E. I. du Pont de Nemours' CEO Presents at Sanford C Bernstein Strategic Decisions Conference (Transcript)

May.28.14 | About: E. I. (DD)

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

Sanford C Bernstein Strategic Decisions Conference Transcript

May 28, 2014 2:00 PM ET


Ellen Kullman - Chairman and CEO


Bob Brackett - Sanford C Bernstein

Bob Brackett - Sanford C Bernstein

Hi. Good afternoon and welcome. My name is Bob Brackett. I am the North America E&P analyst and I will repeat that again, I am the E&P analyst. You are still in the right room. You can see the logo. We are in the DuPont session. This is a company that Bernstein does not currently cover and so, I've been asked, and I'm happy to stand up here and moderate this discussion.

The format for this discussion will be roughly 15 to 20 minutes of Ellen standing up here at the podium and presenting. We will then adjourn and sit in the two seats here and we'll engage in a fireside chat format. That will be most successful if you ask questions, right. This goes back to my point. I am the E&P analyst.

You'll find two ways to ask questions. The first way is with the white cards that are distributed around. Simply write, you'll pass it to one of my colleagues and it'll be brought up, the other is simply to stand up, get recognized and ask a question out loud, either way works.

So with that, and having hopefully been clear on, on what we are trying to achieve here, I will invite Ellen Kullman to come up and speak. She is Chair of the Board and CEO of DuPont.

Ellen Kullman

Thank you very much, Bob. And I won’t forget that you were the E&P analyst. I told him it was a long time ago that we separated from Conoco. So that did register with him. So, well, it really is a pleasure to be here and to think about it being the 30th anniversary of the Sanford Bernstein Strategic Decisions Conference and to be here and to have this time with our shareholders and investors.

Now, I am not sure, if any of you were in the room 30 years ago when it started, certainly, I was not. But I think it would be interesting to look back and to look at the presentation that have been made over the years around various strategic decisions that have been discussed in this forum and to see which ones turned out well and to see which ones didn’t and why?

And maybe one hypothesis is that the common denominator among all the decisions was a desire to get out head of change and to lead that change and to shape events rather than be shaped by them.

So that goal remained highly relevant today and it’s reflected in the approach we are taking at DuPont as I will share with you now. So I am going to open with some background information about DuPont and context for some of the recent decisions that we have made and are implementing to accelerate our strategy to build the higher growth, higher value company and then I look forward to a great conversation in the Q&A period.

As always, the famous Reg G and forward-looking statement chart. And as you know, I am going to share several slides with you and they can be found on DuPont’s website. I will be making forward-looking statements and references to non-GAAP measures. So I call your attention to the disclaimer here on slide two and encourage you to review the reconciliations and risk factors on our website and in our SEC filings.

As a brief refresher to who we are and what we are trying to achieve, DuPont is a science company. We are in the business of finding market-driven solutions to harness the power of science, to address some of the world’s largest challenges, food security, renewable energy and protection of the environment and people.

And because these and other challenges are so pressing, so complex, we work collaboratively with some of the world’s large global companies across many different industries to leverage our individual strength and to maximize our collective impact.

Our company is organized along these seven business segments, where we bring our broad scientific knowledge to bear in a concentrated way to meet customer needs. We leverage our science across multiple markets to develop unique science-based solution for our customers.

We have leading market positions in a number of secular high growth markets that should be recognizable to you, high-yield seed and crop protection products, materials for solar panels using our enabling technologies, specialty food ingredient for improved health, things like probiotics and high-performance polymers for light weighting cars and trucks.

DuPont success is rooted in innovation, not just in the products we make but in a way we operate as a business. For more than five years now we've been executing against a clear strategy to build a higher growth, higher value company and I am pleased to say, our plan is working.

We are creating strong positions in expanding markets, we are redeploying capital and resources to growth opportunities, we are enhancing our portfolio and significantly lowering our cost structure. Today, DuPont is a much stronger company with positive momentum and we are well-positioned for higher growth and value creation in the future.

As you can see, DuPont stock has outperformed both the S&P 500 Index and the Dow Jones Industrial Average in the recent past. At the end of 2013 $100 invested in our stock at the end of 2008 would have been worth $314 versus $217 for the Dow, $228 for the S&P 500 and that include accumulated dividends. Still we have more work to do to deliver even greater shareholder value. This is the heart of our growth strategy.

