INSIGHT: Danisco has helped cement DuPont’s bioscience strategy

28 August 2012 15:00  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--DuPont’s science-based strategy continues to play out and is providing new growth and earnings strength.

The second-quarter results released on 24 July show how the US-headquartered life sciences and chemicals company has benefitted from the drive to launch more new products and to push further into bioscience.

The acquisition of Danisco in 2011 was the company’s first major strategic purchase in years but has put a stamp on Ellen Kullman’s tenure as CEO.

DuPont’s second-quarter net profits were 3.3% lower year on year at $1.19bn (€952m) as its life science and agriculture businesses offset weakness in some industrial and public sector markets. Sales were up 7% at $11.0bn on 1% lower volumes and 6% higher prices in local currencies.

Business segment operating income was up 13.0%. Agriculture and performance materials profits were higher and the acquisition of life-sciences group Danisco in 2011 benefited the nutrition & health and industrial biosciences businesses.

The new balance in the portfolio certainly paid off in the quarter and acquisition-delivered growth was a bonus.

Kullman said the agriculture, food and bioscience businesses were performing “exceptionally well globally”, while the company’s advanced materials operations were seeing slower growth in some important markets and continued weakness in Europe.

“The contributions and benefits from the [Danisco] acquisition have exceeded our expectations. We added two very impressive businesses to our portfolio and identified significant opportunities for cost and revenue synergies,” she added.

DuPont has acquired businesses that will drive it further towards new growth markets. There are two new reporting segments: nutrition & health and industrial biosciences, which are expected together to produce more than $4.5bn in sales this year and a pre-tax operating margin in a range of 10-14%.

Kullman has said before that most people think of DuPont as a chemical company that has been around for more than 200 years and the producer of brands such as Kevlar, Tyvek, Teflon and Corian. But this diverse $38bn turnover company has shifted over the past decade towards agriculture and biological products and away from commodities.

Essentially, a move has been made away from fossil-fuel based products to ones derived from a more diverse range of feedstocks.

DuPont is not so much hedging its bets here as moving fundamentally towards renewables. At the same time, products have been designed specifically to address energy and resource conservation, safety and protection, the environment and food production.

In embracing biology, however, DuPont has caught a wave. Kullman said in a recent interview with the Harvard Business Review that advances in DNA mapping, nanoscale imaging and the analytical techniques available to scour scientific data, make it possible to create “high-performance, sustainable ingredients and materials that traditional chemistry can’t”.

DuPont sees this as a huge growth area, she said.

The Danisco opportunity came along at just the right time. When Genencor became part of Danisco, DuPont lost one route to growth. DuPont’s joint venture with Genencor had made bioplastics.

There were other biosciences ventures: DuPont produced a soya protein with Bunge; it is making second-generation cellulosic biofuels with Genencor/Danisco. But Danisco was firmly in its sights.

The Danish company came into play in the second half of 2010 and deadline for offers was set for early January 2011.

Danisco may have been on DuPont’s radar for some time but the changed circumstances forced its hand and it had to work fast and hard to secure a deal at an acceptable price.

“The integration of Danisco is a big win for DuPont and is shareholders,” Kullman told the Review. DuPont people had “powered through” a long and complicated deal process because they knew that the acquisition would enhance DuPont’s biosciences capability and set it up for the next 100 years of growth, she said.

“As a result of a series of very purposeful actions - investment innovation, selective capacity expansion, acquisitions such as Danisco and Pannar Seed, just to name a few - our portfolio is less cyclical than it was just five years ago, and we continue to drive productivity and benefit from the restructuring actions we implemented in 2009,” Kullman said on DuPont’s second-quarter conference call.

The Danisco acquisition set DuPont even more firmly on the biosciences track as it seeks to grow in different markets and move into new areas of technology. The strategy should stand it in good stead in the years to come.

($1 = €0.80)

Read Paul Hodges’ Chemicals and the Economy blog
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By: Nigel Davis
+44 20 8652 3214



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