The Dow Chemical Company
Doug May Business President Olefins, Aromatics & Alternatives March 24th The Dow Chemical Company
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 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 www.dow.com/investors.
™Trademark of The Dow Chemical Company or an affiliated company of Dow. “EBITDA” is defined as earnings (i.e., “Net Income”) before interest, income taxes, depreciation and amortization. “Adjusted EBITDA” is defined as EBITDA excluding the impact of Certain items. “Adjusted EBITDA margin” is defined as “Adjusted EBITDA” as a percentage of reported net sales. “Adjusted Return on Capital” is on a trailing twelve month basis and defined as Adjusted Net Operating Profit After Tax divided by Average Total Capital. “Adjusted Net Operating Profit After Tax” is defined as Adjusted Net Income plus Preferred Stock Dividends plus Net Income Attributable to Noncontrolling Interests plus gross interest expense less tax on gross interest expense. “Adjusted Net Income” is defined as Net Income excluding the impact of “Certain Items.” “Total Capital” is defined as Total Debt plus The Dow Chemical Company’s Stockholders’ Equity plus Redeemable Non-controlling Interest plus Non-redeemable Non-controlling Interests “Adjusted sales” is defined as “Net Sales” excluding sales related to prior-period divestitures. “TTM” is defined as trailing twelve months. “Adjusted Net Operating Profit After Tax” excludes the impact of certain items
2
Dow’s Global Presence 2014 Sales of $58,167 million
Dow Sites Around the World
2014 Sales by Region
Asia Pacific 16%
Latin America 13%
North America 37%
EMEAI 34%
Sales in Emerging Geographies: 35% Fast Facts
• ~53,000 employees • More than 6,000 products
• Manufactured in 35 countries • Sales in ~180 Countries
Emerging Geographies defined as Eastern Europe, including Russia; Asia Pacific, excluding Japan, Australia and New Zealand; Latin America; India; Middle East; Africa
3
Dow’s Strategy Balances Risk and Rewards Shareholders Dow is structurally hedged – feedstocks, currency and value chain ownership Focus remains on high-value organic growth projects and productivity Returning cash to shareholders via dividend and share repurchases
0.5% 0.0%
DAS
1.0%
TX Cracker & Derivatives
1.5%
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0
Sadara
2.0%
New Program
LA Ethane Flex
2.5%
Completed
PDH
3.0%
10 9 8 7 6 5 4 3 2 1 0
St. Charles
3.5%
High-Value Organic Growth Accretive EBITDA at Run-Rate ($B)
4.0%
$9.5B Cumulative Target for Share Repurchases Cumulative Share Repurchases - $B
Dividend Yield vs. Peers
4 Source: Capital IQ — February 4, 2015 Reflects announced dividend increase at Investor Forum
New Operating Segments Aligned to Dow’s Strategy
Crop Protection Seeds
Strategic Levers Benchmark
Consumer Solutions
Infrastructure Solutions
Consumer Care Dow Automotive
Dow Building &
Systems Dow Electronic Materials
2014
Businesses
Agricultural Sciences
Revenue: $7.3B Adj. EBITDA: $1.0B
Attractive market
fundamentals Aggressive growth funding to expand leading innovation pipeline
Monsanto, Syngenta, Bayer, NuFarm, BASF, DuPont, FMC
Revenue: $4.6B Adj. EBITDA: $1.0B
Construction Dow Coating Materials Energy & Water Solutions Performance Monomers
Solid positions in key
attractive markets Leading technology platform and strong innovation pipeline
market segments Leading technology platforms PDH and productivity drive for acrylic chain
Cabot Micro, Croda, DuPont, Sumitomo, Clariant, Stepan, Johnson Controls
RPM, Valspar, Kemira, Sherwin-Williams, Akzo Nobel, Arkema, Owens Corning, Pall, PPG, Celanese
Chlor Alkali and Vinyl Chlorinated Organics Epoxy Industrial Solutions Polyurethanes
Performance Plastics
Dow Elastomers Dow Electrical and
