塞拉尼斯 (CE) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2008 Celanese Corporation earnings conference call. My name is Becky and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Mr. Mark Oberle. Please proceed.

Thank you and welcome to the Celanese Corporation's fourth-quarter 2008 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. The PowerPoint slides referenced during this call are also posted on our website.

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 2008 earnings release references the performance measures, operating EBITDA, affiliate EBITDA, adjusted earnings per share, net debt and adjusted free cash flow as a non-US GAAP measures. For the most directly comparable financial measures presented in accordance with US GAAP and our financial statements, and for 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 website, Celanese.com.

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 in the financials. We will have a question-and-answer period following the prepared remarks. Now I would like to turn to the call over to Dave Weidman. Dave?

Thanks, Mark, and welcome, everyone, to today's call. Steven Sterin and I will spend the next few minutes sharing our thoughts on our fourth-quarter results, the unprecedented recent market conditions and, most importantly in our minds, Celanese's longer-term objective and our continued focus on executing our global value created strategy.

As you saw in our announcement, the real highlight in the fourth quarter's performance was our solid cash generation in a historically weak global demand environment. While our EPS numbers were negatively affected by a non-cash inventory accounting impact, Celanese delivered cash for our shareholders. Steve will walk through the detailed financials in just a moment.

As we begin I'd ask you to turn to page 5 of the PowerPoint presentation. This chart, which we first published in December, shows the expected business performance of each of our segments throughout any economic cycle. First on the left, is our performance of each segment through an economic cycle, normalized EBITDA, peak conditions are on the left -- this might be comparable to the first half of 2008. Next on the right in normalized trough conditions, or what we define as no growth global recession.

Fourth quarter was clearly a period of sub trough market conditions due to destocking and accounting impacts which I'll discuss in a minute. But first, I believe it's important for our investors to clearly understand how we view the Company in these normalized trough conditions. Let's start with our foundation in the Consumer Specialties segment which is made up of our Acetate fiber and high intensity food sweetener businesses.

These stable, cash generating businesses are relatively economically insensitive. We wouldn't expect to see much change in volumes and would actually expect to see margins improve slightly as key raw material and energy prices decline. And that's exactly what we're seeing today. In Industrial Specialties we also would expect to see some modest improvement in margins as pricing in these markets tends to be a bit sticky when energy and raw material prices decline.

You could expect to see some volume decline relatively in line with the global GDP or perhaps even a bit more when a housing slowdown leads an industrial recession like we saw in 2007 and 2008. These businesses tend to have less inventory throughout the customer supply chain so there also tends to be less destocking.

Turning now to Advanced Engineered Materials. In today's environment we have relatively stable pricing. With raw material and energy costs coming down there is variable margin expansion. Long-term our application development pipeline remains very robust as Celanese development engineers work closely with our customers on next generation applications or cost reduction programs. These positive trends however are being negatively impacted by sharp volume declines. We continue to be successful in our growth efforts such as increasing the value per vehicle or innovative solutions in dozens of other markets and our expansion in China.

In Acetyl Intermediates we would expect industry demand to be down from peak conditions. Pricing should also be lower, reflective of lower raw material and energy input costs and the industry operating at a lower point on the cost curve. But due to our position on the cost curve we expect stronger margins than other less advantaged intermediate products and certainly stronger than commodity chemicals in general. The Celanese integrated business model and leading technology were able to generate significantly higher margins than others in sustained trough conditions.

I've also included an updated view of the cost curve on page 6. We defined and differentiated the production in China to reflect what we've recently seen in the region. Broadly speaking we see two distinct groups of competitors in China with very different cost positions. In addition to the ethanol and ethylene producers that have shut down another 10% to 15% of the market, either curtailed production significantly or ceased production altogether as pricing declined during the fourth quarter. And this cost curve remains intact.

The great news for Celanese investors is that when 20% to 30% of the industry is shut down or is not covering their cash cost Celanese is able to deliver EBITDA margins in the 13% to 15% range. And as you've heard us say many times, our advantage technology and low-cost position in the industry provides superiority returns for our investors.

