Q4 2019 Earnings Call

January 30, 2020

Good day and welcome to the Dupont fourth quarter 2018 earnings call. Today's conference is being recorded and at this time I would like to turn the conference over to ARIKACE. Please go ahead.

Good morning, everyone. Thank you for joining us for Dupont's fourth quarter and full year 2019 earnings conference call. We are making this call available to investors and media via web.

We have prepared slides to supplement our comments during this conference call. These slides are posted on the Investor Relations section of Dupont's website and through the linked through our website.

Joining me on the call today are marked oil Chief Executive Officer, Dean Guzman, Our Chief Financial Officer, and had Green Executive Chair.

Well you've read the forward looking statements disclaimer contained in the site during our call. We will make forward looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainty our actual performance and results may differ materially from our forward looking statements.

Our third quarter Form 10-Q as updated by our current and periodic report include detailed discussion of principal risk and uncertainties, which may cause such differences.

Unless otherwise specified all historical financial measures presented today, excluding significant items.

We will also refer to non-GAAP measure a reconciliation to the most directly comparable GAAP financial measure is included in our press release.

Now turn the call over to Mark.

Good morning, everyone and thanks for joining us how quickly run through an overview of 2019 and how we executed against our key priorities I will then cover our priorities and expectations for 2020, including the actions we're taking in light of our expectations for a slow start to 2020, given further price pressure in our nylon.

Business and unplanned outages, which have already been resolved at our largest SNC site.

Our teams are intently focused on addressing these items to return to a more normal growth pattern. After Q1.

Starting on slide to the team delivered sound full year results within a macro environment dominated by the China tariffs situation, which significantly challenged two of our key end markets audio and electronics, resulting in both demand contraction and inventory de stocking as we navigated the market uncertainty.

Our team continued to stay focused on the levers within our control, including price discipline and cost actions nicely mitigating the impact of volume declines on earnings.

Our full year net sales of $21.5 billion were down 5% in total and down 2% organically with price up 2% and volume down 4%.

While full year operating EBITDA of $5.6 billion was down 4% our strong operating discipline resulted in gross margin expansion of greater than 50 basis points and operating EBITDA margin expansion of 10 basis points for the year.

Adjusted EPS of $3.80 per share was down 7%, reflecting lower segment income currency headwinds and higher tax rate. This was partially offset by lower depreciation and a lower share count due to both share repurchases completed in the first half for the year from the Dow Dupont program.

And $750 million of repurchases, we made sense our separation on June 1st.

Slide three provides more detail on our topline results for the year, both the pluses and minuses our performance in each of our underlying businesses was consistent with market trends and this slide highlights the themes, we've talked about throughout the year, including our strength in Fiveg, which is reflected in our interconnect solutions business.

The continued momentum in water solutions and the steady growth of our food and beverage business. We continue to make high return investments in R&D, Capex and M&A and these and other areas to drive further innovation led growth, including opportunities to expand our content and next generation smartphones.

And hybrid and electric vehicles.

Offsetting these were lower results in our semiconductor technologies business and RTL segment, and lower sales in our health and by the Sciences business, primarily from pronounced slowdowns in North America, bio ethanol and probiotics markets.

Moving to adjusted EPS results on slide four within our segment results pricing gains synergies and cost savings were more than offset by the impact of softer volumes lower equity affiliate income and higher year over year planned maintenance costs, particularly in the back half for the year in essence C.

Currency was a 16 cents headwind for the year below the line items had a net neutral impact to our adjusted EPS driven by an increase in the tax rate offset by benefits from lower depreciation and amortization and a lower share count.

I will now cover how we executed against our 2019 priorities on slide five as I've mentioned, the past year was a challenge given macro conditions negatively impacting about 40% of our portfolio, which led to weaker results versus our expectations going into the year. However, we did deliver strong results in key end markets.

Such as water Fiveg aerospace medical and plant based meets where the market fundamentals remain sound. Our continued commitment to a best in class cost structure was a key driver of our ability to expand both gross and operating EBITDA margins.

We delivered greater than $500 million, an annual savings from synergy programs and the restructuring program. We launched in the second quarter of 2019. These initiatives did help to improve our operating leverage but we still have more work to do here.

We also made significant progress this past year on our portfolio strategy announcing our agreement to merge our nutrition and bio sciences business with I FF, creating a de facto leader in the food and beverage space with the broadest technology and product offerings, Ed will speak further about this transaction later in the call. Additionally, we.

We further refined our portfolio through the announcement of the divestment of three businesses during the year.

Free cash flow conversion was strong this year, and we reported greater than 100% conversion on an underlying basis for the past two quarters.

