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Executives

Jon Puckett - VP, IR

Mark Rohr - Chairman and CEO

Steven Sterin - SVP and CFO

Analysts

David Begleiter - Deutsche Bank

Duffy Fischer - Barclays

Laurence Alexander - Jefferies

John McNulty - Credit Suisse

Frank Mitsch - Wells Fargo Securities

Kevin McCarthy - Bank of America Merrill Lynch

Brian Maguire - Goldman Sachs

Vincent Andrews - Morgan Stanley

Jeffrey Zekauskas - JP Morgan

Hassan Ahmed - Alembic Global

James Sheehan - SunTrust

John Roberts - UBS

Michael Ritzenthaler - Piper Jaffray

Nils-Bertil Wallin - CLSA

Celanese (CE) Q4 2013 Earnings Call January 24, 2014 10:00 AM ET

Operator

Good day ladies and gentlemen, and welcome to the Celanese Corporation Fourth Quarter 2013 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Jon Puckett. Please go ahead sir.

Jon Puckett

Thanks Kate. Welcome to the Celanese Corporation fourth quarter 2013 conference call. My name is Jon Puckett, Vice President of Investor Relations. With me today are Mark Rohr, Chairman and Chief Executive Officer; and Steven Sterin, Senior Vice President and Chief Financial Officer. The Celanese Corporation fourth quarter 2013 earnings release was distributed via Business Wire yesterday after market close. The slides for the call and our prepared comments for the quarter were also posted on our website, www.celanese.com, in the Investors section. All of these items have been submitted to the SEC and a current report on Form 8-K.

As a reminder, some of the matters discussed today and included in our presentations may include forward-looking statements concerning, for example, Celanese Corporation's future objectives and results. Please note the cautionary language contained in the posted slides. Also, some of the matters discussed and presented include references to non-GAAP financial measures. Explanations of these measures and reconciliations to the comparable GAAP measures are included on our website, www.celanese.com, in the Investor Relations section as applicable. This morning, we will begin with introductory comments from Mark Rohr and then field your questions.

I'd now like to turn the call over to Mark.

Mark Rohr

Thanks Jon and good morning everyone. Our prepared remarks were released with earnings last night. So I'll keep my comments brief and then open the line for your questions.

For the quarter, we reported adjusted earnings of $1.04 per share; that's a record fourth quarter for the company. Segment income margins totaled 15.1%, an increase of 260 basis points year-over-year. Strong earnings created operating cash flow of $154 million. We deployed $62 million of this quarter to repurchase 1.1 million shares, and we ended the quarter with about $1 billion of cash on the balance sheet, well positioned to pursue our growth initiatives and our capital deployment strategy.

As we begin 2014, we are focused on a number of Celanese specific initiatives that we believe will fuel approximately $100 million of incremental EBIT. These initiatives combined with some improvement in our base business and some help from the market, should deliver earnings growth, consistent with what we achieved in 2013. Although, heavy turnaround activity in the second quarter will push a greater percentage of earnings into the second half of the year.

At a segment level, we expect each business to contribute to earnings growth this year. In Industrial Materials, our innovative applications should continue to deepen relationships with customers, and draw earnings growth in excess of end market growth.

We also expect a slight increase in affiliate earnings. In Consumer Specialties, earnings growth should continue to be driven by pricing, as well as upstream efficiencies as we invest in our plants. In Industrial Specialties, broader acceptance of our innovative VAE solutions, and targeted growth in EVA polymers are expected to contribute.

And in Innovative Chemistry, efficiency actions we took at the end of 2013 and day-to-day management of the business should also help increase earnings this year.

With that, I will turn it over to Jon for Q&A.

Jon Puckett

Thanks Mark. I'd like to remind everybody, let's have one question and one follow-up, so we can get through as much as we can. Kate, go ahead and proceed with Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of David Begleiter with Deutsche Bank. Your line is open.

David Begleiter - Deutsche Bank

Thank you. Good morning. Hey Mark, first on the methanol plant; is your thought that the plant is going to be, potentially a month late, a quarter late, or longer than that? And what's the -- given the bridge supply agreement, what's the monthly impact of going from a world class Southern contract with basically -- perhaps the market base price, in the back half of the year?

Mark Rohr

Yes. Great question David. So let me give the best I can to answer that. Right now, even though we have the delay getting EPA to release the permit, we are still on track to end it, and be operational when the contract expires, the middle of next year. Having said all that, I think the likelihood of a slip-in has certainly increased with this delay. If you look at it on a full year basis, the kind of number you should look at a full year, I mean, not the transition year period; there is, in simple terms, about $100 million headwind that's created, again depending on the ethanol price, the fuel price that we will need work to overcome. So we look at that as a 2016 kind of hurdle. In an ideal sense, you would have half of that next year.