But the current environment is clearly more challenging than the normalized trough scenario that we've just outlined. During the fourth quarter performance was below what we would consider a normalized trough for two primary reasons, each of which was deepened by the global economic crisis. The first reason is broad-based destocking. Most of our markets took extreme measures to manage their working capital positions and preserve cash. For us to the impact in Asia was the largest, followed by Europe and then by the Americas.

Our Acetyl Intermediates business volumes were the most impacted as PTA, textile industry, construction and broad industrial production in Asia were practically shut down for a big part of the fourth quarter and early into 2009. Advanced Engineered Materials also felt the impact of the chaos in the global automotive industry. Compounding the destocking impact was the necessity for many companies to try to exit the year with low working capital levels to meet debt covenants or for other self-imposed reasons.

Now the second reason for lower than normalized trough performance was the collapse of raw material prices during the quarter and the associated non-cash cycle inventory accounting practice within Celanese. During the quarter we also aggressively managed our production volume to set inventory levels at lower demand requirements. This has the short-term impact of creating a negative inventory [draw from spend]. Stephen will provide detail in a moment, but these two factors resulted in approximately $100 million of non-cash inventory accounting impact on fourth-quarter earnings.

As we look at our businesses and the regions around the world where we compete today, not much has changed from what we saw on average in the fourth-quarter performance. In Asia there's been some margin stabilization which likely indicates that we are nearing the end of that region's inventory destocking. But we have not yet seen a meaningful or sustained increase in demand and expect the first quarter to be similar to the fourth.

Although we expect destocking to subside throughout the year and in the longer-term, believe that government fiscal and monetary efforts will be positive. They have yet to have an impact on our short-term demand environment. Globally we see less downside risk than we saw 90 days ago primarily because of aggressive intervention in the banking sector. But we do not see now, nor do we expect to see soon, material positive indications of the recovery.

I'd like to move now to actions we're taking during these challenging and difficult times to strengthen our businesses, both for the short term and into the future. These actions can be grouped into three areas -- first, reducing fixed expense, fixed spending; second, further strengthening our manufacturing footprint; and third, lowering scalable costs or those costs more directly related to production rates.

We're executing plans which will significantly reduce our global fixed spending which is just over $1.5 billion annually. These are non-energy, non-scalable expenditures in SG&A, manufacturing, R&D and other areas. We expect these reductions to be sustainable over an extended period and judge that they will expand our earnings power both through and beyond this downturn.

So far we have identified and are executing on between $100 million and $120 million of fast payback, fixed expense reductions through out our businesses. Efforts are underway to identify and aggressively reduce spending even further.

One element under scrutiny that would be above the $100 million to $120 million already identified is further streamlining of our manufacturing footprint. A few days ago we announced that we were assessing the potential closure of higher cost production facilities such as those in Pardies, France and Cangrejera, Mexico as well as looking at other actions.

In current and projected future demand environment we believe it's important for us to aggressively balance global production with global demand to strengthen our businesses. We look forward to sharing more as decisions in this area are finalized.

Now finally, Celanese has put actions in place to reduce scalable spending through steps such as block production at our batch manufacturing facility, the reduction or elimination of outside contractors and further reduction of our distribution cost. Depending on demand this could result in 2009 savings of up to $60 million.

So to summarize, as of today, we have identified and begun to reduce fixed spending totaling around 10% of our $1.5 million base and that's just to start. Additionally, we expect to aggressively align our manufacturing capacity with our view of future demand requirements to further reduce our fixed spending and position the Company for expanded earnings as we exit the downturn. With that I'll now turn the call over to Steven. Steve?

Thanks, Dave. Let's begin with our overall company results on page 8 of our PowerPoint presentation. Net sales were approximately $1.3 billion in the fourth quarter of 2008, down 27% from last year's results. As Dave mentioned, our businesses experienced 26% lower volumes when compared to last year is what's driving this decrease in revenue.

Operating profit was a loss of $152 million versus $324 million a year ago. These results include $94 million in fixed asset impairment charges associated with the actions we're considering to reduce fixed costs including the potential closure of our [Acet] and VAM units in Pardies, France and the VAM unit at our Cangrejera, Mexico facility.