We are committed to building value for our shareholders while staying true to our core values as the company. This commitment has been frequently recognized across the industries and communities where we operate around the world. This slide lists just a few of the distinctions that we received in 2013, including Fortune, Standard & Poor’s, the Dow Jones Sustainability Index.

We were especially proud to receive a very prestigious award from the National Safety Council and that is the Campbell Award. It’s highly competitive and it focuses not only on the results but on the process of achieving world-class safety, health and environment.

Investing is all about making choices for the future and at DuPont, we are focusing our investments in the segments of our portfolio, where science can drive innovation to meet customer needs. Our goal is to build a higher growth, higher value company, by pursuing a three-prong transformational strategy.

First, we are extending our leadership in the high value science driven segments of the agriculture to food value chain and leveraging the linkages across these segments. We are already uniquely positioned in this space and have tremendous opportunity and momentum to advance further.

Market demand in this area is driven by both population growth and economic development, creating a myriad of needs and requirements among our customers, such as more abundant and stay for food.

Our second strategic priority is to strengthen and grow our leading position in differentiated high valued advanced materials through science-based solution. This has been a historic strength of DuPont and we will extend our lead here, one example of such is the extension of Kevlar umbilical hoses used in deepwater oil exploration.

And our third strategic priority is to building our leadership and industrial biosciences to create potentially transformational businesses in areas such as biofuels and biomaterials and we will achieve this goal by leveraging our world-class capabilities and critical enabling technologies such as microbial pathway engineering.

We will also capitalize on a synergist advantages advising from application development capability and market access of our advanced material businesses, together with value chain relationships and feedstock knowledge of our ag and nutrition businesses.

In each of these priorities, DuPont’s industry-leading science empowers us to continue to build a distinctive set of high-margin growth businesses that are valued by our customers. This focus nature of our portfolio also enables us to integrate and leverage our broad world leading scientific capabilities to access select markets, create collaborative partnerships with industry leaders and drive innovation across these spaces.

To deliver on our strategy we have been relentlessly pursuing three operational priorities that discipline our day to day actions. First, we are increasing our rate of innovation, if there richness and depth of our pipeline and revenue and earnings growth that is driven by successfully taking our research and development from the laboratory to the markets.

Second, we are leveraging our global reach, especially in fast growing developing markets.

And finally, we are maintaining work cadence that demands strong execution and delivers ongoing productivity gain, optimal resource allocation, hence further increasing our returns and capital.

Recently we took a very purposeful and meaningful strive to advance our strategy to a series of bold decisions, which included our $7 billion acquisition of Danisco, long-term revenue growth expected to be 7% to 9% in the specialty food ingredients and enzyme industries.

Second, our $5 billion sale of our Performance Coatings segment to the portfolio to the Carlyle Group.

Third, our acquisition of Pannar Seeds Limited in South Africa enabling extended reach in sub-Sahara in Africa.

Next, the announcement of our intent to separate our Performance Chemicals business to a spin-off in mid 2015.

And lastly but not least the work that we have begun is underway now to redesign our business support across the company in advance of the separation of our Performance Chemicals business.

Executing against these three strategic decisions advances the transformation of our portfolio to deliver higher growth to DuPont and higher value to our shareholders. You can see in this slide the significant change in sales composition in favor of our growth drivers in our portfolio over the 2008, 2015 timeframe.

In 2008 Performance Coatings and Performance Chemicals comprised 34% of our sales. In 2013 you can see that our strong organic growth from our business is more than offset the divestment of our Coatings business.

By 2015 for illustrative purposes projecting our 2013 segment revenue at our stated goal, revenue goal -- growth rate target for each segment, you can see that we expect again to more than offset the revenue loss from a separation of our Performance Chemicals businesses. More importantly, the significant change in sale composition from our segments better positions DuPont for higher sustained revenue growth going forward.

Let me share with you our rational for the strategic decision to separate our $7 billion Performance Chemicals business. Our Performance Chemicals segment includes two industry-leading businesses, includes our TiO2 business and our chemicals and floor products business.

We made this strategic decision primarily for two reasons. First, the valuation impact of the cyclicality and more important volatility of the revenue and earnings from these businesses was more than offsetting the value of the strong cash flow that they produced.

And second, while both businesses possessed strong science-based products and market positions, most of this science in the chemical and floor products area, as well as TiO2 was focused on process improvement to create a cost position and very competitive and often times commodity-based chemical areas.

