塞拉尼斯 (CE) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2006 Celanese Corp. Earnings Conference Call..

[OPERATOR INSTRUCTIONS]

I would now like to turn the presentation over to your host for today's call Mr. Mark Oberle, Vice President of Investor Relations and Public Affairs. Please go ahead sir.

Thank you and welcome to the Celanese Corporation third quarter 2006 financial results conference call. My name is Mark Oberle, Vice President of Investor Relations and Public Affairs. On the call today are David Weidman, Chief Executive Officer and John Gallagher, Chief Financial Officer.

The Celanese Corporation press release was distributed via Business Wire this morning and is posted on our Web site, Celanese.com. During this call, management may make forward-looking statements concerning, for example, Celanese Corporation's future objectives and results, which will be made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political, and regulatory factors.

More detailed information about these factors is contained in this morning's earnings release and in the Celanese Corporation's filings with the Securities and Exchange Commission. Celanese Corporation undertakes no obligation to update publicly or revise any forward-looking statements.

Celanese Corporation's third quarter 2006 earnings release references the performance measures net debt, adjusted earnings per share and operating EBITDA as non-US GAAP measures. For the most directly comparable financial results presented in accordance with US GAAP in our financial statements and a reconciliation of our non-US GAAP measures to US GAAP figures, please see the accompanying schedules to our earnings release which will also be posted on our Web site, Celanese.com.

This morning, Dave Weidman will review the performance of the Company and John Gallagher will provide an overview of the business results for each segment and the financials. We will have a question-and-answer period following the prepared remarks.

Now, I would like to turn the call over to Dave Weidman. Dave?

Mark, thank you very much. Happy Halloween everyone and welcome to today's call. We are delighted to share our third quarter results with you and answer your questions. Today, I will focus on two key areas. First, the strength of our business model and second, the strong earnings growth we have seen this year in our specialty businesses of Ticona, Acetate and Performance Products.

Let's start with the strong performance of our business model. Celanese had an excellent third quarter with adjusted earnings per share of $0.79, up 61% from 2005. Operating EBITDA for the third quarter increased 28% from last year to $322 million. Our revenue increased 10% to $1.7 billion. Previously, we have highlighted the strength of Celanese's hybrid business model and our ability to deliver strong, sustainable earnings growth over an extended period of time.

Keep in mind that we are a global, integrated hybrid company, focused around core strengths in the acetyl chain and specialty businesses which are derived from that core. Over the last seven quarters and in particular, the most recent quarter, you have seen the strength that this business model demonstrated. We have weathered high and volatile raw material costs, supply interruptions, and regional weaknesses such as the slowdown in the US automotive and housing markets. The resiliency of our integrated hybrid model and our geographic business balance has yielded tremendous earnings growth and substantial cash flow, as we constantly focus on delivering unequaled value to our shareholders.

Now, on to another exciting area of growth. Throughout this year, our Ticona, Acetate and Performance Products businesses have continued to deliver robust earnings growth. Through the first nine months of 2006, Celanese has grown operating EBITDA by $134 million or over 17% from last year. In fact, each quarter in 2006 has seen year-over-year EBITDA growth. Perhaps under-acknowledged is the fact that the earnings growth in Ticona, Acetate and Performance Products combined represent approximately 70% of the Company's EBITDA improvement.

Ticona's sustainable growth model is fueled by success in innovation and penetration in key applications. With leading positions in multiple product lines, a terrific platform in Asia and a strong pipeline of new applications, we are confident in Ticona's ability to sustain earnings growth at a very high level.

Our Acetate Products business is also in an extended period of substantial earnings growth. This business is successfully executing a revitalization strategy by becoming more efficient, growing globally and focusing on core products. The progress has been significant; the best is yet to come. And earnings growth over the next several years coming from the next phase of our revitalization plan.

