塞拉尼斯 (CE) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the third quarter 2007 Celanese Corporation earnings conference call. My name is Fab and I will be your coordinator for today. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. 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 proceed.

Thank you everyone and welcome to the Celanese Corporation third quarter 2007 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 Chairman, and Steven Sterin, Senior Vice President and Chief Financial Officer. The Celanese Corporation press release was distributed via BusinessWire last night and is posted on our website, 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 earned 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 the earnings release and in Celanese Corporation's filings with the Securities and Exchange Commission.

Celanese Corporation undertakes no obligation to update publicly or revise any forward-looking statements.

Our third quarter 2007 earnings release references the performance measures net debt, adjusted earnings per share, operating EBITDA and affiliate EBITDA as non U.S. GAAP measures. For the most directly comparable financial measures presented in accordance with U.S. GAAP and our financial statements and for a reconciliation of our U.S. GAAP measures to U.S. GAAP figures -- please see our non U.S. GAAP measures to U.S. GAAP figures, please see the accompanying schedules to our earnings release, which will also be posted on our website, Celanese.com.

This morning Dave Weidman will review the performance of the Company and Steven Sterin will provide an overview of the business results for each section in the financials. We will have a question-and-answer period following the prepared remarks.

Before I turn the call over to Dave, I would like to take a few moments to remind everyone about our business realignment. At our investor day last December we announced our plans to realign our businesses to accelerate growth. We began reporting our performance in this new structure with today's third quarter 2007 results. Earlier this month we provided quarterly historical financial data and the new reporting segments for the years 2005, 2006 and the first two quarters of 2007. This information is available in the Investor Section of our website Celanese.com.

The four new Celanese reporting segments are as follows. First, Advanced Engineered Materials. This segment represents the previously reported Technical Polymers Ticona Engineered Plastics business. Second, Consumer Specialties. This segment combines our Acetate Products and Performance Products businesses. Third, Industrial Specialties. This combines our emulsions, polyvinyl alcohol and AT Plastics businesses. The emulsions and polyvinyl alcohol businesses where previously reported in our Chemical Products segment, while AT Plastics results were reported in our Other segment.

And finally Acetyl Intermediates. This includes our acetic acid, vinyl acetate monomer, acetic anhydride and other acetyl derivatives that were included in the former Chemical Products segment. Our Other segment now includes results for our captive insurance companies and primarily our general corporate activities.

You should keep in mind that as you look at the results in the new reporting structure you'll see that we have included quarterly earnings for the discontinued Edmonton methanol operations and other charges and other adjustments for comparative purposes. We have also adjusted the results to reflect the divestiture of the oxo alcohol business as a discontinued operation. With that, I would like to turn the call over to Dave.

And welcome everyone to today's third quarter's earnings call. I'm extremely pleased to be here today to share with you our outstanding third quarter results, the significant progress we have made towards increasing the earnings power of our portfolio by $300 million to $350 million by 2010, and also our preliminary view of overall earnings momentum into 2008.

Let me begin by highlighting some of the key figures from a very strong third quarter. Net sales totaled $1.6 billion, up from last year's total of $1.5 billion. Operating EBITDA was $302 million versus $296 million last year. Adjusted earnings were $0.73 per share compared to $0.71 per share in the same period in 2006.

Keep in mind that last year's third quarter results included approximately $0.04 per share for methanol production that was shut down in the first quarter of 2007, and also a lower tax rate that aided last year's earnings by approximately $0.03 per share. So you can see a really, really solid result this year.

Steven will provide you with further details on this quarter's financials, but let me briefly summarize a few key areas that impacted our results. As you all know, our Clear Lake acetic acid unit successfully restarted in early August after approximately 80 days of an unplanned outage. We realize the challenges that this situation created for our customers and have been working closely with them to mitigate the impact. As we discussed last quarter, the Company has taken steps to develop contingency plans for the future.

The successful start up of our Nanjing acetic acid unit and higher market pricing are positively impacting Acetyl Intermediates' results. There is some headwind however in the results due to lost volume associated with the Clear Lake outage.

