塞拉尼斯 (CE) 2016 Q4 法說會逐字稿

Hello and welcome to the Celanese fourth-quarter 2016 earnings conference call.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to Surabhi Varshney. Please go ahead.

Thank you, Carrie. Welcome to the Celanese Corporation's fourth-quarter 2016 earnings conference call. My name is Surabhi Varshney, Vice President Investor Relations. With me today are Mark Rohr, Chairman and Chief Executive Officer; Chris Jensen, Senior Vice President and Chief Financial Officer; Scott Sutton, Executive Vice President and President Material Solutions; and Pat Quarles, Executive Vice President and President Acetyl Chain.

Celanese Corporation's fourth-quarter 2016 Earnings Release was distributed via business wire this morning before market open. 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 presentation may include forward-looking statements concerning, for example, Celanese Corporation's future objectives and results. Please note the cautionary language contained in our posted slides.

Also, some of the matters discussed and presented include references to non-GAAP financial measures. Explanations of these measures and reconciliations to the comparable GAAP measures are included with the press release and on our website in the Investor Relations section under financial information. The Earnings Release and non-GAAP reconciliations have been submitted to the SEC on a Form 8-K. The slides and prepared comments have also been submitted to the SEC on a separate Form 8-K.

This morning we'll begin with remarks from Mark Rohr and then open up for more questions. I'd now like to turn it over to Mark.

Thanks, Surabhi, and good morning, everyone. Our prepared comments were released with earnings earlier today so I will keep my comments brief, then open the line for your questions.

First, I'd like to share some details about another exciting acquisition just announced this morning. We have agreed to acquire the nylon compounding division of Nilit Plastics, a major independent producer of high-performance nylon fibers and compounds. Nilit Plastics has a comprehensive and functionalized nylon portfolio with operations in Europe and Asia. It is a great fit for Celanese.

While the acquisition will be immediately accretive it will take a bit longer to close, which means the impact on 2017 earnings will be small. However, next year Nilit should add roughly $0.10 of earnings to our portfolio. We are really looking forward to teaming up with our talented colleagues at Nilit to bring new and exciting solutions to our customers. Scott Sutton, who is responsible for our materials core, is also on the call today to share more specifics during the question-and-answer period.

Now, for our 2016 fully consolidated results, I'm happy to report strong GAAP earnings of $6.19 per share and recorded adjusted earnings of $6.61 per share. Material Solutions generated $897 million of core income, an 11% increase year over year and a record quarter income margin of 38%. Volume growth from our opportunity pipeline at instruments materials and gains from productivity enabled us to grow despite headwinds in tow pricing and lower affiliate earnings.

We commercialized 1,385 projects last year, which is almost three times higher than just a few years ago. Both the Nilit and SO. F.TER. acquisitions are critical next steps in our engineered materials evolution, and allow us to extend the success of our pipeline model beyond Celanese legacy polymers.

The Acetyl Chain generated core income of $454 million. That's 9% lower year over year, but good performance in a very tough margin environment. Commercial and operational flexibility and savings for productivity allowed us to expand core net income margins to a record 14.5% for the Acetyl Chain.

Looking forward to 2017, we expect another year of strong financial performance for Celanese. Unusually heavy turnaround activity planned for the first half of the year, raw material impact building through the year, plus saluting some unique one-time earnings in the first quarter of 2016 add up to a second half that will be $0.35 to $0.40 higher than the first.

Advanced Engineered Materials should add $0.35 to $0.45 of adjusted EPS, which will offset the $0.40 of headwinds expected from tow we have previously discussed. The Acetyl Chain should contribute roughly $0.25 to $0.35 of growth over last year, driven by our ability to flex the chain and leverage raw material optionality. These core earnings growth numbers include $100 million of productivity through Celanese. Pat Quarles, who is responsible for Acetyl's core, is also on the call today to share more specifics about 2017 growth plans.

We remain committed to buying back another $500 million worth of shares in 2017 and to continue dividend growth. All in, we anticipate growing adjusted earnings per share in a range of 8% to 11% for the year, which keeps us on track to achieve our 2018 earnings and free cash flow targets. With that let me turn it back to Surabhi for questions.