Additionally, we are excited about our pending acquisition of Acetate Products Limited or APL. As you recall, in August, we announced plans to acquire APL, the cellulose acetate flake, tow and film activities of Corsadi BV. The proposed acquisition, which is under normal regulatory review, is consistent with our goal of improving our cost-effective, highly-reliable supply to the global acetate market. Acetate is a great example of how Celanese has been able to restore the earnings growth of a mature business and position it for the future.

Our Performance Product business has delivered stable earnings throughout the year, as it supplies the low or no calorie food and beverage industry across the globe. This business will continue to deliver profitable performance and significant cash flow as demand grows for the Sunett brand sweetener.

These specialty businesses are in the growth mode, have shown substantial earnings improvement this year and are central to our overall strategy for increasing shareholder value. At our Investor Day on December 13, we look forward to highlighting our plans to continue to deliver sustainable earnings improvement in these businesses.

Global demand is robust for our acetyl intermediate products as well as for our more specialty businesses in vinyl emulsions. During the fourth quarter, we plan to install our world-leading AO+ technology in our Pardies, France acetic acid facility, which comes to us as part of the Acetex acquisition. AO+ will position this facility for best-in-class performance and the implementation will complete our Acetex integration efforts, yielding synergies -- likely yielding synergies beyond those initially projected.

Both our profitability and earnings growth in Asia are strong. This region currently represents 25% to 30% of overall Celanese profitability. Our fully-integrated Nanjing facility is on track and adds to our already impressive position in Asia. Looking forward, we continue to expect earnings in Asia to grow much faster than other regions.

Beginning in 2000 in an accelerated rate since our IPO in 2005, Celanese leaders and employees have been executing a transformational strategy, building a premier global chemical company with a track record of performance, leading global positions and strength in all key regions of the world. Combined, these actions are producing strong, sustainable earnings growth. Though we are extremely pleased with this product -- progress, we are not and never will be satisfied. Our commitment to increasing shareholder value is unwavering.

Finally, an area we believe is of interest to many of you, Celanese shareholders elected two new independent directors to our Board during the third quarter. The Celanese Board is now comprised of 11 directors, six of whom are independent.

With that, I would now like to turn this call over to John, who will discuss our third quarter financial results and outlook in more detail. John?

Okay, thanks, Dave. I would like to take a few minutes now to discuss the third quarter results and the outlook for the year. Please refer to the Webcast slides. I will start with page seven of the presentation. Net sales for the quarter increased to $1.7 billion compared to $1.5 billion in the prior year period. A 4% improvement in volumes and a 4% increase in pricing drove this revenue expansion.

Operating profit increased to 200 million, more than doubling from last year's performance. This improvement is attributed to strong volumes, higher margins as well as lower other charges and adjustments. As Dave mentioned, our specialty businesses have been delivering excellent results with significantly improved earnings. These increased earnings along with higher pricing and volume more than offset higher raw material costs in the quarter.

Net earnings increased to $109 million from 45 million last year. And operating EBITDA was $322 million, a 28% improvement from 2005. Adjusted EPS for the quarter was $0.79, up 61% over last year's results. These results included a $0.03 per share benefit related to a lower than expected adjusted tax rate of 25% versus our guidance of a 28% tax rate.

Moving to our businesses, let's start with Chemical Products on page eight. Revenue was $1.2 billion, up 11% from 1.1 billion based on continued strong demand with higher volumes and improved pricing contributing to revenue growth. Acetyl and acetyl derivative products continued to deliver strong results. Higher operating margins led to operating EBITDA of $234 million, a 16% increase. Dividends from our cost investments were in line with our expectations, but lower this year compared to last year primarily because of the timing of the payments from IBN Sina. Overall, the Chemical Products segment had a great quarter.

Now, let's turn to page nine. Ticona net sales totaled $230 million, up 8% compared to the prior year period. Volume grew 10% higher in the quarter compared to last year on strong penetration in key applications and particularly robust demand in Europe. Operating EBITDA was $66 million, an increase of 32% from last year. Operating margins expanded as increased volumes and reduced spending offset increased raw material costs and lower pricing due to mix. Ticona's impressive earnings growth of over 30% highlights a successful execution of their business strategy.

