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Celanese Corporation Reports Strong First Quarter Results

Published on 2010-05-05. Author : SpecialChem

DALLAS -- Celanese Corporation, a leading, global chemical company, reported first quarter 2010 net sales of $1,388 million, up 21 percent from the same period last year. The increase was primarily driven by significantly higher volumes across most businesses, particularly in Advanced Engineered Materials, as a result of the global economic recovery. Operating profit was a loss of $14 million compared with a profit of $27 million in the prior year period. This quarter's results included $135 million of other charges and other adjustments, primarily associated with the proposed closure of its acetate manufacturing facility in Spondon, Derby, United Kingdom. Net earnings were a profit of $18 million compared with a loss of $20 million in the same period last year, with earnings from equity investments and dividends from cost investments $49 million higher than the prior year period.

Adjusted earnings per share for the first quarter of 2010 were $0.67 compared with $0.08 in the same period last year. Results for the first quarter of 2009 included an inventory accounting impact of approximately $32 million before taxes primarily related to the negative effects of first-in, first out (FIFO) accounting. Adjusted earnings per share for the first quarter of 2010 are based on an effective tax rate of 20 percent and a diluted share count of 158.9 million.

Operating EBITDA in the period was $246 million compared with $136 million in the prior year period. Adjusted earnings per share and operating EBITDA both exclude the $135 million of other charges and other adjustments. The company estimated that higher raw material costs in acetyl derivatives, primarily related to ethylene, had a total net impact of between $15 million and $20 million in the first quarter of 2010.

"We are pleased with Celanese's performance in the quarter as it clearly demonstrated the operating leverage of our advantaged portfolio," said David Weidman, chairman and chief executive officer. "As the global economy rebounded off of its 2009 low point, our businesses continued to show signs of an accelerating sequential recovery. Our Advanced Engineered Materials business saw significant volume increase due to improving demand and continued success in our innovation and application development efforts. Although our acetyl chain experienced some impact from higher raw material costs during the period, we expect to offset this over the next two quarters."

Recent Highlights

  • Announced the construction of a 50,000 ton polyacetal (POM) production facility in its National Methanol Co. joint venture (Ibn Sina) in Saudi Arabia and extended the venture, which will now run until 2032. Upon successful startup of the POM facility, Celanese's economic interest in Ibn Sina will increase from 25 percent to a total of 32.5 percent.
  • Announced it is considering a consolidation of its global acetate manufacturing capabilities with the potential closure of its acetate manufacturing facility in Spondon, Derby, United Kingdom. The company expects this proposed action would meet its return criteria for investment in productivity-related projects.
  • Received formal approval of its previously announced plans to expand flake and tow capacities, each by 30,000 tons, at its joint venture facility in Nantong, China, with its joint venture partner, China National Tobacco Corporation.
  • Announced a 25 percent increase in its quarterly common stock cash dividend beginning August 2010. The annual dividend rate will increase from $0.16 to $0.20 per share of common stock and the quarterly rate will increase from $0.04 to $0.05 per share.

First Quarter Segment Overview

Advanced Engineered Materials

Advanced Engineered Materials delivered record performance in both earnings and volume as it continued to demonstrate the significant operating leverage of its specialty engineered polymers business model. Net sales for the first quarter were $282 million compared with $165 million in the first quarter of 2009, driven by significantly higher volumes, positive currency effects and sales from the Future Advanced Composites Technology long-fiber reinforced thermoplastics (LFT) business acquired in December 2009. The higher volumes were attributed to the global economic recovery across most of its end-use industries and geographies and continued success of its application development and product innovation strategies.

Additionally, the quarter's results benefited from additional volumes due to a polyacetal (POM) competitor outage in Europe during the period. These increases were partially offset by lower average pricing due to product mix and the sales mix effect of lower priced, non-specified applications related to the competitor outage. Operating profit increased to $46 million compared with a loss of $19 million in the same period last year. Operating EBITDA was $82 million in the first quarter of 2010 compared with $0 in the prior year period. Equity earnings from affiliates were $29 million higher than last year's results, reflecting similar volume increases as the company's Ticona business and the positive sequential effects of the planned turnaround in the fourth quarter of 2009.