Thanks, Mark. As a reminder, we'd like the callers to limit to one question and one follow-up. Carrie, let's go ahead and get started.

(Operator Instructions)

Our first question comes from Duffy Fischer of Barclays. Please go ahead.

Yes, good morning, guys. Just a question around AEM. Continued very strong growth there. Can you help us size, as we go from, say, 1,385 launches last year to 1,900 this year? Roughly, what's the average size of a bid win. If I guess right, 10 or 15 higher or lower than where you guys are at.

And then, more importantly, when you look at that segment the last couple years versus three and four years ago, margins are significantly higher. Can you break down how much of that has come from volume leverage versus how much has come from just spreads between raw materials and pricing?

I'll make just a few comments, then maybe ask Scott to hop in here. I'll start with the last one. When you look at our business, we've grown volume roughly 11%, largely driven by, in this business, the new products that come in. Be mindful, Duffy, there is a bit of leakage out of that. But I think as a rule of thumb we've talked about it being half and half, volume and contribution, as well as price. So, that's really what we're levering to try to go forward. Scott, do you want to try and tackle the strong growth, the 1,395 to 1,900 and any rules of thumb you may use that these guys would find beneficial about the contribution of that kind of growth?

Sure. Duffy, of course, these bid sizes vary a lot, and we are running a lot of projects now. But the best way to think about it is, all the projects come together and they add about 15% to our gross revenue. And then we get some level of attrition, maybe around 5%. That's a better way to think of it in aggregate instead of project by project.

Okay. Great. And then could you just give an update on the Ibn Sina expansion on the POM and where that stands, and when that equity kicker will kick in, basically where you increase the size of your holding of that joint venture?

Sure. I will. And we're going to start up the POM plant in the middle of 2017. There's not a large contribution out of that joint venture in 2017. We have start-up expense, which is offset by the equity increase but it really comes at a perfect time, Duffy. We need some POM coming into our system to support our growth. So, you'll see the real impact in 2018.

Terrific. Thanks, guys.

The next question comes from Vincent Andrews of Morgan Stanley. Please go ahead.

Thanks. Just curious on an M&A front, obviously another acquisition. Does this represent the extent of your interest in nylon? I know that was a big topic at the investor day in 2015. Is there more to come here or is there more to come in M&A in general?

There's more to come from M&A in general, Vincent, in that process. When we started out we really focused a lot in nylon because it is the fastest growing component in some of the markets like auto, due to the high temperature applications. So could we do more? Yes. Will we do more acquisitions? Heck, yes, in that. We're really looking for technology and market access. It's not so much a size thing for us.

Maybe I was asking, did this nylon acquisition get you where you wanted to be in terms of size, scale and scope?

This is Scott. Not yet. This is really just the third step. We did some organic work. We acquired SO. F.TER. that had a nylon business. Nilit has a higher value nylon business. Now we're pulling all that together and there's probably one more step to go.

Okay. Just as a follow-up, Mark, you referenced early signs of improvement in the Chinese economy in the press release. Is there anything in particular you're seeing there? And why do you think it's happening there but not, as I think you mentioned, in Europe or the US?

We've had some really great success, especially on the materials front in China in particular over the last year, and we expect that to continue into this year. So, my response was weighted a bit towards that. Some of the strongest growth we got from a year-over-year percent basis is certainly occurring in China. In a minute, we'll probably get some questions about the chain business and Pat can talk about some of the trends we're seeing there in China in raw materials, and also some consumptive behavior that leads us to believe there's actually some strength coming out of that business, as well.

Thanks very much.

Our next question is from Laurence Alexander of Jefferies. Please go ahead.

Good afternoon. Could you break out a little bit the bridge for the $0.25 to $0.35 of improvement from Acetyl, perhaps by upstream versus downstream within the portfolio, or what you see in terms of pricing power, pass through in volatility?

I think the best way to do that is going to be talk about how the year is teeing up and what we're doing, really, to drive value. I'll ask Pat if he'll make some comments on that, Laurence, and we'll go from there.

