Good day and welcome to the DuPont Fourth Quarter 2019 Earnings Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Lori Koch please go ahead.

Good morning, everyone and 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 webcast. We have prepared slides to supplement our comments during this conference call. These slides are posted on the Investor Relations section of DuPont website and through the link to our webcast. Joining me on the call today are Marc Doyle, Chief Executive Officer; Jean Desmond, our Chief Financial Officer; and Ed Breen Executive Chair. Please read the forward-looking statement disclaimer contained in the slide. 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 risk 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 reports include detailed discussion of principal risks and uncertainties which may cause such differences. Unless otherwise specified, all historical financial measures presented today exclude significant items. We will also refer to non-GAAP measures. A reconciliation to the most directly comparable GAAP financial measure is included in our press release. I'll now turn the call over to Marc.

Good morning, everyone and thanks for joining us. I'll quickly run through an overview of 2019 and how we executed against our key priorities, I'll then cover our priorities and expectations for 2020, including the actions we are 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 S&C site. Our teams are intently focused on addressing these items to return to a more normal growth pattern after Q1. Starting on Slide 2, the team delivered sound full year results within a macro environment dominated by the China tariff situation, which significantly challenged two of our key end markets, auto and electronics, resulting in both demand contraction and inventory destocking. 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 a 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 of the year from the DowDuPont program and $750 million of repurchases we made since our separation on June 1. Slide 3 provides more detail on our top-line results for the…

Thanks, Mark. Starting on Slide 11, we closed the quarter about where we expected from a top-line and EPS perspective. As we mentioned on our mid-December call, our operating EBITDA was going to be at the low end of the range, which is consistent with our reported results. In total, operating EBITDA of $1.4 billion was down 14% versus the prior year. Driven by lower gains in our non-core segments associated with customer settlements from our Hemlock Semiconductor joint venture as well as lower nylon pricing in our T&I segment. I'll get into further segment detail in a few moments. While many of the market challenges that Marc mentioned for the year also impacted our fourth quarter, the team's disciplined focus on driving price and executing on our cost saving initiatives [Technical Difficulty]. Net sales of $5.2 billion were in line with our expectations and down 2% organically versus the prior year. Our Electronics & 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 $1 per phone of additional sales for us. We also continue to see strength in our Water Solutions business, which was up in the low teen driving overall organic growth in the S&C segment. A few additional bright spot, I would highlight from the quarter in our Nutrition & Biosciences segment, these include our offerings into the alternative or plant-based meat market, which is included in the Food & Beverage business. And our animal nutrition and food enzymes business, both of which fall into our Health & Biosciences business. Moving to the fourth quarter adjusted EPS on Slide 13. Fourth quarter adjusted EPS of $0.95 was down 34%. I'll highlight two items within the segment results that are specific to…

Thanks, Jean. This morning I'll provide an update on the N&B and IFF transaction as well as say a few words on PFAS and the Chemours litigation. I continue to be excited about the value creation potential of our transaction with IFF and have confidence in a 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 and technology depth for the new combined company. As you can see on Slide 20, we have already begun working on the integration and a rigorous process is being run to ensure this go smoothly. As you know, DuPont and N&B team specifically as a lot of experience in this area starting 10 years ago with the integration of Danisco 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 & Health and Industrial Biosciences business, we know how to do this and we will execute the same playbook that has worked so well for us in the past. Some of the key short-term milestones that have already been completed, are the establishment of the executive steering team and the appointment of leaders for key work streams, including separation and integration, our financials, IT separation and stand up, legal entity work and talent selection. The teams at both IFF and N&B are well staffed and I am confident we will stay on track with our plan. Beyond the N&B 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 on the Chemours lawsuit and PFAS. We continue to believe our potential risk…

Thank you, Ed. With that, let's move on to your questions. First, I would like to remind you that our forward looking statements apply to both our prepared remarks and the following Q&A. We will allow for one question per person. Operator, please provide the Q&A instructions.

Thank you. [Operator Instructions] And we will take our first question from John Inch with Gordon Haskett. Please go ahead.

Thank you. Good morning, everybody. Yes, thank you. Good morning, everybody. You sound like you have a little bit of a cold, I hope you haven't been to Wuhan, China recently.

No, but I do have a bad cold, so I apologize.

