The Dow Chemical — Q2 2016 Earnings Presentation
30 slides from The Dow Chemical's earnings presentation, Jul 28, 2016
Slide 1: 2Q 2016 Earnings Conference Call
The Dow Chemical Company 2Q 2016 Earnings Conference Call July 28, 2016 The Dow Chemical Company
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 expectati
Slide 3: Delivering on Our 2016 Priorities
Delivering on Our 2016 Priorities 1 Achieving the operating and financial plan 15th consecutive quarter of YoY operating EPS and EBITDA margin expansion • Highest 2Q operating EBITDA margin in a decade, reaching 21% 11th consecutive quarter of volume1 growth Record 2Q operating EBITDA of $2.5B
Slide 4: Agenda
Agenda • Second Quarter Review • Dow Corning: A New Element for Growth • Value Growth Drivers • Outlook 4
Slide 5: Delivering Over Both the Near-Term and Long-Term
Delivering Over Both the Near-Term and Long-Term 2016 Productivity Progress ($MM) Volume1 by Geo. Area vs. SQLY Op. EBITDA Margin by Segment 8% 7% 1Q16 CS 2Q16 6% 2H16 PP 2Q16 4% 4% >$300MM 4% 3% IS 2Q16 Target 2Q15 2% Ag 0% PMC Asia EMEAI Latin North $180MM Completed YTD 0% 10% 20% 30% Pacific Amer
Slide 6: Agricultural Sciences: Self-Help Mostly Offsets Challenging Macros & Divestitures
Agricultural Sciences: Self-Help Mostly Offsets Challenging Macros & Divestitures Quarterly Segment Performance Double-Digit Corn Growth More than Offset by Industry Headwinds ($MM) 2Q15 2Q16 • Lower sales as double-digit demand growth in corn seeds was more than offset by lower crop commodity price
Slide 7: Consumer Solutions: Record Quarterly Operating EBITDA
Consumer Solutions: Record Quarterly Operating EBITDA Dow Automotive Systems – Record 2Q Operating EBITDA Quarterly Segment Performance • Innovation driven momentum continues led by double-digit ($MM) 2Q15 2Q16 demand growth in EMEAI and Asia Pacific, as well as the United States region, fueled in p
Slide 8: Infrastructure Solutions: Operating EBITDA Growth in All Businesses
Infrastructure Solutions: Operating EBITDA Growth in All Businesses Dow Building & Construction – Record Quarterly Operating EBITDA Quarterly Segment Performance • Volume gains in most geographies – led by double-digit gains ($MM) 2Q15 2Q16 in EMEAI and Latin America • Earnings growth based on share
Slide 9: Performance Materials & Chemicals: Lower Equity Earnings, Turnaround Impacts
Performance Materials & Chemicals: Lower Equity Earnings, Turnaround Impacts Polyurethanes – Further Growth in Specialty and Differentiated Business Quarterly Segment Performance • Double-digit volume growth in higher-margin, differentiated ($MM) 2Q15 2Q16 system house applications, particularly in
Slide 10: Performance Plastics: Record 2Q Operating EBITDA
Performance Plastics: Record 2Q Operating EBITDA Dow Packaging and Specialty Plastics – Record 2Q Operating EBITDA Quarterly Segment Performance 2Q15 2Q16 • Record 2Q sales volume, enabled by operational excellence ($MM) and consumer-led demand, delivers operating EBITDA growth $4,806 $4,694 $1,247
Slide 11: Agenda
Agenda • Second Quarter Review • Dow Corning: A New Element for Growth • Value Growth Drivers • Outlook 11
Slide 12: Dow Corning Ownership Restructure Impacts
Dow Corning Ownership Restructure Impacts Value Drivers ~$0.1B ~$1.4B • Accretive to operating EPS, cash flow from operations ~$0.4B and free cash flow in first full year after Close • Adds >$1B of EBITDA at full synergy run rate of $500MM ~$0.4B – Dow captures 100% of the synergies by assuming rema
Slide 13: Agenda
Agenda • Second Quarter Review • Dow Corning: A New Element for Growth • Value Growth Drivers • Outlook 13
Slide 14: Maximizing Our Competitive Position
Maximizing Our Competitive Position Sources of Value Vary Over Time How Dow Maintained/Expanded Margins Ethane/Naphtha Spread Ethylene/Naphtha Margin • Dow’s integration has allowed chain margins to show resilience as PE margins have expanded PE/Ethylene Margin relative to ethylene 100% • PE/ethylen
Slide 15: Operating Rates Remain High in Forecast Period
Operating Rates Remain High in Forecast Period Polyethylene Dow’s View on Market Drivers Demand Capacity Operating Rate (%) 300 95% Operating rates likely stable over next few years Capacity and Demand (B lbs.) • Demand growth in consumer-driven markets Global Operating Rate 250 90% • Industry forec
Slide 16: Significant Progress on Execution of Planned Merger
