雅保公司 (ALB) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2008 Albemarle Corporation earnings conference call. My name is Francine and I will be your coordinator for today. (Operator Instructions). I would now like to turn the presentation over to your host for today's conference, Ms. Sandra Rodriguez, Director of Investor Relations.

Good morning everyone and thank you for joining us today for a review of Albemarle's fourth quarter and full year results, which were released after the market closed yesterday. Our press release contains preliminary results for the quarter, and this information is subject to further review by the Company and our auditors as part of our year-end audit process.

Please note that we have posted supplemental sales information, as well as reconciliations for net debt and EBITDA, on our website under the Investor Information section at Albemarle.com.

I would also like to caution that the remarks today contain forward-looking statements. Factors that could cause results to differ from expectations are listed in our annual report on Form 10-K.

Participating with me on the call this morning are Mark Rohr, Chairman and CEO; John Steitz, Executive Vice President and COO; and Rich Diemer, Senior Vice President and CFO. At this time I will turn the call over to Mark.

Good morning everyone. I would like to start this call by wishing you all the best for 2009. We appreciate the opportunity to share our results, and we look forward to answering your questions at the conclusion of our remarks.

Let me start by commenting on the strategic events that occurred in the fourth quarter, some of which are reflected in the several special items noted in our press release.

During the quarter we completed the sale of our Port de Bouc France facility to ICIG, the International Chemical Investors Group. A onetime after-tax charge of $33.4 million was recorded for net asset value write-offs and other exit related costs. We expect the cash tax benefit over time is more than enough to offset the cash required to close this deal.

The asset was a high cost facility that weighed negatively on margins in both Fine Chemicals and Polymer Additives. We're pleased to have completed this divestiture and look forward to the economic benefits in the future.

As global consumer related businesses ground to a halt last year, we took steps to advance some of our restructuring plans we originally presented to you as a component of our Vision 2010. Responding to the challenges we saw rapidly unfolding in the fourth quarter, we began to streamline our infrastructure and seek improvements in operating efficiency to match the reduced volumes we were experiencing.

The cost of this restructuring has been reflected in the onetime pretax charge of $22.5 million outlined in the earnings release. Going forward these measures should reap annual benefits in the range of these onetime costs.

In addition to these organizational steps, we have implemented other measures that will help us meet our annual cost reduction target of approximately $30 million in 2009.

You'll also note in the earnings release the recognition of a onetime net tax benefit of $23.1 million that occurred as we settled prior period IRS reviews, allowing us to reverse previously established reserves. Rich will address this in more detail with his comments.

Looking back, 2008 was a year of unprecedented economic events that led to demise of many banks, corporations and individual investor portfolios around the world. We began 2008 with expectations of a solid top line and bottom line growth, and strong belief in our ability to translate this demand into earnings through 2010.

Our results were consistent with these views through the first half, as we posted double-digit sales and net income gains over the same periods of 2007. But as we ended the second quarter signs of economic stress began to surface.

In the third quarter we, and many others, saw our operations negatively impacted by Hurricanes Gustav and Ike. These events, which directly impacted Albemarle, also prompted the industry to begin to address what was perceived as a modest economic pullback.

In September we started seeing additional signs of volume weakness in some sectors, as the financial uncertainties elevated. Refineries stayed down for long periods to cope with negative cash margins, and that impacted some of our HPC volumes. And many commodity plants along the Gulf Coast delayed their restarts after the hurricanes.

Despite these disruptions, we ended the third quarter with relatively solid results. In fact, Fine Chemicals and Polymers delivered record net sales in the third quarter.

It is with that backdrop we began the fourth quarter. We anticipated fourth quarter weakness would for the most part be limited to volume declines in Polymers. That was the case through October, when almost overnight the consumer markets around the globe seemed to collapse.

Yesterday in reporting our fourth quarter results you'll see we recorded net sales of $518 million, down 14% year-over-year and 22% sequentially, primarily on volume declines in our Polymer segment. Included in the net charge of $25 million or $0.27 per share from onetime special items that I previously mentioned.

Net income for the quarter was $13.1 million or $0.14 per share. Excluding the special items and tax earnings from operations, we earned $0.42 per share for the quarter.

Our full year net sales for 2008 of $2.47 billion were up 6% compared to 2007. Net income for the year, excluding specials, was $221 million, down $12 million or 5% from $233 million in 2007.

It may not seem evident, but these results are quite an achievement taking into account the magnitude of the sharp year-end decline in consumer end markets, as well as the global inventory liquidation that followed.

Let me give you a bit more color on what we are experiencing in each business to help you appreciate what was going on behind the scenes.

Through October Polymer Additives business was down about 15%, before essentially disappearing in November/December. Consumer electronics, construction, automotive and durable goods customers were all impacted.

The largest flame retardant in the world saw an unprecedented volume decline of 75% in the first quarter. Circuit board manufacturing essentially ground to a halt. Historically robust products, like our mineral flame retardants, recorded operating losses in the fourth quarter, as demand for materials used in automotive production fell precipitously. Marginal productlines like phosphorous also fell into the red on weakness in demand.