Consumer Specialties

Consumer Specialties continued to deliver sustained earnings despite ongoing softness in industry demand. Net sales for the first quarter were $238 million compared with $266 million in the same period last year, driven primarily by lower volumes in Europe and North America and the timing of sales related to an electrical disruption and subsequent production outage at the company's acetate manufacturing facility in Narrows, Virginia. The facility resumed normal operations during the quarter and the company expects to recover the impacted volume throughout the remainder of the year. Operating profit was a loss of $30 million compared with a profit of $66 million in the prior year period. First quarter 2010 results included $80 million of other charges and other adjustments, primarily associated with a non-cash impairment charge related to the company's proposed closure of its acetate manufacturing facility in Spondon, Derby, United Kingdom. The company's fixed spending reduction efforts were not able to offset the lower volumes and higher energy costs. Operating EBITDA, excluding all other charges and other adjustments, was $61 million compared with $81 million in the prior year period.

Industrial Specialties

Industrial Specialties continued to experience volume recovery in its emulsions and EVA performance polymers businesses. Net sales for the first quarter were $242 million, flat year-over-year, as increased volumes in emulsions and EVA performance polymers offset lower sales resulting from the divestiture of the polyvinyl alcohol (PVOH) business in July 2009. First quarter 2009 results included $36 million of sales associated with the divested PVOH business. Higher volumes were primarily driven by the availability of production following the company's force majeure event at its EVA performance polymers facility in Edmonton, Canada, in the first quarter of 2009. Results also benefited from customer innovation efforts and continued growth in Asia for its emulsions business. Operating profit was $12 million compared with $10 million in the same period last year, as higher volumes were partially offset by higher raw material costs, particularly related to ethylene. Last year's results included $3 million in other charges and other adjustments related to the company's restructuring efforts. Operating EBITDA in the first quarter of 2010 was $22 million compared with $26 million in the prior year period.

Acetyl Intermediates

Acetyl Intermediates delivered solid results, reflecting its advantaged technology position in acetic acid and throughout the acetyl chain. Net sales were $724 million compared with $572 million in the same period last year, primarily driven by higher volumes and increased average pricing. Volumes increased with a recovery in global economic conditions compared with the prior year and reflected expected seasonality. Industry pricing levels in acetic acid have remained stable over the past several quarters, despite industry utilization rates in the high 70 percent range. The company continued to operate its acetic acid units at elevated rates.

Operating profit was $2 million compared with $12 million in the same period last year. First quarter 2010 results included approximately $52 million of certain other adjustments, primarily related to the write-down of certain raw material contracts due to a supplier bankruptcy, as well as the write-down of other productive assets. Operating EBITDA, which excluded the adjustments, was $107 million compared with $48 million in the first quarter of 2009. While pricing and margins remained relatively stable in acetic acid, the company experienced margin pressure in its acetyl derivatives product lines, primarily due to rapidly rising raw material costs and low industry utilization. The company estimated a total first quarter net impact of between $15 million and $20 million throughout the acetyl chain. The majority of the estimated net impact was in Acetyl Intermediates, with the remainder reflected in Industrial Specialties, and the company expects to offset the impact over the next two quarters.

Taxes

The tax rate for adjusted earnings per share was 20 percent in the first quarter of 2010 compared with 29 percent in the first quarter of 2009. The effective tax rate for continuing operations for the first quarter of 2010 was 667 percent versus negative 31 percent in the first quarter of 2009. The change in the effective rate is primarily due to new tax legislation in Mexico, partially offset by foreign losses not resulting in tax benefits in the current period, the effect of healthcare reform in the U.S. of $7 million, and lower earnings in jurisdictions participating in tax holidays. Cash taxes paid were $11 million in the first quarter of 2010 compared with a net cash tax refund of $5 million in the first quarter of 2009. The increase in cash taxes paid is primarily the result of a German tax refund in 2009 and the timing of cash taxes in certain jurisdictions.

