Morning, everyone. Thank you for joining us to discuss the Q4 financial results for Dow. We're making this call available via webcast, and we have prepared slides to supplement our comments during this conference call. They are posted on the Investor Relations section of Dow's website and through the link to our webcast. Presentation.
I'm Collin Kaye, Investor Relations Vice President for Dow. And joining me on the call today are Jim Fitterling, Dow's Chairman and Chief Executive Officer and Howard Ungerleiter, President and Chief Financial Officer. Please read the forward looking statement disclaimer contained in the earnings news release and slides. Our financial results. During our call, we will make forward looking statements regarding our expectations or predictions about the future.
Because these statements are based on current assumptions and factors that involve risks and uncertainties, our actual performance and results may differ materially from our forward looking statements. Dow's Forms 10 Q and 10 ks include detailed discussions of principal risks and uncertainties, financials, which may cause such differences. Unless otherwise specified, all financials, where applicable, exclude significant items. Financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures slides contained in the Dow earnings release, in the slides that supplement our comments today and on the Dow website.
On Slide 2, you'll see our agenda for the call. Jim will begin with the Q4 and full year highlights and will discuss the company's operating segment performance. Howard will share an update on Sadara and then provide our market outlook and modeling guidance. He will also outline Dow's digitalization acceleration plans. Our financial results.
Finally, Jim will provide an update on our sustainability initiatives and market growth opportunities that are helping to further advance our competitive advantage in 2021 and beyond as the economic progress. Following that, we will take your questions. With that, I'll turn the call over to Jim.
Thank you, Colleen, and thanks to everyone for joining our results. We hope that you, your families are healthy and safe. Starting on Slide 3, in the Q4, the Dow team delivered results that exceeded expectations with sales and EBIT growth year over year and a sequential net sales increase of 10%. Our progress. As the global economy and market fundamentals continue to improve, demand drove volumes above or in line with pre COVID levels across all operating segments.
We captured strong durable goods and construction demand. We grew volumes in do it yourself architectural coatings and home care sectors, our product mix. And we continue to benefit from solid demand and pricing momentum in packaging applications, supporting a sequential net our sales increase of 12% in our Packaging and Specialty Plastics segment. This volume increase combined with improved pricing and margins, our portfolio, particularly in polyethylene and polyurethane applications, delivered 5% revenue growth and higher operating EBIT year over year. Our financial results.
We supported these strong top line results with a cash flow conversion of 93% in the quarter, driving our full year rate up our 30% versus 2019. Cash from continuing operations was $1,700,000,000 in the quarter our financial results. And free cash flow was $1,400,000,000 Working capital was a $236,000,000 source of cash even with increased sales. Our press release. We completed the sale of select U.
S. Gulf Coast Marine and Terminal Operations and Assets, delivering another strategic non operational cash lever our financial and operational performance at Sadara was a key contributor in delivering positive year over year equity earnings. Our financial results. We also maintained our disciplined approach to capital allocation, completing additional deleveraging as we reduced net debt by 837 our $1,000,000 in the quarter and we continue to reward our shareholders through our industry leading dividend. Overall, our Q4 performance was a strong finish to a year where TeamDAO successfully overcame significant macroeconomic and other external challenges.
Our presentation. On Slide 4 is a brief recap of our full year achievements. We adapted quickly to the global pandemic our agile approach to managing volatility in the markets combined with our prudent adjustments to capital expenditures, our proactive cost reductions, working capital interventions, plus delivery of unique cash levers our supported demand growth year over year in packaging applications, a nearly $500,000,000 structural improvement in working capital, our progress on our progress. We are pleased with our
progress on our progress on
our progress on our progress on our progress on our progress on our progress on our our production and continued cash returns to shareholders through our industry leading dividend. We achieved all this our progress towards our ambition to be the most innovative, customer centric, inclusive and sustainable material science company in the world. We found new ways to serve customers in a virtual world. We launched our DOW's Mobility Science platform to better serve an attractive market vertical. We reinforce DOW's commitment to inclusion and diversity through a bold framework to address systemic racism and inequality and follow through with actions aligned to that framework.
Our progress and we launched new aggressive targets to help eliminate plastic waste and reduce carbon emissions. Our call. I am incredibly proud of how the Dow team delivered solid performance and showed tremendous leadership on critical issues throughout 2020. Our progress. Moving to our segment performance on Slide 5.
As I mentioned earlier, ongoing improvements in the macro environment growth sequential sales gains across all segments and geographies, allowing us to reach year over year revenue growth during the quarter our call for the first time since the start of the pandemic. In the Packaging and Specialty Plastics segment, operating EBIT was $780,000,000 our quarterly results. Up more than $130,000,000 versus the same quarter last year and sequentially. Resilient demand, tight market supply, low inventory levels and disciplined price volume management enabled strong polyethylene pricing momentum and margin expansion. Press release.
Notably, operating EBIT margins expanded 180 basis points year over year and 100 basis points sequentially. Our prepared remarks. Compared to the prior quarter, net sales increased 12%. Price gains continued across all regions and most applications, our product mix, particularly in consumer packaging, and the business delivered higher volumes with broad based demand growth. Our Packaging and Specialty Plastics business continued to see strong momentum through the end of the year.