Following three consecutive quarters of record sales revenue, fourth quarter Polymers revenues of $149 million were the lowest in five years. To help manage this situation we idled many of our Polymer Additives assets in December, which further impacted our results.

Our Fine Chemicals segment closed the year with solid top line growth and improved segment profitability compared to 2007. Revenue totaled $161 million in the fourth quarter, up 20% from the prior year in spite of the negative earnings impact of lower bromine volumes in Polymer Additives.

While all end markets are being impacted to varying degrees, the markets served by our Fine Chemistry portfolio has fared well. We have built a significant portfolio of proprietary technologies, and are poised for further expansion as we advance our pipeline and introduce new products that will preserve and grow our revenue stream. John will touch on some of these opportunities that exist in Fine Chemistries in a moment.

Moving on to Catalysts, as expected, we continue to see some impact from the midyear 2008 refinery slowdowns in the fourth quarter. However, volumes improved in December, driving sequential volume increases in refinery catalysts, and segment revenue of $207 million.

As we began 2009, solid pricing in FCC and polyolefin catalysts, strong volumes in HPC, and contributions from alternative fuels business bode well for improved segment performance this year.

As I try to wrap all this together, you may recall the last time we saw a dramatic falloff in consumer spending was 2001. And it took us about three years in those markets to fully recover Polymer Additives volumes to the levels that existed in 2000. However, it is not the same world today that was in 2001.

For example, the degree of inventory destocking we saw today did not happen as dramatically in 2001, and that clearly prolonged that recovery. While creating unprecedented short-term difficulty, the steep drop in inventories we see in 2009 should create strong demand as consumers return.

Today we also see weakness in raw materials and energy that didn't exist in 2001, which should create some margin opportunities as business stabilizes in returns.

Global economies will also struggle and have demand growth well beyond the levels that existed when we started this decade. And governments around the world are taking steps to jump start their respective economies. And I expect these steps will have some favorable impact on demand as we end 2009 and begin 2010.

But even with all these positive situations, we are mindful of the unique depth and breadth of this global recession, the likes of which we have never seen. Many balance sheets are stretched really beyond reason. Banks continue to struggle, and liquidity just isn't there for many citizens or businesses.

Weighing all these factors, it is pretty clear that business will be tough through the first half of this year. Beginning in the third quarter we expect the combination of stimulus, low levels of inventory and cost reduction efforts should form the foundation for a recovery.

Anticipating your questions in this area, we have established an investor conference on May 19 in New York. At that time we should have enough of 2009 behind us to have a better sense for the year and be in a position to share expectations for 2010.

Albemarle's performance has carried us through some difficult economic cycles in the past, and while we don't underestimate the challenges we face, we're confident that our people, our focus on innovation, our financial strength will position us well to navigate this economic downturn and perform better than most.

In 2009 we expect to maintain our financial flexibility to capitalize on market conditions that others in the industry could not. To that end we are actively seeking new opportunities and acquisitions.

At year-end cash and equivalents totaled $253 million. Net debt totaled $650 million. And we have no significant debt repayment obligations until 2013.

Expect us to use as our financial strength for strategic opportunities, while also returning cash to our shareholders through dividends and opportunistic share repurchases.

With that, I will ask John to provide more details in each segment.

Good morning everyone. I will begin with our Polymer Additives segment. Following a slower volume year in 2007, this segment showed positive improvements on volume and pricing through the third quarter of '08. While all indicators were pointing to a weaker fourth quarter, the decline was far greater and faster than we ever expected.

Net sales for the fourth quarter totaled $149 million, down 36% from the fourth quarter of 2007. We saw significant volume declines across this segment. The total metric ton decline was nearly 35% year-over-year and sequentially, with most of that occurring in the back half of the quarter.

Polymer segment income for the quarter was just over $5 million. Margins were diluted by higher unabsorbed fixed costs due to reduced production volumes in both flame retardants and stabilizers and curatives portfolios. Responding to the rapid demand decline, we idled virtually all polymer production units in the US and overseas. And do not plan to restart these units until we have firm orders in hand that can be satisfied with existing inventory.

While fourth quarter volumes were severely depressed, our pricing held up well. This, along with actions we have taken to optimize assets, rightsize our operations, and reduce costs will help enhance our ability to improve our bottom line segment results as we move through the year.

Moving on to Fine Chemicals, the recession resistant nature of our Fine Chemicals business supported the delivery of solid results in the fourth quarter. Increased volume and pricing drove fourth quarter net sales up 23% over the fourth quarter of last year.

Segment income for the quarter of $18 million increased slightly over the fourth quarter of 2007, despite lower bromine volumes in our flame retardant products.

On a full year basis, Fine Chemicals posted double-digit improvements in sales over the full year 2007, and delivered segment income of just under $89 million. Looking out, a robust Fine Chemistry pipeline and bromine portfolio are on track to drive improved volume and pricing. However, some of this strength will need to offset the negative impact from weak brominated flame retardant sales volumes.

