Operator:

Greetings, and welcome to the Celanese First Quarter 2024 Earnings Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bill Cunningham, Vice President of Investor Relations. Thank you. You may begin.

Operator:

[Operator Instructions] And our first question comes from Ghansham Panjabi with Baird.

Lori Ryerkerk:

Ghansham, look, on the macro, what I would say is, look, it's generally unchanged from what we've been saying in the past few quarters. I would say we haven't seen any big positives or negative this quarter from what we had expected. We called out last quarter, we really thought we were at the end of destocking. I think the movements this year, what we're seeing in the order book, the stability of the order book has proven that to be true.

Ghansham Panjabi:

That's comprehensive, Lori. And just in terms of the related question as to what would actually kickstart demand from your perspective? Would it just be as simple as interest rates being [ reduced ] on a global basis? And then related to that, you had called out new capacity over the last 6 months, specific to the comments on Chinese acetic acid, et cetera. Is that capacity more disruptive than you thought? Or is it just that demand was weaker than you thought initially?

Operator:

And our next question comes from Mike Leithead with Barclays.

Lori Ryerkerk:

Thanks, Mike. I would characterize it as we will hit those numbers with just controllable actions. And if you think about it, M&M synergies are heavily loaded and compounding as we go through the year. So now that we have full visibility into the data, everything due to our S/4HANA upgrade for the M&M assets. And some -- and also the results of like the Uentrop shutdown and some of the other footprint actions we took last year, we really start to see those synergies grow and compound as we move through the year.

Michael Leithead:

Great. So that's helpful. And just as a follow-up question on Engineered Materials. I think in the prepared remarks, you talked about continued pricing pressure. I was hoping you could unpack that somewhat. Just where exactly are you seeing the most pricing pressure today? And was that a nylon specific comment or more broad based across the portfolio?

Operator:

Our next question comes from Jeff Zekauskas with JPMorgan.

Scott Richardson:

Yes, Jeff, I would really point to some of the real standard spaces we participated in last year, really to start moving some of the inventory levels that we had as we finished 2022. And that's really more of the driver than anything else. We also saw a little more seasonality in the medical sector here this year versus what we saw last year. So those are the main drivers.

Lori Ryerkerk:

Jeff, maybe -- let me just make a few comments, and then I'll let Scott add more detail. I mean, what I would say is we don't have a strategy to run at still necessarily at higher volume. The justification for the Clear Lake expansion was really in productivity, right, energy, catalyst, shipping by shipping more out of the U.S., less out of Asia. So that's not the strategy. Now having said that, we will run all of our assets where it makes sense from a demand standpoint and from an economic standpoint. So I wouldn't say that's the biggest factor there.

Scott Richardson:

Yes. Let me just add. I think as Lori said, on tow, 2024, very similar to 2023, not a continued lift, very stable there. When you look at a year-over-year basis, Q1 to Q1, Jeff, the main driver volumetrically is really just where the industry is. If you recall where we were in the first quarter of last year, we were coming off very high energy prices in Europe in the fourth quarter of 2022. European demand was relatively soft. In addition, we were still seeing China dealing with COVID in the early part of the years, which impacted volumes. So that's really the main driver on a quarter-over-quarter basis here in the acetyl business.

Michael Sison:

Nice start to the year. For 2Q, will EM volumes [indiscernible] I guess it still looks like it's going to be down year-over-year. But the third and fourth quarter for EM, do you need volumes to improve year-over-year to sort of hit the outlook and -- how much, if at all?

Lori Ryerkerk:

Yes. Look, I don't know the exact number where that could end up. I mean the way I would characterize it is we expect over the next year or so that EM basically starts contributing at the same level as acetyls from a margin standpoint. And then after that, while acetyls will continue to grow at kind of GDP, GDP plus a little bit, we would expect margin growth for EM to still be in that roughly 10% range that we've had in the past. So I would think about it that way. So ultimately, there's no like in number. The number continues to grow, but that's the growth rate we expect.

Vincent Andrews:

Starting to read a bit that some of the trade complexities in the Red Sea area are starting to resolve themselves. And so I guess, one, would you agree with that? And two, if the case and if the shipping channels become a little less challenged, how would that impact your businesses, good, bad or indifferent?

Vincent Andrews:

Okay. And then if I could just ask a follow-up on the nylon business. In the prepared remarks, there was a comment about higher variable costs for higher velocity products. That's quite a mouthful. Could you just unpack that for me?

Operator:

And our next question comes from Josh Spector with UBS.

Scott Richardson:

I wouldn't expect lower pricing to erode that, James. A lot will depend upon what happens with the raw material complex. We kind of know for the first half, what the flow-through of that is going to be. So a lot just depends upon how raws develop in the second half to see how much of that continues or not.

Scott Richardson:

It's definitely still possible based on what we're seeing for the first half. And then again, we'll just have to see how raws develop in the middle part of the year to see what then gets expensed towards the back half of the year.

Kevin McCarthy:

In your prepared remarks, you talked about 2 key synergy drivers for Engineered Materials, namely the shutdown of nylon 66 in Germany and the SAP ramp. Can you address those and maybe translate it to how much earnings uplift you might be anticipating in the second quarter through the fourth quarter. It didn't sound like there was much in the first quarter from those items.

Chuck Kyrish:

Yes. Good question, Kevin. Yes, let me walk through how we're thinking about '24 cash flow. I would say we do expect the same cadence as we saw last year where our cash flow will be second half weighted. Teams are working hard to generate a total result for the year that's roughly consistent with last year. It will be subject to a few timing elements, of course. Outside of EBITDA growth, I would point to these drivers. We are working really hard to produce a working capital benefit to free cash flow this year. And that would be driven by further inventory reductions.

Operator:

And our next question comes from Aleksey Yefremov with KeyBanc Capital Markets.

Lori Ryerkerk:

Aleksey, thank you. I would say we're pretty satisfied with where we are with our footprint for acetyls. I mean, everything we have is specifically designed to serve a certain region and set of customers, and we like having the optionality and flexibility that we have. We've also continued to build out our downstream. You saw the announcement about new VAE in China, some of the RDP debottlenecks we're doing. And that really is all about how do we continue to build the foundational level of earnings in acetyls and really kind of stabilize our earnings from acetyls.

Aleksey Yefremov:

And as a follow-up, you used to be fairly transparent to investors to see outgrowth in Engineered Materials versus end markets. It's been harder to judge through the last few quarters. Are there any metrics such as wins, I don't know, your size of your pipeline that you can point us to, to kind of demonstrate that you keep outperforming your end markets or that outperformance will resume perhaps in future periods?

Operator:

Our next question comes from Arun Viswanathan with RBC Capital Markets.

Lori Ryerkerk:

Yes. Look, I would say from a volume standpoint, both for acetic acid and EM, it was very much as expected in Q1 throughout the quarter.

Arun Viswanathan:

Okay. And then just a question about the second half and as you look into '25. So it looks like you'll be ending the year on a, say, $6.60 rate for EPS for the second half. If you were to annualize that maybe you're $13.25 or so. If you add some volume and maybe some deleveraging on top of that, it seems like you could get close to $14. So is that kind of how you're thinking about '25? I know it's a ways off, but just maybe got some -- wanted to get your initial thoughts.

Operator:

Our next question comes from David Begleiter with Deutsche Bank.

Lori Ryerkerk:

I would say while there was some temporary run-up in pricing, it was pretty small and fairly short lived. So I would not say we're seeing any benefit from it continuing, and the benefit was pretty small during the quarter. And I think that just is reflective of really the lower demand that we've been seeing globally that an outage of that magnitude really didn't move the market very much. And again, I think it's not as much question on supply, but just demand is really still not back at normalized levels, particularly even in the Western Hemisphere.

Lori Ryerkerk:

I don't have an exact number here in front of me. I mean I would tell you, Q1 is definitely the lightest and they continue to build and compound as we move through the year.

John McNulty:

So I guess the first one is on raw materials. So I believe for EM, you were expecting as much as $150 million benefit as kind of lower costs rolled through the system. It looks like you got -- you're going to have 20 in the second quarter, and it's comparable to what you saw maybe in the first. So is that still or reasonable outlook just based on where raws are right now that you could see $100 million, $110 million of benefit in the back half of the year? Or have things gotten better or worse? I guess, can you help us to think about that?

John McNulty:

Okay. And then I guess the second question would just be in the Acetyl Chain business. Obviously, there's some new capacity in the markets beyond just yours that are impacting the business. It looks like there's more capacity coming on next year potentially as well. So I guess, if we don't see much of an improvement in the overall demand environment, are there other levers that you can pull in your Acetyl Chain business to drive incremental profitability? Or are we at a point now where it's really going to be about the market improving and developing from a demand perspective?

Operator:

Our next question comes from John Roberts with Mizuho.

Scott Richardson:

I would focus on the turnaround costs, John. I mean that was really the largest driver is really offsetting the nylon.

Scott Richardson:

It's -- honestly, John, it's kind of what we always see. In some years, it's more acute than others, and we saw it come down a little more than what we saw last year from Q4 into Q1. And it's really just the timing of how our customers build inventory for the new year. And it -- Q4 ends up usually being one of our strongest quarters and Q1 tends to be weaker, which kind of goes counter to how everything else moves, but that's kind of been the historical seasonality really in most of our medical business.

Daniel Rizzo:

This is Dan Rizzo, on for Laurence. We talked a lot about the Clear Lake expansion. I was wondering if an expansion in Singapore or some place like that would be necessary given the growth that's potentially there in India over the next, I don't know, few years to a decade.

Scott Richardson:

Dan, the only thing I'd add is on a downstream basis, the VAE expansion that we've just done is as much for growth in Southeast Asia and India as it is for China, honestly. We have a -- we already have VAE plant in Singapore. That plant was actually supplying some demand in China. We're now able to kind of shift that network really to service growing customers in our VAE demand, such as paints and coatings, mortars and adhesives.

Lori Ryerkerk:

Look, I think we've seen over the last several years, pressures on labor cost, as has everybody, but I would say through productivity steps and others, that's managed, that's baked in. And I'm not seeing any significant pressure there for the second half of the year.

Operator:

And our next question comes from Patrick Cunningham with Citi.

Lori Ryerkerk:

Yes. Look, the projects that we were aware of, I think are a quarter or two delayed. I mean, the real question, of course, is that demand for those products has to be driven by more demand for exports quite frankly. And so how long that takes to resolve is really tied to consumer spending, general view of the economy, people's confidence in buying goods again. So I would say, while we do expect that capacity to be -- to start up, whether over in full or whether it will just replace other capacity remains to be seen.

Operator:

Our next question comes from Salvator Tiano with Bank of America.

Lori Ryerkerk:

Let me try to answer the first part, and then I'll let Scott take the second part. I would say, look, as long as consumers are buying vehicles, we're happy. EVs do have about a 10% higher content available to us than ICEs, but we still have a very large position in ICE vehicles. As to the extent people are converting to hybrids, hybrids are about 20% more content available to us than ICE. So while there are some shifts and shifts in which products, as long as people are buying vehicles, like I said, we're happy.

Lori Ryerkerk:

Look, I would simplify it and just say, any additional demand for acetic acid, no matter which end market is in to, is good for us. So again, because we do sell a lot of acids to others as well.

Bill Cunningham:

Diego, we will make the next question our last one, please.

Hassan Ahmed:

I again, wanted to revisit the Acetyl Chain, particularly in China. I mean, reading through your prepared remarks, it just seemed like the first quarter was like a tale of 2 cities. It seemed you guys started very strong. And then by February pricing started weakening. Just trying to understand the dynamic behind that. I mean it seems the 2 new facilities that you guys talked about, they've been around for, call it, 5 or 6 months. So what really caused that change between the first half of Q1 and the second half?

Scott Richardson:

Yes. And let me just add, Hassan, I think it's important to remember, we have the single largest -- our single unit -- the largest single unit turnaround in the history of the corporation in the first quarter, largely hitting the Acetyl Chain business. We had some of these dynamics in China, yet the business still generated a 28% EBITDA margin. So it's a very resilient business that finds a way to still deliver value even when we see market disruptions or when we see higher costs from things like turnarounds.

Lori Ryerkerk:

Yes. Again, I think if you look at versus 2023, those things that you called out, M&M synergies that $150 million, Clear Lake expansion, we've asked them to still deliver $100 million for the year. And we probably have another -- an offset of about $100 million, maybe a bit more for higher turnaround-related expenses as well as some of the nonrepeatable impacts from last year. I think the 2 factors you are not factoring in there is we will have lower debt services year as we've paid down over $1.5 million of our net debt. And that's probably another 50 or so, and then we'll have lower costs flowing through from our inventories with all of the inventory we took out last year and be able to flush out some of that higher cost inventory and as we said, that may be the single biggest factor this coming year as well.

Bill Cunningham:

Thank you. We'd like to thank everyone for listening in today. As always, we're available after the call for any follow-up questions. Diego, please go ahead and close out the call.

Operator:

Hello, and welcome to the Celanese Q4 2023 Earnings Call and Webcast. [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Brandon Ayache, Vice President, Investor Relations. Please go ahead, Brandon.

Operator:

[Operator Instructions]. Our first question today is from Josh Spector from UBS.

Lori Ryerkerk:

Yes. Thanks for the question, Josh. If we look at first quarter, we do expect a really meaningful lift in M&M earnings in the first quarter and in fact, expect first quarter to be our highest quarterly EBITDA since the acquisition. I think that's a number of things. The biggest factor is really starting to see the pull through of lower raw materials and lower fixed costs that we were generating this year but needed to move the volume through, that's the higher cost materials through inventory. So I'd say that's over half of the improvement we expect to see in the first quarter. We do expect recovery in auto versus the seasonal destocking that we experienced in the fourth quarter which was an issue for M&M. And then we start to see some of the initial fixed cost improvements from the footprint optimizations that we initiated last year and announced, although I would expect those to become more meaningful in the second half of the year and actually into next year as well. And so we do see evidence for that is we are seeing variable margin improving in January as we start to see that inventory pull through of lower raws and fixed costs. So we feel pretty confident in that. And for some key areas like Zytel, we saw that really bottom for fourth quarter, and we're starting to see the recovery there. So I'd say we feel good about the first quarter and the meaningful uplift that we'll have in M&M next year as well. Fundamentally, I would say we continue to see M&M as a really great business. All the reasons that we bought it are still there. We have just been a very difficult backdrop that has made it hard to get the full value of the synergies as well as some of the volume recovery and growth that we had counted on. I think if you looked at it today in what would be a more normal demand backdrop, we would find that M&M would be accretive.

Kevin McCarthy:

Lori, I think you completed an SAP implementation just a few weeks ago. Can you comment on how that's going so far, kind of level of integration across the company? And remind us of what the benefits might be as your TSAs roll off?

Kevin McCarthy :

And then secondly, if I may, can you comment on your input cost outlook for 2024? And if those costs trended flat from here, what sort of benefit or tailwind might we expect for this year?

Operator:

Our next question today is coming from Jeff Zekauskas from JPMorgan.

Lori Ryerkerk:

Thanks, Jeff. No, because a number of factors there. So the synergies we're expecting for this year is $150 million, only about 40% of those actually show up in M&M. The vast majority of them do show up in the EM profile, but some of them also show up in BU other and other areas.

Lori Ryerkerk:

Yes. So yes, thank you. I probably misunderstood your first question. We do expect growth across both our heritage EM businesses and a significant uplift in M&M businesses even exclusive of synergies for the year. I mean if you think about our outlook for the year of $11 to $12 and think about, we call out $100,000 -- sorry, $100 million more in acetyls, the remainder of the uplift from the $9 we were at this year really comes from that integrated EM business.

Michael Sison:

Just wondering if you could help bridge us from 1Q to the remaining quarters? I know there seems to be a lot more headwinds in Q1, more of the synergies and everything, all the positives are coming in 2Q to 3Q. So when you think about going from $2 to a lot higher in the remaining three quarters and how does that sort of happen? And then, are the last three quarters basically equal in EPS is kind of the way to look at it?

Michael Sison:

Got it. And then as a quick follow-up. Several companies have impaired assets from acquisitions over the last couple of years. Now I know M&M has underperformed, but are there any parts from M&M close to that in terms of impairment levels? And if so, what are the areas?

