塞拉尼斯 (CE) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2009 Celanese Corporation earnings conference call. My name is Glenn, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions)

I would now like to turn the presentation over to your host for today's conference, Mr. Mark Oberle, Vice President, Investor Relations and Public Affairs for Celanese Corporation. Please proceed.

Thank you, Glenn. And welcome everyone to the Celanese Corporation third-quarter 2009 financial results conference call. I am Mark Oberle, and 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 third-quarter 2009 earnings 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.

The Celanese Corporation third-quarter 2009 earnings release references the performance measures, operating EBITDA, affiliate 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 in 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 are also 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 will have a question-and-answer period following the prepared remarks. Now I would like to turn the call over to Dave Weidman. Dave?

Mark, thanks, and welcome, everyone, to today's call. In addition to providing an overview of third-quarter performance, I will share with you why we are incredibly excited about our earnings growth through an economic recovery, and more specifically why we are confident in substantial growth in 2010. Steven will then provide details about this quarter's performance and our view of the rest of this year.

So let's begin with our very strong third-quarter performance. Net sales were $1.3 billion compared to $1.8 billion a year ago. Operating EBITDA was $241 million versus $314 million last year. Adjusted EPS was $0.58 compared to last year's $0.78 per share.

Now, behind the strong numbers is terrific sequential improvement. Our third-quarter results demonstrated significant operating leverage with expanded margins bolstered by sustainable reductions in spending. While our sequential net sales were up $60 million, our operating EBITDA, excluding our affiliates, increased by approximately $40 million compared to the second quarter.

Last December, we began to share with you additional transparency about Celanese normalized trough earnings, our bottoms-up view of expected business results in an economic environment with plus-minus zero GDP growth. In such an environment, we projected our average quarterly EBITDA to be between $200 million and $250 million. Now, even though global GDP growth has been negative, Celanese delivered close to $250 million of operating EBITDA in the quarter, so we are performing better than expected.

At our May Investor Day, we provided additional transparency to investors around our plans to grow Celanese earnings power. We outlined our plan to expand the earnings power of the Company to between $1.6 billion and $1.8 billion of operating EBITDA, with this increase coming from two key areas. First, volume and revenue growth, as the economy returns to historic levels; and second, concrete actions to drive innovation and productivity. Innovation and productivity are providing a substantial impact today, and will deliver even more earnings growth next year.

Beyond these two areas, with our proven ability to generate cash with an attractive capital structure, Celanese has ample strategic funding and flexibility to also increase earnings power through value-enhancing investments and/or acquisitions.

We continue to believe that our leverage to these three items will provide substantial earnings growth for Celanese over the next few years as the global economy recovers. But now, if we look specifically at 2010, we expect significant earnings growth of about $1.00 per share, independent of a more positive economic catalyst.

Now, there are four items that give us this confidence. First is volume growth. Across each of our businesses, we expect demand for our products to be higher in 2010 as the global economy stabilizes, inventory destocking is completed and we experience a modest recovery in some focused areas. In general, we expect demand to be similar -- at similar levels to the second half of 2009. And we continue to believe that demand in China, where Celanese is well-positioned, will lead the global economic recovery.

Second are the substantial benefits from our fixed spending reduction actions. Streamlining our administrative areas and our manufacturing footprint has permanently reduced fixed spending in 2009 by $150 million and will further reduce spending by an incremental $100 million in 2010.

Those of you who have followed Celanese are familiar with our track record of execution, and understand how capable we are in delivering on our commitments, especially productivity commitments. For us, productivity is a continuous, not a periodic, focus. Benefits from actions already executed, such as the Pardies plant closure, are both permanent and sustainable.

Third is the benefit from a lower adjusted tax rate, resulting in our global restructuring -- from our global restructuring efforts. This lower tax rate should be sustainable through at least the midterm.

And lastly are the continuing benefits of our leading innovative technology, which has given us the ability to substantially reduce our cost base while holding our position in the attractive acetyl chain. We are very pleased with the successful expansion of our Nanjing acetic acid plant and the progress on the [project of] closure of Pardies.