The effect of our production interruption was compounded by additional outages from several of our competitors, and has created an extremely tight global market for acetyl products. Consequently current acetyl product pricing is higher than projected 60 to 90 days ago. In our view the pricing levels should ease over time.

Our downstream Industrial Specialties businesses were significantly impacted due to both raw material volume constraints and higher raw material costs during the quarter. While this environment has a positive earnings effect on Acetyl Intermediates' business, as we expected it will challenge our downstream Industrial Specialties businesses, which consume final acetate and whose pricing tends to be a bit stickier than other businesses. It is unlikely that these businesses will be able to offset the lost volume or margin by the end of the year.

So the Clear Lake outage impacted our earnings for the year. However, due to a variety of factors, some not directly related to Clear Lake, we now believe that our projected full year results will be at approximately the same level as we anticipated before Clear Lake went down.

Consequently, we are increasing our full year 2007 outlook for adjusted EPS from the previous range of $2.85 to $3 to $3.10 and $3.20 per share. We are also increasing our operating EBITDA outlook for 2007 from the previous range of $1.18 billion to $1.22 billion to the new range of $1.24 billion to $1.27 billion.

Last December we outlined our strategy to grow earnings power the portfolio by $300 million to $350 million from 2006 levels by 2010. This year we have made tremendous progress against these objectives and we are on track to deliver our commitments for growth. Let me highlight a few successes in two key areas of this growth strategy, Asia and the revitalization of acetate.

First Asia. We continue to pursue growth projects in Asia in all of our businesses. The on-time startup of acetic acid and the terrific progress of constructing the other five new facilities in Nanjing strengthens our confidence in the projected earnings growth from China. Last month our senior leadership team spent a week in Asia. This trip for me highlighted Celanese's history and our future in the region.

First, we celebrated the 20th anniversary of our very successful China acetate ventures in Nantong. Next, we celebrated the 10th anniversary of the beginning of our Singapore acetyl production, our first wholly-owned manufacturing facility built in Asia to supply the Asian market. And last, we concluded with the official grand opening of our integrated chemical complex in Nanjing. This wholly-owned facility reflects our exciting future in this fast-growing region.

Now let's turn to the success that Acetate Products has had with its revitalization efforts. This business has relentlessly pursued its revitalization strategy outlined in 2005. By exiting a declining filament business, rationalizing underperforming manufacturing assets, expanding in Asia, and successfully acquiring Acetate Products Limited, this team has achieved phenomenal earnings growth. Operating EBITDA was $100 million in 2005, $150 million in 2006, and they are on track to deliver approximately $200 million of operating EBITDA in 2007, with more growth expected in 2008. These are just two examples of how Celanese delivers on our commitments to create significant value for our shareholders.

For just a moment I would like to turn our attention to next year. During our upcoming investor day on December 11 in New York we will provide details of our 2008 guidance. However, today I did want to give you some insight to the trends that we are seeing and how they support our earnings growth momentum into 2008.

Clearly our 2007 earnings are benefiting from strong pricing environment in our Acetyl Intermediates business; however, we continue to expect pricing trends to ease and move back into more historic levels throughout 2008. Our key raw material inputs, methanol and ethylene, continue to be volatile and historically high. As we have demonstrated over the past several quarters though, our business model has the ability to mitigate this volatility fairly well. And we expect this to continue.

Additionally, we remind you that we shut down our Edmonton methanol business in the first half of this year, and that this business did contribute $0.13 per share to our [2000 and] earnings results and is included in the guidance. With the startup of Nanjing we would expect 2008 volumes of Acetyl Intermediates to be up.

Our downstream Industrial Specialties businesses will be challenged beginning in 2008 with higher input costs from our integrated acetyls business. But as VAM prices ease the Industrial Specialties businesses should experience some margin expansion. We have revitalization plans in place in our emulsions and PVOH businesses and we expect to continue realizing the benefits of those efforts.

Advanced Engineered Materials well continue on its path of improving earnings through growth and innovation. Some costs for new manufacturing and marketing activities in Asia will moderate earnings growth in the near term.

