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Executives

Andrew Sandifer - Director of IR

Raj L. Gupta - Chairman, President and CEO

Jacques M. Croisetière - EVP and CFO

Pierre R. Brondeau - EVP, Business Group Executive

Analysts

Kevin McCarthy - Banc of America Securities

Donald Carson - Merrill Lynch

Robert Koort - Goldman Sachs

David Begleiter - Deutsche Bank

Michael Sison - KeyBanc

Prashant Juvekar - Citigroup

Sergey Vasnetsov - Lehman Brothers

Steve Schwartz - First Analysis

Dmitry Silversteyn - Longbow Research

Frank Mitsch - BB&T Capital Markets

Rohm & Haas Co. (ROH) Q1 FY08 Earnings Call April 22, 2008 11:00 AM ET

Operator

Good day everyone and welcome to today's Rohm and Haas Company First Quarter Earnings Release Conference Call. Today's call is being recorded.

At this I would like turn the call over to Mr. Andrew Sandifer, Director of Investor Relations. Please go ahead sir.

Andrew Sandifer - Director of Investor Relations

Thanks, Ed. Good morning this is Andrew Sandifer, Director of Investor Relations for Rohm and Haas. And I would like to welcome you to our first quarter 2008 conference call. With me today are Raj Gupta, Chairman, President, and Chief Executive Officer; Jacques Croisetière, Executive Vice President and Chief Financial Officer; and Pierre Brondeau, Executive Vice President and Business Group Executive.

We will begin the teleconference momentarily. As is our normal practice, after our prepared remarks, we will open the call to your questions. For those of you logged onto the webcast at www.rohmhaas.com, the slides you'll find under Supporting Materials have been provided as background and will complement our remarks today.

Now before we begin, let me remind you some of what you hear today could constitute forward-looking statements, subject to certain risks and uncertainties. Additional information is available in Rohm and Haas' 10-K filing with the Securities and Exchange Commission on February 21, 2008. A copy of these filings may also be found through the Investor portion of our website at www.rohmhaas.com.

Now, let me turn the call over to Raj.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Thank you, Andrew. Good morning and thank you all for joining us today. As Andrew mentioned, the slides included on our website will provide you with additional details on the financial results. We will not be speaking to them directly, but we hope that you will find them helpful.

There are four points I would like to highlight today, first we had solid start to the year, excellent demand growth particularly in Electronic Technologies, strong performance for Salt, and robust growth for the chemical businesses in rapidly developing economies, help to offset the impact of rising raw materials, energy and freight costs and much weaker than expected U.S. housing related markets.

Second, our year-on-year earnings comparisons were negatively impacted by larger than anticipated losses in Display Technologies and higher corporate expenses in part reflecting one-time items in both periods.

Third, we continue to make excellent progress in the implementation of our Vision 2010 strategy. I will shed details on this shortly.

And finally, our ability to navigate this economic and a challenging environment allows to reiterate our sales and earnings guidance for 2008, keeping us on track to achieve our Vision 2000 goal of $11 billion to $12 billion in the revenue and $5.50 to $6.00 in EPS by 2010. Let me make a few comments on our first quarter results before I turn it over to Jacques.

Record sales of $2.507 billion were up 16% from prior year comprising of 6% demand increase, 4% currency, 3% acquisition and 3% pricing. Although a 6% demand increase is one of the strongest that we have seen in number of years.

Electronic material sales were up 36% including Display Technologies, 16% of core Electronic Technologies, and 14% excluding precious metals pass through. Solid sales increased 26% this performance was driven by favorable weather conditions for the business and impact of favorable currencies, effective pricing, and product line management. Sales for non-ice applications grew in low double-digits versus prior year period.

In the Chemical businesses which include both Specialty Materials and Performance Materials, sales increased 8%. Strong growth outside North America with particularly rapidly developing economies where the sales increase was 28% for the chemical businesses.

Good traction on earnings per share from continuing operations which exclude restructuring and asset impairment and at $0.91 a share were up 6% compared to year ago. Outstanding pre-tax earnings growth for Electronic Material, Electronic Technologies at 16%, Performance Materials were up 43%, and Salt up 43%.

Weaker than anticipated North American building and construction markets, higher raw material, energy and freight costs and moderating demand in Western Europe negatively impacted pre-tax earnings for Specialty Materials by 12%. The quarter benefited from lower share counts from our advanced share repurchases in third quarter of last year, the lower effective tax rate at 24% versus 28% a year ago, and favorable currency.

Here are the business highlights. In Electronic Material sales for advanced technology products grew 23% versus the prior year period representing now 43% of total sales of Electronic Technologies unit. First quarter was the twelfth consecutive quarter of year-on-year sales growth for this business segment.

Sales for the Display Technologies unit was $83 million in the quarter with an expected run-rate this year of $350 million for the year. This includes the expansion of our Display Technologies business into OLED material. In the Specialty Materials and PCM demand growth in the RDEs was very strong, offsetting moderating conditions in Western Europe and a 4% decline in the U.S. Primary Materials showed strong growth to third party sales and Houston plant operated smoothly.

In Performance Materials, we continue to expand applications for ion exchange technology including new alliances with Novasep for glycerol purification. Demand for AgroFresh and Advance Materials was very strong as well. There was moderate increase in demand for the Process Chemical and Biocides most of the growth coming from the RDEs.

In terms of RDEs, the sales were up 42% for the quarter representing 25% of company's total sales compared to 21% for the year ago. And these sales made substantial profit contribution and they were driven both by Electronic Materials and the Chemical businesses.

Our investment in new plants, technology centers, and targeted acquisitions and addition of talent is helping us capitalize on the growing demand for our products and the RDEs. Weaker than anticipated North American building and construction market remains challenging. Our increasingly diversified and balanced geographic portfolio and product line is helping us deliver meaningful sales and earnings growth.

We have seen further increases in raw materials, energy and freight, exceeding over $300 million year-on-year and we are making solid progress in implementing price increases to offset these costs and we expect to catch up to the first quarter increases by third quarter of this year.

Counteracting these challenges as I said earlier was the growth of our Chemical business outside U.S., Electronic Materials, and Salt as well as proactive efforts to control our discretionary expenses.

Let me now turn it over to Jacq for review of our numbers in the quarter and I'll comeback to comment on Vision 2010 progress and our outlook for 2008 before we open the call for your questions.

Jacques M. Croisetière - Executive Vice President and Chief Financial Officer

Thank you, Raj. Before I begin let me remind you that beginning with this quarter our segment results are reported on a pre-tax basis. Comparable results for previous years are available on our website.

