Celanese Corporation (CE) Q1 2008 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2008 Celanese Corp. Earnings Conference Call. My name is Eric; I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the conference. [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes. I would know like to turn your presentation over to your host for today's conference, Mr. Mark Oberle, Vice President, Investor Relations, Public Affair. Please proceed, sir.

Thank you Eric, and welcome everyone to the Celanese Corporation first quarter 2008 financial results conference call. My name is Mark Oberle, Vice President of Investor Relations and Public Affairs. On the call today are David Weidman, Chairman and Chief Executive Officer; and Steven Sterin, Senior Vice President and Chief Financial Officer. The Celanese Corporation press release was distributed via BusinessWire last night, and is posted on our website celanese.com. During this call, management may make forward-looking statements concerning for example, Celanese Corporation's future objectives and results, which will be made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political, and regulatory factors. More detailed information about these factors is contained in the earnings release and in Celanese Corporation's filings with the Securities and Exchange Commission. Celanese Corporation undertakes no obligation to update publicly or revise any forward-looking statements. Celanese Corporation's first quarter 2008 earnings release references to the performance measures, operating EBITDA, affiliate EBITDA adjusted earnings per share, net debt and adjusted free cash flow is non-U.S. GAAP measures. For the most directly comparable financial measures presented in accordance with U.S. GAAP and our financial statements and for a reconciliation of our non-U.S. GAAP measures to U.S. GAAP figures, please see the accompanying schedules to our earnings release, which will be also posted on our website, celanese.com. 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, thank you and welcome everyone to today's conference call. I am delighted to share with you highlights from our record first quarter 2008, and update our outlook for continued growth during the remainder this year and beyond. We had a great start to the year and an outstanding first quarter in a challenging economic environment. Net sales were approximately $1.8 billion, up 19% over last year's results. Adjusted EPS was $1.06 per share compared to $0.77 per share in the first quarter of 2007. Operating EBITDA was $381 million versus last year's $315 million. Our first quarter performance illustrates the strength of our integrated global business model, also our solid operating fundamentals and our clear focus on growth and value creation. Despite sluggish demand in certain markets and high raw material and input costs across our businesses, we continue to deliver improved performance. Steve will give you a more detailed information on the quarter in a few moments. I'd like to focus my comments on the exciting progress that we are making in driving near term improvement in earnings; and more importantly, positioning Celanese to deliver higher, more sustainable earnings over the next three to five years. What I mean with our investors, I am frequently asked the question, what part of the Celanese story is being missed by the Street? In my experience, I believe there is two areas of our story that are frequently overlooked. First, is our well defined growth plans; and second, our strong cash generation. Let me walk through these elements in a little more detail; and once I do, I believe that you'll see that the adjusted EPS of at least $5 per share in 2010 is not unrealistic, and perhaps we may even be accused of being a bit cautious. Our well defined growth plans are targeted to increase the earnings power of our portfolio, by approximately $350 million to $400 million from 2006 through 2010 with each of our businesses improving their operating EBITDA by at least $100 million versus the 2006 level. In 2007, you recall, we delivered between $80 million and $90 million of these plan. So, we have approximately $300 million remaining over the next three years; and we are on track and confident. Our advanced engineered materials business continues to grow by at least two times global GDP by working closely with our customers to provide innovative solutions. Our growth is fueled by market-based mega trends such as providing energy conservation solutions, enabling clean water solutions for facilitating healthcare breakthroughs. On top of this, our new exciting opportunities in China, where we are building an infrastructure to support