Our Consumers Specialties businesses are on track to deliver additional sustained earnings growth by capturing synergies from the APL acquisition. So although we expect some headwind from lower acetyls pricing and some uncertainty associated with raw materials volatility, the overall earnings growth momentum for 2008 is positive.

We look forward to providing you with even more details on our expectations for 2008 and beyond at our investor day in December. Now I will turn the call over to Steve.

Let's start by turning to page 9 in the PowerPoint presentation that is posted on our website. Net sales were approximately $1.6 billion, up 7% from last year, and continued strong global demand for acetyls and double-digit growth in Advanced Engineered Materials.

Foreign currency translation was positive across all of our businesses. And while the impacted revenue was approximately 4%, there was only a modest impact on operating EBITDA due to the balance of sales and costs in each region, and even less in adjusted EPS due to our euro denominated debt.

Operating profit decreased $147 million from $172 million a year ago. Net earnings were $128 million versus $109 million last year. Our adjusted earnings per share was $0.73 based upon a 28% tax rate.

Operating EBITDA was $302 million compared to $296 million last year. We had approximately $40 million in other charges and adjustments in the quarter, which were primarily associated with non-cash expenses related to the Company's debt refinancing, portfolio optimization, and continued investment in revitalization and restructuring activities. As Dave mentioned earlier, these initiatives are consistent with our growth strategy to deliver between $300 million and $350 million of increased earnings power to our portfolio by 2010.

Now let's take a look at the results from our businesses, starting with Advanced Engineered Materials on page 10. Net sales were up 12% from last year on strong volume growth across the business. We were able to grow all of our product groups through innovation and the commercialization of new products. In the automotive sector we continue to drive more pounds of Ticona product into each automobile.

The higher volumes let us offset most of the higher energy costs and slightly lower pricing. Growth in demand were particularly strong in Europe again this quarter, and the U.S. markets also showed positive growth. Operating EBITDA was $70 million, up from $67 million last year, on higher earnings from our Asian equity affiliates.

Turning to Consumers Specialties on page 11. Net sales gross 32% to $282 million compared to last year's results. The increased revenue was driven by $59 million of net sales from the APL business that we acquired earlier this year. We also saw continued strong global demand, which drove higher pricing for acetate products. Volume growth for Sunett helped to offset the lower overall pricing for the sweetener.

Consumers Specialties continue to realize the benefits from its revitalization strategy and remains on track to deliver the expected improvements in earnings over the next couple of years. Operating EBITDA was $53 million, up 20% from last year.

In Industrial Specialties shown on page 12, net sales for the quarter were $314 million, a 6% decrease from last year's results. The unplanned outage at the Clear Lake facility and the related force majeure resulted in lower volumes for emulsions and polyvinyl alcohol. Keep in mind that these businesses are major consumers of VAM and tend to experience margin pressure when acetyl is pricing is high and margin expansion when acetyl pricing eases.

Higher pricing in the industry and favorable currency impacts were unable to offset the lower volumes and higher raw material costs. Operating EBITDA was $18 million, down $36 million from last year.

Results for Acetyl Intermediates are shown on page 13. Net sales ended relatively flat compared to last year at $859 million for the quarter. Higher pricing, favorable currency effects, and acetic acid production from our new unit in Nanjing China positively impacted sales, while the unplanned outage at our Clear Lake facility challenged the business, particularly in North America and Europe.

The industry experienced favorable supply demand balances as additional unplanned outage drove higher pricing across the industry. Operating EBITDA was also flat at $178 million as higher dividends from our Ibn Sina cost affiliate contributed an additional $10 million to operating EBITDA versus last year.

On slide 14 we highlight the performance of our equity and cost investments. As you can see on the chart on the left, the income statement impact of these ventures has improved considerably versus last year. This is primarily driven by the expansions of our acetate cost affiliates in China and the performance of our Ibn Sina affiliate in Saudi Arabia.