Equity and Cost Investments

Earnings from equity investments and dividends from cost investments, which are reflected in the company's adjusted earnings and operating EBITDA, were $53 million compared with $4 million in the same period last year. The increase was primarily driven by increased earnings from the company's Advanced Engineered Materials affiliates as well as higher dividends from the company's Ibn Sina cost affiliate. Equity and cost investment dividends, which are included in cash flows, were $57 million compared with $24 million in the same period last year.

The strategic affiliates in the Advanced Engineered Materials business reported earnings in equity investments of $21 million in the first quarter of 2010 as reflected in Table 8. Affiliate EBITDA in excess of equity in net earnings of affiliates, not reflected in equity earnings, was $19 million in the same period. The company's proportional net debt of affiliates was approximately $65 million as of March 31, 2010.

Cash Flow

Cash and cash equivalents at the end of the first quarter of 2010 were $1,139 million compared with $1,150 at the end of the first quarter of 2009. Cash provided by operating activities was $55 million in the quarter compared with $199 million in the same period last year as the increased earnings were offset by higher trade working capital associated with increased volume. First quarter 2009 results also included a $75 million

value-added tax reimbursement related to the relocation of Ticona's business in Kelsterbach, Germany, which was paid in the second quarter of 2009. During the first quarter of 2009, the company also received a payment of $412 million related to the Kelsterbach relocation, which is reflected in investing activities. Net debt at the end of the first quarter of 2010 was $2,352 million, a $105 million increase from the end of the fourth quarter of 2009.

Outlook

Based on the impact of the accelerating pace of the global economic recovery, primarily in Advanced Engineered Materials, and the continued success in implementing strategies to enhance the earnings power of its leading businesses, the company increased its expectation for growth in 2010 to more than $250 million of operating EBITDA compared with 2009. The company had previously expected improved operating EBITDA of approximately $200 million, absent a significant economic catalyst.

The company noted that increased volumes in Advanced Engineered Materials and higher year-over-year dividends from its acetate China ventures are expected to drive the increased earnings growth expectations. Over the next two quarters, the company also expects to offset approximately $15 million to $20 million impact from higher raw material costs experienced throughout the acetyl chain during the first quarter of 2010.

"We saw improved global demand across most of our businesses and expect this trend to continue into the second quarter, particularly in Advanced Engineered Materials," Weidman said. "The plans that we have in place to drive improved earnings are on track and continue to add to our near-term performance. With our advantaged portfolio, leading technologies, continual productivity and profitable innovation, we remain confident in our ability to deliver improved earnings in 2010 and beyond."

As a global leader in the chemicals industry, Celanese Corporation makes products essential to everyday living. Our products, found in consumer and industrial applications, are manufactured in North America, Europe and Asia. Net sales totaled $5.1 billion in 2009, with approximately 73% generated outside of North America. Known for operational excellence and execution of its business strategies, Celanese delivers value to customers around the globe with innovations and best-in-class technologies. Based in Dallas, Texas, the company employs approximately 7,400 employees worldwide. For more information on Celanese Corporation, please visit the company's website at www.celanese.com.

Forward-Looking Statements

This release may contain "forward-looking statements," which include information concerning the company's plans, objectives, goals, strategies, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. When used in this release, the words "outlook," "forecast," "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon current expectations and beliefs and various assumptions. There can be no assurance that the company will realize these expectations or that these beliefs will prove correct. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements contained in this release. Numerous factors, many of which are beyond the company's control, could cause actual results to differ materially from those expressed as forward-looking statements. Certain of these risk factors are discussed in the company's filings with the Securities and Exchange Commission. Any forward-looking statement speaks only as of the date on which it is made, and the company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.

Source: Celanese Corporation


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