塞拉尼斯 (CE) 2015 Q4 法說會逐字稿

Good morning and welcome to the Celanese fourth-quarter 2015 earnings conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Chuck Kyrish. Please go ahead.

Welcome to the Celanese Corporation fourth quarter 2015 conference call. My name is Chuck Kyrish, Vice President, Investor Relations.

With me today are Mark Rohr, Chairman and Chief Executive Officer, and Chris Jensen, Senior Vice President and Chief Financial Officer. The Celanese Corporation fourth quarter 2015 earnings release was distributed via Business Wire yesterday after market close.

The slides for the call and our prepared comments for the quarter were also posted on our website, www.Celanese.com in the investor relations section. As a reminder some of the matters discussed today and included in our presentations may include forward-looking statements concerning for example, Celanese Corporation's future objectives and results.

Please note the cautionary language contained in the presentation slides. Also, some of the matters discussed and presented include references to non-GAAP financial measures.

Explanation of these measures and reconciliations to the comparable GAAP measures are included on our website in the investor relations section under financial information. The earnings release, non-GAAP reconciliations, presentation, and prepared comments have been submitted to the SEC and a current report on Form 8-K.

This morning, we will begin with introductory comments from Mark Rohr and then we will field your questions. I'd now like to turn the call over to Mark.

Thanks, Chuck, and good morning, everyone. Our prepared remarks were released with earnings, so I'll keep my comments brief and then open the line for your questions.

Today I'm pleased to report adjusted earnings of $6.02 per share for 2015, with EBIT margins of 21.8%. That's a 320-basis point improvement year over year.

We also generated record levels of free cash flow and returned $594 million to shareholders through share repurchases and dividends. A great financial year for Celanese.

2015 was also a year of tremendous organizational change at Celanese, as we accomplished several foundation objectives which will contribute meaningfully towards achieving our 2018 financial targets. We aligned the Company behind two complimentary cores, driving clarity and focus through the Corporation while realizing significant synergies and leveraging the skills of our teams.

We built the largest, most efficient, and lowest cost per ton US methanol plant in record time to replace an existing -- I'm sorry, replace an expiring supply contract. We improved our manufacturing footprint and took steps to ensure commercial flexibility and our ability to take advantage of market opportunities.

We implemented a robust pipeline process and launched over 1,000 new projects, and through all of this we delivered around $100 million of broad-based productivity gains across the Company. Looking ahead to 2016, we are confident in our business models, structure, and the teams we have in place to manage through the challenging macro environment the world finds itself in today, one of declining energy and raw material prices, demand uncertainty, and currency volatility.

We expect our commercial strategies, new product introductions, our pipeline successes, along with our focus on delivering $100 million in productivity will also allow us to grow earnings this year by 5% to 10%, keeping us well on track to meet our 2018 financial objectives. With that, I'll now turn it over to Chuck for Q&A.

Great. Thanks, Mark. So we would like everybody on the phone to limit your questions to one question and one follow up. Let's go ahead and get started.

(Operator Instructions)

Our first question comes from Laurence Alexander of Jefferies.

Good morning, this is Dan Rizzo in for Laurence.

Good morning.

In terms of acetate tow I know things haven't quite bottomed out there yet. What kind of visibility do you have going into 2016? Is this something where we're going to have to step down our assumptions every two to three years, or is it something that we think is finally bottoming out here?

Well I think there's a couple things going on there. The uncertainty in the market is largely based on the uncertainty around the amount of tow China is going to import.

Tow volumes imported several years ago were well north of 100,000 tons, maybe 120,000 tons or so. Last year they were in the 50,000 to 60,000 tons.

It is uncertain what they are going to do this year, but I would not be surprised for them to reduce it again this year to some level. So that creates uncertainty back in the market.

We're taking steps to offset the ripple effect of that, so we are looking at being flat year over year in tow. But I will say that the sooner that China can get to its end game the better, I think, for that market to stabilize and for things reverse their course.

And then I think you launched 1,000 new products last year. Going forward, is the pipeline still as full, is it coming in a bit or is it expanding?

Yes, as we look at it right now we would forecast to be at 1,200 this year, kind of level. We have a view internally we need to keep growing at, and we have programs under way to grow that.

Some of the launches you've seen of our new products in the marketplace, like stepping out into nylon, we have some great technology there that we've never leveraged. So we're doing more of that kind of activity and that's certainly going to help us expand our market space. And at the end of the day that will help us launch more and more new projects.

Okay, thank you.