The anticipated spin-off will result in two strong public companies, each able to focus on its unique purpose and strategic priorities. This action will deliver value to both DuPont stockholders and stockholders of the new entity and we are on track to meet the anticipated separation in mid 2015.

An investment DuPont is an investment in science, not for sciences sake, but as an engine for DuPont’s growth. Through our company history our science innovation has been sources of competitive advantage enabling us to thrive for more than two centuries.

In today’s global environment however, we must invest R&D with a different mindset than before. Markets today are more dynamic, more competitive and fast changing. This means innovation must be faster, better integrated and more localized.

At the end of the day, innovation has to deliver a robust return on investment. And that’s why we’ve made it a priority to earn higher rate of return on our investment in research and development by increasing our rate of innovation as well as both the magnitude and timing of business growth that we derive from our new product pipeline.

DuPont has one of the broadest, deepest, science capabilities of any enterprise. We integrate and deploy our scientific capability at a customer level by connecting our 10,000 scientists and engineers through a global network of foundational research centers, regional application development laboratories, new product development facilities and innovation centers.

We bring more concentrated science power to create value-added solutions for our customers than any of our competition. And as a result, we are able to pinpoint science- based solutions to real customer problems and opportunities. We’re able to differentiate our products from our competitors. It enables us to create long-lasting relationships with industry-leading companies as their trusted collaborator and create an overall sustainable competitive advantage.

Let me add one point here about our bio-based industrial segment. Since I think it's highly relevant to the discussion of innovation as a key to sustain growth and market leadership. So over the last 20 years, we've created what is considered the vanguard of industrial biotechnology in DuPont.

If you examine, DuPont’s 24,000 patents and 20,000 patents pending, that applied to all of our businesses, you’ll see that the biggest increase comes from the industrial biosciences area. The breadth of our discoveries that’s emerging here is exciting and it reflects DuPont’s integrated science at work.

We’re at the forefront of potentially transformative new business growth, resulting in the integration of sciences into our materials world. So it maybe our smallest business segment today but it is one that I believe is full of potential.

So as we seize the opportunity of the upcoming Performance Chemical Separation, we need to step back and we needed to review the way we execute business support across our company. The amount of change in our company over the last three years has been substantial. And it’s time to affect a more substantial change to the center.

Now normally with divestiture of business separation, we focused our attention on eliminating stranded costs and providing any decline in operating margin that might result from this deleveraging. But in light of the multiple recent actions that we have taken and to accelerate our transformation to higher growth, higher value company, we looked at this as an opportunity to take a fresh start with regard to how we conduct support for our businesses globally. Our goal, lower bureaucracy, increased speed, depth changed improvement in overall productivity.

We’ve talked to our peers. We benchmarked, we looked at our support functions versus others. We focused on recasting our corporate center and redesigning end-to-end processes, simplifying our work, standardizing our data and digitizing as much as possible.

So our redesign actions are comprehensive and will likely occur over the next several years. I'm not able to size the opportunity for each day but I will be able to size it sometime later this year. But it is an opportunity as we separate Performance Chemicals that we will take advantage of.

Now let me say a few words about returning gains to our shareholders. Our long history of paying dividend proves to investors that this is a top priority of ours. Since 1904, we never missed a quarterly dividend and we did not suspend or decreased our dividend during the recent global financial crisis. We've restarted dividend increases and our goal is to grow the dividend in line with earnings growth.

And we’ll complement our dividend with share buybacks in line with our balance sheet objectives and strategic opportunities. Four month ago, we announced the new $5 billion share repurchase program. We’ve already executed $1 billion of it in the first quarter and expect to complete another $1 billion by the end of this year.

So to summarize, here is what you can expect from us. We’ll build a higher growth, higher value DuPont with global industry-leading positions in agriculture and nutrition, bio-based industrials and advanced materials. We will successfully separate our performance chemical segment around the middle of next year. We’ll increase our rate of innovation and growth from our pipeline, capitalize on our global reach and focus on execution in a way that delivers a reliable flow of cost and asset productivity gains and increases return on investment.

We will continue to invest strategically across our portfolio in the most promising value-creation opportunity. This includes disciplined acquisitions that aligns with our growth plan and creates a new growth trajectory by bringing us new science, new market access or both.

We are excited about our revitalized DuPont, capable of achieving long-term five-year rolling targets of 7% average annual growth and 12% average annual operating earnings per share growth. We believe this growth is grounded in an unmatched commitment to science-led innovation that will help build a better future for our customers, strengthen our leadership position in critically important new fields and reward our stockholders for their abiding support for our vision strategy.