Finally, while I'm pleased that our 2019 ROI see of 29% reflects a marked improvement from 2017 when the portfolio was first put together our 2019 performance was not as strong as our prior year results due to weak into working capital performance lower segment earnings and a higher tax rate.

Both working capital and segment earnings are key focus areas for improvement moving forward and critical components of our 2020 priorities, which I'll discuss on the next slide.

As noted we know we have more work to do in some of our key value creation drivers.

I'm disappointed with our operational leverage as we exited the year and the slow start to 2020 and I'll provide more detail on the actions, we're taking to return to growth, which is more in line with our expectations in a moment.

Oh through innovation is a key component of our strategy and we will continue to drive competitive advantage and sustainable topline expansion through our application development engine and deep customer relationships through our differentiated investment we aim to increased demand by advancing several key technical milestones in our major R&D platform.

Such as Fiveg microbiome and auto electrification.

To ensure we can meet additional demand generated by these programs, we will continue to implement key capacity expansions.

R&D initiatives and investments in innovation will also contribute to our 2030 sustainability initiatives and we look forward to reporting progress towards these goals.

Our operating model enabled us to be agile and proactively respond to the dynamic market environment. In 2019. This will be just as if not more important in 2020 particular focus areas. This year are continuing to advance productivity initiatives using digital tools and process simplification and.

Right sizing the organization with a high performing operating model focus on innovation and define targets for working capital improvement, we expect to enable further improvement in both ROI C and free cash flow conversion.

Active portfolio management remains a key component of our strategy Ed will address this in more depth during his remarks.

Slide seven details the actions underway as well as those actions we expect to put in place in response to both the macro environment and our operating challenges, we expect that the completion of the Dow Dupont synergies and the 2019 restructuring plan will provide approximately $215 million of gross cost save.

Earnings in 2020. These programs are well defined and the teams are executing the actions needed to deliver these savings.

We're also planning further cost reductions this year to enable us to better maintain our operating leverage as we committed. These actions will also start to address the stranded costs. We expect following completion of the NMD transaction.

We anticipate approximately $90 million as savings from these initiatives. In addition, we've launched a project to consolidate our asset footprint, which we expect to generate a total of greater than $150 million of savings over a three year period with the first impact beginning in 2021 I will share.

More information on these items as they continue to take shape.

Before I turn the call over to gene to discuss the fourth quarter I'll cover our first quarter and full year guidance, starting with organic growth on slide eight for the full year, we expect sales of $21.5 billion to $22 billion, which is up slightly on an organic growth basis.

We anticipate a return to more normal growth in all our core segments, except Kenai, which is being impacted by continued weakness in the automotive market and niland industry headwinds, which I'll cover when reviewing EPS expectations.

Eni is expected to deliver 2% to 5% organic growth as memory markets return to a more normal growth profile in the back half of the year next generation smartphones with higher content of our materials continue to penetrate the market and we already started to see these volumes in the second half of last year.

And in B is expected to grow 3% to 4% organically with strong volumes across all three businesses led by a return to growth in our probiotics business from the actions, we're taking to win new business in North America as well as the strong Chinese market continued acceleration of our offerings into the alternative meet market.

And strength in food enzymes.

Since he is also expected to grow 2% to 3% organically from continued strong demand in water solutions further pricing gains and resolution of the raw material supply shortages that limited production in the back half of last year and safety solutions.

Noncore is expected to decline, 3% to 5% organically from lower demand for try cloris silent to the hemlock semiconductor joint venture and for Sirona in carpet and apparel applications.

Moving to full year adjusted EPS expectations on slide nine this year, we expect adjusted EPS of $3.70 to $3, a 90 cents per share as higher volumes cost reductions and productivity improvements are offset by net headwinds from discrete items in 2019.

And lower nylon prices, coupled with a weaker nylon mix from a quarterly perspective. These headwinds are most pronounced in the first quarter, which I'll cover on the next slide.

Ill now going to further detail on the nylon dynamics, we're facing nylon industry fundamentals were weaker in the second half of 2019 as lower demand coupled with improved industry supply reliability negatively impacted our discretionary pricing power, we anticipate a similar operating environment as we enter 2000.

20, and forecast Kenai segment prices will be down about mid single digits, primarily due to lower year over year, niland prices and weaker mix, resulting in pricing headwinds of approximately 230 $250 million.

Context in 2018, DNA segment earnings were up 20% as steady demand, coupled with industrywide supply disruption and force matures and nylon six six and key raw materials fueled higher prices with our pricing, peaking in the first quarter of 2019.

With the supply issues resolved and weak auto build forecast for 2020 market prices for nylon have been pressured and are expected to continue to decline as the year progresses with the most significant impact in the first half of 2020.

