塞拉尼斯 (CE) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2007 Celanese Corporation earnings conference call. My name is Fab and I will be your coordinator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (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 and welcome to the Celanese Corporation fourth-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, Chairman and Chief Executive Officer, and Steven Sterin, Senior Vice President and Chief Financial Officer. The Celanese Corporation press release was distributed via Business Wire this morning 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 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 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.

Celanese Corporation's fourth-quarter 2007 earnings release references the performance measures -- operating EBITDA, affiliate EBITDA, adjusted earnings per share, net debt and adjusted free cash flow as non U.S. GAAP measures. For the most directly comparable financial measures presented in accordance with U.S. GAAP in our financial statements and for a reconciliation of 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.

This morning David Weidman will review the performance of the Company and Steven Sterin 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 David Weidman. Dave?

Mark, thank you. Welcome, everyone, to today's call. It's my pleasure to provide you with highlights of our record-setting performance in 2007 and share our expectations for 2008. We concluded 2007's record year with a very strong fourth quarter. Sales in the quarter were $1.8 billion, up 23% from the same period last year. Adjusted EPS was $0.93 per share and our operating EBITDA was $349 million, both records for the quarter. Our full-year sales were $6.4 billion, adjusted EPS was $3.42 per share and operating EBITDA was $1.325 billion.

Our fourth-quarter performance came in somewhat stronger than expectations we shared during investor day in December, primarily due to stronger demand, better pricing, particularly in Acetyl Intermediates and Industrial Specialties, and lower costs across the Company. Though we're pleased with our 2007 performance the future looks even better.

Over the last several years our strategy and culture of execution has delivered increasingly improved results. Our integrated businesses are delivering and will continue to deliver high-quality earnings. This past year's stellar results were achieved in an environment pressured by volatile raw materials and energy costs, operational disruptions throughout the industry including our own company, and sluggish economic trends in a few specific areas. But Celanese is resilient.

Because of the global balance and end market diversity of our businesses and our strong business models we delivered great earnings growth and strong cash generation in 2007. However, as good as last year's results were, 2008 and beyond look even better.

Contributions from Celanese's earnings growth plan, a program which was initially outlined during our 2006 investor day, lifted 2007 earnings by about $90 million. In 2008 contributions to EBITDA from this program should increase an additional $120 million to $130 million.

Now let me remind you that during our December 2007 investor day, based on increased confidence, we raised this program's full impact and now project that it will expand our earnings power between $350 million and $400 million by 2010 versus the 2006 base year. This means in 2009 and 2010 our earnings should expand by at least another $150 million.

Several have asked about Celanese's growth beyond 2010. Let me summarize just three important actions that we've recently taken on this front.1 First, last month we announced completion of an agreement which will double our CO supply in Nanjing. This step increases the reliability of acetic acid supply for our global customers and supports growth beyond 2010.

Second, last week we announced an agreement with a leading Chinese technology institute, SWRI. This deal -- Celanese will acquire technology license rights and development capability that will strengthen our strategic position within the acetyl chain and support future innovation.

And finally, As Sandy mentioned in our December 2007 investor day, we've taken actions to continue growing our highly profitable advanced engineered materials businesses by expanding our new European POM plant's capacity by 40% using the most advanced technologies which will also lower operating costs. We also announced plans to add a polymer compounding unit in the Nanjing complex. These are just a few of the actions which should provide you with confidence in Celanese's ability to continue our strong earnings growth performance beyond 2010.

Now as we look forward we're excited and energized about growing earnings in 2008. Despite increasing concerns over the U.S. economy and emerging questions about Europe and Asia, we continue to see good demand in our businesses as our customers tell us that they do not see significant changes in their outlooks.

Areas of weakness in 2007 such as U.S. housing and automotive are expected to remain sluggish into at least the first half of 2008. But based on our current views, we do not expect substantial deterioration. European growth may decelerate from a very strong 2007, but is expected to grow at historic rates. Asia, particularly China, continues to experience high growth.

Now obviously, although the global demand outlook looks relatively stable today, we will continue to monitor the economic environments of all of our served industries and markets. However, Celanese has strong global presence, broad end market exposure, leading industry and technology positions, clearly defined growth objectives and a culture of operational excellence and execution. These factors give us increasing confidence that Celanese will continue to deliver earnings growth. So near-term we're more confident about our performance this year.

As you've seen in our press release, we raised our 2008 outlook for adjusted EPS and operating EBITDA. Stephen will walk you through the details of our guidance, but let me take a moment to focus on the specific dynamics for each of our businesses.