this growth with our integrated Nanjing complex, AEM already has one production facility in operation and two additional units scheduled to start up within the next several quarters. With these new facilities in place we will be very well positioned to serve China and achieve significant top line growth in Asia. In our consumer and industrial specialties businesses the story is about revitalization and growth in Asia. Revitalization of our acetate business is nearly completed, the revitalization of our industrial specialties businesses is underway and making good progress, including a restructuring of our manufacturing footprint and realignment of our technology and customer support initiatives. Through these efforts, the consumer and industrial specialties businesses are expected to contribute a total of at least $100 million and increase operating EBITDA. We have already seen the tremendous increase in profitability in our acetate business, and we are just beginning to see the benefits of revitalization in industrial specialties with more to come. Growth in acetyl intermediates is driven by our China expansions and the continued favorable environment for our products. With the successful start up of our acetic acid unit in Nanjing last year and the start up of our vinyl acetate monomer and acetic anhydride units, which will occur over the next three quarters, we expect to see excellent growth. When sold out, these three new acetyl facilities should contribute a total of over $500 million in revenue with higher operating margins than our other facilities. These investments are already paying off and contributed to the record performance in this business both in 2007 and in the first quarter of 2008. In total, the growth initiatives of all three businesses are expected to deliver approximately $300 million or between $1 and a $1.20 per share in adjusted EPS by 2010 when compared to 2007 base year. An additional area of value creation for Celanese is our success in generating cash. At today's earnings level, we expect to generate around $500 million to $600 million per year in adjusted free cash flow. And we will continue to strategically use this cash to drive significant value for our shareholders whether through acquisitions such as Acetex or APL, capital investments such as the growth in China supported by our Nanjing facility or cost reduction initiatives that have very attractive pay backs. Celanese has demonstrated success in capturing high value creation opportunities and we'll continue to do so in the future. Additionally, over the last 12 months, we've returned approximately $460 million to shareholders in the form of share buybacks with an additional authorization, outstanding of $340 million. Now, if you just assume a 15% return on this cash, you can add approximately another dollar per share to our adjusted earnings by 2010. So, considering the earnings impact contributed from our growth plans and the EPS impact from our strong cash flow, we see these two elements adding over $2 per share more to our earnings performance by 2010 when compared to 2007. Now I'd like to move for a moment and discuss the acetyl pricing. Historically, we believe that long-term sustainable pricing for acetic acid in Asia was in the $500 to $550 per ton range. As many of you know, the high cost producers and those, who set the price in the industry use either ethanol or ethylene as their key feedstocks. One of the contributing factors to the price of ethanol and ethylene is the price of oil. This $500 to $550 pricing assumption for acetic acid was accurate when oil prices were in the range of $60 to $80 per barrel. Over the last five quarters acetic acid pricing in China has averaged over $600 a tank. One of the driving factors is the price of oil. Now it's becoming increasingly likely that oil prices whether due to supply constraints or increased global demand could remain at these current levels for the long-term. At this point, though it seems highly likely, it's not yet clear in our minds whether there will be a structural and sustainable shift to higher acetic acid pricing for the long-term. However, what is clear is that over this year, acetic acid pricing is expected to remain stronger than we had originally anticipated, contributing to our improved outlook for 2008. And so with the continued execution of our growth strategy across of all of our businesses, a stronger pricing environment for our Acetyls business and continued global demand growth. We are raising our 2008 outlook for adjusted EPS to be between $3.60 and $3.85 per share from our previous range of $3.40 to $3.70 per share. With that, I'll turn the call over to Steve. Steve?

