Growth Commitment Results 2013
Impact Partners AN N UA L
R E V I E W
2009 Set in motion a new strategic vision and growth strategy
2010
2011
Gained approval to sell Optimum® AcreMax® 1 and Optimum® AcreMax® RW insect protection technologies and received U.S. approval for Plenish® high oleic soybeans
Acquired Danisco for $7 billion
Exceeded $1 billion in sales from photovoltaic materials
Opened in Seoul, South Korea, the first of 12 Innovation Centers worldwide
WE’RE HERE.
2011
2012
Started up $500 million Cooper River Kevlar® facility near Charleston, South Carolina
Broke ground on Nevada, Iowa, cellulosic ethanol plant
RIGHT WHERE WE SHOULD BE. 2013
Experience our 5-year journey at annualreview.dupont.com
Divested Performance Coatings business for $5 billion Announced intent to separate Performance Chemicals segment Acquired full ownership of Pannar, a South African seed company
Dear DuPont Shareholders: DuPont delivered strong results in 2013 as we continued to execute the strategy that is generating solid returns for our shareholders. Since 2008, we have delivered total shareholder return of 214 percent, nearly double that of the S&P 500. In short, our strategy is working. This past year, the power of our science and R&D, our solid customer relationships and our emphasis on disciplined execution enabled us to overcome the decline in our Performance Chemicals operating earnings, an uneven global economy and soft industrial demand. We grew revenue and operating earnings per share by 3 percent each.1 Aside from the 45 percent market-driven decline in earnings from the Performance Chemicals segment, our businesses grew their segment operating earnings by 11 percent.1 We generated $1.3 billion of free cash flow2 for shareholders after reinvesting $2.2 billion in research and development and $1.9 billion in capital expenditures for our businesses’ future growth. And we returned $2.7 billion to shareholders through dividends and share repurchases. Looking ahead to 2014, we are encouraged by both the global macrotrends and the significant momentum we generated over the past five years. During the coming year, we will continue to deliver greater value for shareholders through an intense focus on our strategic priorities: • Agriculture & Nutrition: Extend our leadership position across the high-value, science-driven segments of the agriculture-to-food value chains. • Industrial Biosciences: Build transformational new businesses based on our world-leading biotechnology capabilities. • Advanced Materials: Strengthen and grow our leading position in differentiated, high-value materials businesses by leveraging new technologies. We have been refining and enhancing our portfolio around these priorities, always guided by a determination of where our science can give us a competitive edge. We’ve made acquisitions that provide us with added scientific
expertise and access to new markets, including Danisco and Pannar Seed. Meanwhile, our divestitures have focused on where we could not use our science to create new growth trajectories, including Performance Coatings, Liquid Packaging Systems and Zenite® liquid crystal polymer resins. The same logic was behind the recent decision to separate Performance Chemicals, and the announced divestiture of Glass Laminating Solutions/Vinyls. Focus on Excellence in Execution Drives Value Our focus on excellence in execution and the disciplined allocation of capital has allowed us to concentrate our resources on growth opportunities, enhancing value for shareholders. In 2014, we will continue to emphasize our three operational priorities: • Innovation: Maximize the value of our growth engine by focusing R&D on businesses that have a proven track record of generating faster growth and higher cash returns. • Global Reach: Leverage our presence in more than 90 countries to drive further penetration in fast-growing developing markets. • Execution: Deliver ongoing productivity gains that will allow us to further shift resources to higher-growth businesses and improve return on capital, while continuing our strong tradition of returning cash to shareholders. Our focus on disciplined allocation of capital has led us to concentrate our R&D investment on select opportunities where we see the potential for superior value creation. Our Agriculture segment is a good illustration. Over the last five years, we increased Agriculture R&D investments and, in turn, we increased our North American corn market share by 7 percentage points and our soybean market share by more than 10 points over the same period. DuPont is putting its science and innovation capabilities to work across the globe, advancing our penetration into fast-growing markets such as Brazil, Ukraine, India and the ASEAN region. These developing markets have been and will continue to be sources of profitable growth as we leverage
our localized infrastructure across our businesses, collaborate with new, fast-growing customers and aim our expertise directly at opportunities specific to their needs. Last year, our volume growth in developing markets was 11 percent. Rigorous attention to how we allocate capital has enabled us to increase DuPont’s return on invested capital (ROIC) by 152 basis points over the last five years, enabling us to return more capital to shareholders in the form of dividends and stock repurchases than the average of the S&P 500 or our peer group of companies. In January 2014, we announced a $5 billion share repurchase program, and we intend to complete $2 billion of the program in 2014, underscoring our commitment to balance the objectives of maintaining our financial strength, reinvesting in our science-based businesses for growth and delivering attractive cash returns to our shareholders. Market-Driven Science and Disciplined Investment As the global population is projected to increase from 7 to 9 billion by 2050, there are abundant opportunities for science to make a difference in feeding people, developing renewable energy sources, protecting the environment and creating advanced materials for an increasingly urban world. As a market-driven science company, DuPont is well positioned to provide solutions to these global challenges. What makes DuPont unique is our ability to apply our set of 32 core technologies from biology, chemistry, materials science and engineering to help customers solve their problems and achieve their objectives. Our innovation engine generated sales of more than $10 billion from new products commercialized between 2010 and 2013. In 2013, we introduced nearly 1,800 new products, were
granted about 1,050 new U.S. patents and filed applications for another nearly 1,800 U.S. patents – all tangible measures of our ability to translate our scientific leadership into marketable products.
