塞拉尼斯 (CE) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter 2010 Celanese Corporation conference call. I will be your operator for today. At this time, all participants are are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions).

I would now like to turn the call over to your host for today, Mr. Mark Oberle, Senior Vice President, Corporate Affairs. Please proceed.

Thank you. Welcome, everyone, to the Celanese Corporation first quarter. My name is Mike Oberle, and on the call today are Dave Weidman, Chairman and Chief Executive Officer, Steven Sterin, Senior Vice President and Chief Financial Officer, and Doug Madden, Chief Operating Officer. The Celanese Corporation first quarter 2010 earnings 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. The limitations inherent in such forward-looking statements are detailed on slide two of the Power Point slides referenced during the call. Celanese Corporation's first quarter 2010 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 and in our financial statements and for a reconciliation of our non-US GAAP measures to the US GAAP figures please see the Company's schedules in our earnings release posted on our website.

This morning, Dave Weidman will review the performance of the Company. Steven Sterin will provide an overview of the business results for each segment and the financials. And we will have a Q&A period following with Dave, Steven and Doug. So now I would like to turn the call over to Dave Weidman.

Mark, thank you, and welcome, everyone, to today's call. I am excited about our quarter and the year, and I am particularly excited about the progress we are making toward becoming a technology-focused, specialty materials Company. Today, I will briefly focus on three key areas. First, our strong first quarter results. Second, our increased 2010 outlook. And finally, progress on growing earnings an additional $500 million to $700 million by mid-cycle. Steven will then provide financial details about the quarter, and then we will open it up for questions for Doug, Steve, or me.

First, details of the quarter. Compared to the same period last year, net sales were $1.4 billion compared to $1.1 billion. Operating EBITDA was $246 million versus $136 million, and adjusted EPS was $0.67 versus $0.08. Our first quarter results highlight the ongoing shift in our earnings profile toward the technology-driven, specialty materials businesses within our portfolio. Advanced Engineered Material had its best quarter ever. These record earnings were driven by increased profits due to substantially higher demand in Ticona, higher earnings from our strategic affiliates, and a lower cost base. Let me reinforce that this record performance is in a segment where demand has not yet fully rebounded to historic highs. Celanese innovation and application development strategies are delivering the revenue growth and operating earnings leverage we have expected. In the quarter, we laid track for further AM growth with significant enhancements to our Ibn Sina joint venture as highlighted in the announcement made a few weeks ago. Steven will provide more details, but let me just say that I'm excited about this new growth platform. Under the agreement with Sabic and Duke, we will build the lowest cost POM facility in the world to support future growth, increase Celanese economic participation in the venture and will extend its duration to insure ongoing benefits far into the future.

As you know, AEM is central to our earnings growth commitments. Looking forward, our specialty materials businesses will be a much larger part of our Company's total earnings. Record Q1 performance, plus the enhancements made to the Ibn Sina venture, should give you some idea why we are incredibly impressed with AEM's growth profile. We look forward to describing more progress in this exciting business at our May Investor Cay.

Now, as we have been sharing with you through the quarter, our downstream [assets yields] derivatives performance was pressured with increased raw material costs, especially from ethylene. However, based on recent market actions, we expect to be able to offset this $15 million to $20 million raw material impact over the next quarter or two. More importantly, first quarter acetic acid performance remained solid. With Celanese technology-driven acetic acid cost advantage and a very steep industry cost curve, we continue to see stability in our margins over the last several months as long-anticipated, new industry capacity came on-line. Acetic acid's margin stability, or the cost curve integrity and our Q1 acetic acid performance, reflects the Celanese advantage derived from technology leadership in both operating economics and capital efficiency.

Now, let's turn to full-year 2010. Based on the success of our strategic initiatives, the accelerating global recovery in many of our end-use industries served by Advanced Engineered Material, and further aided by higher than anticipated dividends from Acetate China Ventures, we are delighted to increase our expectations for 2010 earnings by at least $50 million. Celanese now projects that is 2010 operating EBITDA will increase by more than $250 million over 2009 results, which were approximately $850 million. On an adjusted EPS basis, this translates into more than $1.25 per share of earnings growth, when compared to last year's results of $1.71 per share. And as we look beyond what is shaping up to be a near-record 2010, we see good earnings growth into 2011, driven by Celanese-specific activities. By mid-cycle, we remain very confident in our ability to increase the earnings power of our portfolio by $500 million to $700 million to $1.6 billion to $1.8 billion of operating EBITDA. We look forward to sharing with you more details about this year's, next year's, and this cycle's earnings performance at our Investor Day on May 11th in New York City. With that, I will now turn the call over to Steve.