Sales were up year over year, call, primarily driven by steady volumes and improved polyethylene pricing, particularly in food and specialty packaging, our products as well as health and hygiene applications. Compared to the prior quarter, the business delivered local price gains in all regions, our presentation, including double digit gains in the U. S, Canada and Latin America. Moving to the Industrial Intermediates and Infrastructure segment, our operating EBIT was $296,000,000 up $75,000,000 year over year and up $192,000,000 versus the prior quarter. Our supply and demand fundamentals in polyurethanes and construction chemicals as well as higher equity earnings from improved performance at Sadara our progress on our results.
On a sequential basis, significant improvement in margin over raw materials drove operating EBIT margins up more than 500 basis points, more than offsetting typical seasonality. The Polyurethane and Construction Chemical business recorded a double digit increase in net sales year over year and sequentially. The year over year increase was primarily due to higher local prices our financial results with gains in all regions except Latin America. Compared to the prior quarter, sales growth was driven by strong local pricing in furniture, our bedding and appliance end markets. The Industrial Solutions business reported flat net sales versus the prior year period.
Our current financial results. Currency tailwinds and higher volumes in solvents for coatings, industrial fluids, electronics and pharma applications our financial results.
Our results for the quarter. We're up double digits
due to sequential improvement in price and volume as industrial markets continued to recover our product and consumer and the markets remained strong. And finally, the Performance Materials and Coatings segment reported operating EBIT of $50,000,000 our quarterly results. Volume growth in downstream silicones and coatings applications was more than offset by price and volume declines in siloxanes. Our progress. On a sequential basis, operating EBIT was down $25,000,000 as margin expansion in silicone applications our press release.
The Consumer Solutions business reported a decline in net sales. Our business captured solid demand growth in home care, consumer and electronics and high performance building applications. Our press release. These gains were more than offset by continued weak volumes in upstream siloxanes and in high end personal care applications such as cosmetics our financial results as a result of paused social and workplace activities. On a sequential basis, volumes improved on recovery in mobility and transportation as well as consumer and electronics end markets.
The coatings and performance monomers business our financial results. The seasonality impact was moderate our product mix. And the business captured resilient demand for architectural coatings as consumers continue to focus on do it yourself projects at home. Our progress. Sequentially, the business also experienced positive pricing momentum, particularly in acrylates, which was more than offset by our seasonal weather related declines for coatings applications
in the Northern Hemisphere. And now, I'll turn it over to Howard for an update on Sadara, our financial outlook and our plans for digital acceleration. Thank you, Jim, and good morning, everyone. Turning to Slide 6, our The strong supply and demand trends that continue to benefit our Packaging and Polyurethanes businesses this quarter also benefited Sadara. Our The joint venture again delivered improved financial and operational results, driving equity earnings higher by more than $130,000,000 year over year.
Our financial results. We expect solid market fundamentals and an improving economy to continue to benefit the joint venture in 2021, supported by Sadara's feedstock stock flexibility and enhanced global cost curve position. We are also very pleased to report that Sadara declared project completion in the 4th quarter, our removing Dow's $4,000,000,000 share of the guarantees that supported the joint venture's debt. In addition, in January of this year, Dow, our. Saudi Aramco and Sadara reached an agreement in principle with the remaining lenders and Sukuk Investors on key terms for its debt reprofiling, our financial results with formal agreements expected to be completed within the Q1.
As a result, Sadara is expected to be cash flow self sufficient going forward. Our key provisions of the reprofiling include an extension of the contractual debt maturity from 2029 to 2,038, our modified repayment schedule aligned with Sadara's projected cash generation profile, including a grace period until June 2026, our current financial results during which interest only payments are required, no upfront payments of principal and limited support in the form of much lower sponsor guarantees of our repropiled debt in proportion of the sponsor's ownership interest. The impact to Dow's commitments are expected to include the following, our which are in proportion to
Dow's 35 percent ownership interest in Sadara.
Dow will provide guarantees for $1,300,000,000 of Sadara's debt, Effectively replacing approximately $4,000,000,000 of prior guarantees. Dow will provide guarantees for its portion of SEDAR interest payments due during the grace period. Our pro rata share of any potential shortfall, which based on Sadara's current performance, we do not expect our will be funded by a new $500,000,000 revolving credit facility in Sadara guaranteed by Dow. This is expected to be established in the first quarter of 2021. And finally, Dow's existing $220,000,000 letter of credit related to the guarantee of one future Sadara debt service payment will also our results.
As a result of these actions, the company does not expect to provide any further shareholder loans or equity contributions to Sadara. Our Let's now turn to our modeling guidance for Q1 on Slide 7. We exited the 4th quarter with increasing strength, our which has carried over into the Q1. The ISM Manufacturing New Orders Index is trending at its highest level in 10 years. In addition, low interest rates are supporting a resilient housing market and deorganization trends are driving U.
S. Housing starts to their highest point since 2,006. Our We expect sequentially higher business results in the Q1 with total sales in the range of $10,700,000,000 to $11,200,000,000 driven by ongoing strength in our polyethylene and polyurethane value chains, improvement in our silicones franchise our product and supported by our U. S. Gulf Coast ethane advantage.
We will see some headwinds sequentially with higher turnaround costs our progress and the reversal of approximately $50,000,000 in one time benefits from the prior quarter. In the Packaging and Specialty plastics segment. We entered the year with good pricing momentum, continued solid demand and elevated breakeven points for high cost naphtha producers our progress as a result of increasing oil prices. We expect these dynamics to be sustained through the quarter. Our progress.