So thank you. That concludes my opening summary and I'm pleased to move to the fireside chat portion of the program.

Question-and-Answer Session

Bob Brackett - Sanford C Bernstein

Okay. Thank you Ellen. And I believe they've turned on my -- lapel mic, and yours should come on shortly. In the meantime, we have colleagues that are walking around collecting questions. You are also welcome/encouraged to stand up and ask questions. I will start the Q&A if you can imagine at the top of the pyramid, very high-level, and then over time kind of descend down that pyramid into specific businesses.

And I'll kick it off with a question that interests me given that you're a unique business to me. You manage a fairly large protection business. Protection is levered to the global outlook for safety, for geopolitics, for violence, for lack of a better word. What are the things you sort of see in the protection market? Is violence a growth market?

Ellen Kullman

You know, I have imagined many questions that would start a fireside chat. Bob, after all, I told you that. Thank you.

Bob Brackett - Sanford C Bernstein

The reason I ask -- well, I won't even go into those reasons, but…?

Ellen Kullman

I understand. So, you know, it is, it kind of is that double-edged sword, right? Because we've been --- we pioneered Kevlar. I think we're going to celebrate the 50th anniversary of Kevlar next year. And Kevlar today is very different than Kevlar before. It's lighter weighted, it's more flexible, it's more protective of our first responders, our military personnel in the field. It's in helmets, it's in the flak jackets.

But you know, it -- and so it is great pride, and I tell you, some of the most proud moments I have are as we -- people in different venues, the survivors' club, they come up and they thank me for saving their spouse's life, their father's life, their son's life. And I keep telling them there's this phenomenal woman by the name of Stephanie Kwolek who invented this stuff 50 years ago, who you should be thanking. And Stephanie is still alive today. And we saw her a couple of years ago.

But you know, I'm not sure if it's just not a function of the fact that with population growth, and we all just occupy the same amount of space that disagreements occur. Armies have been around for years, first responders have been around for years, and protecting them and allowing them to operate in the way they feel confident in their protective apparel.

I mean, it's really proud for our company to be able to participate in any way we can, there. I mean, it is a real honor to be able to do that, and to do it in a way that it keeps evolving and changing. The original vests were too heavy and inflexible and the ones they're wearing today are much lighter weight and comfortable. So, I'm not sure if violence is a growth industry. I do know that protection is a growth industry based on all the trends in the world, unfortunately or not, and it's just very proud that our company is

Bob Brackett - Sanford C Bernstein

So if we look at the businesses you’ve shut over time. They tend to open these mature businesses. What you are sort of saying is you still see runway for the protection side of the business.

Ellen Kullman

So the big part of how I look at the business is, how do you keep it on the growth part of that curve as opposed to letting it heal over on to the more mature. People say to me, Ellen, you’ve got, Kevlar is 50 years old. It’s like -- look at Kevlar, it’s totally different than 50 years ago and it’s through application development, it’s through localizing innovation centers and application centers, working with people in Brazil, working with people in India, in South Africa on their specific needs construction. It’s how you keep the renewal going. And so it is very much, it’s not just happens in a central research that invents things every few years. This is -- most of our growth comes from day-in, day-out application development on the street with our customers, helping them to be more successful.

Bob Brackett - Sanford C Bernstein

And so, it sounds like there's still runway for something like that. In a sense, you manage two portfolios within DuPont. You manage your portfolio of businesses. Within those businesses you manage an R&D portfolio, for lack of a better term, an R&D pipeline. How do you ensure -- and you're targeting greater growth and greater returns on those R&D projects. How do you ensure the right R&D projects are getting approved, that the right ones can grow, that the wrong ones can get cut without wasting excess capital?

Ellen Kullman

Yeah. That’s more earth and science because I look at something when asked a peer in its development it went from zero to a $1 billion of revenue in six years. It’s a novel insecticide that’s very low toxicity and human friendly. And there are several times during that development where we could have gotten a thumbs down, right. And so -- but our scientists figured out works around and how to make it because you have to be able to make it, scale across its relevant to the markets.

So we weren’t just kind of a -- I’d call it a two tier system in research development for lack of better words. There is the like the top 100 programs that my Chief Technology Officer, Doug Muzyka helps us manage and they are across the portfolio, they are large, they are impactful. There is actually only 72 of them at last count. And that’s about half of our spend and we do that.