Earnings from equity affiliates have also increased, driven by our growth from Advanced Engineered Materials affiliates. On the right we highlight cash flow from these ventures, which is also substantially higher than last year. We have updated our outlook for the full year and now expect that we will maintain this level of improved performance versus last year. We had previously anticipated that our earnings from affiliates will be relatively flat compared to 2006.

If you turn now to page 15, you can see that we continued to generate strong cash flow in 2007. Adjusting for the onetime outflow in the second quarter of this year related to long-term compensation, and the cash flow related to discontinued operations, our free cash flow is basically unchanged from last year, even with $109 million more in cash taxes and approximately $40 million in increased capital spending related to our growth strategies. We remain on track to generate between $400 million and $500 million of free cash flow in 2007.

With that I would like to turn it back over to Mark to open the Q&A session.

If we could turn it -- open up the lines for Q&A. We would ask that people limit their questions to one question with a follow-up. If we have additional time, feel free to get back in line.

(OPERATOR INSTRUCTIONS). David Begleiter, Deutsche Bank.

David, you have in the past shown your resilience to higher methanol prices. Given the latest methanol price spike, what is your expectation for Q4 with the impact from higher methanol prices?

There is really no change. The model that we have in place does mitigate the impact of methanol volatility, methanol down, methanol up. We tend to be hedged very well across the globe. We may see earnings shifting from one business to another business or one region of the world to another region of the world. As an example, we would expect in the fourth quarter that we would probably see some higher pricing of methanol in Asia, impinging on margins over there, North America would be advantageous to us. Ticona would be under a little bit of a pressure. So it will shift a little bit, but overall these levels of pricing don't concern us.

Steve, other income was $19 million positive after adjusting for some -- the charges. What was in that number in the quarter?

In the headline number in other income we had an other charge related to the foreign exchange related to our refinancing transaction. After isolating that, there is really no items to note in there. You have a lot of moving parts. Some small foreign exchange gains are in there, but nothing else of note.

Edlain Rodriguez, Goldman Sachs.

A question for you, Dave. As you noted, like Industrial Specialties, earnings are being pressured by higher VAM prices. Can you remind us again, or can you talk, about the steps being taken to change the profitability profile of that business, and how long before we see double-digit EBITDA margins in there?

We've got two things going on. One is what I will call short-term pricing volatility underlying raw materials. The second is long-term secular shifts in the earnings pattern. We do see volatility in raw material prices in this business. Higher VAM prices will pressure margins there. The pricing of emulsions tends to be sticky. It takes a quarter or two to work them through the system. On the other side of it as VAM prices drop down you would expect the reverse to occur, margins to expand as VAM prices head down. They are sticky on the way up and sticky on the way down. But usually it takes a quarter or two to work them through the system and then through the market.

Longer-term, however, we think about this business area as having high single digit EBITDA as it is. As we go through restructuring programs, plant rationalization, bringing some of our technology and research people into common locations, the rationalization of some of the activities from the acquisitions that make up this business area, and a higher mix of new products, we would expect the EBITDA levels in this to be in a normalized range somewhere in the low teens. Think in terms of a 400 to 500 basis point improvement in profitability. Still some volatility associated with VAM going up or down, but more of a normalized range, 400 to 500 basis point higher than the current levels.

It makes sense. And a quick follow-up on Europe. What are you seeing there? Are you seeing any deceleration in growth at all?

You know, we're not. European growth is fantastic for us in the third quarter. Our fourth quarter order books, as we look at it going forward, we've got about 45 days of transparency in the numbers, they continue to look very strong.

Just one note, in Europe we normally saw a deceleration in August. We would normally see an August month that was maybe three weeks in duration. This year was more like four weeks. So we are not seeing the deceleration. Some of that we think has to do with the mix of businesses that we have, the customer base we have, the breadth of product offerings, the breadth of markets we participate in. But we are not seeing a deceleration.

P.J. Juvekar, Citi.

This is Shilpa Kumar standing in for P.J. My first question was can you quantify the benefits of the competitor outage? Apparently a number of companies were out in the third quarter. If they were not out, what would your results be like?