Significant Progress on Execution of Planned Merger 4Q15 2016 2017-2018 Signed Hart- S-4 ROW Share- Close Stand Up SpinCos1 Complete Spins1 12/11/15 Scott- Filing Competi- holder 2H16 Rodino tion Vote Filing Filings 2Q16/ Filed on Effective 3Q16 Approved 1/27/16 6/9/16 In Process 7/20/16 CLOSE Drive
Slide 17: Agenda
Agenda • Second Quarter Review • Dow Corning: A New Element for Growth • Value Growth Drivers • Outlook 17
Slide 18: Specific Value Drivers Deliver EBITDA Growth
Specific Value Drivers Deliver EBITDA Growth ~25% Op. EBITDA Margin >$15B ~20% Op. EBITDA Margin $9.6B 2015 Productivity Sadara USGC Dow Material Co. New Pre-Merger Investments Corning + Synergies Dow - DAS/EM + DD Perf Matls • U.S. economy resilient, driven by consumer • Europe showing strength Out
Slide 19: Slide 19
Slide 20: Appendix
™ Appendix
Slide 21: Silicones Platform Has a Natural Fit Within Dow
Silicones Platform Has a Natural Fit Within Dow Transportation Consumer Solutions • Broader set of materials for Revenue differentiated solutions Post Consumer Solutions – Silicones Pre Consumer ~35% of Revenue • Heightens sensory experience ~50% of EBITDA ~30% in personal care offerings Electronics
Slide 22: Outlook – Delivering With Focus and Resilience In Uncertain Times
Outlook – Delivering With Focus and Resilience In Uncertain Times • Geographic trends reflect uneven pace of economic recovery – Positive demand continues in North America – Gradual recovery in Europe – Latin America showing early signs of improvement – Increasingly affluent consumers continue to su
Slide 23: Outlook for Feedstock Supply Favorable
Outlook for Feedstock Supply Favorable Ethane Expected to Be Long Into 2020+ Dow’s View on Market Drivers 2,500 600 Favorable balances through next several years Ethane Surplus / Deficit (MBD) 2,250 500 Ethane Usage (MBD) 2,000 400 • Gas well supplied • NGL supplies grow with associated gas 1,750 30
Slide 24: Steadfast Commitment to Productivity
Steadfast Commitment to Productivity Announced in 3Q12 to offset hiring for growth projects (Ag Sciences, 2012 Headcount reduction: $1.75B cost out U.S. Gulf Coast, Sadara) from 2012-2015 ~3,000 Program Duration: 3Q12 - 1Q15 Announced in 2Q15 to further streamline the organization and $1
Slide 25: Initial Dow Corning Modeling Guidance
Modeling Guidance Silicones Market – Nearly double-digit demand growth in 1H16 vs. 1H15; momentum continues in 2H16 Revenue – ~$4.5B added annually, split ~35%/65% between Consumer and Infrastructure Solutions Initial Dow Corning EBITDA – ~$800MM/yr1 added annually, split ~50%/50% between Consumer a
Slide 26: Market Pulse – 2Q16 Heat Map
Market Pulse – 2Q16 Heat Map Eastern Europe, ME, 2Q16 Up 3X GDP or greater Western Europe Developing Asia Developed Asia Flat Demand Growth Latin America US & Canada Africa, India 2Q16 Down Double digit or greater Lower Participation Market >$1B Participation in 2015 ex. Acquisitions & Divestitures
Slide 27: 2Q16 vs. 2Q15 Sales Trends by Business
2Q16 vs. 2Q15 Sales Trends by Business Agricultural Sciences by Business1 Consumer Solutions1 Infrastructure Solutions1 Sales Price Volume Sales Price Volume Dow Building & Sales Price Volume Construction # $ # Dow Automotive # $ # Crop Protection $ $ $ Systems Energy & Water $ $ $ Consumer Care $ $
Slide 28: Global Operating Rates as a Percent of Capacity
Global Operating Rates as a Percent of Capacity Year QTR YTD 2012 1Q 83% 83% 2Q 78% 81% 3Q 83% 81% 4Q 78% 81% 2013 1Q 82% 82% 2Q 78% 80% 3Q 82% 81% 4Q 82% 81% 2014 1Q 83% 83% 2Q 82% 83% 3Q 88% 85% 4Q 86% 85% 2015 1Q 84% 84% 2Q 84% 84% 3Q 86% 85% 4Q 86% 85% 2016 1Q 88% 88% 2Q 82% 85% 28
Slide 29: Preliminary Results for Principal Joint Ventures
Preliminary Results for Principal Joint Ventures Principal Joint Ventures1 – Total Dow Proportionate Share Dollars in millions (unaudited) 2Q16 2Q15 Dollars in millions (unaudited) 2Q16 2Q15 Sales $3,076 $4,334 Sales $1,283 $1,629 Adjusted Sales2 $2,376 $3,467 Adjusted Sales2 $1,013 $1,245 EBITDA3 $
Slide 30: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures Three Months Ended Six Months Ended In millions 6/30/16 6/30/15 6/30/16 6/30/15 Operating EBITDA $2,464 $2,452 $4,717 $4,853 + Certain Items 1,763 (75) 463 587 EBITDA $4,227 $2,377 $5,180 $5,440 - Depreciation and amortization 680 642 1,287 1,276 + Inter
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