Rohm & Haas Co. Q2 2008 Earnings Call Transcript

Jul.25.08 | About: Rohm & (ROH)

Rohm and Haas Company (ROH) Q2 FY08 Earnings Call July 24, 2008 11:00 AM ET

Executives

Andrew Sandifer - Director of IR

Raj Gupta - Chairman and CEO

Jacques Croisetiere - EVP, CFO and Chief Strategy Officer

Pierre Brondeau - President and COO

Analysts

John McNulty - Credit Suisse

Robert Koort - Goldman Sachs

Don Carson - Merrill Lynch

P.J. Juvekar - Citi

Dmitry Silversteyn - Longbow Research

Good day everyone, and welcome to today's Rohm and Haas Company second quarter 2008 earnings release conference call. Today's wall is being recorded.

I'd now like to turn the call over to Mr. Andrew Sandifer, Director of Investor Relations. Please go ahead, sir.

Andrew Sandifer - Director of Investor Relations

Good morning. This is Andrew Sandifer, Director of Investor Relations for Rohm and Haas. I would like to welcome you to our second quarter 2008 conference call. With me today here in Philadelphia, Raj Gupta, Chairman and Chief Executive Officer; Jacques Croisetiere, Executive Vice President, Chief Financial Officer and Chief Strategy Officer; and Pierre Brondeau, President and Chief Operating Officer.

We'll begin the teleconference momentarily. As is our normal practice after our prepared remarks we will open the call to your questions.

As you know on July 10, 2008, Rohm and Haas announced it had reached a definitive agreement with the Dow Chemical Company under which Dow will acquire all outstanding shares of Rohm and Haas common stock for $78 per share in cash. In light of this announcement we are discontinuing our practice of providing earnings guidance effective immediately. And we will not address any questions related to the proposed Dow transaction during today's teleconference.

The Company will be filing its proxy statement in the next several weeks and that document will contain considerable detail about the proposed transaction. For those of you who log onto the web cast at www.rohmhaas.com the slides you will find under supporting materials have been provided as backgrounds and will complement our remarks today.

Finally, before we begin let me remind you that some of what you hear today could constitute forward-looking statements subject to certain risks and uncertainties. Additional information is available on Rohm and Haas' 10-K filing with the Securities and Exchange Commission filed on February 21, 2008, and as updated in the 8-K filing on June 6, 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 Gupta - Chairman and Chief Executive Officer

Thank you, Andrew. Good morning and thank you all for joining us today. Before we discuss the second quarter results I would like to acknowledge the announcement earlier this month of our plans to merge with DOW Chemical Company. The combination of these two highly complementary, high quality and respected chemical industry leader will create the world's foremost specialty materials and chemical company.

The combined company will offer customers innovative and differentiated solutions in what has become a technologically demanding and increasingly competitive global marketplace for specialty chemicals and advanced materials. I am as proud of this 100 year old Company today as I've ever been and I strongly believe that by becoming part of Dow we will secure a brighter future and greater growth prospects for our customers and for employees while providing attractive return to our shareholders.

Key points in the quarter include good performance in the face of rising costs and deteriorating U.S. building construction markets, outstanding organic growth particularly in electronic technologies segment and in the chemical businesses in rapidly developing economies. Strong adjusted earnings growth in electrics technology, performance material and salt.

Solid progress on the implementation of our Vision 2010 strategy including the June announcement of a set of actions to realign our manufacturing footprint and support services to contribute to our growth objectives and address the changing needs of our customers by lowering cost reserve. Strong traction and pricing with pricing for the total Company up roughly $95 million in the quarter, however, given the ongoing increases in cost a significant gap remains.

Now turning to the highlights from our second quarter, sales of $2.567 billion were up 17% from prior year including 7% real growth from the combination of demand, 4% and acquisitions 3%, the remainder was contributed by 6% currency and 4% pricing. In electronic materials 34% increase in sales including display technologies and 16% for the core electronic technologies businesses.

In chemicals which includes both specialty materials and performance materials 14% increase in sales, strong growth outside North America, particularly in rapidly developing economies. Salt reported 7% increase in sales, strong pricing management, improved mix, increased demand for consumer and industrial salt products. Strong adjusted per share earnings from continuing operations of $0.82 up 8% versus last year

I should note that this number excludes restructuring costs, asset impairment and the impact of divestiture of UP Chemical Company. Excellent pretax adjusted earnings in electronic technologies, up 11%, performance materials 36%, and salt of $2 million, or 50% which is a seasonally weak quarter for salt.

