Annual Report 2020

Annual Report 2020

OVERVIEW & FINANCIAL HIGHLIGHTS

CEO LETTER

CORPORATE GOVERNANCE

2020 HIGHLIGHTS

Inspired to Deliver

At Dow, we are driven by our purpose: to deliver a sustainable future for the world through our materials science expertise and

collaboration with our partners. That¡¯s why we seek to be the most innovative, customer-centric, inclusive and sustainable

materials science company in the world.

Together our ambition and purpose propel us forward, inspiring us to seek new and better solutions to transform our world. To

be easy, enjoyable and effective in our interactions with our customers. To build a culture in which we value our differences. To

embed innovation and sustainability in the way we work. Why? Because we believe that when combined with our science and

expertise, the competitive advantage created can be enormous and benefit our customers, our company and our investors, and

society as a whole.

AMBITION

PURPOSE

To be the most innovative,

customer-centric,

inclusive and sustainable

materials science

company in the world

To deliver a sustainable

future for the world through

our materials science

expertise and collaboration

with our partners

OUR GOAL

Value growth and best-in-class performance

OUR VALUES

Integrity

2

2020 Dow Annual Report

Respect for People

Protecting Our Planet

Financial Highlights

2020

2019

$38,542

$42,951

N/A

$42,998

Income (Loss) from Continuing Operations, Net of Tax

$1,294

($1,717)

Operating EBIT1

$2,715

N/A

N/A

$4,352

$1.64

($2.42)

In millions, except per share amounts

Net Sales

Pro Forma Net Sales

1

Pro Forma Operating EBIT

Earnings (Loss) per Common Share from Continuing Operations ¨C Diluted

1

Operating EPS

$1.66

N/A

N/A

$3.53

Cash Provided by Operating Activities ¨C Continuing Operations

$6,252

$5,713

Free Cash Flow1

$5,000

$3,752

Pro Forma Operating EPS ¨C Diluted1

Net Sales, Pro Forma Net Sales2

(dollars in millions)

$38,542

2020

$42,998

2019

2018

$49,852

Operating EBIT, Pro Forma

Operating EBIT 1,2 (dollars in millions)

$2,715

2020

112%

2020

$4,352

2019

Cash Flow Conversion 1,2

2018

78%

2019

$6,236

41%

2018

2020 Shareholder Remuneration

2020 Sales by Operating Segment

2020 Sales by Geography

(dollars in millions)

(dollars in millions)

(dollars in millions)

Dividends

$2,071

$18,301

$2,196

Share

Buyback3

Packaging

& Specialty

Plastics

$7,951

$8,165

$12,969

Performance

Materials &

Coatings

Asia Pacific

Europe, Middle

East, Africa

and India

$38,542

$38,542

$12,021

$125

Corporate: $269

Industrial

Intermediates &

Infrastructure

$13,582

U.S. & Canada

$3,826

Latin America

1

Non-GAAP measure. For definitions and reconciliation to the most directly comparable U.S. GAAP measure, see supplemental information in the appendix and located at investors. under

Financial Reporting. See the appendix for a full list of financial definitions.

2

Results for 2020 are presented on an as-reported basis. Results for 2019 and 2018 are presented on a pro forma basis.

3

In April 2020, Dow announced proactive actions to electively focus on cash and maintain financial strength during the COVID-19 pandemic, including temporarily suspending share repurchases.

In the first quarter of 2020, Dow repurchased $125 million of its common stock.