Now if the [slip-in], you can pretty easily do the math. So if you slip a quarter, you will have about three quarters of that, would impact us in 2015.

I will just make one other comment David, that you should be mindful of. We are used to having headwinds in our businesses. And so, I don't have any anxiety about the impact of this, and I look forward beyond this whole transition. We will find ways to overcome that. But I think when you are going to transition, clearly that's going to moderate our growth to some extent, next year.

David Begleiter - Deutsche Bank

Very good. And just on consumers, Consumer Specialties market, how much price you're going to get as (inaudible) for 2014. What (inaudible) down year-over-year in that business as well?

Mark Rohr

Yeah, I am not going to get quite into that, I mean, there is just little too much there. We get -- I'd not say we, I think the industry as a whole is in pushing pricing and we have had a little bit of uptick in pricing this year versus last year, and I think I reminded you guys last quarter, that we have a swap arrangement with a partner, volume swap arrangements that will moderate that to some extent, till we get at the end of the year.

David Begleiter - Deutsche Bank

Thank you very much.

Mark Rohr

Thanks Dave.

Jon Puckett

Thanks David. Kate, let's move to the next question.

Operator

Our next question comes from the line of Duffy Fischer with Barclays. Your line is open.

Duffy Fischer - Barclays

Yes. Good morning guys. Just wanted if you could flush out a little bit more on the affiliates, particularly around AEM? The run-rate had kind of been $168 million, $192 million, $242 million, and then we dropped to $180 million this year, largely on turnaround. But then you are like calling for kind of a small uptick in 2014. Why wouldn't that bounce back up above $200 million to kind of that trendline that it was on before 2013?

Mark Rohr

Yeah Duffy, let me start this, and maybe Steven can fill in some commentary. But there is two things to consider there, one is the base polymer businesses that we are partnered with, and other is of course our affiliate, that's an old affiliate in Saudi Arabia, Ibn Sina. In that one, we expect that to bounce back to where it was, (inaudible) impacting that.

What we are seeing with our other affiliates is, to be very honest, they do not advance our technology as much as we have in some other [sets]. So they have a little -- they were struggling in the marketplace. So we think it has kind of taken a while, they got at that, and yet that slowed back up to where it was. So we are not expecting tremendous growth from those folks year-over-year. So we are using the term slight uptick. I am not sure what to call it, if you want to split the difference between where it used and where it is today, there may be a reasonable to go with your estimate.

Duffy Fischer - Barclays

Okay. Thank you. And then just on the balance sheet with cash, $1 billion today. Best estimate you know, is we get done with this year. What would that be, sitting on the balance sheet at the end of this year?

Mark Rohr

I mean, pretty close. May be a little bit less. We are spending more capital and kind of know what we do with some of the other uses of cash, I think to be just a little bit less. But roughly, I am looking at Steve, and roughly flat.

Steven Sterin

Yes. I'd say roughly flat. Maybe a little.

Duffy Fischer - Barclays

Okay great. Thank you guys.

Jon Puckett

Thanks Duffy. Kate, let's move to the next.

Operator

Our next question comes from the line of Laurence Alexander with Jefferies. Your line is open.

Laurence Alexander - Jefferies

Good morning. Can you talk a little bit about how you are seeing the cadence of the self-help initiatives? That is, can you maintain this pace of productivity, and if not, what other things you can pull forward to offset or partially offset the methanol headwind in 2015-2016? And secondly, can you give an update on the pension and the net pension turnaround headwinds that you are facing in 2014?

Mark Rohr

Yes, I will do the former and may be and Steven, you could take the latter, as we go forward. Yeah, when I look at sort of the pace of our -- [I stand] corrected David. I don't see that moderating over the next several years. In other words, I mean, the mix may shift around a little bit. As an organization, we really are focused in making sure that we can have as much control of our destiny as possible, and the way you do that, is to really sort of take ownership of everything from the structured costs associated with the unit and raw materials, efficiency, all the way through how we tackle commerce, and rate of new production, our ability to lever that or translate that.

We see ourselves being, the primary player in all of those things, and so, I can't say where we will be next year, but my view is that that level for some period of time, should be relatively consistent.

We talked about long term growth objectives for the corporations, those have not changed for us, even with the methanol transition; transition that's out there. But I think what we also talked about now, there is some need for our base business to show some real improvement, and we are going to start that this year, we hope. But I think we can still generate that kind of year-over-year performance for some period of time.

Steven, you want to tackle the balance sheet?