Our new product initiatives are doing very well. Among the promising breakthrough products we're developing are pharmaceutical agents to fight biowarfare pathogens. SIGA Technologies, a company specializing in this new technology, recently announced completion of the required registration batches for their lead smallpox antiviral. Albemarle will produce the registration batches for SIGA, whose clinical trial is set to begin in this first half of 2009 at our South Haven, Michigan cGMP facility, where we have produced more than 20 active pharmaceutical ingredients and other custom ingredients. This could be another great opportunity for our Fine Chemistry business.

Another exciting opportunity in the pipeline is our recently executed manufacturing agreement with Zymes, an innovative bioscience company whose technology will allow food, beverage and nutritional supplement manufacturers to effectively add water and soluble nutrients to liquid products without the typical cloudy effects. Albemarle will manufacture the lead compound for Zymes' proprietary technology.

We believe our proven track record of strength in process development and manufacturing under the FDA's stringent cGMP standards, will help attract more contract manufacturing opportunities with leading pharmaceutical companies.

We are also seeing improvements in some of our established Fine Chemical productlines. Clear brine fluids delivered solid results, despite weak Gulf of Mexico activity. Our water treatment biocides that help prevent salmonella in poultry and beef applications are gaining traction, as state health departments report more and more findings of salmonella strains in food products.

Also, ibuprofen is starting to see good pricing and volume gains. Our ag business continues to do well, and is likely to continue this trend in 2009.

Finally, our sorbent mercury control business that we acquired in the second half of '08 is doing well. And we expect to see a meaningful contribution to our bottom line from this business in 2009, with greater growth prospects further out. Mercury exposures impact on human health is gaining greater attention. And we are encouraged by the legislative activity centered around mercury control.

With that, I will move on to Catalysts. Catalysts net sales for the quarter where $208 million, down 11% compared to fourth quarter of '07, due primarily to an anticipated volume slowdown. Segment income for the quarter was $31.4 million, with segment margin of 15% wrapping up a successful year in Catalyst.

Strong pricing improvements in FCC and polyolefin catalysts help offset year-over-year volume declines in HPC. With as excellent customer mix, performance in polyolefin catalysts was strong all year, setting record sales and profits for this division. We saw very little impact in this business from the economic downturn.

Looking forward to 2009, we are already seeing very strong improvement in HPC volumes in the first quarter, and confidently expect full year growth in revenue and profits to exceed 2008 levels. We expect FCC volumes to be flat in the first half, as some North American refineries extend their shutdowns. FCC continues to show good pricing momentum around the globe.

Income from our Catalyst joint ventures was down year-over-year and sequentially due primarily to a sharp decline in profitability of our Nippon Ketjen joint venture. Full year joint venture income was in line with the full year 2007; however, we expect some improvement in pricing, which should benefit the joint ventures in 2009 going forward.

Finally, our Alternative Fuels division has solid orders booked for 2009, and we expect to see a ramp up of our products used in bio diesel and renewables in 2010.

I believe our business model will prove to be one of the most resilient among our peers. Our operations are more efficient, our technologies abundant, and our people firmly committed in their daily work to the future growth of our business. Now with that, let me pass it on to Rich.

Good morning everybody. The items I would like to cover on today's call include income taxes for the quarter, the year and the year ahead, corporate expense, cash flow, and our year-end balance sheet and financial position.

Let's start with taxes, where we were able to reach settlement with the US Internal Revenue Service for the exams covering the 2000 to 2004 tax years. The settlement resulted in a net refund of approximately $2.3 million. We received $2.5 million in Q4, and we will make a small payment in Q1 of 2009.

With those exams behind us, we were able to record a onetime gain of $32.4 million. Net of $9.3 million in new tax reserves and evaluation allowance on foreign NOLs that we felt were needed, we recorded a onetime special item for the quarter and the year of $23.1 million or $0.25 per share, largely a non-cash gain.

Excluding this onetime net gain and the tax impacts of the Port de Bouc disposition, and our restructuring charges at other company locations, the full year effective tax rate was 12.4%. The Q4 effective tax rate, excluding all specials, was negative as we adjusted our nine month to date effective tax rate of 18.6% to the full year rate. Our current planning is for a 2009 full year effective tax rate in a range of 18% to 19%.

Unallocated corporate expenses were $15 million in the quarter and $50 million for the year, flat with the prior year. Our outlook for 2009 is for corporate expenses of approximately $45 million to $50 million for the year.

Our EBITDA in the quarter, excluding special items, was $68 million. Full year EBITDA was $402 million, down $33 million or 8% from 2007 levels. We ended the quarter with cash and equivalents of $253 million.

CapEx for the quarter was $36 million, resulting in full year CapEx of $100 million, flat with 2007. We have a CapEx budget of $120 million in 2009, but will be closely monitoring our willingness to fund that budget in light of the global economic situation and our cash generation as the year progresses.

Depreciation/amortization was $30 million in the quarter and $112 million for the year. Projected depreciation/amortization in 2009 is in the range of $115 million to $120 million.