Operating EBITDA was $68 million versus $349 million a year ago. If you exclude the negative effects of inventory accounting, which Dave mentioned, totaling approximately $101 million operating EBITDA on an equivalent basis would have been $169 million. As we said in the press release, these non-cash accounting charges related to our use of the FIFO inventory accounting method, as well as the impact of inventory draw due to our proven management of production levels in the quarter.

Adjusted EPS for the quarter was a loss of $0.38 versus a profit of $0.93 in the prior year. These results exclude the pretax $105 million of other charges and adjustments, which are primarily the fixed asset impairment charges, as well as other restructuring cost. Also, the inventory accounting impact, which is included in these numbers, was approximately $0.48 per share.

Now I'd like to highlight the fourth-quarter performance and our current outlook for each of our businesses. Let's begin with Consumer Specialties on page 9. Net sales were $286 million, a $7 million improvement from last year. Higher pricing from continued strong demand drove the increase and lower raw material and energy costs resulted in expanded margins. Operating EBITDA was $65 million, up from $57 million a year ago.

As we've said before, our consumer specialties businesses are relatively economically and sensitive and they've been able to deliver higher sustainable earnings during these challenging economic times. In 2009 we expect earnings in this business to increase with relatively stable volumes, expanded margins as energy and raw much euro cost are expected to be lower in 2009 than in 2008.

Let's now turn to Industrial Specialties on page 10. Net sales were $277 million compared to last year's results of $331 million. We were able to increase pricing by 7% year-over-year which helped to offset the significantly lower volumes on weakened demand in North America and Europe and the unplanned outage at our AT plastics facility. We continue to have good success in introducing our products into Asia and saw decent growth in this market. Our operating EBITDA was $8 million compared to $41 million in the prior period.

In addition to the lower volume impact driven by weak economic conditions there were $15 million of inventory accounting impacts in the quarter. Due to anticipated slower growth we expect volumes in North America and Europe to remain under pressure in 2009. However, continued expansions into new markets and product opportunities should help to offset some of this volume weakness. We also expect this business to benefit from lower raw material and energy costs year-over-year.

Turning now to Advanced Engineered Materials on page 11. Net sales were $195 million compared with $253 million last year. Pricing in this business was up 6% in the quarter as we were able to maintain our pricing to these high-value end-use products. However, the higher pricing was not able to offset the sharp reduction in volumes primarily caused by substantial declines in US and European automotive production. Volumes in many of our non-automotive applications were only down modestly.

Operating EBITDA was a loss of $3 million compared with a profit of $45 million last year and included approximately $23 million in inventory accounting impacts. For 2009 we expect improved margins in this business as raw material and energy costs ease and as pricing levels are sustained, which should help offset continued volume declines in many of our key end markets, particularly automotive.

Turning to page 12, net sales for Acetyl Intermediates were $656 million compared with $1.1 billion last year. Volumes were down 30% year-over-year due to the unprecedented inventory destocking and our customer supply chains and lower overall global demand. While North America and Europe experienced some declines Asia was particularly hard hit. Lower pricing for acetyl products related to both lower demand levels and lower formula-based pricing for many acetyl derivatives also contributed to the decreased revenue.

Raw material and energy costs did ease in the period, but due to our use of FIFO inventory accounting we were not able to fully recognize the benefit of the lower costs in the quarter. Operating EBITDA was $21 million compared with $231 million last year and included approximately $63 million of inventory accounting impacts. Dividends from our Ibn Sina cost investment were up $7 million in the quarter compared to a year ago, contributing $29 million to operating EBITDA.

For 2009 our Acetyl Intermediates business is expecting continued weakness in global demand which should benefit as destocking moderates across our customers' supply chains. Additionally, margins should stabilize through 2009 for the business reflecting its advantaged technology and cost positions.

Our equity and cost affiliate performance is shown on page 13. While I won't spend a lot of time going through all of the details shown, I will tell you that year-over-year our strategic affiliates delivered increased earnings and continue to play an integral role in our business portfolio. We'd expect our 2009 affiliate performance to be below 2008 levels as they face similar pressures as our businesses.

Given the recent declines in methanol pricing we would expect to see significantly lower earnings in our Ibn Sina affiliate. Keep in mind though that our AEM business will benefit from the lower methanol pricing.