Continued deterioration in the U.S. building construction market, rising raw materials, energy and freight costs and moderating conditions in Western Europe negatively impacted earnings for specialty materials. The quarter also benefited from favorable currency, a lower underlying tax rate which added $0.05 to the quarter and lower share count that added $0.04.

Some other business highlights. Electronic materials had strong organic growth and excellent margins from our core electronic technologies franchise due to the 13th consecutive quarter of year on year sales growth for this business segment. Sales of $76 million for the Display Technologies in the quarter with an expected run rate of $350 million in 2008. Adjusted operating losses were down sequentially to $6 million in the quarter versus 11 in Q1, very much in line with our expectations for improvement as the year progresses.

In specialty materials, Paint and Coating segment. Ongoing strong demand growth in RDEs and progress with pricing actions offset moderating conditions in Western Europe and a 12% drop in the volume in the U.S. Packaging building segments week U.S. B&C markets remained a challenge for this business but we are moving quickly to recover rising costs through price increases. Primary materials showed strong third party sales growth of 35% while the captive demand declined 6%. Performance materials had excellent demand growth for process chemicals and biocides outside North America as well as in AgroFresh. We received initial EPA approval in the U.S. for the Invinsa technology.

RDEs we made excellent progress in increasing sales as a result of our continued investment in facilities in human capital. Overall rapidly developing economy sales were up an impressive 42% for the quarter representing 28% of total company sales compared to 23% a year ago. RDE chemicals sales were up 34%. The business environment clearly remains challenging and the deterioration in the U.S. B&C market is continuing and the B&C market in Europe is slowing down. Despite these seasonal challenges our balanced portfolio and geographic diversification particularly spent in the rapidly developing economies has clearly helped us deliver sales and earnings per share growth for the Company.

We experienced dramatic, unprecedented and unrelenting increases in raw materials, energy and freight costs, representing nearly $135 million for the quarter and when annualized will represent nearly $700 million. As I mentioned we made good progress with price increases to offset these costs with pricing up roughly $95 million in the quarter. Again our pricing did not recover the significant increases in costs of raw materials, energy and freight.

As I touched upon earlier we announced a realignment of our manufacturing footprint and support services which primarily includes 30% reduction in total capacity in the Company's Emulsion network in North America, significant reduction in overhead expenses for the specialty materials group in mature markets, adjustment of Company's infrastructure for Electronic Materials Group to adjust for the shift of business to Asia and a number of initiatives in other businesses and regions.

The restructuring charge of $0.30 per share is included in the quarter's results and we expect to deliver pretax savings of approximately $110 million in 2010 with slightly less than half of the benefits realized in 2009. Pay back period from these actions will be less than two years. Let me now turn it over to Jacques, and I will come back to comment on Vision 2010 progress and macroeconomic conditions for the remainder of 2008 before we open the call to your questions.

Jacques?

Jacques Croisetiere - Executive Vice President, Chief Financial Officer and Chief Strategy Officer

Thank you, Raj. Before I begin let me remind you that our segment results are recorded on a pretax basis. The practice we began last quarter. Comparable results for previous years are available on our website. Further I would also note that our operating results today are presented on an adjusted basis to remove the impact of several significant one time items as Raj mentioned earlier. Reconciliations may be found in our press release and in the appendix of our presentation slides.

Now I'd 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 6% on top line, 121 million in the second quarter or $0.08 per share in earnings. It is important to note however that the benefit of the weak dollar is limited by the impact of rising raw materials, energy and freight costs.

These two phenomena are clearly linked. Corporate expense were $92 million in the quarter as compared to $84 million in the prior year period. The increase year on year was largely due to higher interest expense primarily reflecting the impact of debt issued to fund the accelerated share repurchase agreement which was partially offset by the absence of spending for the Company's European headquarters reflected in the prior year period. Taxes, we recorded a provision for income tax expense of $55 million for the second quarter of 2008, reflecting an effective rate of 26.4% compared to 25.7% effective tax rate in the prior year period.

The increase in tax rate is largely the result of the UP Chemical divestiture partially offset by the tax benefit associated with the restructuring charges. We continue to expect our underlying tax rate for the year to be in the 25%, 26% range. For the six months ended June 30, 2008, cash from operating activities was $409 million versus $291 million for the prior year period. Due to lower funding needs for working capital. The cash flow we generated from operating activity is typically concentrated in the seconds 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 and interest on debt as well as property taxes which are concentrated in the first half of the year.