DUPONT CORE VALUES
SAFETY & HEALTH ENVIRONMENTAL STEWARDSHIP RESPECT FOR PEOPLE HIGHEST ETHICAL BEHAVIOR
Today, our resources, talent and expertise are deployed to capitalize on the significant growth opportunities created by global population trends and economic development. Innovation, global penetration, efficient execution and our ongoing portfolio review will enable us to accelerate the achievement of our long-term growth targets while delivering near-term value to investors. With our strategic and operational priorities in place, we will further build on our strong foundation of “Committed to Zero” for all our Core Values and on our science capabilities to deliver innovative, sustainable solutions to our customers and greater value to our shareholders. Thank you for your continued investment in DuPont.
Ellen Kullman Chair of the Board & Chief Executive Officer
Visit annualreview.dupont.com for a message from CEO Ellen Kullman.
1 See reconciliations of non-GAAP 2Free cash flow represents 2013
measures to GAAP at the end of this document. cash provided by operating activities of $3.2 billion less 2013 purchases of property, plant and equipment of $1.9 billion.
2
1
DuPont Science: Delivering in the Marketplace
Building a Higher-Growth, Higher-Value DuPont
3 5
Global Reach: Leveraging our Presence to Meet Customers’ Needs
Gaining Momentum, Today and Beyond
4
Strong Execution, Superior Returns
Experience the DuPont digital annual review, access financial filings and download the 2013 data book at annualreview.dupont.com
S A L ES G ROW TH, DIV IDEND INCR EAS ES C O N TR IBUTE TO SHAREHOL DER R ETUR N
$2.00
$35
$33.7
$30 $25
$34.8 $35.7
$1.50
$27.7 $22.7
$1.00
$20 $15
$0.50
$10 $5
2009 2010 2011 2012
$0.00
2013
----------------1st dividend paid ----------------
Dividend Payments (dIVIDENDS PER SHARE IN DOLLARS)
Net Sales (DOLLARS IN BILLIONS) $40
1904
$1.64
$1.64
$1.70
2010
2011
2012
$1.78
$1.40
$0.81 $0.46
1980
1990
2000
2013
DuPont
Proxy Peers1
111%
S&P 500
128%
S&P Chemicals2
214%
184%
TOTAL SHAREHOLDER RETURN (12.31.08 – 12.31.13) 3
Source: Datastream as of 12/31/2013, Bloomberg, Capital IQ, FactSet. 1 Proxy peers consists of 3M, Air Products, Baxter International, Boeing, Caterpillar, Dow, Emerson, Honeywell, Ingersoll Rand, Johnson Controls, Johnson & Johnson, Kimberly-Clark, Merck, Monsanto, Procter & Gamble, Syngenta AG and United Technologies. 2S&P Chemicals Index in 2012 consists of Airgas, Air Products, CF Industries, Dow, DuPont, Eastman Chemical, Ecolab, FMC, IFF, LyondellBasell, Monsanto, Mosaic, PPG, Praxair, Sherwin-Williams and Sigma-Aldrich. 3Proxy peers and S&P Indices are USD market cap-weighted and assume dividends are reinvested at the closing price applicable on the ex-dividend date.
S trategy targets: 7 percent sales compound annual growth rate (CAGR) and 12 percent operating earnings CAGR.