Production from the Nanjing expansion has ramped up over the last several weeks to our design rate of 1.2 million tons per year. During this period, we have seen stability in acetic acid pricing, performance we had expected, frankly, given our attractive position on this very steep industry cost curve.

Now, all of these underscore why we are confident in our ability to grow our earnings by about $1.00 per share in 2010 and continue towards record levels of earnings in an economic recovery.

Now let me take a moment to provide increased clarity to the key strategic area of our business. Over the last several weeks, I've been asked about our "new strategy for Acetyl Intermediates."

Let me be perfectly clear. There is no new strategy. We have not changed our approach to the geographies we have served. We have not changed our approach to meeting our customers' requirements. We have not changed our approach to investments, and we have not changed our approach to technology.

We will continue to operate this business of ours in a manner that optimizes total returns through an economic cycle. We will continue to invest in developing our technology to further extend our competitive advantages. And we will continue to deliver strong earnings, utilizing unique optionality and unparalleled cost position in our integrated acetyl chain.

Yes, we believe that we have the lowest-costs, most capital efficient technology in the world. And yes, we believe we can invest when others cannot justify their investment. And yes, we have more systemwide optionality than any within our space. But as we have said consistently, we will bring incremental capacity into the market when our customers and the industry needs it and in a way that optimizes our returns.

We believe our return on invested capital far exceeds others in the industry and that we have demonstrated the ability to expand our production capability in a capital-efficient way that is made possible by our unique proprietary technology. Simply stated, our strategy in Acetyl Intermediates is unchanged.

So looking forward, even though we would be incredibly delighted to see a significant economic recovery in 2010, we don't anticipate that occurring. But what we do see is the benefit of the Celanese operating leverage resulting in substantial year-over-year earnings growth, coming from more volume, lower costs, a lower tax rate and an unchanged acetyl strategy. Now with that, I will turn the call over to Steven. Steven.

Thanks, Dave. I'll begin by reviewing third-quarter performance and the outlook for each of our businesses, beginning with Consumer Specialty on page six of the PowerPoint presentation. These businesses continued to deliver strong performance with a higher level of sustainable learnings.

Net sales were $271 million, down $24 million from last year. Pricing was up 7% in the quarter, but was offset by 14% lower volumes on softening demand related to inventory destocking in the Acetate Tow and sweetener businesses and the ongoing downturn in consumer spending trends in our customers' end markets. Operating EBITDA, however, was $68 million, up $12 million from the prior-year period, as we benefited from our fixed spend reduction initiatives and lower energy costs.

We expect volumes to be seasonally lower in the fourth quarter, but margins to remain robust, enabling these businesses to continue to provide strong cash generation and deliver very solid earnings.

Let's now turn to Advanced Engineered Materials on page seven. Net sales were $220 million compared with last year's $272 million. Year-over-year volumes were pressured by the significant reduction in auto builds in the US and Europe, but did increase sequentially, driven by government-sponsored programs and the abatement of industry destocking.

Operating EBITDA was $56 million versus $45 million last year, as lower raw material and energy costs, as well as benefits from our fixed spending reduction efforts, more than offset the lower volumes.

Earnings from equity affiliates were modestly lower year-over-year, but benefited in the mid-single digits from the timing of a planned turnaround in Q4.

Reflecting the significant operating leverage of the Specialty Engineered Polymers business model, sequential earnings also improved, driven by continued strength in Asia and the uptick we saw in automotive and related industrial demand in North America and Europe.

For the rest of 2009, we expect to see normal seasonality effects on our volumes and improved year-over-year comparisons. We also expect margins to continue to be relatively stable sequentially.

Now let's go to Industrial Specialties on page eight. Net sales were $236 million versus $378 million last year. Keep in mind that last year's results included $74 million of sales associated with the PVOH business that we divested on July 1 of this year. The decrease in net sales was also driven by a 14% pricing decline, primarily related to lower raw material costs.