Turning to page ten, you will see that our Acetate Products business continued to deliver an improved level of performance as a result of its revitalization strategy. Net sales increased 6% to $171 million, as higher pricing and increased flake volumes more than offset lower volumes due to the shutdown of our Canadian tow plant in 2005. Operating EBITDA increased 81% to $29 million from $16 million last year. We are transforming this business and taking actions to improve upon our cost-effective, highly-reliable supply to the global acetate market.

Now, Performance Products. Net sales were $41 million in the third quarter, an 11% decrease from the same period last year. There was a 6% decrease in volume and a 6% decrease in pricing. The decrease in pricing was in line with our expectations, and the volume decrease was primarily due to the timing of sales to the carbonated beverage market in 2006 compared to 2005. The underlying fundamentals of the market have not changed. Over the nine months year-to-date 2006, Performance Products has delivered a 10% increase in earnings growth over 2005.

Now, let's turn to page 11, where you can see the contributions of our strategic equity and cost investments. On the left-hand side is the income statement impact. Third quarter results were lower in 2006 than 2005, due to the timing of dividends from IBN Sina cost investments. However, year-to-date results are nearly $20 million higher in 2006 and reflect the acetate products China cost investment dividends received last quarter. For the year, we expect similar earnings in 2006 compared to 2005. Looking at the cash flow chart on the right hand side, you can see that income and cash flow are at similar level.

Now let's turn to page 12. Our net debt for the quarter ended at $2.9 billion, a decrease of more than $100 million from the end of 2005. We generated $257 million of cash flow from operations in the quarter and we have generated $415 million for the first nine months of the year. Our cash generation remained strong and we expect further positive cash flow from operations in the fourth quarter.

Finally, I will briefly update you on our outlook for the remainder of the year. Compared to our expectations earlier this year, our overall outlook for the second half of 2006 has improved. Based on continued robust demand for our products, we now expect full-year adjusted earnings per share to be between $2.70 and $2.80 or at the high end of our previous guidance range of between 2.50 and 2.80 per share. Keep in mind, that financial results in the fourth quarter typically reflect the impact of seasonality across our businesses. Our guidance range assumes a tax rate of approximately 27% for the year and our other guidance assumptions are listed on page 14.

In conclusion, we are extremely pleased with the performance of all of our businesses. Demand remained strong across all of our operating regions and we are confident that we will continue to create value for our shareholders.

With that, I will turn the call over to Mark.

Thanks, John. Can we open it up for Q&A, please?

Yes, sir. [OPERATOR INSTRUCTIONS].

While we wait, I would just like to remind everyone if we could keep it to one question and a follow-up, and if there's time, we will be more than happy to put you back in the queue and answer more questions.

Your first quarter will come from the line of Edlain Rodriguez of Goldman Sachs.

Good morning guys.

Hi, Edlain.

Hi, Edlain.

A quick question that I have is, I mean expectations were for methanol prices to have an impact on margins because methanol cost went to the roof. Can you again explain to us how you manage your methanol cost and whether you have cost advantage and so forth and why didn't we see the impact of methanol prices this quarter on margins?

Let me point to three things. As you know, we have a very robust business model with lot of optionality. So, in the first case, we have an advantaged purchase agreement, raw material position in North America with our methanol purchases. Second, a number of our pricing formulas are structured in a way that reflects market methanol pricing. The third thing I would point to and I want to touch one more thing -- the third thing I would point out is we have an IBN Sina joint venture, manufacturing and selling methanol, and even though there are some lag in -- when profitability comes through, there is a natural hedge to the system there.