This is Pat, Laurence. Thanks for the question. I think the way you should consider, and how China plays into this and what it means for our chain is that we've seen a period now of reinflation across our industry, and particularly strong in China.

If you look back from a year-on-year basis, coal is up in China 83% from the beginning of the year to the end. Methanol is up 61%. That really changes the way in which we flex our model and participate across our global system. And, importantly, it changes the slope of the cost curve from Eastern Hemisphere to Western Hemisphere, and that really creates opportunities for us to exploit that.

If you look back on the fourth quarter we announced about 1,000 renminbi of acid price increases throughout the quarter, and by the end of the quarter we realized about 700. So, expanding our margin as the quarter went forwarded despite the fact that we had raws coming up behind us. That's a really nice dynamic and momentum that we now carry into the new year. As we move forward from here, we are anticipating an environment in the Western Hemisphere where, through a variety of expected maintenance outages, it's going to create some more dynamics that allow us to drive pricing on a real supply/demand basis.

And past all that you have our continued focus on productivity. So, we've got about 1,200 to 1,300 projects currently running on productivity across our Company. That's an ongoing and continuous focus. We would expect this year, much like the past several, to realize about $100 million of net gain from that activity.

So the two main drivers, just to be clear, are the pricing and the couple of $100 million to $200 million on productivity in that segment. Volume trends haven't really changed much.

I think that's right. It's about a net $100 million on productivity for the Company and roughly speaking 50/50 typically between the two cores.

Got it. Thank you.

Next question comes from Frank Mitsch of Wells Fargo Securities. Please go ahead.

Hi, good afternoon, folks. If I can just follow up on that, Pat, where do you see operating rates for acetic and VAM -- A, for the industry and, B, for Celanese?

Hi, Frank. Thanks for the question. We tend to look at the market in somewhat segmented ways between Western Hemisphere and Eastern Hemisphere, specifically China. As you know, we've been dealing with significant overhead of supply capability in China. But that market, you can't just look at operating rates. What you really have to look at is what the cost structure is and how that impacts the global market.

So, I'd say, generally speaking, assets outside of China have been running at fairly high rates over the last year. Frankly, they've been running reliably, not only ours but our competition, so that's created some turbulence at the end of last year in VAM. But what will make the difference is incentive for the opportunity for China to be participating in the global market. And with the changes in their cost curve we really see that as a diminishing influence.

We saw acid imports out of China and their participation in Southeast Asia really fall off dramatically during the fourth quarter. And similarly on VAM where, by the time we got to the fourth quarter, their typical exports were down about two-thirds to three-quarters, out of China. So, that's playing on the balances that we're talking about as we head into this year.

All right. That's very helpful. And if I could just talk about filter tow, Mark, your guidance now down $0.40. I think before it was down $0.30 to $0.40. And pricing down 10% in the fourth quarter. I assume that most of the negotiations are done for 2017. Where do you anticipate pricing to be down for 2017? And if I'm not mistaken, I think you indicated that potentially Celanese would consider rationalizing capacity in 2018. Where do you stand on that?

I don't have the exact price numbers so I'd rather not talk about that. Classically it's been half and half, volume and price, and that's good enough, I think, is what I would say on that.

As we look forward, when you look at a lot of this ripple effect we've had has been really driven by two phenomena. One is the reduction of sales into China, which roll back into the US and Europe and producers there, which is very disruptive. There was some oversupply situations that were working themselves out. And we think this year, really is the settling of that. So, we have in the past taken steps. We've taken more steps, we think, than anyone to rationalize and deal with that.

I think going forward we'll just take the steps necessary for us to take. Independently we'll do that. But I think right now we like where we are, we like our cost position where we are. And we're looking for this industry to get some certainty about it and then move forward again.

The last thing I'll say is I think the sale of Solvay is a good thing in terms of settling some of that uncertainty. So, we're looking forward to 2018.

All right. Thank you.

The next question comes from Robert Koort of Goldman Sachs. Please go ahead.

Thanks, good morning. Hoping to follow up on Nilit a little bit. There had been some discussion in the press that you're paying a couple hundred million bucks for this asset. Would you advise us against seeing some credibility in those reports? And then I know they were both a textile and then an engineered products business. Can you give us some sense of the scale and what kind of margins we would expect in the business that you're buying there?