Operator:

Next question is coming from Ghansham Panjabi from Baird.

Lori Ryerkerk:

Yes. Look, I would say, at this stage, we are really focused on what we can control. So what we’ve assumed in our $11 to $12 guide is we see the kind of the diminishing of destocking. So we are assuming that we are getting to the destocking. We are not though assuming a really big uptick in demand or restocking. So I would say we're still assuming kind of below normal demand patterns, but without the destocking. So we are -- that is kind of the one upside that we're assuming. That's maybe a few percent at the most. And otherwise, it's really -- our outlook is really focused on what we can control. I would say if we look at the market, I mean, good news is, I think, as we're starting '24 although I'd like to say we're back in normal demand patterns, we're not. But look, we are starting to see some easing of some of the demand and competitive challenges we had. We called out, we're seeing less movement in materials out of Asia into Europe. So that indicates to us that local demand is improving in China. And we see that. I would say in China, generally, we feel like demand for China consumption is approaching normal order patterns and normal levels. But the exports of goods out of China is still depressed, especially into Europe. So there's still some downside on demand there. I think in the Americas, we're seeing demand come back gradually. We saw some improvement in Industrial in the fourth quarter, but then we saw the reduction in auto, which was seasonal destocking. I expect that to come back in the first quarter. But again, not anticipating a huge uptick in demand there for consumer goods and electronics. In Europe, I'd say, similar to the U.S., but probably even a longer time frame and before we could return to demand. I mean, the other thing I would add though is, look, we are seeing some improvement in construction kind of normalizing. So that's good, and that's supported by a slight movement upward in terms of VAM pricing as well.

Lori Ryerkerk:

No, I'd say it's very much in line with the original plan. In fact, a little bit, we've pushed back a little out of '23 into '24 with the delay in the project at Clear Lake. But I would say these are planned turnarounds. These are turnarounds that occur on an every three years in the case of VAM, four years in case of methanol. And so very much as planned. And I would also say they've gone very well. We've gotten through all the major discovery work and no surprises. So feel like we're on track to meet our plans around those turnarounds.

Ryan Weis :

This is Ryan on for Aleksey. The first question, I wanted to dig into a little bit on nylon pricing. I believe at least one peer of yours is out in the market, announcing some pricing. Are you seeing any momentum of it here? And can you just talk about what your expectations might be for the balance of the year?

Scott Richardson:

No. I think Lori hit it, Ryan. We are seeing a lot of stability, which is a really good thing. And as Lori mentioned, we're starting to see the flow-through of variable costs. So margins are expanding in the nylon business, and we continue to work, as we said in previous quarters, to get back some of that share that had been lost prior to us closing the transaction. So we feel good about the trajectory as we work our way through this year of the nylon business.

Lori Ryerkerk:

Yes. So I feel really confident in our ability to deliver on that $150 million. I think if you look at it, it really is in three buckets. The first really be the footprint optimization steps that we've taken at the end of this year, would start to show up in the bottom line next year. So that's probably about $50 million in the year. We have the transition to the single SAP platform, which is happening now which gets us out of the TSA and we get other synergies from. And then we have cross-sell opportunities which have been identified this year, closed one this year, which will start to come online next year, and we'll start to see the revenue return from. So I feel very confident about that $150 million of synergies for 2024.

Frank Mitsch :

If I could just follow up, did you guys disclose what your M&M synergies were realized for 2023? Apologies if I missed that.

Frank Mitsch :

Got you. Understood. Understood. And if I could, a question on the acetyls chain. I know back in the '21 Investor Day, back when you had acetate split out, the expectation was that it was going to be relatively flat to '21 during 2023, at $245 million of EBIT. I suspect it might have been higher than that. Can you give us an idea as to how well that part of the business is performing and what outlook is?

Operator:

Your next question is coming from Vincent Andrews from Morgan Stanley.

Scott Richardson:

Yes. Thanks, Turner. First, let me start with auto builds. I think the industry, most publications are projecting somewhere more or less flattish build. Our business tends to grow about 150 basis points to 200 basis points above build. So that's what we're baking into our current plan. When it comes to the mix of EVs, we're largely across our EM portfolio, pretty agnostic to whether it's an EV, an ICE vehicle or honestly, hybrids are the best. And we have about 20% more accessible content on a hybrid vehicle. So starting, particularly here in the U.S. to see more shifts to hybrid that tends to be a good thing for us overall. So really no impact if we see the mix impact here in the U.S. change away from EVs and move back to ICE or to hybrid. And from a China perspective, overall, if you kind of start at the corporate level, it's about 1/4 of our overall sales. You bring that down into EM pretty similar. And our overall exposure is kind of around that range as well in terms of automotive in China.

Scott Richardson:

I think, as Lori mentioned, we have a bucket of the lower variable and fixed cost we think is going to flow through the earnings. That could be the largest year-over-year benefit for us. A good chunk of that is in the nylon part of the M&M portfolio. So it has the ability to be a pretty significant driver of uplift year-over-year. A lot will depend upon what happens with raw materials as well as pricing in the second half of the year. We feel good about where things are in the first half of the year, given the amount of inventory that we have in the order book as we see it. Pricing, as we said earlier, has kind of bottomed out in nylon. So we don't expect to see a lot of pricing impact downward from where it is today. So we feel very confident that the margins we're seeing right now here, at least in the first half are here to stay.

David Begleiter:

Lori, can you talk to the foundational level of earnings in acetyls post the Clear Lake expansion coming on stream and given the step-up in acetate tow earnings we've seen this year?

David Begleiter:

And have you assumed some normalized level of steal demand, what could our earnings power be?

David Begleiter:

And one more thing. Just on the tax rate, is 9% a good rate going beyond 2024?

Operator:

Our next question is coming from Arun Viswanathan from RBC.

Lori Ryerkerk:

Yes. Let me ask Chuck to cover the details. But what I would say is, this year, like we were last year, we were very focused on generation of free cash flow and deleveraging. We're very committed to maintaining that investment grade. And so we are anxious to delever to that 3x level so that we will have flexibility in our use of capital going forward and be able to move on with other opportunities in the company. But Chuck, let me you walk through the bucket.

Arun Viswanathan:

Great. And then I just have one quick follow-up. Just thinking about the portfolio as it stands now. Obviously, you've gone through some changes within the food ingredients and integrating M&M. Is there anything else on the horizon that we should be thinking about as far as portfolio management or potential divestitures or anything along those lines?

Operator:

Next question today is coming from Hassan Ahmed from Alembic Global.

Scott Richardson:

Yes. Thanks for the question, Hassan. Let me start by really kind of committing the team for continuing to flex this integrated value chain model. What you saw in the fourth quarter is a combination of the team flexing production as much as possible given some of the outages that were unexpected in the Americas and flexing that to the highest value end uses that we saw and to our teams in the field and the manufacturing environment really pulling costs down as much as possible, given the economic environment that we're in. As you alluded to, some of those reverse out as we move our way into next year. But I think we do expect the markets to grow kind of in that global GDP level in the acetyl value chain, which will give us some potential offset to any kind of industry outages that may or may not happen. We are expecting utilization to remain in kind of the 85% to 90% range. So much like you saw last year, if you see some dislocation in markets, we tend to be able to benefit from that in the short term.

Scott Richardson:

Our focus is creating a contemporary operating model for nylon. Not relying on low-cost raw materials to create value. But controlling where that value creation comes from. And for us, that really comes from creating compounds that are unique for our customers and maximizing that part of the value chain as much as possible. We have the ability, given where the dynamics are to make some of those make first buy decisions, as you mentioned earlier, Hassan. And as we do that, we're going to be focused, much like we do in the acetyl chain, on what is the lowest cost to supply those compounds so we can remain competitive. But fundamentally, we are working to create a business model here that is minimum of 25% EBITDA in any economic environment. And so the first steps of that to take controllable costs out with the shutdown of our production capacity in Europe and then maximize our low-cost capacities that we have here in the Americas as well as purchases in Asia.

Laurence Alexander :

Can you clarify the EBITDA impact from incentive comp and working capital flows in 2023 and therefore, the bridge to 2024?

Laurence Alexander :

Okay. Great. And just in terms of the incentive comp 2024 versus 2023. Is it an incremental headwind?

Scott Richardson:

Yes. And on incentive comp, Laurence, we don't -- I wouldn't expect it to be material year-over-year.

Salvator Tiano:

Thank you very much. So first question I wanted to ask on the acetyl chain. It seems like you're assuming acetic acid and VAM and acetyl spreads probably will be flat year-on-year. So the growth will come from the Clear Lake expansion. What are you seeing on the supplies because it feels that the supply comes online in China in 2024, could this actually be an additional risk? And if the acid prices do come down, that is not part of the $11 to $12 guidance?

Lori Ryerkerk:

And maybe if I could add just a little bit more color on that. If you actually look at, say, China acid pricing through the year, it was actually very steady throughout the year, except for a very short lift that we saw at the end of Q3 based on some outages in the industry. But that was very short-lived and really went away as we went through, got into the fourth quarter. So I would say we saw capacity come online. Last year as well, more capacity last year than it's going to come online, and that's already been absorbed, and we're still at that 85% to 90% utilization. So while there may be some additions in '24, it is much smaller than we experienced in '23, and we didn't really see the '23 capacity adds have a long-term impact on pricing.

Lori Ryerkerk:

Yes, I'm not sure that there'll be any benefit at this point in time. What I would say though, this is a good reflection of the value of our global supply chain for all of our businesses because despite the challenges in the Red Sea and the Suez, there has been a lengthening of supply chain for many producers and suppliers. There has also been -- that's added some cost for some of the folks trying to get into Europe, in particular, from Asia. But because of our global supply chain, we are able to provide from other parts of the world. So we're not seeing the increased cost. What I'd say is most of the effect we've seen, I'd say, is temporary as people adjust to the new lengthened global supply chain. So we're not really baking in any uplift or loss at this point from the issues in the Suez.

Matthew Blair:

So the automakers have been talking about running a lot leaner going forward and keeping their inventories low and supporting their margins rather than the previous way of just overproducing and then putting everything on sale. And I was wondering, how do you see the shift from Celanese's perspective? Is this potentially exciting to you because perhaps it could result in higher margins for Celanese? Or is potentially a concern because it might have some impact on our overall auto volumes?

Matthew Blair:

Sounds good. And then I just want to clarify on the Clear Lake acetic acid expansion, this $100 million in productivity. Is this also your estimate of like the long-run EBITDA potential for this expansion? Or what do you think it could generate in a more normalized environment?

Scott Richardson:

Yes, Mike, I'd add one of the other benefits in the near term for us is that adds redundancy to our U.S. Gulf Coast network. And we called out in the prepared comments that we had some unexpected outages that would have more or less been offset had we had the new acetic acid unit up and operating. So it gives us that redundancy to ensure that some of the near-term blips that we've had in our U.S. Gulf Coast network in the past, we're able to manage those better in the future.

John Roberts :

Back to Sal's question, Red Sea and the Suez. Do you think the reduced Asia POM exports into Europe or coincident with the Red Sea incident here? It seems odd that China would be improving before Lunar New Year. And I think Japan just slipped back into recession. So we're not hearing from other companies about demand picking up in Asia.

John Roberts :

And then secondly, I'm not sure we heard earlier about the stocking cycle in Vamac rubber. Is it harder to track customer inventory in that product area?

Operator:

Our next question is coming from Jaideep Pandya from On Field Research.

Lori Ryerkerk:

Yes. So maybe talk about the M&M acquisition. I mean you're right, a significant amount is nylon, but some of it is high temperature in nylon, more specialized nylons. I think where we have seen the challenges since the acquisition in nylon is really around more standard grade and volumes that were lost in 2022 due to pricing decisions that were made at that time. I think the teams have done a really good job starting to get some of that back, which is important, and that will continue to happen again and will continue to see improvement in variable margin as we flow through what now has been reduced with lower cost raws and lower fixed costs. So I don't know that it was really -- while it was around nylon, I wouldn't say it was specific to any one region or not. I mean DuPont was very strong in Asia, outside of China, which has actually been a pretty stable market this year. They were stronger in the U.S., which for auto has been stronger. They weren't as strong in Europe. Celanese was stronger there. So I would say it's not specific to any one region, but it's been more of a challenge specific to the volume loss that happened in 2022 and the steps that we have taken to start recovering that volume in a fairly low demand environment. And your second question around acetic acid, maybe I'll ask Scott take that.

Operator:

Certainly, our final question today is coming from Patrick Cunningham from Citi.

Lori Ryerkerk:

Thanks, Patrick. So the $50 million is in the first quarter. There -- we're up about $50 million from last year. So through the remainder of the year, there's probably another $50 million spread across the remainder of three quarters. But that's consistent with last year. So incremental to '23 it’s $50 million and I would think of it all occurring in the first quarter.

Brandon Ayache :

Thanks, everyone. We'd like to thank everyone for joining. As always, we're around after the call if you have any follow-up questions at all, Kevin, please go ahead and close out the call.

Operator:

Hello, and welcome to the Celanese Q3 2023 Earnings Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Brandon Ayache, Investor Relations. Please go ahead.

Lori Ryerkerk:

Thanks, Brandon. So we have done and announced a lot recently. So I just wanted to take a minute or two to emphasize again exactly what we are all working so hard to achieve at Celanese. I can confidently say that at no point in our history, has there been a greater opportunity for Celanese to deliver significant earnings growth as in the next few years. In the Acetyl Chain, we continue to enhance our earnings power and optionality with projects like the acetic acid expansion at Clear Lake, and the methanol expansion also at Clear Lake which will dramatically strengthen our sustainable product offerings. Of course, in Engineering Materials, we continue to integrate and synergize the M&M acquisition, which transforms EM into the preeminent global specialty materials provider. This important and valuable work has been made more challenging in the demand backdrop that remains exceptionally weak and volatile. Our visibility into future macro conditions is limited. Regardless, our teams have worked tremendously hard to deliver three consecutive quarters of earnings growth since closing the M&M acquisition and to position us to meaningfully exceed our full-year objective to reduce net debt by $1 billion in 2023. The work has not been easy, and I sincerely thank each of our employees for their individual contributions and dedication. Quite frankly, while the work is moving forward at pace, the macro environment has temporarily masked some of the underlying financial benefit of our actions to strengthen our business. But we remain resolute in continuing to take decisive and controllable actions. Our most recent actions, including the announced changes to our leadership team and manufacturing footprint, are evidence of our ongoing commitment to drive earnings growth and execute against our delevering plan. The purpose behind the changes I have made in our executive leadership team is to enhance the alignment of our individual strengths and experience to accelerate and deliver on the many value-enhancing opportunities before us. Scott, Chuck and Ashley are exceptionally well prepared for their new roles, and I am confident these changes will immediately enhance the value we drive as a collective leadership team. I speak for our leadership team and broader Celanese in saying we are fully engaged and committed to delivering on the opportunities before us. With that, Kevin, let me turn it back over to you to open it up for questions.

Michael Leithead:

Great. And congrats to Scott, Chuck and Ashley on the new roles. Laurie, I wanted to start on Engineered Materials pricing. I think in the prepared remarks, you made a comment that pressure has widened throughout the year, but nothing indicates that structural. So can you maybe just talk a bit more about your confidence here or maybe what you have seen in previous down cycles versus now? Just what gives you the confidence in making that comment?

Michael Leithead:

And then a question for Scott, maybe on free cash flow. I think in Lori’s 2024 outlook she laid out in the prepared remarks, maybe $300 million or $400 million of earnings improvement next year you guys are probably getting a similar type of amount of working capital benefit this year. So as we think about free cash generation next year, is relatively flat year-on-year, a good starting point today or is there further working capital or other cash benefits you think you can get next year?

Operator:

Next question is coming from Jeff Zekauskas from JPMorgan. Your line is now live.

Lori Ryerkerk:

Jeff, as you know, we are running that as an end-to-end chain now. We are treating to as we do other downstream derivatives. What I would say is we are seeing similar impacts in tow. Now we are seeing in the second half a reset of contract pricing, which is bringing those margins down slightly from the first half, but that was anticipated with the way the contracts are set up. But I would say we are still on track to exceed the $245 million that we set out earlier this year target for sale.