The Industrial Intermediates and Infrastructure segment will continue to benefit from strong consumer durables demand supported by automotive and housing sectors our product and improvement in industrial end markets. These trends combined with industry supply limitations and low inventories should support pricing uplift. Our results, although we do see some cost increases from rising propylene pricing as well. And finally, for Performance Materials and Coatings, our We expect silicones to benefit from ongoing demand expansion in consumer end markets, particularly in electronics, home care and mobility, our innovation advantages will continue to allow us to capture additional growth opportunities. In coatings, we expect DIY demand to remain elevated through the first our quarter as consumer home improvement trends continue.
There will be some turnaround headwinds in the quarter, including completion of a turnaround at our siloxane plant in our China that was shortened in the first half of twenty twenty due to COVID related labor and supply issues. Our results. Turning to Slide 8, looking at the full year, we see strong market fundamentals in many of our key value chains continuing to drive improved operating performance year over year. Our our distribution and new strains evolve. As usual, we're providing you with our best full year estimates of several income statement and cash flow items, our projections which are noted on the slide.
Consistent with our capital allocation priorities and based on our improved forward outlook versus 2020, our capital expenditure target year over year to $1,600,000,000 and we're targeting an additional $1,000,000,000 in deleveraging. Our progress. Sadara, as previously mentioned, will be a $350,000,000 tailwind for the year with no planned cash contributions. Our financial results. We expect equity earnings to be flat year over year as the margin resiliency we see across the portfolio is offset by higher planned JV turnaround expenses.
Our progress. Total turnaround spending will be up versus the prior year as we continue to ensure the reliability of our facilities. Our presentation. And as mentioned last year, we expect our $300,000,000 EBITDA restructuring program to be substantially complete by year end.
Our financial results.
We're also providing a share count estimate for the year. However, assuming the sustained EBITDA improvement, we will look at reinstituting our share buyback program later in the year for the purpose of covering dilution. And finally, we expect a full year tax rate in the 23% to 27% range. Our Moving to Slide 9, the events of 2020 provided an opportunity for us to rapidly accelerate our focus on the value of digitalization. Our Through our digital advances and capabilities, we were able to continue innovating, improving the customer experience and optimizing our operations.
Our presentation. It has become clear that the escalation of digital interactions and transactions driven by COVID-nineteen will only help us accelerate the delivery of our ambition and be an important part of our customer experience in the future. So building on this solid foundation, today we're announcing plans to further advance our digitalization efforts accelerate material science innovation and put innovation capabilities directly in the hands of our customers second, further enhancing our e commerce buying fulfillment experience for our customers and third, adopting additional real time digital manufacturing insights, operational data intelligence our product and demand sensing, all to enhance the productivity and reliability of our operations. We expect these actions our actions to deliver more than $300,000,000 in incremental annual run rate EBITDA generation by year end 2025 our gains, we will spend approximately $400,000,000 over the next 2 years with an attractive risk adjusted return on investment exceeding our internal hurdle rate expected payback of less than 3 years. Our goal is clear, our digital acceleration will help us continue to transform how we work products and importantly how we engage with our customers.
With that, I'll turn it back to Jim.
Thank you, Howard, and please turn with me to Slide 10. Our progress. For more than 3 decades, sustainability has been an imperative to our business. And last year, we announced new breakthrough targets focused on reducing our carbon footprint and addressing plastic waste. We see these targets as a catalyst for growth and innovation.
Our progress on key initiatives to advance the circular economy for plastics. And today, we want to provide visibility on our comprehensive approach progress to reducing carbon emissions. Over the past 15 years, Dow has reduced our overall emissions by 15% our business. And we see a viable pathway to reduce our net annual carbon emissions by another 15% by 2,030. Our progress.
This pathway begins with targeting further efficiencies and optimization at our sites, sourcing renewable energy and clean power our our supply clean purchase power to a majority of Dow sites by 2,030. We're making good progress. Last year, we increased our agreements our purchase cost competitive renewable energy in Kentucky, Texas, Brazil and Spain, and we're preparing for the full transition our news and operations. We're also working to optimize the energy efficiency of our sites by lowering our energy use and our production and developing breakthrough technologies such as electric ethylene steam crackers, carbon capture and sequestration our and the potential use of blue hydrogen, Dow could be among the first in the industry to do so by 2,030. Our presentation.
We recognize that achieving these goals will also require partnerships with governments, regulatory agencies and other external groups. Our plans to support the economics of these technologies and evolve regulatory frameworks to focus on emissions reduction. Our. Widespread support for decarbonizing emissions is driving demand across the value chain and Dow is well placed to continue to lead and benefit our results from this evolution. Many Dow products lower our customers' emissions more than the carbon emissions used to produce them, our call today.
Like enabling lighter, safer and more fuel efficient automobiles, more energy efficient buildings our products and food that stays safe and fresh longer, all critical for a world set to add 2,000,000,000 people by 2,050. Our Ultimately, Dow wins by making our cost to implement this transition lower than our competitors and the value of our products higher. Our Our objective is to establish a resilient portfolio of lower carbon footprint products to meet rising demand, capital structure and grow value, while reducing emissions for Dow, our customers and the planet. Moving to Slide 11, our progress. As we look to 2021 and beyond, we are well positioned to capture additional value growth.
