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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.

A picture of a DuPont Innovation Center in Russia

This “Innovation Center” in Russia is one of 12 such facilities worldwide, where DuPont meets with customers to find scientific, innovative solutions for their needs.

Says Fanandakis, “We had a very disciplined process that allowed for critically evaluating all of our resources and differentially managing our portfolio of businesses so that we would put the dollars and focus where we felt the greatest opportunity for growth and high value were being created.”

One key goal was to reduce the cyclicality and volatility of earnings. For example, earnings per share for the TIO2 (titanium dioxide) component of the performance chemicals unit was 65 cents lower this year than in 2012. “That’s a lot of volatility,” Fanandakis notes. “It is driven by cyclicality in the business. Over 40 or 50 years it grows at about GDP rates, but it has up and down supply-and-demand cycles. It’s a very commoditized business — not from a product standpoint, because we do have some differentiators, but from a process standpoint. What we’re talking about is building a business that is not dependent on cyclical commodities but more on using innovation and science to bring value to customers and shareholders.”

With its divestitures and acquisitions, DuPont has strategically positioned itself to target three “mega-trends,” all driven by global population growth, says Fanandakis. One is the need for more food, as well as healthier food, because of dietary changes that are taking place as per-capita income levels rise in emerging markets.

Accordingly, several DuPont acquisitions have been in the agricultural space: Denmark’s Danisco, with business lines in food ingredients and industrial enzymes, for $6.3 billion in May 2011; a majority stake in South Africa’s Pannar Seed, Africa’s largest seed producer, in July of this year; two other seed companies in early 2011; and Solae, a joint-venture developer of soy-based food ingredients, in May 2012. (DuPont had already owned a 72 percent stake in the joint venture and then bought the other 28 percent.) The company also has a crop-protection business that includes the low-toxicity insecticide Rynaxypyr, which is generating almost $1 billion of revenue.

“You don’t have any more arable land, so to provide more food to the growing population you’ve got to look at getting more productivity out of each acre of land,” Fanandakis says. The agriculture division will account for 37 percent of company revenue after the performance chemicals spinoff, but it gets 50 percent of DuPont’s R&D spend, he notes.

The second mega-trend is the need to reduce the usage of fossil fuels so as to slow down climate change. That’s population-related too: a 2009 study determined that each child born in the United States adds more than 9,400 metric tons to the “carbon legacy” of an average parent. DuPont has diverse efforts in this area, from photovoltaics, a type of solar energy generation, to the production of biofuels, to polymers enabling metal parts in cars to be replaced with engineered plastic to reduce weight and improve fuel efficiency.

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