Maintaining strong operating cash flow to earnings and working capital management continues to be an important objective. Our capital spending was $266 million through the first six months of 2008, $79 million above the prior year, reflecting our strategic intent to increase spending in support of growth related projects. For the year, we anticipate capital spending of approximately $525 million. Our goal is to fund high return investments that both complements our Vision 2010 strategy and generate returns of greater than 15%.

Share repurchase program, as you know during the quarter we completed our accelerated share repurchase program announced in September of 2007, retiring an additional 3.1 million shares. Over the course of the program a total of 19.3 million shares were retired, at an average price of $51.56, representing 9% of shares outstanding when the program was executed. Raj, I will turn the call back to you.

Raj Gupta - Chairman and Chief Executive Officer

Thanks, Jacques. Now I would like to take a few minutes to highlight our recent progress in the implementation of our Vision 2010 strategic plan. We are gaining traction on our goals despite the challenging macroeconomic environment and remain focused on our three primary growth areas of electronics, coatings and niche businesses.

Let me briefly highlight a few key developments in this quarter. In electronics we divested our stake in the UP Chemical Company for a gain of $0.23 per share in the quarter. We continue to participate in the Atomic Layer Deposition the ALD market independently based on advanced technology exclusively licensed from Harvard in 2007. We completed the acquisition of Gracel Display, broadening our display technologies business into OLED materials an important addition to our range of advanced technology products and integral part of our long-term roadmap for this industry.

We also opened a $60 million Emulsion lithography facility supporting the R&D for advanced 193-nanometer lithography for the semi-conductor industry. This is located at our Marlboro, Massachusetts site. We also announced the opening of our new Asia technical center for CMP technology in Taiwan.

In paint and coatings area we completed acquisition of FINNDISP polymer dispersions division of OY Forcit AB, we're strengthening our position in rapidly developing economies particularly Russia and neighboring countries, and broadening our technology offering primarily in high performance products for low temperature climates. We announced formation of acrylic acid joint with Tasnee Sahara Olefin Company in Saudi Arabia, securing a low cost, reliable supply or polymers for rapidly developing economies and balancing our global polymer footprint.

We further expanded our manufacturing network in the RDE with the start of new Emulsion plant in Mexico and Russia, near Moscow, as well as announcement to build an Emulsion facility in Vietnam in 2009. We also introduced an indexed raw material and energy surcharge for a specialty materials which is adjusted monthly to changes in key raw materials and energy costs.

In niche businesses, our AgroFresh business received initial EPA approval in the U.S. for the Invinsa technology which now has registrations granted in U.S., Argentina and Chile. In rapidly developing economies our goal has been to move sales contributions from 21% of the Company sales in 2006 to 35% by 2010. I'm very pleased with our progress in this area with RDEs contributing 28% of sales this quarter which was the level targeted for the year. This reflects rapid organic growth complemented by targeted acquisitions and reaffirms that we are firmly on target to achieve the 35% of total goals in 2010.

As Andrew mentioned at the start of the call, we will not be providing specific guidance for the year, however, I would like to share my observation on the macro economic environment affecting our Company. While slowing global GDP growth and a challenging economy have increased uncertainty on the prospects for our sector this year we are demonstrating tremendous resilience better than any time in any cycle that I've experienced at the Company in the last 37 years. This reflects the diversification of our portfolio, the breadth of our geographic scope and our excellent management discipline. Our Vision 2010 strategy is helping us to maintain our focus on areas of growth for the Company in the electronics, porting, particularly in RDE, and our niche businesses.

On the macro economic environment we are seeing further erosion in the U.S. B&C market and we expect to see decline in the U.S. architectural market by approximately 10% versus 2007. We are seeing slow down of the B&C market in Western Europe. We expect mid digit single growth for wafer starts in the 4 to 6% this year similar to what we anticipated three months ago. We anticipate the Euro at $1.55 and Yen at approximately 108. And oil averaging $125 per barrel for the year. With raw materials cost up approximately $700 million on a year on year basis on annualized.

Before I close there are a few points I'd like to reiterate this morning. First, despite tough economic and business conditions we reported good performance with an 8% increase in adjusted EPS. Second, we have gained traction in pricing with pricing for the total Company up $95 million in the quarter, still much more remains to be done. Third, we have made excellent progress on the implementation of our Vision 2010 strategy. Thank you again for joining us today and for your continued interest in the Rohm and Haas Company. Let me now turn the call back to Andrew to open the question and answer session.