Our product mix. Throughout the pandemic, new consumer behaviors emerged that have driven strong demand for our products and we expect these trends to continue benefiting Dow's consumer led portfolio even as the pandemic diminishes. Consumers have become accustomed to new ways of our purchasing and interacting. Increased in home delivery and takeout dining paired with heightened awareness of food, hygiene and security our product line. The resilient housing market is creating higher demand for durable goods such as furniture our consumer spending on home improvement, including do it yourself coatings.
Our ongoing public caution about COVID-nineteen, even after widespread vaccine distribution, will support continued demand for health and hygiene applications. We also believe that as vaccination rates increase and we turn the corner on the pandemic, there will be improving demand as travel, entertainment, sports and construction industries and other social activities return to normal. Market indicators are showing above GDP growth across several sectors. And as a result, we're beginning to see economic recovery broaden across our portfolio and in many of the end markets that we serve, our financial results, which is benefiting our higher margin consumer solutions business. Similarly, this increased confidence our financial performance.
Is also improving demand in our functional polymers portfolio, which serves mobility, infrastructure and construction sectors. Our quarterly results. Finally, as we look ahead, Dow's unmatched material science portfolio is uniquely positioned to address global megatrends and shifting post COVID trends, providing additional higher margin growth opportunities for Dow. Dow solutions meet increasing consumer needs our new sustainable innovations such as post consumer recycled plastics and renewable energy made polyethylene. Our product mix.
In 2020, we tripled sales of product made with renewable bio based feedstocks. Our plans. As the need for renewable energy increases globally, so will demand for Dow solutions that enable wind power and solar production facilities. Our presentation. Our heat transfer fluids are used in more than 40 large scale concentrated solar power plants around the world.
Our production and through our Dow AXA joint venture, we provide polyurethane carbon fiber systems that deliver a stronger our product and lighter composite material for wind blades. Electric vehicle sales are on the rise with 2021 growth projections our progress exceeding 2020 records. And our mobility science platform focuses on delivering innovative products to enhance automobile connectivity, our customers' comfort, safety and sustainability. Lastly, we see meaningful opportunities to support the rollout our 5 gs broadband networks. For example, last year, we launched new high performance thermal gel that promotes both environmental sustainability product and efficient assembly of essential 5 gs infrastructure.
Underpinning these tailwinds are the global foundational advantages and discipline that set DAL apart. Our unmatched portfolio, global scale, low cost structure financial position and industry leading feedstock flexibility give us a competitive edge. Further, the actions that we took in 2020 to bolster our financial position, our progress, including the execution of our restructuring program and our disciplined focus on cash generation, provide the financial strength and flexibility our growth trajectory in line with our financial and operating playbook. To close, 2020 was a challenging year for our world, our presentation. But I could not be more proud of Team Dallas performance nor could I be more confident in our future.
Dallas competitive advantages are clear. Our progress. We have significant growth opportunities ahead of us and the actions that we've taken position us to outperform our peers. With that, our presentation. I'll turn it back to Colleen to open up the Q and A.
Thank you, Jim. Now let's move on to your questions. I would like to remind you that our forward looking statements apply to both prepared remarks and the following Q and A. Operator, please provide the Q and A instructions.
Thank our our questions. And our first question, we'll hear from Bob Koort with Goldman Sachs.
Our Thanks very much. Good morning. Jim, I was hoping maybe you could give us your appraisal of what's going on, Particularly in the polyethylene markets, 2020 was certainly a surprise. The resilience of demand was quite good and our I guess the fear of a wave of capacity overwhelming industry didn't materialize, but how do you sort of see the supply demand setup going into 2021? Our
Yes, Bob. I think as the year progressed, we saw continued strong demand in polyethylene. Our. And toward the end of the year, we saw ethylene start to tighten up and ethylene margins improve. And so that led to some pretty sharp increases in the Q4.
You saw PE margins were up in the Q4 about $0.07 a pound in the U. S, our about $0.13 in Europe and up about $0.10 in Asia. I think the other thing our That happened was as those ethylene margins increased here, you had some wintertime activities that drove some of the cost our manufacturer up in China. So you saw competing technologies like coal to olefins our coal prices were up $200 to $200 a ton, mainly because of a polar vortex and the fact that they were having some our squabbles with the Australians about coal imports, so they weren't able to get it. We also saw LNG exports and LNG demand up our products sharply throughout Europe and also into Asia.
And so that helped. Demand strength on top of the fact that you had these rising prices and inventory levels were low, really all came together to drive that. And by the way, demand our still continues to look good in the Q1. Inventory levels are still low. Operating rates are good.
Our In the U. S. Gulf Coast, our operating rates were in the mid-90s in the Q4. So we're going to continue to see, I think, good margins in the PE business.
And next we'll move to P. J. Juvekar with Citi.
Good morning, Jim, and congratulations on your goals for our sustainable energy and renewable resources. So about the sustainable electricity that you talked about to get into your crackers, our How do you plan to do that? Would you outsource all that to utilities or would you invest in renewable energy, possibly with some partners. How do you get to that goal by 2,030 and what kind of CapEx do you need for that?