Thanks Dave. I'll start by turning to page 8 in the PowerPoint presentation that's posted on our website. Our net sales were approximately $1.8 billion, a 19% increase from last year, driven by higher pricing and continued strong demand, higher volumes from our integrated complex in Nanjing as well as favorable currency impact. Operating profit rose 14% to $234 million. Our overall higher prices, volumes and productivity programs were able to more than offset significantly higher raw material and energy costs, as well as spending related to our China expansion. Net earnings were $145 million versus $201 million in the first quarter of last year. Last year's results included $79 million of earnings from disc ops related to the sale of the oxo alcohol business and the closure of the Edmonton methanol facility. Our adjusted EPS was a record $1.06 per share. This is a 38% increase from last year's results. This quarter's results included a $0.06 per share benefit from the share repurchase programs executed over the last year. This benefit was partially offset by $0.02 of year-over-year option dilution. Operating EBITDA was also a record of $381 million, a 21% increase versus last year. Let's now turn to the results of each of our businesses, starting with advanced engineered materials on page 9. Net sales were $294 million, up 12% from last year's results, a 6% volume growth as well as positive effects from currency. We continued to see good growth in this business and we are also beginning to see the benefits of our strategy for growth in China, which is a key driver in the increased sales for the quarter. The increased net sales were partially offset by lower average pricing as a result of geographic and product mix. Operating EBITDA was down 10%, year-over-year, as high raw material and energy costs continued to pressure margins. We also had lower earnings in our equity affiliates, which face the same margin pressures. On page 10, net sales for consumer specialties were $282 million. This is a 5% increase over last year's results. The increase was primarily driven by higher pricing and continued strong global demand as well as favorable currency. The quarter also included additional sales and profit from the Acetate Products Limited acquisition which closed in February of last year. The lower volumes this quarter were associated with our strategic decision to shift flake production to our China ventures, following the closure of our Edmonton facility. Keep in mind that you will see the positive impact of this strategic shift in the form of increased dividends from these ventures in the second quarter. Operating EBITDA was $65 million, up 8% from last year, as the higher pricing along with the synergies we've captured from our APL acquisition, contributed to the improved results. We are very pleased with the success of the APL integration, and at this point believe that we have achieved our expected level of synergy captured from this business. Turning now to industrial specialties on page 11; net sales in these businesses were $365 million, a 5% increase from last year's results. Higher pricing and continued strong global demand and foreign currency drove the increased sales. These increases were offset by lower overall volumes in the quarter, principally due to three items; continued softness in the U.S. housing and construction segments, some residue impact from the loss businesses associated with last year's Acetyl's force majeure and a tough comp due to strong demand in Germany last year in anticipation of a tax law change. Additionally, as part of the segment's revitalization efforts, we focused our selling efforts on higher value-added applications and consequently moved away from some segments. Operating EBITDA however was up significantly, 38% this quarter as increased revenue more than offset the higher raw material cost. On page 12, Acetyl Intermediates net sales were approximately $1.1 billion, up 31% from last year and a record for the quarter. If you break this down, we saw a volume growth of 8%, pricing of 17% and favorable currency of 6%. The additional volume was from our acetic acid unit in Nanjing that successfully started production last year and continues to run at very high operating rates. Operating EBITDA was $246 million, a 41% improvement over last year as the favorable industry dynamics and higher dividends from our Ibn Sina cost affiliate, more than offset higher raw material and energy costs. Now, let's turn to our equity and cost investment performance on page 13. The income statement impact for the first quarter is shown in the chart on the left. Our earnings impact was $38 million, a 15% improvement over last year's results. Our Ibn Sina methanol and MTBE cost affiliate more than offset the lower earnings from our Asian equity affiliates. We also see that we had higher cash dividends from our cost affiliates driven by the performance of Ibn Sina and higher dividends from our equity investments primarily timing away. Keep in mind that the methanol earnings from Ibn Sina provide a natural hedge to a new identical exposure in our AEM businesses, which has seen margin pressures of late. On page 14, you can see our continued strong cash flow, reflected by a $94 million increase in net operating cash flows from continuing operations. Capital expenditures were $32 million higher as we near completion of our capital spend in Nanjing. Our adjusted free cash flow was $67 million in the quarter, an increase of $54 million from last year, as result of our strong operating performance, lower cash taxes and higher dividends. Let's now turn to page 15 where we summarize our business outlook and 2008 guidance. As Dave mentioned earlier, we have increased our 2008 for adjusted EPS and operating EBITDA. We now expect adjusted EPS to be between $3.60 and $3.85 a share and operating EBITDA to be between $1.355 billion and $1.415 billion. This guidance is based on our adjusted tax rate of 26%. I won't read you the business specific drivers, but in summary, our outlook remains relatively unchanged for all of our businesses. The one exception is our view for acetic acid pricing in Asia, which as Dave highlighted is expected to remain at alleviative levels throughout 2008 versus our prior outlook which had factored in moderating price levels in the second half of the year. Slide 16 highlights some of the additional components of our outlook. As we mentioned earlier, Ibn Sina has had a strong performance so far this year. So we are updating our full year outlook for affiliate income to $200 million to $215 million. We are increasing our expectation for net interest expense by $10 million, due in large part the currency translation related to the strong euro. Our full year outlook for diluted share count is 167 million shares, which is where we ended the first quarter. We haven't assumed a number for future share repurchases but we do intend to continue to be in the market opportunistically during the remainder of the year. Our current guidance reflects only the share repurchases made today, which is approximately $60 million or 1.6 million shares. The current guidance assumes that the remaining authorization stays on the balance sheet's cash. As we progress with our program, we'll update you quarterly on what to expect for share count and net interest expense. Depreciation and amortization is expected to be up slightly primarily related to foreign currency exchange. A last change is cash taxes, which are expected to be approximately $25 million higher, principally driven by our increased earnings outlook. In total, we consider these changes and our increased earnings; our adjusted free cash flow expectation has increased to $550 million to $600 million for the year. Our strong cash generation is a differentiator in our space, and as Dave said a source of significant value creation opportunity and sustainable earnings growth for the company. With that, I'll like turn it back over to Mark to open the Q&A.

