From: v.weldon@enron.com
To: scott.joyce@bankofamerica.com
Date: 2001-01-29 12:24:00+00:00
Subject: Avi Nash - Goldman Sachs - Nylon and Polyester Strategy

---------------------- Forwarded by V Charles Weldon/HOU/ECT on 01/29/2001 
12:16 PM ---------------------------


"Paul W Juneau" <Paul.W.Juneau@usa.dupont.com> on 01/29/2001 08:41:02 AM
To: V.Charles.Weldon@enron.com
cc:  
Subject: Avi Nash - Goldman Sachs - Nylon and Polyester Strategy



 (Embedded     Kenneth W Wall
 image moved   01/23/2001 01:31 PM
 to file:      (Embedded image moved to file:
 PIC15112.PCX) PIC01729.PCX)




To:   Ferdinand Bauerdick/DuPont@DuPont, Mike Estep/DuPont@DuPont, Ben D
      Herzog/DuPont@DuPont, Dennis W Broughton/DuPont@DuPont, Patricia S
      Murdock/AE/DuPont@DuPont, Hunter H Ficke/AE/DuPont@DuPont, Rick
      Otero/AE/DuPont@DuPont, Ignac R Matocha/DuPont@DuPont, Jeffrey
      Crudgington/EUR/DuPont@DuPont, Dave K Findlay/DuPont@DuPont, Charlene
      D Thomas/AE/DuPont@DuPont, Dilip Kumar/PO/DuPont@DuPont
cc:
Subject:  Avi Nash - Goldman Sachs - Nylon and Polyester Strategy

INTERSTING READING!

---------------------- Forwarded by Kenneth W Wall/DuPont on 01/23/2001
01:31 PM ---------------------------

Below is a report written by Avi Nash of Goldman Sachs that was issued this
morning:





>                  Goldman, Sachs & Co. Investment Research
>
>             DuPont: Nylon and Polyester Strategy Crystallizes.
>
>
**************************************************************************
> *
> * We believe there is greater clarity now on DD's strategy in nylon &
> * polyester. 1)DON'T EXPECT OUTRIGHT SALE. No buyers in polyester. Nylon
> * still too close to DD's heart. 2)POLYESTER SOLUTION IS MESSY. Defacto
> * partial disposition via JVs i)films w/Teijin (global), ii)All other:
> * Europe/ Africa w/Sabanci, iii)American staple w/Alfa, iv)American
> * filament w/Unifi, v)American intermediates, resins and all Asian: still
> * looking and vi)engineered plastics: will keep. 3)NYLON: KEEPER FOR NOW,
> * MOSTLY? i)Getting out of 'heavy denier' nylon industrial via JV with
> * Sabanci, global. ii)Keeping the rest? 4)ISSUES. Apparel & carpet mkts
> * are mature & softening near term. Competitive position eroding slowly
> * with time.
> *
>
**************************************************************************
>
>         Avi Nash (New York) 1 212-902-9192  -  Investment Research
>
> ====================  NOTE  9:14 AM  January 23, 2001
>
>                              Stk  Latest  52 Week  Mkt Cap   YTD Pr
Cur
>                              Rtg  Close    Range    (mm)     Change
> Yield
>                              ---  ------  -------  -------   ------
> -----
> E.I. duPont de Nemours        MO  42.31    64-38   43939.1   -12%
> 3.3%
>
>                   --------------Earnings Per Share---------------
> DD (US$)           Mar     Jun     Sep     Dec      FY       CY
>       2001 FY                                       2.50
>       2000 FY      0.85A   0.90A   0.51A   0.41     2.68
>       1999 FY(A)   0.66    0.78    0.59    0.56     2.59
>
>                    -Abs P/E on-   -Rel P/E on--   EV/NxtFY   LT EPS
>                     Cur    Nxt     Cur     Nxt     EBITDA    Growth
>                    -----  -----   -----   -----   --------   ------
> DD        FY       15.8X  16.9X    0.7X    0.8X     7.10        9%
>
>
==========================================================================
> =
> A THIRD OF DUPONT'S SALES COME FROM THE OLD 'FIBERS' BACKBONE.
>
>                             1999          5 yr            Avg
>                            sales        avg profit       margin
>
> Spandex                     1650           400           24.2%
> Nylon (1)                   5525           480            8.7%
> Polyester (1)               3000           110            3.7%
> (1)Includes engg plastics and auto fibers/plastics that are reported
under
> the 'Performance Coatings and Polymers' segment. The above excludes
> nonwovens and Kevlar/Nomax businesses since they are more 'stand alones'
> with less overlap between them and nylon/polyester.
>
> POLYESTER, AN IMPAIRED ASSET, IS BEING DEALT WITH PIECEMEAL. The combined
> value is unlikely to exceed $2 billion. We estimate $1.5 billion.
>
>                 Revenue        Americas        Europe          Asia
>                   $ mn                        Mid East
>
> 1)Films           850           duPont-Teijin global joint venture
> 2)Staple                         Alfa         Sabanci           ?
>                   920
> 3)Filament                      Unifi         Sabanci           ?
>
> 4)Resin                           ?           Sabanci           ?
>                   870
> 5)Intermediates                   ?           Sabanci           ?
>
> DuPont has a put option 5 years hence that can force Unifi to buy the
> American filament assets within a predetermined price range. There is no
> clear solution yet regarding Asian and US intermediates and PET resin.
> They are making money at present, but are not industry-leading assets and
the
> value continues to erode with time.
>
> IMPLICATION: This asset was impaired enough that it could not be disposed
> of in one swoop. It has ended up requiring multiple, painstakingly
crafted
> deals, each tiny for a company duPont's size.
>
> NYLON IS INTERTWINED WITH OTHER DIVISIONS: COMPLICATES SOLUTION.
> Note the role of nylon in duPont's apparel/textile and in engineered
> plastics businesses.
>
> End Markets        Nylon     Lycra      Polyester    Others     DD's
total
>                        1999 revenue $ mn                       for end
mkt
>
> Intermediates       750       100           NA         NA           NA
> Carpet              2000       0            ?          -           2000
> Industrial          625       100           NA         NA           NA
> Apparel, textile    1100      1400         920        880          4300
> Engg plastics       1050       -           300        850          2200
>
> Total               5525      1600         1220       1730          NA
>
> DUPONT'S NYLON ACTION TO-DATE HAS BEEN MINISCULE BUT IS A CLUE TO ITS
> THINKING.
>
> - ACTION TO-DATE: partially disposed of half of the $600 mn industrial
> nylon business. But this RECENT NYLON JV (DIVESTITURE) IS TINY. DuPont
has
> consolidated several JVs with Sabanci in a tiny part of nylon: heavy
> denier industrial nylon. This was barely over $300 mn in revenue. The
inclusion
> of Sabanci's assets raises the revenue but net-net this is a tiny
business.
> DuPont is actually divesting part ownership since Sabanci's contribution
> is smaller.
>
> - CLUES A)DuPont is reluctant to part with the bulk of the nylon
business.
> It doesn't seem ready to let this business go . . . yet. It may want to
> unload the carpet spinning or apparel fiber business . . . but not the
> associated intermediates production.
>
> NYLON'S WEAK LINKS ARE INDUSTRIAL (PART) AND APPAREL: THE LATTER HAS NO
> EASY FIX.
>
> 1)IN OUR VIEW, STAYING IN APPAREL nylon will be painful. DD HAS SAID IT
> WILL RELATIVELY DE-EMPHASIZE THE BUSINESS (in the long run such a
strategy
> is tough to implement without impairing the business . . . better to
> exit). Witness what happened to the polyester chain where disposition is
coming a
> decade late in the minds of some . . . at little value. Meanwhile,
> competitive advantage is eroding slowly. i)Maturity allows others to
close
> the gap. ii)Customers have gotten stronger, especially in carpet (45% of
> div revenue). Several years can go buy waiting for recovery. Unfavorable
> volume and raw material costs are hurting near term. Growth slowed down
> some time back. Its unlikely to resume. Industry mix continues to shift
> slowly towards Nylon 6 in which DD is a tiny regional player, vs Nylon
66.
> Further, growth is in Asia, not a DuPont strong hold.
>
> 2)BACKING OUT OF APPAREL (OR CARPET) WILL BE TRICKY. (It's not even clear
> DuPont is serous about this option). In any event, it will be difficult
to
> find buyers for just the fiber SPINNING operation, if they will need to
> buy raw materials from duPont. Further, nylon does provide critical mass
to
> the large apparel effort, picking up cost allocations that otherwise may
need
> to be shouldered by Lycra! Another problem: All nylon producers seem to
> want to exit the fiber spinning step . . . Solutia, Honeywell, DuPont.
> Makes one wonder about the potential disposition value!
>
> 3)SHUTTING DOWN IS NOT AN OPTION: There is incremental profit in the
> intermediate step and that would be lost. A)Apparel is nearly 25% of the
> nylon polymer outlet and without it the scale of operations is hurt.
> B)Apparel nylon is a very large part of duPont's apparel business, which,
> after automotive, is the largest end market.
>
> Likewise, engineered polymers make up a large part of the nylon family
> (though DD books revenue and profit for these under its
coatings/polymers)
> segment. Shrinking 'the rest of nylon' would hurt profitability of the
> engineered plastics area. The rest of nylon picks up overhead!
>
> DuPont seems to be forced to keep a large chunk of nylon because of its
> presence in Engineered plastics and Lycra.
>
> i)Lycra is largely an apparel business. The $1.65 bn Lycra has been a
high
> margin business. It's growth has slowed and competitive position is
> slipping. Yet DD is increasing its commitment to Lycra. The problem is
> that the Lycra franchise encourages a greater commitment to apparel nylon
than
> otherwise. Apparel nylon is 25% of the nylon div revenue.
>
> ii)The $2 bn engineered plastics business has nylon resin as its
flagship.
> This is NOT included in the nylon division. (Likewise, polyester
> engineered plastic is not included in the polyester div). Part of the
competitive
> advantage in the plastic comes from a low cost position in raw materials,
> in turn partly based on scale.
>
> iii)DD seems to like its nylon ingredients business. (In our view it's
ok,
> not a growth vehicle). The combination of the interest in Lycra, nylon
> intermediates and engineered plastics means DD is forced to keep nylon
> carpet (45% of div) and apparel (25%). These end markets don't make as
> much money and are more vulnerable. But they provide over 60% of the
outlet for
> the intermediates and their sheer volume helps provide greater scale and
> lower cost.
>
> SO THE NYLON PROBLEM IS NOT SOLVED.
> 1)ROC has been poor. How will that improve? Asset monetization has been
> small. 2)Growth has been low. How will that change? If anything, US
> consumer spending is slowing. 3)The competitive edge is not increasing .
.
> it could actually be slipping just a bit as a powerful new competitor,
GE,
> takes shape assuming GE's acquisition of Honeywell goes through.
>
> Important Disclosures (code definitions attached or available upon
> request)
> DD         : CF, CP
>
>
> ______________________________________________
> Goldman, Sachs & Co.
> One New York Plaza | New York, NY 10004
> Tel:  212-902-9193 | Fax:  212-346-3703
> email: sandra.vizzacchero@gs.com
>
> Sandra Vizzacchero                   Goldman
> Executive Assistant to Avi Nash      Sachs
> Chemicals Equity Research Team
> ______________________________________________




















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