But, perhaps the last one is the fact that we had really great optionality within our system, as we are constrained in volume or as profitability gets pressured in one area, we are able to push products in other areas. We saw a growth in our downstream businesses this quarter and hence profitability there, as we were constrained in some of those areas. So, those are the key things that doctored the effect of this raw material change and it didn't have a material impact on third quarter.

Okay. Just as a quick follow-up, what were operating rates in the third quarter versus the second quarter? And also, was the fact that you used FIFO accounting have any impact at all on not seeing the higher methanol costs?

I will let John talk about FIFO, but operating rates just across our system remained high. We -- some of our -- I mean we had some curtailment in production because of inability to get raw material in acetic acid. But, again, in our downstream businesses, we operated very high and very well. The industry overall, one of the key themes coming through for the third and the fourth quarter is that the fundamentals, the underlying business, is very, very strong -- strong demand, strong pricing throughout the world, very improved outlook from where we were 90 days ago because of the strong fundamentals and the strong demand. It seems as though system-wide through the market, capacity utilization for the key products is high.

And then, on the FIFO question, Edlain, that did not have an impact. Our accounting -- if you remember the force majeure start at the end of August was lifted early September, so those costs to the extent that they increased were reflected in the last month.

Okay, thank you.

Your next question from the line of David Begleiter of Deutsche Bank.

Thank you. Good morning and a very nice quarter.

Thanks, Dave.

Thanks, Dave.

David, could you give for me a little more color on the Q4 outlook vis-a-vis both Q3 in terms of seasonality and last year's Q4 in terms of any unusual items, i.e., the IBN Sina dividends or the SG&A expenses? Thank you.

Yes, thanks. Bottom line, both third quarter and fourth quarter demand is stronger than we had expected 90 days ago. Fundamentals are stronger. Europe remained strong; Asia remained strong. Many of you are aware that one of our competitors in Asia, Sopo, had an outage earlier this month. The outage, it was unfortunate, it was an explosion with a fatality. But, immediately prices for acid in Asia shot up 10%. They have come up; they are operating; you can see their product is back in the market again. The prices in Asia have remained essentially where they were immediately after the explosion was announced. So, that signals to us that there is very strong fundamentals in the market. We do have seasonality in third and fourth quarter, maybe John can talk a little bit about that. But, we are -- underneath it all, we are seeing a very strong business.

I think if you look at our -- on an operating EBITDA basis, David, that generally the earnings in the third quarter, if you look at the second half of the year, the earnings are generally split 55%, 45% on an operating EBITDA basis. There was last year, the IBN Sina dividend was unusually large given some of the benefits of MTBE, a good portion of that benefit -- business is not only methanol but MTBE as well. That was unusually large in the fourth quarter of last year. But, anyway, I think on an operating EBITDA basis, to think of it, it's a 55, kind of 45 split.

And John, any unusual items in last year's SG&A expenses to call out either?

Well, if you go back and look, BU other was unusually low. It was the other expenses was the most -- it was the lowest it was of all quarters. Some of that was the timing of recognition of accruals and expenses to true up some of our benefit programs and things that probably you have that at the lower end of where I would expect this year and as we said, for the BU other costs, look at last year and think about the full year this year being about flat.

And Dave, just on your Edmonton methanol plant, what are your plans for running that plant into next year and was that a major distributor to some of the improvement in chemicals this quarter?

The Edmonton plant will be down in 2007 and the Acetate production will be down -- at Edmonton will be down in 2007. We are looking for different options for that facility. In terms of contribution, overall, it was -- we are hedged within the system. There were benefits of methanol in Edmonton. Our costs from methanol in other regions of the world such as Asia were a little bit higher. But net-net, it provided a nice balance to us.

Thank you very much.

Thanks, Dave.

And your next question is from the line of Sergey Vasnetsov of Lehman Brothers.

Good morning.

Hi, Sergey.

A couple of questions. First, on acetate in China, what are you seeing demand there in, let's say, 2007, 2008?

