塞拉尼斯 (CE) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2009 Celanese Corporation earnings conference call. My name is Josh 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 our host for today's call, the Vice President of Investor Relations and Public Affairs, Mark Oberle. You may proceed.

Thanks, Josh, and thank you and welcome to the Celanese Corporation second quarter 2009 financial results conference call. My name is Mark Oberle, and and 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 Power Point 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 on 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 second quarter 2009 earnings release references the performance measures, operating EBITDA, affiliated EBITDA, adjusted earnings per share, net debt and adjusted free cash flow as 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. This morning, Dave 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'll have a question and answer period following the prepared remarks.

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

Mark, thanks, and welcome, everyone, to today's call. As I begin today, I'll provide a bit of color on our strong results for the quarter, and highlight several of our recent key strategic accomplishments. I'll also share our current view of the health and strength of our major end markets and key global geo regions. Following my remarks, Steven will provide further details on each of our businesses and the continued strong cash generation of the company.

First, let me summarize our second quarter performance. Net sales were approximately $1.2 billion compared to $1.9 billion in the second quarter of last year. Operating EBITDA was $243 million compared to $406 million. Adjusted EPS in the quarter was $0.53 per share versus $1.20 last year. During the quarter, we also generated $137 million in adjusted free cash flow.

The economic environment over the last few quarters has been more challenging than many had anticipated. It's also clear that Celanese' relentless execution of both operational and strategic initiatives have supported and will continue to positively impact our financial performance as we move through recessionary conditions towards a recovery phase in the economy. Collectively, our leading global businesses performed in line with expectations. Generally speaking, second quarter earnings approached the performance range we have proceed filed as normalized trough. As we shared with you at our investor day this past May, we're putting in place sustainable fixed spending reductions to enhance the earnings power of Celanese and we continue to realize the benefits of these reductions across all of our businesses during the quarter. Our hybrid portfolio is well positioned, both operationally and strategically, to continue to deliver increased shareholder value as the economy climbs out of this current recession.

Now, geographically, there were no major surprises. Asia and China in particular continued to demonstrate the most resiliency and strength during the quarter. Demand increased sequentially and was higher year other year in many of our businesses, including AEM and industrial specialties. With one of the strongest Chinese positions in the chemical space, Celanese will benefit from continued growth in this very critical region.

In North America, demand stabilized in most end markets, including automotive. While we are not seeing signs of a widespread strong recovery, conditions have improved, as destocking has abated. The automotive industry is forecasting increased production for the second half of 2009 and early signs of this are reflected in our AM performance in the quarter. We believe that housing and construction has bottomed and we expected relatively stable year-over-year demand in this segment.

Europe was the weakest of the three regions, but even here, we began to see early signs of stabilization in many segments in the second quarter. For example, automotive production, while still down significantly year-over-year, it showed a modest sequential increase. As you know, Celanese is the company that has balanced geographic and end market exposures. Overall, we exited the quarter with increasing optimism. Although there are still many questions to be answered, particularly about the shape and timing of the global recovery. So during the quarter, we made strong progress on our strategic objectives that were highlighted at our investor day in May. These actions will substantially increase the earnings power of our company. I would like to highlight five key accomplishments that were made during the second quarter.

First, at our investor day, we announced recent breakthroughs in our latest acetic acid technology, we're calling AOPlus 2. This exciting proprietary technology allows Celanese to build or expand acetic acid capacity with capital returns substantially higher than others in the industry. Second, we also formalized our plan to expand our Nanjing acetic acid unit from its current capacity of 600,000 tons to 1.2 million tons by the end of 2009. Keep in mind AOPlus 2 could add an additional 300,000 tons when implemented.

Third, during the quarter and after investor day, we reached agreements needed to close the Pardies France acetic acid and vinyl acetate monomer facilities by December of this year. These closures will attractively position Celanese' global acetic acid network for future growth with substantially improved cost position. Next, we sold the polyvinyl alcohol business to Sekisui. In addition to ongoing supply arrangements, this divestiture will deliver net proceeds of approximately $190 million, thus further buttressing our strong cash position.