Thank you.

Great thanks, next question please?

All right. Our next question comes from Duffy Fischer of Barclays.

Yes, good morning.

Good morning, Duffy.

Question just around the profitability spread between the upstream and the downstream. The upstream suffered a little bit in the most reported quarter, but the downstream held on to it.

I think there's some concern that that's just a lead lag effect, and then maybe some of that bleeds away as we go through this year. But can you talk about your ability to hang on to that pricing in the downstream products throughout the rest of this year?

I think if you look at what's happened, and I'll take currency as an example, we certainly were able to hold on to 2/3 of that margin as things compressed. And we had that big currency impact. That's pretty dramatically reduced this year as we go forward. We wouldn't anticipate quite as much currency volatility to impact it.

So I would say that directionally we feel okay about keeping that kind of ratio, but for us to keep that ratio we need to have some stability. In other words if things keep dropping at some point, Duffy, it could get hard to hold on to it I think, just because of the uncertainty.

But the way we see things now is we think that a lot of the deflation has run its course. Not all of it, perhaps, but a lot of it has. So we're predicting that things will stabilize as we go through the first half of the year and then start getting better towards the second half.

Great. And then on the contract buyout, should we think about you making about your cost of capital on that? So if you invested $175 million that's going to be $15 million to a $20 million benefit from buying out that contract? Is that the right way to think about it?

That is a really good way of looking at it and pretty accurate with the economics.

And then how does that leave Singapore as far as competitiveness then say versus producing in Nanjing?

Well today at today's oil price it's very competitive. It's roughly the same advantage that you have in the US. So much more so than coal-based material. So we expect with the new supply agreement in place we'll be able to take advantage of that and drive greater market opportunities with that business.

Terrific, thanks.

Thanks, Duffy.

Our next question comes from Vincent Andrews of Morgan Stanley.

Thanks. Just a question on the free cash flow comments. I get that modest increase is expected off the $733 million not off of the $556 million, but just curious are you anticipating -- the definition of modest to me sounds like you're saying it's going to grow less than your earnings are going to grow.

And I'm just curious why that would be, because I think of next year or this year as being more lower raw materials flowing through inventory and so forth. I'm thinking you'd have a working capital benefit, but maybe I'm missing something.

A couple of things. So first, yes, I realize that my comments didn't clarify very well that when I said modest increase that's above the $733 million, right? So that's right.

When we talk about 5% to 10% earnings growth we're talking about earnings per share. And as you know, we plan to do share repurchases. So not all of that translates to cash flow growth. So you will get cash flow growth from underlying earnings increases.

What I would tell you on working capital is we had really strong working capital performance in the fourth quarter, and that is why that $733 million number sounds a bit better than what we talked about at our investor day. I don't remember exactly what I said, but it's somewhere in the $600 millions, I think we said. So working capital had really strong fourth-quarter performance. I think that probably goes back the other way a little bit in 2016, because I'm not sure we can sustain that same level of working capital.

The other thing that I would mention to you is that our capital spend net of the Mitsui reimbursement came in in the low $300 millions in 2015. And that's a little bit lower than what I had guided you to at investor day. The reason for that is that some of our late in the year capital spend did not actually get paid in cash in December. It's trickling into 2016.

So I'll be paying for some number of $30 million or $40 million of 2015 capital in 2016. Now again, I would reemphasize that we expect our normal range to be more of the $250 million to $300 million of capital spend going forward.

Just as a follow up, what is your expected tax rate for 2016? And just on the couple of comments in the comments from last night about you had -- there was a change in the rate because there were some losses in jurisdictions without tax benefits. What were those and just how should we think about the tax rate in 2016 in general?

Are you asking about the GAAP tax rate, or the tax rate we use for adjusted EPS?

Well I'm asking for 2016. I want to know what we should be using for adjusted EPS. And then yes, on the GAAP rate for 2015, you said the increase was primarily attributable to losses in jurisdictions without tax benefit.

Okay, got it. So for modeling for our adjusted earnings per share we're assuming that we're going to be able to hold flat at 18% in 2016. I'll say what we all would say, which is as your jurisdictional mix of earnings unfolds during the year that can always change, but that's our starting point.

As far as our comments on the GAAP tax rate, which went from 33% in 2014 to 41% in 2015, yes we said most of that is attributable to losses in jurisdictions without an earnings benefit. And what that really means is you're required if you have big deferred tax assets, which are net operating loss carry forwards, to post a valuation allowance against those depending on what jurisdiction they're in.