Additionally, we can demand in our core markets has resulted in a shift towards more opportunistic lower margin nylon sales. So that we can fill our assets, resulting in a weaker mix of products sold.

We have and continue to implement a series of action to moderate the pricing impact focused on productivity and asset utilization.

While we anticipate a challenging 2020 for T. and I, we remain constructive on our mid to long term outlook Aerospace health care and auto electrification continue to provide steady demand and our deep innovation capabilities have ups have us well position or renewed growth as markets recover in some.

Murray our expectations for this year are disappointing, but I'm confident that we will continue to take the right actions to drive sustainable long term growth.

Moving to Q1 on slide 10, as I noted our growth headwinds are most pronounced in the first quarter and predominantly encompass declines from lower discrete item gains weaken nylon dynamics and unplanned outages and SNC. Once we get passed the first quarter, we expect that nylon headwinds to.

Abate given the peak of nylon pricing was in Q1 of last year. In addition, our kevlar assets that are causing the headwinds in SNC are already backed up and running these dynamics coupled with the 2020 cost actions that will start to ramp after the first quarter give us confidence that we can return to a more normal pattern of growth.

Beyond the first quarter.

This quarter, we anticipate sales to decline in the mid single digits and adjusted EPS to be in the range of 70 cents to 74 cents per share the top and bottom line declines are driven by nylon headwinds and the unplanned outages in our SNC segment.

Additionally, there were approximately $80 million or eight cents per share of discrete items in the first quarter of 2019 that will not repeat.

Gene will cover some additional guidance detail in her comments and in the appendix. We have provided segment level commentary as well as some additional modeling specifics I'll now turn the call over to her.

Thanks Mark.

On slide 11, we closed quarter about where we expected from a top line and EPS perspective.

We mentioned on our mid December call, our operating EBITDA was going to be at the low end to the range, which is consistent with our reported results.

Total operating EBITDA of 1.4 billion was down 14% versus the prior year driven by lower gains in our non core segment.

And with customer settlements from our hemlock semiconductor joint venture as well as lower nylon pricing in our Kenai segment.

Going into further segment detail in a few of them.

While many of the market challenges that Mark mentioned for the year also impacted our fourth quarter. The team disciplined focus on driving price and executing on our cost saving initiatives delivered results.

Because of the focus in these two areas. Our teams were able to hold gross margins flat fourth quarter 2018 by 20 basis points that gross margin headwinds from softness in auto and lower nylon pricing.

Slide 12 provides additional detail on the topline performance for the quarter.

Net sales of $5.2 billion were in line with our expectation and down 2% organically versus the prior year.

Our electronics and imaging business had the strongest results. This quarter led by further expansion of our content in the newer high speed high frequency phones, which generated greater than a dollar per phone of additional sales for us.

We also continued to see strength in our water solutions business, which was up in the low teen driving overall organic growth in essence each segment.

A few additional bright spot I would highlight from the quarter, our in our nutrition and biased Sciences segment.

These include our offerings into the alternative or plant based meet market, which is included in the food and beverage business and our animal nutrition and food enzymes business, both of which fall into our health and Biocides business.

Moving to the fourth quarter adjusted EPS on slide 13.

Fourth quarter adjusted EPS of 95 cents was down 34%.

I will highlight two items within the segment results that are specific to the fourth quarter.

First is lower equity affiliate income specifically, our hemlock semiconductor joint venture within the non core segment.

Equity affiliate income on an adjusted basis declined about 120 million or 42%.

Hundred 66 million.

This decline is mostly attributable to lower income associated with customers settlements from the hemlock joint venture.

Settlements were at their peak in 2018 and have trailed off substantially in 2019.

We expect another significant decline into 2020 further reductions in the customer settlements and declines in underlying results as customers are released from the contract.

Also specific to the fourth quarter with the price decline in transportation and industrial segment.

Although we started to see sequential pricing pressure earlier this year following the peak in first quarter 2019.

The year over year price only move negative on us in the fourth quarter at down 2%.

Back to the headwind in the quarter due to a lower rate in the prior year driven by benefits from the Dowdupont transaction that did not repeat.

Our full year rate of 21% is in line with our expectations.

Turning to the balance sheet on slide 14, you'll see that our net debt increased slightly to 15.9 billion, mostly attributable to lower cash balances as we ended the year.

In the fourth quarter, we closed three acquisitions in the water space for a total of about $175 million and we made a $185 million pension contribution it was triggered by the stand up of Newport.

Share repurchases in the quarter, we're about 299, bringing our total repurchases June 1st the 750 million.

Moving the pension contribution which is reflected in operating cash flows our fourth quarter free cash flow conversion with greater than 100% again exceeding our target of greater than 90%.