Thank, Dave. Let's begin with our first quarter performance and outlook for our businesses starting with Advanced Engineered Materials on page eight of the Power Point presentation. This business delivered record earnings performance in the quarter driven by very strong demand and the continued success of its product innovation strategies. Net sales were $282 million, a $117 million increase from last year's results. Volumes were up 71% year-over-year, as demand continued to increase across most of our end-use industries and geographies. During the first quarter of 2010, we also benefited from additional sales of non-spec products resulting from a POM competitor outage in Europe and sales related to the FACT LFT business that we acquired in December of 2009. Pricing declines of 11% were attributed to product mix and the resulting sales of lower price products related to the POM competitor outage.

Operating EBITDA was $82 million compared with breakeven results last year. Earnings from our equity affiliates were up $29 million from last year's results as they experienced similar demand increases. As we look ahead to the second quarter and the rest of 2010, this business is well positioned for significant year-over-year earnings growth through an economic recovery and the continued success of our innovation strategies. We would expect second quarter earnings for our Ticona business to perform at levels similar to Q1, and we expect our AEM affiliates' earnings to be slightly lower sequentially due to the timing of certain costs.

Let's now turn to Consumer Specialties on page nine. Net sales were $238 million, down $28 million from last year. Volumes were down 11% year-over-year due to modest softness in end-customer demand as well as the impact of our production outage. During the quarter, our utilities provider experienced an electrical disruption that resulted in a production outage at our acetate manufacturing facility in Narrows, Virginia, which impacted the timing of sales and delivery of product to our customers in the US and Asia. However, we expect to make up these lost sales in the second quarter and through the rest of the year.

Operating EBITDA was $61 million, down from $81 million last year. This quarter's resulted excluded $80 million of other charges and adjustments which are primarily related to the proposed consolidation of our acetate manufacturing footprint with the potential closure of our Spondon facility announced earlier today. These proposed actions would further improve our fixed cost structure, better align our production capabilities with anticipated industry demand, and strengthen our competitive position. As we look forward to the second quarter of 2010, we anticipate dividends from our Acetate China Ventures to be approximately $70 million higher than we had anticipated. Volumes in our business will be sequentially stronger due to recovery from the first quarter volume loss resulting from the Narrows outage as well as normal seasonality. As a result of this volume along with the higher dividend, we would expect CS full-year earnings to be up on a full-year basis when compared to record performance in 2009.

Turning now to Industrial Specialties on page ten, net sales were flat year-over-year at $242 million. Volumes for emulsions and EBA performance polymers were up 16%, driven by higher volumes following the resolution of the force majeure last year at our EBA facility in Edmonton, Canada and our innovation efforts and increased demand for emulsions products, particularly in Asia. Increased volumes were offset by the absence of sales from our PVOH business that we divested on July 1st of 2009. Operating EBITDA was $22 million, down $4 million from last year, reflecting the impact of the PVOH divestiture and rapid raw materials -- raw material costs, particularly in ethylene, which could not be offset. As we look ahead, we expect that our recent market actions will help recover the impacted margin over the next couple of quarters. We also expect continued growth through our innovation efforts, increasing demand in Asia, and sequentially higher demand due to seasonality in the paints and coating space.

Results for Acetyl Intermediates are found on page 11. Net sales were $724 million versus last year's $572 million. Volumes were up 14% due to higher demand for acetic acid and acetyl derivatives. While industry utilization rates for acetic acid were in the high 70% range, pricing levels were up year-over-year on higher raw material costs. Even as new capacity came on line, the cost curve remained intact, and we continue to maintain our leading cost position through our differentiated acetic acid technology. Operating EBITDA was $107 million compared with last year's $48 million. Dividends from our Ibn Sina cost affiliate were up $24 million from last year's results, which helped to drive the earnings improvement. Operating EBITDA results excluded $52 million of other charges which were primarily related to a writedown of raw material contract due to a supplier bankruptcy, as well as other asset impairments.