Now I would like to provide a few details on currency and the corporate segment as well as highlights from our income statement. Currency had a favorable impact of 4% on top-line $95 million in the first quarter or $0.07 per share in earnings. It is important to know that the benefit of the weak dollar is rather limited by the impact of rising raw materials energy and freight costs. We believe that these two phenomena are definitely linked. Our corporate expenses were $100 million in the quarter as compared to $49 million in the prior period. The increase year-on-year was the result of higher interest expense representing $18 million attributable to the debt we issued to form the 1 billion accelerated share repurchase agreement executed in the third quarter of 2007.

Also the absence of favorable one-time items in the prior year period, higher interest rates, and restructuring and asset impairment cost of $12 million. We also had increased costs for strategic repositioning and portfolio management as evidenced by the number of transactions disclosed in the first quarter. We expect these strategic investments to continue this year, resulting in corporate expenses of approximately $70 million to $80 million per quarter.

We recorded a provision for income tax expense of $56 million for the first quarter of 2008 reflecting an effective tax rate of 24% compared to 28% in the prior year period. The decrease in tax rate is largely due to lower taxes on foreign earnings and the tax benefit associated with restructuring charges. We continue to expect that our full year tax rate will be similar to 2007 between 25% and 26%.

For the first three months ending March 31, 2008 cash from operating activities was $146 million versus a $121 million for the prior period. This was mainly due to improved working capital, partially offset by lower net and non-cash earnings. The cash flow we generate from operating activities is typically concentrated in the second half of the year due to working capital patterns in some of our core businesses as well as the timing of certain annual payments such as employee bonuses, interest on debt, and property taxes which are very much concentrated in the first half of the year.

We expect 2008 cash from operating activities to exceed $1 billion. Maintaining strong cash flow through earnings and working capital management continues to be an important objective. Capital spending of $122 million through the first three months of 2008 is $45 million above the prior year period, reflecting our strategic intend to increase spending to support growth related projects. For the year, we anticipate capital spending of approximately $525 million, our goal is to hone high return investments that both complement our Vision 2010 strategy and generate returns greater than 15%.

Finally the share... the accelerated share repurchase program we entered into in September of 2007, will be completed before the end of the second quarter of 2008. At that time we expect to see a further reduction in shares outstanding between 3 million to 3.5 million shares. Raj, I will turn the call back to you.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Thank you, Jacq. Now I would like to take a few minutes to highlight our recent progress in the implementation of our Vision 2010 strategy which is designed to transform Rohm and Haas into a more focused, more profitable and faster growing company. We continue to gain traction on our Vision 2010 goal and remain focused in our three primary growth areas supported by growth in RDEs which we outlined during the investor day last year. The three areas, are Electronics, Coatings, and mixed businesses. In Electronics, our goal is to grow this Group from $1.7 billion in revenue in 2007 to $3.5 billion by 2010 through organic growth and targeted acquisitions.

For 2008 we now expect sales in the $2.2 billion to $2.3 billion range which represents an increase of approximately 30% over 2007. Recent developments include the acquisition of this formation of joint venture between Rohm and Haas and SKC in fourth quarter of last year, which strengthen our Display Technologies segment.

Q1 '08, represents the first full quarter results for this new SKC Haas Display Films. Recently we acquired Gracel Display, broadening our Display Technology business into organic light emitting diode materials or OLED, an important addition to our broad range of advanced technology products for this segment.

We also divested our stake in UP Chemical Company for a gain of $0.22 a share, this would be included in the second quarter results. We will continue to participate in ALD or the Atomic Layer Deposition in the market independently of our divestitures of UP Chemical. And we with this... ALD technologies will be based on the license we received from Harvard in 2007.

We also announced two separate joint development agreements with IBM recently to accelerate the development of new materials and processes for next generation semiconductor production. In Coatings our goal is to grow our revenues from $2.1 billion in 2007 to $3 billion by 2010, with roughly half of it coming from acquisitions. For 2008 we expect the sales to be approximately $2.4 billion. Recent developments include completion of acquisition of FINNDISP polymer dispersions division of OY Forcit AB strengthening our position in rapidly developing economies particularly Russia and neighboring country and broadening our technology offerings primarily in high performance products for low temperature plants. This investment is expected to add $60 million to $75 million in annual sales.

Last week, we announced an acrylic acid joint venture with Tasnee Sahara Olefin Company in Saudi Arabia, securing a low cost, reliable supply of monomers for rapidly developing economies and balancing company's global monomers footprint.

In the niche businesses, our intend is to double the sales of these businesses to $1.7 billion by 2010. And organic growth is expected to contribute $0.5 billion of this growth. In this segment, the recent development include finalization of the exclusive agreement with Syngenta AG to develop and commercialize our Invinsa technology, a unique product for stress protection in field crop. And our provisional estimates are $500 million in revenues with commercialization expected in two years.

We also announced an alliance with Novasep to market and sell new technology for the purification of crude glycerol byproduct from biodiesel processing which furthers company's expansion into niche areas. We also received in the first quarter EPA approval to our Viance joint venture for EcoVance Preservative, the high performance non-metallic preservative with environmental benefits for use in wood protection.

In RDEs, our goal is to move our sales contribution from 21% of company sales in 2006 to 35% by 2010. In the first quarter of this year, we reached 25% RDE contribution and our plans call for this year in total that will contribute for the full year 28% of our revenues, an increase of 30% year-on-year. This reflects rapid organic growth complemented by targeted acquisitions. We are on target to achieve our goal of 35% of revenue and earnings comings from RDE.

Clearly, we are making rapid progress in driving this strategic evolution of Rohm and Haas. We are creating a company that will be more focused, more profitable, and faster growing and one which we expect to provide strong returns to shareholders.

Before I shift our discussion to the remainder of 2008, let me summarize our first quarter results. Our core businesses showed strong performance in the first quarter, with volume up 6%, sales up 12%, and pre-tax operating profit up 9%. This excludes only the Display Technologies business. Collectively our Electronics Technologies, Performance Materials and Salt businesses while representing the less than half of our sales generated more than 60% of our pre-tax operating earnings before corporate expenses. This more than offset the decline in earnings from our Specialty Materials Group which continues to face challenging market conditions in North America.

Let me now shift my comment to the outlook for 2008. A dynamic and challenging global environment and slowing global GDP growth has increased the uncertainty about the prospects for our sector this year. We continue to monitor the business environment taking the necessary prudent actions to deliver on 2008 commitments, while aggressively implementing our Vision 2010 strategy.