Lastly, we prudently and cost effectively amended our current revolver credit facility to preserve the advantaged capital structure we have today, and to ensure the continued flexibility needed to execute our business strategy. All of these actions were executed while our businesses delivered strong performance in an environment that was incredibly challenging.

So let me conclude by taking a moment to share our perspective of the second half of 2009 and into 2010. Globally, the significant customer destocking that we saw in the first part of this year and late 2008 has substantially diminished. Demand for our products, while down year-over-year, will return to end consumer demand levels. Our end markets are at various stages of recovery in this recession. Some areas, such as housing and construction, which have been searching for a bottom for the past six to eight quarters, are seeing signs of stability. In automotive, production in North America is clearly improving, while production in Europe has not yet demonstrated the same level of rebound. China continues to show sustainable strength and provides the greatest opportunities for near and long-term growth.

In summary, we project global economic conditions for the remainder of 2009 to be largely similar to those seen in the second quarter. So there will likely be some lumpiness we expect to see, very consistent with sustained demand. With that, let me turn it over to Steve.

Thanks, Dave. As Dave has already run through the results of the total company, I would like to begin with the second quarter performance and the outlook for each of our businesses.

Let's start with consumer specialties on page seven of the PowerPoint presentation. Net sales were $280 million, 4% lower than last year's results. Pricing increased across the segment by 9%, but this was offset by 10% lower volumes caused by a bit softer demand in North America and Europe, consistent with the results recently announced by our customers in the cigarette, beverage and confectionery industries. More importantly, operating EBITDA for these relatively stable businesses was $134 million, up $27 million from the same period last year.

Our cost affiliates primarily are China acetate ventures, delivered $53 million in dividends during the second quarter, 15% more than last year, reflecting the continued growth in our leading cost position in China. Margins were better on the higher pricing and lower fixed spending and energy costs. As we look toward the remainder of 2009, expect operating EBITDA to remain relatively stable as these businesses continue to deliver very solid results. Keep in mind that our China acetate venture dividends are delivered only once a year, typically in the second quarter.

Let's now turn to advanced engineered materials on page eight. Net sales in the second quarter were $184 million compared with $300 million last year. Although the business was able to maintain pricing, the effects of inventory destocking on US and European automotive production drove the 34% volume decline year-over-year. The volume decline, along with negative currency impacts, drove the change in revenue.

When we look at performance on a sequential basis, however, we did see volume improvement, as automotive inventory destocking moderated as we moved through the quarter. Operating EBITDA was $28 million versus $68 million last year. Our strategic affiliates continued to experience pressure up in the same economic factors as our Ticona business and contributed $6 million lower in earnings than last year. Although demand and earnings were lower year over year, we saw significant improvement over last quarter's results. During the second half of 2009, we expect volumes to continue to be pressured from reduced auto builds year-over-year, but sequentially, we should see some uptick in demand, more so in China and North America than in Europe. We also expect our margins to benefit as pricing for our value and use products, should be relatively stable, and raw materials, energy, and fixed costs are expected to be lower than last year.

Now let's turn to industrial specialties on page nine. Net sales were $267 million versus $386 million last year. Lower demand for PVOH due to the economic downturn, primarily in the North American and European automotive markets, as well as the impact of the AT classes force majeure drove a 14% decrease in overall volumes. Looking a bit deeper, our emulsions business saw only very modest volume declines. Operating EBITDA was $35 million, only $2 million lower than last year, as we benefited from our emulsions expansions in Asia.