It could be a lot worse. So, understanding some of the first quarter of 2020 compares issues such as the one-timer's. Still if I annualize the midpoint of your first quarter guide you get about $0.90 short of your fiscal year -- fiscal year estimate. So, I'm just curious, what are the key drivers of your post 1Q growth assumptions, your confidence level there. And then just secondly, your $1 billion working capital opportunity that you call out in the slides. Is 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 Marc. Let me take it to give Ed voice a bit of a break and then he can jump in and I'll ask Jean 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 forecast. 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 it starts with sort of the typical seasonal lift that happens from 1Q to 2Q most every year, but also we've got a significant change in the one-timer's because there is a sizable settlement associated with the Hemlock joint venture in the second quarter which is worth about $80 million in EBITDA. And then on top of that, the S&C manufacturing headwinds that we had that hit us in the first quarter are largely behind us now. So, we're confident that the S&C business will be back to sort of normal supply against continued strong demand. And then final kicker, the 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 $0.05 per share going forward per quarter. So, when we wrap these things up, it provides us confidence that the second quarter is going to be kind of back to a more normal earnings environment.

Yes. So, in terms of working capital, really it's separate and apart from the asset rationalization. This is the 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 Corteva, our working capital balances actually increased with all the system freezes we had and we built inventory and then as we came into '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 activated 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.

And we'll hear next from Jeff Sprague with Vertical Research. Please go ahead.

Thanks. Yes. Thank you. Good morning, everyone. Just wanted to kind of come back to manufacturing, the S&C item, as you said, it sounds like it gets ironed out, you also you mentioned some manufacturing issues in N&B, we've heard a few of these over the last several quarters. I wonder if you could just address Marc whether kind of the manufacturing side of the equation is largely kind of settled here post separation. Is there any particular disruptions going on as you try to get after synergies. It would just be nice, not have to kind of talk about these issues?

Yes. Yes. Thanks, Jeff. Couldn't agree more. I'd call some of this, particularly like in N&B, these things are abnormal that happened once in a blue moon. S&C is the one that's really been the most pronounced and you know it's -- it's a few quarters running now. But for different reasons. So if you -- if I take you back to last year, we had a real strong first half in S&C and then we did run into a disruption in our supply chain for key material in Kevlar 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 but that had an earnings impact in the quarter and now we've got a subsequent outage again in the Kevlar 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 the kind of operational stability, I'd say, first of all by and large 180 manufacturing sites 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 blocking and tackling. The Kevlar issues and S&C are extremely frustrating to us and to 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 weather 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 will hear from Vincent Andrews with Morgan Stanley. Please go ahead.

Thank you. Ed, if I could ask you on the PFAS, the personal injury cases, originally there was, there was a settlement of personal injury cases a few years ago. So, I'm just curious why not settle these cases. I mean we've subsequently seen the jackpot that are going against Bayer in the glyphosate cases. So, why not settle these and how confident are you that this doesn't spiral into something that we don't want to deal with?

Yes. So, thanks for the question, Vincent. Look, there's about 60 of these cases outstanding. These two are in trial right now. I can't necessarily forecast the outcome, but there is always the opportunity here to settle and 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, 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 Begleiter with Deutsche Bank. Please go ahead.

Thank you. Good morning. Ed, can you address the issue in terms of the discount in the share price due to PFOA 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, maybe just high-level to the IFF transaction and just talk about that a moment also. You all have done the math and I read it all your reports. But you just do the math, IFF as it stands right now and RemainCo DuPont trades at about eight times. So, I think this will play out. Just on the IFF transaction as we get closer to it. I would also mention, I really believe and we're hearing this from our customers. Pretty broadly that we've created the de facto leading platform in the industry. By way, it's incumbent upon us and IFF to 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 IFF also trades at a discount to the top peer set in the industry by about 500 basis points. So, I think there is 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 still said that we trade at peak times of RemainCo. Let me just say this, and I don't want to get into too much detail on it, but we're actively in conversations with others. I like tax efficient transactions that we like creating global leading companies and we are very agnostic, we want to do the right thing for our shareholders and also we'll pursue those opportunities and we're assessing that with our Board as we speak.

Next we'll hear from Steve Tusa with J.P. Morgan. Please go ahead.

Good morning, guys. 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 T&I business. But then there was some news flow to that, there was something perhaps on the electronic side, can you just talk 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 can actually sell down with that with that EBITDA floor. But maybe, is it really kind of that fluid?