I'll let Scott talk about the margins. Let me say that we don't comment directly on pricing. What we say is that on average we look at our model, about 10 times is what our average model should be. And, again, we don't talk specifically on this, but Nilit will be on the higher side of that, when SO. F.TER. was a little bit on the lower side of that in that process.

We still have a long ways to go to close this thing, so it's not right to get into too much details about the absolute price. But, Scott, do you want to tackle the business itself and share more details about the business and where it is today, where you intend to take it?

Sure, Mark. The Nilit business is a bit higher margin business relative to the SO. F.TER. acquisition we made. But, still, all of these acquisitions we make are going to be a bit dilutive to our own margin. Over time we intend to bring that up. But it really is the bigger part of our nylon portfolio that we'll have. They're highly specified, mainly in electrical applications, a lot in auto, as well.

If I might follow up and give Chris a chance to say something. I'm curious about the way you guys have issued guidance on an EPS basis for your operating divisions. Why not just give us EBIT changes? And what should we imply for share repurchase or tax rates or something else that might influence what the EPS deltas are for your division?

Okay. Share count, as Mark said, in his comments, we plan to execute the other $500 million of share repurchases. So, you can do that math. It's in our models to just do that pro rata during the year. But that drives something north of $0.30, if that's the outcome. Taxes -- I'll have a better idea when we get through the first quarter, but it's probably in that same range of 18% or so.

Very good. Thanks, Chris.

The next question comes from PJ Juvekar of Citi. Please go ahead.

Yes, hi. Good morning. Mark, your pricing was down in every segment in the quarter but you sounded optimistic about the uplift from raw materials. I'm wondering, is that coming mostly on the Acetyl segment? Or are you saying you also have pricing in the AEM business to offset raw materials?

What I'll say is I'll start with Pat's segment. Yes, we actually did a pretty good job, I think, managing a pretty rapid level of inflation that went on in that chain. So, I think we have had and we will continue to have the ability to manage that inflation and stay at that or ahead of it. The growth in earnings from Pat's business is going to come through his ability really to drive higher and higher margins in that chain.

In Scott's business we've had phenomenal success driving higher pricing as it relates to the growth we've had in that business. We are facing some inflation in that business, and little bit of that is in market this year, I think $25 million to $30 million or so of headwinds we expect Scott to have to overcome in that business. And some of the me-too stuff that's out there is going to be hard to do. So, I think net-net you won't see quite as much on the pricing side from his business year over year, but that's more of a mix effect than anything else.

Okay. And then a second question on tow. What are your views on destocking of tow in China versus underlying demand? And do you think we are through that restocking phase?

Maybe I'll ask Scott in a minute to take a few comments on this. But in a fundamental sense, the way we look at it is really what are imports into China going to do. We think the imports into China for some period of time are going away. There's still imported volume going into China and there will still be imported volume going in this year. But our long-term view is that is going to go away.

As we go through stocking and destocking in China, and consumption trends, which to us appear down year over year about 8%, I think just directionally we should all anticipate that volume into China from outside of China is going to go away. Scott, do you want to make any comments about destocking or changes that you may see in China?

Yes. And, PJ, on your first comment there, the inflection point in demand, the sharp part of it's probably over. There's likely to be a slow decline in underlying smoking demand in China. But it's very slow, maybe 1% a year. The destocking is not over. It's come down. But there's enough stock there to bridge for a little while to do exactly what Mark said and that is let imports slowly decline to close to zero over two or three years here.

Thank you. Helpful.

The next question comes from David Begleiter of Deutsche Bank. Please go ahead.

Good morning. This is Katherine Griffin on for David. Just to follow up on the discussion about acetyls and acetic acid, Mark, you mentioned you are looking to see for the industry to achieve a level of certainty. Could you talk more about the supply/demand fundamentals behind that or pricing that would get you to that level of certainty?

I think my comment, Kathy, was more around the tow business and really the status of one of the big sellers there. I may have commingled those for you. No, we're pretty confident in the direction that we see in the chain business, and we're really confident in our model. As those raw material fundamentals change, as they are changing, and we feel comfortable about those changing, we think we'll be able to extract more value.