The growth for acetate, we are benefiting as you know from the investments we've made in China over the last several years and have a nice dividend this year of about $20 million and expect that to increase next year. Growth for acetate tow globally is in the 2% to 3% range, and I'd probably put it 150 to 250 basis points higher than that in China.

Okay. And secondly, looking at the Ticona results, I wouldn't guess that you are supplying automotive markets there in a base where we seem to have bankruptcies announced almost every day. As you look at your business in the fourth quarter, maybe early part of 2007, if indeed ethylene and propylene prices are coming down sequentially, are you going to keep this benefit, or it will be dissipated through your discussions with the customers? Thanks.

We do have a substantial footprint in automotive with Ticona. But, I'd point out that this is a global business. We've got significant positions in Europe, North America, and in Asia through our joint venture partners. Globally, if you consider the joint ventures, our largest single customer is Toyota. And we are positioned with a penetration strategy, but we are going after new innovative applications. For example, this last quarter, we had substantial success -- not a lot of volume but substantial success with a new product, dissipating electrical charges in fuel systems and automobiles for models in the 2009, 2010 timeframe. And that's the type of business that it is, high value in a smaller application. Do we see price pressures? Yes, we do. But, we tend to mitigate the price pressures with the innovation that we bring and also with the very broad diverse application areas.

Okay, thank you.

And your next question will come from the line of Kevin McCarthy of Banc of America Securities.

Good morning guys. Question on acetyls. Industry sources have suggested there is $0.06 or more on the table for acetic and about $0.10 for VAM. Where do you stand on settlement of US contracts, given the higher methanol cost counter balanced by similar ethylene and VAM?

We have -- I mean, you have hit the dynamic exactly right. A large of our North American business is driven by formula. So, some of the marginal business gets into some negotiation, but that business is small relative to the formula driven and essentially that's already set based on the formulas that we have.

Europe tends to be the market that has quarterly negotiations. And in Europe, the capacity utilization is incredibly tight. Vinyl acetate in particular is a tough product right now for customers because constrained ethylene capacity -- some of the vinyl acetate capacity has been out of service in the first part of the year and there is still a low -- depleted inventories in a catch-up situation. For us, pricing power is relatively strong in Europe because of those dynamics.

And then, you move to Asia, and I mentioned earlier what's going on in Asia, we saw, again just to repeat, the Sopo outage immediately had an effect on pricing with prices moving up 10%, and they still remain in the 550 range. Those prices tend to have a little more volatility. They are more order-to-order or week-to-week pricing, but very robust environment for pricing across the globe.

Okay. And then, I have a two-part follow-up on Europe. You mentioned you are introducing AO+ in French acetic plant. I was wondering what kind of financial benefit you might expect from that? And then second part, over in the acetate products area, when do you expect APL to close and do you have any thoughts on accretion or dilution associated with that deal?

On the AO+ technology, I mean, we look at that, Kevin, in total as it relates to the total synergies from acetate. And I think we really -- initially we thought we had synergies in the 5% of revenue range, maybe 3% to 5% of revenue range. Now, we are probably in the 6% to 8% revenue range in terms of synergies as a result of the implementation -- last piece of the AO+ technology.

And as far as APL growth, it's under regulatory review as we speak and we will share with you the results of the regulatory review process when that's completed. It's all operating along the normal timeline.

Okay, thank you very much.

Thank you.

And your next question will come from the line of P.J. Juvekar of Citigroup.

Yes, good morning, Dave.

Good morning.

I was wondering if you could talk about how you see supply demand in acetic and VAM going into 2007 and 2008, and then just give us timing of your Chinese plant. And then, any thoughts you may have on the timing Tampa shutdown?

Okay. P.J., on our Investor Day, we are going to update 2007 and 2008 and give you a view of 2009 for the first time for both acetate and VAM. But, I can tell you that our view of 2007 and 2009 hasn't changed materially at this point. We have had some delays, [BP] is a little bit later, the project in Middle East is a little bit later, and the results have been some debottleneckings that have occurred, but net-net not a material change for 2007 and 2008. And stay tuned for 2009 and our investor conference.