First, in 2007 Acetyl Intermediates' earnings clearly benefited from the strong pricing environment. And while we continue to expect pricing trends to ease and move back towards more historic levels throughout 2008, we see the first half of the year being a bit stronger than the second half and modestly stronger than we previously thought. Volumes for Acetyl Intermediates are expected to increase driven by the growth of our Nanjing integrated complex.

Our downstream Industrial Specialties businesses, which were challenged with high raw material costs in 2007, should experience margin expansion as pricing in their key raw materials ease throughout the year. Additionally, we expect to continue realizing the benefits of our revitalization efforts in our emulsions and PVOH businesses. Advanced Engineered Materials will continue on its path of improved earnings through growth and innovation.

2008 earnings, however, are expected to be dampened somewhat as Ticona invests in its growth in Asia and peak cycle costs for key raw materials such as methanol create margin pressure during the year. Expect an acceleration in earnings from this business as commodity prices decline.

Our consumer specialties businesses are on track to deliver additional sustained earnings growth by continuing to capture synergies from the APL acquisition. With the combination of a focused growth strategy, a performance driven culture and a demonstrated track record of execution we have an exciting year ahead as we continue to focus our efforts on actions that will significantly increase the value of Celanese. With that I'll now turn the call over to Steven.

Thanks, Dave. Let's start by turning to page 8 in the PowerPoint presentation that's posted on our website. Net sales were approximately $1.8 billion, up 23% from last year's results on continued strong global demand for Acetyl Intermediates, positive currency impacts across the Company, growth in Asia and the additional sales from the APL business that we acquired in 2007. Operating profit increased to $324 million from $140 million in the fourth quarter of last year.

In our U.S. GAAP operating profit results we had approximately $93 million of income and other charges and adjustments during the fourth quarter, primarily onetime gains associated with the partial business insurance recovery, the sale of our Edmonton, Canada facility, and a resolution of commercial disputes with a vendor. Net earnings were $214 million versus $77 million a year ago.

Our adjusted earnings per share and operating EBITDA exclude the income from these onetime gain. Adjusted EPS was $0.93 a share based upon a 28% tax rate. Operating EBITDA was $349 million, up 30% from last year's results.

Now let's take a look at the results of our businesses starting with Advanced Engineered Materials on page 9. Net sales were up 13% from last year's results as the business experienced strong volume growth of 8%. We expect this business to grow at two times GDP as a result of innovation and the commercialization of new products. Higher raw materials and energy costs, however, continue to pressure margins for this business.

Operating EBITDA was $45 million, down from last year's $58 million driven by the lower margins as well as lower earnings related to our equity affiliates. Keep in mind that these businesses, which include Ticona and their strategic affiliates, price on the value and use of their products. And as a result do not pass increased costs on to customers at the same rate as some of our other businesses.

On page 10 -- net sales for consumer specialties were $279 million, up 25% from last year's results. These strong results were primarily driven by an additional $62 million of net sales from the APL business. Operating EBITDA was $57 million, an 8% increase from last year as higher overall pricing, continued strong demand and the incremental earnings from APL helped to offset higher raw material and energy costs in the quarter.

Volumes were down versus 2006 as we closed the Edmonton flake facility and transferred that production to our China ventures as part of our revitalization plans and our expansion in Asia. These stable cash generating businesses tend to be economically insensitive and we expect their performance to continue to deliver value throughout an economic cycle.

As shown on page 11, net sales for industrial specialties were $331 million for the quarter, a 7% increase versus last year. Higher pricing and continued strong demand and positive currency impacts contributed to the improved results. These businesses have very strong franchises in Europe and a growing position in Asia. However the business did have lower volumes in its emulsions and polyvinyl alcohol businesses resulting from the unplanned outage at the Clear Lake facility and the related force majeure.

Operating EBITDA was $41 million, up from $25 million last year as the business was able to generate substantial earnings growth during a period where the raw material costs were near cyclical highs. The business continues to make great progress on the revitalization efforts highlighted in this quarter by the increased presence of industrial specialties in China and the commercialization of the new emulsions unit in Nanjing.

Let's now turn to Acetyl Intermediates to on page 12. Net sales were approximately $1.1 billion, up 30% from the fourth quarter of last year. Higher pricing and continued strong demand, favorable currency effects and acetic acid production from our new unit in Nanjing, China drove the improved results. The industry experienced continued favorable supply/demand balances and additional unplanned outages drove higher acetic acid and VAM pricing across the globe.