Andrew Sandifer - Director of Investor Relations

Thank you, Raj. Before we begin the question and answer session, let me remind you again that we will not be able address any questions today related to the proposed Dow transaction. Anna could you please open the line and explain the procedure for callers who would like to ask a question?

Question and Answer

Operator

Yes, sir, thank you. (Operator Instructions) We'll go first to John McNulty of Credit Suisse.

John McNulty - Credit Suisse

Just two questions, on the primary materials business, how much of this reflects the index based pricing that you've tried to put through and how much may be more on the come at this point?

Raj Gupta - Chairman and Chief Executive Officer

I believe the second quarter, John, the pricing was 10% on primary materials and all the rest is volume increase and some of course currency, currency is probably another 6%, 7% and the rest of it is still mid-teens volume growth.

John McNulty - Credit Suisse

And the 10% pricing relative to your raw material cost in that business?

Raj Gupta - Chairman and Chief Executive Officer

Still lagging because in the second quarter we are still lagging because if you recall we announced a surcharge in April, we had partial implementation in May, partial implementation in June so for the quarter we are lagging pricing in all the specialty material businesses including primary materials.

John McNulty - Credit Suisse

Okay. Great. And then the other question, with regard to the LCD film plant that you are ramping up and should be up later on this year can you give us an update first of all on how this is going and second of all if you can give us your thoughts on what we are hearing from what's going to be your big competitor 3M, where they were talking about seeing the volumes down as much as 50% and the profitability in that business down 80% and what does that actually mean for you guys going forward?

Raj Gupta - Chairman and Chief Executive Officer

I have will have Pierre address the business that we acquired from SKAC on LCD.

Pierre Brondeau - President and Chief Operating Officer

First, talking about the plants ramp up, just to remind you what we are doing today. We have two actions. One is transferring manufacturing of product which were made in the semi work plant in Rochester into the existing SKC plant. So that is taking place. But the new plant which will really ramp up the volume on a new Kodak technology, this plant is only to be built, finished by the end of the first quarter of 2009. So this plant is not currently operating or ramping up. It will be finished first quarter of '09. I think regarding the volume in flat panel display it is true that after a pretty health city start of the year there is some slow down.

Now, we are not as much impacted as 3M would be because 3M is very much into a single product line that's in the base where they do play a major role as the major market share owner. We have a much more diversified product line. We only have 10% of the sales to date in that segment. So, yes, we are seeing some slow down but nothing dramatic versus overall strategy or direction we are taking and especially our intent to be a niche player in the high tech piece of that business. The plants are remaining as we were defining before. Performance of the quarter is in line with what we were expecting.

John McNulty - Credit Suisse

Thanks a lot.

Operator

We'll take our next question from Robert Koort of Goldman Sachs.

Robert Koort - Goldman Sachs

Thanks very much. Good morning,

Raj Gupta - Chairman and Chief Executive Officer

Good morning Bob.

Robert Koort - Goldman Sachs

I was wondering Raj, have you seen any downgrading of quality in the U.S. paint market? I know you mentioned you thought the volumes might be down 10%. Is that starting to disproportionately affect the higher quality paint?

Raj Gupta - Chairman and Chief Executive Officer

Well, let me make a couple of observations business on the U.S. business at Rohm and Haas. In the first quarter we were down 4%, market was down somewhat more than that. In the second quarter, we were down 12% so for the year to date we are down 8, which is slightly better than the overall market decline or in line with the market decline for the first half.

Our belief has been that certainly the second quarter our volume is down more than the market decline and that's reflected some inventory corrections from the first quarter in anticipation of paint season and some of it's related to our pricing moves in the first quarter as much as in the second quarter. And for the full year we are expecting our position in the U.S. to be in line with the market overall at the rate of 9 or 10% which is what's meeting the markets decline.

I would say that on the other side, the second question, do we see downgrading of the consumer behavior, no, if anything we have seen the high-end paint continues to be maintaining their position in the marketplace. So if anything it's, for the worst trend, rather, that in fact more DIY than contractor, I think that's the list that we have seen. Is that correct, Pierre?

Pierre Brondeau - President and Chief Operating Officer

That's correct.

Raj Gupta - Chairman and Chief Executive Officer

So we are seeing some loss of share which we anticipated when we moved our pricing and that's consistent with our anticipation and the capacity to take on agreement.

Robert Koort - Goldman Sachs

To follow-up on that relative to pricing, you guys put in that new mechanism and given what's happening, gas, there's been extreme volatility in some of the raw materials you buy. How fast do you actually change your pricing to the customers now?