Lori Ryerkerk:

Yes. So [Untrip] (Ph) actually is one of the four plants that we have for nylon and it represents right at 25% of our total capacity. I don’t have the overall total utilization numbers in front of us. But I would characterize this, Jeff, as much like we have done with Palm and other assets where we have really worked on concentrating our footprint taking out either underutilized or less profitable assets in order to shift volume into lower cost, more profitable assets, getting more flexibility in our networks in terms of purchasing either of polymer or different raw materials, depending on where we produce, that is what we are trying to be able to hear with the intro shutdown is we knew going into the deal that we believe DuPont had excess capacity. Now that we have had some time to look at it, we believe shutting down the Introp is the best way to really adjust our cost basis on nylon while still maintaining compounding in Europe, which is necessary for our customers. But I would say this is very consistent with what you have seen us done over the last 10 or so years in Celanese where we have probably shut down over 15 facilities in the last 10-years as we have implemented these models.

Michael Sison:

You haven’t told I need to do more math these days. So if I add up sort of your bridges that you gave for 2024 and just use the lower end of the inventory stuff. It looks like a no volume growth, you could do $12 or better. Is that the right math? And then can you help us on what or how to frame up volume and inflation or deflation upside for 2024?

Michael Sison:

Got it. And then when you think about 2024, what do you think could happen to China, Auto and some of your end markets? Any initial thoughts when you talk to customers of what the demand environment could be next year?

Operator:

Next question today is coming from Josh Spector from UBS. Your line is now live.

Lori Ryerkerk:

No. Look, even I think at the pricing we are seeing now, we are starting to see some pull through of that lower cost inventory, and we see that as a moderate impact on our quarter-on-quarter growth. So I think even at these pricing, we would expect to continue to see some portion of that pull-through. . Obviously, if we saw pricing increase, that would help more, but we also have to consider what the price of rods going in, and we are seeing some upward pressure on raw materials this quarter as well. But look, I would say in all cases, we expect some impact from that flushing through of higher cost inventory. It is just the magnitude will depend on raws as well as future pricing.

Lori Ryerkerk:

I would say pricing in raws stay where they are, that would still be a true statement. .

Vincent Andrews:

I just wanted to ask a couple of things. One, in Acetyl’s in the third quarter, there clearly was a benefit despite a bunch of headwinds from outages in Asia. So I’m wondering if you have any way of sort of sizing that in the third quarter and what you anticipate in the fourth quarter? It seems like there is some comments that you are still going to have some higher pricing flowing through in the fourth quarter. And I’m just wondering if that is just sort of a delay of inventory flowing through or what? And then secondly, on the tax rate, I understand why it is lower this year and that it was originally contemplated in the lower guidance. But if the demand environment is going to stay not all that different from where it is today at least through the first half of next year, does that mean you have a lower-than-normal tax rate next year as well?

Scott Richardson:

And then on the tax rate, Vincent, a lot is just going to depend upon the geographic mix of earnings, if things stay exactly as they are this year, then certainly, we could be at lower levels. If we things normalize back to kind of what I would say is the normal mix of geographic demand, then we’d be back more next year in that kind of 12% range.

David Begleiter:

First, congratulations to Scott Truck & Ashley. Lori and Scott, just on EM pricing. Pricing is up about 38% in 2021, 2022, should be down this year, maybe around 8%. If we do go back to pre 2021 cost levels, do we retain some portion of this price increase? And if so, why is that the case?

Scott Richardson:

Yes. David, I would just add, I think given some of the structural changes that we are making, we do think we should be able to hold that price as we get back to kind of normalized raws. And I think one of the things we have talked about is now with the Engineered Materials business and the acetyls business being about the same size, as we see in more normalized demand environment, the raw material landscape move up and down, we should see some countermovement in margins in EM versus acetyl. So overall, it should kind of fundamentally lower earnings volatility for the enterprise as a whole once we get back into kind of normalized conditions.

Lori Ryerkerk:

Yes. Look, the Clear Lake asset expansion will start up within the first quarter. And so I would expect that ramp up to start kind of immediately after the startup. .

Kevin McCarthy:

Lori, I think in your prepared remarks, it mentioned that you ceased production at certain Engineered Materials facilities in Brazil, Argentina and Germany beyond the nylon shutdown that you discussed previously, can you just put that into context for us fairly clear on whether these are temporary idlings or more permanent structural changes. Maybe you could talk through kind of where you are in that asset rationalization process today.

Kevin McCarthy:

Okay. That is helpful. And then I wanted to follow up on synergies. Can you tell us what the synergy-related benefit was in 3Q and what you are expecting in 4Q? And then when we look at the targeted tailwind of $150 million next year, would you describe that as ratable or ramping throughout the course of 2024?

Scott Richardson:

Yes, Kevin. In the third quarter, synergies were around $30 million in total, which was incrementally up about 10% 11% off of Q2. .

Hassan Ahmed:

Already in your prepared remarks, you guys talked about maximizing the make versus buy flexibility. I mean to me, the legacy sort of Celanese portfolio, you pretty much optimized that side of things. So is it fair to assume that a lot of this sort of optimization work will be on the EM side of it? So that is part one of the question. And the second part is that it seems that right now, there is a fair bit of idling or permanent shuttering going on. Could this also mean in the future some Greenfield build-outs happening as well?

Hassan Ahmed:

Very fair. And just switching gears a little bit. Look, I completely sort of understand that visibility is extremely low right now. But just thinking beyond sort of the near term, I mean with some sort of historical context as well, I mean, this destock has been unprecedented, both in terms of absolute volume declines, as well as the ongoing duration of it. So just as you sort of sit there and look at the legacy Celanese portfolio as well as the history of living through these destocks with the acquired businesses, I mean what could a potential eventual restock look like?

Operator:

Next question is coming from Alex Yefremov from KeyBanc Capital Markets. Your line is now live.

Lori Ryerkerk:

So the $150 million, what I would say is, look, initially, I would say there was some volume improvement in that because some of the synergies are volume related. I think that is why you see us continuing to accelerate some of our manufacturing footprint work to better align current demand with our supply, and we will get synergies from there. So I would say we are fully committed to delivering well over the $150 million this year. The blend may be slightly different than we had set out, say, a year ago at the time of the deal. But we think we have sufficient activities underway to deliver that.

Lori Ryerkerk:

Yes. I think if we look at the industry, probably specifically PA66 is where we have seen the most activity. We have seen some additional capacity being built out in Asia, particularly in China for nylon Polymer, which has increased market length in a period of lower demand. And therefore, we have had some increased competition, depressed pricing you have seen all those impacts. I think what you see, though, is much like our shutdown, we start to see other industry participants take action. So we have seen a nylon intermediate producer announced a shutdown of one of their largest assets here in the last month, which represents about 10% of the intermediate production. So I think you see the intermediate using this as an opportunity to take out some of the legacy higher-cost assets and different parts of the world that have become quite high cost and work towards rebalancing. Again, when demand returns, I think we will be in a much better position, but I do think you have seen a number of commercial actions going on across the industry to address that.

Frank Mitsch:

Maybe if I could ask the destock question a little differently. You mentioned in the release the prepared remarks that you are seeing it end here in the fourth quarter in the Americas and Asia, that will continue in Europe. What gives you the confidence that we are going to be finally done in the Americas and Asia and such that 2024, we are going to see underlying demand growth in those regions?

Frank Mitsch:

Got you. That is very helpful. And then the early look at 2024 suggests that there is a bunch of onetime cost actions that you took in 2023 that will not be repeated, so that should set up an easier comp. I’m just curious if you could kind of quantify or provide an order of magnitude of that and perhaps if plant turnarounds also play a role in some expectations for 2024 to be better than 2023. Any color there would be very helpful.

Scott Richardson:

Yes, Frank, and I would say our focus is really on now actioning other things that are going to be more permanent in nature, given some of the things we called out in the prepared comments, so we can make kind of more sustainable cost reductions and really the lower the overall fixed cost base of the company. And that then gives us an ability to withstand lower demand environment in the future and get much greater leverage on the fixed cost that we have.

Arun Viswanathan:

So I’m just looking at the bridge for 2024 and again, obviously, [indiscernible] Never questions have been asked here. But if we think about Q3 EBITDA around $625 million in Q4, looking a little bit similar from your segment commentary makeup. You are exiting the year at maybe like a $2.5 billion run rate you have maybe $100 million coming from the AC uplift and then $150 million from incremental synergies and then maybe a couple of other items, including the lack of an inventory hit. So that puts us at maybe $2.8 billion or between $2.8 billion and $3 billion. Are we thinking about that correctly as far as EBITDA goes. And is volume the main driver that would push you above that range?

Arun Viswanathan:

Okay. I appreciate that. And maybe I can just ask one on the balance sheet. So obviously, a lot of progress there as well as restructuring the debt profile and redomiciling. Do you expect any other further opportunities there? And I guess, could you just reiterate what your target leverage level is maybe as you exit 2024?

Operator:

Next question is coming from Laurence Alexander from Jefferies. Your line is now live.

Lori Ryerkerk:

Yes. Let me take them as two separate. I would say on Acetyls, we have done a lot of work over many years now to really reduce the number of facilities that we have. And really have larger, very efficient facilities strategically located regionally. And our activities, including the big expansion at Clear Lake, but we have also had many, many small expansions in many of our downstream derivatives to basically keep us at the same or greater volumes and certainly much higher margins as a result. I would say we have also done that work in the Heritage EM portfolio over the last, call it, 10-years as we adopted the new models and the project pipeline models and you have seen a lot of those actions in the announcements we have made over the last 10-years. I think now for us, that is now taking the M&M portfolio and applying that same mindset to that. So I don’t really have a number yet what that means in terms of capacity that we would take out. Again, I don’t really see any time in the near to medium future any need for Greenfield because we have sufficient capacity even with some of the strategic shutdowns in our existing network, and we have a team that is exceptionally good at finding low and no cost debottlenecks to our existing assets to add very efficiently and inexpensively additional capacity.

Salvador Tiano:

Yes. Firstly, I want to ask a little bit, as you said, the shutdowns in Engineered Materials are a big part of the $150 million synergies. So I’m just wondering where do these actions in your original plans when you acquired the upon assets or were they more, I guess in response to recent market conditions. And I guess if the latter, why will the synergy target increase given that this will be incremental actions?

Salvador Tiano:

Okay. Perfect. And I also would like to ask a little bit about your Q4 guidance and assessments. I think there is a lot of the questions regarding what the demand destruction in the stock installing, et cetera. But I think the what makes, I guess, your outlook a little bit different than most of the companies that have reported so far is that you made the comment, if I understood correctly, you expect a more muted destocking in Q4 than normal, whereas I would say the vast majority of your competitors expect the same, if not a more intense stocking quarter? Why do you differ versus, I guess, most of the other chemical companies here?

Operator:

Next question today is coming from Andrew Keches from Barclays. Your line is now live.

Scott Richardson:

Yes. Thanks, Andrew. Cash balance is a little north of $1.3 billion right now, and we will be repatriating that cash now in the coming months. And then once we get integrated on 1 system, which we expect to happen in the early part of next year, then we will be able to start moving that cash balance down to where we think we can - minimum needs would be right around $500 million. So we definitely are confident that we will be able to get to that $500 million level during 2024.

Scott Richardson:

No. I mean, look, we had originally targeted the end of 2024, and we are going to do everything we can to get close to that. And last quarter, we said may bleed into the early part of 2025, a lot just depends upon what happens with our cost reduction plans, which is another reason why we continue to take aggressive action on getting controllable earnings improvement from cost reduction and then where the macro and the demand plans that we have. The other things that teams are doing, largely in Engineered Materials is really working the revenue synergy side. And the revenue synergy side of bringing M&M into our project pipeline model, will start to yield opportunities and close wins as we get further into 2024. So the pace and speed at which we are able to execute on those plans will certainly help us accelerate that deleveraging plan.

Patrick Cunningham:

How are you thinking about potential portfolio actions, let’s say, if demand does not get better from here? Is there anything that maybe stands out as separable or where you can structure a similar deal as the Food Ingredients JV?

Patrick Cunningham:

Got it. And then just on the Eco [indiscernible] CC brand with products containing recycled CO2. What sort of relative premiums do you expect to achieve? And would you be fulfilling incremental demand there, or is that more of just optionality with the rest of the portfolio?

Operator:

Next question is coming from Jaideep Pandya from On Field Research. Your line is now live.

Lori Ryerkerk:

Thanks for the question. As I said earlier, we do see the polymerization capacity and some intermediate capacity coming on stream in China. We have seen some other industry shutdowns going on. But we remain really excited about PA66. Again, a lot of what’s coming on is polymer. A lot of the value is adding in compounding. A lot of our PA66 goes into highly differentiated products, where we are the sole suppliers. And we see a lot of future potential for PA66 in EV, for example, uniquely to EVs lately, we have had applications for battery cell frames and in-place, high-voltage connector, brackets and mounts for electric motors. So we see the EVs continuing to extend to the extent that we see some moderation in EV production. We think that will be in favor of hybrids and hybrids have even more PA66 content. So that is only a good thing for us. And then if you look at the next five-years, we also see electricity demand more than doubling, partly driven by EVs, but also driven by the electrification of everything. And there will be a strong pull on PA66 for that in building out electrical infrastructure. But again, you don’t tend to be integrate materials. These tend to be highly differentiated. They need fire retardants, they need all sorts of different things. And that is where we really see the value being added is in the differentiation achieved through compounding. And look, we always want the flexibility to make versus buy because we do see these markets swing because of outages and other things going on. So this is really about building more optionality into this chain in a way that M&M didn’t have because they had a very cumbersome take-or-pay. They have a lot of overcapacity, they had single sourcing. We have been systematically resolving these issues so that we will have a flexible and highly optional PA66 chain where we think we can achieve significant value uplift.

Operator:

Our final question today is coming from John Roberts from Mizuho. Your line is now live.

Scott Richardson:

Yes, John, we are building a new acetic acid plant in Clear Lake on a BAM unit. So we did the expansion in Clear Lake and BAM a number of years ago. So we feel really good about our current network in BAM.

Lori Ryerkerk:

Yes. Hard to say, but I don’t - we haven’t really seen that that has been an impact at all in terms of impacting the pulp market.

Brandon Ayache:

Thank you, Kevin. We’d like to thank everyone for listening in today. As always, we are around for any follow-up questions that you have. Kevin, please go ahead and close the call.

Operator:

Greetings. Welcome to the Celanese Second Quarter 2023 Earnings Call and Webcast. [Operator Instructions] As a reminder this conference is being recorded. At this time I would like to hand the call over to Brandon Ayache Vice President of Investor Relations. Thank you. You may begin.

Operator:

Thank you. We will now be conducting a question-and-answer session [Operator Instructions] Our first questions come from the line of Ghansham Panjabi with Baird. Please proceed with your question.

Lori Ryerkerk:

Thank you, Ghansham. When we look at China, it's been a difficult year in China, clearly, as we've seen depressed demand consistent with the rest of the world but probably more pronounced in China. I think what we see different now as we start moving through the year, we saw some signs of it early in 2Q, already is despite lower demand conditions, conditions especially for the Acetyl Chain seem a bit tighter. And the reason I say that is when we saw some unexpected outages in the second quarter and here really in July, we did see pretty rapid price response to those outages, which suggests that there's not a lot of spare inventory or spare capacity in that area. And if you look at utilization for acetyls for China – for global asset it's around 90% about the same in China. So again, that suggests to us that although demand hasn't recovered significantly, there is enough demand matches with the supply that we are in a place where we can see some price movement up as we see supply growing. I would say we're not seeing a lot of response yet to the stimulus. We hear a lot about it. We haven't seen a lot of response yet. But we think it's coming. And there are some pockets of strength in China, in particular, autos remains pretty strong in China and the broader Asia area. But we see the pockets of weakness as well, electronics, especially consumer electronics, consumer goods, and I would say challenged by the situation in Europe and the core economy in Europe, which is limiting exports out of China, which is also I think putting a damper on production of goods in China.