Maybe one of the things we could share more of -- I'm looking at Pat when I say this -- is a little bit of talk about the ripple effect on the cost curve of some of the producers in China versus those outside of China as you look at coal and methanol what's happening.

Sure. Maybe I can just put some numbers around that. If you think about the competition we have in China, these are essentially coal-based guys and many of them are actually integrated on the coal side through methanol, as well. If you take what we can all see on coal prices, we're ending the year at about $100 a ton on coal price, and methanol up in the 350s, and it's actually gone higher than that as we've gotten into 2017.

If you're just looking at your cost structure, they're up about $50 a ton. But the reality is, their behavior's going to change because now they have an alternative for their methanol in the market that they didn't have all last year. Effectively, it feels to them like their costs are up about $120 a ton. That's exactly the behavior that we're seeing in the market that's driving our ability to drive margin not only in China but then to support our expectation that margin begins to be driven in the Western Hemisphere as we flex our system towards those opportunities.

So, that $120 a ton we think is legitimate. We've tested it through a variety of internal ways in which we monitor the market and see it actually realized in our pricing. I think that's where the confidence is coming from that Mark's alluding to.

Great, thank you. Also, in terms of your outlook comments, I know you touched on the signs of recovery in China, but maybe if you could elaborate on what trends you're seeing in Europe and the Americas that lead you to believe that demand is stable or will be stable through 2017.

Sure. From the demand side, Western Hemisphere it's been not exciting but it's been steady. We don't really see that profile changing. If anything, we're seeing consumer confidence increase. We're seeing confidence in housing markets seem to be improving, and that give us the feeling that we should have some ability to realize growth as we head into 2017.

What's really changing in 2017 isn't so much the demand side. It's how we're seeing the variety of outages associated with maintenance in our assets and others stacking up here in the first half of the year. Remember, the Western Hemisphere is fundamentally and structurally short, acetic acid and VAM, and the market has to balance with Eastern Hemisphere. So, as the West goes through these maintenance outages, that's just a further shortage that we have to deal with. That's how we take actions to position ourselves to drive value through those periods. And we see that coming at us beginning late in the first quarter.

Thank you very much.

The next question comes from Mike Sison of KeyBanc. Please go ahead.

Hi, guys. Nice end of the year there. When you think about your triangles that you have for AEM -- and you have a lot of different acronyms there -- obviously POM and PBT have done well. Any other particular compounds are driving the growth peak? Anything there that has good momentum?

Scott, do you want to tackle that?

Yes, I sure will. We're approaching 20 platforms between the engineered thermoplastics and the elastomers. Other big drivers, and the one you mentioned, certainly are ultra-high molecular weight polyethylene. We call it GUR, which has high application use in medical, high application use in energy storage, particularly lithium ion batteries is a big driver of growth.

But it really is across the board. It's our model. We're almost market agnostic, product agnostic, as we walk in to deliver a solution to a customer. So, it really is across the board growth. It's not really focused on just a couple polymer platforms.

Right. Great. And then as a quick follow-up, Mark, when you think about the two triangles -- I'm sure there will be a nylon triangle -- when you think about acquisitions, are there other areas, is there another one or two areas of focus that could continue to add these little pyramids?

I think what I'd say rather than talk about specific polymers, Michael, what we have is a really good model. And what we have been saying to investors as we've rolled this out is watch how we lever this model internally first. And we've been doing that now over a year and everybody has seen the results of that. And now we're setting the platforms to lever again. We think this model is very leverageable when you combine technology and our expertise for applications with the way we engage with customers.

So, when we fantasize about that, as a result, there are many ways we could push this. We're trying to stay a bit close to home now and making sure that we have some direct connection to the end market of these goods, or we engage with them in some way. But, Mike, I think as this year unfolds and we get into next year it's our intention to continue to add bolt-on acquisitions. What I mean by that is acquisition that's can be assimilated very quickly, that are reasonable in scope and size and really continue to push that out.