In Q4 we repurchased 250,000 shares for about $5.5 million, at an average price of $21.80. For the year we purchased and retired 4.7 million shares, some 5% of our outstanding shares. Between repurchase activity and our dividend, we returned over $210 million to shareholders this year, and over $350 million over the last two years.

At year-end we have consolidated debt of $932 million, including $52 million of debt from JBC, our Jordanian venture.

$543 million of our debt is floating-rate, and $389 million of our debt is fixed-rate, a 58/42 split. Our floating debt interest rate is 1.92% at year-end. The weighted average interest rate for Q4 was 3.91%.

Net of $250 million cash on hand, and excluding $29 million of nonguaranteed yet consolidated JBC debt, our net debt is $650 million, down $80 million in the quarter, despite our funding a $25 million voluntary contribution to our defined benefit pension plan master trust in December. Our debt to cap is 47%. Our net debt to cap is 38%.

With no significant scheduled debt maturities until 2013, strong cash balances and availability under existing lines of credit of more than $300 million, we feel well-positioned to weather the uncertainty ahead in 2009, and plan to be active on the M&A front when opportunities present themselves.

Let me conclude by saying that we have an intense focus on cash and cash generation during Q4, a focus that yielded some progress with the reduction of $137 million in net working capital during the quarter. We have every intention of maintaining this focus in the quarter and year ahead, with my hope being that this will be the first of many quarters where we can report progress in this area.

With that, let me turn it back to Sandra.

At this time we will open it up for your questions.

(Operator Instructions). Jeff Zekauskas, J.P. Morgan.

Your shareholders equity on a sequential basis went from $1.254 billion to $1.065 billion, or down $189 million. Why is that?

This is Rich. That is principally due to a number of things. Number one would be the FX impact on where the translation adjustment goes through equity. It also is involved with the fact that our pension funding is significantly different this year versus last year and that is another component. So those two things are the principal item that was pushing that down. We obviously also paid a dividend in the fourth quarter, things like that.

So, yes, the normal impacts, but kind of the onetime unusual items that resulted in that decrease are the items that I mentioned.

Do your pension costs go up next year, and by what amount?

Our pension costs are going to be up probably in the $5 million to $6 million range next year versus what we thought they would be as we were planning the year out. Part of that is due to the discount rate that we're using at the end of the year, and part of that obviously has to do with the change in the investments of one year versus another. We smooth that over a period of time so you don't get all the impact at one time, but certainly there is an impact that goes through pension expense.

You said that it was $5 million to $6 million more than what you had expected.

That's correct.

So what is the net amount that you expect it to be up? I don't know what your previous pension expectations were.

It is probably about $5 million or $6 million year-over-year going to be an increase.

Second, or lastly, in Polymer Additives, I think John said that all of your units were currently down. Can you talk about what the accounting impacts of that are? I know like this morning DuPont was expensing through its income statement more costs because its utilization had fallen to, I think, below 60%. Are there any of those effects on you? And how do you run an operation where all your units are down?

I will do the accounting part, and then John can do the operational part. This is Rich. We have in each of our businesses approaches that we have in place to capitalize kind of normal recovering ups and downs in how much we have our operations running. But in a case like this, we would not capitalize that normal variances, so to say. So anything as a result of being shut down in December would have hit our P&L.

Let me just comment on the issues. Our goal is to absolutely work on bringing our inventory down to absolutely as low as possible. But the real key here is keeping in close contact with the customer base to get as good an understanding of where they see things going.

Right now, at least in my career, I have never seen a higher degree of uncertainty about where these markets are going. So we do have to deal with that. And you are exactly right. It is really very difficult to deal in a market where the uncertainty not only of our customers, but of our customers' customers is so high.

The other issue we are dealing with, if you look at that -- and I kind of referred to this in the script -- was the brominated flame retardants and its impact on Fine Chemicals. Because as we lower the utilizations of our bromine fields and our bromine production capability, that has an impact on Fine Chemicals as well. And in the fourth quarter alone that was roughly between $6 million and $7 million impact on Fine Chemicals. So we are also dealing with that. But it is a very complex situation, you are right.

Just to wrap that up, what I would say is that one of the things we try to manage this uncertainty on the part of our customers, we just really reacted very quickly. We had people start to take vacations. We cut all overtime. We furloughed some people in some situations. We cut contractors. We're doing all those kind of things.

Where we sit today is what we're trying to assess sort of the background here and what is going to happen next. It is -- and John may talk to this in more detail in just a minute -- but we are seeing things like customers come in with orders for delivery in four weeks. A week or two later come back and cancel those orders. A week later ask for an emergency shipment for some portion of it.

So there is just a lot of uncertainty out there now. What we're doing is we're cutting our costs where we can, and in some cases even shuttering units that don't make sense, and holding on here just a little bit to see what happens.

I guess, lastly, will you lose money on Polymer Additives in the first quarter?

No, we hope to build on where we are in the fourth quarter, and sequentially improve that business through the first half. We will see where the market takes us from there. But the answer to that question is no.