Despite this uncertain macroeconomic environment we expect to deliver solid sales growth and earnings improvements in 2008. For the full year 2008 we expect sales to exceed $10 billion representing an increase of approximately 15% over 2007. We expect this 15% increase to be made up of 4% demand growth, 4% coming from acquisitions already announced and put in place in 2007 and 2008, currency contributing 4%, and price increases in local currency 3%.

At the Business Group level, we expect Electronic Materials to grow sales by 31$ to 33%, with 12% to 14% growth from the core electronic technology business. At Specialty Materials we expect full year growth to be 13% to 15% in revenue and 12% to 14% before reflecting the acquisition of FINNDISP.

At Performance Materials we expect sales growth between 8% and 10% and for Salt between 4% and 6%. We anticipate overall company's gross profit margins to be somewhat above 27% of sales, with improving margins in the second half of the year, reflecting full impact of price increases, catching up with the raw material increases, and improved performance of the display units.

We expect selling administrative research expenses to be less than 15% of sales, compared to the 16% in 2007, reflecting both our strong sales growth as well as disciplined cost management. We anticipate that our full year tax rate will be similar to 2007, and that's between 25% and 26%. We expect earnings per share for 2008 to be in the range of $3.80 to $4, up between 11% and 17% from 2007 and very much in line with the trajectory anticipated in our 2010 Vision and our guidance at the beginning of this year.

While the second quarter of 2000 specifically, we expect to deliver sales in the $2.6 billion range, with earnings per share in the $0.87 to $0.92 range reflecting our expectations of continuation of softer economic environment in the U.S., moderating conditions in Western Europe, and continued strong growth in the RDEs.

We expect high cost to continue for raw materials, energy and freight, and we fully intend to recover through price increases and continued cost management discipline. As you can see in order to reach our expectations for full year, we are anticipating restructuring in earnings for the second half of 2008, and the key drivers for this include continuation of healthy demand growth, particularly in Electronic Materials and our Chemical businesses and RDEs, improved operational performance supported by cost controls as well as benefits of increased volume for our manufacturing network in the RDE.

Our expectation is that raw materials/selling price gap will be partially close in the second half versus the second half of 2007 were not enough to offset the gap created in the first half of this year. Corporate expenses will no longer be drag on earnings in the second half of this year, and we expect continuing benefits of weaker U.S. dollar.

Given the uncertain macro economic environment, clearly there is increased risk in the second half of this year versus prior outlook. We have made what we feel to be realistic assumptions, which are further detailed in our webcast slides. If these assumptions hold, we believe our sales and earnings guidance is achievable.

I should note that earnings per share outlook excludes any potential impact of further acquisitions or restructuring activities, and the gain on the sale of UP Chemicals.

Before we open the call to questions, let me mention the key takeaways from yesterday's announcement and our comments this morning. Company's core business, which include everything except Display Technologies are performing well, with 6% demand increase in the quarter and pre-tax earnings up 9%. Within the core, two key parts have different trends. Not surprisingly the Specialty Materials group is impacted by weak U.S. building construction market and rapidly increasing raw material, energy, and freight costs. Globally, however, the demand in this segment grew at 2% with pre-tax earnings down 12%.

For the remaining businesses that now represents 60% of company's earnings before corporate expenses, demand grew by 10% and pre-tax earnings increased a healthy 28%. We are investing in two growth platforms very aggressively; first, is the Display Technologies unit, where we expect to deliver $350 million in revenue this year, and that put together outstanding portfolio for advanced technologies with very strong agent presence.

From a pre-tax loss is $11 million in Q1, we expect to show improvement as the year progresses, and we are expecting this unit to add more than $500 million in revenue with very good margins by 2010.

Second one is Invinsa alliance with Syngenta, for which both partners have very high expectations. We expect commercial sales to begin in the next two years as a potential of 500 million in annual revenues with excellent margins. The Invinsa contribution is included as part of the core numbers I summarized a minute ago.

Corporate expenses at $100 million reflect increase in fixed cost to cover the financing of the ASR last year, while the EPS impact of the ASR has been accretive. We're also investing in building the pipelines for future growth opportunities. As Jacq pointed, out for the next three quarters we expect the corporate expenses to be in the $70 million to $80 million range excluding any restructuring charges.

And while we continue to hold our outlook for 2008 the macro economic environment remain very uncertain, and it is clearly an increased risk for the second half of this year. The largest risk we see is further increases in raw materials, energy, freight cost. Although we do not have all the answers, we believe that we have made realistic assumptions, which are detailed in our backup material and assuming these assumptions old we believe our sales and earnings outlook is very much achievable.

We appreciate your continued interest in Rohm and Haas Company. And let me now turn the call over to Andrew to open for question-and-answer session.

Andrew Sandifer - Director of Investor Relations

Thanks, Raj. Ed can you please open the line and explain the procedure for callers who would like to ask a question.

Question And Answer

Operator

Sure I'd be happy to do that. [Operator Instructions]. And our first question of the morning goes to Kevin McCarthy at Banc of America Securities.

Kevin McCarthy - Banc of America Securities

Raj, at the Investor Day in late November, I think with regard to the U.S. Paint and Coatings market, you were looking for the market to be down maybe 3% to 5%, but your company doing a little bit better then that volumetrically. Sitting here today what would your revised outlook be for that end use market fields?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Okay. Let me give me you the numbers for 2007 and 2008. I mean in 2007, we believe that market declined about 7%, 8% and we were down 2%. But 2008, we now believe the market would be down about 7% to 8% and in fact that was a number by which it declined in first quarter and we were down 4%, in the first quarter we expect the year to be down maybe 3%. So again in both years doing considerably better than the market decline, but the market decline is little bit steeper now than what we thought a month ago.

Kevin McCarthy - Banc of America Securities

Understood, thanks. A question for Jacq if I may with regard to the corporate expense line. If I back out the $12 million in restructuring charge that you had your asset impairment cost there. And then also back out the higher interest expense, it looks like your corporate expense was still up pretty significantly year-over-year and I was wondering if you could elaborate on why that might be the case?

Jacques M. Croisetière - Executive Vice President and Chief Financial Officer

Yeah, you are correct Kevin. If you exclude the two items that you mentioned that would be approximately $30 million. So there are still approximately $20 million of increase year-over-year, a portion of that comes from our initiative with M&E and understanding or acquisition will map into future that we have spent in the first quarter. That would be approximately one-third of the remaining 20. And the other pieces mainly deal with timing issue year-over-year whether its employee benefit or costs associated with environmental reserves.

Raj L. Gupta - Chairman, President and Chief Executive Officer

I think the important thing Kevin is what Jacq and I have said is going forward in the next few quarters, the number is going to be between 70 million and 80 million for the remaining three quarters.

