E. I. du Pont de Nemours and Company NYSE:DD

Transcription

1 E. I. du Pont de Nemours and Company NYSE:DD Company Conference Presentation Thursday, September 18, :45 PM GMT CALL PARTICIPANTS 2 PRESENTATION 3 QUESTION AND ANSWER

2 Call Participants EXECUTIVES ANALYSTS Unknown Analyst 1

3 Presentation Okay, if you all take your seats, we'll get on with the last and final presentation. And thank you again, everybody, for coming out. For our final presentation, we're really happy to have DuPont. Now, as all of you know, DuPont is a science company focused on a host of platforms from ag, season chemicals to health and nutrition, to Safety & Protection and electronics with the industry-leading positions in most of those platform. Now speaking on behalf of DuPont, we're very happy to have Matt Trerotola. He's the senior VP at DuPont. He rejoined DuPont in 2013 and he's responsible for the safety and protection business, the electro and communications segments as well, including building innovations, production technology and sustainable solutions. With Matt today, we're also happy to have Randy Stone from their Investor Relations platform. So with that, let me turn it over to Matt. Thank you, John. It's my pleasure to join Crédit Suisse Space Materials Conference. I appreciate the opportunity to highlight DuPont's strategy and progress in the electronics indications and safety and protection segments. You'll see today that innovation, global reach and productivity are key elements of our value proposition, and our approach is working. We're delivering improved financial results in these segments and have a clear plan for accelerating growth in our broader advanced materials strategy. On Slide 2, please note the slides for today's presentation can be found on DuPont's website. I'll be making forward-looking statement in references to non-gaap measures. I call your attention to the disclaimers here on Slide 2 and encourage to review the reconciliations and risk factors included in our website and in our SEC filings, as well as included within the presentation. So before I cover safety and protection and electronic communications, I'd like to briefly highlight the important steps DuPont is taking, to build a higher growth, higher value company on Slide 3. DuPont is executing against a clear plan with 3 strategic priorities. The first is to extend our leadership across the high-value science-driven segments in the agriculture to food value chain and the leverage and linkages across these segments. We've got an important role to play helping the world meet the challenge of sustainably feeding a growing population. Market demand in the space is driven by both population growth and economic development, creating needs and requirements among our customers that were ideally equipped to me. Our second strategic priority is to build on our leadership position in bio-based industrials, and we're making great progress through the first half of 2014, our industrial biosciences segment has delivered 37% operating earnings growth due to innovative new products like enzymes, strand and nutrition, detergents and ethanol production. In addition to building and growing a great business here, we'll leverage these capabilities over time into the agriculture and food and the advanced materials opportunities. And our third strategic priority is to strengthen and grow our leading position in the provider of differentiated high-value advanced materials. Historically, this has been a real area of strength for DuPont, and I'll talk today about the important role of electronic and communications and safety protection. I'll also close with some comments on the broader opportunity for DuPont in advanced materials. Slide 4, in electronics communications, we have 4 strategic areas of focus: photovoltaics, consumer electronics, advanced printing and display. In 2013, the photovoltaics industry accounted about 1/3 of our segment revenues of $2.5 billion. In the next 5 years, we expect the market as defined by gigawatt installations to grow at a 20% growth rate. This increase translates into about 15% growth rate for the materials given some production efficiency improvement of our customers. Our strong growth rate projection is underpinned by 2 primary factors. First, despite the growth we've seen in the market over the past several years, PV still represents a very small part of electricity generating globally. Less than 1% of today's electricity annually is generated by PV, and so there's huge upside here. Second, the ROIs on projects that drive the growth in countries like China, Japan and the U.S. are improving. Part from the government support, but more and more from progress towards what we call grid 2

