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The Reinvention of an Industrial Titan

DuPont is again remaking itself, with a shifting R&D strategy and a pile of acquisitions and divestitures. The CFO gives his take on the transformation.

The quaintly named E.I. du Pont de Nemours and Company was founded in 1802 as a gunpowder manufacturer. That remained its main product until late in that century, when it delved into dynamite and nitroglycerin. (The company later upped the explosive ante considerably by helping along The Manhattan Project and production of the first atomic bombs.)

For most of the past century, DuPont remained a U.S. industrial titan even while entering and exiting a dizzying array of businesses. It’s arguable that no major American company has reinvented itself as many times as DuPont has.

A picture of Nick Fanandakis

“Driving these changes has been the high point of my nearly 35 years with DuPont.” — Nick Fanandakis

The $35 billion enterprise’s perpetual evolution continues apace today. A current transformation effort has been under way since 2009, when longtime company executives Ellen Kullman and Nick Fanandakis were promoted, respectively, to CEO and CFO. Highlights of the shift have included spikes in capex and R&D spend for some business lines at the expense of others; the sale of one sizable business line and a planned tax-free spinoff of another; several major acquisitions; and cumulative reductions of $2.2 billion in costs and $2.6 billion in working capital.

Most people still refer to DuPont as a chemical company, and it is that, but it’s many other things too. “The fact is that we haven’t been a chemical company for quite some time, because actions we’ve taken have dramatically changed DuPont,” says Fanandakis, a 34-year veteran of the company.

For example, from 2007 to 2012, there was a 9 percent compound annual growth rate (CAGR) in capex and R&D spend for what DuPont now calls its “core segments.” Those include agriculture, electronics and communications, industrial biosciences, nutrition and health, performance materials (i.e., polymers for commercial use), and safety and protection.

Meanwhile, the company’s performance chemicals line, which includes its titanium technologies and fluoroproducts businesses, experienced a -3 percent CAGR in such investment over that time period. And R&D/capex CAGR was -13 percent for DuPont’s performance coatings (e.g., automotive paint) business.

The company has chosen to invest in businesses that it considers to have the strongest growth prospects. It sold the performance coatings division to The Carlyle Group for $4.9 billion in a deal that closed last January. And just last month DuPont announced plans for a tax-free spinoff of the performance chemicals group to shareholders, a separation that is expected to take 18 months. That business is strongly profitable — $1.8 billion of operating earnings in 2012 on $7.2 billion in revenue, the best margin of any DuPont business line — but growing slowly. “The separation will give investors a clear investment choice: cash [in the form of high dividends] for performance chemicals or growth for DuPont,” Kullman told analysts in an Oct. 24 conference call.

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