So you see we had these very large charges for the contract termination in Singapore and the impairment in China, so you have to tax effect those and there's jurisdictions and you end up posting valuation allowances against those. That's why it's such a big number this year.

Thanks very much.

Great, thanks.

Our next question comes from David Begleiter of Deutsche Bank.

Thank you, good morning. Mark, in AI how should we think about the methanol impact in 2016 versus 2015?

You mean in terms of straight financial impact?

Exactly. Given the --

Just the production of methanol versus the whole contract?

Exactly.

Yes, I think $10 million a quarter is the kind of -- and I'm going back to pre and post contract. Does that make sense?

So when we had the contract in place versus today, it's probably $10 million worse per quarter. So $40 million per year.

Fair enough. And just looking at consumer, given your forecast for flat tow year over year, can segment income and consumer be flat, as well, year over year or could it be up year over year given lower raw materials?

No I think that there's a lot of puts and takes in the material section there that's pushing us towards a pretty flat year in that group. So let me give you one example. The IBN SINA joint venture is in there and that venture is getting hammered with lower oil price, which really impacts MTBE price. So the return on that is getting pushed. And we have two turnarounds in that venture this year as well. So it's down $30 million.

So we have a few big things like that that are pushing it. So net/net I think we're looking at for the material segment a pretty flat year. So up in engineered materials, a little bit down in consumer, and the net is pretty flat.

Got it, thank you.

Thank you.

Thanks, David.

Our next question comes from Frank Mitsch of Wells Fargo Securities.

Yes, good morning, gentlemen. Nice start up on the methanol plant. It seems like that's running smoothly, so kudos.

I'm trying to understand a little bit more about the Singapore CO contract and why one vendor would be so far out of whack on the pricing side. Can you help me understand what exactly happened over there? I understand that you're now going to earn your cost of capital plus on how you figured it all out, but I'm just trying to see how we got into this situation.

Well I don't want to divulge too much details about the contract, but it was a disadvantaged contract. We terminated that contract and we renegotiated a new contract. And we basically paid a termination fee to get out of that contract. So it's not unusual for these contracts to have different bases based on the time that they were put together, and when this contract was put together it made perfect sense and just evolved to a situation where it was not beneficial.

I can understand that. You talked about stepping into nylon; obviously this was one of the focal areas in terms of M&A at the recent investor day.

Where do you stand on doing something on an inorganic basis in that area? Should we be surprised to see something on that front or not?

Well we think that our model, Frank, is really pretty unique, what we're doing. And we're getting lots of accolades from our customers.

One of the things our customers have told us is we need more products in that portfolio, because when they go to solve a problem they will quite often look to classical solutions of it. So if it's historically a nylon problem we may not be made aware of that opportunity.

So we think it's critical for us to add more products to our portfolio, things like PEEK, things like nylon, and we'll back integrate in those as it makes sense, is the way I would say that. So you shouldn't be too surprised if we find a way to do that or if we announce that we're doing that at some point.

Thank you so much.

Thanks, Frank.

Our next question is from PJ Juvekar of Citi.

Yes, hi, good morning, Mark.

Good morning, PJ.

There are a lot of moving parts in Acetyl's cost curve. Chinese core prices have come down, so that should benefit you there. In the US your advantage has declined, but also methanol has come down quite a bit. So you're buying methanol and that should be a benefit. So can you just put all that together and walk us through the Acetyl cost curve and how it stands today?

Yes, so if you -- I think my best on that, I think as basis coal has come down in China quite dramatically and methanol has come down quite dramatically. Probably the biggest factor has been the consumption trend of methanol.

There was a lot of methanol embedded in China, a lot of methanol plants built in anticipation of tremendous demand for methanol to olefins, PJ, and that's not quite played out as people anticipated. So we find ourselves a bit long on methanol, or longer on methanol than we would like. So methanol prices have come down.

What that does is it tends to push down the cost pretty dramatically in the Acetyl Chain. And so we've seen Acetyl costs go down and we'll also see Acetyl margins collapse a bit in China as demand for the Acetyl products has been pretty weak.

So that sets a little bit of a world standard, if I can say that, PJ, and methanol prices in the US have backed up to basically China pricing less freight. So you've seen US prices drop quite sharply in the US for methanol.

So when you roll all that together what I will say is that the US continues to be hands down the lowest cost producer of Acetyl products. I think you're seeing with oil prices at their current levels you're seeing Singapore, an oil base in that same range, and you're seeing China versus those two be quite disadvantaged.