Sequentially, acetic acid pricing and margins were stable. However, our downstream acetyl derivatives businesses were challenged rising raw materials. In particular, ethylene which rose rapidly in the quarter due supply issues in that industry. For the first quarter, we estimate that the net raw material impact was between $15 million and $20 million throughout the acetyl chain, which includes our VAM and other derivatives product lines in AI and emulsions in IS. The majority of the impact is seen in AI, and as we said earlier, we expect to offset this over the next couple of quarters.

Let's now turn to our equity and cost affiliates performance on page 12. The earnings impact from our affiliate performance is on the left side of the chart. This quarter's results were $53 million, up from last year's $4 million. Primarily driven by increased earnings from our Advanced Engineer Materials affiliates and higher dividends from Ibn Sina. The improved results were attributed to volume recoveries for the equity affiliates and improved profitability of Ibn Sina. Dividend income, included in cash flows, as shown on the right side of the chart, was $57 million, compared to $24 million last year. As global economic conditions continue to recover, we would expect our equity and cost affiliate performance to continue to be improved versus the prior year. As I mentioned earlier, dividends from our Acetate China Ventures, which will be received during the second quarter, will be higher year-over-year.

I would like to take a moment to elaborate on a recent announcement regarding our Ibn Sina joint venture on slide 13. This cost affiliate has provided us with a strategic and structural raw material hedge for 30 years. We intend to build on this with the construction of the new, world class, 50,000-ton POM facility to support the growth of our customers in engineered polymers applications. Once the POM facility starts up, our economic participation in the total joint venture will increase from 25% to 32.5% which will provide even higher earnings beyond 2013. As a result of these changes, beginning in Q2, this affiliate will be reported in the AEM segment. Currently, we report Ibn Sina results in our Acetyl Intermediate segment using the cost method of accounting. So we report earnings equal to the cash we receive, only as we receive it. As a result of the structural changes we have made to this affiliate, we will begin to report Ibn Sina results using the equity method of accounting. This will also begin in the second quarter of 2010. So, not only will the segment change, but we will begin reporting equity earnings equal to our proportional ownership. We have included some historical dividend information from the venture in the Appendix. This should help you think about the earnings shift that we will see as we move segments. Keep in mind that this is just a shift in the dividend. The actual figures may be different due to the difference in equity and cost accounting methods. Beginning with our Q2 reporting, we will provide the current and prior reporting periods under the new accounting method. Additionally, we will publish an update to our affiliate white paper on our website, in order to provide more information to help understand the accounting and modeling implications of these changes.

Turning now to page 14, we continue to expect to generate solid cash flows this year. On the left side of the chart, you can see that we currently have about $800 million in cash available to use for strategic activities. This figure takes into account the inflows and outflows related to our Ticona Kelsterbach relocation project and the cash reported to operate our businesses. On the right side of the chart, we have included our cash outflow expectations, also of an EBITDA base, totaling between $695 million to $775 million. There are no changes here from the numbers we showed you during our Q4 call. Our strategic cash position remains strong, and we continue to make significant progress on a number of key opportunities to deploy this cash in value-creative ways. We could use some of this cash to support the proposed closure of the Spondon facility, as well as the investment in the Ibn Sina affiliate. Additionally, we continue to make progress on a number of other strategic opportunities including acquisitions, further investments in our businesses, and optimizing our capital structure.

Regarding capital structure, yesterday we announced that we are increasing our dividend by 25%. We are confident in our businesses and our growth plans, and actively raising the dividend is one way we can return cash to our shareholders. In addition, we have an existing authorization of approximately $122 million for share repurchases and expect to be in the market this year repurchasing shares. We look forward to discussing our strategies at our Investor Day on May 11th. I will now turn the call over to Mark for Q&A.

Thank you, Steven. If we could now get some instructions, and as we get ready for Q&A, we would ask that everyone limit their first round of questions to one question and a follow-up. With additional time, we can come back if there are any other further questions.

Thank you. (Operator Instructions). And your first question comes from the line of John McNulty with Credit Suisse. Please proceed.

Good morning.

Hello, John.

Just a quick question on the electrical problem that you had in the acetate business, can you give us some color as to what the hit was actually in the quarter?

Sure. It will have no impact for the year, but we have some delays in shipments that will move out to Q2 and Q3. Mid-single digits, millions of EBITDA. So not a significant impact. As we look at our total business performance for the quarter though, we also mentioned that we had -- there was a competitive outage in AEM. That was about the same size. So when you look at our total numbers, really no impact. These two offset each other.

