Dow Sketches Rationalization Plans
Following up earlier announcements with few detailed disclosures, Dow has now sketched out moves it plans to take to deliver on its envisioned structural cost improvement targets. The US chemical producer, which emerged from the behemoth DowDuPont somewhat trimmed down from its pre-merger status, said the aim is to” further enhance its long-term competitiveness as the global economy recovers from the coronavirus pandemic.”
In reporting second-quarter figures in July, the Midland, Michigan-based company, which employs 36,500 people across 109 sites in 31 countries, said it would cut its global workforce by 6% as it rationalizes some of its manufacturing assets, thereby achieving EBITDA savings of more than $300 million annually by the end of next year.
Somewhat firmer plans announced on the cusp of the fourth quarter call for closure of “certain” of its amines and solvents production facilities belonging to Dow’s Industrial Intermediates & Infrastructure business segment in the US and Europe.
In Performance Materials & Coatings, the chemical producer said it will close manufacturing plants including primarily small-scale coatings reactors and will also rationalize its upstream asset footprint in Europe, the US and Canada by adjusting the supply of siloxane and silicon metal to “balance regional needs.” It did not disclose whether it planned simply to reduce output or close any facilities.
Stressing again the “expected gradual and uneven global economic recovery from Covid-19,” chairman and CEO Jim Fitterling said the company will “continue to stay focused on delivering strong cash flow, strengthening our financial profile and maximizing our operational advantage. At the same time, he added, “we will remain well positioned to capture significant growth as market conditions improve.”
In its results for the third quarter, Dow will record a charge for costs associated with the restructuring activities, which management expects to be in the range of $500-600 million in total. This will consist of severance and related benefit costs, along with costs associated with exit and disposal activities, and asset write-downs and write-offs.
The restructuring program is in addition to the $500 million of operating expense savings it will achieve by the end of 2021 , Dow stressed. Fitterling said the company also remains on target to achieve its reduced target of $1.25 billion for capital expenditure in 2020, down from $2 billion in 2019.
In other news, Dow confirmed that it will close the sale of its rail infrastructure assets at six North American sites to Watco three months ahead of its initial planned closing, for cash proceeds exceeding $310 million.
The chemical producer is also planning to complete the divestment of certain marine and terminal operations and assets to Vopak Industrial Infrastructure Americas, a new 50:50 joint venture of Royal Vopak and BlackRock’s Global Energy & Power Infrastructure Fund for $620 million in cash. The terminals, with a total combined capacity of 825,000 cubic meters, are at Freeport, Texas, and St. Charles and Plaquemine, Louisiana.
Author: Dede Williams, Freelance Journalist