4 parity for solar power, the point of which government support is not needed in order for those projects to stand on their own. A third trend, I got to hear about a little bit in my recent time over in China was an increasingly the players in this industry are excited about the next tier markets, brazil, India as areas they feel a lot of that growth coming into future. The trend of innovation in PV is to use materials to drive lifetime system cost down and energy conversion efficiency up. And that improves the ROI of solar projects at the end-user level. Similar to other advanced materials applications in electronics, there is an ongoing opportunity and need to innovate, to keep resetting the price point in a highly competitive environment. For the PV industry, to reach broader grid parity, we need to continue to improve the efficiency, extend the lifetime and reduce the overall cost of the modules. DuPont science like our has contributed to so efficiency nearly doubling in the past 13 years. And with 30 years of proven performance from our DuPont backseat extends system lifetime, also contributing the ROI of those systems. New products extension and innovations will continue to invest the science of solar in the PV industry. While growth can be choppy and competitiveness is increasing as this market emerges, PV remains an attractive application area for DuPont because our science is differentiated, innovations rewarded. Our strategy is to sustain our leadership position and be a strong advocate for the use of high-quality reliable materials to advancing industry efforts towards grid parity. We actually are very active in downstream marketing to carry that message and reinforce the value that our products are bringing as we sell them into the value chain. Another market with an attractive growth rate is consumer electronics. In 2013, consumer electronics accounted for 23% of segment sales. DuPont products like Captain, Pirolux and helped enable like lighter, smaller and smarter devices like tablets and smartphones. We expect to growth of this to continue to grow strongly in the coming years. Consumer demand for smarter, cellular devices requires more technology in a shrinking circuit space. As a result, cellular phone designs are becoming increasingly reliant on material solutions that enable thinner, more flexible components with improved key Our materials provide high-performance electrical reliability and allow for low-profile unique packaging compatibility. Essentially, this provides a design flexibility for our customers, which is a big value for them. Another area of focus for E&C is advanced printing, which accounts for about 24% of our 2013 sales. DuPont provides a family of materials equipment and systems for advanced printing that offer high-quality productivity and sustainable solutions. This modest growth in this space from the ongoing trend digital solutions and proliferating of consumer good SKUs and labeling content. DuPont allows system offer the packaging value chain unsurpassed quality and ensure the turnaround times from design to final package. This is a business with longer innovation cycles and the 1 that I talked about earlier and a real premium on winning with global accounts and commercial and technical excellence in the regions. The final area of focus in E&C is displays. While displays accounted for only 2% of our 2013 sales, we believe that organic lightemitting diodes or OLEDs are the future of display and will be a core technology option for next-generation TVs. While a few OLED TVs are commercially available today, prices remain at significant premiums in LCDs due to the high cost of manufacture. Our proprietary solution printing technology is the most advanced in the industry and enables the lowest cost manufacturing, roughly 30% lower than existing LCD displays. This step change improvement will be a key to driving OLED TV adoption in the future. We receive validation of our technology as 2 of the largest Asian display manufacturers have licensed our printing process, and we're actively pursuing the license technology to other manufacturers. Let me now turn to Slide 5 to briefly highlight the financial progress we're making in E&C. In the past 5 quarters, we've significantly improved our financial performance versus the second half of You can see the bar chart the progress we've made both an absolute quarterly earnings and also in the operating margins. In 2013, our operating earnings were up 29%. Our productivity, execution and innovation focus are paying dividends, and we're steadily improving the financial performance of this important segment. In the first half of 2014, we've maintained our momentum with operating earnings up 14% versus the prior year. And as we've disclosed previously, Q included a $20 million OLED license, so Q is the fifth quarter in a row of strong underlying operating leverage. Let me summarize our segment strategy on Slide 6. Our science and innovation capabilities and global market presence remain a central to our value proposition in E&C. We'll combine innovation, application expertise and value chain marketing to sustain our position as the preferred materials partner in PV as that market expense. We're also driving application development efforts to diversify our product lines that serve PV for additional growth. Our advanced materials for consumer electronics will continue to enable high performance and versatility in key areas like smartphones and tablets. And finally, commercializing our own the 3