Operating EBITDA was $231 million versus $169 million in the prior year on expanded margins, volume growth and higher dividends from our Ibn Sina cost affiliate. The Ibn Sina dividends driven in part by higher methanol prices, help to offset the favorable impact of methanol in our Advanced Engineered Materials business, particularly in Europe and Asia.

Our equity and cost investment performance is shown on slide 13. The chart on the left highlights the income statement impact for both the quarter and the full year. In the fourth quarter our earnings from equity affiliates and dividends from cost investments were relatively flat as the higher dividends received from our Ibn Sina cost affiliate were offset by lower equity earnings from our Advanced Engineered Materials affiliates.

For the full year 2007 however, you can see that we recorded a significant increase in our earnings compared to 2006. In 2007 we received higher dividends from our acetate China ventures and our Ibn Sina cost affiliate driven by our revitalization plans in China and strong global methanol pricing.

Keep in mind that this does not include an additional $93 million of proportional EBITDA from these affiliates above and beyond the net earnings that we report in our income statement. Cash flow from our affiliates is shown on the right. Dividends from affiliates were lower in the fourth quarter of 2007 versus the same period last year primarily due to a special dividend that we received from our polyplastics equity affiliate in the fourth quarter of 2006. Looking forward to 2008 we expect another strong performance as affiliate income will be between $175 million and $185 million with cash flow on the same high levels as 2007.

On page 14 you will see that in 2007 we continued to generate strong cash flow. Our strong operating performance and growth in Asia were key contributors. Our performance also included approximately $90 million of additional cash taxes when compared to 2006 and the positive cash impact of the onetime gains I referred to earlier. Adjusted free cash flow for 2007 was approximately $385 million compared with $456 million in 2006 which reflects these items as well as increased capital expenditures primarily related to our investments in Asia.

In 2008 we expect to generate between $500 million and $550 million of free cash flow on continued strong earnings and lower cash taxes. Keep in mind that this guidance excludes cash outflows of approximately $50 million to $100 million net of reimbursements related to the relocation of Ticona's site in Kelsterbach, Germany which Dave mentioned earlier.

Let me now summarize our 2008 guidance which is found on page 15. As Dave mentioned, we've increased our guidance for adjusted EPS and operating EBITDA. We now expect adjusted EPS to be between $3.40 and $3.70 per share and operating EBITDA to be between $1.29 billion and $1.36 billion. We continue to deliver on our strategic growth plans and our current view of the global economic environment supports further earnings growth in 2008. I've also included other financial items for your information, but these have not changed since our initial guidance in December. With that I'd like to turn back over to Mark to open the Q&A.

Thank you, Steven. If we could have some instructions for our participants and then we can get started in our Q&A.

(OPERATOR INSTRUCTIONS). David Begleiter, Deutsche Bank.

Good morning. David, can you describe the situation right now in China in terms of acetic acid supply/demand, pricing, weather issues? Thank you.

Pricing in China today is modestly lower than it was 30 days ago, 60 days ago, but we're still in the 650 a ton range plus/minus. The weather has not had a material impact on our ability to get product out to our customers or to secure raw materials. We've got open water access and we're continuing to operate and run over there. So that's where it is. As you know, Dave, from our comments, we'd expect as the year goes on the pricing trends would tend to moderator over there and move back into ranges that would be more historic and it moved towards that in the later half of the year.

And Dave, on that, given the decline in methanol should your profitability at least stay the same if not increase even as prices come down?

There's going to be trends down on prices and then methanol prices are going come down as well, that's our forecast or expectation. But remember, Dave, across the Company we're relatively indifferent to volatility in methanol prices. One part of our business is benefited while the other one is disadvantaged with lower methanol prices. Certainly as we look at Ticona, as I indicated, their margins are pressured by methanol and as methanol prices come down you can expect to see an expansion there.

And just lastly, on the industrial specialty side, is this level of income now sustainable in Q4 going forward?

Yes, I would say that we're at the early stages of our revitalization in industrial specialties. We did see two or three really good things towards the end of the quarter. We had very nice pricing in the marketplace. Our mix changed towards a more advantageous, more value added mix. And some of the restructuring costs associated -- or restructuring benefits associated with reducing our manufacturing footprint came in. So our outlook is, as we've indicated before, that this is a business that can do better. We're encouraged by what we saw in the fourth quarter.

Thank you very much.

Edlain Rodriguez, Goldman Sachs.