That is a great question. We have turned that over internally an awful lot. It is hard for us to quantify the effect of the outage of competitors, the effect of the outage of Clear Lake, the effect of Nanjing coming in earlier, the effect of frankly a fairly robust global economy. The Asian economy continues to be very robust. What we did say in my prepared remarks, however, is that if we look at where we thought we would be before the outage, and where we are -- so think in terms as May time frame -- and where we are today on a full year basis, we're at the same level.

My next question is where do you see your operating rates going in acetic acid and VAM in 2008, or when we expect these plants to working? And also your increased capacity coming from your VAM in Nanjing?

We highlighted at an investor day last December that we thought operating rates would be in the 90 plus percent range for 2007, 2008, 2009. And we continue to believe that to be the case. If anything, we saw this year operating rates being a little bit tighter, a little bit higher than we had projected nine months ago, ten months ago. And we would invite everyone to come to investor day. One of the features of investor day will be our outlook on operating rates for the next additional year, which will be 2010.

Kevin McCarthy, Banc of America Securities.

This is Vital Aelion stepping in for Kevin. Congratulations on a great corner. My question is the German tax rate reduction were treated as a onetime item in this particular quarter. Is it truly a onetime item or can we start thinking of a tax rate at lower levels than we currently are thinking?

That is a good question. For U.S. GAAP purposes they do treat the reduction in the rate to some extent as a onetime item, because you've got deferred tax assets and liabilities on the books at the old rate of 40% and they need to be reduced to 30%. So some of the future deductions for U.S. GAAP purposes were recognized, and that is one of reasons you see such a low effective rate for U.S. GAAP purposes.

However, in the current year there is not really a meaningful impact on our cash taxes, therefore it doesn't effect our underlying non-GAAP rate of 28%. But going forward we will see some affect on our cash taxes related to that. For 2008 we will update you on that in our -- at investor day.

Frank Mitsch, BB&T Capital Markets.

Nice results. Dave, you talked about the (technical difficulty) being very robust, 11% volume growth. Can you shed a little bit of light at where specifically you saw the growth as to regionally or by end market?

I can. I think about it in four different quadrants, North America transportation, North America all other, European transportation, European all other. The North American transportation had some fairly significant growth. It was very healthy double-digit growth. Now three factors on that. One, increased penetration by us. Two, a good mix that we have, because Toyota frankly is our -- globally is our largest customer. And three, there was an inventory correction last year that had an affect. This year it is a more normal production.

North America was very strong in transportation. Nontransportation North America was also strong. I would characterize that as a low double-digit increase in volume. So there is some very nice penetration there. European transportation was healthy, but kind of in line with what you would see with more normalized our steady production volumes plus a penetration strategy. So think in terms of probably a high single digit number in European transportation. And then nontransportation Europe was a double-digit amount. Is that helpful?

Yes, that is. Yes, it is. Obviously with these solid results and our expectation that you're going to reap the benefit of some strength in the acetyls chain, what are your current thoughts in terms of use of cash flow?

Thanks. Let me backup a little bit. There is a lot going on. The acetyl chain is very strong. But I would point that if you go back and look at our numbers, our earnings -- our EBITDA increase through nine months is $100 million. Of that $100 million, only $28 million came from Acetyl Intermediates. These non-acetyl businesses -- specialty businesses, Industrial Specialties, Consumer Specialties, these are providing some very, very significant growth. Plus we are driving productivity in some of the corporate or nonbusiness areas.

Uses of cash flow, we are strong cash generation. This year we made acquisitions. We have done share buyback. We have restructured a bunch of our debt and used cash to do that. We made, and continue to make investments in Asia to grow the business and execute our global strategy. As we look forward into next year, we will continue to look at opportunities to present themselves, but our commitment is to continue to use the cash -- shareholders' cash to create value.

That might include some measure of dividend hike?

We would look at all options. I think as we look at the activities though we would do those things that we felt yielded the highest value and the highest return for investors. Looking at dividend as we have stated historically, in our mind tends to be a low value-added, although important activity -- lower value-added than making acquisitions or investing to grow the business.