Our emulsions business increased volumes year over year, and they had very good success in establishing and growing our presence in the Asia region. As we look ahead to the remainder of 2009, we expect to see sustained volumes in North America and Europe and continued growth in Asia. We also expect margins to remain relatively stable, as raw material and energy costs are lower than last year and the benefits of our fixed cost reduction efforts are real. Also, keep in mind that industrial specialties second quarter results included PVOH, and as Dave mentioned, we completed the divestiture on July 1, 2009, so our future results are not included in this business.

Let's now turn to Acetyl Intermediates on page 10. Net sales were $622 million versus approximately $1.1 billion last year. Lower year-over-year industry utilization rates, caused by reduced global demand, coupled with lower raw material costs drove the pricing decline. We would estimate that for acetic acid, the industry ran at around 80% utilization in the quarter. Operating rates for our acetic acid facilities, however, continued to run at much higher rates, due to our advantaged technology and position on the cost front. Volumes in some of our other acetyl businesses, where the cost curve isn't as steep, such as VAM and other derivatives, were lower and reflected the reduced demand.

Industry demand in Asia continued to increase sequentially from its lowest levels during the fourth quarter of 2008 and demand in Europe and the Americas, while weaker in comparison, also showed modest improvements since January. Operating EBITDA was $76 million compared with last year's $227 million. Dividends from our Ibn Sina cost affiliate were $3 million this quarter versus $29 million a year ago, as lower pricing for ethanol and MPV continue to pressure results. Looking ahead to the second half of 2009, we would expect the economic environment for acetyls to remain relatively unchanged from what we are currently seeing. With our advantaged technology and cost position, plus benefits from our fixed spending reduction efforts, you would expect earnings to continue to approach our normalized earnings profile.

Page 11 highlights the performance of our equity and cost affiliate. In the second quarter, the earnings impact was $64 million, down from $92 million last year, driven by lower different dividends from our Ibn Sina affiliate. The chart on the right side reflects dividends from our equity and cost investments, which are included in cash flows. During the second quarter of 2009, we received $53 million of dividends from our China acetate ventures, up 15% year-over-year, however, the significantly lower dividends from the Ibn Sina cost affiliate more than offset this increase.

Let's now take a look at our strong cash generation as shown on page 12. During the quarter, Celanese continued to deliver positive adjusted free cash flow. Year to date, our adjusted free cash flow is $203 million, basically unchanged from last year. So the businesses have done a great job of maintaining our cash flows, despite lower overall demand.

I've provided some updates on our current expectation of cash outflows for you on the right side of the page. Point to a few changes. First, cash taxes are now expected to be between $20 and $50 million. This is about 30 million lower than our previous estimate, driven by the timing of tax payments and refunds.

Now that we have normalized more plans related to our fixed spending reduction efforts, we've updated our capital expenditures, as well as our reserved spending estimate to include all announced programs. We now expect capital expenditures in the 175 to $185 million range and reserve spending in the $55 million to $60 million range, a modest increase of about $20 million in these two areas. As we described at our May investor day, these high return projects deliver significant fixed spending reductions and will provide sustainable benefits to the businesses as we move forward. We'll be cash positive with these projects within the year.

As we look at our current cash obligations, we continue to generate significant adjusted free cash flow even during these challenging economic times. Page 13 highlights our advantaged capital structure. At the end of the second quarter of 2009, we had north of $1.1 billion in cash. When we pro forma this from the proceeds from the PVOA sale, we're at about $1.3 billion. The only other point to make on this chart is related to our revolver. As Dave mentioned, we recently amended our $650 million revolver and lowered the total commitment to $600 million, while increasing the covenant flexibility. As you can see, we currently have a strong cash position. We don't foresee the need to use the facility at this time. However, we felt that the amendment was a prudent action and further enables us to preserve our existing sources of advantage liquidity. And for a total cash cost of under $3 million, it made sense for us to execute the amendment.