Just as a follow-up. A slightly longer term kind of question where the volumes are coming in, it looks like a lot better than what you expected for this year. What I am wondering is when you talked in the past about your mid-cycle targets that was always a 2013 or 2014-type time horizon, has that changed at all? Are you thinking that that may be sooner rather than later, and can you give us an update on that?

John, when we look at the mid-cycle. I would say give us another quarter or two to see how the recovery continues to develop. We are certainly very pleased with what we see so far. Globally, we would say the greatest strength is in the broad Asia. When you think about Asia, it is more than China. Japan has had a significant high-end technology consumer recovery. Korea is much the same way. Southeast Asia continues to show very, very solid growth. A lot of low-end manufacturing has moved out of China into there. India is -- really didn't see much of a decline. We have great position there, and India continues to grow. Then China has a great story, too. So as we look forward -- another quarter or two gives us more clarity as to how this thing will shape up, but we are certainly optimistic about the $1.6 billion to $1.8 billion.

Great. Thanks very much for the color.

Thank you.

Your next question comes from the line of Dave Begleiter with Deutsche Bank. Please proceed.

Thank you. Good morning.

Hello, Dave.

Dave, can you discuss recent pricing trends in China for acetic acid?

Yes. I will do it overall, and Steve and Doug may add a little more color to it. Dave, overall, where we are on the price curve now and for the foreseeable future -- we are basically at a margin-neutral position. So raw material escalation, de-escalation. You will see acetic acid prices go up and down correlated to that. I think in the first quarter here -- Steve, Doug -- we saw them in the over $400. They are moving back a little bit now as methanol comes off a little bit. But, basically margin neutral.

Dave, this is Doug. Just to piggyback on Dave's comments. Yes, you saw -- coming in early in the quarter -- you saw the prices in the marketplace escalating, largely driven by principle raw materials. Since then, you have seen them start to fall back, but they're still within a range of -- think about it around that $400 a ton kind of range, plus-minus $15, $20 up, or $10 or $15 down depending on raw materials.

Understood. And Dave and Doug, your comment about the acetic acid curve remaining unchanged. As BP comes online -- and some of the other plants in China come on-line, will the curve flatten out? Or has your expansion engine further steepened the slope at your end of the curve?

Dave, there has been a lot of new capacity come into the market over the last several quarters -- four or five quarters. And a lot of that capacity is not operating out to the right at our point in the cost curve. When we look forward, we don't see as much capacity coming into the market over the next year to two years by a long ways. We will talk about this a little more at Investor Day. And the capacity we see coming in is largely to the right. The BP facility -- it will come up and operate. They have a very large global market share as you know, and I think that they will do what is in their global best interest, we believe, as they bring capacity in. When ever that is, but we feel first quarter was the crucible, if you will, we came through it very, very well. And the cost curve is intact. And going forward, we see stability.

Thank you.

Your next question comes from the line of Edlain Rodriguez with Broadpoint Gleacher. Please proceed.

Thank you. Good morning. Quick question on [udbensment tailors]. You talk about moving the EBIT in your venture, in the advanced engineering materials segment. Won't that introduce a higher degree of volatility into this high margin business? Because after all, investors are willing to pay up for those earnings relative to the more commoditized acetyl intermediates business. Won't that take away from the goal of being viewed as a specialty chemical Company?

Actually, [Steven], first of all we are moving it in because of the strategic presence in POM and our operating presence in that space. But if you look at the volatility question, actually by putting it in the EAM space, you actually reduce the volatility overall of that segment. You have got methanol and energy-type exposure through MTBE in the venture, and you have got a pretty close correlation of methanol and MTBE energy and raw material exposure up above in the variable cost side of AEM. Overall, it actually will take some of the variability out of the segment.

Okay. Makes sense. The other questions. Can you talk about like Toyota, what's the impact has been with the recalls and so forth? What are you seeing there?

Yes, this is Doug. You probably have seen this -- Toyota had enormous sales in March. I think if I remember correctly, they were up somewhere around 40% to 45%. Clearly, some producer incentives that remain out there, but it would appear as though Toyota production is coming back as they work through the last quarter's issues. Overall, when you look at volumes spread across the customer space globally, we are fairly indifferent to which end market it ends up. It is more, so volume shifts from a Toyota to a Ford, you know we have got a presence in all of that -- in all of the end markets.