1
Building a Higher-Growth, Higher-Value DuPont
DuPont’s industry-leading positions in Agriculture & Nutrition, Industrial Biosciences and Advanced Materials are built on the strengths of its unique science capabilities, global reach and disciplined execution. By leveraging these competitive advantages across global growth markets, we are well positioned to continue delivering higher growth and higher value for our shareholders. Over the last five years, DuPont has charted a new strategic course, one that has challenged us to think differently about our business and capitalize fully on global opportunities. We have taken bold steps to build upon our unique, market-driven science capabilities. We have increased targeted investment in research and development, which is a proven engine for innovation. We have refined our portfolio, acquiring Danisco and Pannar Seed and divesting Performance Coatings. In 2013, we announced the separation of the Performance Chemicals segment, which we anticipate completing about mid-2015 through a U.S. tax–free spinoff to shareholders. We have reduced costs and increased overall efficiency and productivity. These strategic moves and targeted investments have sharpened our focus and will help us achieve our long-term growth
As a science company, we must continually evolve to stay on the cutting edge of emerging technologies and meet the challenges of changing markets. DuPont is able to leverage its strengths in biology, chemistry, materials science and engineering to produce new high-growth products. Currently, dramatic advances in biotechnology are beginning to provide a new set of tools to drive high-value innovation. DuPont’s scientists are at the forefront of this burgeoning age of biotechnology, and we are in the early stages of developing game-changing, renewably sourced solutions to solve many of the world’s most pressing problems – and meet the needs of global customers. The next era of DuPont’s growth will be delivered through our three strategic priorities: Agriculture & Nutrition Extend our leadership position across the science-driven segments of the agriculture-to-food value chain. Industrial Biosciences Build transformational new businesses based on our world-leading biotechnology capabilities. Advanced Materials Strengthen and grow our leading position in differentiated, high-value materials businesses by leveraging new technologies. Our strategy will be enabled by our three operational priorities: • Innovation: Increasing our return on R&D. • Global Reach: Driving penetration in fast-growing developing markets. • Execution: Delivering ongoing productivity improvements, optimizing resource allocation and returning cash to shareholders.
INDUSTRIAL BIOSCIENCES
AGRICULTURE & NUTRITION
ADVANCED MATERIALS
G ROW TH O P P ORTUNITIES THAT AL IG N W ITH O UR SCIENCE CAPAB IL ITIES
I N N O VAT I O N
44,000
GLOBAL PATENTS, CURRENTLY OWNED & PENDING
2
Science is at the heart of our company – and our highergrowth, higher-value strategy. Throughout its 211-year history, DuPont has drawn on its scientific expertise to create a continual stream of innovative solutions for customers. From gunpowder to nylon to DuPont™ Kevlar ® aramid fibers to DuPont™ Rynaxypyr ® insect control, these sciencebased solutions have driven growth and created a unique competitive advantage in the marketplace. Today, our science is helping to solve critical new problems – big problems on a global scale. As the world confronts serious challenges created by explosive population growth and economic development, DuPont’s 10,000 scientists and engineers are seeking the answers. Increasingly, our focus is on addressing large, profitable, secular growth markets where demand is driven by the need to ensure there is sufficient, nutritious and healthy food for people across the globe; to reduce our dependence on fossil fuels; and to protect people and the environment. With its vast storehouse of scientific knowledge, DuPont is uniquely positioned to combine areas of scientific expertise to create new products – and entirely new markets. For example, our recent blockbuster DuPont™ Rynaxypyr ®, used for crop protection, continues our legacy of innovation, giving our customers an edge in the marketplace. DuPont™ Kevlar ®, the most trusted para-aramid fiber in the world because of its unique
DuPont Science: Delivering in the Marketplace
$10 BILLION
REVENUE GENERATED FROM NEW PRODUCTS INTRODUCED 2010–2013
combination of strength and light weight, protects people in everything from body armor to car armor, and now it is being used in tough mining environments to increase productivity in conveyor belts. More than a decade ago, DuPont began working toward a goal to bring to market materials that are derived all or in part from renewably sourced materials. Today, DuPont customers have access to the widest array of engineering-grade, renewably sourced polymers available. Looking ahead, as the world further embraces the need to diversify the energy mix with renewable energy sources, the power of industrial biotechnology is enabling the commercialization of advanced biofuels, such as cellulosic ethanol, made from low-cost, sustainable inputs like agricultural residue and energy crops. These breakthrough products are an early indication of what is possible when advanced biology is combined with our existing deep expertise in chemistry, engineering and materials science. We are only beginning to tap the possibilities, and we view this as an area of major longterm opportunity. Across DuPont businesses, our science and R&D capabilities are continually delivering new solutions that drive value for customers. New products introduced between 2010 and 2013 generated approximately $10 billion in 2013 revenue, and investments in science have resulted in a strong pipeline.