We don't have the slide in this, but let me give you a quick update on our fixed cost reduction efforts. As you may recall from our investor day in May, we increased our 2010 fixed cost reduction targets to $250 million from our previous estimate of between 100 and 120 million. We're pleased to report that we are on track to meet our targets. This quarter, we are at $150 million annual run rate and sustainable fixed spending reductions from these programs. As Dave mentioned earlier, we have taken even more strategic actions to capture the remaining cost savings when we expect them to deliver an incremental $100 million to be realized next year, led by the benefits of the shutdown. I'll now turn the call over to Mark for Q&A.

Great. Thank you, Steve. As we get prepped, Josh, for questions on the Q&A, I would ask everyone to have one question with a follow-up. Then if there's time, we'll work our way through the queue again and have any further questions.

(Operator Instructions) And our first question comes from the line of David Begleiter of Deutsche Bank. David, you may proceed.

Good morning.

Good morning.

David, can you comment on recent price trends for acid in China in July, as well as your expectations for the remainder of the year?

Yes, Dave, prices are in the $350 to $400 a ton range. As we sit here right now, there's some modest upward pressures on pricing, so methanol is moving up modestly. So you could see some upward pressures on pricing. As we look forward, we would expect pricing range to be very consistent going forward with what we're seeing today.

And Dave, any impact yet from new plants coming on either Sipchem, or can you also update on BP's status?

Yes, there's no material impact. This' a little bit of premarketing going on by Sipchem. BP has been relatively quiet on that front. But based on where we sit on the cost curve with our strong advantage and based on past utilization, strategic utilization, we really don't believe that there's going to be a material impact on our operating position, the way we run our plant, or the margin levels we'll see as these facilities come on, Dave.

Thank you very much.

Thank you.

And the next question comes from the line of Sergey Vasnetsov from Barclays Capital. Sergey, you may proceed.

Thank you. Continuing on the acetic acid, what's the rates in Asia and globally?

As Steve said in his remarks, Sergey, globally we would say operating rates are somewhere in the 80% range. We look at that as more of a strategic operating rate. You've got some plants that are in and out due to unplanned outages, but, you see a few of those in the market in any quarter, but strategically, if you step back, we say operating rates are in the 80% range, maybe a little bit north of 80% now. That's come back a significant amount from where we were in fourth quarter and first quarter when it was in the 65 to 70% range. And it continues to hold pretty strong.

And -- plants currently being underutilized because of the reduced demand, but in normal operating conditions, what kind of operating leverage could we see once your new Nanjing and Sevastopol plants start up? How much will it help your earnings?

And -- plants currently being underutilized because of the reduced demand, but in normal operating conditions, what kind of operating leverage could we see once your new Nanjing and [Sevastopol] plants start up? How much will it help your earnings? Let me answer it in two parts. Ticona's volumes are down about 30, 35% year-over-year. Also, our Ticona or AM business has incredibly high margins on it, very good margins, think in terms of 65% on some of our products, so there's incredible operating leverage as capacity comes back, or demand comes back against fair capacity that we have. In fact, as we look forward through this year and out, for the next couple years, that operating leverage is a substantial boost to the growth of the earnings of our company. At the new facilities that we've got in to China or what happens with the Kelsterbach, we really view that as reserved capacity that will be in place as we grow into that out in, probably into the 2011, 2012 timeframe.

Okay, thank you.

Thank you.

And our next question comes from the line of Bob Koort from Goldman Sachs. Bob, you may proceed.

Thank you, good morning.

Hi, Bob.

Dave, I'm just curious on the supply chain through the auto channel, given that we're going to start to see better production rates relatively soon here in North America, maybe presently, have you not seen that pickup yet or is it an issue of mix on the kind of cars that are being produce? Then secondly, has there been any increased interaction with those customers, looking to continue to deweight the cars and meet some of these higher fuel standards?

Yes, Bob, I'll answer both of those questions. We did see improvement in demand in the second quarter in AM. The numbers there were up fairly substantially from where we were in the second quarter. Some of it, in fact most of it was due to increased automotive demand coming through. We saw every month continue to build and grow over the prior month, so that demand started to come back. We would say, though, that AEM is not yet at normalized trough operating rates. We say it's approaching it.