Relative to the Tampa, Tampa is -- we have said that we are looking for strategic options with Tampa and we continue to do that. We have nothing new to update you on relative to Tampa. But it is the highest cost facility -- acid facility that we have in our system and with time, we would expect that that facility would come out of our system.

And lastly the Chinese, I think you mentioned the Chinese facility, again, as you know, that's a fully-integrated facility, it's going to have five plants, everything is on track as we sit here now, and with the first part of acetic acid next year, but more importantly, the remaining plants through 2008 should deliver in excess of $800 million of incremental revenue by the balance of this decade.

Thank you.

And your next question will come from the line of Gregg Goodnight of UBS.

Good morning, Dave and Mark. Debt targets, I noticed that you have paid down $100 million of debt. Are you going to try to be a little more aggressive with your debt pay down next year and have you set eventual targets that you think you are going to be happy with in terms of debt load?

Yes, Gregg, this is John Gallagher. We said last time -- I think, first of all, there is four key themes. We said we would look to pay down debt and we would look for bolt-on acquisitions. We would continue to investment in our business and then evaluate our dividends. So, those are four key themes. I think as we sit here now, the APL opportunity presented itself, it looks like a wonderful opportunity for us. And that's probably the first claim to cash we have now, would be the closing of the APL transaction.

And then secondly, we would look to pay down our debt both this quarter and into next year and I think we've said -- I think last call, I said 600 million to 800 million I think was -- when we were at $3.1 billion roughly was the numbers I quoted. I am still comfortable in that range. We would look to be getting net debt into the $2.4 billion range is a comfortable target for us.

Okay, great. Second question on the APL, the type of products, acetate film and the like, I had recalled that you had gotten out of acetate film. Is this a similar product, different, what is the differentiation here?

The film business is small in APL, but it is a specialty business, higher end, higher requirement application area. The main business though is the flake and tow business and that's the focus of the acquisition.

And to -- did you mention if this business -- if you see it being accretive in 2007 or not?

We haven't said anything about the economics of it at this point. Until the deal gets through regulatory approval and closes, we'll step back from saying about the numbers.

Okay. Thanks a lot.

And your next question is from the line of Christopher Miller of JPMorgan.

Good morning. Follow-up on a couple of things. One, the cash dividends from IBN Sina. You said a little bit was timing. Can you give us a sense then of kind of what the expectations are for fourth quarter or first quarter 2007, when you kind of catch up, and how you are thinking about dividends coming out of that JV?

I think we have said a couple of things you can try to triangulate. If you recall, our earnings -- our equity earnings and then the dividends from our cost investments are what hits our P&L. So, we essentially said we expect the P&L to be flat with 2006, with 2005. And what you really see there -- and that's in the $150 million range. So, what you really see is a reduction of IBN Sina dividends, but offset by the Acetate dividend from China, the China cost investment, which we received in the second quarter.

Okay. Thank you. And then on the Nutrinova, EBITDA obviously down sequentially, can you just give us a sense of where you see that business now? Is the decline what you expected? Is it -- what's your sense of that going into 2007 as well?

There is a seasonality and a secular question, and I think from a seasonality standpoint, this is food sweeteners, primarily beverage. So, you get a lot of -- you get very strong demand in the first half of the year and that's followed by weak demand in the second half of the year. Underlying the trend though is good trends for these types of products. We would expect that the business would continue to have relatively stable earnings in this area.

And our model or our thinking in this business for the last several years has been low-teens price decline and low-teens volume growth. And we would expect that to continue for the foreseeable future. Ultimately though, this is a business with very high margins, food additive-type margins. It will migrate eventually towards specialty chemical-type margins, very, very attractive. But, at some point in the future, we would see that this would have a decline in earnings as that model played out. Right now though, we see it remaining very strong and no substantial change in underlying fundamentals.

