The call is for the Celanese Q4 2023 earnings and is being recorded. The call is being led by Brandon Ayache, Vice President of Investor Relations, with other executives present. Non-GAAP financial measures will be discussed and cautionary language regarding forward-looking statements is mentioned. A question is asked about expectations for the M&M business in 2024 and the first quarter, with clarification needed on market improvement or price cost improvement. The CEO, Lori Ryerkerk, responds to the question.

The company expects a significant increase in M&M earnings in the first quarter, which will be the highest quarterly EBITDA since the acquisition. This is due to a combination of lower raw materials and fixed costs, recovery in the auto sector, and the optimization of their footprint. Evidence of this improvement is already seen in January. The company remains confident in M&M's potential, but external factors have made it difficult to fully realize synergies and growth. In a more normal demand environment, M&M would be accretive. A question from an analyst from Vertical Research Partners is then mentioned.

Lori Ryerkerk, CEO of Celanese, discusses the successful implementation of SAP across the company and thanks the 1,600 employees who worked on the project. She highlights the importance of this integration for achieving synergies and getting rid of TSAs from DuPont. The integration went smoothly and all aspects of the business, from supply chain to production, are now running on the new platform. There have been no surprises so far in the process.

In response to a question about input costs and their outlook for 2024, Lori Ryerkerk from Celanese discusses how raw material costs have come down and how they are focusing on controlling what is controllable. She also mentions that the company is good at execution and expects to see the benefits of this in 2024. When asked about the expected synergies in the M&M business, Ryerkerk clarifies that only 40% of the $150 million in synergies will show up in the M&M business and that they do expect the business to grow its EBIT even without the synergies.

The company expects growth in both their EM and M&M businesses for the year, with a significant uplift in M&M even without synergies. The first quarter may have more headwinds, but the remaining quarters are expected to have a ramp up, with the second half being the strongest. The first quarter had turnarounds and low medical sales, but the second quarter should see benefits from the project and returning medical sales. The third quarter is expected to be the highest, with some seasonality in the fourth quarter.

The speaker is answering a question about the company's impaired assets and if there are any areas close to that level. They state that they have not seen any markers for impairment at this time, but it is a possibility. The next question is about the company's global macroeconomic backdrop and how it is factored into their guidance. The speaker responds by saying they are focused on what they can control and assuming a diminishing of destocking but not a big uptick in demand. They also mention that they are starting to see some easing of demand and competitive challenges in the market.

The speaker discusses the current state of demand for China consumption and exports, as well as the gradual improvement in demand in the Americas and Europe. They also mention planned turnarounds in 2024 and their success thus far. The questioner asks about the impact of weaker demand on these turnarounds and the speaker clarifies that they are in line with the original plan and have gone well. Another question is asked about nylon pricing.

Lori Ryerkerk and Scott Richardson discuss the current state of nylon pricing and raw materials costs. They believe that margins are stabilizing and starting to expand, and they are working to regain lost market share. They are confident in their ability to achieve their $150 million synergy target by 2024, with the majority coming from footprint optimization and transitioning to a single SAP platform.

The company has identified cross-sell opportunities and closed one this year, which will start generating revenue next year. They are confident in achieving $150 million in synergies for 2024. They achieved $100 million in synergies in 2023, slightly lower than expected due to volume-related issues. The acetate tow business had a good year and exceeded their target of $245 million in EBIT. They have integrated it into the acetyl chain for more flexibility.

The company is using a similar strategy for stabilizing earnings in their acetyl chain as they do with other downstream derivatives. They are projecting a flat build for auto sales in 2024 and are agnostic to whether it's an EV, ICE, or hybrid. The company's exposure to the China automotive market is around 1/4 of their overall sales. The lower raw materials cost in nylon is expected to be significant in 2024, but the company is confident they will not be passed on to customers.

Scott Richardson and Lori Ryerkerk discuss the potential for increased earnings in the M&M portfolio, particularly in the nylon sector. They expect a significant uplift in the first half of the year, but are cautious about the impact of raw materials and pricing in the second half. They also mention the foundational level of earnings in acetyls, which is currently at $1.3 billion and expected to increase by $100 million this year. They note that in previous years, they have seen earnings over $2 billion in acetyls due to supply outages and sudden demand increases.