Lori Ryerkerk:

Ghansham, I think it's a good point. We really have no visibility into 2024 at this time. So we don't really know what demand is going to look like in 2024. If I had to guess, I'd say it's going to be better than 2023, but we don't know. But there are a few things we do know that we know will give us an uplift and we are confident will give us an uplift in 2024. So if you start with the engineering materials side, with the amount of inventory draw down we're doing this year, we will be able to have completely flushed through our higher cost inventory as we move into 2024, which will give us lower variable costs in 2024. We'll see less hits to our P&L from the inventory reductions. We'll see those in 2023. We don't anticipate a lot of those continuing into 2024. So that will be an uplift. We have an additional $150 million of M&M synergies, which we will hit next year. That's helped by our first quarter SAP integration, which will get everything on the system and give us additional opportunities for synergy as we get everything fully integrated and cost takeout. And of course with the lack of destocking, I would expect to see next year, since we'll have taken so much destocking this year, in addition to that lift then we'll get from share recovery, we should continue to see M&M volume recovery in particular. On the Acetyl side, we know at a minimum, we have at least this additional $100 million contribution from Clear Lake asset that we have next year. And then with the more than $1 billion of net -- debt reduction that we will take this year, we'll have lower interest expenses next year. So again, if you take all those factors, those are things that we feel very confident will lift our earnings from '23 to '24, regardless of what happens to demand.

Operator:

Our next questions come from the line of Michael Leithead with Barclays. Please proceed with your questions.

Lori Ryerkerk:

Sure. Thanks, Mike for your question. As we look at Q2, if we look at what we had guided to versus our performance, I mean clearly, we were below what we had expected in the quarter. I'd say half of that gap came from the M&M side. About half of that was really the inventory drawdown in M&M, which we really hadn't anticipated, so the earnings associated with that. And the other half is really just the weak demand, again especially industrial and electronics. And how I would try to describe what's happened in demand? If you look at differentiated products, that's really where we've seen lower volumes. We've seen our customers taking lower volumes of differentiated products again, because they don't have the end market for their goods. And we haven't moved price on differentiated. We've been able to hold price, but we've just seen the volume drop off. We have chosen to take molecules instead of moving them and therefore not needing them in differentiated. We've gone ahead and increased sales into the standard grade market, where we are able to capture volume, but at a lower margin or a lower price. So it is a combination of volume and price and it is a big factor of mix in terms of less differentiated, more standard grade, again, allows us to keep volume, which we think is important as we move towards recovery, but we've had to take some price concessions to make that happen. And in terms of what -- molecules -- I mean, POM is certainly the big one, I'd say for the heritage selling these molecules. We've had a few others especially those more differentiated molecules that go into electronics, connectors and that sort of thing, which have also had a volume impact. I think it's short-term. I think we'll see recovery there. And then on the M&M side, it's nylon. And again, I would say it's that switch from differentiated standard grade is more significant in terms of earnings than necessarily the volume -- any volume impact.

Lori Ryerkerk:

Sure. As we move from the third quarter to the fourth quarter, there's a couple of things happening. One is, we have initiated about an additional $60 million to $80 million of cost control. And most of that impact will show up in the fourth quarter since this is work that we've been doing just the last few months. So, most of that will show up in the fourth quarter. You have additional M&M synergies, which show up in the fourth quarter versus third quarter. And then we are expecting a pretty robust fourth quarter. In fact right now, we would say we would expect fourth quarter to be our best quarter of the year. So partly we think that's on destocking. We think destocking in the Western Hemisphere should be over for the most part in the third quarter, probably a little bit of destocking carrying into the fourth quarter from Asia. We also think, we'll have less seasonality, because we've had so much destocking across the year, we wouldn't expect the usual amount of seasonal destocking that we see in the fourth quarter. And the last factor I would say is, given the acquisition of M&M, we are now more heavily weighted towards Asia and China than we were before. And typically fourth quarter is a very strong quarter in Asia and China, as we go before Chinese New Year, which will more than offset any seasonality we would expect to see in the Western Hemisphere.

Operator:

Thank you. Our next questions come from the line of Jeff Zekauskas with JPMorgan. Please proceed with your questions.

Lori Ryerkerk:

Thanks Jeff. On VAM, Jeff in general, the markets have been a little weak for VAM as we've seen. I would say, Europe is still our most challenged geography. Really there's not been a rebound in paints and coatings, construction and building, as we continue to see the economy really drag on VAM. I think globally, the indication of this is we do see VAM utilization has moderated into the mid-80s on a global basis, which is the lowest we've seen for many years, I would say, I mean really since early COVID. We are seeing some recovery in VAM in the US. I'd say especially -- or in the Americas I should say. Especially in packaging, packaging continues to be pretty strong. And that's one of our bigger end markets in the Americas. And then in China, although, we see some of the more industrial uses of VAM coming back again not seen a lot of rebound yet in construction and building, although with some of the stimulus that's been announced perhaps that has to come here in the second half.

Scott Richardson:

Yeah. I think Jeff, we've been talking very consistently going back to when we announced the deal in 2022 about two focus areas. The first is reducing net debt by $1 billion in 2023, and then achieving three times, levered towards the end of 2024 into early 2025. And I think those continue to be where we're focused on. I think that first objective as we called out in the prepared comments, we're very confident given the cash flow that we're going to generate this year of hitting that $1 billion of debt reduction. And then with the additional proceeds coming in from the Food Ingredients transaction that will allow us to actually go up another $450 million above that from a debt reduction perspective. So definitely on track and tracking ahead for that first objective and then continuing to build plans and a focus around cash generation and harvesting, as well as the EBITDA lift into 2024 that Lori talked about a few minutes ago to be able to get to that second objective.

Operator:

Thank you. Our next questions come from the line of Josh Spector with UBS. Please proceed with your question.

Lori Ryerkerk:

No, I wouldn't say the longer-term target. It's just -- it will take us probably through the end of 2024 or maybe even in 2025 to recover all of that volume. I mean, some of the strength you see in M&M volume is starting to get some of that standard grade back. Again, we've had some offsets though as we've had lower demand for differentiated grades. But we have been able to go after and get some of that standard grade back. I mean, the good news is DuPont's Zytel has really been specced into all of these standard grades at some point. So it's not a question of having to recertify. But some of the standard grade markets do work on contracts. So we need to wait for people's contracts to roll out so we can get the opportunity to go in there. So I would say, we're on track with our plan to recover standard grade more commodity grades, if you will to use your words materials. But it is something that will take us several years to get it back fully, again just because of the way the business is contracted.

Lori Ryerkerk:

So I'll let Scott comment on the math. What I would say is, look, we remain confident in our ability to generate sufficient cash flow through earnings and through inventory drawdown and other steps to meet all of our debt requirements and commitments. And so we'll continue to be opportunistic as we always have been in terms of future divestments and opportunities. That really hasn't changed again, because we have a lot of confidence in our ability to meet our cash commitments.

Josh Spector:

Thank you.

Vincent Andrews:

Thank you, and good morning, everyone. Scott, I'm wondering, if you can give us any more color on your comments in the prepared remarks about being able to term the debt out and remove the refi risk from the next several years?

Vincent Andrews:

And that would be straight debt, or are you considering a convertible type thing or anything like that?

Vincent Andrews:

Okay. Thank you very much.

Michael Sison:

Hi. Good morning. In the last quarter you had a -- you gave us a bridge to get that extra dollar per share a couple of things M&M integration, unwinding high-cost inventory lower natural gas and a couple of other things. So when you think about that dollar, is -- could you just give us a little bit of color of, how that has changed in the sense that is it -- you still have that dollar but there's a bunch more minuses that sort of get you to the third quarter and fourth quarter outlook?

Michael Sison:

Got it. And then, again, if you take a look at your outlook the prior quarter, fourth quarter would have been somewhere around $3.50. And I think there was some confidence that, that would be a good run rate heading into 2024, meeting $14-some like EPS. So when you think about the new run rate of $3 in the fourth quarter, I know predicting next year is a little bit early but, how do you think about that $3 in the fourth quarter as it relates to a run rate potential for 2024?

Michael Sison:

Thank you.

Hassan Ahmed:

Good morning, Lori and Scott. In your prepared remarks you guys talked about, the destocking lasting longer than previous cycles. Now obviously having lived through 2008, 2009, the COVID lockdown period and the like, I mean, multiple lessons must have been learned. So my question really is that, as you think about the restock -- being a longer duration de-stock, certainly seems like a deeper de-stock. What potentially over the next couple of years do you think the restock will look like? And I guess where I'm going with this is, has the sort of inventory appetite of your customers changed materially, living through all the craziness of the last decade or so?

Hassan Ahmed:

Very helpful. And as a follow-up on the EM side of it, again, in your prepared remarks, you guys talked about moving from exclusive distribution arrangements in the West to dual or multi-distribution approaches. How do you see the impact of that sort of playing out near-term as well as on a go-forward basis?

Hassan Ahmed:

Very helpful. Thank you so much Lori.

Kevin McCarthy:

Yes, good morning. Just a follow up on the balance sheet discussion. Scott you ended the quarter with $1.3 billion in cash and I believe you have another $450 million coming in from the Nutrinova deal. Is it your intention to just continue to accumulate cash to address your senior unsecured notes due in July of 2024, or would you prefer to refinance them over the next few quarters instead of paying them off with cash?

Kevin McCarthy:

I see. Thank you for that. And then on a related note your balance sheet reflects approximately $1.5 billion as the sum of short-term debt and current portion of long-term debt. That actually ticked up a little bit. Sequentially, I would have thought that it would go the other way with the term loan paydown of $370 million. Can you speak to what's in there in terms of how much you might have drawn on the revolver and what you might owe affiliates at this point?

Kevin McCarthy:

Okay. Thank you.

Matthew DeYoe:

Thank you. It seems like a sharp acceleration in the China macro, I don't know maybe needed to improve the POM and PA66 trade flows. Like is that right? And does the recent PA66 capacity expansions within Asia-China make that business recovery more challenging?

Matthew DeYoe:

I appreciate that. I guess, I wasn't necessarily worried about the 9% to 10% number this year in recovery more just in general with repairing some of these markets, like particularly I guess POM. Because it's not one we have a ton of line of sight into from a supply/demand basis. Is it really just trade flows from China and China is kind of sitting on the cost curve into Europe, or is there -- and if that's the case I guess what reverse is that?

Matthew DeYoe:

Thanks for that.

Arun Viswanathan:

Great. Thanks for taking my question. Just going back to the guidance. So, now the new midpoint is around $9.50, and if you just go through the Q3 that $2.10 to $2.50 with $2.30 at the midpoint, it kind of implies around $3 for Q4. So you noted that Q4 is going to be your strongest quarter. Could you just maybe bucket out that bridge between $2.30 and $3 from Q3 to Q4? We can do the math, but I just wanted to hear it from you as well as to how the two segments kind of play out. Thanks.

Arun Viswanathan:

All right. Thanks for that. And just as a follow-up then. So you'll be exiting the year at maybe a $3 run rate gets you kind of back into that $11 to $12 range for next year. Is that the right way to think about it? I mean are you seeing the end of this destocking cycle? And was there any risk to that view? Would it be maybe an automotive kind of slowdown from the strike or anything like that, or is there -- what are some of the risks to maybe not achieve that level of earnings power as you look into 2024?

Arun Viswanathan:

Great. Thanks.

David Begleiter:

Thank you. Good morning. Lori, do you have an updated forecast for M&M EBITDA for the full year?

Scott Richardson :

Yeah. David, I think as we put out the Q3 number, it's another lift off of where we were in the second quarter, which was a lift off of the first quarter. As we go into Q4 as Lori mentioned, we would expect another lift up. So that puts you in that range when you add up kind of all of those numbers somewhere in that $500 million to $600 million range. We're going to try to get to the top end of that range or even exceed it depending on where Q4 lands, but that's where we'd be. But you're getting a lot closer on a quarterly basis as you end the year to that quarterly accretion level that we talked about last quarter.

Lori Ryerkerk:

Yeah. If I look at the $60 million to $80 million, some of it is definitely one-time. So if you look about half of it is related to production actions. So these are things that are focused on the fact that we have lower demand, and so better optimizing when we're taking turnarounds, how we're doing turnarounds. I mean, if we don't need the capacity right -- back right away for example, we can do it without overtime and just take a bit longer to do a turnaround. We are idling facilities not so much entire facilities but say lines within a compounding unit. So that allows us not to staff as much power savings, et cetera. So reduced over time, reduced use of contractors, again really in response to demand. So I would say those are one-time or temporary actions. They're not things that -- hopefully demand comes back and then these are things that we can reverse. And the other half, I would say these tend to be -- a lot of them tend to be small and a lot of these are one-time as well. So continuing to really reduce travel across Celanese, which is worth a few million, reduction in promotional and marketing spend, a few million as well. So again most of these are temporary. Look there are some things there, which is acceleration of the synergies that we have laid out for the acquisition of M&M. So where we have redundant positions for example in the organization going ahead and removing those redundancies now versus maybe having waited until later in the year or even into next year. And so I'd say it's probably just guessing off the top of my head, kind of, two-thirds things that I'd say are more temporary in nature and related to the reduction in demand that we're seeing and our focus on maximizing cash in this period of time. And then the other one-third would be acceleration of steps we had planned to take later in the year and into next year.

Operator:

Thank you. Our next questions come from the line of Duffy Fischer with Goldman Sachs. Please proceed with your questions.

Lori Ryerkerk:

Yeah. I don't think we've really seen any difference in their behavior. I mean nothing different than we're seeing in the rest of the industry in response to the macro conditions that we're all experiencing right now.

Lori Ryerkerk:

Yeah. So year-over-year, Ibn Sina that's probably the easier way for me to think about it. 2022 was higher crude prices, higher methanol prices. We had a really healthy contribution from Ibn Sina. This year I believe Ibn Sina is going to be in that $60 million to $70 million less in contribution than last year -- for the full year. It's because our total for all of the joint ventures is about $100 million less in 2023 versus 2022. And that's the combination of Ibn Sina and KEPCO -- moving KEPCO to a manufacturing joint venture.

Operator:

Thank you. Our next questions come from the line of Aleksey Yefremov with KeyBanc Capital Markets. Please proceed with your question.

Lori Ryerkerk:

Ryan, I'm sorry you were breaking up, a little bit. I believe your question is the $35 million headwind that we had in second quarter due to destocking would we expect to recover that in the third quarter or sometimes later. Was that your question?

Lori Ryerkerk:

Okay. Great. I wouldn't necessarily say we expect to recover it. It's a onetime thing. Now some time in the future, do you get some benefit from restocking, as we see demand come back strongly and people want to return to inventory levels, certainly. But I don't have any idea when that would be, and that's kind of a hard thing to track. I would expect third quarter destocking, will be a similar level to second quarter in terms of the financial implications. So I wouldn't expect big -- further big pluses or minus, maybe a little bit more down in the third quarter because we'll have more finished goods destocking and less raw material and intermediate destocking, but not hugely significant. So I wouldn't expect a second to third quarter, big change relative to destocking.

Lori Ryerkerk:

No. It's really the impact of not being able to get our synergies. I mean obviously, with the lower demand profile there is capacity in the world. So, we don't anticipate, a big impact there. And the cost of the site itself is covered by the manufacturer since the manufacturer is responsible for the defect.

John McNulty:

Yes. Good morning. Thanks for taking my questions, So the cash generation Scott, it looks like you've [indiscernible] pulled down CapEx for next year. Are levers as we look to 2024 that you still feel like you can pull is there more kind of to ring out of the working capital side of things? Are there other integration costs that can maybe be pushed off? I guess, how should we be thinking about some of the puts and takes for free -- coming in next year?

John McNulty:

Got it. Okay. Fair enough. And then just a question on EM's differentiated products. Have you -- it sounds like so far, you haven't seen much in the way of pricing pressure there. Do you expect to see any as you kind of look out over, the next whatever, call it 12 months just given the level of deflation that we've seen across so many industries so far?

A – Brandon Ayache:

We will take one more question, please.

John Roberts:

Thank you. How is the Food Ingredients business performing into the deal closing? We've got some pretty broad weakness, in the Food Ingredients overall market.

Scott Richardson:

Yes, John, that business tends to be pretty resilient through most economic conditions.

Lori Ryerkerk:

Look, I would say no more than it ever is. I mean, we constantly flex or Singapore and our Nanjing units depending on economics depending on regional demand and the cost to supply those regional demand. With this level of crude pricing and coal pricing in China, I don't see that dynamic changing significantly.

Operator:

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the floor back over to Brandon Ayache for closing comments.