F O UR C O R E S CIENCE DISCIP L INES WO R K IN G TOWA R D F UNDA MENTAL CHA NG E
MATERIALS SCIENCE
CHEMISTRY
WORLD’S LEADING SCIENCE COMPANY
ENGINEERING
BIOLOGY
Agriculture & Nutrition Ensuring that enough healthy, nutritious food is available for people everywhere is one of the most critical challenges facing humanity. At DuPont, we believe there is a science to feeding the world, and we are committed to bringing 4,000 new food-related products to market by 2020. Here’s a look at some of the things we’re doing. • Agriculture: Growers around the world face precise localized needs as they confront the challenge of delivering higher crop yields and more nutritious foods, and DuPont is helping to find solutions. From hybrid seeds to crop protection, our Agriculture businesses work closely with customers to help find ways to improve the quantity, quality and sustainability of the world’s food supply. We are leveraging the high growth potential of our Agriculture businesses by increasing and focusing R&D investment. Since 2008, we have improved North American corn market share by about 7 points and soybean market share by about 10 points. We earned the confidence of growers by demonstrating our understanding of their needs and delivering better products and services to meet those needs. One example is the development and commercialization of Optimum ® AQUAmax ® agricultural seeds. Relying on our deep knowledge of seed genetics, chemistry and agronomy, we worked closely with U.S. farmers who were grappling with severe drought conditions. DuPont™ Cyazypyr® insect control is another example of science-based innovation. Part of the crop protection line that includes the blockbuster Rynaxypyr® insect control, Cyazypyr® combines effective pest control with a favorable environmental profile to help growers produce healthier, stronger crops and better protect them as they mature. The unique active ingredient is designed to control a broad spectrum of damaging insects in an array of crops around the world. Tomato farmers in Argentina, for instance,
are thrilled with the results, as well as the long-lasting effectiveness at low use rates. • Nutrition & Health: Demand for DuPont’s specialty food ingredients is growing as the world works simultaneously to increase food production and promote good health by improving the quality and nutritional benefits of food. Major baking companies turn to us to increase the shelf life of their products using natural ingredients. Dairy companies turn to us to improve the quality, texture and taste of everything from cheese to ice cream. At the same time, we are deeply engaged in the rapidly growing market for bioactive food ingredients that offer proven health benefits. Naturally occurring probiotics are a great example of a product with well-established benefits and myriad potential applications. As one of the world’s leading suppliers of probiotics, DuPont has developed HOWARU® Protect brand probiotic formulations to support the body’s natural immune defenses and to help keep kids and adults healthy. HOWARU® Protect Kids and HOWARU® Protect Sport are unique probiotic formulations that provide a total of 10 billion Bi-07® active cultures and NCFM™ Lactobacillus acidophilus. HOWARU® Protect Adult provides a total of 2 billion Bl-04® active cultures, which help maintain a healthy respiratory function. The food industry’s rapid globalization has created opportunities to apply DuPont’s science to solving customers’ most pressing problems. We have emerged as a leader in helping companies test for food-borne pathogens that can cross borders, potentially harming consumers and destroying brand reputations. Our BAX® detection system identifies the presence of pathogen DNA and uses complex software algorithms to evaluate findings and display results. BAX® is a product that helps protect and preserve the integrity of the food supply.