This is actually Joe [Herrick] with [Gutterner] Research. A couple of things for you guys. Could you talk about your operational and proven initiatives and your plans revolving around (technical difficulty) Six Sigma and what benefits you expect to see this year?

Yes, our program around our profit improvement program that we announced in 2006 has a number of elements associated with it -- putting new manufacturing capacity in Asia, revitalization of some businesses, gaining synergies out of some of the acquisitions and so on. That entire program will benefit earnings this year in the 120-130 range.

A big part of that -- the improvement that we're going to see in the industrial specialties business is around the revitalization and a big part of that is restructuring our manufacturing footprint, our R&D and our SG&A. So we haven't broken it out much more than that. We do have an ongoing program of Six Sigma that we introduced into the Company in 2000.

That program, plus several other programs, we target offsetting inflation in our numbers. We view inflation to be somewhere in the $75 million to $100 million range. And over the course of the last seven or eight years we've been successful in offsetting inflation in the numbers through real cost takeouts associated with Six Sigma and other programs.

What metrics are you guys using in your plans to measure yourself? Are you looking at [RONA], are you looking at [OE]? What's important to you guys to measure -- how are we measuring ourselves up to our competitor?

We use a number of measurements. On an income statement we'll look at EBITDA as a percent of sales and EBITDA growth to measure ourselves against our competitors and peers. On cash utilization we have a high-level metric that we use around TSR associated with the output, obviously the bulk of programs. But in deployment of cash and deployment of capital we'll use an ROI.

We do on a lot of our things look at a simple payback. As an example, as we look at cash going into any type of restructuring program or any type of investment for cost takeout in manufacturing we look at a simple payback of two to two and a half years on that and if -- we'll prioritize against those type of metrics.

For growth the ROI is after-tax adjusted, it's somewhere in the upper teens, lower 20% range. I'd highlight to you that at investor day this last December we talked about our investment in Nanjing, China and that's an investment that will generate $600 million to $800 million of revenue and have earnings flow in the 150 plus range or so in it. And the total capital deployed in that activity is in the $300 million range, certainly north of 20% in the way we look at it.

Thank you --.

Regarding throughput, are there certain plants around the world that are more a concern to you going forward this year than others and how do you plan to address those issues (technical difficulty)?

No, we tend to look at our manufacturing footprint on an ongoing basis, good times or bad times, and we've been forthcoming in the type of areas that we're looking at, reducing manufacturing footprint and expanding. Over the last seven years we've essentially invested significantly in Asia to follow our customers and we've moved back across North America and Europe and consolidated manufacturing in those locations. We are spending capital to go after some energy programs. We've reduced energy consumption by about 25% since 2000 and we have plans to reduce an additional 25% from 2007 base year out through 2010. Thank you for your questions.

Edlain Rodriguez, Goldman Sachs.

Thank you, David. A quick question. When you're looking at Ticona, are you essentially at the mercy of raw material volatility or can you add -- can you start adding some [whiz bang] in those products in order to add value for you to raise prices?

You articulated our strategy very clearly. Ticona is a very substantial investor in technology and technology development. That technology is in three areas. One is short-term applications, just getting in and getting short-term applications with our customers. The second is becoming established on platforms. So we're working 2010/2011 platforms in transportation as an example and getting specced in; as those specs come in the volume will pick up.

And then longer-term we're investing in changing molecular structures, looking at different platforms that we can -- molecular platforms that we can drive growth off of. So what we've done in Ticona and we'll continue to do in Ticona is to focus on bringing value to our customers and solving solutions. We don't chase a lot of the genericized activities. The focus on growth is clearly associated with innovation and bringing new solutions to our customers.

Okay, thank you. Another question on cash flow, Dave. You've been generating very strong cash flow; you do believe that the stock is undervalued. Can you talk about the merits of a share buyback or what you can do about cash flow?

Great question. We look at cash flow and we believe this is shareholders cash and our responsibility is to find great ways to deploy the capital that increases value to the shareholders. 2007 I think was a good example of what we do with cash. We made an acquisition with the cash -- with some of the cash in an APL -- a very accretive acquisition, post synergies it's probably going to be a 4X multiple on the acquisition.

We also sold a business that was in our mind not part of our strategy going forward. We did a share buyback to deploy some of that cash back to the shareholders. We did a restructuring program around our balance sheet and spent about $265 million of cash in breakage costs in order to put ourselves in a better position with covenant light agreements and some great financing taking us out through 2014.