5 technology for PVs will be an important milestone and growth driver moving forward. Overall, we've made good progress of the last few years but have more work to do. We remain fully committed to accelerating the growth of this segment and expanding operating margins by delivering innovation and value to customers we'll continuing to drive productivity. Next, I'm going to cover safety and protection beginning with our sales summary in Slide segment sales were about $3.9 billion with our products, representing 37% of this, followed by -- and with 31%. Safety and protection sales are diverse and weighted heavily to the industrial markets with over 60% of last year sales going into these markets. Key industrial markets include transportation, process industry, including oil and gas, infrastructure, aerospace, electrical equipment, power utilities and personal protection. Our business also had key applications in construction, envelopes and graphics and medical packaging. And finally, our Kevlar products like heroes protecting people in military and first responders around the world. And all of these markets growth is driven from innovation application development and marketing efforts to reinforce the value of our valuable brands. Increasingly, our growth is in high-growth markets where we have been proactively investing in local, commercial and technical resources. On Slide 8, I'm pleased to highlight the financial progress we've made in the past 2 years in safety and protection. In our Investor Day in May of 2013, we outlined the specific actions we implemented to reposition S&P for growth. We highlight our efforts to drive product innovation and application development, which allows us to price the majority of our offerings in each of the markets on a value basis. Second, we detailed our strategy to invest in protect our strong brand, allowing us and our practice to command a premium. Even in those market segments where competitive is intensity is highest and prices under pressure. We highlighted our intent to position ourselves in each value chains strategically in a way that maximizes our differentiation against our in-kind and functional competitors. And third, we highlighted our productivity focus to significantly reduce cost and enhance our global competitiveness. These actions will not only improve our cost leverage for our specialty products but also allow us to compete in less differentiated market spaces to gain share. As a result, we've improved our overall plan utilization rates while continuing to drive mix improvement actions and you can see that in our results. The bar chart on this slide demonstrated the positive progress we've made as a result of these actions. Even with modest top line growth, we've significantly improved the bottom line results because of our improved operating leverage. In addition, we're seeing positive progress on the top line is an area with application development and marketing efforts we started in 2013 are already showing up and showing significant impact on our growth in market -- margin in segments like energy solutions business that's it serves the infrastructure buildout as well as electrical vehicles. In 2013, we increased our operating margin 160 basis points and delivered double-digit operating earnings growth, and we're maintaining our momentum. In the first half of 2014, operating earnings were up 24% and operating margins increased by 330 basis points over the same period last year. On Slide 9, as a summary of the key growth drivers in safety and protection highlighting our innovation, marketing and productivity focus. In the first half of this year, we launched over 30 new product applications, reflecting our strategy to strengthen our leading position. I thought I'd share a few of them. We introduced a new platform of no electrical insulation products for high-voltage applications in transformers and electrical motors. I commented earlier on how that's helping to accelerate our growth in Nomex. We're increasing our penetration of Nomex in hybrid electric vehicle motors. We're bringing to the mining industry a new lightweight Kevlar and conveyor belts as produced at our Cooper River plant. We added a new generation of multithread and water-resistant solutions made with DuPont Kevlar what will extend our range of protective solutions for the military, police and security markets. And we launched thermal wrap in the construction industry, expanding our value proposition into the thermal management part of the house, expanding amount of the share wallet at each house that we might be able to compete it for. Alongside of these innovation and application development efforts, we remain focused on investing in downstream marketing and brand awareness to expand our addressable market and growth share. Finally, our productivity efforts will continue to ensure competitiveness and provide room for both operating leverage and growth investments going forward. This combination of innovation-fueled global application development, downstream marketing and productivity has provided a winning formula to accelerate growth and expand margins in safety and protection. 4

6 Turning to Slide 10, I'd like to provide some insights on how we plan to accelerate growth more broadly in advanced materials. Throughout much of DuPont's history, we developed cutting edge advanced materials, and that continues today. In 2013, approximately 35% of totally -- total company segment revenues were about $13 billion came from electronics communications, Performance Materials and safety and protection segments. DuPont, has a strong global market position in advanced materials, fueled by foundation strength in science, technology engineering and application development, our customers value our strength in developing advanced materials to carry some of our strongest brands. Brands like DuPont, Kevlar, Nomex and Tyvek. On Slide 11, I'd like to briefly highlight our review of the advanced materials opportunity. Today, DuPont is focused on a $50 billion portion of a $500 billion advanced materials market. We believe we can accelerate our growth in the existing markets we serve and tap into new market opportunities as our businesses execute against their strategies. The strategy includes a step change in application development, collaborating for maximum success in markets and applications across the businesses, driving advanced materials pipeline of major innovation that includes both traditional and bio-based materials and evaluation of potential acquisitions or ventures that can expand our addressable market and enable us participation in that broader, parts of that broader $500 billion market space. While we've made strong bottom line progress in our advanced materials segments, we believe these initiatives will help us drive faster top line growth while retaining strong operating leverage. Let me turn now to Slide 12 to summarize our focus for First, we're focused on building on our strong financial momentum in electronics communications and safety and protection. Second, we're driving application development and maintaining our focus on productivity to accelerate the growth of the businesses and still have some operating leverage. Third, we're investing in innovation to extend our leadership in both our product and application development investments, we rely upon strong global reach to truly leverage these investments from maximum value. Finally, we'll accelerate growth in advanced materials through collaborations, bio-based innovations and potential acquisition and ventures to access a larger portion of the $500 billion advanced materials market. In closing, we've made excellent progress in electronics and communications and safety and protection in the past 2 years. Our bottom line earnings and operating margins have increased and we're committed to prove -- to further improvements. Moving forward, we're driving to accelerate growth when expanding margins in support of DuPont strategy to build a higher growth, higher value company. Thank you. 5

