DuPont takes actions to achieve $900 million annualized cost improvement in 2005
DuPont is taking these actions to remain competitive in an environment defined by sustained high-energy costs, increased global competitive intensity, and a customer base that is shifting toward emerging economies, said DuPont chairman and CEO Charles O. Holliday, Jr.
"With the anticipated sale of Invista, DuPont will be a smaller company with the potential for higher growth and profitability," Holliday said. "But unlocking that potential means doing things differently. If we are to meet our earnings growth objectives -- which we will -- we cannot support the complexity and cost entailed by diverse and specialized organizations and processes. The actions we are announcing today are necessary to ensure the near- and long-term competitiveness of DuPont. These are difficult decisions because they impact people, and we will enact them with sensitivity and respect."
The company expects its actions to yield $450 million cost improvement in 2004, and the full $900 million in 2005. Cost improvements targeted for 2004 will essentially offset residual costs from the separation of Invista and other expected fixed cost increases, thus allowing the full measure of the company's 2004 volume and price improvement to benefit operating earnings. A portion of the fixed cost savings will come from work force reductions.
The company will publicly disclose information on the number of position eliminations and any restructuring charges in its first quarter 2004 earnings release on April 27, 2004.
DuPont will reduce costs from the Invista separation, realizing a total of $200 million in fixed cost reductions to offset residual costs. $100 million will be realized in 2004, and the full $200 million in 2005. DuPont will also leverage and center its staff functions, support services, and manufacturing operations broadly, including corporate costs. The details of these organizational actions will be refined over the next 8 weeks. Infrastructure actions are expected to achieve $250 million in fixed cost reduction in 2004, and the full $500 million in 2005.
DuPont plans to improve variable margins, by consolidating product lines by at least 20 percent. These simplifications will enable accelerated progress in yield and uptime improvement, sourcing and energy management. The company also will devote more Six Sigma projects to margin improvement, and will optimize assets following product line consolidations. These actions are expected to realize a $100 million variable margin improvement in 2004, and the full $200 million improvement in 2005 - mainly through cost reduction.
DuPont will rebalance resources toward emerging markets, where much of its growth will occur in the coming years. Initial focus will be on China, where the company already has a strong base. Other areas of interest include Central & Eastern Europe and Brazil. Separately, DuPont has undertaken to comprehensively and systematically improve its marketing and sales capabilities across its businesses, and to center and strengthen its marketing and sales support functions. These actions, combined with the ongoing R&D revitalization process that is already in place, will strengthen the company's ability to achieve its 6 percent revenue growth targets.