And at the same time, Scott's got to develop his organization to handle thousands of new introductions per year across the globe. We think the model gives us a lot of latitude. And, yes, there's a lot of things we're looking at but I'd rather not say exactly what they are.

Great, thank you.

The next question comes from Jeff Zekauskas of JPMorgan. Please go ahead.

Thanks very much. Your AEM volumes were up 20% in the quarter. How much was organic and how much was from acquisitions? And I see that you paid down your pension liability by about $300 million. So, I would assume there might be a book benefit of $24 million next year in your cost structure. Is that part of the $100 million in cost cutting or is that separate?

The volumes, you're right, they're up 20% in the fourth quarter. If you look at it without the SO. F.TER. acquisition benefit, they're up about 13%. And on the whole year they're up about 10% organically.

The question on pensions, yes, that math is close. It's not quite that high. It's closer to 20. When you look at all elements of compensation, not just pensions, it's really going to be flattish going into next year. That just has to do with different awards that we have for different open years and how those stagger out.

Most of our senior leadership compensation is variable in nature, based on success of different metrics, and that's changing rolling into a new year. That's a long way of saying don't count on seeing that 20 at the bottom line because it's part of a bigger package of compensation that's probably more flattish.

And the productivity piece, we need to target about $180 million to $210 million per year of gross productivity, Jeff, to get to the $100 million net. I mentioned earlier, we're running 1,200, 1,400 projects today across the Company. That does not include pensions to get to our target of $100 million. And I think we feel pretty good about where that pipeline sits today to continue to deliver that productivity for 2017.

Okay. And for my follow-up here, your AI operating income decreased sequentially by about $16 million. Now, there's some seasonal factors, but can you geographically explain where the $16 million decline comes from? And are you shipping acetic from Singapore into China because you think that you get a better cost/price differential?

I'd say generally speaking, Jeff, if I think about the profile of the business last year and into the fourth quarter, acid was in a very difficult place for the market, exacerbated by extraordinarily difficult input costs in China and what that cost curve implication was to the market. And I talked about how that changed. That change really occurred dramatically and throughout the fourth quarter. If I think about where we began at the beginning of the fourth quarter and where we ended the fourth quarter in acid in China specifically, dramatic margin improvement there.

But if the you step back from that and you think about the total chain, we were challenged in VAM, really, is where the stepdown was, as we had some end-of-quarter dynamics at the end of the third quarter and into the fourth quarter that really made it challenging for us. We see that reversing today but that's what hit us late last year.

A few other small things too, Jeff, in there. We had an unscheduled outage of an operating facility that cost us $5 million or so, so $0.02 or $0.03, let's just say, out of that. We also had some currency impacts that popped up quickly. We usually cover those over time. That was another $3 million, $4 million, $5 million. So there's probably, not half, but you start to press, half of those were episodic or one-time things that we wouldn't expect to continue going forward.

Okay. Great. Thank you so much.

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

Great, thank you. I just wanted to see if you guys can give us a an update -- I know it's a little bit out -- but the 2018 look. You've talked about $800 million to $850 million in earnings in the past. How does the AEM pipeline development affect that and maybe some of the upstream developments, as well as your acquisitions?

Scott, do you want to tackle that?

Yes. Thanks. Look, I would say that the pipeline really supports getting to that level. You look at what we're going to do this year, we'll probably commercialize about 1,900 projects. After that you see the benefits of SO. F.TER. and Nilit kick in. And on top of that we're growing the organic portion of it, too. We hope to have another acquisition in line, as well.

I would say the trend that helps drive a lot of the growth in AEM is going to continue. And we continue to see this volume growth as we look out into 2017.

And then, just as a follow up, I think you may have discussed this briefly earlier, but just on the margins in both AEM and tow, I understand tow may be impacted by some pricing, but still very strong. And then AEM, do you see holding these levels even though you're adding on slightly lower-margin businesses?

Okay, thank you. In AEM, you'll see a little bit of dilution there. It won't be extensive but there will be a little bit as we bring in acquisitions that may not be at the same margin level. And there's a little bit of raw material price pressure, as well, that Mark already commented on.

There is the tow pricing effect. Margins have probably hit a high point in that business but they'll stay fairly high, is the way to think about it.