Laurence Alexander, Jefferies.

First of all, just to follow-up on the capacity utilization question, how much of a hit was the work down of inventories in the Polymer Additives segment in Q4?

I don't know. I mean, I am not being evasive about that, but we really -- we hadn't sat back and worked through that. But it was pretty material, because we shut -- quit running the plants.

I think if you look at the business sequentially, it is down roughly $20 million. And you know, rough -- I mean, 50 -- half and half. Half driven by the drop in demand, and the other half just dropping the production.

Effectively in the Catalysts segment, can you walk us through with a little bit more detail the trends -- the volume trends and pricing trends in FCC and HPC Catalysts? And then also what you're seeing in terms of order flow for the alternative fuels business?

Let me first start with HPC. The HPC volume finished in the fourth quarter more or less as we expected. It was down sequentially low double-digits. But we saw it out the gate very strong here. As a matter of fact, I think we will end up supplying more in the month of January than we did in the entire fourth quarter. So good trends there.

I think we've got both our plants running very hard in Houston. We've got our plant in Amsterdam running very hard. And I think supply and demand is going to be very tight in '09, and I think that helps pricing in general.

In FCC very good traction on the pricing front. I know you're asking the question as a modeling question, and I think going forward we're going to see pricing in FCC close in on -- closer to $4,000 a ton than $3,000 a ton. So good traction there.

There is some volume slowdown in the first quarter, but that is typically seasonal as these refineries generally are preparing for the driving season. There's a lot of turnarounds. And because of refinery margins there has been a general slowdown too, but good pricing traction.

In other pricing related issues -- and flame retardants I can talk about that separately -- but the AFT business I think this year we've got some orders booked that are equivalent to the '09 level, but there is a pretty significant ramp up in 2010. It remains to be seen if we ship any of those orders at the end of '09, but we will see.

I guess lastly, because you raised it, what are you seeing in terms of tetrabrom pricing?

Broadly let me talk about flame retardants, if I can maybe expand your question a bit. Mark mentioned we lost money in mineral flame retardants. There continues to be a lot of raw material pressure there. It is contrary to what you would see, but ATH pricing in the raw material side has hung up there quite well. It has been issue that we've had to deal with for 18 months now.

We have seen some good pricing traction, and actually in the double-digit range. So if we can get some volume return in our mineral flame retardant business, we're somewhat hopeful there.

On brominated flame retardants the situation is different. The demand has been so weak that there have been very few customers in the market. So it has created not a lot of discussion on the pricing front. As a result of that, our pricing for the base business continues to hold on quite well.

Steve Schwartz, First Analysis.

Can you tell me why SG&A was so high in the fourth quarter? It looks relative to sales and in absolute dollar terms, it was significantly higher than I thought would be.

This is Rich. Obviously the sales declined a lot more than we thought they did, so it is hard to adjust that one on a dime. But in terms of the things I would spike out in terms of SG&A in the fourth quarter, the first thing I would mention is we boosted our allowance for doubtful accounts for bad debts. We're fully accrued for any of the customers that may have issues. There is one prominent one that is impacting the chemical industry in terms of an announced bankruptcy. We're fully accrued for that in terms of our exposure.

We did have some expenses in connection with our IRS settlement. We had some normal corporate type costs there also. Then ultimately we true up our budget accrual in the fourth quarter also, so that had a little bit of an impact also.

So it should settle back down going forward?

Yes, especially given some of the benefits we will get from the headcount reduction.

Should we still assume that Bayport would be fully utilized by year end?

Yes, we have that view on the HPC side. On the FCC side it remains to be seen. Our projection now is that volumes would be flat for the year.

Then one last one. You were expecting to start up an antioxidant facility in Shanghai sometime this summer. Are the plans still in place for that? And what do you think that would do to your volumes in that business, if you were able to --?

The whole issue has been end market demand, and that has dried up, just like the balance of our business. So we've got our plants in China idled right now. We made the comment in the script that virtually all of our Polymer Additives units are down, and those units are down as well. So the expansion has been basically put on hold right now.

That is what I thought. Thank you.

Mike Sison, KeyBanc.

John, did you comment that HPC volumes would be flat in '09 versus '08?

Oh no, that was FCC. We see --.

Oh FCC, okay.

The one comment I did say related to HPC was we are seeing a January than is more than the entire fourth quarter.

So HPC volumes based on your order patterns look pretty good. Should show pretty good growth in '09 versus '08, as expected. Does the first quarter really kick in gear then?

Yes, but we have been talking about this for quite some time, so it is time for us to step up and deliver. We've got high expectations for this business and we need to execute.

Right. Then I think you said you would definitely see some growth in Catalysts in December. You suggested something like double-digit growth and profitability year-over-year. Is that still in the same cards? Is it a little bit better, a little bit weaker?

Yes, we still see -- our view currently is 18% plus segment income margins, and over a $1 billion plus business.

For 2008 -- for 2009?

2009, that's correct.