Slide 14 highlights key elements of our balance sheet and current debt structure. Our sources of liquidity and our debt obligations are shown on the left side of the chart. At the end of 2008 we had $676 million in cash; I'd estimate that we need approximately $300 million in cash to run the business. (inaudible) and transparency to include our available credit linked facility of $137 million. We also have a revolver of $650 million that extends over 25 different financial institutions and is currently undrawn.

As you can see, we've included approximately $415 million of cash related to the anticipated payment from Frankfurt Airport Authority which we'll physically perceive in the next several days. This advanced payment increases our flexibility and allows us to more effectively manage not only the expense associated with the relocation, but cash inflows as well.

On the debt obligation side, the $2.8 billion term loan which we entered into in April of 2007 has no maintenance covenants. We have about $739 million of other debt obligations which are primarily capital leases. Including the Frankfort airport advanced payment we have a pro forma net debt of approximately $2.4 billion. At the end of the day we have a low cost, flexible and stable debt structure.

Turning now to slide 15 -- Celanese continued to deliver solid cash generation in 2008. Net operating cash flow was $568 million, a slight increase from 2007 results. Adjusted free cash flow for 2008 was $367 million, similar to last year's levels. During the fourth quarter we were able to significantly reduce working capital by approximately $270 million to help offset the lower earnings. Of this approximately $100 million is related to the inventory accounting impact and the rest is associated with maintaining appropriate working capital levels in this lower demand environment.

Slide 16 shows how we see some of the major elements of cash flow in 2009. If you look at the components and recognize that these are cash flows in excess of an operating EBITDA base, we'd expect between $80 million and $120 million of cash taxes and this number will scale with our overall earnings for the year. CapEx is expected to be in the $150 million to $175 million range, which is consistent with levels of recent years when you exclude the Nanjing investment.

While this number is roughly $100 million lower than our 2008 CapEx, it is adequate for us to continue to fund our productivity and cost reduction programs and to properly position the Company for a return to more normal demand levels. As you may recall, we basically completed our expansion to construction in Nanjing, China. So we're well prepared for future growth in this critical region with minimal additional CapEx.

We typically have a reserve spending of between $50 million and $60 million that we would expect to continue. Net interest should be between $220 million and $230 million based on today's expectation for interest rates.

Let me just spend a moment on pensions. In 2009 we do not expect to have cash outflows for pensions in excess of 2008 levels. As you can see here, that amounts to between $50 million and $60 million beyond expense and EBITDA. This number may be less than what many people have estimated but keep in mind we have significant funding credits that allow us to defer required contributions. In fact, as we look into 2010 we estimate that we have sufficient credit that will result in only minimal to modest increases in required contributions.

I think it's important to note the cash flow related to the Frankfurt airport. In 2008 we received a total of $311 million in cash and spent approximately $185 million. 2009 should be a heavier capital spend year for the project and we'd estimate that we would spend between $350 million and $370 million throughout the year. With our advanced payment of $415 million we should continue to run ahead of cash outflows and we'll receive our final payment in 2011 of 110 million [codes].

On slide 17 you can see our long-term debt repayment schedule. As this chart shows, only modest cash flows are needed to service our debt portfolio for the next five years. Our term loans have bullet maturity in 2014 with annual amortization of only 1% and are low cost at LIBOR plus 150 to 175 basis points.

So to summarize, our debt profile is stable, flexible and low cost; our cash generation will be focused on cost reduction and productivity initiatives which position Celanese for continued long-term value creation for our shareholders. With that I'll now turn the call back over to mark to open and the Q&A.

Thank you, Stephen. And while we get folks queued up for Q&A I would, as always, ask you to limit your questions to one with a follow-up and if there are additional questions and additional time we'll be in a position to go back and answer some more questions. So, Becky, if you could give some instructions, please.

(Operator Instructions). David Begleiter, Deutsche Bank.

Thank you, good morning. David, what's your expectation for FIFO impacts in Q1? Has that all been utilized?

David, the biggest part of FIFO was in the fourth quarter because of the huge reductions in raw material prices we saw then. Having said that, from the beginning of the quarter until now we've seen raw materials continue to decline, North America natural gas is as an example. So we'd expect to see some in the first quarter but more modest than what we saw in the fourth.