Certain statements in this report are ¡°forward-looking statements¡± within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section

21E of the Securities Exchange Act of 1934, as amended. Such statements often address expected future business and financial performance, financial condition, and other matters, and often

contain words or phrases such as ¡°anticipate,¡± ¡°believe,¡± ¡°estimate,¡± ¡°expect,¡± ¡°intend,¡± ¡°may,¡± ¡°opportunity,¡± ¡°outlook,¡± ¡°plan,¡± ¡°project,¡± ¡°seek,¡± ¡°should,¡± ¡°strategy,¡± "target," ¡°will,¡± ¡°will be,¡± ¡°will

continue,¡± ¡°will likely result,¡± ¡°would¡± and similar expressions, and variations or negatives of these words or phrases. Forward-looking statements are based on current assumptions and expectations

of future events that are subject to risks, uncertainties and other factors that are beyond Dow¡¯s control, which may cause actual results to differ materially from those projected, anticipated or

implied in the forward-looking statements and speak only as of the date the statements were made. Dow Inc. and TDCC assume no obligation to update or revise publicly any forward-looking

statements whether because of new information, future events, or otherwise, except as required by securities and other applicable laws. References to ¡°Dow¡± or the ¡°Company¡± mean Dow Inc. and

its consolidated subsidiaries, unless otherwise expressly noted.

2020 Dow Annual Report

3

OVERVIEW & FINANCIAL HIGHLIGHTS

CEO LETTER

CORPORATE GOVERNANCE

2020 HIGHLIGHTS

Dear Fellow Dow Shareholders,

In 2020, Team Dow overcame significant macroeconomic and

external challenges. In the face of the COVID-19 pandemic

and natural disasters, we remained focused on delivering

for our stakeholders. We kept our businesses running safely

and shipping essential products, while stepping up to help

our communities fight the pandemic. We found new ways to

innovate with and serve our customers in a virtual world. And

we did all of this while improving our financial position, creating

value for our owners, accelerating our sustainability goals and

taking concrete steps to help address inequality.

Nimble Response to Market Conditions

In the first half of 2020, as the pandemic drove a global

economic downturn and amidst stay-at-home orders that

created sharp demand declines, we remained focused

on controlling what we could control. Early in this period,

we mobilized our crisis management teams implementing

measures to keep our people safe and maintain essential

operations. We quickly adjusted our operating rates, focusing

on cash and liquidity, reducing expenses and further enhancing

our liability profile. At the same time, we capitalized on strong

demand in packaging, health and hygiene, home care and

pharma end markets as consumer purchasing behaviors

adjusted in response to the pandemic. To maintain our financial

strength, we temporarily suspended our share buyback

program and executed a restructuring program to deliver

$300 million in annualized EBITDA benefits.

A challenging first half of the year was followed by a positive,

yet uneven, recovery. As economies reopened and consumer

durable end markets improved, we ramped up production

to capture this demand. We also continued to benefit from

resilient demand for packaging applications. By year-end,

we delivered overall volumes above pre-COVID levels, with

packaging volumes exceeding the prior year.

Reinforced Financial & Competitive

Position

For 2020, net income was $1.3 billion and GAAP earnings per

share were $1.64.

4

Our consistent focus on cash generation was supported by:

? CapEx reduced to $1.25 billion, down more than $700 million

versus the prior year;

? more than $600 million in cash liberated through lower

working capital; and

? unique-to-Dow cash tailwinds of more than $1.5 billion,

including the sale of select North American rail and marine

assets.

These solid financial results enabled us to support our industryleading dividend and return $2.2 billion to shareholders. In

addition, we strengthened our liquidity and decreased net debt1

by more than $2.6 billion, ending the year with $14.6 billion

in cash and available committed liquidity. As a result of our

actions, we decreased our interest expense by more than

$100 million year-over-year and extended our debt maturity

profile. Furthermore, Sadara¡¯s agreement in principle with

its lenders to reprofile its debt is expected to eliminate our

cash support to the joint venture for its annual debt service

obligations. Altogether, our actions were critical to navigating

the challenging environment and positioning us for the

economic recovery.

Looking ahead, we expect to see increasing margins as

differentiated parts of our portfolio see improving demand and

our structural cost actions take hold.

#DowStrong in 2020

Early in the pandemic, Team Dow implemented health,

safety and security protocols that became the blueprint for

other manufacturers. We committed more than $4 million to

COVID-19 relief efforts to build community resilience in the face

of the pandemic and floods that impacted our hometown in

Michigan. We also leveraged our materials science capabilities

and modified our manufacturing processes to meet increased

demand for raw materials used to produce disinfectants,

personal protective equipment and pharmaceutical ingredients.