Then in terms of -- just curious, in terms of raw materials, what was the final sort of impact on you guys in 2008? And as that number falls, assuming that petrochemicals fall and some metal prices fall, how much of that do you think you can capture into '09?

It ended up in 2008 versus 2007 being -- raw materials and energy being in the range of $170 million. It is really a mixed bag. That is a very complex question you just asked me, so if you can bear with me just for a moment.

We've got a lot of -- a big mix of issues. We still see certain products like caustic, very strong on the pricing front from a raw material perspective. ATH has been strong. We are still working to recover for the last two years of raw material inflation on that side. We've got electricity and gas costs in Europe which are still -- are very high. So that is an issue we've got to deal with.

In the back half of the fourth quarter we saw moly and cobalt go down, but we weren't in the market. So now we've got -- to me it really becomes pricing issues going forward, and how we deal with this high cost of inventory from a carryover of '08. And we are working hard on that around the globe. I talked earlier about the pricing trends in our various markets.

But right now there is a much uncertainty, I really cautioned it to give you a number, because just the volatility has been so incredible. But I know it certainly is not going up; the trend is to go down. So we will try to keep you all informed of that as the year unfolds.

Last question. Mark, assuming, for what it is worth, there isn't a better improvement in the economy in the second half of '09, which is -- could happen, I suppose -- how does Polymer Additives end up? Does the volumes stay as weak as they are, and you track fourth quarter profitability a little bit better on a quarterly basis as we track through the full year?

You are kind of outlining a worst-case scenario. I think what we have directionally been doing is looking at other cost reduction efforts that could offset some of the fall off we have seen. And those wouldn't all be in Polymer Additives, those are corporately.

I don't know quite how to answer that yet today, but I would say that, as John said, we think we can add incrementally to our profit some in the first quarter. We have plans in place that will add incrementally to that in the second quarter. Ditto third, ditto fourth.

So I think even in a pretty weak scenario, we should be able to grow our profit there from where it ended in the fourth quarter. But clearly we need business to come back to really get to those kind of more respectable levels.

Chris Shaw, UBS.

One of the questions I had was around Fine Chemicals and the bromine that you sell or produce for the Polymer Additives. All the Polymer Additives plants are down. Does that mean you are not recording any revenues from bromine in the Fine Chemicals segment?

No, we said essentially. There is business. We are selling things. We're running some plants. But on a relative basis, where we used to run these businesses way north of -- or north of 80% capacity utilization, we're pretty low capacity utilization now. So maybe 50%. I don't know, I'm making that up, but something like that.

How much does elemental bromine sales make up the Fine Chemicals? Is it like 20%?

No. It is less than 10%. That is a great think about our Fine Chemicals business, it is so diversified. There is not one particular productline that is more than 10% of our profit in Fine Chemicals.

Then on the some of the new orders for renewable energy catalysts for this year, are any of those at risk? Are they firm orders or can they be canceled?

I see it -- there's pressure of course on energy across the board. But especially with the new administration, the potential incentives on renewables, I see these -- we see these orders as very firm. And maybe some upside in 2010 and beyond. But they are firm orders. We're working hard to fill them in the second quarter and beyond. And 2010 really looks great.

I think -- and you mentioned on the call that equity income was down -- but it looks like minority interest was up, at least sequentially.

That is JBC. So what we ran JBC -- remember that we kind of have alternatives of where we can source the bromine -- and JBC from the bottom line impact us is the best place. To the extent we can use that arbitrage, we kept JBC running during the quarter.

That make sense. Then just finally, when you mentioned that $170 million raw energy increase for 2008 over 2007, is that inclusive of things -- raw materials that would just be pass-throughs?

Yes, that is the gross number, if you will.

Is there a net number?

Well, you see it in margins. Your question really revolves around margins. We never -- for example in polymers, we never got the pass-through on the mineral -- on the ATH. We are kind of on getting that today. The metals has been a pass-through issue, and that is one we are still dealing with.

So the energy tends not to be -- but the US energy costs going down are being offset by the price inflation in Europe on gas and electricity. So it is a mixed bag there for us.

P.J. Juvekar, Citi.

John, you mentioned that you have shut down most of your Polymer Additives plants. How much inventory do you have in brominated flame retardants that you can keep selling? And when do these plants come online? Then secondly, do believe your competitors also shut down plants?

The inventory level, we worked very hard and focused on cash generation in the fourth quarter. We worked hard to bring those units down as rapidly as we could. But I will say the sales progression from October, November, December, it just continued to get worse and worse as the quarter developed.

I mean, the best way to reduce inventories by selling product, and sales just weren't there. But I think we did do a good job overall in managing inventory for the Company. We're still sitting on -- we're talking 80 days of inventory probably in polymers.

So that is why I think we have to keep in close contact with the customer base as to when things do turnaround. The Chinese New Year is now behind us, and we are anxious to get feedback from customers on what their plans are for gearing up production, if any at all. But we will try to keep in close contact there.

Your plans could be pretty much down for the entire first quarter if demand doesn't improve because of 80 days of inventory?