Raj Gupta - Chairman and Chief Executive Officer

I think Pierre can describe it in more detail but I think we are adjusting it ten days before the start of the month, we are adjusting them on a monthly basis, and we have roughly 30% in the month of May and about (60% in the month of June). And we expecting that we must be on target by August. That's the start of where we are overall. Hopefully they are picking out, customers will see the benefit of that if oil price comes down and so will raw materials, if prices go down in the fourth quarter or later in the third quarter. This mechanism would allow us to pass the benefit. I don't know if that's very effective.

Pierre Brondeau - President and Chief Operating Officer

That's correct, Raj, monthly I just meant on pricing and the extent all of them felt for materials plus some specialties and energies every month.

Robert Koort - Goldman Sachs

Great. Thank you.

Operator

We'll take our next question, Don Carson of Merrill Lynch.

Don Carson - Merrill Lynch

Yes, just wanted to follow-up on the paint outlook. Raj, you mentioned that you are starting to see a slow down in the EU. I know both the U.K. and Spain are slowing but can you describe volume growth in that market? And then second unrelated question, now that you've got your Invinsa approvals what's the time line leading up to commercial introduction in 2010? Is there more formulation work to be done, more field testing? If you could give some details there.

Raj Gupta - Chairman and Chief Executive Officer

Don, let me answer the second one. I'll have Pierre answer the question on what we are seeing in the paint market in Western Europe and he will comment more on what we are seeing in this geography. Invinsa, I think in terms of running all the trials and we said we got approvals for Invinsa in three countries, Argentina, Chile, and the U.S. which is great news, we are seeing improvement in the yields. I think it is going to be largely formulation work and we are very much on track for commercial introduction in '09 starting in 2010. Our timing on that development is pretty much tracking what we said a few months ago.

Don Carson - Merrill Lynch

Okay.

Raj Gupta - Chairman and Chief Executive Officer

The most exciting news is registration in the U.S.

Pierre Brondeau - President and Chief Operating Officer

Let me, from a growth standpoint in European markets for paint, the second quarter we saw some growth year on year in our European market for unit volume so excluding currency impact and the volume due to Central, Eastern Europe, Turkey and also due to our acquisitions of FINNDISP. But we are contemplating the second half of the year with continuous slow down in Europe not to the extent of North America at all but certainly getting into negative territory.

Don Carson - Merrill Lynch

And, Pierre, I assume then that Western Europe is already negative, then? How bad would European volumes have been without the strength in the East?

Pierre Brondeau - President and Chief Operating Officer

Yes, the European sales without, as I said was volume was up with the acquisition FINNDISP but year on year we had a flat performance for Western Europe. And we had a positive growth in Central and Eastern Europe.

Don Carson - Merrill Lynch

Okay. Thank you.

Raj Gupta - Chairman and Chief Executive Officer

Thanks

Operator

And we'll take our next question from P.J. Juvekar at Citi.

P.J. Juvekar - Citi

Hi, good morning Raj.

Raj Gupta - Chairman and Chief Executive Officer

Good morning.

P.J. Juvekar - Citi

You took this $86 million charge in this quarter. I thought most of the charge would be in coatings but I was surprised that there are some charges in electronics.

Raj Gupta - Chairman and Chief Executive Officer

We said specifically that we are really realigning our footprint, shifting it to Asia. And a good part of electronics is the shut down of our Arizona lab for CMP because now we have a facility in Taiwan and just a general migration of business so I think we had spelled out fairly clearly that this is a broad based adjustment of our footprint not only for the chemical business but also almost the last part we hope of the migration of the business from U.S. to Asia.

P.J. Juvekar - Citi

And secondly if I look at your EBITDA in primary materials versus paint and coatings material, the primary materials held up relatively flat compared to paint and coatings. And now you transferred most of it at cost plus type acrylic from your primary materials to your paint and coating. Can you talk about that dynamic?

Raj Gupta - Chairman and Chief Executive Officer

Yes, no, I think it's a bit of a misnomer because last year's second quarter had significant cost related to the fragment we had at Houston Plant. That number on a comparable basis was significantly higher but we are seeing deterioration year on year from the primary materials. I think the number in the second quarter of last year was, I believe $0.07 per share, almost $14 million after tax, about $20 million. If you look at comparable number you are talking about $45 million of EBIT to $23 million of EBIT from primary material.

P.J. Juvekar - Citi

Thank you.