Operator:

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.

Operator:

Greetings, and welcome to the Celanese First Quarter 2023 Earnings Call and Webcast. [Operator Instructions]. At this time, I'd like to turn the call over to Brandon Ayache, Vice President of Investor Relations. Thank you. You may begin.

Operator:

[Operator Instructions] Our first questions come from the line of Michael Leithead with Barclays.

Lori Ryerkerk:

Yes. Thanks for the question, Mike. I mean you're right. We need about on average $1 lift in Q3 and Q4 from where we were in the first half. And so our focus really is on controllable actions to the extent we can. I mean, M&M volume recovery we saw about a 10% lift from Q4 to Q1, a similar lift from Q1 to Q2. We continue to expect volume recovery in the M&M business as well. Productivity, which is coming in at the top of our range for all of our businesses, M&M price optimization, synergies, which we'll see building across the quarter. We also do expect some improving demand again for in its entirety. We were up about 10% in the first quarter. We'll have some increase again in Q2, but we do expect things to get better still in the back half of the year. As we see kind of the EU and Asia competitive dynamic improving and see the in destocking in the U.S. And then we should have some tailwinds from raw materials and energy cost moderation, which should help with margins in all of our businesses and especially in EM as we see those costs flow through to inventory. And start to hit the P&L. So I think that's kind of what we're in control of. In terms of where we see the markets going, if we take it first by region, in China, we do expect modest demand improvement in Q2 and into the second half. We do see markets recovering in China, especially auto. And we continue to see some improvement in utilization in acetyls and hopefully get acetyls coming off the cost curve. Especially now as we're going into some turnarounds in Asia, we do see some upward price movement and some margin expansion in acetyls. In Europe, we do expect continued modest demand improvement as well. We saw that through Q2. We expect that to continue at a slow pace into the second half. And then as I said, we would expect, as Asia proves we see less imports from Asia into Europe which should help margins in Europe get back to a better level. And in the U.S., again, we know a lot of people are calling out recession. We're not seeing that in our order book. I mean however you want to define recession. What we're continuing to see is general recovery across a lot of markets. We still had some destocking in Q2, but we expect that destocking to be mostly over as we go into the second half of the year. And so if you look at end markets, auto has continued to be quite resilient in the EM portfolio that's helping both our legacy businesses as well as our M&M businesses. 2023 auto builds, we still expect to be up 3% to 4% of 2022, and we're at a run rate right now that already achieved that. And we are seeing our own auto volume recovery at a pace significantly better than that. And really building on the project pipeline and all the work that's been done in the last several years to build that pipeline, both for the transition to EV as well as increasing our content per vehicle we see auto being a fairly robust end market for us this year even with just a moderate growth in the actual build themselves. I would say the most sluggish sector we still see and is baked into our forward look is construction. Although we see some modest improvements in Europe and Asia and Europe, mostly on the renovation market as energy efficiency regulations come into effect. We still see it could be quite slow in the U.S. and in China, where we've not seen any recovery in really commercial construction yet at this time. And then non- auto -- the other non-auto durables, I would say, electronics, electrification is improving. There's a lot of need for more electrification around the world, and so we see that as a growing market this year. But in consumer electronics and consumer -- other consumer appliances, we see that lagging 2022, especially in the U.S. And then finally, packaging, we do see resilient growth in packaging, especially in the U.S. I think about Amazon and everything that's getting shipped from online shopping. And also the push for sustainable packaging solutions, but paints and coatings is a bit slow tied to construction. So that's probably a bit more than you will before, Mike, but that's a little bit of a summary of kind of where we see things going in the second half and the underlying trends that support our confidence in that $11 to $12 range that we put out for the year.

Lori Ryerkerk:

Yes. So let me talk a little bit about 66 in general, starting with what we're doing immediately around 66. So in the past, Celanese has not been backward integrated in 66. So we were just a purchaser of nylon Polymer, which was great when prices are low, not so great when prices are high. With DuPont, we've been able to add the backward integration. What we're doing differently is we've been able to secure a different raw material contract and instead of being forced to produce PA66 polymer we have options. We have flexibility. We have optionality. We can choose to produce backward integrated nylon polymer when it makes sense, we can make less and buy nylon polymers, from others, if that makes more sense, we can make less of it if we see the demand profile not supporting higher production rates, and we can make more of it if we see a sudden resurgence of demand. And so that flexibility, which is much more like we run our other businesses like GUR and Palm and even acetyl, gives us a degree of flexibility and ability to make value across a wide range of market conditions that DuPont really didn't have or really didn't exercise. And so we've already done that. We've gotten most of the Celanese nylon grade already certified to start with the DuPont polymer. We've been using DuPont polymer out of inventory, raw home, compounding it to make the Celanese branded products and we've been flexing that to really start managing some of the inventories that had been built last year for both raw and for finished polymers in the DuPont product line. And so that's a degree of flexibility and a way of running the business, which is different. We've also talked about how we're pricing differently pushing price on more differentiated grade lowering prices in some case and more standard grades to really get our inventory in line with the demand profile. And therefore, the cost profile of our inventory in line with the demand profile. So that's kind of the immediate things we're doing. As we think about PA66 longer term, of course, we spent a lot of time studying this before we went into this deal. We know a lot of people are like, well, PA66 is under hood, that's going to decline. We don't see it that way. I mean if we look at electric vehicles as they're coming on the market, we find that the addressable content per vehicle is almost double compared to what we've traditionally have in IPE. And we think a lot of those new opportunities in electric vehicles also extends to PA66 as we see performance requirements increasing for electric vehicles. So longer battery life, higher heat management required. These things are very suited to PA66. So if you think about parts, the PA66 is suited for an EV, things where you replace metal for lightweighting when you need the strength of a PA66, things like battery cell frames and in place. The brackets and the mounts for the electric motors and then things in the electrical system like high-voltage connectors, and it's the PA66, standard grades, but also the high temperature and [indiscernible] grades, which are particularly applicable here and which we didn't have in our portfolio prior to the acquisition of M&M. And I would say for our legacy EM business, we're about halfway to capturing the addressable content for EVs. Obviously, the M&M business was not as focused there. And so not as far as long, but we are using our project pipeline to also drive these applications of PA66 into EVs now that we have those molecules available to us. And I think if you think about PA66 beyond electric vehicles, there are huge applications there in electrical and electronics which was an area that M&M was really underrepresented in historically. So think about electrification and the need for not just electrification per vehicle, but for everything you think about people wanting to get out of natural gas for homes, but basically, the electrification of everything. All the outlets would say electrification, electricity demand is going to more than double in the next 5 years. So with that comes data management centers, power distribution centers. All of these things require polymer and specifically, all of them can benefit from the availability of PA66. And so we think there's going to be a strong pull-through for PA66 as the demand grows for building out our electrical infrastructure. And again, this is an area Celanese has been in for some years, and now we're able to apply that market knowledge and that end use knowledge to the PA66 profile and pull those volumes through using the project pipeline model.

Jeff Zekauskas :

I think you reduced your earnings per share goal by dollar. What was the source of a decrease?

Jeff Zekauskas :

Is it fair to say that as a base case, second quarter volumes and prices are flat sequentially?

Operator:

Our next questions come from the line of Ghansham Panjabi with Baird.

Lori Ryerkerk:

Let me talk about that a little bit. So as we saw in March, what we saw in March is we saw our books starting to really -- at the time of the call, we were really seeing good volume showing up on our books for in our base businesses, and that gave us some confidence about second quarter. I think the unanticipated commercial opportunities that we saw, though, at the end of March, which really got us above our guidance was a number of things. One, there were some unusually high spot demand at the end of the quarter. So things like Palm and nylon, also to an RDP, so it was across both of our businesses. And I think because of our flexibility we have in our supply chain and our operations, we were able to capture a significant share of that unexpected volume that arose at the end of the quarter. I would say that was the majority of that. I think though we also did see accelerated by in a few products in auto and in medical implants, which is a little unusual because we had expected quite a big headwind from medical implants and in fact, had some orders come in. In the case of medical, I think that probably pulled forward from Q2. In auto, we think it's also some pull forward from Q2 in anticipation of better demand in Q2. So I think on that one, is it pull forward? Or is it just quicker demand recovery? Not sure yet. That's not clear. But we're kind of characterizing it as pull forward until we see if that's a sustainable trend.

Lori Ryerkerk:

Yes. What I would say, is we really saw the end of destocking in Europe and Asia for the most part as we moved into the second quarter. What we've really seen destocking continue is in the U.S. And there, auto is pretty robust, I would say, across all of the areas. But I think there, we see destocking continuing in consumer goods and industrial for the most part. And right now, our projection is we think that's going to continue through second quarter, but be pretty much over as we move into the third quarter, and that's some of the uplift we expect to see in the second half.

Michael Sison :

Lori or maybe Scott, you started the first quarter with negative free cash flow. Can you help us walk into the 1.4? You maintain free cash of 1.4. How does that sort of unfold, do we turn positive in 2Q? Or is it more second half loaded?

Michael Sison :

Got it. Okay. And then I think in your prepared remarks, you said that 50% of the first quarter EPS came in March. So April is at a buck -I'm sorry, March is at back then if you think about April, May, June, it typically is better than March, I think. So what happened, do you think in terms of decelerate -- the deceleration into April, May and June, and I thought maybe that dollar could have sustained throughout the quarter.

Operator:

Our next questions come from the line of Matthew DeYoe with Bank of America.

Lori Ryerkerk:

Thanks, Matt. We're really happy with how the integration is going and the value uplift we're starting to see in the M&M assets. Our concern at this point is the fact that second quarter is not accelerating at the pace that we thought across all of our businesses. And so we're going into the second half. At a little lower demand rate than we had originally called out last quarter. So that applies to M&M as well. And so what we're really focused on now, so what I would say is, if that plays out the way we see now, I would say we're kind of at the lower end of that $700 million to $750 million that we called out. And so what we're really trying to get our teams to focus on is making sure we're delivering growth. So that as we get towards the end of the year, we are basically on track for EPS neutral quarter going into 2020, either sometime in the second half or going into 2023, which would be at that kind of $200 million EBITDA range, including synergy.

Lori Ryerkerk:

Sure. really started back in the fourth quarter and when we really started seeing -- or really even through the third quarter last year when we really started seeing the very high energy prices in Europe. That raise the price of palm in Europe and provided an arbitrage opportunity for Palm coming out of Asia, both China and Korea out of Asia into Europe because demand was very low in Europe. And so that -- those molecules found a home in Europe, where it could be highly competitive even with the shipping cost to do the -- to be there. Now obviously, with the COVID resurgence in December, and going into the first quarter, we saw those volumes still flowing in the first quarter, even as we started to see energy prices coming down, in Europe, but because of the lack of demand in Asia, there was still an opportunity to move projects into Europe. And while we still see volumes moving in the second quarter, we really expect that now demand is coming back up in Asia that those molecules will find a home again in Asia, prices are down and competitive in Europe. With that on a landed basis. And so we should see those prices stabilizing again in Europe, I think as we move through this quarter and into the third quarter.

Josh Spector :

Two questions, maybe I'll roll into. One here is you seem to pull a lot of levers to basically keep free cash flow in the range that you provided, despite the cut to earnings. Just curious, one, what levers are left if things will play out as you see it and two, as you look at your guidance, I mean, you're talking about demand improving. I guess does the lower end of your range reflect the scenario where demand doesn't really improve from 2Q levels? Or would that be another cut that we need to consider?

Josh Spector :

Okay. And just a quick follow-up just on the inventory adjustment in 2Q, kind of thinking along against similar scenarios here, is that something contained within 2Q? Or is that something that drags into the second half is what's baked into the outlook there?

Scott Richardson:

Yes. And Josh and that's all baked into the guide that we gave.

Kevin McCarthy:

Lori, would you elaborate on your acetyl outlook in China? If we look at some of the consultant assessments of acetic acid prices they really haven't done a whole lot over the last 2 months or so. But in listening to your commentary, it sounds like maybe there's some upward tension building there. If that's correct, would you attribute that to some of your competitors' outages over the next month or 2? Or do you foresee a more sustained cyclical uplift as the year plays out.

Kevin McCarthy:

And then secondly, for Scott, can you speak to your debt reduction target for this year? You affirmed your free cash flow or at least endorsed free cash flow 1.4 billion. I think that number excludes the proceeds that you expect from your Mitsui deal which I understand to be $400 million or more. And so can you put that into context in terms of how you can attack the balance sheet over the next 8 or 9 months here?

Operator:

Our next questions come from the line of John McNulty with BMO Capital Markets.

Lori Ryerkerk:

Yes. In terms of the competitive landscape in Europe, I think the real challenge there has been imports from Asia, again, reflecting the low demand in Asia and the improved cost position Asia had compared to Europe when they had much higher energy prices. And I should say Europe energy prices have come down significantly, but they are still high relative to the rest of the world. And so again, we see that situation improving, especially now with increased demand developing in Europe. We really see that having improved now at the end of the first quarter going into the second quarter and then further improving in the second half of the year. On Steel's competitiveness, it has been a very stable market. So it's been very competitive as there's -- and it's also been a period of seasonably low demand for acetyls as well as some of the impacts of China holidays and just lower China demand and the slowdown in the construction industry globally and the impact that has on acetyls. Again, as we start to see recovery, even slight recovery in Europe and Asia in construction, as we start the normal levels of shutdown, we do see an opportunity there to capture additional margin in the acetyl space. the ability to capture additional market share is really based upon our commercial model and the optionality and flexibility we have to take advantage of when there are spot opportunities by moving molecules around the globe by flexing up and down our product chain. In first quarter, we took advantage of the stronger markets for emulsions and RDP further down the chain, which helped boost our profitability in the first quarter. As we start to see some movement in the asset price in China, there will be an opportunity to take advantage of it there. So it really is all around more so than market share, it's more around the flexibility and optionality and the ability to capture in any given market at any given time, any upside potential that exists.

Lori Ryerkerk:

Yes. So the $100 million is on top of our already kind of $1.3 billion level of foundational earnings for Acetyl so that's raising the total global acetyl Foundational earnings from to 1.4. And think about it, it's really about 50% based on what I call ratable productivity, so things like reduce catalyst costs, reduce energy costs, reduce maintenance costs, et cetera. And then about 50% of it is based on having kind of built-in turnaround and outage coverage in the network by having 2 units at Clear Lake. And then obviously, there's additional upside to that if we were to get in a period of higher demand and higher pricing to basically raise our output from -- in totality of our acetyl chain.

Frank Mitsch :

Yes. Congratulations on the mechanical completion for the Clear Lake acetic acid facility. I know you gave some earnings projections for the balance of the year and for next year. I was just curious as to how this is going to impact your operating rates at some of your other facilities. How should we think about the industry overall and the impact that this may have.

Frank Mitsch :

So the intent would be to run that flat out and ramp back some of the operating -- ramp up some of your other facilities. Where do you think operating rates are in acetic acid as we look at the second quarter. And then, of course, you guys recently restarted your non-Zing VAM facility. If you could talk about operating rates in the VAM area as well, that would be helpful.

Operator:

Our next questions come from the line of Vincent Andrews with Morgan Stanley.

Lori Ryerkerk:

Yes. Look, it’s been a bit of a confusing time and Frank, I would say. If we look at fourth quarter last year, when prices were very low, we started seeing demand really coming off, particularly in Asia, although operations were fairly stable, we certainly still saw some molecules moving as people anticipated different things. And as we go forward, we also saw a lot of shipment and people carrying higher inventories before that because of all of the supply chain issues that existed around the world, and you call like in the first half of 2022. VAM and emulsions, I mean, there just wasn’t even enough molecules out there to meet the customer demand. And so people were carrying a lot higher inventories when we saw the reduction in demand through the fourth quarter, we saw people really destocking in the fourth quarter. We called that out at the last earnings call. I would say now as we’ve moved through the first quarter and especially March and beyond, we do see demand recovery coming back for fibers for other end users. Construction is still, I’d say, the weak spot, although even in – like in Asia, we’re seeing a little bit of recovery in construction. And in Europe, we’re seeing recovery in construction, not so much in new builds, but in renovation for energy efficiency, where a lot of our downstream derivatives products go. So we are seeing the demand coming back again with a few exceptions. And so that is starting to bring the volumes up. But we’re not really seeing restocking occurring yet as people feel fairly comfortable because we’ve been in such a stable period and haven’t had the supply chain issues. I think customers feel fairly confident they can get the materials they want. As we see demand continue to increase, I expect we’ll see some level of restocking. And with that higher demand, we should see some tightening of pricing and seeing some pricing uplift across all the regions.