Yes, that's right.

If you add in there -- if you look at some of the -- you should be mindful that in many of these products we produce in more than one location, so we will have one plant down and the other plant still operational. That is in some cases.

John mentioned in China we've got our facilities down in China. We don't see those restarting until the second quarter based on what we see currently today. And as John said, we've got inventory that we will work through, and we will make sure that we need to bring them back before we do. I think that is -- the first quarter we are going to be largely selling out inventory until we see what happens.

Related to your question on competition, yes, I think our peers and customers have all been faced with the same issue.

Then on the Catalysts side, a couple of years ago you had expected a big chunk of replacement demand in '08 and '09, but then you had the refinery cuts in runs. So how do you see those two issues, the replacement demand versus cuts in refinery runs?

I think we have worked through those issues. And the first quarter I believe will ring true to that, and we will build a base for a good year in HPC. What remains to be seen is how the economy goes forward, and how that relates to fuel consumption. And that tends to be the big driver on FCC. So we will just patiently wait on that.

But on the positive side, again, good pricing traction, and that continues. So as the petrochemical universe gears up, if we see probably propylene market improve, for example, I think that that will bode well for our mix of products supplied into that market.

A quick question for Mark. You are quite knowledgeable about the Chinese market. The fact that you had to shut down all your plants in China, is China much worse than what people are expecting?

I think what we are seeing in China is a lot of the export market around consumer related products has dried up. And that is no different -- that is also the case in Japan. It is also the case in Taiwan. Nan Ya, Formosa Plastics, for instance which makes the lion's share of circuit boards for the world is essentially shut down.

So I think it goes beyond China. Just simply to say that consumer related electronic kind of components, which is the majority of these kind of businesses, from cell phones to TVs, that export market is really, really weak today.

There are rumblings out there that post Chinese New Year volumes are going to start picking back up. And we're playing that -- we are just taking that with a grain of salt, and saying that we're going to wait and see that it actually has picked up before we come back.

Bob Koort, Goldman Sachs.

Mark, it strikes me a lot of what you said today echoes the misery and pain we've heard from other companies. I guess what caught my attention was a more aggressive stance on using your balance sheet or financial flexibility for both acquisitions and share repurchase, when many of your peers seem much more paralyzed at the moment.

Can you talk a little bit about how aggressive you might be on either count? And then specifically on the acquisition side, are there actually businesses out there that have an upward slope to their business fundamentals, or is this a function of some opportunistic purchases of stuff that is cyclically down?

Let me make a couple of contents here. For those of you that have followed us for a while, you have a sense of the strong earnings capability of this Corporation. And that has held through in good times and bad. So we are expecting, even in these tough times, pretty good free cash flow generation.

John mentioned the herculean effort that is underway to pull cash out of our system and build our cash reserves. And we had $250 million of cash when we ended the year, a little debt, no maturity in the future. And I will be disappointed if we don't add $150 million to $200 million of that as we progress through this year as well. So we have a lot of cash in hand to look opportunistically with acquisitions.

At the same time we have raised our bar on what we're willing to buy. In other words, we're only looking at good opportunities that fit in from a niche point of view in our business portfolio. The Akzo catalyst business was a great example of that. So we're working with people that have other small pieces of business that don't necessarily fit that are good businesses that fit our portfolio, that we can pay cash for and close the deal in a short period of time. That is our primary focus.

At the same time, my belief system, where we feel pretty good, I think others have yet to really start suffering like they're going to as they go through this year. And a few are going to have to sell assets, and there are going to be distressed sales, and that affords another opportunity for us.

So we're trying to be mindful that. And we're starting to work with some people that have those kind of opportunities, or may present those kind of opportunities to us.

The last thing I will say about stock is I think -- I mean, the market is undervalued, and our corporation is right now with everybody from that point of view. And we will be looking to continue to do what we have been doing, which is opportunistically buying stock back. We are also going to take care of our dividend. So you will see us continue to return large amounts of cash to shareholders through this year and into next.

If I might, a follow-up. I know when Honeywell preannounced last year they talked in their UOP business about deferrals of reloads on catalysts. John, I'm wondering if you can just, one more time, go through what you expect to happen sequentially, and why you have the confidence that the deferrals that we have been waiting to end are finally going to end?

Tough question. First, let me just comment on our UOP venture. That continues to do extremely well, and we're very, very pleased with that. We are adding -- continuing to add technical resources and firepower to that venture. And we're very happy with the prospects going forward. And the volume, particularly in HPC, the deck and drive for us in 2010 and beyond.

We have conducted -- had a number of studies done and what the impact of the economy is having on some of these kind of mega operations going forward. You know, it really almost -- what we are finding is, is it depends on who you ask and how you ask it.

But roughly I think maybe half of some of the new refineries out there could be delayed. Now there is also the economic issue that the cost of building these is going down. So that could help improve some of the economics. So it is a very mixed bag. We're continuing to study it, but our current view is that some of these will be delayed in 2012 and beyond. But it is not a train wreck by any stretch of the imagination.