It's improving towards it, but there continues to be more improvement in earnings as demand continues to improve in the automotive space largely, but this also represents the improved outlook for construction, for home starts, where some of our products end up -- so again, good operating leverage against that. When we step back and look at the portfolio of applications in our new development pipeline, these numbers are up pretty substantially. Just on a total project level, it's up somewhere in the 15 to 20% range year-over-year. If you look at the dollar value, it's up pretty substantially. If you look at the mix across all of the OEMs out there, we are not disproportionately weighted to any one particular OEM. Lot of creativity going on and I believe we're justified in our enthusiasm about AEM's earnings growth and the prospects going forward over the next three or four years.

Thank you.

Thank you.

And our next question comes from the line of John McNulty from Credit Suisse. John, you may proceed.

Yes, good morning. With regard to the 80% utilization rates you're seeing in the industry for acetic acid, given that you're at trough, pricing right now, is that a bit high, considering kind of the shape and slope of the cost curve?

John, when we look at the pricing and the cost structure of our competitors, remember, we've had six to nine months here where we've been through a tremendous volatility in end market demand and we've monitored very closely who is operating it, who is not operating during those different demand levels, so we're very, very confident in saying that pricing level that we're at right now, this $350 to $400, is on a plateau that's a very, very broad plateau. There's a lot of production in that space, and demand could drop down, another 10%. We judge we would still be at that incremental cost position and that pricing structure that's implicit from it. So I don't know if you want to call that trough or not, but we certainly believe that this is the plateau that provides a level of, a good level of stability out into the future.

Okay. So the industry discipline seems to be playing out at least the way that you would expect, given where pricing is.

It is, John. When companies are getting into their incremental economics, their marginal economics, they turn their plants off.

Okay, great. Thanks a lot.

Thank you.

And our next question comes from the line of PJ Juvekar from Citigroup. PJ, you may proceed.

Yes, hi, good morning.

Hi, PJ.

Dave, is it fair to say that the high cost guides in China are unprofitable and the low cost guides are just barely breakeven, is that a fair statement?

PJ, that's how we see it. We see an awful lot of methanol plants that are not running. We see others that are cut back pretty significantly and there really is not a healthy environment for Chinese methanol right now.

You talked about methanol prices going up a little bit, but to me, seems like there's a lot of methanol in China coming from Middle East and prices are generally falling to a point that the government started an antidumping investigation. If methanol prices fall, what does it mean for this methanol producer and then pricing for acetic acid?

PJ, when we look at the methanol pricing and the dynamics in that market, we think there is a relatively strong support level based on cost structure within $10 or $20 a ton of where we are today. So could it go down somewhat more?

Yes, but it's -- but we don't view demand to be weak enough that it will take it substantially lower than that. And consequently, the impact on where we are is since it's a small impact from methanol, it would be a very modest impact to us, if any. Okay. And just secondly, you talked about BP sign of decline can you give us a quick update on Wuxing started up and how it is running, whatever updates?

Yes, there's only what we see or hear in the market and what we pick up through the press and some of the contacts we have over there, but we really don't see that plant running now. I think we would say that they are in early stages of startup. At least that's what is they have told the market. That plant, BP's plant, a year from now, 18 months from now, those plants will be operating and they will be into the marketplace.

How it comes into the market is anyone's guess, but I would just remind everyone that these acetic acid plants, not only are they tough to operate, but they are incredibly tough to start up. The facility we started up in Singapore about a decade ago took us about 18 months, 24 months till we felt confident with sustainable operating rates. We were up and down an awful lot. Some of the units in China, same type of experience. This is new technology, and in the case of the Middle East plant, first time its come out of the United States, we would expect a fairly lumpy startup.