So included in -- and we can continue to invest. Our capital spending is up about $50 million from prior year as we look at investing in growing regions of the world such as China. So we look at it on an ongoing basis. We like acquisitions. We like being focused on growing and following our strategy. We've looked at share buyback in the past and I think as we discuss with the Board different options, every option is on the table.

Okay, thank you.

Kevin McCarthy, Banc of America Securities.

Good morning. Dave, if I look at consumer specialties, your volumes have been under some pressure there for several quarters now. You referenced the shift of flake production to your Chinese ventures. Have you seen any marketshare shifts in that business as well? And can you update us on the integration of APL, is that process close to complete now?

We have shifted volume as part of our revitalization program that was announced at IPO three years ago. We've shut down our Edmonton, Canada manufacturing facility that used to export an awful lot of flake to China and we've increased the flake production in the Chinese joint venture to offset that. And that's why our volumes are down. Our earnings though are up as the revitalization program goes on. We have not seen substantial shifting in share, it's a relatively stable market and there's not a lot of big movements in share out there.

APL is a great add for us. We've been just absolutely delighted with the type of activities that we've been able to put into APL. We bumped volumes a little bit. We've been able to balance our global supply chain and be -- have some good savings on not only SG&A, but also distribution costs. We have a little bit more synergies in 2008 in APL, but it's more associated with the annualized impact of activities that were completed last year. We're essentially done from an activity base.

Okay, great. And then shifting over to acetyls, if I look at your volume growth there of 12%, what kind of a plant loading rate is baked into that for Nanjing? And perhaps you could elaborate more broadly on your acetic acid operating rate company wide and industry wide for that matter.

Let's talk about fourth quarter first. Fourth quarter, as you're aware, was a pressured quarter in the market; demand was very high. So all of our facilities in the fourth quarter were operating at full rates. Part of that was growth in the market; part of it frankly was as a catch-up as customers and value chains added back inventory levels caused by our outage and other outages in the market in the middle of the year.

As we look at the first quarter operating rates continue to be in a very good range. I would probably say that on a -- they're probably between 90 and 95% operating rates now. There have been some facilities in China -- some of you who follow this closely recognize that some of the Chinese facilities on-stream reliability is lower. Some of the facilities have had trouble securing natural gas and they've been out or operating at 40 or 50% rates in Asia -- in China. But overall we're operating somewhere in the 95 plus/minus percent range.

Okay. And then a final question for Steven, if I may, on the special items. If I look at Edmonton at $34 million, insurance recoveries of $40 million and another $31 million from the vendor dispute resolution, that's about $105 million. Can you comment on how much of that is cash and how much was received in 4Q whether or not there's any tale looking into 2008?

Sure. Actually all that was cash except for about $7 million related to our insurance recoveries that we've already received in January this year. So nearly all cash in Q4 and the rest received in 2008. We made great progress on this -- took a moment about the Clear Lake insurance recovery. As we've talked over the last couple quarters, these tend to be long drawn out processes that can take six to eight quarters. And I'm very pleased with the progress we've made to date, collecting $40 million in cash as a progress payment and then we still have claims outstanding, we're going to continue to work those and expect to see cash in the future and we'll update you as those progress.

Thanks very much.

Kevin, keep in mind that any potential recoveries on the Clear Lake insurance would not be part of our guidance, so it would be additive to that. We would adjust it out like we did in the fourth quarter. So we'll be very clear and transparent when we do receive those. And just to reiterate, it's not in any of our guidance that we have for 2008.

Understood, thanks.

Sergey Vasnetsov, Lehman Brothers.

David, you mentioned that you have several options of cash deployments on the table, but you also have a lot of cash on the table, in rough terms maybe $1 billion in 2008. Not that you need to spend this all in one year, but I just want you to maybe focus a bit more on how you think about the relative priorities of different options -- acquisitions, dividend increase, share buyback, maybe debtor payments and anything else?

Yes, thanks. I think our view of cash is we want to put it to use in a way that, as I said before, will generate high returns for shareholders. Our focus on acquisitions tends to be strategic, center of the fairway, bolt-on acquisitions similar to APL or Acetex that we did in 2006. So I would say between investing in our ongoing businesses and following our strategy, and if we can find a good acquisition, those would probably receive the highest focus in our pyramid of uses of cash.

The lowest on the pyramid would be debt repayment and with the type of financing that we have today and with our comfort and ongoing cash generation through the future and the maturity that we have on the debt, the lowest priority would be debt repayment. And then somewhere in the middle would be dividend, share buyback --.