Kevin McCarthy - Banc of America Securities

Okay, thank you very much.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Thanks.

Operator

And our next question will go to Don Carson at Merrill Lynch. Please go ahead.

Donald Carson - Merrill Lynch

Yes, thank you. Couple of questions on AgroFresh. Raj, how is the base business doing, what type of growth do you see in sort of your wholly-owned business for '08 versus '07? And with the recent agreement with Syngenta with them sharing equally in R&D cost, is there sort of some catch-up spending that they'll have to contribute on the R&D front which could increase the profits that you report on AgroFresh?

Raj L. Gupta - Chairman, President and Chief Executive Officer

I think the first one I can answer, the first quarter is big in Latin America and Southern part of the Continent Australia, New Zealand and South Africa and we have had phenomenally good quarter. I think it's almost up 30% here in terms of revenue, so it's the same territory, similar applications, but these geographies have very, very strong first quarter, better penetration than what we had expected in our plan.

I think in terms of... we already anticipated in our guidance for the year that we would have somewhat lower R&D expense as we share this with Syngenta. So I think... so that amount is in fact if anything that combines spending would be substantially more than what we had anticipated.

Donald Carson - Merrill Lynch

And any update on U.S. registration, I know you said that could potentially come in the second quarter?

Raj L. Gupta - Chairman, President and Chief Executive Officer

I don't know, Pierre you may have a better view, I mean we still believe we will have the... we will have the U.S. registration some time in this year.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Yes, we could have toward the end of the year but for sure, not early than 2009 with your expectation.

Donald Carson - Merrill Lynch

Okay. And just final question for Jacq on Salt, clearly it was a great Salt quarter, sold out conditions in much of the Great Lakes in Eastern Canada. Does that set you up for a very strong fourth quarter in terms of replenishment, presumably end user your inventories are lower than normal in your key markets?

Jacques M. Croisetière - Executive Vice President and Chief Financial Officer

Yeah, Kevin you are right. The inventory are at one of the lowest point in the history of the business. So we're looking forward for a great year from a manufacturing standpoint and repositioning our self Don. Most probably in your mind, and I will answer a question that everybody most probably has on their mind is what are the option for Salt, and as we said in the previous call, we are not at this point considering any of the strategic option that we have discussed in the summer of 2007 for Salt for the same reason that we had discussed before, the financial market are not favorable to this right now. The business is also doing very well, so we are still on hold as far as considering the outcome for Salt.

Donald Carson - Merrill Lynch

Thank you.

Operator

And we'll go next to Bob Koort at Goldman Sachs.

Robert Koort - Goldman Sachs

Thanks very much. Good morning.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Good morning.

Robert Koort - Goldman Sachs

Raj you... first of all thanks for the slides, I think this is a real good presentation, makes it much easier for us to follow the trends.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Thank you.

Robert Koort - Goldman Sachs

I guess I am a bit concerned by the trends you listed on slide 17 where it appears almost everything is getting worse than you thought, but you stuck to your guidance. And so I'm wondering what's getting better than you thought that can offset it? And then secondly, can you talk a little bit about what you're expecting on pricing as you go through the year? And then one more if I could Raj and then I'll be quite. The last part of that slide 17 talked about accelerating your and expanding your contingency plans in terms of a weak demand environment, maybe speak a little bit more about that?

Raj L. Gupta - Chairman, President and Chief Executive Officer

I think let me see if I repeat the question, one is the traction in pricing, our response to what we can see there probably a secular reduction in demand in North America, and then also even with weakening marketing, market conditions that we are holding our guidance, so what's changing? I would say a number of things, first the positioning of our technology in electronics where even in a reduced demand environment for wafer start, our positioning at 300 millimeter and lower that line width is we'll still expect to see very robust growth. I believe that if I'm right the expectations is that the under 300... over 300 millimeter would be almost increase of 14%. While the overall market may only grow 4 to 6.

So I think part of its positioning of our portfolio and even when overall production ramps down, we are better positioned. And I think in terms of paints and coatings, really the two drivers there is a rapid growth and penetration outside U.S. and Western Europe and these are double-digit growth rates. And the second one is even in a consolidating environment, we are showing better comparisons relative to the market decline.

But and anything... certainly exchange rate is helping us, but as Jacq pointed out a good part of benefit of exchange rate is really lost in terms of dollar pricing of these commodities. Also, I think... and finally I would say is a cost reduction short-term action that we are taking without compromising our investment in delivering on Vision 2010.

And the final thing I would say, in pricing, we have... starting with the third... fourth quarter of last year, we are always behind the 8-ball here. We saw steep increases in raw materials and energy starting in October 1st, we took actions in the fourth quarter last year to catch up by end of the year, in first quarter of this year we saw another dramatic increases in the raw materials which we believe we will catch up by end of this... some of it in this quarter, but we are still going to be in a whole. And then if there are further increases I would say we will push through the price increases, but we'll... if it's on a trend of ever increasing curve we will always be about a quarter behind. And I think... but we are extremely vigilant about the situation in terms of pricing and balancing the volume.

The final thing I would say in terms of North American cost structure where clearly us along with many of our peers have seen market's shrinking demand, reducing while the cost continue to rise. And I think at our Investor Day, last year, we said, we are going to take a very hard look at our U.S. supply chain, infrastructure and support cost, income and really implement a plan that will really reposition this business for a significant expansion in our margins, but that will not effect 2008. Hope I covered all your points.

Robert Koort - Goldman Sachs

Yes. Thanks very much.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Thank you.

Operator

And, we'll go next to David Begleiter at Deutsche Bank.

David Begleiter - Deutsche Bank

Thank you, good morning. Raj, if Salt had met your initial expectations, would you've lowered your '08 guidance?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Say that again, if Salt had met our --

David Begleiter - Deutsche Bank

Initial '08 expectations before the severe winter weather?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Well, I think, I'll give you a very high level answer. The first quarter of this year, Salt probably was $0.03 to $0.04 above what the normal season, about $0.06, $0.07 above. While on the other hand we also by divestiture of the UP Chem we lost about $0.04 to $0.05 of earnings. The net-net, if you take the UP Chem divestiture in the first quarter and reduction of an equity in affiliates, and the first quarter boost from Salt, in our net-net is couple of cents and in the fourth quarter we are assuming that it will be a normal fourth quarter for Salt.

David Begleiter - Deutsche Bank

Very helpful, and on electronics, when will Display Technologies turn profitable?