The other half is the new and approved, the smaller, the singles and doubles that really provide the core of our pipelines and the business presidents and their research leaders are responsible for that. I see it twice a year. I look at their commercializations and how that's going. And we sit down and have very detailed conversations on that. So, business presidents are hold accountable for at least half of that portfolio and then we as a company take ownership of the larger portion.

Bob Brackett - Sanford C Bernstein

So, I now have a -- you've been duly warned, I have a stack of questions that I will start to address. I will start at the top and then I'll shuffle a bit as I go. After separating chemicals, what will be the percent of sales DuPont receives from emerging markets and what growth do you expect from emerging markets?

Ellen Kullman

Okay. I’m not sure I’ve ever cut the numbers that way from developed versus emerging. Chemicals is pretty well integrated into developed and developing markets. So, I think it's probably going to be about the same percentage as it is today. And the thing is that what we’ve done in the emerging markets and I just got back from Brazil over the weekend is we’ve localized the science that Paulinia research and development center does, does not only research for Pioneer for crop Protection, Chemical, Industrial Biosciences, Safety & Protection. And we are doing research there or I should say development there for the local customers, applying designs to their local needs and that’s across the portfolio there. Our business is a pretty well penetrated and pretty well exists globally and then the penetration is what we are driving with these innovation centers and the local research development centers.

Bob Brackett - Sanford C Bernstein

And the following question on emerging markets, how do you see growth and profitability over the next five to ten years in emerging markets?

Ellen Kullman

We watch that very, very carefully. It’s a growth. So we do see growth and experienced growth is about almost twice the rate as developed markets, in the developing markets, maybe a little north out there depending. If you look at the first quarter, China was 12%. First quarter actually in Europe, Middle East and Africa was 6%. I mean, that was pretty good. So it is growing faster. We do look at margins there very clearly and we segment it because our businesses have, they run global supply chains.

So the product is going to migrate to where the value is, where the return is for the business. And we see about similar returns in emerging markets as we’ve seen in developed markets. Lot of times, a lot of these applications, they move around the world pretty rapidly. And so we don’t see a huge difference in margins from that standpoint.

Bob Brackett - Sanford C Bernstein

And can you review profitability by segment, and how it relates to your overall corporate objective?

Ellen Kullman

So we have long-term margin goals for each one of our segments. It’s out on our website, both the top line growth and the margin growth. Several of our segments are at that margin, others are moving towards it. We've had about almost 600 basis points in expansion of margin over the last five years. And so we set a target for each one based on their capabilities, competitive sets and what we believe we have to have, they need to get to garner the investment in capital, in research and development. And so we've made that very transparent by each one of our seven big business segments. They do range depending on where they are. They are each one very competitive within the frame of their competitive sets and we continue to drive.

Bob Brackett - Sanford C Bernstein

Then almost a more specific version, for financial reporting disclosure and to help investors' understanding, why doesn't DuPont break out its seeds and crop protection sales EBIT, et cetera separately rather than in the same segment?

Ellen Kullman

Because we see them uniquely intertwined, not uniquely for us but I mean for the industry, they are very intertwined and ag production, agriculture is a marketplace we service very similarly. And so we think it serves us best to have that as a segment. It’s fine -- it seems like no matter what we do, we can never make everybody happy. I sit with investors who think we have too many segments. I sit with investors who would like us to have more segments. So we try to always bring in where we think it's reflective of how we run the company and how we run in that marketplace and that is from an ag production agriculture.

Bob Brackett - Sanford C Bernstein

What are your current thoughts on your ability to complete value-adding acquisitions in your core areas given what appears to be a seller's market?

Ellen Kullman

Nothings cheap. I know everybody thinks, oh, it’s a sellers market, it’s a buyers market. It’s a sellers market, which means they think they can get a lot of money for what they are selling, right and it means that we are going to pay a lot of money for what’s we are buying and I’m cheap basically at the end of the day. I love smaller acquisitions. I think they're more digestible, you can integrate them faster. We’ve got a small electronics company, Innovalight couple of years ago out in the West Coast. It’s really been an enabler for our Solamet paste business. Think the metalized paste in photovoltaic cells. We saw Pannar Seed, that was a small acquisition in sub-Saharan Africa that gave us market access in germplasm, additional germplasm for sub-Saharan Africa.