Although residential and nonresidential construction stabilized, the business experienced lower volumes, particularly in North America, as a result of the force majeure in our Performance Polymers business. However, this was offset by growth in Asia and in Europe. The production issues at our Edmonton Performance Polymer facility that resulted in the force majeure were resolved during the quarter.

Operating EBITDA was $29 million, $7 million lower than last year, all of which can be attributed to the absence of earnings from the PVOH business.

Looking ahead to the remainder of 2009, we expect normal seasonality to impact volumes. While we don't expect a significant recovery in residential or nonresidential construction in North America or Europe, we do expect to see continued growth in Asia. And as we previously announced, we are planning to construct a new emulsions unit in China to support our growth plans and the fantastic results we have seen since entering that region in 2008.

Let's now turn to Acetyl Intermediates on page nine. We told you last quarter that this business was approaching its normalized trough earnings levels, and that is just where we finished. Net sales were $666 million versus approximately $1.1 billion last year. Lower industry utilization and lower raw material and energy costs drove the pricing decline. The business experienced only modestly lower volumes, as improved demand in Asia partially offset lower demand in Europe and the Americas, specifically in downstream derivative products.

Operating EBITDA increased sequentially to $105 million. While this was below the $182 million last year, we did see the improvement we had expected from last quarter's results of $76 million. Lower raw material and energy costs and benefits from fixed cost spending reductions were not able to offset year-over-year lower pricing. Dividends from our Ibn Sina cost affiliate were $16 million lower than last year's results, but did increase from the second quarter, as methanol and MTBE performance improved.

For the rest of 2009, we would expect the business to continue to perform at normalized trough levels with stable margins. As Dave said earlier, the expansion at Nanjing has gone very well, and the shutdown of our Pardies facility continues on track for completion by the end of the year.

Let's now turn to our equity and cost affiliates' performance on page 10. In the third quarter, the earnings impact was $38 million compared to $54 million a year ago. The decrease was driven by lower dividends from Ibn Sina cost affiliate.

Results benefited this quarter, however, as I said previously, from a scheduled turnaround in Q4 at one of our AEM facilities. The chart on the right shows our dividends from our equity and cost investments, which are included in cash flow.

Our continued strong cash generation is highlighted on page 11. Even with the very challenging economic environment year to date, we have delivered $268 million of adjusted free cash flow as a result of lower working capital, lower cash taxes and capital expenditures. On the right side of the chart, you will find our expected cash outflows for 2009 off of an EBITDA base.

Dave has already mentioned the confidence we have in our plans to grow our earnings by about $1.00 per share in 2010. But I would like to provide a little more granularity on the three focus areas we've outlined on slide 12.

The first focus area will be volume-driven improvements. We expect that demand levels will be consistent with second-half 2009 levels and build from there. So with the reversal of the FIFO impacts that we saw in the first quarter of 2009, our continued growth in Asia and AEM's significant operating leverage, we expect to deliver between $80 million and $100 million of incremental earnings in 2010.

The second focus area is productivity gains from the realignment of our manufacturing footprint and administrative activities and ongoing cost reduction efforts across all of our businesses. These productivity efforts are expected to yield approximately $100 million in incremental earnings, and the biggest part of this will obviously be the Pardies closure.

The third area is related to our tax rate. As we announced, we have lowered our adjusted tax rate percent into the low 20s as a result of our administrative and manufacturing restructuring efforts. Barring any changes to global tax law or major structural changes to our business, we believe that this range will be sustainable for at least the next couple of years. So collectively, these efforts represent about $1.00 per share in earnings improvement in 2010.

I will now turn the call over to Mark for Q&A.

Thanks, Steven. Glenn, if we could open up the call for Q&A, and give instructions on how we will proceed.

(Operator Instructions)

Great. And if we could ask everyone to -- the first time through to have a question and a follow-up, and if there is additional time and desires there, we will continue to take people later on.