No, actually it's not, it's fluid is that sounds: it's a shame that those kind of leaks occur and it's also not great for our employees to be hearing one rumor after another to be honest with you. So, I don't want to comment in too much detail but by way Steve, to your point, we do have an agreement with Corteva that we ought to maintain $2.5 billion of EBITDA that stays with the liability. Having said that doesn't mean we can't separate things if we want to and I'm not saying we are, but if we want to, we can an separate into different businesses, but we would have to leave $2.5 billion of EBITDA liability with – it could be two entities, by the way we leave it with. So, we have a fair amount of flexibility in 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.

Yes, thank you. In the spirit of your comments about innovation, Marc, I wondered if you had any thoughts about using some of your technologies to maybe take a little more of a proactive stance on these PFAS liabilities. For example, using your skills in water treatment to help these municipalities that have PFAS unrelated to legacy DuPont sites, but just for goodwill like, three, Fayetteville pulls water that's got 20 parts per trillion PFO a PFOS and its upstream from the Chemours plant or use your capabilities in probiotics to develop bacteria that can degrade these chlorinated compounds in these industrial wastewater treatment plants. Your thoughts on that.

Yes, yes. Thanks, Steve. It's a great question. And actually we published some commitments as new DuPont late last year and those included kind of our commitments for use of PFAS in our products and manufacturing and 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 accumulative, is just unacceptable these days to all of us. And so, we made a statement that included that we would be ending all use in our product lines we'd be driving the use of PFAS free fire-fighting foams at all of our manufacturing sites to be a leader there and we made a commitment around our water business and just year point, we've been pretty active in the water space. Now, this is, as you're probably aware the heritage Dow Water Solutions business, then a leader in the global water industry for decades. We've been of course 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 Ion Exchange in RO in particular are pretty effective techniques for removal of traits PFAS compounds. And so, one of the commitments we made in the -- in that document last year was to provide technology including royalty free licenses to certain pieces of IP that we had around the PFAS area. We're also working very actively on product developments that would allow our materials, our components to be targeted to clean up activities. And so just as you said, we're trying to do the right thing, working around the country and areas where there is need here.

By the way, I would just add, as a point back whole PFAS conversation and 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 firefighting foam case. And so, I think as it plays out in the fax early on the table. We had nothing to do in that state with any of that.

Our 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 which we strip out the nylon impact. What does that business look 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 a continued slight contraction in the auto industry for 2020 like minus 1% with respect to builds this year. So, 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. We're expecting destocking, 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, we're benefiting from some of the growth drivers, like auto electrification and EV sales were up double digits, last year, expected to be up double-digits this year. We're seeing our growth into electric vehicles growing even faster than that. And so, that's 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 there underneath that. On top of that I 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. The production sites, but also the G&A costs at the business level, to try to tighten up the belt as much as we can to mitigate some of that pricing downside that we're seeing.

Next we'll hear from John McNulty with BMO Capital Markets. Please go ahead.

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, but is that something you feel like you can get pulled off by the end of the year this year? Thanks.

Yes. Thanks, John. This is Marc. I'll take that. Yes. So, we feel pretty confident we're going to continue to make progress and like we said, the last couple of quarters. My expectation is, you'll see kind of a steady drip of progress here across the businesses and non-core. Hard to time, obviously a lot of work behind the scenes on transactions. A lot of rumors, I saw that there was a new one this week that came out. I'd say ignore the rumors, but have confidence that we're working hard to execute the non-core divestitures and 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 S&C segment, you've obviously had good margin progress over the last few years. But more recently, obviously faced some procurement challenges outages, etc. Can you just walk us through your intermediate to long-term expectations for S&C margins, just given the current asset footprint, procurement strategy evolution. And then also the growth outlook for and mix expectations for both on individual rebound for Safety Solutions and momentum in RO membranes in water. Just any color would be greatly appreciated. Thank you.

Yes. Thanks, Chris. Yes, absolutely right. We had great progress on S&C margins through '18, first half of '19. 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 aramids business and Safety Solutions. We are pretty confident that that's behind us. When you look at the demand environment. So, we've got three primary markets that we're exposed to safety, water and shelter, no big trajectory change year-over-year in the market environments. So, the demand is still very strong and 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 kind of operating range that we expect sort of mid to high '20s range. And then going forward as water grows, Water segment margins are strong, a 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 strengthened and then we've got some longer-term upside on top of that.