And just on the -- in terms of customers' inventory, when do you think the destocking will come to a conclusion?

Good question. It varies and we don't have a firm view is the short answer. A little texture behind that. Our Consumer Specialties businesses -- Acetate, (inaudible) -- there's no destocking occurring so we're in good shape there. We have seen in some of our Industrial Specialties businesses, the emulsion business as an example, that there's a limited amount of destocking going on because frankly in those spaces, supplying housing principally, demand has been down and inventory has been corrected for some time.

In Asia we'd look at it and say that for the most part we're seeing destocking reduce some effects, but not as dramatic as we saw in the November/December time frame. And then if we turn to Advanced Engineered Materials, or Ticona, in the automotive space we continue to see destocking going on there. In fact, if anything as we've entered the first quarter we've seen some acceleration in destocking. And Europe we would judge to be somewhat behind North America or Asia and steps they've taken to destock.

Long story short, we expect destocking to not be an issue as we exit 2009, but between now and then for us it's hard to put any degree of confidence in when it's going to stop.

Thank you.

Kevin McCarthy, Bank of America Merrill Lynch.

Good morning, how are you? Dave, could you talk a little bit about your decision to rationalize acetyls capacity in France versus Singapore? I think you had upgraded that facility not to long ago, so I imagine you have some feedstock issues there.

Kevin, first let me be clear, there's been no firm decision yet, we are assessing a shutdown option. If you step back though, our efforts would be to align our global demand and our views of global demand with global production. And we would choose to supply from the most cost efficient facilities around the world and exit those that were disadvantaged.

And so with that in our consideration, the Cangrejera facility, the Pardies facilities, from an economic basis stand out. And if we look at demand going forward, we judge it to be less for a period of time and those are the facilities that pop out in our preliminary assessment.

If I may follow up with a question on slide 6. You've outlined highest cost Chinese methanol-based production capacity for acetic acid there. Can you talk a little bit about what that cost might be in today's market? And to the extent that this is a forecast for '09, what is the methanol price that's incorporated in that forecast? Thanks.

Well, this is a -- I'll answer the last question first. This is a cost curve for acetic acid production and the relative differences would not change with changes in methanol pricing. Now back to the last point, the first point you asked -- those high-cost methanol producers in today's market are not running, they're essentially out of the market. And pricing in China today is in the $350-$400 a ton range and then you can take what methanol is out there now, 160, 170, whatever methanol is, that's where we are today.

So the demand curve is intersecting this cost curve in the bucket called lower cost Chinese methanol, is that fair?

Exactly right, yes, exactly right. We would view a normalization of capacity utilization in acetic acid globally to be in the 80 to -- low 80 to high mid 80% range as destocking factored out. And that's exactly where we would be on pricing.

Thank you very much.

Frank Mitsch, BB&T Capital Markets.

Dave, can you talk about what your operating rates were by month through the fourth quarter, and where do we stand here in January?

Yes, Frank, I would be happy to. First, as you know, Frank, our company is a hybrid company. So we had our acetate fiber business, Nutrinova, they were running full, essentially full. Some of our emulsion businesses, those in what we call Industrial Specialties, the operating rate there were 80% to 85%; not bad operating rates. When you get into advanced engineered materials with the destocking occurring, demand down, plus steps we took to bring inventory in line with demand, we were probably operating there in the 65% to 70% range.

And then our Acetyl Intermediates businesses in aggregate, those were probably operating and 65% to 70%, somewhat below -- modestly below what we saw in AEM. Now, through the quarter, demand continued to drop. October was the strongest month, November was weaker, and December was brutal.

It was -- things just dried up entirely. January, we'd say operating rates and demands are higher than they were in December. But as we look at it, we think the quarter is going to be in aggregate and on average about what we saw on the average for the fourth quarter.

I'm sorry, January better than December?

Yes, January better than December.

But you are expecting the first quarter to be on average similar to the fourth quarter, which suggests that the increase in January is not quite back to November type levels. And so you're expecting a gradual sort of pickup off of the very low bottom that you saw in December.