Gregg Goodnight, UBS.

I like your new segment reporting. It really clarifies your businesses. The Singapore outage that has been reported in October, I understand was a syngas shortage issue. It had you down for about three weeks. Could you give us an update? And not only that situation, but also where the Clear Lake situation, is that going to require some long-term solution, or where you need to be now with the acetic acid in Clear Lake?

Not to point fingers, but there are some inaccuracies, as you well now, in some of the reporting that is out there. And as a general practice Celanese does not comment on facilities being up or down. If it has a material effect upon customers or it has a material effect upon the earnings and the earnings profile, we will make public comments on that. However, at this point in time I am delighted to report that all of our facilities are up and operating at full rates. And we are in the process of restoring inventory levels to our customers and the supply chain going forward.

The acetic acid situation in Clear Lake, is that going to require anything going forward?

We are comfortable with where we are with acetic acid in Clear Lake. As we indicated in times past, in fact I indicated now we have taken some proactive steps to mitigate the impact if there is a future outage. But based on the way Clear Lake is operating today we're very comfortable.

Great. A second question. In terms of acetic supply and demand balance over in Asia, what are your assumptions in terms of some of the coal-based capacity that has been announced over there, like Cathay Coal, and Tianjin and Bohai and the like? Are those additions in there, and if so, what is their timing?

If we look back to what we said ten months ago at investor day, the supply/demand balance for 2008 and 2009 is consistent with our projections. Somewhere north of 90%, a very healthy range for us from a supply/demand prospective. And then in December we will provide updates on 2010 view.

Will you update us on specific projects that the basis of your assumption?

Yes, we will share with you our view of what we believe it is going to happen out there.

Charles Neivert, Morgan Stanley.

Nice quarter. Just a quick question on the Chinese projects that are going to be coming up in '08, can you -- you could give us a little bit of a timetable on when the projects again are going to be starting up and when we might begin to see revenue coming from each of the ones that are going to becoming up during '08? I know it is sort of partial years in all of them, but I just wanted to try and get a sense of what the timing was and when we might begin to see a revenue stream?

Charles, here's how I think about it. We've got -- you know, the acetic acid plant came up in the middle of the year. It came up in June. And so you'll see another partial year of acetic acid next year. And then beginning with the emulsions unit that is in the process of starting up now and ending sometime late 2008, early 2009, there'll be five additional units that startup.

I would think of an annualized revenue once those facilities are completely loaded, as we said, of somewhere in the $400 million to $600 million range. So we will begin to see some volume increases next year -- some revenue increases. Candidly, with startup costs associated with these units, I doubt there's going to be a material impact upon earnings in 2008.

2009, I don't think we are going to run the facilities full, just because we are waiting for the markets to grow into it. Some of our facilities, like our high-performance engineered plastics facility, it will take some time to have it started up. We will put a little bit of texture around that during investor day. But I would think from a revenue standpoint you'll see some increase in revenue and increase in volumes next year because of China. The earnings impacts on a year-over-year basis, once you factor out acetic acid, probably is diminimus, and 2009/2010 will be more representative.

Very good. What was -- on those acids the EBITDA margin expected to be once that they're running fully?

We have said that when you factor in the operating cost, plus the incremental SG&A as we size up the organization in China, think in terms of 20 to 30% EBITDA -- incremental EBITDA level in those assets.

William Matthews, Canyon Capital.

Can you give us a sense, I think the Nanjing facility you had mentioned in the past is expandable to twice the capacity for a minimal investment. How do you look at that expansion versus keeping Pampa, Texas or Pardies, France up and running in terms of where they stand on the cost curve?

A great question. There is two key elements to it. One is when does the market need the capacity? And so we continue to look at that. And again we have made no public comment on the timing of the next investment, but the timing based on market demand, capacity utilization is a significant factor. And where that growth is, frankly, that all goes into one bucket.