It’s not only been enabler to our seed business to be more successful in sub-Saharan Africa. It’s also going to enable our crop protection business, our packaging business as it impacts food companies and things like that to be more successful there. So I think that we handle list of companies that we look at, a list of areas that we analyze. We are always looking to understand where the opportunity is. So we have a high bar and we expect if we’re going to make an acquisition and spend our capital that way that we are going to extract a return, and more importantly create momentum for that business in an area that is going to create real growth and value for our shareholders.

Bob Brackett - Sanford C Bernstein

Please shed some light on your likely thought process as you weigh a spin of performance chemicals against other potential transactions?

Ellen Kullman

We went through, I guess it was 2013 from the fourth quarter of ’12 through the third quarter of ’13, we went through with our Board and leadership a very thorough analysis of our Performance Chemical segment, what its capabilities were, what it’s worth to the company if we keep it, what are options for separation of it. Sale, we have very low tax base, so it’s going to be a lot of leakage, tax leakage if we sold it. We looked at RMTs. We looked at spins versus split.

And given the assumptions that we’ve made, the spin is the highest value to our shareholders. And so those assumptions haven’t changed, but we still have a year to go. And so I think based on my knowledge of the business and the dynamics of those assumptions, it’s pretty hard case to be, it’s very difficult case to be. But at the end of the day it’s what going to create the most value for the shareholders. And if things change, then we will reevaluate that. But by and large, it’s a pretty high bar to get over that spin because it’s pretty compelling.

Bob Brackett - Sanford C Bernstein

What would have to change for an RMT to beat a spin-off in the next year, whether internally or externally?

Ellen Kullman

You know RMT is kind of threading a needle, right, I mean, because you got to have a lot of things to go right, plus it’s out of our control, so there would need to be a premium for that, because you have to deal with another company, another board of directors, another -- and so I think that’s a long thought. And I think that if we take a look at the assuredness of getting it done on timeframe to look at the value creator for the shareholder, this has been at the optimal position right now, something changes and great value could be created with another vehicle, obviously that has to enter to our consideration.

Bob Brackett - Sanford C Bernstein

Post the performance chemicals spin, is there anything left in the portfolio to divest?

Ellen Kullman

I have learned in this job never to say never because anytime I do it usually comes back and bites me. When I think about the portfolio, it needs to be a set of businesses that have a certain capability, competitive position delivering growth in returns to our shareholders, position well using science for us and our model. Science is a great way to create that differentiation for us.

And everyday businesses product lines have to earn their way in that portfolio. I know there will be product lines that will come and go, don’t know about businesses, but clearly I think that the business president I hold responsible or accountable for, if the product line is commoditizing, if there is somebody who values it more than we do, if there is nothing we can do about it, we might be better off to separate it and to invest that money elsewhere. We’ve seen that happen over the years in our crop protection business where we sold commoditizing positions like I think the last one was mancozeb and we invested that higher growth areas such as Rynaxypyr.

Bob Brackett - Sanford C Bernstein

On the share buyback, how do you think about buying relative to today's price, the current price? Do you have an internal price? Do you avoid buying at peaks, or is it slow and steady?

Ellen Kullman

Can you predict what the market is going to do this year it would be really helpful for me to know that? So we’ve got a billion of it done already. If I were good at predicting the market, I would probably be in a different job and so we are going to look and our CFO and Treasurer will work with our advisors and make the decision around that. On a sooner versus later growth, I am looking at getting the average share count down slight. I think that also helpful in any given year.

Bob Brackett - Sanford C Bernstein

A much longer-term question, how does DuPont think about CEO and CFO succession? Is there a large internal bench of qualified candidates or is it external?

Ellen Kullman

I think from the most disconcerting thing after the Board tells you, you’re the new CEO, the next thing they say to you is. And so if you get hit by a truck who are we going to replace you with and let’s talk about succession and type of release they won, but it is serious that that’s the job and so we’ve been as a Board we work on that. We develop. We have an internal list of candidates. We develop people. We continue to focus on creating a good deep succession pipeline for any of our key jobs, whether it’s mine or CFOs of any of our key jobs and that’s a big part of what my job is, is to make sure that we have a great pipeline to create great succession for our company.

Bob Brackett - Sanford C Bernstein

So it sounds like an internal preference?

Ellen Kullman

I think they are historically on the 19th CEO pretty much. They have all been internal to-date. Obviously if it’s not out of the question to go outside in this day and the age, but that’s been our history.

Bob Brackett - Sanford C Bernstein

What assets of the business would you never consider selling, i.e., what's core?