Raj L. Gupta - Chairman, President and Chief Executive Officer

I would may be have Pierre comment on it, but I think our expectation is by the end of this year it will get to a breakeven situation. Is that a fair of run rate basis?

Pierre R. Brondeau - Executive Vice President, Business Group Executive

That's correct Raj, I think from the point where we are today, we will see improvement every quarter to reach a breakeven point by the fourth quarter of this year.

David Begleiter - Deutsche Bank

And Pierre just on the CMP pad any pressure from Cabot Micro offering on the pad side?

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Yes, certainly we are seeing Cabot more and more active with their pad technology, so they do have currency offering which seems to be of interest to some of our customers. So they are more present in the market.

David Begleiter - Deutsche Bank

And how about your qualifications on your CMP copper slur side?

Pierre R. Brondeau - Executive Vice President, Business Group Executive

It's going very well actually. It's been one of the field where we have been growing very fast. If you look today to summarize between 90 nanometers, 65 nanometers, and 45 nanometers, we are at 22 wins. So from a growth rate standpoint, this market is growing fast. We believe we are around today 17% market share in this field with sales for slurry which are in the... around the $150 million, so progressing very well in line with our expectations.

David Begleiter - Deutsche Bank

Thank you very much.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Thanks.

Operator

Our next question goes to Mike Sison at KeyBanc.

Michael Sison - KeyBanc

Good morning guys.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Good morning.

Jacques M. Croisetière - Executive Vice President and Chief Financial Officer

Good morning.

Michael Sison - KeyBanc

In terms of the gap being... closing the gap as you are pushing it out a little bit, is it more let's say forecast of raw materials or it was... is it just higher or is the pricing more difficult to get in this environment?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Let me have Jacq answer this question because I think it's a very question for us to say, are we tracking increases or are the increases running ahead of ourselves?

Jacques M. Croisetière - Executive Vice President and Chief Financial Officer

Right, so we had a lot going on in the fourth quarter in implementing price increase to offset the October raw material run up. We did that pretty successfully, but in the first quarter we saw another increase in raw material that we have not closed this gap yet and price increases are going on right now. And this gap is rather substantial, we said that at the end of Q4 we had a gap of approximately $15 million. We close that gap, but a similar one was created in Q1 of approximately $50 million. So as Raj said, we're lagging by about one quarter and we do intend to close that gap. In our planning we assume that this gap will be closed in Q3 of 2008.

Michael Sison - KeyBanc

Okay and in terms of --

Jacques M. Croisetière - Executive Vice President and Chief Financial Officer

By that gap I mean not the cumulative gap at least to have a year-over-year mutual impact in Q3.

Michael Sison - KeyBanc

Okay, I got you. Then the assumption for raw materials, just to pick one like propylene for instance, I guess you'd expect that to sequentially continue to move up in the third and the fourth versus the second?

Jacques M. Croisetière - Executive Vice President and Chief Financial Officer

Actually no. Our assumption at this point assumes that we would be around $0.61 for the whole year, the second quarter being the highest of the next three quarters.

Michael Sison - KeyBanc

Okay, then two quick ones, in terms of global paint demand, it sounds like... any comments there. Is that going to be slower just because the Elaster was there little bit more growth there. Then just curious on the wafer start, what were sort of the data points that you picked up that suggests you that is going to be weaker than you initially thought?

Raj L. Gupta - Chairman, President and Chief Executive Officer

I think let Pierre answer both those, the growth in the paint business outside U.S. as well as wafer starts.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Yeah, I think on the paint growth, as Raj I said before, we are expecting the market down to down in the 7% range this year, but we are still looking at significant growth in rapidly developing economies. Europe will be softening also in the flattish range year-on-year, but overall significant growth, double digit growth in rapidly developing economy. That should translates for us on a worldwide basis for Paint business in the mid single digit overall growth rate year-on-year, from a demand standpoint.

Michael Sison - KeyBanc

Okay.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Regarding the wafer situation, we believe the latest information coming from people who are serving this market and mostly garner [ph] was a lowering of the wafer start in the 4% to 6% range, that's the latest number of calibrations which took place looking at the remaining three quarters.

Michael Sison - KeyBanc

Okay and last one, real quick one. In terms of profitability in paints and coatings margin, I think it's holding up pretty well concerning the environment, but in terms of getting back to that high-teen 17%, 18% is it all just recovering volumes in the U.S. and I guess closing the gap in terms of raw materials?

Raj L. Gupta - Chairman, President and Chief Executive Officer

I think it's going to be those two, but also third one is substantial take down of the cost in the U.S.

Michael Sison - KeyBanc

Okay, so you need to further cost reductions or something of that nature in that business.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Fixed cost reduction, yes.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

I would add Raj in the U.S. and to some extent in Europe too where the markets are not growing. So the Western world as much as we are expanding in rapidly developing economy, in addition to what you said which need to take place lowering our cost base significantly in North America and to some extent in Europe it is critical.

Raj L. Gupta - Chairman, President and Chief Executive Officer

And our goal is that to take business globally, it has to get back to 2007 kind of margins in the next couple of years.

Michael Sison - KeyBanc

Right, thank you.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Thanks.

Operator

We go next to P.J. Juvekar at Citi.

Prashant Juvekar - Citigroup

Yes, hi good morning.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Good morning.

Prashant Juvekar - Citigroup

You know Salt had nice results and it's a very steady business. Would you keep Salt until you get through this housing troubles or are you actively shopping it

Raj L. Gupta - Chairman, President and Chief Executive Officer

Jacq you cover this... go ahead.

Jacques M. Croisetière - Executive Vice President and Chief Financial Officer

You are right P.J. I mean Salt is a strong solid business. We always said that Salt was not strategic because it's not aligning with our Vision 2010 with Electronic Materials and our ambition in the Paint business. Nevertheless, we are not going to reach a decision on Salt under the current financial market conditions and their current macro economic condition in the U.S. Salt is very much recession through the business has improved significantly... substantially over the last two years. We are still ought to believe that once this condition improved by 2010 most probably Salt would not be in our portfolio of business and we will have made acquisition that will be very much aligned with our Vision 2010 ambition. So for now as we are seeing the course with Salt the business is doing well and as the market... financial market conditions improve and economic condition in the U.S. improve, then we will revert back the decision.

Prashant Juvekar - Citigroup

Okay that's clear. And second question for Raj. Raj you mentioned about increased risk in second half of the year, and then I look at your slide number 19 where you give guidance on earnings, first quarter earnings EPS growth was 6%, second quarter you're expecting close to 15% if I look at the midpoint.

Jacques M. Croisetière - Executive Vice President and Chief Financial Officer

Right.