Okay. And if I sneak one more in, you're 2.4 billion net debt target, do you equate that with what your perception of investment-grade levels would be for your balance sheet or do you think you have to go beyond that for investment-grade ratings?

No, I think we have been pretty -- we said we would march towards investment grade and that's -- so, I think we were intentionally staying away from a specific commitment that we want to be investment grade or we need to be investment grade. I think it is the overall view of our management team that that could limit your strategic options. So, again, we will continue to march towards investment grade and we will continue to evaluate and update you along the way.

Okay, great. Thanks so much. Congratulations on a good quarter.

Thank you, Chris.

Thank you, Chris.

And your next question will come from the line of Roger Smith of Merrill Lynch.

Good morning. Any color on why Ticona EBITDA was about flat sequentially and Acetate Products down sequentially, excluding the impact of the JV dividend impact?

Roger, the -- again, the business has some seasonality to it. So, in Ticona, you get a strong first half than you do a second half. We were pleased with the quarter because it was on a sequential basis as strong as it was. But, there is some normal seasonality in that business. Now, we would say the same thing for Acetate, a little lumpiness in performance, not an awful lot. But, when you look at the year-over-year comps on both businesses, strong growth year-over-year continued to reflect the success of our strategy of driving both growth and productivity in our businesses. And both Ticona, Acetate and our Performance Products businesses growth, we think is under-acknowledged and perhaps under-appreciated in -- because we talk with investors.

Okay. And the other thing is this, have you been seeing any impact on MTBE margins potentially from -- as a result of MTBE exports from US to Europe and other regions?

The -- What we have seen in the venture is not significant. We would say that over the last several quarters, the pricing has been relatively stable.

Okay. Thank you very much.

Thanks, Roger.

Next in the queue is Frank Mitsch of BB&T Capital Markets.

A Happy Halloween to you too David.

Thank you Frank.

You were talking about Ticona and a positive impact from the COC sale, can you provide a little bit of a size of that and how that's going to play out in the future as well?

The impact of COC is high-teens, roughly $20 million of impact on a year-over-year basis. But, what you are seeing in Ticona is really the success of three things. One is the COC -- the restructuring in COC. Second is, some improvement on raw material purchases in COC -- or excuse me, in Ticona, particularly with the favorable methanol contract that we have in North America. And third is just outright jet boosters on volume. The business has grown, the penetration strategy is successful. And that growth is led by Europe. But North America is finding their own success with penetration in new applications.

I see, okay. So, we should expect these results going forward into next year as well from that business.

Right.

Just taking a step back, I just want to clarify. The reason why you are calling for the fourth quarter to be down year-over-year is the absence of the IBN Sina dividends. Other than that, you would expect operationally an improvement year-over-year in the fourth quarter?

I will let John have a little more too. But, the IBN Sina dividend last year versus this year, it was higher last year than it would be this year. We had a little bit of catch-up, favorable catch-up in the last year on some of our personnel expenses, reserves. So, this year, we are going to see substantial fundamental year-over-year growth. John?

Yes. I think that's important. We are not -- we are giving you the range or guidance. It's the high-end for the balance of the year. So, I think if you kind of back into that, you will see the fourth quarter year-over-year will improve. That's the bottom line. Now, it depends on what you are looking. I think there was a catch-up in the tax rate last year. So, if you looked at EPS, EPS earnings, we had a 7% tax rate in the quarter to bring our full-year tax rate at 21% for last year. So, this year again we are assuming a 27% tax rate. And so, I think on an operating EBITDA basis, if you think about that 55-45 ratio that I talked about, you will be comfortable we have year-over-year growth.

Okay. Then lastly, John, on the other income, it was 24 million on the income statement in the third quarter. What are the components of that again and how would you size that in the fourth quarter?