Arun Viswanathan :

I guess the first thing was you noted about $1 of uplift from 2Q into 3Q and 4Q. Would that be split kind of evenly between the 2 -- I mean, the $2 be split evenly, so you're looking at 3Q, 4Q about equivalently? Or is 3Q typically seasonally higher and then relatedly, how much of that dollar uplift, I guess, is under your control? I know you feel very comfortable with the $11 level for the full year. But maybe if you could just walk through maybe the walk from 250 to 350, say how much would be coming from M&M synergies and how much will be coming from volume and how much would be coming from internal cost reductions or something like that, that would be helpful.

Arun Viswanathan :

Great. And then just as a follow-up, you're going to be exiting the year theoretically at around $7 a second half level of earnings. So next year, and still, that would be maybe reflective of just a modest demand environment. So would you expect kind of continued growth as you look into '24 and similar to that second half and growing from there, is that a fair starting point?

Operator:

Come from the line of Hassan Ahmed with Alembic Global.

Lori Ryerkerk:

Yes. So we had called out before 100 to 135 of M&M synergies. We fully expect to be at the top end of that range. So we are on track for that. In the second quarter, we had about $10 million of synergies from M&M. There's another $10 million or $20 million that will be added to that in the second quarter and continue to build through the year. So we feel very comfortable in achieving that $135 million of M&M synergies this year. We feel very comfortable that we have achieved the uplift from to was very obvious in the first quarter, and we also got an additional 10 million to 20 million of uplift in the first quarter from to spot sales, which was part of our model going forward that we wanted to be able. Those will be there every quarter, but I think it shows the value of having integrated it into acetyls and running it in a different way. It gives us more options to capture upside than we've had in the past. So I feel very comfortable with that number on to. I think the other thing is productivity. So we've historically achieved $100 million to $150 million a year of gross productivity. Through the first quarter, we are on track to achieve at or above that top end of that range on productivity. And these are business productivity separate from M&M synergies. So I think when we talk about self-help, we feel like we're really delivering on all of these areas as well as delivering on the volume recovery in M&M, the pricing recovery and all those things that we've laid out relative to the deal.

Lori Ryerkerk:

Yes. Look, in Q1, the combined Engineered Materials was about 20%. We expect that to move up across the year really as we lift the EBITDA margins on the M&M business. So by the end of the year, I think we should be more around that 23% range for the year. And I fully expect as we continue to grow M&M as we continue to grow our base business as we continue to high grade the portfolio and realize the value of the synergies that we will move into that more historical level of 25% to 30% EBITDA margins, which is actually about where we've been in the last few years.

Jaideep Pandya :

Thanks. Just want to say, it's very commendable that you guys have loaded the balance sheet with debt and not gone for the rights issue. But since the deal, the world has changed quite significantly and you're doing everything you can to sort of rightsize the business. But I just want to understand the legacy EM business, how are you making sure you're not starving this of capital because there's a lot of focus on M&M. That's my first question. The second question is on the competitive landscape in China. As a lot of Nylon 6 and 6 foliation capacity coming in China. So just putting in context of the value chain, do you actually benefit because the chain is going long in polymerization in China? Or is this going to create headaches on the pricing for you

Brandon Ayache:

Darryl, we'll take 1 more question, please.

John Roberts :

You Converted M&M over to the Celanese project pipeline and backlog model. How would you characterize their number of new projects versus the legacy Celanese and backlog?

John Roberts :

And then you've restarted the VAM unit in Germany. If there's a cold winter or some sort of energy supply disruption. Have you made enough changes to keep that plant up in that scenario? Or will you just shut it down again if we get an end new spike?

Operator:

Thank you. There are no further questions at this time. I'd like to hand the call back over to Brandon Ayache for any closing remarks.

Operator:

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Operator:

Hello, and welcome to the Celanese's Q4 2022 Earnings Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, VP of Investor Relations, Brandon Ayache. Please go ahead, Brandon.

Operator:

[Operator Instructions] Our first question today is coming from John McNulty from BMO Capital Markets. And we do ask you ask one question, one follow-up and then return to the queue. John, please go ahead.

Lori Ryerkerk:

Thanks, John. Yes, look, we realize that looks like a big jump-up. But let's kind of go through the math. We really need to deliver about 350 for the last three quarters of the year in order to hit that $12 to $13 guidance. So if you look at that, well, that seems like a big jump, it's not unknown territory to us. In fact, that's where we've been every quarter in the last two years up until this quarter. But if I look at just the jump-up from Q1 to Q2, let's start with Acetyls. So in Acetyls, I would expect $50 million to a $100 million increase in Q2 off of Q1. We'll start with natural gas. So natural gas pricing has come down significantly at the end of the fourth quarter and in the first-quarter, especially in the U.S., that's a big help for us in Acetyls, the largest plants in Clear Lake, we have a lot of other facilities in the U.S. that benefit from that lower natural gas pricing. And with coal staying higher in China and with crude being reasonably high and steady, that really benefits margins for our U.S.-based production, which is a large portion of our Acetyl. So if you look just at this natural gas pricing, if it were to hold through the second quarter that alone is probably more than $20 million of uplift in the second quarter. And then if we look at things like the Frankfurt VAM restart, that is being restarted a little bit early based on the good increase we've seen here going into March. For construction, paints and coatings in Europe a little bit quicker recovery than we expected, so that Western seasonality coming off, that's probably another $10 million. And then you just have the normal good economics we typically experienced in the second quarter. So we see destocking really been over. We're past Chinese New Year, we see improvement in construction activities worldwide. And so we expect to see that same kind of volume rebound. As well as productivity, I mean, we last year in 2022, our productivity at the high range of our historic 100 to 150, we expect we'll be in a similar level this year and adding on additional productivity from M&M for the EM side. So that all goes in there. So we feel very comfortable right now with where energy pricing is, that were actually probably towards the higher-end of that range for the Acetyl bump-up in the second-quarter. And then if we look at Engineered Materials and including M&M, again, Q2 is typically a stronger quarter for Engineered Materials as well. For a lot of the same reasons, we do see the -- well, first, let me start with this. I mean, we have seen just like natural gas in Acetyls, we have seen significant drop in raw material costs in the first quarter, which is extending through into the second quarter. This lower raw-material costs has led us to build lower or not build, but now replaced higher-cost inventory with lower-cost inventory. So that alone, as we go into the second quarter is going to be about a $40 million lift for the EM, M&M portfolio combined as we go into -- as we have the second quarter. And then again, we have the typical the destocking because it is pretty much finished here at the end-of-the first-quarter we actually see really good improvement here in March in our order books. We see we are past Chinese New Year so we start seeing the lift from that I mean, to give you an idea we are seen February we started the month flow, but we are still seeing orders coming in today for February deliveries. So, this is a big deal, usually at this time in the month, our orders had stopped, and we don't see new orders come in until the next month but we're still seeing orders for EM, for M&M for February and our March book quite frankly, it has filled up for both the legacy EM and the legacy M&M businesses, consistent with the order book that we received in March of 2022. So I think these are all really strong proof points to say, you know, we are seeing the demand recovery coming now as we're moving through the end of February and into March and we expect that build to continue to grow through the second quarter. We are seeing modest improvement in our -- in automotive production, builds a pretty much flat but people are not destocking anymore. So we're seeing order patterns restore closer to normal levels for automotive and this is very typical with what we also saw coming out of the end of '21 and into '22. So I think we feel really good about it, uplift in EM in the magnitude of $50 million to $100 million as well. And then on top of that, we also will have additional synergies from the M&M acquisition and we expect another uplift of $10 million to $20 million in synergies in the second quarter, our first quarter as well. And like I said, that's still again productivity continues. So I think we feel quite comfortable in the guidance that we've provided for Q2 based on everything that we see happening now in terms of raw material, energy pricing and recovery of market as indicated by our order books for March.

Scott Richardson:

Yes, thanks, John. I think we're going to be opportunistic here. I think we're looking and making sure we have the right opportunities, I mean, currencies are moving in the right direction. We didn't want to make those changes when the dollar was certainly at its strongest because then as things move certainly from an absolute debt perspective, it would go against us. So we're going to continue to look for the right opportunities there and we're certainly targeting to get it done here in the first half, but just depending on some of those movements and where the dollar is at, it may linger into the second -- the early part of the second half.

Ghansham Panjabi:

Thank you. Good morning, everybody. Lori, in your prepared comments you talked about some of the competitiveness on the EM side. I think it was specific upon imports from or exports from Asia into Europe, et cetera. How do you see that dynamic playing out, you know, as the rest of the year unfolds, is it as simple as China reopens and there's more localized demand and so that takes care of that or what are you thinking about at this point on that?

Ghansham Panjabi:

Okay. Great. And then in terms of the sort of the macroeconomic construct, so China you touched on in terms of momentum, just given the sequence of events there. Europe, you just touched on that as well. What about North-America as an offset as it relates to slow down sequentially, how do you see that evolving in '23?

Operator:

Thank you. Next question is coming from Jeff Zekauskas from JPMorgan. Your line is now live.

Lori Ryerkerk:

Yes, so Jeff, in 2022, we had expected back at the time of the purchase we expected 2022 to come in at about $500 million of EBITDA. Obviously with the year end challenges in M&M, that number was a little bit lower than that. Now, I think -- we had thought originally that in 2022, they'd be at 800, that's been a more typical number for M&M, we believe we could grow that to 900, now we're saying 700 for next year. If you look at what happened in 2022, I think there was a number of factors. First is with a take-or-pay contract that they had for raw materials, although they saw weakening demand they continue to produce, and that led to a lot of inventory and that sort of tie into what I'm going say about fourth quarter. Raw materials were fairly high for the year, compressing margin for nylon for the M&M assets as well, but we saw a lot of demand destruction and we thought, especially in Asia, we thought a lot on standard grades and. I think as we talked about last quarter. What we saw was a desire to maintain margin in M&M, but as a result, they lost a significant volume on standard grades by trying to hold prices when other prices were coming down. So, volume loss, at the same time, they weren't raising prices on premium grades which they could have been doing with raw material pricing going up. And these are things that we've had to work on. So we've really been working on pricing over the last three months, trying to drive more volume and standard grade trying to raise pricing in other grades. We've really been working the product pipeline. We've been working cross selling, we've really the team has been doing a great job working all of these things to really drive back to where we believe we should be at that $800 million EBITDA run rate by the end of 2023, obviously these things take a few quarters to get going, but we do think we'll be back at that maybe kind of historical level DuPont had of $800 million by the -- again, by the end of 2023. In terms of contracts, I'm not really sure, Jeff, to tell you truth in terms of what percentage of the M&M contracts are monthly versus three or six months or something longer.

Lori Ryerkerk:

Yes. So look, a big piece of it is synergy capture. If you look at our outlook now, which is at the upper end of the $100 million to $135 million range for synergies. We've achieved about $10 million of that. We think we'll get about $10 million of that in the first quarter. That leaves $120 million for 3 million more quarters. So that's about a $40 million per quarter average uplift. Now obviously, it's a little bit more skewed towards the back end, but let's think about average for the next three quarters. So it's about $40 million right there from synergy uplift. That gets you to the kind of $120 million to $130 million range. And then we are getting volume recovery. As I said, our March order book is now for M&M basically where it was in March '22 for M&M. And that was still -- the first part of the year was better for M&M. So we have gotten some volume recovery in -- from Vital in particular and in Asia. Again, auto builds are very consistent, and they're not still back to 2019 levels, but they're consistent. And so we think with volume recovery, we have been pushing through pricing on differentiated products, right? So if you look at all of those things, if you look at productivity as well, not synergy, but regular productivity at our M&M plan, we expect to probably get another, I don't know, $40 million, $50 million from that this year. So if you look at all those things and start adding up those volumes and the recovery, M&M was affected in fourth quarter and early part of first quarter with the very same factors we were, right, with the same destocking, with the same seasonality and slowdown -- and we are seeing them recover from that as well, again, in March and as we move forward into second quarter.

Operator:

Our next question is coming from Josh Spector from UBS. Your line is now live.

Lori Ryerkerk:

Yes, absolutely. So we expect to net $400 million to $450 million that we can apply towards debt reduction from the food ingredient's deal. We think -- I have to say we're really excited about this deal. We're really excited about the JV structure that we've agreed to with Mitsui. If I back up a bit, we also, at the same time, announced the extension of our joint venture for the Fairway Methanol joint venture. This has been a great joint venture for us. Mitsui has proven to be a really great partner. And I think it's been really financially beneficial for both companies as well as strategically beneficial. And we see food ingredients being in addition to that strong relationship that we built with them through the years. This is really what we were looking for. We've looked at this product for some time and thought it's not necessarily a core piece of our portfolio, but it is a core piece of our operations in Frankfurt. And so by doing a joint venture, we think, one, we'll really benefit from the expertise that Mitsui has in food and nutrition and their ability to market and help us on that end. We think they will also benefit from us continuing to be able to integrate into our acetyl chain. We provide acetic acid and crotonaldehyde into the -- now into the Fairway joint venture. And we'll continue to benefit from the strong partnership that we have as well as the manufacturing synergies because we will continue to operate the joint venture, and it is very embedded into our Frankfurt operations. And it allows both of us to participate in growth in what we think will be -- continue to be a high-growth market for food ingredients, store base and sweeteners as -- especially as one of the few, maybe only Western company providing sweeteners anyway of this type, we see a lot of positive movement in terms of volumes and demand and pricing going forward. So again, we're really excited about it. And just to reiterate, to answer your question, we do expect to be able to pay off another $400 million to $450 million of debt as a result of this joint venture.

Josh Spector:

Okay. I appreciate that. And maybe just one clarification there. Is that gain, are you going to exclude that from your adjusted EBITDA? And that's in the -- I guess, the debt accounted for EBITDA? And in your comments about free cash flow, you reiterated the $1 billion plus. Can you just give us an idea of what the core free cash flow you're expecting at this point, some of the movements between working capital, restructuring, et cetera?

Operator:

Next question is coming from Michael Leithead from Barclays. Your line is now live.

Scott Richardson:

Yes. Thanks, Mike. So I'm actually going to kind of put some of the other buckets in here that change from our previous $13 to $14 guidance. D&A actually came in about $75 million better than we expected, but it was eaten up by a pretty good chunk by that pension. So kind of approach that amount. It's a little lower than that 75%, but it was approaching that. And so I think when you kind of largely neutral those two things together, but it was in that range.

Scott Richardson:

Yes. I think that's right, Mike. It's certainly in that range. I mean, at the end of the day, we need to get no matter what bucket it's falling in, we need to go deliver the EBITDA over time that we said this business would deliver. So it is about getting the base business back up into those ranges that we had originally set at the time of the deal in that $800 million EBITDA, including the other costs in there and then driving synergies on top of that. So this year with where demand is at, given some of the higher cost inventory that had to be worked off at the beginning of the year, it's going to be a little bit lower. But then building that back and then putting synergies on top of that is exactly what Tom Kelly and the team are focused on.

Operator:

Thank you. Next question is coming from Vincent Andrews from Morgan Stanley. Your line is now live.

Scott Richardson:

It's a 39.

Scott Richardson:

Yes.