Prashant Juvekar - Citigroup

Second half is 17.5%, then just looking at that, it just goes, the earnings growth is accelerating while you're seeing increased risk in second half?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Let's, maybe put this in perspective, basically if you look at the first half, we will deliver about $1.80, and in the second half, you really have the range which is between $2.20 to $2 and $2.20, so that's when I said that going from about $0.90 quarter, we are talking about, $1.10 a quarter. And what are the drivers there?

Clearly, we talked about corporate expense will go down, our display units will have lower loss, we are going to close the pricing gap. So effectively when I say higher risk in terms of the numbers, so internal drivers are very secure. I mean, those things we know will drive the earnings improvement, first half to second half. So outside of that, there are really two other elements, one clearly is, if the demand is weaker than what we have now projecting and we are not very bullish on demand but if it's weaker. And I think that probability of that is probably lower now, I think we have calibrated that.

I think the biggest risk for the second half is, if the raw material energy cost continues to escalate, we will always be behind by a quarter, I think. And that's what I meant that we have a higher risk is related to things we cannot predict. But... so... and because we might still be lagging, that's the risk, rest of it I think we have a pretty good handle on.

Prashant Juvekar - Citigroup

Okay. And then just one last quick question on this Tasnee joint venture. What kind of advantage do you expect in propylene from that joint venture? Thank you.

Raj L. Gupta - Chairman, President and Chief Executive Officer

It would be significant. I think we believe that this joint venture when its operational in 2011 will give us significant cost advantage relative to exporting from Houston or Europe or even buying locally in the merchant market.

Prashant Juvekar - Citigroup

Thank you.

Operator

And we will go next to Jeff Zekauskas at J.P. Morgan.

Unidentified Analyst

Yes, good morning. This is Silka Koopf [ph], how are you?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Hi, how are you?

Unidentified Analyst

And couple of thank you. I have a couple of questions, in terms of the cumulative on raw material gap, it still runs at around $100 million? It is my recollection, is that it was what about a $100 million at year end 2007...

Jacques M. Croisetière - Executive Vice President and Chief Financial Officer

Yes, everything depends on starting point but if you were only to consider the last quarter of 2007 and the first quarter of 2008, it would be $100 million.

Unidentified Analyst

However if I would consider the full year of '07 and the first quarter of '08?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Yeah, I think the number we gave was that this year we expect $200 million increase, now we are expecting $300 million.

Jacques M. Croisetière - Executive Vice President and Chief Financial Officer

Correct.

Unidentified Analyst

Okay. That makes it clear. And the second question is can you reconcile that the demand for 11% in primary material versus the 1% growth in paint and coatings and the 2% demand decline, packaging and building?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Yeah, I think the primary material due to the third party sales of monomers and polyacrylic acid, our market share is relatively modest. And we have really signed number of longer term contracts to position ourselves for the growth that we are seeing. So I think that's really helping us in terms of boosting the growth rate of the third party sales of monomers and polyacrylic acid, its not the market growth.

Unidentified Analyst

Okay and lastly I also have a question on the display business. First of all will the... Gracel acquisition be accretive in '08 or dilutive or neutral?

Raj L. Gupta - Chairman, President and Chief Executive Officer

The Gracel acquisition would be mildly diluted.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Yes slightly dilutive in 2008.

Unidentified Analyst

Okay in 2008 and the... I believe the original guidance you gave for display business was loss of $5 million to $50 million after tax and on a pre-tax basis for this year, does it translate to something like I don't know $10 million for the year or already at $11 million I don't think that will be something twice that?

Raj L. Gupta - Chairman, President and Chief Executive Officer

No, I think we said basically $10 million to $20 million pre-tax in the previous guidance and now we have based fully a number between --

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Right now for these.

Raj L. Gupta - Chairman, President and Chief Executive Officer

25 to 30.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

25 million to $30 million negative earnings for the year including Gracel in the numbers.

Unidentified Analyst

Okay, that's very helpful. Thanks very much.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Thank you.

Operator

I will go next to Sergey Vasnetsov at Lehman Brothers. Please go ahead.

Sergey Vasnetsov - Lehman Brothers

Good morning.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Good morning, Sergey.

Sergey Vasnetsov - Lehman Brothers

Raj despite all the issues with raw materials separate your cash flow generation remains very, very robust so by my estimates your free cash flow which is completely optional after dividends etcetera that would be about $400 million, and you were talking about some deploying this money this year more towards M&E in the core [ph] and electronics etcetera. What's your current outlook for the M&E environment, let's say for the remainder of '08 and if those targets whatever reason become not available to you. What's your plan B for the discretion cash is going to stay in the balance sheet, will be deployed to debt reduction or share buyback?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Well let me answer this, first of all you have seen a series of announcements from our start going back to the summer of last year, and including the recent rate. So I would say what we have done was the work that was done in the last 12 to 18 months. So we have pretty much, I would say 90% done with what was in the pipeline. And as Jacq said right now we are very much focused on building a very strong pipeline in those three areas in terms of investment.

So we are going to be still remain very selective and in terms of where we want to spend money is in those three areas. And I think it would be balanced use between increased CapEx which you've seen is going to be $525 million. We'll continue our dividend increase pattern, and we will keep it on the balance sheet. At the end of the day $300 million to $500 million of additional tax is generated which we expect it will be will stay on the balance sheet. We will only use it when we are ready. But our pipeline right now in terms of doing any significant transaction in 2008 is a low probability.

Sergey Vasnetsov - Lehman Brothers

Okay, got it. And so on the acrylic acid inhibit [ph] CEO signing the deal in Saudi Arabia and what does leave your previous MoU plans in India?

Raj L. Gupta - Chairman, President and Chief Executive Officer

I would say Pierre you may want to answer this. I think it's not an either or situation as we look at our needs going in to the middle of next decade. There is still opportunities for us to take some strategic positions in more than one place other than Saudi Arabia. Is that fair?

Pierre R. Brondeau - Executive Vice President, Business Group Executive

That's correct. If you look at the supply demand balance and how fast we are growing in Asia and rapidly developing economies we do have room for sourcing from Saudi Arabia, but also from other part of Asia and certainly India and we are assuming discussion with our partner in India.

Raj L. Gupta - Chairman, President and Chief Executive Officer

I think, important thing here Sergey, is that we are not going to be building a wholly owned plan with a 100s or millions of dollars of investment. Our goal here is to really use our technology, our experience and our captive demand to selectively partner with folks who we make a good partner with and get the economic and reliability of supply that we need.

Sergey Vasnetsov - Lehman Brothers

Thanks Raj. Thank you.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Thanks.