Makes sense. Thank you.

Your next question comes from the line of Sergey Vasnetsov with Barclays Capital. Please proceed.

Good morning. Congratulations on a strong quarter, and it's a good step with the dividend increase.

Thank you.

Hopefully more to follow. A couple questions. On your cash on slide 14, you have a sizable amount of cash already right now. You are generating very healthy cash and growing hopefully in 2010 and 2011. Could you talk again about what your thoughts are on deployment of cash?

Sure, Sergey. No change in how we think about either prioritization of cash or the fiscal discipline behind it. So we do look at investing in our business whether it is in growth projects or productivity projects like our Ibn Sina expansion, the possibility of a Spondon rationalization. Those are very high returns. They will meet our payback criteria that we talked about. Productivity, think about less than two years. Simple payback. Those tend to be the highest, greatest long-term synergy value to the Company. Beyond that, we continue to look at acquisitions -- bolt-on acquisitions in nature -- highly synergistic to our current portfolio. The pipeline is robust. We have made progress there as you have seen. With the FACT announcement, progress strategically with Ibn Sina, and we are encouraged by what we see, and we expect good things to come from our work there. So that remains a priority. We continue to look at our debt levels. We have -- beyond that we look at ways to return cash to shareholders. As you saw yesterday, we announced an increase in our dividend, and we do anticipate to be repurchasing shares as well. No change to the overall prioritization and usage, but we are encouraged with the direction we are heading there.

Just two add-ons to what Steve said. The acquisition opportunities are robust -- continue to be robust. And as I look at them, they continue to move us toward a much more specialty materials Company, and a Company that is leveraging and driving our technology advantage. Good stuff to come. The second observation is that the increase in the dividend -- in our mind at least thaws one lever -- one way of returning cash to shareholders. And we believe that it is a step that is important for us to take.

Okay. Good. So this much attention to the Chinese acetyl market, but can you talk about supply-demand in VAM and other downstream emulsions.

Excuse me? Sergey, the downstream -- ?

The VAM of the derivatives.

Yes. Well, it is, as we said earlier -- you can see where during the quarter we saw the escalation of our raw materials, and we would expect that to come back over the next couple of quarters. Overall, in that market space, VAM is still running -- probably consistent with where it was at the fourth quarter operating rates for VAM and for the other derivatives. In our emulsions business, we continue to see strong growth coming from our vinyl-based chemistries there. And as you know, we are taking steps here to expand that position with the next plant that we are putting in that we would expect to be online over the course of the next 14 to 16 months. So encouraged at what we are seeing in China.

Thank you.

Your next question comes from the line of Robert Koort with Goldman Sachs. Please proceed.

Thanks. Two quick ones, if I might. Dave you mentioned, or maybe Steve did, that industry acetic rates were in the mid- to upper 70s. Can you talk about where your rates are now, and where they have been? And secondly, can you talk a little bit about what happens with the pricing dynamic for your materials if we see ethylene fall off a cliff here in the second half as some consultants are suggesting might happen?

As you know because of our technology advantage, we tend to run at rates higher than the industry in acetic acid. You can think about us being in the 90s and meeting our customers' demand based upon those rates. Second question, if you look at the businesses that have ethylene exposure, we tend be able to hold on to drops in ethylene and basically in a symmetrical way a quarter to a quarter to two depending on the end product in the same way that we take that time to pass the raw material prices back through. It depends on the region as well. North America tends to be more formula-based. Asia is more spot. And Europe is where you tend to have more of a quarterly type of pricing mechanism.

Would you anticipate there would be any attempt by customers to draw down inventory if they see that same dynamic out there? Or is the market tight enough that you are shipping hand-to-mouth for existing demand?

In this space, there doesn't tend to be a lot of inventory for a number of reasons. One, there is limited storage capability that is out there, and then, you look at the paints and coating space where a lot of this ends up and adheres. There is not a lot of inventory that gets maintained in the chain. On the margin, you can see a little bit of that. But it's not a structural concern for the industry.

Thank you.

Thanks, Bob.

Your next question comes from the line of Kevin McCarthy with Banc of America Merrill Lynch. Please proceed.

Good morning. How are you?

Hello.

In Advanced Engineered Materials, can you comment on how the non-auto volumes are trending in that segment? As well as any contributions from the competitor outage that you had there?

