intended spins Established Track Record of Results 25% 20% 15% 10% 5% 0% Dow S&P Year 10-Year 5-Year 3-Year 1-Year As of 10/19/2016; Source: Bloomberg Equity Outperformance 1. 3Q16 TTM calculated as Cash from Operating Activities, excluding the impact of K-Dow arbitration award and Urethanes settlements 2. Trailing 12 month basis. 3. Includes $1.5B in non-cash share repurchases related to the Dow Chlorine Products transaction. 14

15 Specific Value Drivers Deliver EBITDA Growth ~25% Op. EBITDA Margin >$15B ~20% Op. EBITDA Margin $9.6B 2015 Productivity Pre-Merger Sadara USGC Investments Dow Corning Material Co. + Synergies - DAS/EM + DD Perf Matls New Dow Portfolio, Growth Projects and Productivity Fuel New Dow 15

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