2 0 13 S A LES B Y S EG M EN T: TOTA L S EG MENT SAL ES $36 B IL L ION
SAFETY & PROTECTION
PERFORMANCE MATERIALS
11%
32%
18% 19%
PERFORMANCE CHEMICALS
3% 10% NUTRITION & HEALTH
7%
AGRICULTURE
ELECTRONICS & COMMUNICATIONS
INDUSTRIAL BIOSCIENCES
30
MILLION GALLONS PER YEAR
PRODUCTION CAPACITY OF OUR NEW CELLULOSIC ETHANOL PLANT UNDER CONSTRUCTION IN NEVADA, IOWA
Industrial Biosciences A significant driver of future growth will be the integration of cutting-edge biology and agronomy with our traditional strengths in chemistry, materials science and engineering. This approach will create new products and businesses that deliver solutions to critical customer problems and greater value for shareholders. Here are two examples. • Renewable Fuels and Materials: In 2014, our Nevada, Iowa, cellulosic ethanol plant is expected to come online. We will be using biotechnology to convert nonfood biomass into ethanol and lignin coproducts. Once completed, this facility will have the capacity to produce 30 million gallons per year and provide a commercialscale demonstration of our integrated feedstock-to-fuel approach to the global marketplace. The facility will provide a strong foundation for our biorefineries strategy to capture value through technology licensings and enzyme and fermentation microbe sales. Industrial biosciences are also providing ways to replace traditional petroleum-based products with 100 percent renewably sourced Bio-PDO™ monomer. DuPont Tate & Lyle
Bio Products produces Zemea® propanediol, a replacement for petroleum-based glycols in over 1,200 personal care products, as well as Susterra® propanediol, a specialty glycol used in industrial fluids, such as aircraft deicing and heat transfer applications. Both Zemea® propanediol and Susterra® propanediol have been certified 100 percent bio-based by the U.S. Department of Agriculture, and are produced using up to 40 percent less energy and 56 percent less greenhouse gas emissions than production of petroleumbased PDO. Bio-PDO™ is also a key ingredient for DuPont™ Sorona® renewably sourced polymer. • Industrial Enzymes: Our core enzyme technology allows customers in a range of industries to improve their performance, profitability and sustainability. In 2013, we launched a number of product innovations, including new cold-water enzymes to enable growth in the high-performance, low-temperature laundry detergent segment. We are seeing strong global adoption of our newest brewing enzyme (Laminex® Maxflow 4G), which helps breweries optimize beer production. U.S. poultry and swine producers are choosing Axtra® PHY enzyme, with its superior bio-efficacy, to better manage their feed costs and environmental impact.
INDUSTRIAL BIOSCIENCES IN AUTOMOTIVE SOLUTIONS
LIGHTWEIGHTING ENGINES: REPLACING METAL WITH RENEWABLY SOURCED MATERIALS THAT CAN WITHSTAND HIGH TEMPERATURES
IMPROVING COMFORT: RENEWABLY SOURCED FIBERS AND ADVANCED MATERIALS FOR NOISE REDUCTION AND FABRIC COMFORT
GOING FURTHER: FROM FEEDSTOCK TO FERMENTATION TO FUEL, DUPONT IS UNIQUELY POSITIONED TO OPTIMIZE ADVANCED BIOFUEL PRODUCTION
Advanced Materials At DuPont, we know materials matter. Our Advanced Materials businesses harness DuPont’s legendary capabilities in materials science by creating highly valued, customercentric solutions that address some of today’s most pressing challenges, such as the growing need for lightweighting and sustainable energy sources. The integration of multiple DuPont materials is providing higher functionality across a wide range of industries like never before. Here are a few examples. • Automotive: With more than 3 billion vehicles expected on the road soon, DuPont scientists are developing market-leading lightweight materials that will allow automakers to design safer, more fuel-efficient, lower-emission vehicles – without compromising performance or cost. By integrating materials science with biology, DuPont is making some of these lightweight materials from renewably sourced materials, including DuPont™ Hytrel® RS TPC/ET thermoplastic elastomers and DuPont™ Zytel® RS nylon. These efforts can have a significant environmental impact. Reducing an automobile’s total weight by just 10 percent delivers a 6 to 8 percent increase in fuel economy while reducing emissions. If the weight of the estimated 83 million engines built in 2013 were reduced by just 11 kilograms each, for example, it would save nearly 275 million gallons of gasoline, or 10 million barrels of crude oil.1 Using renewably sourced ingredients to replace petroleum conserves energy sources while improving performance. • Mobile Devices and Displays: Through our deep understanding of materials science and commitment to technological leadership, DuPont has developed products to address the needs of mobile device
manufacturers for longer battery life, reduced weight and improved product durability, even as consumers demand bigger and better display screens. For example, DuPont™ Kevlar® aramid resin is used in the casing of some Motorola2 DROID3 phones, allowing the creation of thinner, more durable, state-of-the-art handsets. Additionally, DuPont is well positioned to benefit from the increasing adoption of organic light-emitting diode (OLED) technology for large TV screens. Industry experts predict the market for OLED TVs will begin to accelerate dramatically in 2015. DuPont has put its science to work in developing low-cost, high-performance, large-area OLED displays that provide greater clarity and contrast. With DuPont’s liquid printing process and Advanced Materials, the cost of manufacturing these large displays is projected to be 30 percent less than current LCD manufacturing costs and nearly 50 percent less than equivalent evaporated panels. • Photovoltaics: As a leading innovator in photovoltaic (solar) materials, we have introduced innovations such as DuPont™ Solamet® photovoltaic metallization pastes, which help increase the energy output of solar panels. The latest advance in this technology, the Solamet® PV18x series, further improves energy output while allowing solar cell makers to use up to 15 percent less material. Over the last 12 years, through our progressive science, we have developed innovations that have contributed to nearly doubling solar cell efficiency. The photovoltaics market saw improvement in the latter part of last year and is expected to continue to grow at an average annual rate of 20 percent over the next several years. We plan to remain a soughtafter partner and supplier in this dynamic marketplace.