Operator

And we will go next to Steve Schwartz at First Analysis. Please go ahead.

Steve Schwartz - First Analysis

Good morning, gentlemen.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Good morning.

Jacques M. Croisetière - Executive Vice President and Chief Financial Officer

Good morning.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Good morning.

Steve Schwartz - First Analysis

Have you been able to... if you could disaggregate the RDE growth out and what would happen to your gross margins if that RDE growth was not there?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Okay. Here I think the world has changed a lot in last few years. First of all, the margins in RDE are expanding from where they were few years ago, and electronics business is a substantial part of RDEs where the margins are excellent. The second thing is which we have touched on number of times, the margins in the Chemical business in U.S. particularly given the exposure to housing and the rising cost and fixed cost the margins have shrunk. That's where the biggest margin erosion has taken place. So if you look at globally today, on a going forward basis to margins in the Chemical business are very comparable around the world.

Steve Schwartz - First Analysis

Okay.

Raj L. Gupta - Chairman, President and Chief Executive Officer

And then that's in '08, a good thing that going forward there is not going to be a dilution in margin in the Chemical business because of rapid growth in these markets.

Steve Schwartz - First Analysis

Okay. So then when we look at your consolidated gross margin year-over-year here in the first quarter, we can be pretty certain that most of that is exclusively raw materials?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Yes, I think you would see two or three things... excludes the one is clearly as you pass through raw materials your margin erodes that's clearly one. The second one is one-off items as you've seen like Display units which is going through a it's a lower margin business. But the third one is very important and I think that's the one to keep in mind is as Electronics overall becomes the larger percentage of the total and the Performance Material businesses. These businesses have higher margin than the core acrylic chain business. But you will still see evolution of our gross margins moving, edging up from the current levels which I hope is the low point in terms of our gross margins.

Steve Schwartz - First Analysis

Okay, and then with all of the changes in the Electronic Materials platform do you think that business is still going to follow the same patterns quarter-to-quarter from an EBITDA margin basis. So it... it looks like historically your margins have been better in the second quarter. I'm wondering if those kind of patterns still exists or are they gone?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Pierre you will take this on I think because this quarter the margins has been confused by obviously Display units in total but also in terms of couple of one-off issues in the Electronic Technologies.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Yeah, fundamentally we have no reason to think that the previous pattern will change whether it's the quarter-on-quarter growth sequentially or near. So these should be still the same as we've experienced in the past. So we should see margin expansion and we should see some quarters stronger than others because the seasonal business. This quarter I have to say that the growth or the profitability of the business has not been as strong as expected.

In the past we used to have much stronger profit than top-line well this time it was more in the same range and we had a couple of issues, first of all remember that we are ramping up a major site in Taiwan for CMP part and that is coming with of course, any new plans to ramp up. And also our slurry business has been growing extremely fast and we did have some delivery issues having to air freights significant quantity of products across the world to respond to our customer need. So those two issues which will be with us for a big part of this year and maybe lowering the growth of our earnings from the Electronics Materials business.

Steve Schwartz - First Analysis

Okay, and then, just one last one, the third party sales and Primary Materials, that was an outstanding number. Are you actually taking market share there or is that just simply growth in RDEs?

Pierre R. Brondeau - Executive Vice President, Business Group Executive

No, it's mostly market share gain. As Raj said before, it's a business growth, we do have a... actually a low market share. So we are capable of making moves which are significant for us, do not repeat a major change in share on the overall market but significant growth for us.

Raj L. Gupta - Chairman, President and Chief Executive Officer

And this kind of business comes in chunks. So you will find a multi year 10,010 [ph] contract and they come in it doesn't mean the market is growing or anything, or we can expect this to go on year-after-year. But I think in step changes you will see from time-to-time as we sign these contracts they have significant increase in the volume.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

And we are being very attentive with the slowdown in the markets in North America to be capable of use our capacities and keep our plants well loaded so.

Steve Schwartz - First Analysis

Okay, so there were some... then perhaps for lack of a better term maybe but some channel loading with new customers and so forth behind that 21%?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Not channel loading in a sense of inventory channels but basically acquiring new customers and also some new applications that are emerging with the oil recovery and metal recovery and all those things. Some of the things... what's happening with the high commodity prices, some newer uses for dispersants polyacrylic acids that are emerging as well.

Steve Schwartz - First Analysis

Okay, great. Thank you.

Operator

And our next question goes to Dmitry Silversteyn at Longbow Research.

Dmitry Silversteyn - Longbow Research

Good morning gentlemen. A lot of my questions have already been answered. But I just wanted to clarify something. When you talked about raw material delta, combing raw material energy and transportation, you mentioned number of 300 million at the top of the call Raj, that an annual delta or was that a quarterly delta?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Annual full year '08 as we stand here... we sit here today versus '07.

Dmitry Silversteyn - Longbow Research

Okay.

Raj L. Gupta - Chairman, President and Chief Executive Officer

Yeah, that's cost increase '08 to '07.

Dmitry Silversteyn - Longbow Research

I got you. So that's a annualized full year number?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Right, correct [ph].

Dmitry Silversteyn - Longbow Research

Talking about raw material costs and specifically and probably you mentioned that you expect the second quarter to kind a see a peak in propylene pricing which is seasonally would make sense. As you get into the backend of the year, do you just expect seasonal declines in propylene costs or do you actually expect that the new capacity that everybody has been talking about to start having some impact in the market?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Well there are three things which will affect it. Obviously, one is the oil price, there it is, second thing is how many units, what happens with the hurricane season and the demand/supply and outages of equipment. And I would say third one is what happens to the polypropylene market. Basically they are three independent drivers, and they all come together in terms of the pricing of the polypropylene itself.

Dmitry Silversteyn - Longbow Research

Okay, what will happen to the price of monomers and to the margins in your upstream or downstream businesses would probably start heading down. We really haven't seen a consistent seasonal decline and probably pricing in the last two or three years because of hurricanes or some other issues?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Right.

Dmitry Silversteyn - Longbow Research

But what your expectations as polypropylene prices start coming down that's going to happen to margins in monomers and the specialty group of raw?

Raj L. Gupta - Chairman, President and Chief Executive Officer

I think directionally they will go up, we have not frankly priced our downstream businesses to reflect the current prices of polypropylene. As we know, we still have a gap. So clearly when they stabilize they start to come down, we should see some expansion typically that's what used to happen. But we have been in this period where they have just been spiking.

Dmitry Silversteyn - Longbow Research

All right.