Thank you for that.

Sure.

And then question on AEM margin expansion, you did a good job of keeping the price when raw materials went down. Is that an initial benefit, and would your customers look for some take backs on that? And how do you see that playing out? Thank you.

Well thanks, PJ. I think we have been resolute there. We actually have lost some volume in some cases because we were so tough in that regard. And so I think that's a necessary outcome.

You've got to find that line, and so we found it in a couple places and we got to rethink that and go recapture that volume probably at a lower price in some cases. I think what I see today in the engineered material space, people still are quite driven for a better solution.

And I gave that one example of the sun roof application where you can find ways to not only meet weight or performance criteria, but you can also improve throughput. So in that case, this company got a much, much better product; it solves a lot of needs they have, plus they got a higher throughput.

We can price that product higher and they're happy, they're still making more money and the OEM is happier. So that is desire on the part of our customers and I think those opportunities, these new product launches really give us ability to hold our net margins out there. And I say hold because you are going to get some deterioration in the Me 2 products as deflation continues to hit us.

Great. Thank you very much.

Thank you, PJ.

Our next question comes from Bob Koort of Goldman Sachs.

Good morning this is Ryan Berney on for Bob. Just had a question jumping on the back of PJ's question there.

It seems like you're really aiming for the pricing per value in your discussions with your customers, so my question is assuming we start to see some tick up in oil prices sometime over the next year or two, is there any ability for you to push that price back there? Or do you feel like the customers will use that against you on that side and there will be a little bit of shrink there?

For the most part we structure our contracts where we have the ability to push through inflation. When you price for value, you move away from that equation a little bit. So you go into a discrete transaction about the value equation you're bringing. So raws don't enter into that debate.

What I would say with that is that everything new that we roll into we'll have that priced in the value equation. The legacy products, you'll have to work that through if that makes sense. So short-term impact could occur if oil popped back up to $100 a barrel, but I don't think with our contract base it would be very lasting for us. But we pretty quickly would pass it through.

Great, thanks. And maybe I could also ask if -- in your comments around the destocking in light of the leg down in the commodity prices. Does that mean that you feel like deflation is nearing an end, maybe that there's some also -- maybe the follow through that perhaps the destocking is over too, or is that not what you meant?

Well no, I think when you look at it if you take the time which we've done and you can really plot out currency as you plot out all the raw materials that are out there in the world, what you'll see is that there has been for the most part things have trended down and have started to operate at a relatively constant level, if that makes sense. I don't want to forecast that we're totally at the bottom yet, but for the most part $30 oil has moved through the system, if I can use that as an example. And maybe we're 80% of the way there or something, but we're not 20%. My view is that the first half of this year is going to be us establishing that foundation, that bottom, and then things will start to move up from that.

Great, thanks.

Our next question comes from Jeff Zekauskas of JPMorgan.

Thanks very much.

Good morning Jeff.

Hi, good morning, Mark. There's all kinds of controversy as to whether China is going to have a hard landing or a soft landing. Do you have any opinions on that subject, given how large your operation is there?

Yes, we certainly have opinions, Jeff. I'm not sure how you should weigh them.

But what we see when we go there engaged with all the customers we have in China and even government officials, is that they have a pretty clear view of where they are, and that view is that they're on a journey to transition that economy. They feel pretty comfortable with demand. So I know we sit and like to lay claim that their GDP growth is not what they say, and I think I would dispute that. I think it is exactly what they say.

The flip side is that it's not in the kind of businesses that most of the chemical industry is in. So we're seeing much lower growth rates. So my gut is when I listen to those guys and when I see the construction under way and I see the consumer appetite, which we're enjoying a lot of success with, I think China is not as bad -- in as bad a situation as everybody professes it to be.

I think it is tough in some sectors, and it's certainly tough the closer you are to raw materials and manufacturing, but it's also doing really, really well. In the consumer arena it's doing really well in areas away from the coast. So my gut is, Jeff, what I'd say is that I don't think it's getting ready to fall off the face of the earth. I think it's going to be a -- in some ways a slow year in China, but I don't think it's going to be a continued deterioration in China.

And then lastly with the AI results, do you think that they're now representative of what the first half is going to look like? Or is the trend in margins up or down as best as you can tell?

Jeff, that's a hard one to answer. I think fundamentally what we're seeing is that what we expect in this business trends as they are now is to stay as they are for a bit. We're not expecting a lot of activity, anything great to happen, and we've already entered Chinese New Year is our reality. So I think the first half of the year is going to be the weaker half for us, if I can say that. But that's kind of consistent with the trends on how we close the year.