DU P ON T P RO D UC TS H AV E CONTRIBUTED TO NEA R LY DOUB L ING S OL AR EF F IC IEN C Y IN THE PA ST 12 Y EARS (2001–2013)
2001
2013 1 DuPont
estimates based on 2013 forecast data by IHS Inc. and fuel savings data from automakers. and the stylized M Logo are registered trademarks of Motorola Trademark Holdings, LLC. 3DROID is a trademark of Lucasfilm Ltd. and its related companies. Used under license. 2Motorola
global reach
Another critical element of our growth strategy is to advance our penetration in rapidly growing developing markets. DuPont has a broad global reach, with active operations in more than 90 countries and over 150 DuPont R&D centers worldwide. From this base of operations, our 10,000 scientists and engineers are able to seek out new markets for established products, as well as create new localized solutions for specific regional needs. As an example, DuPont acquired full ownership of Pannar, a South African seed company with operations throughout Africa and in other parts of the world. This is a significant milestone in DuPont’s commitment to bring technological innovation to agriculture in Africa. In 2013, our volume growth in developing markets was 11 percent, as we successfully leveraged market positions and deep relationships with customers around the world. Our 12 Innovation Centers around the world allow DuPont scientists and engineers to engage directly with customers and other strategic partners to identify local needs. These collaborations allow us to anticipate market trends, get real-time information on product performance, rapidly develop potential solutions and fill our pipeline with growth products, all of which contribute directly to long-term shareholder value. In 2013, nearly 400 new projects, many of which are anticipated to be commercialized within the next few years, were initiated at Innovation Centers. DuPont TechCon is our annual technology conference, attended by select customers and more than 500 scientists from around the world, connecting them with one another to broaden and deepen our science and technology relationships and feed our innovation pipeline.
3
Global Reach: Leveraging our Presence to Meet Customers’ Needs
1 2 G L O B A L I N N OVAT I O N C E N T E R S & G ROW I N G • M E X I C O C I T Y, M E X I C O
• I S TA N B U L , T U R K E Y
• J O H N S T O N , I OW A , U . S .
• PUNE, INDIA
• T R O Y, M I C H I G A N , U . S .
• B A N G KO K , T H A I L A N D
• PA U L Í N I A , B R A Z I L
• H S I N C H U , TA I W A N
• MEYRIN, SWITZERLAND
• S E O U L , S O U T H KO R E A
• M O S C OW, R U S S I A
• N A G O YA , J A PA N
INNOVATION SUCCESS STORY: NAGOYA, JAPAN When leading automobile manufacturer Mazda was looking for specialized parts that would be durable in an extremely high-temperature, high-pressure and wet environment – for example, for the company’s SKYACTIV-D1 diesel engine – DuPont was the only materials supplier that could provide the products and expertise necessary for a solution. During an engagement with the DuPont Innovation Center in Nagoya, Japan, Mazda engineers collaborated
1SKYACTIV
is a registered trademark of Mazda Motor Corporation.
with designers and leaders from two DuPont businesses. The result was turbocharger air ducts made of DuPont™ Zytel® HTN (high-temperature nylon) and hoses made of DuPont™ Viton® synthetic rubber. Mazda now uses DuPont™ Vamac® elastomer in their new SKYACTIV-D diesel engines, which are able to withstand air temperatures reaching 200°C at pressures up to 200 kPa in a wet, corrosive environment.