Thanks Steven. Eric if you could give some instructions, we will be ready to open it up for Q&A. Question And Answer

[Operator Instructions].

Thanks we'd like to ask everyone to try to limit their questions to one question and a follow-up, and if you have additional, feel free to get back in the queue and we'll handle as many questions as we can. Thanks.

Your first question comes from line of Sergey Vasnetsov with Lehman Brothers. Please proceed.

Hi, good morning.

Hi, Sergey.

Dave, looking at your very strong cash flow, I am trying to spend the money hence I wanted the lines that could be use of the money this year is working capital. What's your outlook given the high energy prices there? Your working capital jumped by $140 million in the first quarter, is it just a seasonal and what do you expect for the full year?

Yes, I'll let Steve touch on little bit of the details on it that we had two factors going on, one was seasonality and the other one was the higher input cost. Steve?

Yes, Sergey as you look at our working capital, we actually are in really good shape. As you probably know the first quarter is typically the seasonal high point for working capital just in anticipation of the high demand in the first half, but we're still at about 13% of sales and as you look across the industry, think you'll find that that's... if it's not the best in the industry, its certainly in the top best.

Okay. And so, what's your updated view on the M&A prospects for this year?

We continue to focus on acquisitions that will try to be a [indiscernible]. So, acetyl, advanced engineered materials, emulsions type acquisitions, those would be the area that we look at, principally focused in Asia not because we have a bias there but because those are where the opportunities are, and we continue to work it. Candidly speaking though, as we look at it, pricing for acquisitions today is high but we continue to be optimistic that we'll be able to use some of the shareholders cash and make some good strategic acquisitions through this year and to next year.

Okay. Congratulations for these results again. Thanks.

Thank you.

Thank you.

Your next question comes from the line of Edlain Rodriguez with Goldman Sachs. Please proceed

Good morning guys.

Hello, Edlain good morning.

Dave, quick questions for you, on stock buyback. When the Board made the decision to buyback shares that was like in February, the stock was at a much lower price than maybe is right now. Do you still believe this is the right way to spend cash and should we expect to see the remaining $340 million being done by the end of this year?

Ed, on the... the Board is authorized in the last 12 months $800 million of share buyback and completed $400 million and then got an authorization for an additional $400 million, and we spent about $60 million on this quarter. We continue to be believers the stock is undervalued at this point. We continue to believe that it is a good investment opportunity for all shareholders including ourselves. We'll continue to measure the merits [ph] of share buyback against other uses of cash, but at this point in time, we continue to be bullish on the company's performance long-term as I highlighted in my remarks till stock is undervalued.

That's good to hear. Another follow up on... quick question on Ticona, we are well aware of the margin pressure we've seen due to costs. But when you're looking at all prices at and above $100 and gasoline prices moving up, can you talk about potential that's further market penetration in order or other applications as manufacturers try to save costs and switch to Ticona type residence?

This is... Ed, that's an excellent question. This is frankly a perfect environment for our advanced engineered materials business. 70% plus of the product we sell today is on specification; and remember, those specifications were set three to five years ago, not today. We are seeing significant increased activity, not only in Detroit, but also... not only the transportation space, but in other areas as the mega trends that we are seeing, whether be energy or environmental concerns play right into the sweet spot of Ticona. This really boards well going forward for continued growth and accelerated growth. China, I will just give you a quick highlight that Sandy passed on to me couple of days ago. China flats was just completed biggest plastic show I don't know in the world, but certainly it's the huge one in China. And we have significant interest by Chinese customers in products that had green elements associated with it, whether it was fuel economy or reduced emissions or increased use of our products in power plants for abatement and control of emissions significant, significant interest. And the good news on these things are... these are products that are sold at a premium, they have some technology impact protection associated with them, so again great question and I think it's laying out perfectly for our Ticona business.

Okay, thank you.

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

Yes, good morning.

Hi,Kevin.

Dave, you alluded to the escalation in cost among some of your acetic acid competitors that use technology based on ethylene and perhaps ethanol for that matter. Recently, we have been seeing acetic prices around $650 or $660 per ton. Do you think that level is representative of a sustainable run-rate going forward given the new energy environment?

Kevin, if you believe that there is a structural shift in energy at $100 to $120 barrel range that in all likely that means that the new pricing levels for acetyl is $600 to $650 range. We continue to evaluate it and look at it. I am old enough to remember volatility and energy prices that is pretty steep and pretty significant, but certainly energy prices have remained high for long period of time. They appear to be a structural shift in some sectors, some people are saying that and if you believe that... yes, acetyl pricing will stay high.

