2/28/20031AndrewLiverisBusinessGroupPresident,PerformanceChemicalsTheDowChemicalCompanyINFORMEXFebruary25,2003Outsourcing:HasItFulfilledItsPromise?2/28/20032“Thetrueuseofchemistryisnottomakegoldbuttopreparemedicines.”--Paracelsus,Swissphysician,16thcentury;amongthefirsttoapplychemistryinmedicine2/28/20033Answer:yes…HasOutsourcingFulfilledItsPromise?andnoItdependsonfromwhoseperspectiveyouanswerthequestion:customers,suppliers,investors...2/28/20034Agenda•Stateofthechemicalindustry•Stateofthecustomprocessingsector•Whatwillittaketowinandwhowillthewinnersbe?•Hasoutsourcingfulfilleditspromise?2/28/20035Agenda•Stateofthechemicalindustry•Stateofthecustomprocessingsector•Whatwillittaketowinandwhowillthewinnersbe?•Hasoutsourcingfulfilleditspromise?2/28/20036StateoftheChemicalIndustry:“ThePerfectStorm”2/28/20037WorldandU.S.RealGDPGrowthSource:GlobalInsight-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003WorldU.S.2/28/20038GrowthinU.S.IndustrialProductionSource:GlobalInsight-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%8.0%10.0%198019821984198619881990199219941996199820002002U.S.IndustrialProductionManufacturing(%change)2/28/20039U.S.ChemicalIndustryOperatingRate70758085901987198819891990199119921993199419951996199719981999200020012002OperatingRate(%)Source:AmericanChemistryCil2/28/200310Chemicalindustrytradepriceindex1982to20020.700.750.800.850.900.951.0019821984198619881990199219941996199820002002TradePriceIndex(1995=1)Source:Dowdata2/28/200311Chemicalindustrypricemargin1982to20020.600.650.700.750.800.850.900.951.0019821984198619881990199219941996199820002002PriceMarginIndex(1995=1)Source:DowData2/28/200312EnergyPrices121985198719891991199319951997199920012003NaturalGasBrentDatedCrudeEnergyPriceIndex:1985=1Source:HistoricaldatafromLTHVdatabasepricesforBrentdatedcrudeoil($/BBL)andWestTexasnaturalgas($/MMBTU);2003datafromBloomberg,10Feb2003includesBrentdatedcrudeandaverageofNymexHenryHub,HenryHub,andChicagoCityGatenaturalgasprices.2/28/200313Industryleadershipisneededtorestoreinvestorconfidence•Capitalandcapacity•Productivity,costs•Portfolioadjustments�moreconsolidation•R&Dandinnovation�valuegrowth•Customer-focusedstrategies�differentiation2/28/200314GrowththroughInnovation2/28/200315•Growingpopulation:strainonhealthcare,food,water,energy•1/2world’spopulationliveinjust6countries–India,China,Pakistan,Nigeria,BangladeshandIndonesia•GDPCAGRforChinaandIndia>2xGDPgrowthofNorthAmericaandWesternEurope•Innovationformoreabundantcrops,saferwatersupplies,cheapermedicines,moreenergy-efficientsolutions.HumanNeedsinTheDevelopingWorld2/28/200316Agenda•Stateofthechemicalindustry•Stateofthecustomprocessingsector•Whatwillittaketowinandwhowillthewinnersbe?•Hasoutsourcingfulfilleditspromise?2/28/200317CustomProcessingSector–Moreefficientuseofcapacity--improveoperatingrates–Customerscanfocusresourcesoninnovationratherthandevelopmentandmanufacturing–Customerslowercosts•Conceptstillhasmerit:outsourcewhatotherscandofaster,better,moreeconomically.2/28/200318End-marketValueSizeandStructure2000customandfinechemicalsworldwidemarket=approx.$80–90BDoesnotincludespecialtychemicalsSource:SDGPharmaCo.CaptiveOutsourcedPharmaAgroChemFoodAnimalhealthCosmeticsIndustrialChemicalsHigh-perf.PolymersDyesa...