And again, Sergey, we do have a nice cash position today. We have a forward leaning strategy associated with acquisitions and investment in our businesses in Asia and the growing regions of the world. And so we'll continue to look at things and have discussions with the Board as we go forward as to use of cash -- excess cash beyond acquisitions.

Okay. And as a follow-up, you have a number of joint ventures in Asia in particular. Any chance that you might be able to buy out your partner (inaudible)?

It's a deep desire of ours to buy these ventures out. The ventures were put in place, particularly the ones in Ticona, were put in place 40 years ago, in some cases close to 50 years ago when the world was entirely different. You needed a strategic partner in order to access that part of the world and the world has changed dramatically.

Customers are looking for one global experience, one solution, not a bifurcated solution. And however, the agreements are structured in a way, as we've said in prior discussions, that don't give us unilateral right to buy a partner out and they're great ventures, they're generating great earnings and great cash and the partners at this point in time seem to not be motivated to sell. If they were, we're there.

Thank you.

Frank Mitsch, BB&T Capital Markets.

If I could just quickly follow-up on the insurance recovery. You said that you got net 33 in the fourth quarter and there should be some more in 2008. Order of magnitude should we be looking at a similar amount, that sort of order of magnitude in 2008?

No, at this time the only thing I'll talk about in 2008 is we received $7 million in additional cash. So in the P&L for GAAP purposes we had $40 million in the fourth quarter, $33 million of cash and another $7 million of cash in the first quarter. Note the complexity of these claims, it's still too early to call the impact in terms of cash and P&L for 2008. And as Mark mentioned earlier, it's not in our guidance. So as we progress through the year and we get a better sense of how this is developing we'll update you.

I will underscore what we said at investor day and prior times as well, that when we look at our performance in 2007, in spite of the outage that we had we think that the performance of the business came in about where it would have been if we didn't have the outage. The reason is we had not only our plant that went out, but we also had a number of competitors' plants go out in the space, both VAM plans as well as acid plants and it touched frankly all three regions of the world.

And so from our customers' perspective, unfortunately it was a cascade of unfortunate situations, but the net impact for us with all these things thrown together was a year that came out about where we thought it was going to be, a little bit higher on pricing, a little bit lower on volume.

But in terms of earnings much better than your initial guidance for '07?

Yes, 2007 was a good year for us. We continued to make progress in a lot of our businesses. I think from our perspective the progress that was made in growth in Ticona was ahead of where we thought it was going to be. Acetyl Intermediates had some good growth. The Nanjing facilities we highlighted came up earlier than we had anticipated, it came up and ran stronger than we thought it might have been. So 2007 was a great year for us, absolutely. APL acquisition and some of the synergies there came in faster.

That kind of begs the question, in mid-December when you had your Investor Day you talked about your expectation for the fourth quarter, and obviously you came in nicely, higher than that due I believe you said to higher price and demand. So that would imply that December ended on kind of an up note, or a significant up note. Are those sorts of trends continuing here in the first quarter?

As we -- I appreciate you asking the question, Frank. The most visibility that we have in our business is with our Ticona business. We have an orderbook that builds out, and we have some transparency, I'd say 45 days into the future. As we look at the Ticona orderbook out into the February/March time frame, we see growth. We see demand remaining good in all regions.

We see some segments that have been sluggish, remaining sluggish, but on a year-over-year basis we see a positive environment. I wouldn't call it robust or be highly energized about it, but it is a growth environment globally in our businesses.

Dave, just a quick follow-up on that. In the totality you're describing it as -- in upbeat terms, but not quite swinging from the chandeliers. Are there regions of the world where you would be, quote/unquote, swinging from the chandeliers?

The Asia region, Frank, continues to be very strong. We continue to be impressed with two things; the growth in internal demand in China, and then how rapidly that growth is shifting towards latest, greatest technology. Just to give you an example, transportation automotive, China today is the third-largest producer of cars in the world. By 2012, it will be the largest producer of them. They tended to be basic transportation a year or two ago.

Now they are putting additional creature comforts on the car; safety systems, believe it or not, emission standards, fuel economy standards, GPS systems on some of the higher upgraded models. They're very rapidly moving towards a western type of vehicle. What that means for us is additional pounds of Ticona type product on an automobile. So I would say that Asia, China in particular, continues to register good growth, and probably someone ahead of what we thought it might be.

Terrific, thank you.

Greg Goodnight, UBS.

You mentioned the cost pressure that Tacoma saw. Qualitatively how much of that cost pressure is due to high international methanol prices? And if methanol prices subside would the cost pressure subside?