The company is focused on controlling what they can and currently their priority is achieving a 1.4 level of foundational earnings. They expect a similar tax rate for 2024 and will update as needed. They are committed to generating free cash flow and deleveraging to maintain their investment grade and have flexibility for future opportunities. The record free cash flow results in 2023 were due to the hard work of the global teams. Key drivers for free cash flow in 2024 include working capital and other factors.

The company is expecting an increase in net income of $300 million in 2024, with a target of $100-150 million in working capital benefit. This is lower than the expected $500 million benefit in 2023, but the company is still focused on achieving working capital benefit. Other key drivers for 2024 include lower CapEx and a focus on converting earnings into cash flow and deleveraging the balance sheet. The company is also focused on integrating the recently acquired M&M business and improving operations. They will also continue to be opportunistic and smart about potential divestitures.

The company is open to divesting assets if it benefits the company. The next question is from Hassan Ahmed who asks about the company's margins and the impact of industry outages on their earnings. The company credits their integrated value chain model for maintaining margins in the fourth quarter and expects the markets to grow in line with global GDP. They also anticipate utilization to remain high, allowing them to benefit from any market dislocations.

The company is focused on creating a contemporary operating model for nylon and maximizing value creation through unique compounds. They have the ability to make make-versus-buy decisions and are working towards a minimum 25% EBITDA in any economic environment. In 2023, they reduced inventory by $450 million, with 80% coming from EM and the rest from AC, which was punitive to their EBIT for the year.

The company's businesses were able to offset the negative impacts of the pandemic and reduce costs in areas such as raw materials. The company does not expect any major changes in incentive compensation or acetyl spreads, but is anticipating growth in line with GDP due to the current state of the construction sector. The new capacity coming online in China is not expected to have a significant impact on utilization.

In this paragraph, Lori Ryerkerk discusses the year-over-year lift in productivity projects and the impact of capacity additions in China on pricing. She also mentions the potential disruptions in the Red Sea and how Celanese's global supply chain may mitigate any negative impact on earnings.

The speaker believes that the effects of the Suez Canal blockage on the global supply chain will be temporary and not have a significant impact on Celanese. They also discuss how the shift towards leaner inventory management in the automotive industry may not have a major effect on Celanese, and clarify that the $100 million productivity savings from the Clear Lake acetic acid expansion will still be realized.

The paragraph discusses the impact of the Red Sea incident on the company's operations, particularly in terms of its CCU project and its potential to generate additional methanol for use at its Clear Lake site. The company believes that there may be more value from the project in the future as demand for lower carbon products increases. The project also adds redundancy to the company's U.S. Gulf Coast network and can help manage unexpected outages. The question is raised about whether the reduced exports from Asia to Europe are related to the Red Sea incident, as demand in Asia does not seem to be picking up. The company suggests that the reduced exports could be due to increased production in China.

The speaker, Lori Ryerkerk, discusses the impact of the Red Sea on the market in Asia and the strengthening of the market. She also talks about the unique qualities of Vamac rubber and the challenges of tracking customer inventory in that product area. She mentions the acquisition of M&M and the demand for their highly differentiated Vamac product. She also mentions resolving reliability issues and increasing production. The question from Jaideep Pandya is about the breakdown of M&M's business, with half of it being nylons and half being in China and Asia.

The speaker is discussing the current earnings compared to their initial estimate of $900 million. They are questioning where the shortfall is coming from, whether it is in Asia, Europe, or the U.S., and if it is related to nylons or other products. The speaker also asks about the company's strategy regarding the acetic value chain and if they plan to gain more market share or maintain their current position. The response mentions that the shortfall is mainly in nylon, specifically standard grades and volumes lost in 2022 due to pricing decisions. The teams have been working to recover this volume, but it has been a challenge in a low demand environment. The speaker then asks about the company's strategy for acetic acid, and the response is deferred to another speaker.

The speaker, Scott Richardson, discusses the current dynamics of the market and how it makes sense for the company to focus on downstream product. He also mentions that the company has been impacted by earnings in regards to VAE, redispersable powders, and acetate tow. The company plans to maximize production downstream. The next question comes from Patrick Cunningham about $50 million in turnaround impacts, which will occur in the first quarter and spread across the remainder of the year. The call concludes with closing comments from Brandon Ayache.

This summary was generated with AI and may contain some inaccuracies.