Okay, so it's $600 to $650 what is being baked into your earnings guidance?

For this year, we... I will answer two ways. For this year, we baked in the higher price in the 6 to 6.50 pricing. As you recall, we'd assume that that was going to come down in the second half. We believe now that that's unlikely and that's baked into our guidance. Or if you look forward and think about 2010, the improvements that we are talking about assume pricing basically at a 2006 level, I think that's the right year, back when oil was more in the $70, $80 range, and so on that basis if you look at 2010, the $2 that we talked about, take that market impact out of it. And Kevin remember when we talk about acid pricing, we are really talking only about the Asia region and that it's small part of what we do, but it can't be representative of pricing power through the chain.

Right, and then finally speaking of Asia any color on BP's latest timeline for their perspective start up in Nanjing or sort of comment [ph] Saudi Arabia. Thank you

Well, I will comment on those things that are public, because there is a lot of speculation around there. The one thing that is public is shift camp [ph] they have gone back announced for additional financing. I believe the number was $300 million to $400 million additional financing for their complex, which puts the cost well north of $1 billion and though there has not been any public announcement associated with it, we tend to believe that when there is an announcement that they need more cash, there is some things wrong and they are probably delayed in their start-up.

Thanks, very much

Thank you, Kevin.

Your next question comes from the line of Frank Mitsch with BB&T Capital Markets. Please proceed. Frank Mitsch - BB&T Capital Markets: Good morning, gentlemen. Apologize; I jumped on the call little bit late. Can you talk... can you address the situation on the tax rate? I know that you had guided initially to 26% and that's where the $1.6 is on a 26% level. The income statement obviously had a higher tax rate. Do you expect your rate to materially decline later on in the year, or is this the net impact of the restructuring charges? Can you spend a moment or two on that?

Sure. As you said the adjustment tax rate is 26% and the GAAP rate in the quarter was about 33%. For GAAP purposes, there were some one-time accounting rules that were required and won't continue throughout the year, so the GAAP rate will trend down throughout the year. When you look at our adjusted tax rate, we really do try to look at that once a year, when we lay out our initial guidance and unless there is major structural shifts in the business that will change our general tax position, we don't update that throughout the year. Cash taxes as you can see, we've raised guidance on that a bit, and that's principally related to the higher earnings and raising of a midpoint in the higher end of our guidance range. Frank Mitsch - BB&T Capital Markets: All right. So, it's one off sort of items that impacted the quarter that drove it to 33% versus the 26%.

Yes, that's right.

And Frank, this is Mark. The majority of those one-time items were specifically tax related. The other adjustments were pretty minor for the... for the quarter and really reflected the restructuring activities that we had on. So it's really kind of accounting treatment or a tax treatment of certain one-time items. Frank Mitsch - BB&T Capital Markets: All right, great. And it's obviously a competitive advantage that you have in terms of using coal as a feedstock. Coal prices have ticked off late; how is that impacting your position? How the contract structure there, do your expect to see material inflation from that raw material?

Frank, the coal prices are ticking up as you say. The supplier that we use for CO buy coal on a long-term contracts. There are escalators in it but the contract is structured in a way that there is not significant volatility that you may see in the spot market. The prices are trending up. We think in the way that we assess and analyze is that these will continue and perhaps expand depending on what happens with other things, oil prices, methanol prices, natural gas prices in China. Frank Mitsch - BB&T Capital Markets: All right, great. And Dave, you mentioned your outlook on the price of acetic cover in China. Can you talk a little bit about what you're seeing in North America and Europe in that regard?

Yes, Frank, I will, the North American pricing for acid, there's not a big merchant asset market in North America it tends to be more advanced in some of the derivatives. And those prices tend to be driven off a formula contracts, so early in the quarter, you had spikes in methanol pricing and prices went up there and they come back off again, relatively, margin and sensitive for us more formula based. Europe tends to fall in the middle, for Asia is spot, North America is important but Europe is somewhere in the middle, you set prices on a quarterly basis, some is supply demand driven, some is driven by where they can bring the parcels in from other regions of the world. European pricing zone overall through the acetyl chain is stable to... stabled up, I would say. Remember there is $6 to $6.50 pricing has been in the market now for several quarters, five, six quarters. And if energy stays up here, here it's... there is high probability that it's going to be sustainable. Frank Mitsch - BB&T Capital Markets: Okay, great. Thank you.