Dmitry Silversteyn, Longbow Research.

A lot of my questions have been answered, but I just want to go back and maybe touch up some of the answers. Can you give us -- with the French plant closed, can you remind us what the impact will be on the top line, as well as what we could expect on margins of the Fine Chemicals business?

Fine Chemicals business, we really -- we're hoping for maybe just north of 100 basis point improvement through the course of this year on margins, and we think minimal top line impact.

So the French plant really won't have much of an impact versus your -- or versus the baseline you'll have about 100 basis point improvement from those sales being out of your mix?

And that will help us, because we do have this bromine issue that we're dealing with in Fine Chemicals. And the under absorption in Fine Chemicals that hit from lack of brominated flame retardant sales. So we're dealing with that as well.

On the Polymer Additives segment you talked about -- in some detail about the mineral and phosphors flame retardants being impacted, as well as obviously the tremendous impact you're seeing in brominated flame retardants. Can you talk about the minority of your business that is going to be antioxidants and UV part of the business, those stabilizers, and what you saw there in the fourth quarter versus the other segments, and (multiple speakers) going forward and which markets are responsible for it?

You bet. The overall stabilizers curatives business we have seen similar downturns in antioxidants. But I will say on a positive front is the lube and fuel business continues to hold up quite well, and that is encouraging. The curatives business continues to hold up quite well. So some of the specialty applications are doing well.

Generally we found what I would call commercial construction is holding up quite well. So some of those base products that go into commercial construction are doing fine. But the other weakness -- home-building, of course, and electronics and automotive, those are probably three end markets that are hurting us the most.

Now you did say that because of lack of demand and really lack of any sales in the second part of the quarter, your prices held steady just because there wasn't anybody coming in asking for volume at a lower price. As volume comes back in the first quarter and the first half of the year, do you expect pricing to be an issue here, especially if raw material prices start coming down more noticeably?

Well, I do not believe so. I think there is -- on the mineral front we're gaining some traction there, as I mentioned. And I hope that that continues, because we've got to offset a couple of years of inflation in that area.

In brominated, no, I think there has been a lot of discipline instilled over the last decade, and I would hope that that would continue.

On the Catalysts business, you sounded fairly confident in the recovery in HPC volumes, I guess beginning even as we speak. And I understand your reason behind that confidence. But what is your outlook for the polymerization catalysts? We're hearing a lot of softness in the polyethylene, polypropylene markets right now. How is that impacting your polyolefin catalysts business?

Our polyolefin catalysts business continues to be quite resilient. So we are pleased with that. Our organometallic piece and our new catalysts businesses are holding up quite well, and so we believe that that will continue.

What is the driver behind that? Is it marketshare gain? Is it that -- any particular products you are selling tend go into applications that are continuing to grow?

Yes, everything hasn't come to a screeching halt, right?

Right.

I think some of our new Cats are quite unique, highly value-added products. And then in our organometallics, I think there is a -- if you're just going to run a plant, aside from the utilization factor, you still require a certain minimum amount of organometallics to run that [formulization] unit. I think we're getting some help on that side.

As long as there's not a widespread plant shutdown, as long as it is just a cutback in capacity utilization and productions, this should not be very impactful to your volumes?

We believe that to be the case.

On the Polymer Additives I think, John, you said in answer to a previous question that you thought the fourth quarter drop in operating profit was about -- in terms of dollars was about 50-50 between inventory correction and just volume decline.

Yes.

Is that correct?

Yes, that is a directional guess is the way I would put it.

I understand that. There was also probably some part in there from high raw material cost, which were still factor, I believe in the fourth quarter and year-over-year basis.

That's correct.

As inventory correction is working its way through, and hopefully we'll see some lesser amount of that in the first quarter, and raw materials perhaps directionally at least are heading down -- I'm not sure where they're going to end up on a year-over-year basis, but sequentially at least they should be down -- how do you the profit recovery in the Polymer Additives business, assuming another double-digit decline in volumes? Are we talking about getting back to high single digits or maybe even low double-digit market margin, or you still expect kind of mid single digit margin?

No, I think our view of success would be if we can see sequential profit improvement through the first three quarters, driven by things that we can control in terms of cost. (multiple speakers).

Now when you say profit, is it dollar profit or margin profit?

Dollar profit.

And then final question on the ATH contract, that seems to be holding back the profitability of the Catalysts business, can you remind us when that expires, and what the benefit will be of renegotiating a lower price?

I'm sorry. Repeat that question. I didn't quite --.

The ATH contract that has been blamed for impacting the profitability of the Catalyst business, when does that expire and what --?

There is some ATH and rare earths and things like that go into FCC. And those contracts are negotiated routinely. Those raw materials have continued to stay relatively high.

And we are not seeing any relief on that front yet?

No, we're not.

That concludes the Q&A portion of the presentation. I would now like to turn the call over to Ms. Sandra Rodriguez.

I would like to thank everyone for participating on the call today. If there are any further questions, you can contact me at the number indicated on our press release. Have a great day everyone.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.