Okay, great, thank you so much.

Thank you, Jeff.

Our next question comes from Hassan Ahmed of Alembic Global.

Good morning, Mark.

Wanted to revisit the AI segment. Obviously a bit confusing, we saw EBITDA margins at around 22% in Q1 of 2015. And in the fourth quarter they are less than 14%. And along that period, obviously, we've seen some steep declines in methanol pricing.

So the first part of the question is how much today are these AI margins a function of methanol pricing? Meaning with the ebbs and flows in methanol pricing, should we continue to expect this volatility in AI margins? And part and parcel with that question, basically is that in the past you had talked about a more normal or sustainable AI EBIT margin, or 15%. So, call it around an 18% EBITDA margin.

And it seems from your earlier remarks that now you're guiding to a lower sort of sustainable level of margins. Is that correct?

Boy, you asked a lot of questions there. Let me back up a little bit.

In a nutshell I'm just trying to figure out sustainable AI margins going forward in the current raw material pricing environment.

Yes, so we are in a transition environment is what I would say right now. So the margins have been compressed, especially in Asia, dramatically compressed, really driven by weak demand and collapsing raw materials.

So we've seen a real margin compression in Asia, and that has leaked a little bit around the world, if I could say that. Although there's not a lot of moving material outside of Asia. And so that's been part of the margin compression.

The other part is that some of those numbers you quoted were based on a time when there had been a very unusual series of outages in the VAM industry, and that was certainly contributing in a very favorable way to those margins. So we've always said that we believe through thick and thin that 15% is the right place to be. Sometimes you'll be a bit higher than that, sometimes you'll be lower than that on those margins.

So I don't see, if I could say that, I don't see the situation we're being in now as a situation that's going to continue. I think the margin in China will slowly start to improve in that process. And so I'm expecting that we'll be able to drive margins back up to 15% and above before too long.

Fair enough. And as a follow up, you touched upon IBN SINA earlier. Obviously since the end of last year there have been some dramatic feedstock cost escalations in Saudi Arabia. What sort of EBITDA hit should we expect at IBN SINA from the feedstock cost escalation in Saudi?

Well this year it's down $30 million, and of that $30 million, half of that or so is increased costs that are rolling through.

It's probably a little less than that that's the raws. It's more the pricing. They also have some major turnarounds that essentially take them --

So call it $10 million for the input costs associated with the changes in Saudi Arabia.

Got it. Very good. Thanks so much.

Thank you.

Our next question comes from Jim Sheehan of SunTrust Robinson Humphrey.

Morning, Mark. You mentioned productivity contributed about $100 million in 2015. How much do you expect your productivity initiatives to contribute in 2016?

Well we need it to be the same number. So that's what we've baked into our plans and we're working for another $100 million.

Okay. Also on your intentions for your expansion in, is it US Gulf Coast Bishop more particularly, do the lower oil prices affect your willingness to spend capital expanding there?

No, I think we have the ability to make those expansions in a very, very cost effective way and we're seeing pretty strong growth demand in those products. So no, it doesn't impact us at all.

Thank you.

Thanks a lot.

Thank you, Jim.

The next question comes from Alexi Yefremov of Nomura Securities.

Good morning, thank you. Did your fourth quarter result in asset sales include any one-time negative impact, such as destocking or inventory holding losses or maybe excessive down time at Nanjing or Singapore?

Well, there were a few one-time items in there. We had an inventory correction in there that hit us.

We had some barges that didn't ship out. Those together were $8 million to $10 million, I think, of one-time impacts in that business. I'm looking at Chris but --

That's about right.

I'd say it would be limited to $10 million, I think, is what I would say.

Thank you, Mark. And more broadly, did you experience destocking across your businesses elsewhere?

Yes, I don't know if I'd go so far as to say destocking. I think you broadly have a reluctant customer out in the world today where they just don't want to buy.

So you're seeing people delay purchasing is almost what they are doing, if that makes sense. So I think the flush-through if there's been enough oversupply has already occurred and now we have people hanging around trying to see if we're at the bottom yet or if the market is going to start improving. So it's more weak consumers.

Got it, thanks a lot.

Thank you.

The next question comes from Arun Viswanathan of RBC Capital Markets.

Great, thank you. Just had a question, you've guided to 5% to 10% EPS growth. Can you just help us understand the levers that would get you to the upper end of that? Is it mainly macro stuff, or is it stuff within your control?