And our next question comes from the line of Kevin McCarthy, Banc of America Securities. Kevin, you may proceed.

Yes, good morning.

Hi, Kevin.

With regard to industrial specialties, what is the sequential profit impact to be expected in the third quarter following the sale of polyvinyl alcohols?

I'll let Steve answer that, Kevin.

What we said about the PVOH business is they normally have sales in the $250 to $300 million a range on an annual basis with EBITDA margins in the 6 to 8%. So obviously that comes out of the industrial specialties business, but keep in mind that's somewhat offset by resupply agreements in the Acetyl Intermediates business.

Okay, and AT plastics was de minimus, is that correct?

Yes, on a sequential basis.

Okay. Then follow-up, if I may, on Acetyl Intermediates, natural gas prices have come off quite a bit year to date, as you know. Wondering if you would be willing to comment as to whether or not there's any contractual floor level associated with the methanol that you source from Trinidad and if so, where are you currently versus that?

We've -- Kevin, thank you. Great question. We have commented publicly that there is a collar on the price, so there's the ceiling, as well as a floor. And we are well, well, well above the floor.

Great. Thank you very much.

Thank you.

And our next question comes from the line of John McNulty from Credit Suisse. John, you may proceed.

Yes, sorry, just one other question. With regard to the incremental cost cutting relative to the second quarter, how should we be thinking about that in the second half of the year? I understand a lot of it's tied to the Pardies shutdown which is at the end of the year, but should we be looking for sequential improvements in the third and fourth quarter?

Tell you what, I'm going to have Steven answer that, John, but let me just kind of set a little higher context to it. If we go back to the first quarter, we're, factor out FIFO and accounting impact, the company delivered about $0.23 in the quarter. If you look at the same set of businesses, and strip out the dividend impact, we delivered about $0.33 in the second quarter here. And as we highlighted in our comments, we believe that we're not yet at normalized. We're approaching it, but not yet at normalized. We would see additional growth this year in AEM.

China continues to be very strong, very robust. We see that as an area of the world that would provide some uplift to earnings to move us towards that normalized trough earnings level. Steve highlighted that we've got about $150 million annualized benefits in the second quarter. We probably run at that level. Then we get -- probably not this year, but probably beginning in next year.

Yes, so the current, as Dave said, 2009 second quarter, we're running at about $150 million of sustainable cost reductions and expect to hold that through the rest of this year. So not a sequential change there, but as we move to 2010, as a result of Pardies as well as other strategic actions, we expect another annualized $100 million of sustainable cost reductions in 2010.

And in economic recovery, we won't give that back. Those are real sustainable earnings improvements.

Okay, great. Thanks for the color.

Thank you, John.

And our next question comes from the line of Clifford Sossen from UBS. Clifford, you may proceed.

Hi, guys. Thanks for taking the question. When I look at your operating EBITDA in Q1 and I back out JVs and I back out the FIFO adjustment, I got to about an 11.5% margin. When I do the same calculation in Q2, I got to something slightly higher, but about the same. I guess given the improvement in operating rates and the general stabilization throughout 2001 and constant in Q2, I would have expected a little more margin expansion. Do you mind maybe sort of commenting on that and help me figure out how I may have gone astray.

Yes I think when you look sequentially, as Dave walked from Q1 to Q2, the real driver is the end of destocking or the diminishing of destocking in a number of our key markets. A lot of the sequential improvement is driven by volumes beginning to recover on approach. We expect a normalized trough. In the cost reduction programs, we're already fully reflected in the first quarter, although some of the benefits were nonsustainable belt tightening, we reflected the full run rate of the 150 million in the first quarter. So I wouldn't expect -- wouldn't have expected to see margin expansion from that. As we move forward, as Dave said, expect volume improvements in our AEM business from continued improvement in automotive industry, as well as growth in China, so really driven by growth in top line.