7 Question and Answer [indiscernible] I need to take these questions. Can you walk us through to what you see in -- there's been a lot of questions better or [indiscernible] Yes, I'd be happy to and focus on North America which sounds like where the question might be centralized. So I think what we've seen in the North American housing market has been some modest acceleration this year, but not at the level that had been originally forecast earlier in the year. And so we are finding that there certainly a broadly held belief that there is pent-up demand in some cases, labor shortages are getting away of that pent-up demand being served. But there is a broadly held belief in our customer base that there is pent-up demand and that as we work through the balance of the year, there will at some point, later this year or early next year, be a point of which that acceleration that everybody's been waiting for starts to happen more significantly. And then really, there's multiple view about what happens from there forward, different opinions on where the market reaches a steady state. Unknown Analyst Both S&P and E&C seem to have portions of their businesses that are slower growth and E&C's case, advanced printing and then S&P's case, the consumer portion, which I assume is Yes. That's a portion of it, yes. Unknown Analyst How do you go about determining whether it might make sense of this juncture to dispose of businesses what's sort of process of capital allocation do you have for putting in new capital and for letting existing capital go to somebody else who can do more with it? Yes, so first, we've been clearly consistent about our core strategy of driving growth on the 3 dimensions, 1 of which is Advanced Materials. And within the advanced materials area, we've said that we're looking at advanced materials businesses that have healthy growth drivers and were science matters and customers will pay for that science. And where the gross margins support investing in the science and investing in the marketing. And I think the businesses that we've got now, we see strong opportunities for those businesses in terms of investing in growing businesses. Certainly, we -- in the materials area, as well as across the company, we practice significant differential management in terms of really trying to steer more investment, whether it's capital or R&D or marketing towards a business where the best gross prospect and we certainly in the been willing to make the call at the business at the point where it really doesn't have that kind of future. We just recently completed the divestiture of the business. That's the business I ran in the past. I'm quite familiar with it and it had gotten to a place where it really doesn't have the opportunity for creating value through science and getting paid for that innovation through science. And I think we found a good opportunity to divest that, and I think that was the right decision there. And we'll continue to evaluate each of the businesses, but I think that the Advanced Materials business that we've got now have a lot of good strong growth opportunity. [indiscernible] talk about the entire process, talk about technology [indiscernible] 6

8 Yes, so each of our businesses goes through rigorous process, both on a quarterly basis in terms of quarterly operating reviews and then goes through a rigorous annual process in terms of the strategy and then ultimately the annual plan that follows that. Certainly, in all the businesses, we're constantly assessing the opportunity to invest and grow those businesses and making the differential management goals that goes with that. And if through those processes we start to see one of the businesses really move into a place where it really seems like it doesn't have those science enabled growth opportunities in the future, then we would to really go into more critical analysis and try to test that hard and ultimately understand what the options might be. Maybe I can ask another question. So in terms of earlier this week, which I'm sure you're aware of, around DuPont's cost structure, and there's some concern that maybe it's a little bit on the bloated side. At the same time, you've recently as a company gone through a big cost identification program and you've got $1 billion that's has been identified to be pulled out. So I guess walk us through the process that DuPont,as a company went through to identify the cost that they have, to pull them out the way that you already articulated in terms of hitting that $1 billion target. And also maybe give us some color as to whether there's further upside or that was really kind of -- that was all you found and that's really all there is to cut. Yes, so let me just lead into that question with a comment or 2. As we shared earlier, I came back to DuPont a year ago and I came back for 3 reasons:. One is, I believe and I believe negative for a long time that we have a lot of opportunity in the company, that the strength of our technologies, our brands, our global market position and our talent have great opportunity for value creation, and that's an opportunity. Second, from what I have seen, what Ellen and her team had done in the past 4 or 5 years, I saw a significant commitment and progress. I saw clear strategy. I saw important decisions related to that strategy with the acquisition and the performance codings sale. And I saw a commitment to cultural change accountability, transparency, speed and agility, collaboration that, to me, exactly what the company needs. The strategy and the cultural change exactly what the company needs in order to unlock value. And third, I -- it was clear that Ellen wanted to accelerate the progress not slow down. And so all of that in thinking that I could help is how I wound up back here at the company. And I get that intro because I think as you look at the cost opportunity, what I saw from outside DuPont was with the Performance Coatings spend or sale, a commitment to the accountability around removing the overhead cost structure on the backside of that. And very swift and aggressive movement to eliminate that cost structure, which I think was clear evidence of really an accountability mindset and a transparency of that externally. And as we've come up here towards performance Chemicals spend, we've been very proactive about saying that we're going to make sure that we have a highly competitive corporate cost structure. We're going to make sure that we have powerful and leverage corporate capabilities that are enabling businesses to succeed. And as we've been public, we see $1 billion of cost savings opportunity related to that. And really, what we're trying to do is get all of other businesses to have industry-leading performance. And whatever the productivity that is needed alongside of the growth to make that happen is what our precedents going to be driving within the businesses and what corporately we're going to be looking to do in order to support that. Any other questions? Great. Thanks very much. Appreciate it. 7

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