Our Yes. Good morning, PJ. Look, I think you think about sustainability for us from an electricity standpoint on two fronts. Our We have a lot of electricity uses that are not for the crackers. And obviously, there we're looking to alternatives, wind and solar, our to replace current capacity and those are cost competitive today.
And so we've made a big move in that direction. We have about 580 megawatts of alternative energy under contract and we're increasing every year. Our goal is to have 750 megawatts or more by 2025. And I mentioned some of the sites on the script that we'll go through that. Our The second thing I would say is in the crackers, we're looking at a combination of things, not just electrification.
We have our partnership with Shell going on right now to try to prove out electric cracking. That is a longer term development. In the near term, our We're also working on a form of fluidized catalytic cracking to go from ethane to ethylene. Our I've talked about our FCDH process to make propylene out of propane. We're piloting that in Louisiana.
That will be our production and up and running next year. And we believe that can give us a 20% reduction at least in CO2 emissions our And a very good scale technology, we can achieve economies of scale at maybe 150,000 tons per year, kind of CapEx. Our If you look at what we're doing in parallel, we're looking at EDH and that could have the potential to reduce our emissions by 40% or more still using gas as a feedstock in the crackers or gas as a fuel in the crackers. So our So we've got several technologies that we're looking at and we're also looking at blue hydrogen, also as a way to our Try to get a more concentrated CO2 stream so that we can combine that with carbon capture and sequestration to be able to reduce carbon emissions.
Our And next, we'll move to Jeff Zekauskas with JPMorgan.
Our Hi, thanks very much. In propylene is going up really quickly. Our Are your acrylate prices going up as fast as propylene prices are going up? That is, are acrylate margins our Likely to be squeezed in the early part of the year or widen in the later part of the year. How do you assess that?
And for Howard, in the operating cash flow in 2020, how much of operating cash flow
our Good morning, Jeff. Let me our See if I can cover propylene first, then I'll flip it over to Howard.
Yes.
Spot prices have increased and it's a combination of our reduced supply because ethane has been the preferred crack in the crackers and propane has been much more expensive, again, due to that our polar vortex I was talking about in Europe and Asia driving these prices up. Our. That means ethane has been the crack and so you don't have as many byproducts and that's shorted a bit on propylene. And then on purpose propylene, our You've had a raft of issues on through on purpose propylene production, which has meant there hasn't been as much there. Our And so that has tightened things up.
I think acrylates are holding up well because demand has been good. Downstream demand has been good. Our So there has been some price improvements. Do it yourself architectural coatings are growing. In fact, they were the big winner last year in terms of market share.
Our I expect the contractor side will come back this year. Howard, do you want to talk about the cash?
Yes. Good morning, Jeff. The 2 best owner our infrastructure sales of a little bit more than $900,000,000 if you add them together between the marine one that we did this past our Q4 and then the rail infrastructure that we did in the Q3. And then I would probably top it up to $1,000,000,000 with some of the other miscellaneous land sales and asset sales that we did that were smaller.
Our Next, we'll move to David Begleiter with Deutsche Bank.
Thank you. Jim, polyurethanes had our strong end to the year. How do you foresee that business progressing into Q1 and through the rest of the year, both on prices and margins? Thank you. Our Good morning, David.
Thanks for the question. The markets that I mentioned, automotive, our furniture and bedding, appliance and construction are very solid right now. In the energy space, oil and gas our space. It's a little bit challenging. And so we see the trajectory that we had in isocyanates and polyols in the second half our continuing to move up in Q1 due to supply limitations.
It's hard to keep things on the shelves like mattresses and furniture our progress while we've got these strong housing drives that are going on. We are seeing the automotive sector come back. Obviously, we saw it our big and electric vehicles would set records in 2020, and I think are going to crush those in 2021. Our internal combustion engine vehicles coming back as well. And that is good demand, and strong order patterns our Even without some of the bigger capital intensive markets being back on stream, so like our large scale industrial construction, those types of markets.
So I think we've got a good demand pattern ahead of us. Our housing starts is a very, very solid sign, highest we've seen since 2006. So that drives a lot of content for our products. Our.
And we'll move on to Laurence Alexander with Jefferies.
Our Good morning. I guess 2 housekeeping questions. Can you it's been a while since we've had normal seasonality. So How do you think about normal seasonality playing out with respect to Q2 and Q3 relative to Q1? Our Good morning, Lawrence.
I think I understand your question. So let me see if I get it and then I'll ask Howard in case I didn't. Our normal seasonality that we would typically see a strong second quarter. But having said that, we go into Q1 this year with our supply chains being relatively lean, very little inventories in almost all of them. And we've got strong demand going into the Q1.
Our So it feels like you have a Q1, Q2 pretty strong season. And we typically see Q2 and into Q3 being strongest part of the year. I think because of tightness, you're going to continue to see that. Secondly, last year, there was a lot of unplanned our activities and things like polyethylene that took a lot of capacity offline. This year, there's a lot of planned activity our for turnarounds because of activities that didn't happen last year due to COVID.