Results Our management team’s focus on operational priorities of innovation, global reach and strong execution is paying off. Over the last five years, those efforts have delivered superior results, including: • Delivered total shareholder return of 214 percent since 2008, compared to 128 percent for the S&P 500 and 111 percent for our proxy peers1 during the same period. • Excluding Pharmaceuticals, segment operating margins increased to 16.3 percent in 2013 from 10.9 percent in 2008.2 • New products introduced between 2010 and 2013 generated approximately $10 billion in 2013 revenue. • Developing market sales have grown by a CAGR of 13 percent from 2008 to 2013. Building on our strong momentum across all our market-leading businesses, in 2013 we: • Achieved a solid 3 percent growth in operating earnings per share, despite a 45 percent decline in the Performance Chemicals segment and a sluggish global economy.2 • Achieved industry-leading growth in our Agriculture businesses. • Introduced nearly 1,800 new products, including Optimum® AcreMax® seed technologies, Optimum® AQUAmax® hybrid seeds, Rynaxypyr® insecticides, Solamet® pastes, new applications of Kevlar® for conveyor belts and broadband cable protection and renewable Zytel® specialty polyamides for automotive applications. •M ade significant strides in reshaping our portfolio for higher growth, completing the divestiture of the Performance Coatings segment and announcing the separation of our Performance Chemicals segment. •E xecuted a $1 billion share buyback. •R aised our dividend by 5 percent for the second year in a row. We are continuing to invest in the future. We made targeted and strategic capital allocations in 2013 and, over the last five years, increased our reinvestment rate from $3 billion to $4 billion a year, which will result in higher growth opportunities.
Strategic moves like the $7 billion acquisition of Danisco, the $5 billion sale of Performance Coatings and the decision to separate our Performance Chemicals segment have helped us strengthen and sharpen our portfolio as we move to a higher-growth, less cyclical and less volatile DuPont. The anticipated spinoff of our Performance Chemicals segment will result in two strong public companies, each able to focus on its unique purpose and strategic priorities. Each company will utilize tailored capital structures that support how they individually create value for shareholders and accomplish that company’s strategic objectives. DuPont will continue as a higher-growth science company, delivering shareholder value through earnings and revenue growth, and Performance Chemicals will emerge as a strong, cash-generating company that will also provide value to shareholders. Our productivity efforts over the last five years have freed significant cash, and dividends remain a priority. In fact, we have had 438 consecutive quarters of dividend payouts for shareholders, and two years ago we restarted dividend increases. Our plan is to grow dividends in line with earnings growth, complemented by share repurchases consistent with our cash discipline policy. It is the talent, determination and dedication of our people that have made DuPont successful since 1802. Our leaders have remained focused on our purpose as we’ve reshaped our company to respond to some Strong Execution, of the world’s toughest Superior challenges. Our world-class Returns scientists help keep our pipeline filled with sustainable, innovative and marketable solutions. Each of our 64,000 employees in more than 90 countries contributes to making lives better, safer and healthier for people everywhere. Our “Committed to Zero” Core Values guide our company and ensure that we deliver for our shareholders, our customers and the communities in which we operate around the world.
4
2 1 4% S H A R E H O L D ER R ETUR N D E L IV ERED IN THE PAS T F IV E Y EA R S
1Source:
Datastream as of 12/31/2013, Bloomberg, Capital IQ, FactSet. Proxy peers consists of 3M, Air Products, Baxter International, Boeing, Caterpillar, Dow, Emerson, Honeywell, Ingersoll Rand, Johnson Controls, Johnson & Johnson, Kimberly-Clark, Merck, Monsanto, Procter & Gamble, Syngenta AG and United Technologies. Proxy peers and S&P Indices are USD market cap-weighted and assume dividends are reinvested at the closing price applicable on the ex-dividend date. 2See reconciliations of non-GAAP measures to GAAP at the end of this document.
$10 BILLION IN REVENUE ATTRIBUTED TO NEW PRODUCTS 2010–2013
12 & 150
GLOBAL R&D CENTERS
INNOVATION CENTERS
10,000
SCIENTISTS & ENGINEERS
5
Gaining Momentum, Today and Beyond
As we move into 2014, DuPont has positive momentum across our portfolio and is delivering value for our shareholders, customers and the communities we serve around the world. Our Board of Directors has authorized a new $5 billion share repurchase program, and we expect to complete $2 billion of the program in 2014. This repurchase plan takes into account our improved balance sheet and reflects our ongoing commitment to provide attractive cash returns to shareholders. More important, it gives us the flexibility to continue to invest where we believe we can create advantage through our unique science expertise.
We are encouraged as we enter 2014, despite a market environment that remains dynamic. We expect the global economy to continue its gradual improvement, and we expect the U.S. economy to continue to strengthen as well. With a 200-year history fueling our confidence, we remain steadfast in our conviction that science-powered innovation will provide answers to some of the world’s most complex problems, deliver marketable solutions for customers and provide the superior returns shareholders expect.
GROWTH
D E LI VE RIN G TO D AY – A N D P OIS ED TO CONTINUE DEL IV ER ING
OUR PURPOSE
DuPont is a science company. We work collaboratively to find sustainable, innovative, market-driven solutions to solve some of the world’s biggest challenges, making lives better, safer, and healthier for people everywhere.