Yes. Kevin, it is Doug. In the non-auto segment, you probably seen a lot of this out there recently. Electronics has been very strong. Consumers are out there spending, and it is really across all three of the principle regions of the world that we have seen significant growth there. When you think about the impact of the competitor -- I think as both Steven and Dave have said -- think about this as modest low single digit for AEM and again for total Company. The impact that it has had there will be offset the impact from acetate coming in subsequent quarters.

Then on the price trend of minus 11% there. Was that exacerbated in any way by co-producer-type sales in the quarter? Or what should we think of as an underlying price trend there?

There is some product mix -- just timing of regional demand. But more than half of that is related to this competitive outage. So you have also seen that we have got some price increases announced in the space. More at the base-grade products in limited areas. So, think about some of that as temporary.

Got it. And then on Acetyl Intermediates, have you seen the neighboring BP acetic plant come up yet in [Nanjing]. I think some of the consultants had it up this month subject to reconciling some CO supply issues.

Yes. Kevin, we don't see any market change in prior quarters. I think that there, you know, from our viewpoint, no change announcement was for Thome be out in April and it doesn't appear that is going to happen. That's really all we know.

Okay. Last one if I may for Dave, can you comment on the decision to, you know, exit the UK capacity and consumer specialties, was that part of the APL deal three years ago?

Yeah, let me talk a little bit about the, the strategy of the business, and Doug can kind of put some color on to it. In our acetate business, our strategic intend is to hold market share in each of the three regions globally, to driver productivity and then to, that leads us to the growth market which is in China. You have seen that we have increased dividend outlook for China in the second quarter as a consequence of our invest decision several years ago, we also announced the expansion in our acetate joint venture with, that will support that growth and the only region of the world that's growing. When we bought APL we viewed it as a business that we bought, supported by a manufacturing assets and as we look at productivity opportunities, we can still maintain our strategic objectives, while reducing our production costs. Doug?

The only thing I would add to that is if you look back the story has been that we have put our production footprint in the regions, followed our customers where the demand is going. We are clearly positioned in the largest, in our joint venture. So, this proposal that's before us now gives us further opportunity to drive advantage in product (inaudible) from more efficient plants across our system.

Okay. Thank you very much.

Thank you, Kevin.

Your next questions comes from the line of Sabina Chatterjee with BB&T Capital Markets. Please proceed.

Good morning.

Hi.

Can you just briefly discuss the trends in auto, specifically like how did your customers run out in Q1? And how do you expect production to play out during the year? Essentially how should that impact the seasonality in Tacoma?

I will start it off a little bit and then have Steve jump in here, but what we are very balanced globally. Obviously through our ventures, we have big participation in the Japanese market, the Korean market, through our own direct activity, European market, and North American market are roughly balanced. So what we saw was an increasing optimism for full year production as a quarter progressed. So you couldn't match our increase in demand with actual auto builds within the quarter. But we believe what is going on is a surge in production expectations and with that, they're ordering to bring their supply chain up to sufficient levels to meet that production. We don't sense that there's any quote unquote restocking going on or nothing of significance. It is frankly just bringing their demand back up to points that will support a higher production level. So a high level. That's what we see.

Okay.

Although we had record volumes in the business in the quarter, as you know we are still well below the high water marks globally for (inaudible) builds, which reflects not only the sequential improvement that Dave just talked but the our penetration rate in the space. We expect to get about 6% penetration a year in auto. And so,, that helps you get a sense for why our volumes are up a little more than the industry as well.

Okay. And then, within consumer specialties, are you seeing any improvement in any particular end market? And is it feasible to return to the 24% plus margin levels that is we saw in the first half of 2009?

Yes. I would, I would say that what we have seen is if you will recall, it is that we were seeing some softness over the past several quarters. I would call it a stable market environment now, where it seems to have bottomed out. So, overall, we would see, we would see demand kind of at the same level that we are seeing today, brought up sequentially as a result of returning full production back into our acetate business, and seeing some additional demand coming from the stronger regions of the world. On the OP margin side, we talked about early last year, we saw a rapid de-escalation of particularly energy prices, given what was happening in the economy. And this is a business that tends to have longer term prices. So we benefited from that. So we had said margins, beginning part of last year were probably not sustainable. I think what you are seeing now, are margins that are approaching more sustainable levels for the near term in this business.

Okay. And then secondly, should we expect -- when should we expect the new filter capacity to trickle down to the bottom line?