So you're going to have on a planned basis our almost the same amount of capacity offline as you did last year before you ever get into any unplanned events. And those things to me our a pretty strong start to 2021. And I'm optimistic that as the vaccination rates improve, our We're going to start to see people return more to normal and we certainly are making progress on getting people vaccinated. Anything I missed, Howard? No, maybe just
to put some math on the turnaround numbers. I mean, last year, we really crunched down on the number of turnarounds. This coming year, we'll have about our $400,000,000 of higher turnaround spending, dollars 300,000,000 of that in our core business, about $100,000,000 in our joint ventures. Our And as Jim said, that the bulk of that is going to be in Q1, Q2 and Q3. So just to factor that in is a bit of a headwind, Laurence.
Our financial results. And we'll move on to Vincent Andrews with Morgan Stanley.
Thank you and good morning everyone. Our Just looking at some of your businesses that haven't recovered as quickly, the high end personal care, it's unfortunately easy to understand why that's been soft. Our I'm just wondering maybe if you could talk about how you're anticipating that coming back and when and in particular if customer inventory levels, I'm assuming they've been worked our down pretty hard. So do you think that they're going to need to rebuild before the second half assuming the vaccines are our Reaching critical mass by then and hopefully some return to normality is taking place or are we more likely to see just sort of a smoother our recovery there. How do you foresee that playing out?
And then just as a housekeeping question, well, never mind, I'll just leave it there.
Our All right. Thanks, Vincent. I would say 2021, we're seeing strength in some of those specialty growth rates right our So I think building and construction is going to be up, probably up in the 3% to 4% range. Our electronics 6% or more industrial up 9% industrial was off quite a bit last year our Mobility, maybe up 11%. Home and Personal Care will still be up, even though probably not as high as 2020 because you had some of that pre COVID buying and that surge that we saw in the Q3, Q2, Q3.
Our And I do think personal care will come back. I think it will come back probably up 4%. We are taking advantage of we had some scheduled our turnaround time in Q1 last year when the pandemic hit in China. We're actually completing that work right now our in China. So that's got some siloxanes capacity offline.
But because building and because the high end personal care demand haven't been there, our That's been okay. So we'll get those things done in this quarter. The other thing we've been doing is debottlenecking a lot of our downstream capacity. So we've done a lot of projects downstream to get our what we call our specialties business ready. Our And I think we're getting ahead of what will be some pent up demand once we hit an inflection point on these vaccinations.
Our Certainly, people are tired of being at home. They want to travel. They want to get back to life as normal our And that will open things up. And we're gearing up that we should see some of that in the second half of the year. Our
And next we'll hear from Jonas Oxgaard with Bernstein.
Hey, good morning. Our performance. I was hoping
you could comment on what's happening with your JVs in a little more detail. Our The Thai JV, if we're looking at your Page 14 here, your EBITDA went down a lot, but your net income went up. Our And so I'm wondering how are we well, what happened and how are we going to think about this going forward? And then on Sadara, our Do you have any preliminary ideas of how we should be thinking about the repayment schedule?
Our I'll hit Thailand and then I'll have Howard cover Sudara. Thailand had some turnaround activity in the quarter, so that was spending that hit them. And then I talked a little bit about that wintertime situation. Essentially, our You had a drive up in naphtha costs as all the alternatives went up. Our And so that puts some squeeze on in the marketplace.
So I don't think there's anything out of the 4th quarter results that you should look at and think that it's something you should project forward. I think it's very situational. And Howard, maybe you want to talk about Sadara and the payment schedule? Our Yes, Jonas. Look, thanks for
the question. I mean, I couldn't be pressure of the Dow, the Saudi Aramco and the Sadara team. It's about 18 months worth of work that got us our This point where we've got the agreement in principle with the entire lending syndicates of commercial banks, CCAs as well as the Sukuk Investors. Our So we've got a 5 year grace period where no principal is due until June of 2026. We've matched the principal from 2026 out to 2,038 with the our projected earnings and cash flows.
And in terms of the next 5 years, on a 100 percent Sadara basis, you're looking at about our between $300,000,000 $350,000,000 of interest expense. So our share would be about $100,000,000 to $125,000,000 a year. Our But I would say based on Sadara's current performance as well as all the plans that they have in place, they will be cash flow self sufficient our for this year and going forward. So we do not expect to put any cash into Sadara. So that's a $350,000,000 tailwind year on year.
Our And next we'll move to Frank Mitsch with Permian Research.
Our Hey, good morning and nice end to
the year folks. Very impressive operating rates, Jim, you mentioned for polyethylene on the U. S. Gulf Coast. I I was wondering if you could talk at a higher level of what the operating rates for Dow were by the roughly what they were for the various segments and what your expectations are as we head here into the Q1.
And just overall, you did mention some debottleneck, there were some startups. Our How do we think about the net capacity at Dow 2021 versus 2020?
Our Yes. Thanks, Frank, for the question. On an average for the whole company, we were above 80% operating rates our Q4 and we continue that strength into the Q1. We were at higher levels than that our packaging and specialty plastics business. The crackers ran very strong, as I mentioned, in the Gulf Coast.
But actually, we saw our good performance around the globe and it continues to tighten up and you noticed that MEG prices are also starting to rise. So our That's really making things move there. We also saw a big step up in Industrial Solutions. Our So they're running strong and we've got new capacity coming to support their growth this year. We had our performance in siloxanes and that's the one that has the big upside, which I talked about with Vincent's question in the second half.