On the slide you can see the trend of working capital over the past five quarters.

I'm pleased that our working capital has improved in the back half of 2019, we are still above year end 2018 level and not where we need today.

This remains a key focus area of mine in 2020 to free up cash we've put in place that working capital improvement target of 10% for the current year.

Shifting to a review of segment results and starting with electronics and imaging on slide 15.

Fourth quarter net sales were the strongest of the year at 937 million and were up 3% versus the prior year.

Strength was led by our interconnect solutions business, where advanced materials are supporting the launch of next generation smartphone.

Low teens growth in the interconnect business in the second half of 19, it's a proof point that we have market, leading innovative solutions to support the development of Fiveg technology.

The strength in interconnect solutions was partially offset by softness in semiconductor technology similar to what we saw this third quarter 2019.

Our semiconductor business, it's about half exposed to memory, which remains sluggish. However, the overall semiconductor market is on a positive trajectory as evidenced by our sequential improvement last two quarters and we expect the recovery to continue returning to more normal growth in the back half of this year.

Fourth quarter operating EBITDA for the segment was 293 million a decrease of 9% for pro forma operating EBITDA of 321 million in the year ago period.

The mix shift between strengthen interconnect solutions and softness in semiconductor technologies, the highest margin business with any and I created margin pressure leading to the EBITDA decline.

Moving to nutrition buyer scientists on slide 16.

Net sales of 1.5 billion were flat on an organic basis with 1% price improvement offset by 1% volume declines.

For the fourth quarter strength in food enzyme animal nutrition, and our meat free offering each of which were up mid to high single digits in the quarter, we're able to offset market driven weakness in protein probiotics and bio refineries and supply chain disruptions and sweeteners.

Fourth quarter operating EBITDA for the segment was $323 million a decrease of 2% from pro forma operating EBITDA of $330 million in a year ago period.

Productivity and pricing gains were more than offset by manufacturing headwinds unfavorable product mix and lower volumes.

The unfavorable product mix, partially the result of softness in North America probiotics market.

Our business consistent with the market with down on a year over year basis for both the quarter end the year.

We are working with channel partners accelerating initiative to get the North American markets back on track.

While the North American market recovers, we expect that probiotics growth will continue to be fuel from Asia Pacific recurrent market penetration as low as compared to other regions, but growing steadily.

The year probiotic sales in China were up over 30%.

Our transportation and industrial results on slide 17 reflect lower auto bills and weak demand in electronic and modest continued destocking in the automotive channel.

Net sales of 1.2 billion were down 9% versus the prior year.

Fourth quarter operating EBITDA for the segment was 277 million a decrease of 19% from pro forma operating EBITDA of 344 million in the year ago period, with cost reductions and lower raw material costs being more than offset by lower volumes and price headwinds.

Turning to the results of safety and construction on slide 18, net sales of 1.3 billion were up 1% on an organic basis.

Volumes are mixed with strength in areas such as water solutions for double digit volume gains on strong demand for ion exchange and reverse osmosis membranes in industrial markets were more than offset by volume declines in safety solutions and continued softness in shelter solution.

Safety solution demand remained steady across most product lines, however, plans maintenance downtime and raw material disruptions in the supply chain limited production volumes.

Fourth quarter operating EBITDA for the segment totaled $311 million flat with the year ago period, like pricing gains and productivity actions being offset by higher manufacturing costs, primarily from costs associated with planned maintenance and lower volumes.

I'll close with a few comments on our cash generation and needs in 2020 on slide 19.

We continue to expect to generate strong cash flows with the conversion rate greater than 90%.

While many of the Dow Dupont transaction related items are behind US, we will start to incur costs associated with our recently announced and if the transaction.

Our commercial paper balances at year end, we're about 1.8 billion I'm committed to bringing these balances down throughout the year.

And finally shareholder remuneration remains an important aspect of our overall capital allocation policy.

While our current forecast has the majority of cash that we generate from normal operations going towards paying down commercial paper balances and the NB transaction costs, we are targeting reducing working capital by about 10% this year.

Which along with future noncore divestments would be targeted for share buyback.

With that I'll now turn the call over to Ed.

Thanks Gene. This morning, I'll provide an update on the SMB and IMF transaction as well see a few words on people costs in the quarters litigation.

I continue to be excited about the value accretion potential of our transaction with high FF.

And I have confidence in the strong strategic logic for this combination.

As a proof point, we have already heard from several large customers about their excitement over the portfolio breadth.

Technology depth of the new combined company.

You can see go slide 20, we have already begun working all the integration.

Rigorous process is being run through ensure this goes smoothly.