Yes. As, we have told you, shared with you, we have had approval from the Government and China, and all of the the ministries to go ahead and put that in. Right now, I think that we have not made that public, but based on the approvals and the timetables, we think you about some time second half of 2012 that we would be, have the plant up and operational. Likely, you would see some small portion of reflected in that year in the dividend, but full impact of that in 2013.

Okay. Great. Thank you.

Your next question comes from the line of P.J. Juvekar with Citigroup: Please proceed.

Hi, P.J.

Yes, good morning. A question for Steve. You took the one time charge of $52 million to write down the raw material contract, can you tell us why you did a one time charge? Where did you take it? Who was the supplier? Can you give us more details on that? Thank you.

Yes, Sure. We can't disclose who the supplier was, but it was a raw material supply in the AI space, And some many years ago, we had basically bought some capacity or space in their capacity, and basically made a down payment on that. So the cash outflow happened years ago. The accounting requirement is basically a depreciation of that amount. So this was that remaining undepreciated asset that was on the book. So it was a one off, because it was a noncash item in the period, and wanted to highlight that for you so you can see that there. As we think about strategic raw material purchasing, we continue to have a string of advantage contracts in our space, and we want to be in a position where we are advantaged to our competition on raw materials, and there's no material change to that position.

No, I understand that.:But that you called out as a one time charge, suppliers go out of business. That's part of doing business.

The reason we called it out there was to provide transparency, so you can see the impact of it. And given the unusual nature of it, you typically don't have assets for purchasing contracts, but this one was unusual, so we wanted to highlight that for you.

P.J., the other thing to keep in mind is that this contract that you were talking about was not all of the $52 million. It was just a portion of that.

Okay. And the next question is , what are the cash cost production of the [Sifkin] project versus your Chinese cash cost production of

Let's see, if you take the cash cost plus the incremental freight, to let's say southeast Asia or China market. And if you factor where in coal is today, we are advantaged. If you calculate on top of that, the cash costs of the investment, for the debt they got onto the venture, we are substantially higher -- to lower than that. And as our calculation is roughly where market prices are today.

Okay, that is interesting, because they are using Eastman technology. And just a longer term question, is it a concern to you that Eastman has signed another deal, and they plan to license one deal every couple of years? That is what they said on their call.

PJ, when we look at, and I don't think their intent shifts over last six or seven years. And our understanding is that though there may be a deal signed there is limited interest at this point to build -- I mean we we've highlighted before Celanese advantage in technology, that advantage is both operating cost as well as capital spending per ton of capacity. And I think we highlighted in our Investor Day last year, the advantage that we have versus others in the space. We would suggest whether it is Eastman technology or other technology, we're tremendously advantaged in a ton of capacity. We're spending 20% to 30% of capital of what you would with other technologies.

Understand. Thank you very much.

Thank you,PJ.

Your next question comes from Charles Neivert with Dahlman Rose. Please proceed.

Morning, guys.

Morning, how are you.

Just a quick question on the proposed closure of your UK acetate operation, and then the gap between that and the start up of the additions in China, or what it looks like the time table for the additions in China, are you going to be able to make up the loss production or capacity from the UK, between that and the China start?

The quick simple answer is yes. As Dave said, we support our both regional and our global share, We got plans in place, as part of this, that will give us the necessary capacity through the rest of our global footprint to meet the demand, so yes.

So other than the UK, operations, where was more or less operating rate of the production you have outside of that? I guess that's the question is, how low is the UK operating rate that you can make it up without making expansions beyond what you got now?

Charlie, let me just draw the curtains back a little bit. We will -- I mean understand we are right at the point of this announcement. And as we speak, we are having difficult conversations with employees in the UK. In sense of that, recognizing that it is an evolving picture. We will make investment. We are considering making investments and shutting a facility down. There's some modest de-bottlenecks that we have within our system,that would support our strategic aim. And then there's growth in Asia. When you combine all of them together, and we're out with an announcement, and fairly detailed on what we are doing in China, and with time, we will give you a little more detail around this proposed activity.

Okay. Thanks. That's it. Thank you.

At this time, we have no further questions. I would now like to turn the call back over to Mark Oberle for any closing remarks.

Great. Thank you, and thank you, everyone, for your continued interest in Celanese. Look forward to answering more of your calls and seeing you May 11th about 8:30 in the morning in New York City for our annual Investor Day. Thanks.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.