Methanol prices, as you know, Greg, just shot up and our ability to -- frankly our strategy is not to pass those along to customers because we sell on value and we have great margins per pound on these types of products. But order of magnitude, it was about $30 million that we saw, it was some pressure on the margins. And yes, you're absolutely right. It's a model that as these commodity prices decline methanol is the biggest one, but it also consumes ethylene and some other propylene derivatives. We would expect that you would have acceleration in margins.

The question on the Southwest research agreement, what technologies are they into? Do they have methanol carbonylation technology or is it more downstream polymer, is it more even downstream from that application related?

This is all public information, but let me summarize it for you. Southwest Research Institute has technology associated with acetic acid production, some in downstream products -- methanol carbonylation, they have some technology around that. So with this transaction we were fortunate to acquire license rights exclusively for that technology. Plus they're a very creative group and we're excited to get involved and have them work with us on expanding and extending our advantage in this chain.

I see. Historically have they had -- have they given or sold methanol carbonylation licensing?

Yes, there are a few plants in Asia that are operating and others that had been licensed. They tend to be smallish plants, but yes, there were plants that they had licensed.

Great. Just a clarification for my purposes. You mentioned the free cash flow of $500 million to $550 million expected in '08. And then you also mentioned the cost or back cash of -- I thought I heard $50 million to $100 million this year. Is that reimbursable in this year or is any of that in the $500 million to $550 million?

Greg, let me give a little context on it and then Steve will answer the specific question. When we established a settlement with Fraport to move our facility and sell our facility we essentially brokered an arrangement that was cost neutral. Now what does that mean? Well, it means not only capital spending, but also any cost associated with requalification with customers, anything associated with any labor that needs to be done, and it was a fixed amount.

The agreement we've also indicated provides incentives to be totally spent in Germany -- or disincentives if it's not totally spent and not spent in Germany. And then Steve, do you want to walk through kind of how the cash comes in?

Yes. As we talked about last year, we expect to receive EUR670 million in reimbursement, but that's going to be over an extended period of time between now and 2011. And we're beginning the preconstruction process and our capital expenditures will begin to occur over time. And because of the lumpiness of the reimbursement versus our spending, we wanted to provide transparency to the airport relocation.

So you'll see in all of our reports beginning this year and going forward we'll highlight the net impact separately from our normal capital expenditures for the relocation. But I did mention in 2008, $50 million to $100 million is net of the reimbursement and we'll receive about EUR200 million in reimbursement in 2008.

And Greg, just to put a bow on it and underscore what I said in the opening remarks, that facility will be 40% larger than our existing facility to support the growth in Europe. And it will employ the latest greatest technology, not the 30- or 40-year-old technology, and yield lower operating costs.

Okay. When you said EUR40 million to EUR50 million net, that's net positive or net negative of reimbursements?

It's negative this year. It will be an outflow US$50 million to US$100 million.

Okay. And that is not in your free cash flow of $500 million to $550 million?

That's right.

Okay, thanks.

Charles Neivert, Morgan Stanley.

I've got a couple of quick questions. The progress on the China facilities, is that sort of in line with what you guys have been talking about? Is it moving along a little bit quicker? And given how quickly the acetic acid came up, are you expecting sort of maybe something close to similar performance in terms of bringing up these facilities at this point, having learned from the first pass-through?

We're right on track. I'd say that some units are modestly ahead and other units may lag a month or two. But as we stand here today we have an operational acetic acid unit, we have an operational emulsion unit and our long fiber unit, Celstran unit came operational this month. We have three other units that are currently under construction; we anticipate start-up through this year and into next year. That's a GUR unit and then hydride unit and also a VAM unit. And then we announced in the fourth quarter that we're going to put in place a seventh unit which is a compounding unit and that should be operational in 2009.

The learnings from the acetic acid startup I think are several fold. First, we were frankly delighted with the quality of construction at the location. Second, we were delighted with the employees and the skills and capabilities that they brought to the job. And third, we were delighted with the raw material supplier. The CO vendor was in our mind one of the question marks that we had going into it among others, but that question mark was eliminated and that's what gave us confidence to go forward and commit to a doubling of the CO supply in the 2009/2010 time frame.

And on one other, you talked about obviously the Chinese car production coming up rather rapidly and moving more toward the conveniences you see typically in the U.S. and Europe or more typically here. How's your capture rate on putting Ticona products in those cars versus what you've got in some of the others here? I mean not in tonnage, but just sort of ex pounds are available, how much are you guys taking in terms of share?