Robert Koort, Goldman Sachs.

Thanks. Good morning. Dave, obviously quite helpful to get some range of what these self-help measures are going to do. Can you give us a little more explicit guidance on what that would equate to in terms of a global manufacturing growth rate? I think you said maybe 2010 at second-half '09 rates. Just so we can sort of come up with our own estimate if the economy is better or worse than what you're assuming.

Sure, Bob. That is what we look at. We look at 2010 being an awful lot like second-half 2009 demand levels. That is what we've based it on. Perhaps as we look at it, we are a little bit cautious in the view of next year, but that is what we are looking at. And if the economies globally are better than that, there should be some upside.

And on your emulsions plant expansion, I can see on the acetic side it is more of a commodity that you could sort of force your way into the market if you wanted to. I recognize that you've got not that big of a net change in capacity there, so you won't do it.

But on emulsions, being a little more downstream, can you talk about how you would feather that production into the market and how it would be -- sort of the ramp plan would be. I recognize it is a ways out, but how is that different than what you might do in acetic?

No, Bob, this is really exciting for us. We entered the emulsion business through acquisition over the last decade. The intent there was to provide value-added products and new chemistry, frankly, based on vinyl chemistry.

We have been incredibly successful -- more successful than I would've thought. In introducing that new technology in China, the uptick has been faster. Consumers are buying coatings, adhesives, based on the new VAE technology that we put into the market. So we are actually out with the new plant today, probably a couple years faster than we had originally projected, based on the demand that is in the marketplace.

Until that time, we are running at full capacity in Nanjing in our facility. So we are bringing product in from other regions around the world. We would anticipate when that unit started up in about 18 months from now, that it will run not full-full, but it will have some pretty good run rates based on the demand that is in the market today.

Great. Thank you.

David Begleiter, Deutsche Bank.

Thank you. Good morning. Dave, as we head towards 2010, can you provide an assessment of the acid market as we see the new plants, including yours, come onstream? And what is in your $0.20 guidance for acid pricing in China?

You bet. You know, Dave, there will be new capacity as everyone knows, that comes into the market next year. But the attractiveness is the acetic acid cost curve continues to come back again and again and again. We basically put a lot of new capacity into the market over the last several weeks, and the pricing didn't change an awful lot. In fact, it was stable to up.

When we look out with the new capacity coming in, even giving that capacity the benefit of the doubt that it will start up and run full on the announced day the facilities will come in, we will still be in the part of the cost curve that we are at today. We do not anticipate or foresee any changes in pricing or margin levels on the basis of that new capacity coming into the market.

And Dave, when you look at Nanjing, once you bring on the emulsion expansion, how much of the 1.2 million tons of acid will be used on the Nanjing side and/or exported to Europe to replace Pardies? How much of it will you be selling into the Chinese market?

We would anticipate that the bulk of the material that is produced in Nanjing would end up either in the market as acetic acid, or, frankly, with some of this increased demand that is coming off of VAE, some of our downstream products in China.

Remember, we run a global system. We have manufacturing facilities around the world. And we will spot our acid to serve the European market based on the economics that make sense. North America, our facility out of Singapore, it will be sourced out of probably one of those two locations, with Nanjing being principally focused on China.

Thank you.

Frank Mitsch, BB&T Capital Markets.

Good morning, gentlemen. Dave, the one area where you actually saw pricing up year-over-year was in the Consumer Specialty area. Can you talk about what the factors were that drove the ability to raise pricing and the sustainability of that?

You bet. The focus in that business -- two main businesses there, Frank. One is the Nutrinova high-intensity food sweeteners, and the other one is acetate fiber. And the pricing trends in acetate fiber -- and our focus on it has been, frankly, to go after margins and price. So when we put in place contracts this last year, we focused on margin and have been successful in getting price.

Going forward, it is really too early to forecast going forward. What will happen with pricing in that position, these contracts tend to be negotiated late in the year, early in the year, but we certainly see an environment where it's at least stable to up.