Thank you.

Next question comes from a line of P.J. Juvekar with Citi. Please proceed.

Good morning.

Hi, P.J.

Good morning.

Did you guys talk about the double-digit decline in so much specialties the volumes were down 11%. Can you just talk a little bit about that? And if you already answered that, I apologize.

No, P.J., we haven't, and thanks for the question. Consumers specialties, Steve talked about where the volume decline there was shutting down a flake plant in Canada and having that flake produced in our joint ventures. It largely was produced in Canada for Canadian consumption... for Chinese consumption, and that plant is also not creating China and the Canadian plant is down; and that's the point there. Industrial specialties is two or three things. One there the biggest element of it is associated with the strategic steps we took last year to revitalize this business, we shut down two plants. We have another plant that we are rationalizing a flake plant that will... is announced to be shut down at the end of the year. In the process of doing that, we are shifting towards higher value added markets and products and you've seen the consequential benefit of that in the earnings of the business. The other is kind of background noise you had a tough comp against last year, because we had a European environment with this German tax, where there was strong demand and strong demand there and not having that this year, but those are the elements.

Okay. And Dave, you would argue that acetyls will take share away from acrylics because propylene chain is likely to go higher than ethylene chain. But now if I look at Asia, acetyl prices are going up and acrylics are down, and so maybe one could argue that you could loose share to acrylics, any comment on that sort of shift between acetyl and acrylics?

Sure. I'll be happy to P.J. As we get down and look at our customer decision making in Asia, I think both acrylics and vinyl systems are winning out against the styrene acrylic systems that are over there. The growth is very rapid and the performance benefits... frankly a lot of the environmental benefits, they don't market it over there as environmentally friendly, they market it as no odor, so you have no emissions. But I think those are both... those benefits are moving both systems forward in a pretty positive way. As you go back to the 2003, 2004 timeframe though, what has happened is that there's been more of a normalization of the acrylic systems to vinyl systems. Going forward, I think it's a jump ball and whether that... there's going to be a continued spread between the two systems, but we are in a pretty favorable environment. We are seeing increased attention to our vinyl based technologies.

Okay. Thank you.

Your next question comes from the line of Mike Judd with Greenwich Consultant. Please proceed.

Hi, good morning, and if you have already answered this, I apologize. What are the dates or the approximate timeframe for the start-up of the Nanjing derivative units please?

We have an acetic acid is operating, we have an emulsion unit operating which is derivative and then we also have a celstran or advanced engineered materials unit operating. Over the course of the next three quarters we'll start-up and an anhydride, a VAM unit and a GUR unit, which is high molecularly polyethylene for advanced engineered materials. And then sometime roughly a year from now, we're going to be starting up a compounding unit.

So on theVAM and the acetic anhydride which I would assume that are the largest volume production units in terms of the derivatives if any way. Over the next three quarters or is there something is it possible to say that it's never timeframes for those?

You'll see them come in over the next three quarters Mike.

Okay. Thanks.

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

Thank you. David, looking your guidance, the next three quarters would average about $0.90 after you deposited the $1.6 in Q1. What's going to take down earnings from Q1 vis-à-vis the rest of three quarters of the year?

Thanks Dave. If you move into the second quarter, we do have the annual dividend coming out of the Acetate joint ventures, and that dividend will take the earnings out in the second quarter relative to the first quarter. And then what you have is normal seasonality associated with the businesses. Historically, we've seen kind of 55% to 60% of the earnings in the first half of the year and 40%, 45% of the earnings in the second half of the year, a number of factors going into that... and we. But if you look at it those are the elements associated with what we're seeing.

So it sounds like four bucks will not be out of reason for 2008.

Well. We've got our guidance and we are pretty comfortable with it.

Understood. And looking at your $5, 2010, what are you assuming for the impact of Sipcam [ph] and BP on AI profitability in that year, to get your $5.

Yes, we are consistent with what we shared in Investor Day, which has those units starting up within that timeframe. And as we shared... again as we shared at Investor Day, those units starting up, still keep market capacity utilization some where north of 90%, 90-92% range.

And lastly, could you break out the impact of Nanjing on both sales and earnings or EBITDA in the quarter?

I don't even know I know that. That you mean just the Nanjing complex and another sale?

Yes.