¡°

¡°

Our disciplined approach to cost management, including

reducing our operating expenses by $500 million, supported

operating EBIT of $2.7 billion and operating EBIT margin of

7%. Cash flow from operations improved 9% year-over-year to

$6.3 billion, and cash flow conversion was 112%, a more than

30% improvement over the prior year.

We quickly adjusted our operating rates, focusing on cash and liquidity,

reducing expenses and further enhancing our liability profile.

Returned $2.2B to

shareholders with

industry-leading dividend

and share repurchases

2020 Dow Annual Report

>2% year-over-year

demand growth in

packaging applications

1

>$1.5B of strategic,

non-operational cash

levers delivered in 2020

Net debt is a non-GAAP measure. For definitions and reconciliation to the most directly comparable

U.S. GAAP measure, see supplemental information in the appendix.

Early in the pandemic, Team Dow

implemented health, safety and

security protocols that became the

blueprint for other manufacturers.

Advancing Our Ambition

We achieved all this while also making significant progress

toward our ambition ¨C to be the most innovative, customercentric, inclusive and sustainable materials science

company in the world.

? We accelerated our sustainability commitments by

launching aggressive new targets that will help us lead

our industry toward carbon neutrality, in line with the Paris

Agreement, and attain a world without plastic waste.

? We reinforced our commitment to inclusion and diversity

by developing Dow ACTs ¨C a bold framework designed

to address systemic racism and inequality within our

company and communities ¨C and pledged $5 million to help

accelerate change. Additionally, we committed $5 million to

Historically Black Colleges and Universities (HBCUs) to help

enhance the Black STEM talent pipeline, and are investing

in programs such as the Future of STEM Scholars initiative

to underwrite the education of students pursuing STEM

degrees at HBCUs.

Uniquely Positioned to Drive

Outperformance

Looking to 2021 and beyond, I remain confident about our

path forward. While the macroeconomic environment remains

uncertain, our priorities remain unchanged. We will:

? Focus on profitable growth, positioning the company for

upside as the economy rebounds.

? Be disciplined with our capital allocation, enabling

reinvestments in the business and upholding our industryleading dividend.

? Maintain a low-cost operating model through disciplined

cost management.

? Apply our best owner mindset to ensure we deliver bestin-class performance.

This is underpinned by our unique strengths ¨C a consumerfocused portfolio with broad geographic and market reach,

industry-leading feedstock flexibility and a leading ESG profile.

Thank you for continuing to place your trust in us. We look

forward to continuing to create value for our shareholders and

broader stakeholders.

Best Regards,

Jim Fitterling

Chairman and

Chief Executive Officer

Dow Inc.

? We introduced GPS shipment tracking so our customers

can better monitor deliveries ¨C something that has

contributed to high customer experience index scores.

? We launched our MobilityScience? platform designed to

enhance the customer experience by tailoring technologies,

products and services from across Dow businesses to the

transportation industry.

? We were recognized with five R&D 100 Awards, marking

the ninth consecutive year our technologies appeared on

the list.

? We enhanced the diverse perspectives and deep expertise

of our Board by electing two new directors: Jill S. Wyant

and Gaurdie Banister Jr.

? We also reinforced environmental, social and governance

(ESG) accountability and transparency across the company

by adding ESG metrics to our Executive Compensation and

employee Performance Award programs.

DISCIPLINED

FINANCIAL

APPROACH

$5B

$500MM

free cash flow generation

Announced new

sustainability targets to

advance carbon neutrality

and a circular economy

reduction in operating expenses

=

Developed Dow ACTs, a

framework designed to

address systemic racism

>$2.6B

year-over-year net debt reduction

Launched the MobilityScience?

platform to seamlessly

connect customers with our

transportation technologies

2020 Dow Annual Report

5

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download