All right, great. And it looks as if foreign exchange hurt you by about $15 million, $20 million on the top line. Any thoughts on if the dollar stays where it is, where that would be for the fourth quarter and what perhaps the impact could be on the bottom line?

You see it on the top line pretty clearly. But keep in mind, if you think about euro principally, we've got a lot of our costs in Europe, as well, and we've got some euro-denominated debt. So we try to put in natural hedges to offset a lot of that volatility. So on a quarterly basis, I don't expect to see a lot of impact on the EPS line.

Great. Thank you.

Sergey Vasnetsov, Barclays Capital.

Good morning. Congratulations on your successful launch of expanded Nanjing plant. You make it look too easy.

Thank you, but there is a great team behind that making it look easy. But thank you.

We would expect you to launch a new plant every year now, that cost you so little and you can do so well.

So seriously, on additional debottlenecks in Clear Lake and Singapore, particularly in Singapore plant, so what are your thoughts?

Well, you know, as we say, our strategy in the acetyl chain is unchanged. We put capacity in when there is market growth or customer growth that requires it. So looking forward, you know, we would expect with market growth that we would be putting new capacity in in one of those facilities going forward.

We don't have anything announced yet. We certainly take a look at the optionality that we have in our chain across the world. And as market growth picks up, we will be making appropriate plans -- and announcements.

My second question is on your cash use. My Excel program gives me (inaudible) that you have way too much cash going forward, say, in 2010 and beyond. What are your thoughts on priorities and share buybacks and dividends?

I'll start it off, Sergey, and then let Steve add a little bit of color to it. But as -- we are very confident with the balance sheet and cash position that we have, and the Company is today and has been and will continue to be a very strong cash generator.

Our focus has been to try to do those things with the cash that gives the greatest return to investors. So in this environment, we've highlighted in prior calls that we continue to look for acquisitions. There is more acquisition opportunities out there today than there has been at any time the last five years. The prices are in a reasonable range, particularly given the amount of synergies that we can find in the acquisitions.

We look at center of the fairway; nothing that is huge stepout acquisitions, more bolt-on in size. And we target a post-synergy return on acquisitions as somewhere in the 4X to 6X range.

So we will continue to look at uses of cash there. The investments that we make, this VAE announcement that we had a couple of days ago, I think is a great use of cash for the investors. And then beyond that, we look at other ways of returning cash, either through share buyback; we have a modest dividend. Steve, do you want to expound on that?

Yes. You know, Sergey, one thing to keep in mind as you look at our cash balance, about $1.3 billion, there is about $300 million that is needed just to fund our businesses on a day to day and our affiliates. And then we've still got about $300 million of advanced proceeds from the Frankfurt Airport, for our plant relocation there. So you can think about a $600 million to $700 million number in terms of cash available to [pursue some of] these high-return investments that Dave just talked about.

Okay. Thank you.

Kevin McCarthy, Bank of America.

Yes. Good morning. I was wondering if you could advise us when exactly the incremental 600 kilotons came on at Nanjing, and whether or not any of that would have hit the third quarter. Just trying to get a handle on what the incremental volume contribution might be from that unit in 4Q versus 3Q.

Good question. We had -- the plant was actually in startup mode in the middle of September. And frankly, it came up very rapidly. The CO supplier, the coal gasification supplier, came up very rapidly, and the run rates came up very quickly.

So when you think about sequential forward changes in volume, we would be running that facility relatively full, because of the cost structure in it. We would be ramping down our Pardies facility, as we move towards closing that at the end of the year.

And so I don't know that there is going to be significant sequential increase in volume. Basically, we would look to see what the market is like and match the production to where we see demand.

Okay. And then on the pricing side, Dave, would it be reasonable to expect flattish acetic acid pricing in China in 4Q versus 3Q, or do you think -- have reason to believe it would be materially better or worse there?