I'll take it into two main areas. There are a lot of western transplants -- either European or North American transplants that are taking their production over there and manufacturing there, some for local consumption but as much as anything to capture the labor arbitrage and move it to other parts of the world or finished products to other parts of the world. In that area it's essentially a 100% capture rate, either ourselves or through the affiliated companies. We're catching essentially 100% of that.

With the innovation by Chinese manufacturers I'd say our capture rate is pretty high. And I'm sorry, Charles; I don't have the details on that. But I will tell you that we're seeing an incredible dynamic where the Asian manufacturers want the latest and greatest technology and they're willing to pay for it.

And so when we bring in our learnings over the last 20, 30, 40 years in Ticona in a particular application such as a fuel injector system in automotive or a safety device in transportation, there is very rapid acceptance, there is very rapid prototyping and putting onto a new vehicle or a new appliance and they pay for the innovation that we bring to them. We're not chasing the low-end business that's over there, it's high-end.

And just as a follow-on, if you look at let's say a U.S. or a European company versus a China, how quickly do they bring prototype to market versus here? They talk about well, if you want to redesign a particular car it's ex number of years. How quickly can they bring in new parts and things like that into the cars and incorporate some of your products?

It's markedly faster in China than it is here. Again, we saw one example recently that took I think three years of prototyping and development in -- I think this is a European -- within the European context and it was done in nine months in China.

That's it. Thank you very much.

Andrew O'Conor, Millennium Partners.

Dave, Steve, Mark, congratulations on the quarter. Related to the industry production outages in Acetyl Intermediates, how long do you guys expect current outages to linger? Thanks so much.

The overall view that we have has changed in the last six months. We had assumed that there was an on-stream reliability for the industry in the 90 to 92% range. We found though that the new facilities coming in in China bring the overall industry average down to 87, 88% on-stream reliability.

The Chinese facilities and the raw material suppliers that tie into them have not been able to have as much success in keeping their plants running as the Western manufacturers have, certainly as we have. And as a consequence to that it's tough to predict exactly what units are going to come up and when they're going to come up or down. Bit we do expect supply/demand through 2009 and 2010 to be very robust and stay in the 90 plus percent range. It's hard to predict what happens in any given year.

Got it. Thank you, Dave. Again, great quarter.

William Matthews, Canyon Capital.

Kind of following up on that previous question, the current spot prices for acetic acid are in Asia I think you mentioned 650 per ton.

Yes, it's in that range.

Okay. What is your guidance based on a per ton basis? What kind of per ton number are you factoring in?

Bill, we judged that our -- let me back into it. The pricing in China now is set by some supply/demand, but more than anything the marginal cost to the high cost producers and that's the ethanol and the ethylene guys, principally the ethanol guys. And so based on the reports we see out there we believe that pricing for these high cost guys are going to trend down, ethanol prices are going to trend down. And so through the year we have our prices trending down associated with that. And I would also say that end of year pricing we have as somewhere between $550 and $600 a ton.

So $550, $600 -- I guess it's just hard for me to reconcile a trending down in prices, but your operating rates are remaining the same. So if you are saying that your operating rates remain tight through 2010, I just -- conceptually it's hard for me to understand why prices would trend down then, and to me that means that your forward guidance is too conservative.

Are you accusing me of being cautious?

Bill, here's the logic in it. As you know, in the acetyl, acetic acid in particular, there is a very, very steep cost curve and the pricing is established by the marginal cost of the high cost producers in many cases. We judge that the market is either like that today or moving into that situation over the next few weeks. And the marginal costs to the high cost producers, according to published reports, are going to be trending down into the second half of the year. And so as those prices trend down they're the ones that set the marginal price and we think that prices would trend down as well (multiple speakers).

Okay. And then the amount of affiliate earnings that are not captured in net income or the unconsolidated EBITDA, what is that for '07?

For '07 it was $93 million for the full year.

93 for --

Yes. If you want some detail and if you look at our earnings release on table 8 you can see by quarter and by year that the bottom of the table was $93 million. And there was only about $100 million of net debt associated with these affiliates on a proportional basis.

Okay. And so if we wanted to get a rough estimate for the valuation of that using some kind of current [EBIT] to EBITDA multiple of say six times that number times an EBIT to EBITDA multiple is kind of what's not captured in your share price?

Mathematically you're correct, but I think you would look at a higher multiple because most of the earnings in these businesses are in Ticona which have higher growth rates. So we would expect to see a multiple in the 8, 8 and up range for these businesses.

Got it. Great, okay.

Thank you, everyone.

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