As you know Dupont and the other beeching, specifically as a lot of experience in this area, starting 10 years ago with the integration of Dennis scope into Dupont.

And then more recently executing the complex integration of the Dow and FMC portfolios with our business.

In addition to the internal combination of the former nutrition and health.

And industrial bias Sciences businesses.

We know how to do this and we will execute to seeing playbook that has worked so well for us in the past.

Some of the key short term milestones that have already been completed or the establishment of the executive steering team.

In the appointment of leaders for key work streams, including separation in integration.

Core financials.

Separation and standup legal entity work and talent selection.

The teams at both by effect, and then a b or well staffed.

I'm confident we will stay on track with our plans.

Beyond the end of Bee transaction, we continue to believe our portfolio presents many ways to create shareholder value and we continue to assess our options.

I'll close with a few words and liquor Moore's law suit and PFS, we continue to believe our potential risk exposure remains contained.

I feel it's worthwhile to underscore that point well also updating a couple items, we discussed on our last call.

Regarding the Ohio, MTO personal injury claims to related cases are currently being tried together in Ohio as we speak.

Good morning continues to indemnify and defend these cases and others subject to a limited cost sharing agreements.

I mentioned last time, we still have contributed a penny in excess of the 25 million trigger and by default courses and I've spent more than 25 million.

With respect to the South Carolina MTO. Most of these cases are tied to allegations of P. foster containing firefighting foams use over the last 60 years.

The suits really largely to Pf Oh, yes, chemical that neither cores or historical Dupont ever made are sold.

The same is true for firefighting foams.

Historical Dupont, Saudi manufacturer phone, but for a limited period, along with numerous others provide in an ingredient to phone manufacturers.

This ingredient could lead to trace amounts of Pf obey but absolutely no.

Wes which is the primary concern.

We continue to believe that the exposure of historical Dupont workable worse is negligible compared to those that manufactured marketed and sold these materials.

We also continue to defend ourselves against various natural resource damages cases, most of which are in states, where we never had a manufacturing presence.

These claims seem to focus on phone or generic p. fonts containing products. We take these cases very seriously monitor developments closely.

However, we still believe it direct impacts to Dupont or limited at our being managed appropriately.

As to the more suit in late December the Delaware Chancery Court heard our arguments to dismiss the case Incented arbitration.

Before argument went well and we expect the decision by the end of this quarter early next.

Ill now turn into Laurie opened for Tonight.

Thank you Ed with that let's move onto your question first I'd like to remind you that are forward looking statements apply to both our prepared remarks and the following QNX.

We will allow for one question per person operator, please provide the Q in a instruction.

Thank you and if he would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speakerphone. Please make sure that your mute function is turned off today your signal to reach our equipment again that is start went to ask a question.

We will take our first question from John inch with Gordon Haskett.

Thanks, Good morning, everybody, yes. Thank you good morning, everybody.

Good morning, it sounds like you have a little bit of a call. The hope you haven't been too high and China recently.

But I do have a bit cold so I apologize.

Let me a lot worse.

So understanding some of the first quarter 2020 compares issues such as the one timers still if I annualize the midpoint of your first quarter guys. You get about 90 cents short of your fiscal year fiscal year estimates. So I just curious what are the key drivers of your post.

One Q growth assumptions your confidence level, there and then just secondly, your billion dollar working capital opportunity that you call out in the slides that tied to your 2021 asset footprint rationalization initiative are these two discrete buckets that lead to two discrete streams of benefit. Thank you.

Yes. Thanks, John for that question. This is Mark let me take it to give us voice a bit of a break and then it can jump in and I'll ask gene to take the working capital question.

Just starting with the first quarter, you're right. It is an abnormally weak quarter.

But I'll tell you in terms of the second quarter on we do have strong confidence in our forecasts.

We're not assuming a recovery for the markets here.

We've got a number of things that are really under our control happening from Q1 to Q2 and.

Starts with sort of the typical seasonal lift that happened some from one cuda to Q. Most every year, but also we've got a significant change and the one timers because there's a sizable settlement associated with the joy how much joint venture in the second quarter, which is worth about 80 million in EBITDA.

And then on top of that the SNC manufacturing headwinds that we had that hit us in the first quarter are largely behind US now. So we're confident that the SNC business will be back to sort of normal supply against continued strong demand and then final kicker that cost actions, we announced here.

Which we've kicked off are going to start to deliver in the second quarter and that will be worth another about five cents per share.

Going forward per quarter so.

When we rack these things up it provides us confidence that the second quarter is going to be kind of back to a more normal earnings some environment.