Lori Ryerkerk:

So actually, Vincent, fourth quarter of '21, was exactly like this. We had the same issue. We were lower than builds because of destocking. And I think there's a number of things that happened. I mean people hit the end of the year. They want to make working capital numbers. So they destock at the end of the year, for a year in inventory control. Prices have been coming down because raws are down and natural gas was falling. So that made people more confident in pricing going forward. So they believe prices going forward are less than they are now. And so they choose to draw down their inventory in anticipation of lower prices. I think the supply chain issues have been largely resolved around the world. And so people are more confident about being able to buy material. So why we saw a lot of build of stock in 2022 because people were worried about getting resin. I think we see, going forward, people feel the supply chain issues are largely resolved. So, the dynamic is actually very similar at the end of 2022 as it was at the end of 2021. I would say a little bit what's different is usually the fourth quarter as a magnitude was a little bit -- was more in 2022, I'd say, primarily because of Asia. And usually in Asia, we have a pretty good fourth quarter in advance of Chinese New Year. But this year, because of the resurgence of COVID in Asia, things were quite slow in Asia in fourth quarter as well. And so, I'd say the dynamic was a little bit more pronounced this year. Obviously, Europe was even a little bit slower just on the malaise we've seen in Europe all year. But the dynamic was very similar. And I think the reason for destocking were very similar to what we saw at the end of '21. And again, January started slow. We've seen improvement here as we've gotten through the second half of February and order books are looking consistent with March 2022 order books for March of '23. So, we feel like we've gotten past these dynamics and now are on a more normal trajectory where we will meet or exceed, which is typically what we've done. You're right, we're very good at that. Our teams are very brave about pushing more volumes into the market and high margins. We feel like we're back on that trajectory as of March.

Operator:

Thank you. Next question is coming from Michael Sison from Wells Fargo. Your line is now live.

Lori Ryerkerk:

Yes, that's a lot of questions. I'll roll into one, Mike. Let me see if I can parse that apart. So if we look at '23, there's a lot of ways we can get to the $12 to $13, and there's a lot of things that could happen in terms of energy pricing and everything else. I would think of it as going forward, we -- including '23, we expect EM and acetyls to contribute roughly evenly for the next few years. This year, it might be a little stronger on acetyls than EM as we work through kind of the restoration of M&M based earnings and start to capture synergies. But I would say for the next several years, I would consider them roughly equal, because we also have the Clear Lake project coming on this year, which is going to add another $100 million to acetyls. We have VAM expansions and other things coming on. So I think that's a good starting place. If we look at a foundational level of earnings, what I would say is today, we think it's about $1 billion to $1.1 billion. That was before Tow, Tow is going to be at or above kind of the $2.50 that we called out at the time of the Investor Day in '21. So that kind of puts you in that $12.5 to $13.5 range, which is pretty consistent with the numbers you saw. But then again, we'll add million $100 million on a full year basis for Clear Lake. But that is, again, the foundational level of earnings. So we're still operating at very high-capacity utilization in acetyls, despite the softness, despite everything else, even in the fourth quarter, our utilization was 70% in China, but 90% global basis. That's still pretty high. And that's I think where we're going to see maybe a little more volatility in acetyls as the market is going to react more quickly to outages due to turnaround or unplanned outages or movements in raw material pricing. So, I can't really say what I think the mid-range is, but I would just say there's definitely - we've seen in acetyls, we can see a pretty sharp spike up in a very short period of time as the market reacts to short and medium-term changes.

Operator:

Thank you. Next question is coming from Hassan Ahmed from Alembic Global. Your line is now live.

Lori Ryerkerk:

Yes, so I would say, historically, we've seen destocking last kind of a quarter, especially in EM, maybe a little bit less in acetyls because they don't have as much inventory. And I would say - I wouldn't even say we're necessarily seeing restocking at this point. I would say we're seeing a return to normal levels of demand. Typically, when we see restocking is when prices start to go up and people start getting worried that prices in the future are going to be higher than they are today. So they take the opportunity to build inventory in advance of an anticipated price increase. Again, as I said earlier, I think with where we are today, where raws are down, natural gas is low, the anticipation in the market is that prices are going to go lower or stay low. And so, I don't think we'll really see restocking until we see a turn up. But we do see a return to normal levels of demand starting now in March.

Lori Ryerkerk:

Yes, so I think there's, a couple of components to that. I think, in China, specifically, while I believe throughout the end of the fourth quarter and into the beginning of the first quarter, we were at the cost curve in China in terms of the industry, our cost position is a bit better than that. And it has to do with the scale of our operations, the technology that we have and therefore, improved cost bases we have versus the vast majority of the producers in China. So, we continued even when the rest of the industry was at the cost curve to make even a small amount of margin in China. And then, of course, we're benefited by the fact that we have a very large facility in the U.S. Gulf Coast. So when we saw natural gas prices coming off in - towards the second half of the fourth quarter and as we've gone into the first quarter with low natural gas prices. That is a, big margin uplift for us versus people who are producing out of coal or even crude at these kind of prices, and that opens up windows for us to move material to Europe and other parts of the world out of the Gulf Coast. And so, I think it is that global optionality that we have, that global footprint as well as the optionality we have to move things up and down the chain that really allow us to continuously deliver high level of margins from what some might consider commodity business. It certainly does not give commodity returns.

P.J. Juvekar:

Yes hi, good morning Lori and Scott. Lori, do you have a long-term view on the competitiveness of your European assets? And what I mean by that is European VAM capacity was shutdown. Is that the marginal capacity that goes in and out with the market, like what Singapore plant used to do in acetic acid? Can you just take a step back and explain to us sort of the marginal capacity in Europe and your plans there?

P.J. Juvekar:

Great, thank you. And then on M&M, it seems like it was really under managed in the last one year of ownership. Do most of M&M's issues are residing more on nylon area? And can you upgrade the M&M portfolio? Because I think you had more EV exposure than them. And so is there a natural upgrade there? Thank you.

Scott Richardson:

Yes, the earnings power of this combined portfolio hasn't changed from when we announced the deal a year ago. If anything, I think it's - we're even more convicted around that going forward. There is, near-term challenges. And we've been, over the last several quarters, very clear about the disappointment and the performance. And it is requiring a big lift in the near term, but the long-term earnings power of these combined portfolios and combined with the acetyl chain, as you look out three to four years, is very substantial.

Kevin McCarthy:

Yes, good morning. Lori, can you elaborate on the 1.3 million ton expansion of acetyl capacity at Clear Lake. What are you baking into your numbers with regard to timing of the start-up and operating rate given the current market conditions? And then any thoughts on how you would see that earnings trajectory evolving through this year and into 2024 would be helpful?

Kevin McCarthy:

I see, that's helpful. And then secondly, if I may, a couple of financial questions for Scott, would you comment on your '23 capital expenditure budget? And with regard to the first quarter, what level of interest expense are you baking into your EPS guide?

Kevin McCarthy:

Thank you very much.

Frank Mitsch:

Hi, good morning, and congrats, Mark Murray, if you're listening. Lori, I wanted to ask about the level of auto builds that you have embedded in the guide for the year and where you think Celanese can perform relative to that level of industry auto builds?

Frank Mitsch:

Got you, thank you. And I know -- maybe a question for Scott. I know that the comment was the M&M inventory levels were really high and elevated given the take-or-pay contracts ended the year at $2.8 billion in terms of your inventories. How should we think about that -- the impact of maybe inventory reduction on working capital in '23?

Frank Mitsch:

Thank you so much.

Matthew DeYoe:

Good morning, everyone. I know you adjusted term loan covenants, but do you still have to hit the 3x net debt to EBITDA by year-end 2024 that was stipulated by the rating agencies? And look, can I just use consensus EBITDA and hand up for well be wrong, But like you gave yourself some cumulative cash flow generation, which over the next two years, but that consensus EBITDA puts you like 3.5, 3.3. So is there a concern internally about this? And do you start thinking about other asset sales? Is that necessary?

Scott Richardson:

Yes. I mean, look, we viewed this as a near-term challenge that required a near-term solution, and that was to amend the covenants. We're still pushing to get to that 3x levered at the end of 2024. And it really starts with, as Lori talked about, generating cash. Generating cash to pay down debt, lower that interest cost. I talked about the M&M incremental interest of $550 million to $600 million. We have legacy interest of $60 million to $70 million, lower that by paying down debt. And then also find ways at which to lower that interest cost through redomiciling some of that debt as we talked about earlier on the call. So it is really just about systematically bringing the debt down through cash generation.

Lori Ryerkerk:

Yes. So if you look at what's happening, there are some builds going on. So acetic acid, we do expect one start-up in 2023, late 2023. In China, we're also expecting a few VAM start-ups between '23 and '24. But if you look at the typical growth that we see for the acetyl chain, we need a full plan kind of every other year. So I don't think the rate of growth that we're seeing is inconsistent with the growth in the world. We are still at fairly high utilization. Again, I think the fact that we are at high utilizations will keep the volatility a bit more. So we'll do as we saw in fourth quarter, you may -- during periods of low demand and seasonality, go to the cost curve, but that can recover quite quickly. But I don't see it having a major impact on our margins going forward on kind of a long-term or full year basis.

David Begleiter:

Thank you. Lori, in the comments, you mentioned some destocking in the Americas in paints and coatings and construction applications. Can you give a little more color on what you're seeing there and where we are in that process?

David Begleiter:

Understood. And just in acetyls, you referenced a $60 million earnings increase versus the last trough. Can you try to bridge that gap, what's improved in your operations? Because you've always been a good operator in this business, but you seem to have taking a step up since the last couple of years as well.

Scott Richardson:

Kevin, we'll take one more question, please.

Jaideep Pandya:

Hi, thanks a lot for taking my question. Just basically wanted to understand in the context of capacity shutdowns in the upstream side in nylon chain. How do you see yourself with regards to positioning in the value chain? Is this fundamentally more positive for you? Or is it fundamentally more negative for you in this context? Thank you.

Operator:

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Operator:

Certainly. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Operator:

Greetings, and welcome to the Celanese Corporation Third Quarter 2022 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal remarks. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Brandon Ayache, Vice President of Investor Relations. Thank you. You may begin.

Operator:

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from the line of Josh Spector with UBS. Please proceed with your questions.

Lori Ryerkerk:

Thanks for the question, Josh. That's actually a lot of questions, so let me see if I can navigate all that. So on third quarter performance, I mean, DuPont will be reporting shortly. Obviously, what they report is not apples-to-apples necessarily because it does include Delrin as well. But I think it's fair to say, in third quarter, much like the first two quarters, M&M is not performing in line with our expectations of the business or even in line with how they performed in 2021, and I think you saw that in the numbers we called out for fourth quarter. And I think if you think about fourth quarter, I mean, fourth quarter is typically a low quarter for us as well. We do get seasonality in the fourth quarter. We expect to DuPont to see the same seasonality. I think we see some of the concerns we've had on DuPont's performance continuing with the M&M asset in the fourth quarter as well. So, it's - again, it's only been three days. But I would say, as we've gotten to get a clear view of M&M's performance, I think there's a couple of reasons we see for their underperformance this year. So overall, poor demand backdrop in Asia and Europe. It may not dissimilar I think in Europe from what we've seen but I think we've had a little bit more upside in Asia on auto than they have seen. Competitive dynamics that is really impacting more of the standard business, of which we believe they've had a bit more than versus the differentiated business. And I would say also, insufficient commercial flexibility to really pivot and respond to the market and the need to do different things in the market, maybe as quickly as we have. I think also, their current contract for sourcing for nylon has been a bit challenging in this economic environment. And I think it boils down to there's really been a margin compression that's occurred, especially in the nylon area, and surprisingly, in some cases, they - it's not that they haven't raised prices, actually the fact that they didn't adjust price downward, stay competitive, and they've lost volume. They've also had some pretty significant foreign currency headwinds, which are different than we've experienced due to the fact that, they're a bit more exposed than we are with the way they write their contracts. So if we think about moving forward now into the rest of the fourth quarter that we've closed and moving into next year, I'll talk a little bit about how we'll address each of these. So on the foreign currency headwinds, that's an impact of almost over $20 million for us alone in November and December on the M&M assets. And so I think we really - we're looking at how do we optimize our commercial practices to address the sales currency exposures, so what's denominated in local currency and what's in U.S. dollars. We also can use some of our debt to look at converting more of our U.S. dollar debt to lower rate currencies, like the euro or the yuan or the yen, which will help us lower our borrowing rates that will help the overall financial condition of the Company. I think when we look at key raw materials and the purchasing requirement, we will be able to exercise some of the flexibility we have within Celanese to really utilize some of M&M polymer capacity. So if you think about it, M&M has a fairly large take-or-pay contract currently for raw materials for nylon. And so they've been producing a lot of materials, but they've been building inventory. We can actually start buying that - using that inventory, using that excess production for Celanese, which will be, net-net, better for both companies together. I think also remember we called out at the time of the deal, there is actually the contract for raws has been renegotiated and a new contract will come in place at the 1st of 2023. This new contract has less take-or-pay requirement, so that will give us more flexibility and optionality going forward. So let us - I think about it as, it really let us start - one element of starting to run this larger nylon portfolio in a more integrated, flexible, commercially agile way much like the transition we went through with POM a few years ago, much like the transition we went through with Acetyls some year before that. On the volume side, I think we have a lot of opportunities between M&M and the heritage Celanese assets to really deploy our combined commercial team to cross-sell, not just nylon, but other products including other Celanese products. So as we've gotten to really look at where all of our products are going, there's only about a 20% overlap in terms of the companies that are buying from us. So that was a really large space for us to go into the companies that each other has been in and really start cross-selling the entire portfolio versus just what we had traditionally. Pricing, again margin compression there. We actually think there's some opportunity in pricing to do it in a more differentiated way. So if you really look, our analysis so far is M&M took a fairly common response on pricing to everything, whereas we like to look at it in a couple different tranches. So for really differentiated products, we will always push pricing because we have the opportunity to do that. For more standard grade products, there may be places where you, in fact, have to reduce pricing in the current environment in order to maintain the same volume. And I think for us - and then cross-selling is another opportunity, but I think for us, it's really, instead of having one rule about we want to maximize margin percent or we want to maximize revenue or maximize volume, for us, it is always looking at value. How do we maximize the margin dollars being achieved from the products that we have out there? And then finally - and I know this is one answer, finally on inventory, M&M has built a pretty large excess of finished goods in inventory over 2022, as they seen some drop-off in market share and as they've continued to produce because of their raw material contract, that is burdening our November and December EBITDA as we start trying to take measures to get that inventory more in line. But longer-term, it will allow us to manage our inventory levels, again, more like POM, so that our pricing and our cost becomes more contemporary with each other, so we don't see as much kind of disconnect between cost and pricing as we go forward. So again, we'll take these actions. Now, we've already started all of that. But it will take some time, I'd say, to get the business performing to our expectations. So if we look at next year, if we look at, I'd say, $800 million of EBITDA that we aspire to for next year and that we're really pushing the team to achieve on the M&M assets, I mean, it is a big lift. I mean, it's coming from about what we think is going to be around $500 million this year for the M&M assets in EBITDA to $800 million that looks really big. I would remind you, though, that with the Celanese EM portfolio, we went from $571 million last year in 2021 to $800 million this year. So it's not that much bigger than we've already demonstrated that we know how to do and we already have a lot of actions underway and how we're going to do that. We're going to be helped by 4% higher auto builds next year. I think that's pretty consistently called out by everyone. And we've already been pre-qualifying the M&M nylon into our applications, our heritage Celanese applications, so we have a great start on that. Tom has already been meeting with all of the business teams in M&M to really do the deep dive, so we really can understand the nature of underperformance, what the opportunities are for next year. So I'd say, we're off to a very strong start. Yes, $800 million is a lift, but again not unachievable given our demonstrated performance in our own portfolio.

Operator:

Thank you. Our next question is coming from the line of David Begleiter with Deutsche Bank. Please proceed with your questions.