Yes, I think that is right. Chinese New Year has a big effect in Asia, as you are aware, and so we are early into the post-New Year's demand environment. Frank, I think that is a fair judgment.

Steve, you talked about your very strong balance sheet or the cash position and no major maturities any time soon. Assuming economic activity picks up somewhat here, how would you characterize your priority uses of cash, and would we be surprised to see Celanese in the M&A or share repurchase markets in 2009?

Yes. I wouldn't say our priority uses of cash have changed all that much from what we have talked over the last year or so. But in particular as we look at where the largest opportunities are now, they are more in the high return productivity and cost reduction efforts that Dave talked about earlier, versus where we have invested over the last couple of years in positioning the Company for growth like our investment in Nanjing, China; so more of a balance towards productivity. As we look at M&A, I will let Dave comment on that.

Well, Frank, I would say that we are always looking for these strategic bolt-on acquisitions. We are looking for creative ways of doing them all the time, but in this environment we probably have more reception on the other side as we enter into some discussions on approaches and ways we may do things.

I would say the discussion level is a lot higher than it has been, because folks are -- ourselves included -- are interested in finding solutions in environments like this. Having said that, I don't know that we would use substantial amounts of cash in the M&A world in 2009.

Great, thank you.

PJ Juvekar, Citigroup.

Good morning. Dave, you have a special window into China with your big exposure there. How much of your products that are made there are used internally versus exported out of China?

Good question. PJ, our view in 2008, if you take probably up through the end of the third quarter, the view was that around 40% to 50% of it was exported out of China in a fleece application or the furniture application and 50% to 60% of it was consumed within China for the construction market or the coatings market. That's the rough figure.

Okay. The destocking was related to the exports out of China?

Yes, definitely. Yes, definitely. It was very chilly in the fourth quarter; there was just huge destocking going on within that space. And as you think about it, it's a long chain distance wise coming all the way back into China. But it had a material effect on what we saw obviously, but it was big.

One more question for Steve. Steve, you've taken all these charges and the real input of these are on the shareholder's equity. If I look at the balance sheet, the shareholder's equity as gone from $1 billion to $174 million. So I guess if you take more charges that could go negative in '09.

Well, as you look at shareholder's equity it's not necessarily related to charges. What's driving that are two things -- one, we had the impact of our share repurchase, that goes into treasury stock and reduces shareholder's equity. And the second is just the accounting impact for pension benefit obligations.

As you can see, you look up there; there was a change in benefit obligations to reflect the asset returns that we saw in 2008. But as I mentioned to you from a cash perspective, not expecting significant cash outlays over the next two years for that. And also as you look at equity keep in mind currency translation effects on the balance sheet affect the equity section as well.

Sure, sure. So I understand it's not a cash flow impact. But have you talked to rating agencies and how do they view this low level of equity?

We're in constant dialogue with ratings agencies, nothing to state there that we haven't already said about where we're positioned with our balance sheet and our cash outlays and priority uses of cash. We still maintain a positive outlook at the rating agencies.

Usually rating agencies will look at cash --.

Net cash outlays.

That tends to be the principle component of their assessment.

Okay.

Cash against cash obligations.

Okay, thank you.

Sergey Vasnetsov, Barclays Capital.

Good morning. If I take your inventory adjustments and also some other charges, your adjusted EBITDA would have been around 166 which would put you on an EPS adjusted basis slightly above the breakeven. Is this the right math?

Yes, that is the right math and I'll extend it further. Our EPS would have been around $0.10 a share rather than the net loss. But yes, 150 to 175, that's right.

Okay. Dave, you've talked in the past that you're getting more traction with larger volumes of you Ticona plastics on new hybrids and electrical driven cars. What's your outlook let's say if we take '09 or '10? Do you think you will be able to offset some of your volume declines with higher content (inaudible)?

Yes, we do. Our pipeline is phenomenal, it's in great shape. We're up in just the number of projects that we're running around 20% from where we were a year ago. The content of those projects is great too, 75% of them either are cost reduction or are related toward mandatory fuel obligations that the automotive space in particular is looking at. But CO2 reductions in some other areas as well.