We haven't broken it out but you've got an acid unit that is running full rates. It's not the cheapest, one of the cheapest facilities that we have in the world, so we will run that preferential. In fact, all our facilities are running full rates in the first quarter. We have an emulsion unit that was in the process of starting up, so the contribution there would be negligible. And I'd say the same thing for sales, probably negligible contribution there. On a revenue base coming out of that unit, roughly speaking we are 150, 160 tons at $600 a ton, some where in that range, $70 million, $75 million.

Thank you very much.

Your next question comes from the line of Gregg Goodnight with UBS. Please proceed.

Good morning all, great quarter.

Thanks, Gregg.

You talked about the cost push component of the acetyls, would you care to elaborate on the demand side? For instance, what is the status of the inventory levels for both VAM and acetic, specifically in Asia? Have they recovered from last year's general force majeure that lot of companies declared, or inventories low how is demand doing, what are operating rates looking like in the area?

Yes Gregg, great question. We characterized inventory levels today as finally back to normal levels after two or three quarters of very low levels due to the... not just our outage but outages through the invent... through the system, with our competitors and other producers. But we think inventory levels today are not extreme, are neither extreme. We think they are in pretty good position. Gregg, we are... this is an anecdote, so let me share with you and put it in context. But we are seeing in our advanced engineered materials business, our Ticona business, an interesting pattern where you have strong quarters... strong month, weak month. It feels as though through the chain, people have anticipated a potential downturn in the economy. This sub-prime thing has been with us now for more than two quarters, and I think the manufacturers of the world would set back and our sense is they've managed inventory levels pretty aggressively anticipating, not wanting to get caught in a slowdown and have to bleed off inventory. At least the anecdotes that we're seeing in our Ticona business would suggest that our manufacturing customers are managing inventory levels more directly and a little more aggressively than perhaps they would in a more normal environment.

Interesting. Second question, would you comment on cellulose acetate pricing? I know you got an increase last year, the industry got an increase. Where do you see pricing going this year?

Gregg, we... that's a business that tends to have price negotiations early in the year, starting late in the year. So prices are set for the year and we've got quarterly guidance an increase here about a 5% increase in pricing, and so I think you can take that and assume that's in that range is where we've got pricing on acetate.

Okay, that would be your first quarter. Then, what was the timing of the increase?

Well. I think it would be a pretty good marker. The year-over-year comp would be a pretty good marker for the full year impact because the saving and the price increases is pretty consistent year-over-year. So I think you'd probably see pricing in that range through the year.

Okay. I appreciate the feedback. Thanks.

Thanks, Gregg.

Next question comes from the line of William Matthews with Canyon Capital. Pease proceed.

Hey guys.

Good morning.

Gregg asked a question similar kind of or maybe this is a follow-up to Gregg's question. Can you kind of talk about, if we are at higher levels for acetic acid pricing due to higher levels of carbon feedstocks, what's the elasticity of demand, when do you start to see a demand or volumes tail off because the price has become to high or is that not the case?

No, we've... it's a good question. I'll answer from two directions. We have seen pricing levels this high for the last five quarters. We have not seen any substantial deterioration in demand nor we heard frankly from our customer base that this is squeezing them out of business, that they would have it if it weren't for the price increase. That's one way to answer. Another way of answering it is. Most of what happens in our chemical space is substitution in competing systems. So as you have higher prices for our products. You see some competing materials, whether they would be acrylic materials or styrenic systems as an example in coating. The prices in those go up as well because hydrocarbon feedstocks for all systems are increasing and raise the relative price... the absolute price. So on a relative basis, the price has not changed. That make sense?

Sure.Okay and then, the other question I had is kind of, can you give us some historical context of the cyclicality? For you guys obviously, we are all aware of the supply coming on in the next couple of years. When do you kind of see a cyclical peak going forward and the same kind of for your affiliate income because you've substantially raised the guidance for that up 15%. For the affiliate income so how cyclical is that or is that something that we can model going forward at this new higher level and/or even increasing?

Let me take the last part of the question. First, a lot of the increase that you are seeing in affiliate income is associated with the Middle Eastern methanol joint venture that we have. And remember we've shared with you as a company; we are indifferent to increases or decreases in methanol in substance. We have a fairly balanced system, where an increase in methanol maybe good for our joint venture in the Middle East; basically its margins in our advanced engineered material space the non-average cost to company, the results are the same. So, that's the answer to the question on affiliate income. Looking forward as a company that are like I think the only way we can answer is to say that we continue to see a very attractive industry fundamentals, we continue seeing an industry that has high capacity utilization, an industry that has a good supply and demand balance out for the foreseeable future, an industry, where there is a substantial amount of technology associated with manufacturing these products and molecules structure the industry as license self for us and sustainability.