VALUE The journey continues at annualreview.dupont.com
DuPont Segments, Businesses and Core Markets DuPont Agriculture
DuPont Industrial Biosciences
DuPont Performance Chemicals
DuPont Safety & Protection
Businesses: Pioneer | Crop Protection
Core Markets: Industrial Enzymes | Bio-based Materials
Businesses: Titanium Technologies | Chemicals & Fluoroproducts
Core Markets: Seeds | Agricultural Chemicals
DuPont Nutrition & Health
DuPont Electronics & Communications
Core Markets: Food & Nutrition Products
Core Markets: Industrials & Chemicals | Construction | Specialties | Plastics | Transportation
Businesses: Protection Technologies | Building Innovations | Sustainable Solutions Core Markets: Industrial | Construction | Military & Law Enforcement | Transportation | Consumer
DuPont Performance Materials
Core Markets: Photovoltaics | Consumer Electronics | Advanced Printing | Displays
Businesses: Performance Polymers | Packaging & Industrial Polymers Core Markets: Transportation | Industrial | Packaging | Electrical/Electronics
Use of Non-GAAP Measures (Unaudited) This publication includes company information that does not conform to generally accepted accounting principles (GAAP). Management believes that an analysis of this data is meaningful to investors because it provides insight with respect to ongoing operating results of the company and allows investors to better evaluate the financial results of the company. These measures should not be viewed as an alternative to GAAP measures of performance. Furthermore, these measures may not be consistent with similar measures provided by other companies. This data should be read in conjunction with previously published company reports on Forms 10-K, 10-Q, and 8-K. These reports, along with additional reconciliations of non-GAAP measures to GAAP, are available on the Investor Center of www.dupont.com under Key Financials & Filings. Reconciliation of Segment Pretax Operating Income (PTOI) (Dollars in millions)
Year Ended December 31, 2013
Year Ended December 31, 2012
Total Segments
Performance Chemicals
Total Segments excluding Performance Chemicals
Total Segments
Performance Chemicals
Total Segments excluding Performance Chemicals
Segment PTOI (GAAP) Significant items charged to segment PTOI
$5,369 556
$924 74
$4,445 482
$5,369 882
$1,778 36
$3,591 846
Segment operating earnings
$5,925
$998
$4,927
$6,251
$1,814
$4,437
Calculation of EPS
EPS from continuing operations (GAAP) Significant item charges included in EPS Nonoperating pension/ OPEB costs included in EPS Operating EPS
Reconciliation of Segment PTOI Margin1 Year Ended December 31, 2013
Year Ended December 31, 2012
$3.04
$2.59
0.45
0.72
0.39
0.46
$3.88
$3.77
Year Ended December 31,
Segment PTOI (GAAP)
Pharmaceutical Segment (Pharma) PTOI2
Impact of Significant Items Charged to Segment PTOI
Segment Operating Earnings (excluding Pharma)
2013: Dollars in millions Margin
$5,369 14.9%
$32
$556
$5,893 16.3%
2008: Dollars in millions Margin
$3,373 12.7%
$1,025
$553
$2,901 10.9%
1Calculations of margin are based on segment sales of $36,046 and $26,499 for 2013 and 2008, respectively. 2Pharma PTOI did not include any significant items in 2013 and 2008, respectively.
Forward-Looking Statements This publication may make forward-looking statements or provide forward-looking information. All statements that address expectations or projections about the future are forward-looking statements. Some of these statements include words such as “plans,” “expects,” “will,” “anticipates,” “believes,” “intends,” and “estimates.” Although they reflect our current expectations, these statements are not guarantees of future performance, but involve a number of risks, uncertainties, and assumptions. Some of which include: fluctuations in energy and raw material prices; failure to develop and market new products and optimally manage product life cycles; global economic and capital markets conditions; litigation and environmental matters; changes in laws and regulations or political conditions; business or supply disruptions; ability to protect and enforce the company’s intellectual property rights and successful integration of acquired business and separation of underperforming or nonstrategic assets; and successful completion of the proposed spinoff of the Performance Chemicals segment, including the ability to fully realize the expected benefits of the proposed spinoff. The company does not undertake to update any forward-looking statements as a result of future developments or new information. Developing Markets Total developing markets is comprised of Developing Asia, Developing Europe, Middle East & Africa, and Latin America. A detailed list of all developing countries is available on the Investor Center of www.dupont.com under Key Financials & Filings.