Cliff, this is Mark. Another thing to keep in mind is while the industry operating rates and acetic acid in particular have improved sequentially, really beginning in the middle of the first quarter, we started running our acetic acid units pretty much at a full run rate. So that sequential increase in operating rates is probably a little bit less than what you would reflect there just because we had started running our plants in the middle of the first quarter.

Thank you.

And our next question comes from the line of Kevin McCarthy from Banc of America Securities. Kevin, you may proceed.

Yes. Follow-up, if I may, on consumer specialties. Volumes have been off couple quarters, yet profit hanging in very nicely with the pricing increases. Wondered if you could elaborate a little bit, Dave, on the volume side and whether or not you've seen any share shifts in that business or what is contributing to the volume pressure in terms of order timing or other factors that might explain it?

You bet. Kevin, and I think you, in your question was the answer to the question. Our focus has been on the bottom line and growing earnings on the bottom line and we've been successful in doing that. As we reflect on the industry and is out in public, consumption is down globally. We see all of our customers reporting a modest decrease in consumption. If history holds, this is temporary, not permanent, and we would expect a rebound in end market demand in the 2010, 2011 standpoint or timeframe and obviously we're positioned with the capacity to be advantaged in that type of market in 2010 and 2011 as we expect consumer demand come back again.

Thank you very much.

Yes.

And our next question comes from the line of Adrayll Askew from Hartford Investment Management. Adrayll, you may proceed.

Yes, thanks. Can you provide some commentary on your outlook for working capital reduction over the rest of 2009?

Yes, over the last several years, Sony's done a great job on working capital side, managing overall working capital in about a 12, 13, 13.5% sales range and we've taken actions over the last several quarters to adjust our working capital levels down to where the current consumer demand is and expect to continue to maintain that performance as we move forward into the second half. So don't expect a range in the performance levels of working capital.

Okay. That's helpful. And how are you guys gauging I guess the overall sustainability of this demand recovery that you cite in China. Can you provide some commentary as how you get comfortable across various end markets that this is truly a sustainable level of demand here?

You bet. It's a great question. We spend an awful lot of time looking at it. So the Chinese economy, broadly speaking, is composed of three principal areas.

One is export. Export's off pretty significantly. Any statistics you look at that's tied to export out of China to the US, to Europe, to Japan, is down on a year-over-year basis and really hadn't bounced back again. The secondary is infrastructure and that's controlled directly by the Chinese government, whether it be local, provincial, or federal and some would say in contrast to what's happening with our stimulus program here in the US, they truly do have shovel-ready projects that are having an impact, that are driving demand, and we participate in many of those markets.

The third area is local Chinese consumption. And that is up fairly significantly. The confidence is very high. I was there about 10 days ago and consumer confidence is high. Restaurants are full. The shopping malls are full.

It's interesting, though, one interesting tidbit, if you look at hotels that serve and target international travelers, four-star, five-star hotels, they are running at about 50% utilization. Those that service local Chinese or Chinese business people, they are running 90, 95% capacity. So the local Chinese economy is moving forward and it's pretty strong and I have pretty high confidence that that's going to be sustained. I think there's another leg to growth once exports pick back up again. Personally, I don't think that's going to happen in the near future, but it does provide additional support sustainability.

Okay, that's very helpful.

Thank you.

Thank you.

And the next question comes from the line of Frank Mitsch from BB&T Capital Markets. Frank, you may proceed.

Good morning, gentlemen.

Hi, Frank.

Is -- you obviously received some advanced payment from the German government for your relocation move there. What are your thoughts on cashing the balance sheet and when that might be spent?

Yes, I'll -- let me just get some high level and Steve can talk in a little more detail on how we do our self-position today. Frank, generally we do an awful lot of very high return projects. We're very good at doing that. We have business models and positions that generate substantial cash in the business and even during these troughy periods of time we're still throwing off a fairly significant level of cash. Our uses of cash have been and continue to be those things that will return value to shareholders. We would like to spend it internally on more high return projects.