Okay. The other income is principally the cost dividends. So, you can get the dividends from cost investments on our Table 4. And then it's a hodgepodge of other things. Principally in this quarter, there was an FX -- there were some FX gains in this quarter. And in prior periods we had to guarantee dividend that we had to pay for the minority shareholders in CAG, which went away as our ownership increased. So, those are principally the two biggest things, FX transactions and historically some of the guarantee dividend would be in there. So, really the forecast is principally driven by what we would expect from the cost investments and again, that's I think consistent with the overall guidance I previously shared.

Okay, great, thank you.

Thanks Frank.

And your next question will come from the line John Roberts of Buckingham.

Good morning, David, John and Mark.

Hello.

Can you hear me?

Yes.

Yes, go ahead John.

I am curious about the strength you are seeing in the VAM marketplace. Are you still seeing some share again from the acrylic chain or is it that the end applications are that strong or are you just gaining some additional share here?

We have -- John, when we look at the -- I think the shift in share are longer-term and we would see in a quarter-over-quarter basis. The relative prices of VAM, vinyl systems versus acrylic systems, jumps around. However, I would say that we have seen substantial interest in vinyl-based systems over the couple of quarters. I think customers are looking at these systems and thinking that there is going to be a long-term sustainable advantage -- relative advantage and they are putting more interest into it. I think what we are seeing in VAM though right now, is overall tightness in the market. We benefited by that ethylene tightness and pricing. The volume -- and the volume growth remained strong but a lot of volumes coming out of Asia. That's why we are seeing the growth.

Okay, thank you.

And your next question will come from [William Matthews] of Canyon Capital.

My questions have been answered. Great. Thank you.

Great. I think we have time for one more question.

And your last question will come from Mike Judd of Greenwich Consultants.

Good morning.

Hi Mike.

Hi, how are you? A couple of questions on volumes. With Ticona, I can see the last couple of quarters, the year-over-year improvements in volumes have been 7% and 10% respectively. But, if you go back a year or two, the June and September quarters, a year ago and look at those year-over-year volume numbers, those are actually down 5%. So, I guess, what I am trying to get a sense of is some of this volume gain, should we be looking at this a bit more on a normalized basis? Because it looks like the volume gains are very, very strong here.

Yes. The 10% volume growth is a little bit of lumpiness. That would not be what I tell you the volume growth is going forward. If you go back to 1999 or 2000 and roll forward, Ticona has had a roughly a two times GDP volume growth. And remember, you are looking at Ticona in North America and Europe. So, take the GDP growth rate there and 2x that, and that should be the volume growth that you see. There is going to be a little bit of lumpiness to that. Going back, you saw as we have raised prices and perhaps have a little bit of mix improvement as we got rid of some lower price, lower profitability business, back in the 2005 timeframe. What we see today is benefits from the penetration and innovation strategy, and we continue to see that going forward probably at a two times GDP rate.

Okay. And then on Performance Products, it's basically sort of a similar question. But again, I am just looking at year-over-year volume changes and in the March quarter, you are up 23% and then this last quarter, it was minus 6%. What are some of the factors driving that and should that normalize again?

Yes. I will answer your last question first, Mike. There is -- normalized, we see the volume growth for the next several years being in the low-teens, I think in terms of 10% to 15% and that would be the range you would see. Quarter-on-quarter you are going to see a little bit of lumpiness. Pepsi, Coke is an example, may draw inventory as they put new products on the shelf and so you get the effect of that. We saw this quarter the effects of an adjustment where they bought them before and they adjusted their inventory levels down. But underneath it, no significant change in the underlying fundamentals of the business and the growth rate of 10% to 15% volume wise.

Right.

We have also to that that our strategy is to move pricing down to support that growth and also as a response to competitive activity. And so, we see prices moving down around 10% per year as well.

Thanks for the help.

Yes, thanks, Mike.

Okay. I would like to thank everyone for your continued interest in Celanese. And as always, if there are any further questions, feel free to give myself or anyone on the Investor Relations team a call. Thanks everyone.

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