Yes, so in terms of working capital really it separate and apart from the asset rationalization. This is a working capital opportunity that we identified at the time, we brought the portfolios together now Unfortunately, as we went through the separation process with Dow Dupont and core Teva, our working capital balances actually.

Increase with all the system freezes, we had we built inventory and then as we came in to 19 and we saw slowdowns in some of our markets that exacerbated the problem. So we are taking a very.

Very strong effort in 2020 to reduce working capital, but as I said, 10%. We've got teams activate it to do that effort and you should see that benefit separate and apart from these others I would think longer term with the asset rationalization, we will have additional working capital benefits, but those will be.

Further out past 2020.

No I hear next from Jeff Sprague with vertical research.

Please go ahead. Thanks, yes. Thank you good morning, everyone. Just one of the kind of come back to manufacturing the essence see item as you said it sounds like it gets ironed out you also mentioned some manufacturing issues and be.

We've heard a few of these over the last several quarters I Wonder if you could just address mark.

Whether kind of the manufacturing side of the equation is.

Largely kind of settled here post separation.

Is there is there any particular disruptions going on as you try to get after synergies.

Would just be nice not to have to kind of talk about these issues.

Yes, yes, thanks, Jeff couldn't agree more.

And I'd call.

Some of this particularly like in an MD.

These things are abnormal said happen once in a blue moon.

Since he is the one that's really been the most pronounced end.

It's it's a few quarters running now but for different reasons. Some so if you'd say if I take it back to last year, we had a real strong first half and SNC and then we did run into a disruption in our supply chain for a key material and capital are.

Raw material supplier disruption and that was.

Part of the weakness in the third quarter, the fourth quarter, we had a planned maintenance sort of a two year every two year maintenance cycle on nomex.

That had an earnings impact in the quarter and now we've got to a subsequent outage again and the capital our manufacturing line.

And it's a little bit connected to that raw material shortage, because our inventories were so tight after that that a small disruption in manufacturing here has really had a bigger impact on the quarter and so to your question on on that kind of operational stability I'd say first of all by and large hundred 80 manufacturing site.

It's around the World. We've got strong performance, we're making investments in productivity, we're making investments in digital I've got confidence in our operations leadership around the world. Our safety performance by the way was a record last year for us as a company in the history of the company and so I think the team are doing the.

Including the Kevlar issues in SNC are extremely frustrating to us into our Kevlar business team, but we feel pretty good just in terms of where the units running right now and given a couple of months to catch back up with inventory, we think we'll be able to whether any future disruption there.

And so hopefully this is behind us and as you said, we won't be talking about this every quarter.

And next we'll hear from Vincent Andrews with Morgan Stanley . Please.

Please go ahead.

Thank you.

And if I could ask you on the PFS the personal injury cases.

Originally there was a there was a settlement.

First Landry cases, a few years ago. So just curious what why not settle these cases I mean, we've certainly seen the jackpot that are going against bear the and the glass to say cases, so why not settle these and how confident are you that this doesnt.

Spiral into something that we don't want to deal with.

Yes so.

For the question Vincent.

Yes look there is about 60 of these cases outstanding these two or intro right now.

I can't.

Necessarily forecast the outcome, but there's always the opportunity here to settle.

Settlement, usually happens kind of in this window of time, so it's possible that that will be the outcome.

So we'll just have to see over the next ensuing weeks. So how that plays out but obviously, we're very cognizant of the point that the question that you just asked.

And next we'll hear from David Magee letter with Deutsche Bank.

Please go ahead. Thank you good morning.

Can you address the issue in terms of the discount and the share price to two picoway and the potential and desire to do additional tax efficient transactions for the portfolio, perhaps with the electronics franchise.

Thank you.

Yes, So let me go back so maybe just high level to the.

The IMF transaction and just talk about that a moment also you all have done the math that might read at all your reports, but you know you just do the math July FF as it stands right now and remain code Dupont trades at about eight times.

So I think this will play out just on the IMF transaction as we get closer to it.

I'd also mention.

I really believe and we're hearing this from our customers a pretty broadly that we've created the de facto leading platform in the industry by way, it's incumbent upon us and I have two elegantly pull this merger off with each other and we will do that I know, we have to prove that to everybody I understand that.

But I also trades at a discount to the top peer set in the industry by about 500 basis points. So I think there's great leverage here.

In creating this phenomenal company.

Both the value, we're getting initially out of it and the value that can be created.

Over the next couple of years with that transaction, but having said that we traded.

Problems or remainco.

Let me just say this and I don't want to get into too much detail on it but we are actively in conversations with others.

I'd like tax efficient transactions.

We like creating.

Leading companies and we're very agnostic, we want to do the right thing for our shareholders and though so we'll pursue those opportunities and we're assessing that with our board as we speak.