Ellen Kullman

Well, I guess the experimental station, so that might sound funny to you, but there is a research laboratory built in 1906 on the banks of the Brandywine River that actually is quite modern, don’t take its age for, we’ve renovated it and added to it over the years. But the core science of the company is probably the only thing I wouldn’t throw out everything else has to earn its right into the portfolio.

Bob Brackett - Sanford C Bernstein

I'm trying to -- there's a number on the spin of performance chemicals that get into a little more detail. I will try -- can you elaborate on the potential for a reverse mortgage trust for the spin of your performance chemicals?

Ellen Kullman

Well, as I said the assumptions are still what we had as we approved it in October of 2013. So as I said any kind of change to a spin, there is talk, little bit there is a high bar there that would have to be covered.

Bob Brackett - Sanford C Bernstein

And are you seeing, again for the performance chemicals, are you seeing specific company interest in it?

Ellen Kullman

It’s interesting. It’s sort of like there is whenever there is a drop of blood in the water how many shark show or right and so whenever you announce something like the phone calls come why don’t you sell it to me instead well there is tax base and too high leakage, why don’t we do it. And so those come in constantly we feel then we have a process we used to deal with them, but as I said it’s a pretty high bar. This is a really good set of businesses. This isn’t distressed versions, the really good set of business is with the really great future kind of great company cash generative and to beat the spin is going to be a pretty tough job.

Bob Brackett - Sanford C Bernstein

In industry biotech as you look out 10 years, what types of customers' problems are you confident that you'll be solving and how would you monetize the vast amount of science and IP that you have?

Ellen Kullman

I think That’s a great question because I think back when the global financial crisis started and there is lot of uncertainty in the room. I went back and read the history of the Dupont in the 1900 and read about the history of research and development that experimental patient I talked about, (indiscernible) started back in 1906 or ‘08 and how the science they were working on been worked and changed and we were working in explosives, in nitrocellulose and then cellulose that led to cellophanes, and led to plastics and fibers and all of these things like that.

And it’s sort of like you can see the past and how the science connect together looking backward, it’s hard to see going forward. But what we see in Industrial Biosciences is a capability microbial pathway engineering, enzymatic capability that can create opportunities in personal care, in household care. Cold water detergents that clean as well as hot water detergents, so not only your cloth clean but you’re saving money on energy. Animal nutrition is all from enzymes. You look at Biofuels, enzymes are critical. You look at biomaterials and polymers, and these kinds of enzymatic actions to break down complex sugars into raw materials ingredients that can be converted.

So I think that there is a lot of different ways it could go. We are focused on scenarios that we think can deliver within the next five years and seven years in fuels and in polymers and in personal and household care and things like that. But I think that why we still do basic research and our basic research much better than this area because its opens the door to us and allow us to see more. And I think it’s in area, that’s very exciting.

Bob Brackett - Sanford C Bernstein

Please elaborate on why ag and advanced materials were chosen a strategic priorities?

Ellen Kullman

So when we take a look at what DuPont is and what DuPont will be post-spin and really where are science, whether it’s biotechnology, it’s material science makes a difference. We’ve seen and have great data and confidence in our capability to create science that can make a difference in things like production agriculture. Modern chemistry or biologics that can in part values for outcome production agriculture standpoint. See genetic and see germplasm and not only trace any germplasm that can stand and yield and create the basic stuff of forming economy.

It will open the advanced materials if you look at the ability to in the urban area like Kevlar and Nomex, to really use unique constructions and the inclusion of multiple different materials to create very different set of functionality for your future. I mean, so we have to look in the base of what our capability was because at the end of the day it’s where you now opportunity is where market interest meets capabilities, right.

So what is the market need, what can help our customers be more successful and what capability can we bring to help in that. And is really that intersection and we found that intersection in three, three large areas as a nutritions. The ag nutrition, the advanced material and industrial biosciences.

Bob Brackett - Sanford C Bernstein

Discuss fund priorities in spending, machinery, seeds, crop protection, etcetera?

Ellen Kullman

Well from a farmer prospective, the annual spend on things like seeds, crop protection, fertilizers things like that. Seeds always the first thing that kind of get chosen and then everything else is going to go around that because it’s the fundamental, right. And then how he can enhance that seed capability to stand and delivery in a given season. The capital kind of expenditures have to do within income, how to with visibility to invest to get more from the same amount of land or maybe lands one of those things to investment at well.