Telecommunications
Dow Packaging and Specialty Plastics
Energy Hydrocarbons
Revenue: $22.4B Adj. EBITDA: $4.4B
Revenue: $15.1B Adj. EBITDA: $2.2B
Revenue: $8.4B Adj. EBITDA: $1.2B
Leading positions in
Performance Materials & Chemicals
Strong integrated
franchise(s) Chlorine carve-out PDH and Sadara Productivity Drive
Stepan, BASF, Huntsman, Eastman, Bayer, Axiall, Mitsui, Hexion
Leading integrated
franchise with strong market fundamentals Sadara and USGC Ethylene cycle
ExxonMobil, Borealis, Braskem, LyondellBasell, INEOS, Westlake, Mitsui, Nova
Foundation of Core Strengths Support the Entire Franchise Cost Advantaged Feedstocks in Every Region Scale & Operational Excellence Molecular and Physical Integration
Global Reach ― Marketing, Business & Operations Expertise in Science & Technology Strong Brand Value 5
Top Global Ethylene / Polyethylene Producers
Ethylene Capacity – 2019 Expectation
Polyethylene Capacity – 2019 Expectation
CNPC
Braskem/Idesa JV
Ineos
NPC - Iran
NPC-Iran
Petro China
Europe Asia Pacific
Chevron Phillips
Royal Dutch/Shell
Middle East and Africa
LyondellBasell
Abu Dhabi Gov't
South America Sinopec Group
LyondellBasell
IPIC Group
SINOPEC
SABIC
Exxon Mobil Corp.
Dow Chemical
SABIC
ExxonMobil
Dow Chemical
Thousand MT
North America
-
5,000
10,000
15,000 Source: Dow, IHS
Thousand MT
0
5000
10000
Source: Dow, CMAI Database, Producer Announcements
Largest Global Integrated Ethylene Position Drives Strong Returns 6
Sources of Value in Performance Plastics
Mix and Markets
Polyethylene
Ethylene
Oil to Gas Spread
Dow Value Comes from Four Sources
7
Packaging – Large Market…Strong Drivers 5% CAGR
Flexible Packaging $130 Billion
Dow Participation
30-40% PE
Rigid Packaging $175 Billion
Metal, Glass & Other $207 Billion
Market Drivers Waste & Fraud Food Loss and Security
Paper and Board $275 Billion
Cost Control Light Weighting and Processing Functionality / Promotion Easy Open and Aesthetics
Total Packaging Industry = $787 Billion
Demographic Change Demand and Lifestyle
*2013 Source: Vision Market Research, Dow Market Intelligence, Dow Sales
8 ®Trademark of The Dow Chemical Company (“Dow”) or an affiliated company of Dow DOW RESTRICTED
Derivative Operating Rates
Industry Global Polyethylene Operating Rate
Operating Rate
90%
86.3%
87.0%
87.5%
Pricing power continues to strengthen North America continues to be sold out European duty discourages imports improving S/D dynamics
Peak May Extend Into Mid-Term
85.2% 85%
Near Term Strengthening
Further start-up delays /
postponements likely (i.e., USGC, China CTO, etc.) 1% increase in global GDP would increase global O/Rs by 2%
83.9% 83.9%
Assumptions
Base GDP growth 2.8%, 3.4% and 3.7% for 2014, 2015 and 2016, respectively
80% 2012
2013
2014
2015
2016
2017 Source: Dow
9
Global Ethylene Operating Rates Operating rates continue recovery from the 2008 lows Expect peak scenarios in 2016-2018, with pricing power improving through 2014 into 2015 200 180 160 140 120 100 80 60 40 20 0
Nameplate Capacity
Industry Op Rate 98 96
93
92
94
94
92
91
84
85
85
86
87
88
94 90
89
88 86 84 82
Operating Rate, %
Ethylene, Millions of Tons
Ethylene Production=Demand
80
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: Dow, IHS, Global Insight (8/14)
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Advantaged Positions Across the Globe
USGC Investments
US shale
Sadara
Low cost Access to Asia
Revamped Alberta Advantage
Alberta
advantage
Established Key Alliances in Latin America
European LPG
Extending US
shale advantage Abundant LPG for Europe
Growing
ethane Next large shale development
U.S. Shale Gas Production
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Feedstock Flexibility Dow Europe LPG Cracking Volume Increasing
Dow U.S.