And maybe just to follow-up on Marc's comments, if you look at Safety within Safety & Construction has the highest margins 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 needs for tie back for medical packaging and for protective garments, we'll see I think will have the capacity to meet what we expect to be continued strong demand in that space.

That will be accretive to margins over time as we get the new asset up and running and filled. Thanks.

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

Hi, everyone. This is -- hi guys. Quick question on the nylon if you, I know you guys got out of nylon commodity years ago within Vista [ph]. I guess I'd assume that engineering polymers business maybe had a little bit more downstream high value offering. So, why is it that you're exposed to that nylon pricing risk in not 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. Do you also worry about value leakage here if you try to monetize some of these assets when they're not exactly pumping with us all cylinders going at the present time. Thanks.

Yes. Thanks, Bob. I'll take the first one and then turn it over to Ed, give Ed 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 a pass-through, but you could challenge fairly are we getting the value for our nylon compounds, which are we call the trade name Zytel. Zytel is a differentiated product. It's a market-leading product, it's got unique properties in terms of temperature mechanical for applications. Automotive is sort of the highest value space sizable market, where Zytel is used. So, what's really happening here is 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 to move price a little closer to where now the competitors are in order to continue to be re-qualified for future applications. 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 in the market. And so, that's the kind of balance here that's happening.

Yes, to the other question. Look, the way I would answer it is very similar to what we did with IFF. We have great franchises that we have in our respective industries and let me just use electronics now as an example. The premier companies are trading literally 600 to 700 basis points above ours. We have a great franchise and electronics. If we were to do something in one of our other businesses, it was a tax advantage transaction. We would get the equivalent value out of it. Just like we did in the IFF transaction with the right appropriate multiple that industry should have. So, whether the industry is up a little right now or down a little bit right now is sort of your irrelevant in one of those deals as long as you lock in the proper multiple that you deserve in that industry. So again, I'm not saying we're doing something tomorrow, we're assessing our options we are talking to people here. But clearly, we can get the value out of a transaction if we want to do something. If by the way, if we were outright going to sell something right now it take cash for it. Yes, you got assesses the industry opposite down at all that, are you getting the proper value at the right time. But just going back to the transaction, we already announced. We don't have to worry about that. In that we think we're creating long-term great value by creating the de facto world leader in that industry and that's the take the things we're looking at.

Next, we will hear from John Roberts with UBS. Please go ahead.

Thank you. You noted a big mix effect in the Electronics & Imaging segment. Is that lower margins in the Imaging segment versus electronics, a wide range of margins within electronics?

Yes, it's more of the latter, so the semi, we've got three businesses there. Interconnect Solutions, Semiconductor Technologies and Image Solutions as you said, and the Semiconductor Technologies business is the highest margin segment and the margins are about 700 basis points over higher than the average for E&I. So, it's a pretty significant mix effect semi as you know was soft all year. I'd say the benefit is that, we did see some sequential improvement now two quarters running in the semi business. And so, as we've seen from the semi companies out there. We're starting to see the signs of a recovery here for 2020 and so, we're confident that some growth in semi, as well as the, the margin mix improvement will be a key kicker for E&I this year.

And we will take our final question from PJ Juvekar with Citi. Please go ahead.

Yes, hi, good morning. And I want to go back to your -- yes good morning. So, you are seeing compression in line in nylon pricing. A lot of these Engineered Materials start out of the specialties and then get commoditized over time. Are you seeing commoditization in nylon or is there a new China competition or is it just that the capacity that was down is starting back?

Yes, it's really that. Yes, good question, PJ, this is Marc. I'll take that. I mean there is no change. No significant change in the competitive environment, still the same group of major suppliers globally all fairly sizable multinationals. This is really the demand environment and automotive being so soft for an extended period. That's really impacting the pricing dynamics. And so, for us in terms of actions to take, I mean I talked about cost and productivity. We've got to continue to develop high-value applications, so diversifying out of automotive -- automotive is a great space for nylon because of the temperature mechanical properties. But we are focused on industrial applications obviously electric vehicles, that core will continue to create value. We still think the competitive dynamics globally are good here, but it's really, as I said, it's really the demand environment that's causing the pain.

Thank you, everyone for joining our call. For your reference, a copy of our transcript will be posted on DuPont's website. This concludes our call.

And this concludes today's conference. Thank you for your participation and you may now disconnect.