So we have a great pipeline and we do believe that there is a phenomenal pipeline that will help us in a weak demand environment. And Sergey, it also points to the fact that our Asia position, though we started it three years ago, is growing in size and substance. It's probably order of magnitude about 8% to 12% of our revenue now. But the rate of growth on it is very fast and the negative impact that we saw in Europe and North America in the fourth quarter we didn't see as much in Asia. Those things, the pipeline and China, would help this business. We think Ticona is very, very well positioned.

Okay, thank you.

Mike Judd, Greenwich Consultants.

Yes, good morning. I had a question about Ticona. Some of the other companies have been reporting and recent days have been commenting that they haven't been benefiting as much from lower raw material costs because of essentially they're operating at a lower operating rate. You're using FIFO; does that mean that you're essentially not as negatively impacted by that dynamic than perhaps some others? And as we look forward into the first quarter, anything we should be thinking about along those lines?

Hey, Mike, Steven. Because we're on the FICO impact, when we talk about these inventory accounting impacts it is precisely that. But we're not seeing in the P&L in the short run the impact of the benefit of lower raw material costs. So probably similar comments but maybe using different vernacular than you're hearing out there.

Very good, thank you.

Bill Hoffman, UBS.

Good morning. My question is more for Steve, just in regards to working capital management here. As you went through the fourth quarter released a lot of cash from working capital. And as you come into the first I just want to understand where you are from a valuation standpoint of inventory and then how the working capital starts to consume cash as you build back up on the volume side. What are you thinking about there?

Let's start with the fourth quarter. When you look at our working capital there are really two elements at play. The first is about half of it is related to this -- the accounting impacts we talked about. So the cash benefit of reducing inventory that didn't show up on the P&L that we talked about, about $100 million. The rest has to do with mostly accounts receivable collections that take place as you move off of the higher months in the third quarter like we normally see. And then we also kept inventory in line with the current demand levels.

So when you look at our overall working capital picture we're maintaining around 13%, on a percent of sales basis, working capital which is what we have done historically. In general we expect to maintain levels around there as we move forward.

As you say, you do see some seasonality historically moving from fourth quarter to first quarter. I'd expect if you do it see it there it will really be around Accounts Receivable; not expecting substantial changes from the cash perspective from inventory. So as sales track up, as we talked, as destocking moderates you could see some offset to the higher earnings in accounts receivable and working capital.

Okay. But you still expect to see some inventory FIFO charges in the first quarter on the inventory line?

Yes, but at a much more modest level than we saw in the fourth quarter, but there will be some because raw materials are continuing to fall in the first quarter.

Right. And that also will impact how your EBITDA gets calculated as well?

That's right.

Okay, thank you.

Jonathan [Goldberg], [Highline] Capital.

Good morning. A quick question about the fixed cost reductions that you talked about today. Does that layer in through 2009? And maybe you could just talk about the timing of that?

Sure. Jonathan, we have a $1.5 billion -- a little over $1.5 billion of fixed spending or fixed expenses. And we announced today that we have programs that we've worked on that will give us an annualized benefit of between $100 million and $120 million. Because of the nature of that most of these benefits will accrue in 2009 and be sustainable out through an extended period of time.

And then there's three other types of things we're doing. First is on ratable spending or scalable spending where, depending on demand levels, there could be as much as $60 million less due to block manufacturing, pure contract maintenance people and so on.

The third thing that we're doing is assessing our manufacturing footprint and as we reach conclusions and make decisions there we'll come and share with you details, financial details around that.

And then the fourth area is we find that there are other opportunities to reduce our fixed spending beyond what steps we've taken so far. And there are a lot of projects in place right now, valuating and assessing, and as we come firm on those we'll find some way to communicate the impact in 2009 and beyond on those projects. But we'll -- I mean, just -- I think our culture says that in times like this you become aggressive and that's exactly what we're doing.

The follow-up I guess would be if we were going to do an EBITDA walk from Q4, for instance, is it fair to layer in whatever the number is we think would be in fixed cost savings or does some of that offset incremental volume weakness that you may see in '09?

Yes, there's so much question in our mind in 2009. Candidly, we're focusing on controlling the controllables. And for us that's fixed expenses and fixed spending. It's opaque at best -- demand is opaque at best, but what we can control is fixed spending and that's where our focus is.