No, I think to get to the upper end of that we need the second half to be materially stronger than the first half. We think that may happen, but in the lower end of the range you're seeing things that we think we can control and the upper end is we need some help from the global economy.

Specifically on that then, maybe you can elaborate on what you're seeing in the end markets. Is there a chance that tow will be down next year?

And then also in autos have you seen any kind of skittishness? Are we peaking at levels where we are now, similarly in China and then in Europe as well? What are you hearing from your customers?

Yes, I'll just run through a few things and ask Chris to hop in here in just a minute. You should have a view that we've factored in tow being weaker this year than last year.

And we're not in a position to say exactly, because contracts are still under way, but we believe in those numbers we put out there that tow is going to be a bit weaker year over year in there. That's on the negative side.

On the positive side in there it's clear that I think most -- the conventional wisdom is that autos have peaked, even though we're seeing forecast of roughly a 3% growth rate year over year globally in autos. When we drill into that what's going in autos, though, is that the opportunities remain very, very strong for us and just tremendous interest in our products. We've got almost more things to work on than we can handle. So we think that autos are going to continue to be a good story for us, and industry materials is going to continue to be a very good story even in this weak market.

When you look at the Acetyl Chain, the closer you are to the consumer, our industrial specialties business we've had great success there this last year and we're predicting that to continue in this year, and we're predicting that areas away from China are going to start to have a bigger impact on our Business. And you may know we're expanding a plant -- or building a plant in Singapore that will be completed this year, and so we're doing a lot of prep work relative to that.

I mention the Singapore situation and the economic situation there that's been improved as we've negotiated a new supply agreement. We think there will be opportunity to take advantage of that and extract more value out of Southeast Asia than we have in the past.

So when you roll all those things up, and don't discount our productivity efforts which are very strong with us, that's where we get in the 5% range. And so we feel pretty good about that number. I think when you look at the 10% we need a little bit of bounce here in this marketplace and we need demand to pick up a little bit stronger than it is right now.

The only thing that I'd add to what Mark said just reiterate we're going to drive productivity; we're shooting for $100 million. The other thing I'd remind you is you saw us take a number of actions to control what we can control around our footprint, around contract structure. And we did those things knowing that you're in a tough environment and we're going to do what we can do to push on costs and structure contracts the way we want them structured.

Great, thank you.

Thank you, Arun. Let's have this be the last series of questions.

All right, our last question comes from John Roberts of UBS.

Thank you. Within engineered materials what were the strongest areas, and also what were the weaker ones then that offset the strength in some of the strong areas? Is it year-over-year volume -- or year-over-year sales were relatively flat, or volumes were relatively flat?

Yes, I think the strongest areas -- I'm going to speak a bit generically for us. We've had some really good success with products that we're bringing into in the consumer markets, like appliances and durable goods, washing machines, things like that, dishwashers, that have opened up some real opportunities for us that were not there in the past.

We've had in auto more success, and it's reflected in the numbers, in getting our products built into new models that are going to start coming on for us this year and next that are out there. We've also had some good success with composites as we're seeing more and more interest in thermo plastic versus thermoset composites in a number of applications.

Those areas I'd say we've probably done the best in. CoolPoly has been a great success for us and is teeing up some real strong increased profitability as the folks deal with the temperature, the need to really deal with a hot temperature from LED lighting and things like that. Those areas have been really strong for us.

But you were flat year-over-year in volume, so what were the offsetting areas?

Well the offsetting areas is where I was jacking price too much and I got rejected. So it wasn't so much a market offset as it was us pushing harder than perhaps I should have pushed.

And then as a follow up, most of your engineered plastics have some vertical integration advantages. As you grow the nylon platform, whether you do it organically, inorganically, is there a vertical integration strategy that will follow from the products launch strategy?

I think, I guess there is two parts to that. It's often quite nice to be vertically integrated, but it can often be a disadvantage too if you've got a business that doesn't return its cost of capital on the manufacturing sector.

So we're trying not to constrain ourselves and require ourselves to be vertically integrated. So in the case of nylon we've got great technology, we're getting in the market, we continue to look for opportunities to vertically integrate.

And so if we can find those in a way that will be good for us and our shareholders we'll take advantage of that. But we don't want to require that to be in these markets.

Thank you.

Thank you, John. We appreciate everybody's time this morning. We'll be around for questions later today. Carrie, at this point I'll turn the call back over to you.

All right, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.