Then we look at Pampa as being a very high cost facility. As we have indicated, in the announcement that we made in the last 60 days, we have signed an agreement to sell the Pampa facility to an operator who will turn it into a utility. So that capacity comes out of the market. We look at our Pardies facility as being very important to supplying our European business and an important of European strategy. Frankly, it uses the best technology in the world, which is our technology. We put that in place in 18 months after we started -- after we bought the facility from Acetex. We have some attractive economics on raw materials going into there.

So I think in our mind after Pampa we've got facilities globally, and we will expand the market -- expand that facility in China as the market grows.

I think you have disclosed in the past, what is the incremental investment that can double the capacity in Nanjing?

We haven't been specific, but we have said that it is incredibly attractive economics, you know, a modest millions of dollars.

Mike Judd, Greenwich Consultants.

You mentioned that the senior leadership team met in China recently. Can you talk about some of the things that -- or conclusions that you came up with? Anything that basically came out of those meetings there?

Obviously you are there because there is a lot of growth opportunities. But as you think about those opportunities, should we expect perhaps a bit more in the M&A department? When you guys originally went public, there was a number of acquisitions that occurred in a reasonably short period of time. I'm just wondering whether there might be some opportunities either to consolidate joint ventures and/or other interesting integration forward opportunities. Thank you.

Two key questions that you asked, and I will be brief on both of them. Our senior leadership team was in China, but frankly our leadership team is spread all throughout the world. Acetyl Intermediates, the largest business, is headquartered -- the global headquarters is there. And John Gallagher, the head of that business area, has his principal office there, and is making his residence there within the next 30 days, 60 days.

We -- and his team is located there too. I get to China probably somewhere between -- I don't know -- I guess probably six to ten times a year. I'm sure I could ask my wife and she would tell me exactly how many times. But there's a lot of travel by the Company over there.

As we were meeting there though it continued to strike us that Asia, and China specifically, is an enormous opportunity. And even though we are well entrenched and firmly established and have -- pick a number, 25 to 30% of our revenue, we think we will have half of our profit coming from the Asia region by 2010. That is only the beginning. Enormous opportunities over there.

When we look at M&A, historically in the last five years our M&A has principally focused on buying underperforming European assets at attractive multiples and then upgrading either the technology or the operating efficiency. That has been incredibly successful for us and we are very good at doing it, we feel.

As we look at our M&A pipeline now, I would tell you the richness of Asian opportunities has increased. And we continue to look globally, but in our mind there is more opportunities in Asia than there were 18 months ago. I hope that's helpful.

Paul Christopherson, New Vernon and Associates.

What is the -- David, what is the transfer -- maybe you mentioned this -- what is the transfer pricing method for the segments? Do you transfer at cost or at market? And if I might speak sneak in another one, the contract with Southern Methanol, does that come to a time when it gets renegotiated or does it go on this basis for some period?

I'm going to let Steve answer the transfer pricing. But the Southern Methanol agreement is a long-term contract. We only started sourcing out of the contract in 2005, the middle of the year. And so think in terms of the 10 to 15 year contract.

It is Steven. The --.

David, sorry. So the collar stays in place for 10 or 15 years?

Yes, the collar, as we have described -- as we have described the contract there is a collar, a ceiling and a floor. And currently we are up against the ceiling. There is nothing that changes with that.

And on our transfer pricing between segments it is a market-based formula that takes into account the scale of the purchase downstream as well as the various regional market dynamics for each product.

So it is market-based?

It is market-based.

Well congratulations. That's great. What is the contribution this year to the pension plan, has there been any voluntary contributions?

Our pension plan is actually in great shape. If you look at the U.S., we are over 100% funded. From a cash contribution perspective there is no contribution required this year, and probably not for the next couple of years, if our asset returns hold up where they are. So no required contribution in the U.S. and no voluntary in the U.S. this year.

Thank you very much.

Thanks. I think we have time for one or two more questions.

Geoffrey Dancey, Cutler Capital Management.

My questions have been answered actually, so I guess you guys get off.

Excellent. If anyone has any follow-ups, always feel free to give the IR team a call. If not, we will talk to you soon. And thanks for your interest in Celanese.

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