Lori Ryerkerk:

Yes, I mean, I don't think you can look at Q4 and multiply that times four and get to a number for next year in terms of EBIT. Q4, we are seeing a lot of headwinds, a lot of challenges in Q4, again, because of the really slump we've seen in China with paintings, coatings, and constructions, with the ongoing COVID-19 lockdowns, the situation in Europe where we've also seen the drop there. The U.S. has held up pretty well. But I think in some of the destocking that we've seen, especially in acetyls, and the fact that acetyls is basically bumping and bouncing around its cost curve. These are conditions that we don't believe can last forever. So while we think first quarter may be challenging, we do see line of sight would be somewhat better than fourth quarter, again, because we have a lot of things coming in with M&M that we're having to manage in the fourth quarter. But I think, by first quarter, we start to see realization of some of the synergies, we'll have had a chance to start making some of the moves I just talked about. And then we really do expect the second half of the year to be back around in that $13 to $14 range. And again, a big portion of that is a lift I just described on M&M, but we have continued growth in our own Engineered Materials business in addition to the 4% higher auto builds we will see a GUR lift next year. GUR sold-out for EVs, lithium-ion battery separator films. That demand is only going up. So that will allow us to raise margins in GUR next year. LCP margins are also going up next year as we see high demand into 5G applications. Next year, we'll get the full benefit from Santoprene and KEPCO. And Santoprene, we do expect it to be back to the levels we had called out at the time of the deal in terms of returns on Santoprene. And then medical, which we saw this quarter return to pre-COVID levels, we are predicting continued growth in medical both in terms of orthopedics, but also in terms of the other applications, like vital dose and medical devices. So we see a lot of growth opportunities next year in the M&M portfolio, in our heritage Celanese portfolio, and we do see strengthening across - the opportunities strengthen across the Acetyl Chain as we move on through the year. I would also say, we will have a good uplift next year in our total earnings. As we talked about last quarter, we have been doing a lot to really restructure our Acetate Tow business as we are starting to run it more like we do a derivative of the Acetyl Chain. And much like we saw when we started doing that with VAM and emulsions, that allows us to build-in more optionality and more flexibility, which we'll look to increase our earnings. Historically, we've run that Tow business, really focused on customer value, quality, and reliability of supply. When China went independent, that reliability of supply became less important to our customers because there was an overhang in other regions. Now, that has tightened up again. We're at kind of 90% utilization in Tow outside of China. And so that, with the raw material and the energy volatility, has given us an opportunity now to really go in, put in new contract structures that allow us to better accommodate changes in raw material and energy pricing, really enhance the business models in Tow, take some costs out of Tow by integrating it into the acetic acid team and - while still maintaining that reliability of supply and that strong customer focus that we've had. So the result is, we will be seeing a much improved profitability in 2023 along with greatly improved flexibility.

Lori Ryerkerk:

No, what I would say is, if you look at what we called out for Tow in 2023 in the Investor Day, we will be at or above that.

Operator:

Thank you. Our next question is coming from the line of Ghansham Panjabi with Baird. Please proceed with your questions.

Lori Ryerkerk:

Yes, look, I - Ghansham, thanks for the question. I think you have it exactly right. I mean, I think we went from everybody being worried about not being able to get molecules and kind of buying whatever they could get their hands on to all of a sudden all the production issues were resolved, demand started going down and people realize there was availability and they have hype across inventory and tankage, they want to bring that down before the end of the year and they assume that the molecules will be there. Just like when we see prices rising, people start buying because they think it will be more expensive tomorrow. Right now, they see prices falling, so they quit buying because they think it will be cheaper tomorrow. But I think a few things behind why we've gotten into this. I mean, we are seeing improved logistics. We are seeing improvement in port congestion and the ability to move materials around the globe. We are seeing improved product availability. There has been less outages and disruptions in the last quarter than we've been having over the previous few years. We are seeing a weaker demand outlook both again because of paints and coatings, which I talked about specifically in Europe and China, but also just some seasonality that we see in this area. And again, falling prices I think is a big effect on people's mental view of what they think. So I do think this is likely to extend into first quarter '23. Typically, when we see that flip is as we get through Chinese New Year is then we'd start to see demand coming up again and we'd start to see activities coming up again. And then as you get warming in the Western Hemisphere, you'd start to see it coming out. So that's why I feel pretty confident saying we expect to see the start to turn the other direction sometime after the first quarter.

Ghansham Panjabi:

Okay, thanks for that. And then maybe for you, Scott, on the one-plus-billion of discretionary free cash flow that you've targeted for 2023, what are the levers you can pull to deliver on that number in the scenario that the weakness you're anticipating through 1Q pushes a bit longer to the middle of the year? Thanks.

Ghansham Panjabi:

Thanks, Scott.

Jeff Zekauskas:

Thanks very much. You gave an idea of acetic acid prices in China as being close to $400 a ton. Can you give us some reference prices and trends in VAM across your geographies?

Jeff Zekauskas:

And then just to follow-up, I think in Scott's script, he said that he's confident in paying down debt in '23 across a wide variety of macro scenarios, and then you said that in the most challenging one, you have a detailed playbook. Can you give us an idea what the detailed playbook is and what a most challenging scenario would be like?

Jeff Zekauskas:

Great. Thank you so much.

Vincent Andrews:

Thank you, and good morning, everyone. Lori, I think in the script you said that $13 to $14 plus of EPS for next year did not assume a recession because you're not seeing that in your order book. Can you give us a sense of what a recessionary range for '23 would be if we do indeed go into recession? is it $12 to $14, $10 to $12? What would you think on a high level?

Scott Richardson:

The other thing I would add to that, Vincent, is with the synergies that we have, we've already increased our synergy number for year one, expect to have between $100 million and $135 million of full achieved synergies next year. And if we see continued demand decline in non-auto segment, then we'll look for ways in which to flex and accelerate further synergies. So we do feel very confident of being able to get to that range that we put in the prepared comments.

Lori Ryerkerk:

Yes, so I think - if we look at this year, we have already reduced our rates in the Acetyl Chain in China and in Singapore down to 50% or 70% of our capacity and we did that because we see demand. We don't want to build a lot of inventory. We've seen demand come off. So we've already taken that step. In some areas we've gone down to as little as 30% of operating capacity, like in emulsions, where we've seen the big drop there. So I think we've been really proactive in managing our response, that's obviously cost savings, but we're really focused on aligning our actions with the customer demand. Similarly in Frankfurt, given the high cost, energy cost in Frankfurt and the softening demand in Europe, we've reduced our POM rates at Frankfurt, again, to align our demand with our - the customer demand with our own production. And we've made the decision for the VAM plant in Frankfurt to go ahead and keep that unit down until we see demand coming back. I mean, the good news is, all of the steps we're taking, this is still economic capacity. We'd still make money if we ran it, but we just don't see enough demand, so we can optimize our chain better by moving molecules around the globe and using lower-cost capacity, particularly in the U.S. Gulf Coast, to meet some of these global demand now that we have less global demand. And so you're going to continue to see actions like that as I - as we go into 2023. What I would say is, look, VAM is ready in Frankfurt when we start to see this come back hopefully by the end of the first quarter, we'll be able to start that unit up. Everything else is just a matter of lifting the rate, so that's today's decision to do it, so that's easy. And on Clear Lake, what I would say about Clear Lake is, we are on track to mechanically complete and start up the unit in the first half. We intend to do so. Again, the justification for that project was productivity. We called out about $100 million a year in productivity. So even if we see no need to run additional capacity in the Gulf Coast, we will run that unit for productivity and get the $100 million savings - run rate savings, I should say, the first year will obviously be that much, but run that unit for productivity. And then we have the option if we see something similar happen as we saw happened in '21 where we see a run-up in demand or if there are operating issues around the globe, we can start running that unit at higher rates and get even additional margin from that.

Operator:

Thank you. Our next question is coming from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Lori Ryerkerk:

Yes, look, I don't have a bridge. As you said, we've wholly-owned it three days, so we're still working on what are we learning, what can we immediately go do about it. So we're really been focused on not worrying so much about what happened in the past, but okay, how can we do this differently in the future. But I would say, it's really more based on our own experience of what levers to pull. I mean, there are some things like foreign currency, that was about $20 million in November, December, that we think we can go rectify maybe not November, December, but in next year. And so you annualize that, that I don't know, I just make up a number here, say that's $50 million or something. And then if you look at volume, they've lost about 15% market share. If we can through pricing and through cross-selling recover that, that's a fairly large number. Remember, the DuPont number in 2021 for EBITDA was seven-some-ish - $750 million, something like that, so in the 700s. So just recovering the volume that they had sold and taking care of some of the other factors that didn't exist in '21, like the currency, I think pretty quickly gets us back to $800 million. So those are the things that we're focused on. And then as Scott said, we will start to see some synergies as early as January 1st. We will have some synergies from office closures where we have overlapping office sites, like Seoul and Singapore and others. So there are synergies that will come in there as well. I mean, obviously, we'll account for those separately. But I think - and then we have the new raw material contract that will come into play in January, which will give us flexibility which will also be a source of value for us. So I wish I could give you a better bridge. We just don't have that level of detail yet because at this point we're really trying to identify what's the 10 levers to go pull, let's get those in actions and then we'll quantify them all. But again, based on our own experience, based on where DuPont was in '21, we feel this is the lift we can make to get to $800 million if we get the organization really focused on it and really pushing towards it.

Scott Richardson:

Yes, so of that $350 million, Kevin, the best way to think about right now is about a third of that would be base business depreciation and then two-thirds amortization. And that's an estimate right now we'll be working through that here in the fourth quarter, and we would not be adjusting that out of our adjustments, so we'll include that. We will certainly provide color as to what that amount is, but we don't plan to adjust it out.

Operator:

Thank you. Our next question is coming from the line of Mike Leithead with Barclays. Please proceed with your questions.

Lori Ryerkerk:

Yes, there's really no, I'd say, one-time things. I mean, we've just seen deterioration through third quarter in terms of pricing and in terms of demand, again, specifically China, Europe, less so in the U.S. Especially as I called out that drop in emulsions demand now that is like 15% to 20% down globally versus where we've been. So I can only describe the fourth quarter conditions as now kind of sub-foundational. Again, we think mostly it's seasonal. We think it's destocking, there is an end to destocking because people - so I don't think it can get much worse, let's be honest. And then one of the reasons is when we see it in our order books, I mean, orders have stabilized, again, now at this lower level, but they've stabilized again. And so that's why we're saying. Look, we think that's continued through the first quarter, and then as we move back into the construction season, hopefully, we see some movement in China on COVID, but we've said that before. And as maybe people getting more confidence in Europe, and again, construction season comes back, we do expect towards the end of the first quarter to start seeing recovery into more of a foundational level.

Scott Richardson:

Yes, I think, we expect the annual impact this year to be about $100 million, which is not unlike the impact that we have in totality at Celanese today, and so it's a little higher weighting than what we see in our base Engineered Materials business. And I would kind of chalk it up to two things, one, a lot more cost in dollars in terms of what moves through and then more sales in local currencies whereas Celanese typically would sell in some of those countries on a dollar basis. So those are the two things we're looking at from a business risk perspective of where we can make changes and where we can combine the power of the kind of in-country businesses that we have going forward. And I would also say there's certain things that, at the enterprise level, we can do to help mitigate that. Lori alluded to some of those earlier. And we'll be looking at that as well, and hopefully, we should get some run rate benefit in the early part of next year from those actions.

Operator:

Thank you. Our next question is coming from the line of Mike Sison with Wells Fargo. Please proceed with your questions.

Lori Ryerkerk:

Yes, Mike, obviously, we were a little hesitant to even give '23 guidance. But - so what I would say is, so for 2023 if we think on the low-end of what we're thinking of for Acetyl, I would say, we're assuming first quarter is some foundational and then recovery. So if you think about that, second quarter is probably foundational, third quarter, fourth quarter. Let me just talk about foundational a little bit of what that means. So we always meant foundational was meant to capture the low-end of the typical range. We didn't really capture recessionary conditions. As we said, we're kind of seeing that in Acetyl. And so again, we believe fourth quarter this year and early 2023 will be sub-foundational. And then we have some seasonality in the fourth quarter, so again it's for a year average. But I think if you analyze even Q4 what we're calling out for Acetyls, that's $900 million and that's sub-foundational. So I think if you look at what is foundational really mean, it's probably more in the $1.1 billion to $1.2 billion area, with $1.2 billion being after we finished the Clear Lake expansion, so just for some clarity. So I would say, next year, it's kind of on average for the year at that foundational level or a little bit lower at the lower-end as we all know this market can move very quickly if we have some industry outages or anything else that causes, because we are still like at pretty high utilization in the Acetyl Chain. So - but that's how we're thinking about next year and how we're thinking about it relative to foundational earnings.

Lori Ryerkerk:

Yes, so the growth that we're expecting there is double-digit. I would say, it's the things that I called out earlier, Mike. I mean, it's the growth in auto, it's the margin lift in GUR due to full utilization, it's the margin lift in LCP due to high utilization and growing 5G applications, it's getting the full value from Santoprene now that we've had the opportunity to take pricing actions and other actions to get Santoprene margins so - and getting the full value of KEPCO for the year as well as kind of double-digit growth that we've been seeing in medical. So I'd say, those are the biggest factors driving that double-digit growth in margins for that heritage Celanese EM business.

Operator:

Thank you. Our next question is coming from the line of John McNulty with BMO Capital Markets. Please proceed with your questions.

Scott Richardson:

Well, I think in those currencies where we have exposure of any size, I think we would - it would lower the overall interest expense. However, John, we're going to be careful with when we do that, obviously those currencies have depreciated pretty substantially this year and so there's a balance between interest expense versus then depending on when you move that over the end up having ultimately more leverage as that currency moves. So we're going to be balanced in how we look at that, but we do see some opportunity as we get into the next year to help with some of that business exposure.

Lori Ryerkerk:

Yes. I don't know that we have those numbers, and again we're going to be taking some steps in the fourth quarter, that will continue into next year to use DuPont material to preplace our own purchases of polymer and different things. So I don't think we have a really firm number on that yet.

John McNulty:

Fair point. Makes sense. Thanks very much for the color.

Operator:

Thank you. Our next question is coming from the line of P.J. Juvekar with Citi. Please proceed with your questions.

Lori Ryerkerk:

P.J., just a clarification, you're talking about the Frankfurt VAM plant or POM plant.

Lori Ryerkerk:

VAM. Okay, thank you. I just wanted to be - question. Look, we have five VAM assets globally. Historically, Frankfurt has not been our highest plant - cost plant. So let me just be clear on that. And even today, we could run it and it could run at a profit, but it's just volume we can get somewhere else more cheaply right now because of the very high prices that we had been seeing in terms of the European energy, and then, quite frankly, when it gets cold, we expect to see those prices again. So I don't really see a possibility of it becoming a stranded asset. I mean, it's only been about three months ago we were running every single plant we had all out and still not able to meet the demand. So I do think demand is going to come back and I think we will need all the plants we have. And Frankfurt VAM has always been a very profitable plant. This is just a unique situation with the European energy prices we're seeing, coupled with the fairly rapid drop in demand that we've seen because of other - the geopolitical factors, the China COVID, and then winterization kind of all coming together at the same time. So I don't really see any possibility that becomes a stranded asset.

P.J. Juvekar:

Okay. And then secondly, you mentioned you made a lot of comments on M&M and we appreciate that. One of the things you say in your prepared comments is that, that business had lagged in pricing since 2021. So maybe is there a one-time step-up in pricing that maybe we have under-appreciated?

P.J. Juvekar:

Great. Thank you.

Hassan Ahmed:

Good morning, Lori and Scott. I'm just trying to sort of get a better sense, it was asked earlier, of what you actually feel trough EBITDA would be. I mean, I know that the guidance that you guys gave for Q4 obviously a seasonally weak quarter. So obviously, Q4, one can sort of extrapolate that. To me, it just seems like Q3 was the worst of everything, right? I mean you had destocking, high sort of energy prices be it in Europe and the like, acetic prices coming down as hard as they did. So I mean, is it fair to assume that the 600-and-change-million in quarterly EBITDA that you guys generated in Q3 is possibly the right run rate annualized number to think about in terms of trough EBITDA?

Hassan Ahmed:

No, just, I mean, as - overall as a company, what do you think your trough EBITDA number would be?

Hassan Ahmed:

Fair enough, fair enough. And now just moving on from that more specific on the Acetyl Chain, you talked about pricing being around $400 a ton, hitting sort of the cost curve side of things and the like. So two things. One is, are you - in the industry, seeing sort of shutdowns at these levels? That's the first part of it. The second part of it is that in your prepared remarks, you obviously talked about operating rates for you guys in China and Singapore being 50% to 70%, the emulsions business reducing the tons sold by 15% and the like, yet your volumes sequentially were only down 4%, so just trying to reconcile that as well. So two parts, one, shutdowns, and two, why your volumes weren't weaker than what's your commentary suggested?

Hassan Ahmed:

Very helpful. Thank you so much.

Matthew Blair:

Hi, Lori, you mentioned that, in autos, your build rates are outpacing industry averages, especially in North America and Europe. Could you talk about your total autos build rate and how that compares to global averages and overall the reception that you're getting with EV penetration?

Matthew Blair:

Sounds good. I'll leave it there. Thank you.