We're very active in developing pipelines of projects that could deliver higher returns. M&A has been a part of our story in the past. We continue to be very active in looking for opportunities there with some progress as we have looked at it over the last three or four years. And then obviously if there's excess cash, we look at either share buyback. We look at dividend. We continue to evaluate the balance sheet. Steve, maybe want to add a little more detail around our current position.

Yes, on the balance sheet, we've got about $1.1 billion of cash. If you pro forma in our PVOH proceeds, we've got about $1.3 billion. And as you said, we do have advance payments from Frankfort airport authority. At the end of the second quarter, that's about $400 million and we need about $300 million day to day to fund our affiliate. When you've got a strategic cash position of $500 million to $600 million, of cash, they said, letting you explore all those options for cash.

All right. So it is -- you will, you will agree that it is at a relatively elevated level at this point?

Yes, we view the level as being a level that puts us in a comfortable position for our strategic concepts.

Okay. We'll stay tuned then. Thanks, guys.

And our next question comes from the line of Fritz von Carp from Sage Asset Management. Fritz, you may proceed.

Hi. I wanted to go back to PJ's question earlier about the acetic acid in China. You talked about the cost structure of the competition who is using a less good technology to make this stuff than you are, granted. But if one of their input costs, methanol is changing and their cost position is changing and I'm not sure if their cost position changes more quickly or more slowly as a function of methanol or other inputs to the competing process, compared to yours, could you help me understand that, please?

Yes, most of the positions in China, manufacturing positions in China, most of the manufacturers are relevant in today's discussions, use the same raw material inputs that we use, so our advantage is maintained with volatility and raw material inputs and pricing.

Okay. Thank you.

And our next question comes from the line of Bill Young from ChemSpeak. Bill, you may proceed.

Thanks. Hi, Dave and Steve. Quick question for you. On your AOPlus 2, what's the capital costs for your doubling of the capacity at nanjing compared to the first, the first plan? I realize it's still a lot less, and also, what would be involved in adding another 300,000 tons?

We said in the past to double the size of our initial plant is an incredibly modest amount of capital. Think in terms of low tens of millions of dollars. I think we've said that publicly. To go then from 1.2 to 1.5, basically the same type of ticket, very low cost, very low capital.

Now, as a follow-up here, how much, how much work is being applied to maybe shutting some more of your older plants, like you're doing in France, to take advantage of the ability to add so much more cheaply and owned up with a lower cost operation hopefully?

Yes, Bill, thank you, and I'll kind of paint a picture of what's occurred. If you go back a decade ago when I first joined the company, we had five or six very, very high cost plants and one low cost plant. We then started up a low cost plant, AOPlus technology in Singapore and then we've started up one more recently in Nanjing, China and then expanded it recently. During that period of time, we've continued to grow at the market at the share that we think is reasonable for a producer like us and exited higher cost facilities.

Within the last 12 months, we exited the Tampa plant in North Texas, as well as announcing and now formalizing the exit of the plants in Pardies. As we sit today, we have three plants with the latest and best technology in them, one in North America, one in Southeast Asia and one in China. We have also the ability to expand those facilities and get roughly another million tons of capacity through incremental expansions as the market grows and as we position ourselves in the market. So we're very, very well positioned, very, very comfortable. We can continue to do those things strategically in the market that we need to do to maintain and enhance our position.

Okay. So you're down to the plant structure you think is pretty stable now, which really -- puts you in good position as the market grows?

Right, you are.

Okay, thanks. Thanks.

Thanks, Bill.

At this time, we are showing no further questions. Mr. Oberle, you may proceed.

Thank you very much. I would like to thank everyone for taking the time to join us today on our call and if anyone has any further follow-up questions, as always, feel free to give me or anyone on the Investor Relations team here at Celanese a call. Thank you very much. And we'll talk to you soon.

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