Thanks.

[Lindsay Drogan], Sumitomo Mitsui Banking.

Thank you for taking the call. Two questions regarding the balance sheet, which I guess is page 8 out of 13 of the press release. Number one, just what is the unfunded pension liability that's reflected in these numbers and funded the plan assets minus -- at the beginning of the year minus the plan assets at the end of the year? And number two, could you please walk us through some of the details from the change in the accumulated other comprehensive income loss account? Thanks.

Sure. When we file our 10-K there will be certainly a lot more detail on this, so I'll give you the highlights now. When you look at our pension funding status you'll see on a PBO basis we'll be funded about 76%, on an ABO about 78%. So that will give you a sense for funded status and, as I said, more detail in the 10-K.

In terms of other comprehensive income, the main driver there is just normal CTA movements, changes in currency on the balance sheet. And the second component is the pension accounting. As you can see up above, the pension obligations increased by about $500 million and that goes through OCI.

Thank you.

Bill Young, (inaudible).

Good morning, gentlemen. A couple quick ones. Number one, why do you stick with FIFO accounting given the mismatch on your income statement realizing there's no cash impact?

You know, I'll let Steve answer that question.

Your question is why is it -- we say it's non-cash?

No, no, no, why don't you switch to LIFO?

Oh, why don't we go to LIFO? As we look at the industry the practices are pretty mixed; we see about half the industry on FIFO, half on LIFO. We adopted FIFO several years ago and it's not a methodology you're allowed to change on a frequent basis because of the IRS tax laws. So we're putting much stuck with what we've got on FIFO. So we'll provide you transparency whenever there are large movements.

Okay, great. And second question has to do with China. Maybe you could review some of your long-term plans for China and how the timing might have changed given the tough current conditions?

Bill, our long-term position in China hasn't changed, in other words we view that as being a significant growth region for our customers and the markets that we serve. What has changed is how that growth develops. And candidly, right now we don't know if it's a one-year, two-year, three-year or longer term slowdown that retards the rate of growth in manufacturing in China. Be that as it may, strategically we will be there. We intend to maintain and where possible expand our share and our position globally and we do that through following growth and China is where growth is at.

Okay, thanks a lot.

[Carl Neivert], [CNN Enterprises]

Just a quick question on the inventory side in terms of the number. How much of the decline that you guys are talking about is volume coming off -- coming down and how much of that was price in that $100 million? If we can separate that out, is the volume of your inventory way down or is it predominantly having to do with the fact that the price is way off?

Yes, so there are the two components. There's the FIFO inventory accounting impact which has to do with the falling raw materials and recognizing historical costs through the system. And that's about 50% and the rest is more related to drawing inventory levels down.

Okay. So I could assume then that the volume of the inventory, the actual inventory, which is predominantly, like you said, in the area of the acetyls has come down quite a bit then?

Yes, our inventories are down. We typically run 40 to 45 days of inventory and we're still in that range. So in terms of our inventory levels, we're still within normal range levels, but you did see a drawdown in the fourth quarter.

Okay. As far as you can tell, if I looked at the fourth quarter in terms of the sales volumes of a number of products, was it more heavily into the October end of the quarter or into the December end of the quarter, because we've seen some companies which had very poor sales October/November and a sudden surge in December in volumes. Has that your experience or is that the opposite of your experience.

It's the opposite. We saw sequential declines month by month as we went through the quarter. And October was the best of that quarter and December was brutal.

Okay. So you figure most of your people are still -- that your customers are still destocked as opposed to restocking on maybe what might have been some fire sale types of pricing in some of your products?

Yes, that's our view. As I said earlier in the call, we see a rebound from December in January, demand is up somewhat, it's still significantly below where it was last year. And we judge for the quarter that the quarter will probably run on average about the average of the fourth quarter.

All right. Thanks very much.

And there are no further questions at this time. I would now like to turn the call back over to Mark Oberle for closing remarks. Please proceed, sir.

Great, thank you, Becky, and thank you, everyone, for taking the time today on what I know is a busy day. If anyone has any follow-up questions feel free to give me or anyone of my IR team a call. I look forward to talking to you soon. Thank you very much.

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