Okay, let me ask maybe in a different way that the $5 guidance for 2010 is assuming Sipcam, BC bring their facilities on at the projected nameplate capacities, and then after that those are the two biggest capacity additions in the foreseeable future; is that correct?

That's correct.

Okay, thank you.

Your next question comes from the line of Charles Neivert with Morgan Stanley. Please proceed.

Good morning guys.

Good morning.

Quick question; you are bringing up the new China capacity; have you started trying to begin to a lay off any of the other product that you normally move into China out of the Asian joint ventures particularly, where that sort of a Ticona product overlap; has that been sort of set up and dealt with now?

Yes, on the chemical side that our plans that run full across the world, because of just strong demand. There is... then some guys in China, who are out because of natural gas curtailments and other things, so we are running full across. As far as Ticona goes, there is some shifting going on. In fact there are some really, really nice things going on in China with new applications. What we are finding in Ticona is that our Chinese customers as we focus on our technology, bringing our technologies there that we are able to accelerate their product development. We are able to get paid for value, and we are able gain customer royalty. So, the model is working over there and as those manufacturing plants come up, we'll shift towards Asia production, I think the one facility that's coming up later this year, a GUR facility that's an outstanding example of pre-selling in the marketplace similar GUR facility out there.

Okay. And then a quick follow on; as far as the APL integration is concerned, is that basically complete at this point? Have you gotten all of the synergies you expected out of that, and then consequently is there anything going on the continent now that APL is running with the other sales acetate operation there?

Yes, I will go take the first part of the question on the synergies. We are at the full run rates now on the synergies. If you remember, we acquired that business for about $120 million and got $20 million of EBITDA with it. We put about $30 million of cost and got $20 million more of synergies, which at the end of the day gives you a multiple of less than 4. So, we were at those run-rate now and the business is performing very well.

As far as plants and the conduct with some of our other facilities, Steve said the freight and logistics savings that we anticipated in the acquisition and the balancing of our manufacturing has occurred, so we don't anticipate any more associated with that just the changes we'd have on the continent [ph] in APL.

Okay, great. Thank you very much.

Thanks, Charlie.

Your next question comes from the line of Hassan Ahmed with HSBC. Please proceed.

Good morning, guys.

Hi, Hassan.

How are you doing? Quick question around Nanjing; we obviously know there's tremendous amounts of new methanol capacity coming online in China. Now, that methanol capacity is primarily coal based. So, there's... some would say that it is not high enough grade to be used in acetic acid production. So, if you could just generally talk about some of the bolts and tugs as they relate to methanol pricing in Asia, and going forward how we should think about the pricing environment for methanol and will this be a tailwind or a headwind for you guys, out in Nanjing in particular.

Hassan, great question. I am probably not the right guy to answer that as we think about methanol, we're considering more methanol in any guy out there, I think number one or number two, but we've balanced our systems, so the volatility in methanol pricing has limited impact on our income statement. So, we don't track and follow this closely. I will tell you what we are seeing out there and that is the quality of methanol coming out of China, I am going to say broadly, but I'm sure that there is a spectrum, but in what I say, but the quality of methanol is okay. We are using some China methanol in our acid production, so, there is acid we can find in China that meets our specs. I have... I don't know that there's been a problem encountered by trying to find methanol. With people, who have methanol wouldn't meet our specs. Overall though, I think coal into methanol is something that you have to look at very carefully. The Chinese Government, as you're aware, has put a vacation if you will on new coal to methanol units. There is significant infrastructure issues, there's significant environmental issues associated with it. And then I think the last thing I comment on is that we are seeing in China and other regions of the world an awful lot of methanol going into fuel, whether that goes in as DME, or MTBE, regions of the world, where you can use MTBE, there's an inherent fuel value to methanol and methanol derivatives. And as you look at oil at $110 to $120 a barrel, the field value for that methanol goes up and you're probably looking at methanol prices that are going to be influenced by that long-term.

Superb, Dave. Thanks so much.

Thanks, Hassan.

We have time for one more question.

And we are currently showing no more questions in queue. I would like to turn the call over for closing remarks.

Excellent. Thank you, and thank everyone for your time and participation and continued interest in Celanese. If you have any further questions, feel free to call. Thank you very much.