Next we'll hear from Steve too so with JP Morgan.

Please go ahead.

Hi, good morning, guys.

Good morning, Steve.

So just on the kind of news flow that's out there.

It was it seem to be kind of the discussion that you guys were looking at on the back of the last question something around the.

Hi business, but then there was some new slowed that there was.

You know something perhaps on the electronic side.

Can you just talked about I mean is it that is the situation with your portfolio kind of that fluid that you can kind of pivot from one to the other like that I know, there's a bit of a restriction on how much you could actually sell down would that would that EBITDA floor, but maybe you know he does it really kind of back fluid.

No actually it's not it's fluid is that sales, it's a shame, but those kind of leaks occur in its full so luck great for our employees to be hearing with one rumor after another to be honest with you.

I want to comment in too much detail, but.

But byway, Steve to your point, we do have an agreement with core Teva that we ought to maintain $2.5 billion.

Okay.

EBITDA.

If it stays with the liability having said that that doesn't mean, we kept separate things if we want to and I'm not saying we are but if we want to we can separate into different businesses, but we would have to leave 2.5 billion EBITDA liability with with the could be two entities by the way we leave it.

Yes, so we have a fair amount of flexibility.

Front of us, but so we don't have to hold it in one entity, if we don't want to.

And next we'll hear from Steve Byrne with Bank of America.

Please go ahead.

Thank you.

The spirit of your comments about innovation Marco wondered if you had any thoughts about using some of your technologies to maybe take a little more of a proactive stance on these PFS liabilities for example, using your your skills in water treatment to help these municipalities that.

Yes.

Unrelated do legacy Dupont sites, but just.

For goodwill liked.

So the Fayetteville pulls water, that's got 20 parts for trillion peer fairway, Pos and its upstream from the course plant.

Or use your capabilities in and.

Probiotics to develop bacteria that can degrade these chlorinated compounds in these industrial waste water treatment plants your thoughts on that yes, yes. Thanks, Steve It's a great question and actually we publish them PFS commitments as a as new Dupont.

Late last year, and including kind of our commitments for use of PFS in our products in manufacturing and.

The the my perspective on this is is that this isn't so much about health effects at the low levels of exposure, we're talking about but the fact that these long chain chemicals or bio cumulative is is just unacceptable. These days to all of us and so we made a statement that included that.

We.

Would be ending all use at our product lines, we'd be driving the use of PFS free firefighting foams at all of our manufacturing sites to be a leader there and we made a commitment around our water business and just to your point, we've been pretty active in the water space. Now this is as you're probably aware that.

Heritage Dow water solutions business that a leader in the global water industry for decades.

We've been of course, some investing aggressively in that business because the growth is fantastic and those acquisitions. We made last year of course sort of further strengthen our portfolio now so that we've got offerings that span from us to ion exchange to reverse osmosis and iconic shape.

Gennaro in particular are pretty effective techniques for removal of trace PFS compounds and so one of the commitments we made in the and the and that document last year was to provide technology, including royalty free licenses to certain pieces of IP that we had.

On the PFS area.

We're also working very actively on product developments.

That would allow our materials our components to be targeted to cleanup activities and so just as you said, where we're trying to do the right thing.

Working around the country in areas, where there is need here.

Right by the way I would just add as a point back to the Pos conversation.

You know we've been sued by the state of Michigan.

And just to make a point back to my prepared remarks, we had no manufacturing facility there that used any of those materials, it's more of a fire fighting foam case.

And so I think as it plays out and the facts related on the table, we had nothing to do in that state with any of that.

Next we'll hear from Jonas Oxgaard with Bernstein. Please go ahead.

Well thank you.

I was curious about the automotive.

So a two part question on we strip out the night on impact what does that business looks like in 2020, and what underlying automotive market growth do you use for that outlook.

Yes, Thanks, Jonas it's a good question.

So just starting with the underlying market growth, we're assuming our planning assumption is continued slight contraction in the auto industry for 2020 like minus 1%.

With respect to builds this year so.

That's that's another contraction versus the more significant contraction last year.

When you strip out nylon pricing.

We are expecting our engineering plastics to continue to grow from a volume perspective, a little bit faster than the market.

Were expecting de stocking, we're seeing that Destocking is pretty well ended and so that provides some sequential improvement in the situation.

And then on top of that you know, we're benefiting from some of the growth drivers like auto electrification and you know easy sales were up double digits last year expected to be up double digits. This year, we're seeing our growth in to electric vehicles growing even faster than that and so thats starting.

To become a more significant driver so.

You're absolutely right. The nylon pricing dynamics are so significant they're kind of overwhelming a lot of the positives, but there are some bright spots.