Operator

We'll take our next question from Dmitry Silversteyn of Longbow Research.

Dmitry Silversteyn - Longbow Research

Good morning.

Raj Gupta - Chairman and Chief Executive Officer

Good morning.

Dmitry Silversteyn - Longbow Research

Congratulations on a good performance in a very tough environment.

Raj Gupta - Chairman and Chief Executive Officer

Thank you.

Dmitry Silversteyn - Longbow Research

A couple of questions. Number one, you talked about getting 30% traction on your indexed sales or indexed pricing in May and I think 60% in June. As you, kind of coming out of July and looking at the third quarter are you pretty much caught up with the raw material delta since you put in these price increases or are you still trying to gain full traction on these?

Raj Gupta - Chairman and Chief Executive Officer

I will have Pierre answer this but I think we are keeping track with our best estimates but these costs keep rising. So until they stop we will always be a little bit in the hole. I think that's the summary. But in terms of our best forecast we are really setting the index up based on our best guesstimate for the coming month.

Dmitry Silversteyn - Longbow Research

So it's a forward-looking index rather than a backwards?

Raj Gupta - Chairman and Chief Executive Officer

It's forward-looking, it's not reauthorized. This is a big change in terms of the way we are indexing our pricing.

Dmitry Silversteyn - Longbow Research

Okay.

Pierre Brondeau - President and Chief Operating Officer

We've been lagging in the first quarter and the second quarter because of the timing between the price increase and the increase of raw materials. The fundamental difference going forward in Q3 and Q4, the way we have index calculated is that we will be increasing pricing at the same time raw materials will be increasing so we are eliminating the lag going forward.

Jacques Croisetiere - Executive Vice President, Chief Financial Officer and Chief Strategy Officer

But we are not covering the gap which we have for the second quarter in last year.

Dmitry Silversteyn - Longbow Research

In other words you will be keeping up going forward butter there is still a lag through the first half of the year?

Pierre Brondeau - President and Chief Operating Officer

Right, correct.

Dmitry Silversteyn - Longbow Research

All right. That makes sense. Secondly, talking about the AgroFresh business and obviously good news on EPA approval in terms of strategy going forward as you become part of Dow, is this deal going to stay with Syngenta or have there been some discussion on perhaps changing courses here?

Raj Gupta - Chairman and Chief Executive Officer

The agreement we have with Syngenta really is a very good one and where this business fits in the future is really going to be the decision by Dow and the transaction, but the agreement we have in place is solid.

Dmitry Silversteyn - Longbow Research

Okay. Thanks. Final question, (Kebeth Micro), who had their conference call earlier today talked about their Pad business and how well it's doing but also acknowledged that there's some competitive response in the marketplace. I am assuming it's coming from your Pad business. Are you getting into situations where Pad pricing is becoming a little bit of an issue and a little bit of a market share tool here? Or are you still kind of keeping your pricing up and increasing hopefully as your raw material costs increase?

Raj Gupta - Chairman and Chief Executive Officer

I'll have Pierre answer it is not a raw material question, it's more of a business strategy question.

Pierre Brondeau - President and Chief Operating Officer

I think the pricing situation is here to cover for raw material. I think we do have a strategy which is in place which is to stay. We will be reflecting the raw materials into the pricing. All we try to do is to cover our costs and the rest you know is always an.

Raj Gupta - Chairman and Chief Executive Officer

CMP.

Pierre Brondeau - President and Chief Operating Officer

What's that?

Raj Gupta - Chairman and Chief Executive Officer

CMP. This is all about CMP.

Pierre Brondeau - President and Chief Operating Officer

CMP is just, it's purely a strategy around pricing. There is two ways to approach pricing. One is purely the price per Pad and the other one is the cost of ownership and what we are doing today is we need to be at the level of the cost of ownership competitive with customers and to that you do it with Pads which have a longer life time or do you it with pricing which are lower and that is the balance we are facing today. We do have to acknowledge that we are in the more competitive environment than we've been in the past. With some of the competitors like CMP and having some success, but we do have some way to respond with technology and when we do it with pricing.

Dmitry Silversteyn - Longbow Research

Okay. Thank you very much.

Raj Gupta - Chairman and Chief Executive Officer

Thank you.

Andrew Sandifer - Director of Investor Relations

At this point it looks like we don't have any further questioners in the queue so I would like to thank everyone for your participation on this morning's call and your continued interest in Rohm and Haas.

Operator

That does conclude today's conference call. Thank you for your participation. You may disconnect at this time.

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