No, we see margins relatively flat. And assuming flat raw material input prices -- unchanged raw material input prices -- pricing, pricing ought to be in that range. You know, [350], [375], it is kind of in that range.

Okay. Thank you very much.

John McNulty, Credit Suisse.

Good morning. Just one quick question. With regard to the cost per ton at the Pardies plant, can you give us some clarity as to the difference between the cost per ton there and the cost per ton at the Nanjing facility, just so we can have kind of a rough idea of how much -- or kind of what the difference is in the replaced capacity operating level?

Yes -- maybe it makes sense to look at it on a systemwide basis. So we put about 600,000 tons of capacity into Nanjing, and we took out about 450,000 at Pardies. And we've indicated that the cost of taking Pardies down is somewhere in the $90 million to $100 million range. Generally, we don't execute projects like this unless they have a two-year simple payback on cash shutdown cost. So that kind of gives you the impact, the benefit.

John, this is Mark. The only other clarification there is that benefit would be on a net basis, so assuming we've continued to meet the needs of our European customers. So that would include what it would take to continue to do that.

Systemwide benefit.

Okay, great. I appreciate it. Thanks.

(Operator Instructions) PJ Juvekar, Citi Corporation.

Good morning. I am looking at a consultant's pricing for acetic in China, and that shows like a $50 drop in the last few months. And you said your pricing was flat. Maybe is it that your contracts are slightly different? Can you tell us what is going on?

There was pricing in China for a brief period of time, when there were some outages, in the $400 range, which we viewed as being unusual and positive. It essentially validated the -- there were some outages within the industry, temporary. We had an outage, I'm sure everyone is aware of. But that pricing went up according to what we felt it was going to and then it normalized back down into the $350 range. And I think that probably explains it.

Okay. And then besides yours and BP plant -- and maybe you can give us an update on the BP plant, as well -- but there were two other plants that were sort of a question mark in 2010, (inaudible) and Wujing. Can you give us an update on those as well?

You know, only what we read in the press, in the south there. The BP facility is one in China that I think when you read the trade press, they are suggesting it will be sometime in the first quarter startup. There is a plant in the Middle East, and that is reported to be in startup as we speak.

And then there is -- I don't know -- two or three smaller, higher-cost units that are reported in the press to have startup sometime in 2010, based on, as we've said before, and as sister plants are demonstrating, using the same technology, that these new plants would -- smaller plants are using -- if you look at it today, we don't think the economics are such that those units would run. And certainly that has been the case.

But, you know, that is the kind of landscape out there. Under any circumstances, though, we see very stable margins through the 2010 period. And I think if you also look at the press, you see that a lot of -- a number of facilities that were announced in the 2011, 2012 timeframe are either being publicly pulled or there is not an awful lot of activity coming from them.

Thank you. And just lastly, just a housekeeping question. What was your FIFO impact in the quarter? Thank you.

There was none, PJ, to speak of.

Thank you.

Geoff Dancey, Cutler Capital Management.

Good morning. I have a few questions for you. I was first wondering how long will the low 20s tax rate last for you.

As we look at -- barring any changes to global tax laws, we expect to see that sustained at least over the next couple of years, to be in that 20% to 24% range.

Okay. Now is there anything that you foresee that could change that?

No, not at this time.

Okay, great. And how much cash do you currently have earmarked for Kelsterbach?

About $250 million to $300 million.

Okay. And the growth in Other Liabilities from about $800 million at year-end to $1.27 billion right now, can you just explain what is in that?

Yes, that is all the advance proceeds received from the Frankfurt Airport Authority. They get treated as a deferred liability until we actually finish the site and transfer title.

Okay --. All right, great. Thanks a lot.

Sir, you have no further questions at this time. I would now like to turn the call over to Mark Oberle for closing remarks.

Thank you, Glenn. Thanks, everyone, as usual, for joining us on the call. And if you have any further questions, feel free to contact myself or anyone on the investor relations team here at Celanese. We'll talk to you soon. Thanks a lot.

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