So think next is machinery going to improve his productivity and going to enable him to farm more land, farm more efficiently because in this day and age with the advent of all the weather capability and everything getting up and down, manage and out of this field in a very timely fashion can make a difference.

And small differences in you to make a difference in income for that farmer for the year. So from an annual standpoint, it’s definitely the seed. And from a machinery rate and that standpoint, it’s basically what it’s going to deliver for them in terms of productivity and enabling them to have a better outcome.

Bob Brackett - Sanford C Bernstein

What are the biggest ag growth areas by geography, by product? What do you think the market growth is?

Ellen Kullman

We look at ag production agriculture and normalized over a period of time, we think its probably 8% to 10%. Now in any given years, it’s going to lead or lag based on commodity prices and a lot of things like that. So we think its 8% to 10%. If you look at places like the U.S. or Brazil which are highly densified and penetrated, it has to deal with new variety in germplasm that can advance the yield a little bit.

In a place like Brazil where the pest pressure this year is tremendous, where you don’t get hard freezes, where you’ve got two crops in the ground a year. Things change much more quickly down there and you have to really be after it. But -- so those we feel great growth in United States and places like Brazil historically and will still continue to see that through improvement in yield and capability.

And even things like our AQUAmax product, I mean, this is a native-trait, drought-tolerant seed that's now on 10 million acres this year because in Nebraska, the high plains of Texas and places like that were more drought prone. They can get higher yield. The biggest areas of change you’re going to see coming forward on places like China and places like India and sub-Saharan Africa, where they are coming from really basic agronomic capability to much more advanced agronomic capability.

In China, they are hand-sowing small plots, [mus] (ph) they're called. In India they're moving ahead up ion the Punjab region. And I've visited a large farmer there, 40 hectares and one of the largest farmers in the area. And their land rights and things like that are changing greatly. I think you going to see a lot of growth, lot of opportunity coming from Sub-Saharan Africa, India and China in the ag community.

Bob Brackett - Sanford C Bernstein

Your opinion on farming incomes, are we at a peak?

Ellen Kullman

Well, they’ll be down this year. They’ll be down this year probably about 30%. So it’s interesting they’re still probably, I don’t know for the last like 15 years is still probably on the top of the heap, top five. And I think that based on the fact that they’re yielding more, they’re getting more products out and more grains is coming out of those field. And so it is always going to change depending what stock they uses and things like that. But I think we’re in the better side of equation this year from a farmer standpoint.

Bob Brackett - Sanford C Bernstein

Years ago, at the experimental station, I worked for DuPont on ELISA and particle-enhanced turbidometric immunoassay technology. What are the on-the-rise patents that will drive new market 10 years down the road.

Ellen Kullman

I’ll make it in the back….

Bob Brackett - Sanford C Bernstein

Which patent excites you?

Ellen Kullman

Okay. So obviously, he is like a Ph.D. in something, right? And I'm just a lowly mechanical engineer. But I think that was exciting. We have 24,000 active patents, 20,000 patents pending. My areas of interest really are in the microbial pathway engineering and really the ability to engineer some of these microbes to ingest sugars, complex sugars, cellulose-derived, and express things like 1-3 propanediol. So a monomer that can be used to make carpet and you couldn’t do that in the past and you can't today. And that capability, I think can be very prolific in terms of what it can help create for the future.

Bob Brackett - Sanford C Bernstein

And we've hit zero on the clock. I'll ask a final question. I apologize, we still have quite a stack of questions. My threat to ask questions clearly was heeded. Is there a strategy for more branding with the end consumer?

Ellen Kullman

So that must be from one of my marketing people that came up to see the thing. DuPont is the brand, right. At the end of the day, it is about DuPont. We are doing more but we’ve started in places that does know us. We are doing a lot more branding with the customer in India, in China. We partner with the BBC in Horizon's program. I don't know if you’ve seen it but it’s there on an app for your iPad, BBC Horizon. In there you'll see a DuPont's infomercials and real life stories about how our product has really helped our customer succeed.

Everything from a family in Brazil whose -- the wife actually came on camera speaking in Portuguese about how Kevlar saved her life -- saved his life, to a farmer in Malawi and how he’s now the magic farmer because of the corn he’s been able to raise. But we are raising our profile there but I want to do it very specifically to the solutions that we’re providing our customers.

Bob Brackett - Sanford C Bernstein

And with that, I will thank you again Ellen.

Ellen Kullman

Thank you.

Bob Brackett - Sanford C Bernstein

And thank you all for attending.

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