Raj L. Gupta - Chairman, President and Chief Executive Officer

And by the way polypropylene is only one of the major raw materials we buy almost 3.5 billion times of petrochemical raw materials and polypropylene is one-third of that, and other raw material I have seen similarly spike as is natural gas. So I think this is a combination of not just one material that's driving it. It's across the board as well as natural gas.

Dmitry Silversteyn - Longbow Research

All right, okay. That's fair, and then a final question. Getting back to the Display Technologies business... the greater than expected losses this quarter and the expected recovery and profitability can you give us a little bit more idea of what kind of what's driving that besides the business getting more volume and therefore better absorption, is there anything else or is that pretty much yes.

Raj L. Gupta - Chairman, President and Chief Executive Officer

No, no I think it's more than that. Pierre you may want to stretch on that.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

There are few things first of all as you know we are growing our Kodak product lines, the problem is the more we are growing the more difficult it is from a financial performance end point because we are still shipping from old plants, we have yield on that... manufacturing yield. So critical to improving the financial performance is to improve first of all the yield we do have for the film [ph] manufacturing of Kodak product line. Move some of those products into the SKC plant and start of the new plants maybe end of '08 or early '09. We also are moving the product line to a higher tech product line than we have today. So all of these are helping, in terms of improving the financial performance of the Display business.

Raj L. Gupta - Chairman, President and Chief Executive Officer

The volume is very strong for that...

Pierre R. Brondeau - Executive Vice President, Business Group Executive

The volume is very strong I mean if any thing its being stronger than what we were expected of or maybe as I may say stronger than we would have liked because it's a bit early development process. So yield and manufacturing locations is very critical to us at this stage.

Dmitry Silversteyn - Longbow Research

Okay. So as you have moved the production out of the power plant into the SKC facility and then your own plant you said you are going to start off at the end of 2008 early 2009. We should see margins that business improving. Is it... do you have any idea how high they can get in and what's any guess to kind of a divisional margin level or is it going to be an inherently a lower margin business?

Pierre R. Brondeau - Executive Vice President, Business Group Executive

No, it's going to be lower than the 45% margin we have for Electronics Materials is going to be more a business which will be in the 30% range to 30% plus range but with lower below the line cost.

Dmitry Silversteyn - Longbow Research

Got you.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Overall as we said by 2010 we do expect the business and the earnings before tax or after tax levels should be on par with the rest of the Electronics Materials but with a different mix.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Okay, I understand. Thank you, Pierre.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Thank you.

Raj L. Gupta - Chairman, President and Chief Executive Officer

And I think we have time for one last quick question, Ed.

Operator

Very good, thank you. That question will go to Frank Mitsch at BB&T Capital Markets. Please go ahead.

Frank Mitsch - BB&T Capital Markets

Good afternoon, gentlemen. I was almost afraid I wasn't going to get the chance to ask, you folks were down here in Philadelphia. You have any thoughts on whether Hilary or Barack are going to win this Pennsylvania primary today?

Raj L. Gupta - Chairman, President and Chief Executive Officer

Your guess is as good as ours.

Frank Mitsch - BB&T Capital Markets

I doubt that how I... I've got the New Jersey market down pat but Pennsylvania is foreign to me. Raj you talked about higher capital spending this year as something around $525 million which is meaningfully up from where its been the last couple of years and if I recall the last couple of years, actually had higher spending on your European headquarters. So it does look like your growth spending is really going to kick up here. Can you talk about some specific projects where that's going to and what might be the on-screen dates that we should look for here?

Raj L. Gupta - Chairman, President and Chief Executive Officer

I think you have got on to something that's extremely important and very exciting. First of all when we were spending $350 million a year almost 75%, 80% of that was going to maintenance capital, infrastructure building ERP European headquarters, research labs.

If you look at this $525 million expenditure more than 50% is going towards growth projects in a very good discipline in terms of return on investments. So I think this is really going to be very productive investment in terms of generating growth. And good part of it is going towards rapidly developing economies, it's going in Electronics, it's going where we really need to invest in terms of growth.

And that's why you are seeing this 25%, 30% growth in revenue in the Chemical business and 30% plus growth in Electronics business in these territories. So there is a whole series of plants and expansions that have been either completed or underway. And its broad based and I would say bulk of its outside the United States, and Western Europe.

Frank Mitsch - BB&T Capital Markets

In terms of the growth prospects...

Pierre R. Brondeau - Executive Vice President, Business Group Executive

Just a quick example, I mean we have an emerging 193 stepper just that this year is above $60 million.

Frank Mitsch - BB&T Capital Markets

And, and when would you expect to see the fruits of these labors?

Pierre R. Brondeau - Executive Vice President, Business Group Executive

All right, I think you will start seeing the EPS accretion next year, we launched this new approach to capital spending, mid 2007, we have the granularity in our planning process that is pretty clear. So I would... as we step the spending somewhat in 2007 and more in 2008, we should definitely see the impact in 2009.

Raj L. Gupta - Chairman, President and Chief Executive Officer

I mean just to give you an example, the first quarter, 6% demand growth, full year 4% or better this year, and if I look at all the report that had come out from the peer groups in just last day or two days, you will see these numbers are much stronger than most companies. And that is starting to payoff for what has been invested over the last few years, and we expect this to be ramping up. And that was one of the key messages from our investor presentation in 2010 Vision is to ramp up our organic growth from 5% to 7% compared to historical rate of 2% to 3%.

Frank Mitsch - BB&T Capital Markets

Okay great, and lastly, we've been hearing, here's a Coatings Technology question, we're hearing that, perhaps acid yields due to a cost advantage or gaining some ground at the expense of acrylics are you seeing that, any of that play out in the Coatings arena?

Pierre R. Brondeau - Executive Vice President, Business Group Executive

No, we still believe from the market standpoint, acrylic is overall, all acrylic is overall gaining market share. I think there is some pricing advantage for bioacrylic or BAEs to-date. But those products still remain within a given segment because of their performance. So there is no fundamental change in the way that differ segments are growing in this market.

Frank Mitsch - BB&T Capital Markets

All right, perfect, thanks Pierre. Thank you.

Pierre R. Brondeau - Executive Vice President, Business Group Executive

All right.

Operator

And with that I was asking Andrew if I like to turn it back to for closing comments.

Andrew Sandifer - Director of Investor Relations

Great, with that we will wrap up. Thank you everyone for investing the time for this slightly longer call today. And thank you for your continued interest in Rohm and Haas. Good bye here from here in Philadelphia.

Operator

Thank you. That does conclude the call. We would appreciate your participation. At this time you may disconnect. Thank you.

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Source: Rohm & Haas Co. Q1 2008 Earnings Call Transcript

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