Or green shoots their underneath that.

On top of that I'd, just add you know given the nylon situation, we are taking some pretty aggressive action around cost control.

And that includes productivity actions in the sites that production sites, but also the the gionee costs at the business level to try to tighten up the delta as much as weekend to mitigate some of that pricing.

Downside that we're seeing.

Next we'll hear from John Mcnulty with BMO capital markets.

Hi, Thanks for taking.

Thanks for taking my question so.

With regard to the non core assets can you give us an update on how the sales are looking there and I understand the hemlock businesses is a little bit more complicated because that's something you feel like you can get pulled off by the end of the year. This year. Thanks.

Yes. Thanks, John This mark helped I'll take that yet so we feel pretty confident we're going to continue to make progress and like we said the last couple of quarters. Some my expectation is you will see.

I have a steady drip of progress here across the businesses and noncore hard to time, obviously, a lot of work behind the scenes on transactions.

A lot of rumors I saw the there was a new one this week that came out.

Say ignore the rumors but have confidence that we're working hard to execute the noncore divestitures and you know.

We should see progress quarter by quarter here.

Next we'll hear from Christopher Parkinson with credit Suisse.

Please go ahead.

Great. Thank you.

Within the SNC segment Youve, obviously, good margin progress over the last few years.

More recently are obviously face some procurement challenges outages et cetera can you just walk us through your intermediate to long term expectations for SNC margins, just given the current asset footprint procurement strategy evolution, and then also the growth outlook for and mix expectations for both on an eventual rebound for safety solutions and momentum in Aro membranes.

Water just any color would be greatly appreciated. Thank you.

Yes, Thanks, Chris Yes, absolutely right, we had great progress on SNC margins through 18 first half of 19, we've we've stumbled a bit now in the last few quarters and.

As I said earlier the majority of that is really operational issues in the air admits business and safety solutions.

We are pretty confident that thats behind us.

When you look at the demand environment. So we've got three primary markets that were exposed to safety water and shelter.

No big trajectory change year over year in the market environments. So the demand still very strong in water strong in safety.

Kind of pockets of weakness and shelter, but no big trajectory change and so in that environment with the operational issues resolved, we feel pretty good that we'll see the margins come back to what we said is the the kind of operating range that we expect.

Sort of mid to high Twentys range.

And then going forward as water grows water segment margins are strong little bit above the average.

With the acquisitions, we made we've got some further upside to drive margin improvement and so I would expect that to provide longer term lift in terms of what we could expect margins to continue to do so I'm feeling pretty good you know we got through some issues here.

We should see with continued demand.

The margin strengthen and then we've got some longer term upside on top of that and maybe just a follow up on Mark's comments. If you look at safety within it ticked in construction has the highest margin and our largest capital investment that we're making we've talked about before the tie back line eight that we're building in Luxembourg. So obviously, that's not an impact on 2020, but.

If we go towards the future and we look at the need for tie back for medical packaging and for protect protective environment. We'll see I think we'll have the capacity to meet what we expect to be continued strong demand in that space that will be accretive to margins overtime as we get the new asset up and running unfilled. Thanks.

Next we'll hear from Bob Court with Goldman Sachs. Please go ahead.

Hi, everyone. Thank you.

Hi, Bob.

Hi, guys quick question on the nylon.

Yes, I know.

You guys get at a nylon commodity years ago. Within this then I guess I assume that.

Polymers business, maybe add a little bit more downstream high value.

Offering so why is it that you're exposed to that now on pricing risk and that really passing through whatever you need to in order to recover that and then secondly that you talked about.

Trying to keep tax leakage at a minimum you also worry about value leakage here. If you try to monetize some of these assets when they're not exactly pumping with all cylinders going it at the present time. Thanks.

Yes, Thanks, Bob I'll take the first one and then turn it over to Ed.

Give that a chance for his voice to prepare itself.

Yes, it's a great question on nylon so just to be clear this isn't raw material cost fluctuations. So there is not exactly pass through but you could challenge fairly are we getting the value for our nylon compounds, which are we solve the trade name side sale.

Zeit tell is a differentiated product it's a it's a market leading product. It's got unique properties in terms of temperature and mechanical for applications. Automotive is is that sort of the highest value space sizable market, whereas I tells used.

So what's really happening here as us.

Making the decision that to continue to stay in the game for new qualifications in the auto space. We do have competitors that are at lower price we've got a.

Move price a little closer to where now that competitors are in order to continue to be re qualified for future applications and and so it's a delicate balance I mean, we do try to price for value, but at the end of the day, we're not the only supplier of nylon compositions and the market and so that's the kind of back.

Once here that's happening.

Yes.

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