Our And then polyurethanes and construction chemicals got back to 80 plus percent operating rate our in the Q4 and that continues into this year. So we still have upside to deliver. We are going to continue to run the assets hard. We have been spending on reliability to make sure that we can deliver more out of those assets. Our Texas 9 has been a stellar asset in terms of its production, and we've done a lot of work on debottlenecking and reliability in some of the other spaces.
So I think we're in good room for the rest of this year.
Our Next, we'll move to John Roberts with UBS.
Thanks. Nice quarter, guys. Our We're reading a lot about how much shipping activities are challenging and freight costs are up a lot. How much is it contributing to the tight markets and higher pricing? And is it impacting more than just polyethylene?
Our Yes. Frank, we've seen some shipping rates on marine pack cargo, primarily our Due to the fact that containers are you've got a container dislocation, China has had some pretty high export levels. And our some empty containers have been moving back to China. Mostly that's been reported in the ag sector, not so much in the plastics sector. Our I think our supply chains are pretty well stocked in terms of containers, but we keep a close eye on it.
So our I don't anticipate anything that's long lasting. I think we'll work through this. And it's just a sign of some of the our supply chain imbalances. China came back fast from COVID and we're coming back now. And so
our And we'll move on to Hassan Hamed with Olympic Global.
Our Good morning, Jim. Jim, a question around 2021 outlook. Our Look, I mean, as I sort of heard all your comments about the different product chains, I am taking a look at the exit pricing our sort of levels for be it ethylene, polyethylene, MDI, as we exited 2020, Significantly higher than 2020 levels, right, average levels. And then, it seems supply demand fundamentals, our ethylene, polyethylene MDI wise should tighten up through the course of 2021. You were alluding to how the turnaround schedule our For spring summer for most of these products is pretty heavy, right?
And there seems to be a perception that our In the back half of the year, as the vaccine rollout happens, people hit the streets more and the like, oil prices go up higher. So I mean, as I sort of piece together all these things, it seems 2021 earnings could be significantly higher our Then 2020. I mean, am I missing something here? I mean, what's is there a fly in the ointment?
Our Thank you for the question, Hassan. I think you're on the right path. We not only beat in the Q4, but we guided higher. I want Howard to walk you through the Q1 guidance, our And I think that's instructive to the way you're looking at the year.
Yes, Hassane. I mean, we think about it in a very similar way our As you, but I mean, look, let's start 1 quarter at a time. So if you go from Q4 where we printed the $178,000,000 from an EBITDA perspective and you look at your comment about margins expanding, you look at polyethylene margins, isocyanate margins, MEG margins, our I would bucket about $250,000,000 of higher EBITDA sequentially between all three of those chains just our Your point about ending the year at higher margins and margins moving up, then I would say you got to take 2 deducts. Our There's about $50,000,000 of higher turnaround spending sequentially, really related to the Zhang Zhigang plant our In China, the siloxanes plant that Jim talked about in the prepared comments. And then there was about $50,000,000 of one time items that we had in the Q4 that won't recur.
Couple of land sales as well as an IPO that happened that we were able to monetize in our out of our venture capital. Our So overall, earnings are going to be up sequentially. And your point is right, they should be up year on year. I think the open question our And Jim, maybe give some comments on the back half of the year. But all things right now are pointing up.
Our Yes. I think the first half looks solid. And I believe that as we get more people vaccinated our around the world. I think we're going to see more economies open up and things get back to more normal types of activities. Our
And next we'll hear from Kevin McCarthy with Vertical Research Partners. Our
Good morning. Question for Howard on cash flow prospects for 2021. Our Howard, I think you already spoke to the uplift related to Sadara as well as some maintenance activity considerations. Our. Just wondering if you could step through other non earnings related cash considerations such as working capital, some of the digital investments you talked about, any cash required for restructuring or other considerations that would our Help you or be a headwind on the cash generation front versus the impressive conversion numbers you posted for this year?
Our
Yes. I mean, look, I would I'd point you to the full year 2021 modeling guidance slide, but just a couple of the high points. So CapEx is going to be $350,000,000 higher. Our mandatory pension will be flat. The restructuring program will be about a $350,000,000 cash outflow, our But we won't have any outflow.
We finished the DowDuPont separation. So that those basically offset each other. Our On the digital side, we'll spend about $150,000,000 but Sadara will be $350,000,000 tailwind as I talked about. Our The dividends from our JV companies will be down about $200,000,000 just because we get those dividends from in about a year in arrears. So with earnings down in 2020, we'll see dividends down in 2021, but that should reverse in 2022.
And then I would say, look, we had a number of our non operating cash flows in 2020 and we're probably not going to be able to deliver the same number because that was a big number. We delivered $5,000,000,000 of our free cash flow out of this machine, which was the best performance since 2013 on an apples to apples basis as the best you can construct it, our But we will have additional tailwinds. So we are working on additional structural improvements in working capital. In the Q4, you saw some of that shine through. We had our working capital be a source of cash even though sales was up, which is hard to do.
So we'll look to get another $250,000,000 or $300,000,000 of structural improvement in working capital. We still have the top up payment from the second Nova our litigation. That's still going to the court. So we'll see if that's a 2021 event, but that should still be several $100,000,000 our And then we're still working on best owner lens sales. So I don't have a number for you, our But if we're able to deliver on those projects, that should also be several $100,000,000 probably in the back half of the year.
Our financial
results. And we'll move on to John McNulty with BMO Capital Markets.