Dow Americas
Volume
90% 80% 70% 60%
2014 2013 2012
Jan Mar May
2018
2016
Nov
2014
Naphtha
0%
2013
25% Butane
Sep
2012
50%
60% 55% 50% 45% 40% 35% 30%
2011
Industry U.S.
Propane
Jul
Increasing Europe LPG Capability Dow Europe LPG cracking capability for ethylene production
Dow U.S.
75%
Ethane
Maximum cracking capability for ethylene production by feedstock
Industry Leading Flexibility
2010
2010
40%
2014
50% 2012
Dow ethane cracking capability for ethylene production
Increasing U.S. Ethane Capability
12
Gas Fundamentally Worth Less Than Oil
Boeing 747-800
Energy Equivalent
3.67 Tanker Trucks Jet A Fuel
15 Tanker Trucks CNG
CNG would require the entire passenger and cargo volume of the plane to be dedicated to fuel Source: Dow,
13
Structural Feedstock Advantage Provides Higher Base
Dow’s Floor Earnings Rise Due to O/G Advantage – With Upside Natural Gas
180
Brent Oil
25 20 15
150 OIL : GAS Price Arbitrage
120 90
10
60
5
30
Brent Crude Oil ($/bbl)
US Natural Gas ($/MMBTU)
30
0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 Source: Bloomberg
14
NGL Balances Still Look Favorable
Surplus
Supply
Demand
300
1000
-300
500
-900
2021
2020
2019
-1500 2018
0 2017
2021
2020
2019
2018
2017
2016
2015
2014
-1000 2013
500
1500
2016
-500
1000
900
2015
1500
2000
2014
0
1500
2013
2000
2500
2012
500
Propane Supply/Demand (MBD)
2500
Ethane Surplus / Deficit (MBD)
1000
2012
Ethane Usage (MBD)
3000
(Imports) / Exports
Domestic Demand
Domestic Supply
Export capability
Gas’ structural advantage drives ethane and propane production growth Source: Dow, IHS
15
Propane Exports/(Imports) (MBD)
US Propane Supply / Demand Balance
US Ethane Supply / Demand Balance
Growth Investments On Track, 2015 a Milestone Year • 2015 projects improve cost position and margins
• PDH unit operational mid-year; construction ~68% complete • TX ethylene cracker engineering ~85%, construction ~10% complete • Sadara olefins plant and polyethylene reactors startup 2H15
St. Charles Restart
TX Cracker Ground Breaking
2012
2013/2014
Run-Rate EBITDA: $250MM
LA Ethane Sadara Flex. Freeport Olefins/PE PDH
2015 $450MM
$250MM
Sadara Phase 2 & 3
2016 $500MM
TX Cracker & Derivatives
2017 $1.5B
• New products drive DAS to deliver an additional $1B in EBITDA
Dow AgroSciences
USGC & Sadara
• Marketing and sales effort identified 100% demand for Sadara PE
• New crop protection products deliver 20-30% higher margins • Enlist™ on track 1Subject to
regulatory approval
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Dow Priorities for 2015 Productivity and operational excellence Start up our investments (Sadara, USGC, Enlist™) Continue aggressive portfolio optimization (Chlorine, Epoxy, JVs) Capturing value across markets through the integrated value chains Continued focus on shareholder value
Driving to Higher Cash Flows, More Consistent Earnings, Increased Shareholder Remuneration 17