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E.I. du Pont de Nemours and Co.

:
Titanium Dioxide
E. I.
du Pont de Nemours and Company

FOUNDED IN 1802, DUPONT PUTS SCIENCE TO WORK BY CREATING


SUSTAINABLE SOLUTIONS ESSENTIAL TO A BETTER, SAFER,
HEALTHIER LIFE FOR PEOPLE EVERYWHERE. OPERATING IN
MORE THAN 70 COUNTRIES, DUPONT OFFERS A WIDE RANGE OF
INNOVATIVE PRODUCTS AND SERVICES FOR MARKETS
INCLUDING AGRICULTURE, NUTRITION, ELECTRONICS,
COMMUNICATIONS, SAFETY AND PROTECTION, HOME AND
CONSTRUCTION, TRANSPORTATION AND APPAREL.
Titanium Dioxide (TiO2)Production and
Manufacturing Process
TiO2 is produced from either ilmenite, rutile or
titanium slag. Titanium pigment is extracted by
using either sulphuric acid (sulphate process) or
chlorine (chloride route). The sulphate process
employs simpler technology than the chloride route
and can use lower grade, cheaper ores. However, it
generally has higher production costs and with acid
treatment is more expensive to build than a chloride
plant. But the latter may require the construction of
a chloralkali unit.
Competitive Advantages

Du Pont has a few competitive advantages over its


competitors as of 1972. Due to the size of the firm
and its technological superiority, Du Pont has a
dominant position in many markets. Du Pont also
has a competitive advantage in the chloride process
because of the recent enacted environmental
protection legislation, which has made TiO2
production costs much higher. Du Pont will benefit
from this because most of its production uses the
ilmenite chloride process, which is much cheaper
than the processes used by competitors.
Company Background

 Diversified manufacturer of fibers, plastics,


industrial chemicals and other specialty chemical
products
 Conservatively managed company with
longstanding AAA bond rating
 Relied on retained earnings to fund capital
expenditure programs
 Organized into 10 industrial departments (second
smallest being pigments)
Titanium Dioxide Market

 White chemical agent used in manufacture of paints,


paper, synthetic fibers, plastics, ink and synthetic
rubber
 Manufacturing TiO2 involve sulfate process and
chloride process
 Projected sales expected to reach $340 million by
end of 1972
 Volume of sales had been growing at 3% per year
over past decade
 Sales projected to reach over 1 million by 1985
Capacity Decisions

 Introduced ilmenite chloride technology at Edge


Moor plant in 1952 (only company with operational
knowledge of this method)
Overview

 In 1972, Du Pont found itself in a fortunate position as it was


faced with the following two options:

 Continue with its existing strategy and maintain its current


revenue stream; or
 Modify its strategy and invest additional capital to increase its
revenue stream in the future.

As one can imagine, multi-million dollar investment decisions


such as these are not easily made and require a tremendous
amount of due diligence to include financial forecasting, labor
ramifications, and extensive research.
Market Position

Du Pont's position in the market was fortunate for several reasons. First,
Du Pont was a leader in the Titanium Dioxide industry possessing the
highest capacity for use of the ilmelite chloride process. Two recent
developments in the industry, sharp increases in the cost of rutile ore
required for the sulfite based process and the heightened environmental
regulations enacted against domestic sulfur based plants made the ilmelite
chloride process more attractive. Du Pont had a competitive advantage in
the ilmelite chloride process accounting for approximately 60% of the total
market production in 1970. This advantage was strengthened by the fact
that the number two producer, NL Industries, was highly leveraged and the
other producers in the market were relatively much smaller. This
competitive advantage translated to an average pre-tax profit margin of
40% doubling that of its competitors in the industry. Therefore, the
company could afford to cut prices as needed to keep future competitors
out of the industry and maintain market shar
Incremental Cash Flow Statement for - Maintain
Strategy
Incremental Cash Flow Statement for - Growth
Strategy
NPV FOR MAINTAIN TRETEGY
NPV FOR GROWTH STRETEGY
Incremental Net Present Value
GROWTH STRETEGY
                           
1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985

Total Incremental EBIAT  $         (2.1)  $     (4.0)  $      5.8   $      9.1   $    19.7   $    25.2   $    30.3   $    43.7   $    60.2   $    74.1   $    88.6   $   101.7  $   119.1 
ITC @ 10% 2.3 2.3 2.4 2.1 2.2 3.3 3.2 2.8 2.5 3.2 4.5 3.6 5.1
Incremental Inflow  $         0.20  $   (1.71)  $    8.23   $   11.20  $   21.90  $   28.52  $   33.48  $   46.48  $   62.68  $   77.26  $   93.08  $ 105.36  $ 124.21 

Incremental Investment  $       22.50  $   23.18  $   23.88  $   20.64  $   22.29  $   33.38  $   32.25  $   27.68  $   25.08  $   31.70  $   44.77  $   36.13  $   51.32 
Addition to NWC  $      (0.76)  $   (0.76)  $    8.39   $    3.28   $    9.82   $    5.66   $    4.78   $   11.79  $   13.29  $   10.63  $   12.89  $   12.07  $   16.16 
Incremental Outflow  $       21.74  $   22.42  $   32.27  $   23.92  $   32.10  $   39.03  $   37.03  $   39.46  $   38.37  $   42.33  $   57.66  $   48.20  $   67.48 

Terminal Value  $ 502.01 
Incremental free cash  $ (21.54) $ 24.13) $ 24.04) $ 12.73) $ 10.20) $ 10.52) $ (3.54) $ 7.02 $ 24.31 $ 34.94 $ 35.42 $ 57.16 $ 558.73
flow

MAINTAIN STRETEGY                          
                           
Total Incremental EBIAT  $            -     $        -     $    5.31   $    8.15   $   10.90  $   13.82  $   16.86  $   20.39  $   24.80  $   28.48  $   33.74  $   38.04  $   42.58 
ITC @ 10% 1.35 0.927 0.955 0.983 1.1143 1.1473 1.29 1.3284 1.368 1.5262 1.694 1.6198 1.7962
Incremental Inflow  $         1.35  $    0.93   $    6.26   $    9.13   $   12.01  $   14.97  $   18.15  $   21.72  $   26.17  $   30.01  $   35.44  $   39.66  $   44.38 

Incremental Investment  $       13.50  $    9.27   $    9.55   $    9.83   $   11.14  $   11.47  $   12.90  $   13.28  $   13.68  $   15.26  $   16.94  $   16.20  $   17.96 


Addition to NWC  $            -     $        -     $    5.17   $    2.80   $    2.70   $    2.99   $    3.26   $    3.51   $    3.83   $    3.94   $    4.76   $    4.90   $    5.28 
Incremental Outflow  $       13.50  $    9.27   $   14.72  $   12.63  $   13.84  $   14.46  $   16.16  $   16.79  $   17.51  $   19.20  $   21.70  $   21.10  $   23.25 

Terminal Value  $ 214.14 
Incremental free cash  $ $ (8.34) $ (8.46) $ (3.50) $ (1.83) $ 0.51 $ 1.99 $ 4.93 $ 8.65 $ 10.80 $ 13.73 $ 18.56 $ 235.27
flow (12.15)

Cash flow differential $ 9.39) $ 15.78) $ 15.58) $ (9.23) $ (8.36) $ 11.02) $ (5.53) $ 2.09 $ 15.65 $ 24.14 $ 21.69 $ 38.60 $ 323.46

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