Our Yes. Thanks for taking my question. So I guess to that, like the cash flows are coming in certainly stronger than perspective and really high levels and the balance sheet has really been cleaned up. You've been doing this best owner approach and have sold off some assets. Our Looking at it from a slightly different angle, are there assets out there where Dow should be viewed as kind of the best owner and should we Think about M and A as an opportunity for you as we look forward or is the cash flow that you generate really just going to be going down to paying down debt and whatever is left over taking our
Yes. Good morning, John. Let's walk through capital allocation priorities real quickly. Our Still, 1st and foremost, to safely and reliably operate the plants. That costs us about $1,000,000,000 a year.
Continues to support that dividend. Our That's about $2,000,000,000 to $2,100,000,000 a year. We've got some further incremental deleveraging that we need to do in 2021, our keep us on trajectory with what we've committed to the ratings agencies. We've got additional priorities to make sure that we're our Ready for the I think the pent up demand that's coming as we reach these vaccination rates. So we bumped up incremental growth CapEx.
Our. And as Howard said, we will have some cash to buy back shares toward the end of the year to cover dilution. Although if you look at our our share count. We've been very steady since spin. And then on top of that, to your point, most of the divestitures our and the cash generation have been taking, assets that are non revenue generating where there are infrastructure companies out there today that value those and can use those as a growth platform and liberating those from our balance sheet.
We'll continue to do that. On the other side, we will look at bolt on M and A. Our We've talked about that being not in the billions, but smaller. And that's where we can bring in a technology or a gap in our platform and take advantage of our global footprint to really rapidly grow that as well as get that into our machine our and get some economies of scale out of it. So those are some of the things we're looking at and there are areas that are driven by the market trends that we're seeing our on building and construction, mobility space, 5 gs.
These are some of the areas where we want to continue to try to build our in the areas of adhesives, sealants, coatings types, applications.
Our And our next question we'll hear from Chris Parkinson with Credit Suisse.
Great. Thank you. On the PE front, our Obviously, throughout 2020, there's a lot of volatility in feedstocks throughout the cost curve. When we looked at when we look ahead for normalized our P and SP EBITDA. Just how is your team overall thinking about the slope of the cost curve as we head into 'twenty our Q2 and Q3 and what are the key considerations they're monitoring?
Thank you.
Right. I think we get back our primarily to feedstock and what's going to happen with feedstock volatility. And of course, we saw such huge volatility in oil last year. Our Most of our feedstock is natural gas liquids and gas production has been very resilient. Our And I think gas production is going to continue to be strong next year.
We didn't see much of a decrease last year, maybe 10%, our And we're already getting back to the levels that we had prior to the COVID pandemic. The other thing that people aren't forecasting our in some of the natural gas outlooks is the fact that there are so many drilled and uncompleted wells out there and companies are our moving up the learning curve on being able to get those wells completed. And so I think that's going to bring back a lot of supply in the back half of the year. Our Even with that ethylene tightness I talked about, even with propane going up because of wintertime and even with naphtha going up because you didn't have as much refining capacity, our The reality was ethane was still in supply, even at 75%, a 1,000,000 Btu frac our spread. And I think it's going to continue to stay that way.
Natural gas production is going to bring back more ethane to get split out here. Our So I feel good about our position. We have the capability to capture that better than anybody in the industry. And I think we're in for a year ahead where our view, natural gas is kind of range bound and $3 a 1000000 BTU is probably the high end.
Our presentation.
And next we'll hear from Arun Viswanathan with RBC Capital Markets.
Our call. Great. Thanks for taking my question. Good morning. Congratulations on the quarter and the year.
I guess my question is back to the cash our So it looks like you're guiding to about $250,000,000 overall reduction from some of those bucket items, Howard. And our But EBITDA is likely to be up year on year in 2021 just given the absence of that weak Q2. So you have cleaned up the balance sheet. Our. When we started this journey, I think you guys had laid out a plan to return about 65% of your free cash flow our shareholders.
So maybe you can just comment on what you think about free cash flow for 'twenty one and why not allocate a little bit more to the capital return side, the buyback side, do you see free cash flow above that $5,000,000,000 And again, is there a preference maybe to increase towards buybacks? Thanks.
Our Yes. Arun, good morning. What I would say is, look, our target, which has been our target since before spin is really a long term rating agency adjusted net debt to EBITDA target of between 2.5% and 3%. And so with both we're above that our $1,000,000,000 increase on the pension side
of the house. So we still have some work
to do and that's why we're going to do about $1,000,000,000 roughly of deleveraging our target for 2021 on top of all the other things that I said. But we understand your point and we agree with it. And our. Certainly, as earnings continue to improve, we will take another hard look at share buyback at a minimum to cover dilution. And our And then we'll see how the back half of the year goes.
We'll also see how some of those best owner projects that we're working on goes. And if we have excess cash, our we'll use that excess cash aligned with Jim's capital allocation priorities that he walked through earlier.
Our And that will conclude today's question and answer session. At this time, I would like to turn the call back over to Colleen Kaye for any additional or closing remarks.
Presentation. Thank you, everyone, for joining our call today. We appreciate your interest in Dow. For your reference, a copy of our transcript will be posted on Dow's website within 24 hours. This concludes our call.
Have a great day.
And that will conclude today's call. We thank you for your participation.