Letter to Shareholders from DuPont Chair & CEO Ellen Kullman
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 a 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 by 3 percent each1.
Aside from the 45 percent market-driven decline in earnings from the Performance Chemicals segment, our businesses grew their segment operating earnings by 11 percent1. 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 global macro trends 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 percentage 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.
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,
Chair of the Board & Chief Executive Officer, DuPont
1. See reconciliations of Non-GAAP measures to GAAP at the end of this document.
2: Free cash flow represents 2013 cash provided by operating activities of $3.2 billion, less 2013 purchases of property, plant and equipment of $1.9 billion.
* Source for Total Shareholder Return Chart: 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.