This is Chris. Maybe if I just pull that into your original question on 2018, we're still confident that's our range for 2018 that we put out before. And even more so, I just want to point you back to free cash flow. We're confident in $2.5 billion across those three years.

I mentioned in my prepared remarks that it should be down a little bit next year. Just to be clear on that, I meant from the $933 million before the pension contribution, not from the $633 million. So, it will be down a little bit in 2017 because of income taxes. So, 2016 had some nice benefits of a lot of capital spending on things that you already know about leading up to that, and some bonus tax depreciation deductions that we got for that. So, it'll be in the $800 millions in 2017 instead of in the $900 millions, most likely. But you just add that up, it stacks up to confidence in $2.5 billion when we go clear out through 2018.

Great, thank you.

James Sheehan, SunTrust Robinson Humphrey.

Good afternoon. When you mentioned your impact from share of buyback from 2017 being around $0.30, was that the same magnitude that was in your original path to 2017 that you laid out last quarter?

The path to 2017 or 2018?

2017.

We always just assume it will be pro rata. Sometimes it can be lumpy. We can update you as we go through the year on how it's unfolding. But the intention was always $500 million of repurchases in 2017.

Great. And then in your Acetyl Chain cut, can you discuss what is the lag in passing through higher raw materials that you're assuming for 2017?

It ranges anything from instantaneous to the extent that we have contracts tied to those external indexes, to what we're able to drive through in the market. Again, I think back to what we were able to do in the fourth quarter in China on the escalation there. Again, I talked about, of the 1,000 renminbis we announced throughout the quarter, we realized 700 by the end of the quarter, which actually kept us ahead of raws. And if we've got the right market dynamics, which I think we have now heading into the first quarter, we should be pretty much on top of it.

Thank you.

Aleksey Yefremov, Instinet.

Good afternoon. Thank you. In your filter tow business, have you signed any multi-year contracts? And, if so, have you fixed either price or volume commitments?

Do we sign multi-year contracts with price and volume -- it's a combination of short-term contracts and long-term contracts, and it's a combination of terms, depending on who they are. Some are volume, some are price commitments, some have open options on price. So, it varies depending on who the customer is and what we think we can accomplish. Scott, am I saying it the right way? Any comments on that?

In the tow business, there's some multi-year contracts now. And for us it's not a giant percentage of our business, maybe up to one-third of the business, is the way to think about it. They more commonly have a fixed price and a share of volume, so the absolute volume could fluctuate a little bit.

And I would say on the Acetyl side, to build that out a little bit, if you think about acid and VAM, fairly responsive on price. You don't make long-term price commitments because your market is changing too quickly. A business like our AT emulsions can have quarterly pricing. Tying back to that last question about how quickly our prices respond, that's one area where you'll have some quarterly lag as we reset the beginning of each quarter, particularly in Europe.

Great. Thank you. That's very helpful. And turning back to organic volume growth in the AEM business, is double-digit growth something we could expect in 2017, or high single digit, as I think that was your prior target as something we should expect in 2017?

This is Scott. Thanks. I still think that the high single digits is the right place to be when you think about our organic growth profile. Obviously we're adding significant growth from acquisitions. But in terms of organic, I think high single digit is a good place to be on average.

Thank you very much.

Our last question comes from John Roberts of UBS. Please go ahead.

Thank you. On the innovation model in AEM, does it extend to the JVs or would you need to have control for the JVs to be able to get the benefit of the new innovation model?

Not so much. We're working with our joint venture partners to drive more of it in there. I think in some it's fully involved in it. Look at PPS for us. In others it's a little bit more of a distant relationship.

And then you're basic in most of your polymers but you're only in compounding in nylon. With the Nilit capacity to consume nylon, would you be a big enough consumer to consider maybe even having a JV with a nylon producer or somehow accessing polymer capacity?

In a sense we would. There's not a lot of shortage of nylon out there. And we're pretty comfortable with our position right now in it. But certainly having access to some nylon in our specialty nylons could be pretty attractive for us.

Thank you.

Carrie, we'll wind up the call now.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your line. Have a great day.