Steven Sterin

Yeah. Yes the headwind is next year. We are almost across kind of the total (inaudible), somewhere in the neighborhood of $50 million, a large part of that we talked about before, and benefit and pension and -- one thing I want to call out is, a lot of those costs will show up and delever. And so we talked about the need to drive both commercial economic growth and productivity across the businesses, aimed at our corporate structure. But I wanted to point out just from a segment perspective to see a lot about and delever.

Laurence Alexander - Jefferies

Thank you.

Jon Puckett

Thanks Laurence. Let's move to the next question.

Operator

Our next question comes from the line of John McNulty with Credit Suisse. Your line is open.

John McNulty - Credit Suisse

Yeah good morning. Thanks for taking my question. Just with regard to the acetic acid platform, and just what we have been seeing at Singapore may be up and running. Can you just comment as to what you are seeing kind of in the markets right now at this point, and if Singapore is up and running, what has gotten things good enough, so that it's actually possible at this point?

Mark Rohr

So just back up a little bit. I think on a broad basis, the market has not changed a whole lot. We are still in the 70% utilization rate somewhere in the 70s, capacity utilization for that industry as a whole. We have seen, maybe this is wishful thinking on my part, John, but we are seeing folks in sort of the fringe businesses, I think struggle with a little margin that has been in place for a long period of time. We are seeing some of the French players weaken a bit, so there has been a trend, I think for pricing to ease up a little bit more, just to improve a little bit.

Methanol price has really kicked up in Asia a lot, and -- it would just kick up everywhere but in Asia, it has been a very rapid uptick, which pushed pricing there. They have started to fall off, and pricing has fallen off and maybe not as steeply as it was, let's say a year ago, (inaudible).

When I look at Singapore, we have running Singapore as we have been running it for a while, and we are running at the balance of these that we have -- in that part of the world, that services, through our derivative facility and through a little bit of other uses that are local. That's how we are running them.

So no real change there that you should concern yourself with.

John McNulty - Credit Suisse

Okay, great. Then just may be as a follow-up, it was noted in I guess your slides from last night, that your industrial ethanol sales were -- that was one of the things that kind of picked up the volumes in acetyl intermediates. I guess, can you walk us through whether that they were profitable -- whether that was a profitable platform in the fourth quarter, and how we should be thinking about that, as it progresses throughout 2014?

Mark Rohr

Yeah John, I'd love to tell you, we are making a ton of money on that. But the reality is, it's just not contributing. I mean, it is sort of -- ethanol prices moved up interest he 800s, it now moved back, it split back to -- I believe they are currently back in the 700s, high 700s there. And when you back all that way through, this is an awkward position to make money in the industrial fuel market. So we are not accounting any contribution from ethanol at all this year. We will keep working (inaudible) right now, that's our view.

John McNulty - Credit Suisse

Great. Thanks very much for the color.

Jon Puckett

Thanks John. Kate, let's move to the next question.

Operator

Our next question comes from the line of Frank Mitsch with Wells Fargo Securities. Your line is open.

Frank Mitsch - Wells Fargo Securities

Good morning gentlemen.

Mark Rohr

Good morning Frank.

Frank Mitsch - Wells Fargo Securities

Mark, on the $81 million writedown, part of that was attributed to the Singapore acetic acid facility, but you also mentioned two other smaller (inaudible). What percent of that write down was related to Singapore, and can you more further detail how your outlook for that facility has changed to necessitate the write-down?

Mark Rohr

I will let Steven take you through that.

Steven Sterin

Hey Frank. About $45 million of that was related to the Singapore asset unit. As we look out to the future profitability of that unit, just one accounting rule just resulted in us needing to make that impairment.

From a strategic perspective, in terms of what's going on in the market, as Mark said, nothing -- I don't think there is anything out there that -- when we take that long term outlook and then probably (inaudible) took about $45 million write down.

Frank Mitsch - Wells Fargo Securities

Okay, terrific. And then, obviously 2013 was a solid year due to internal Celanese actions. Can you quantify what the cost cuts actually were for the full year 2013?

Steven Sterin

On a net basis, I think the primary we see in our SG&A area were down about $30 million or $40 million. I'd say that we overcome more than that, those headwinds, across the business extrapolation that we had to overcome. You've got cost pressures in our manufacturing sites that we overcame as well. So I'd say on a net basis, a good number to use.

Frank Mitsch - Wells Fargo Securities

Thank you so much.

Jon Puckett

Thanks Frank. Kate, let's move to the next question.

Operator

Our next question comes from the line of Kevin McCarthy with Bank of America Merrill Lynch. Your line is open.

Kevin McCarthy - Bank of America Merrill Lynch

Yes, good morning.

Mark Rohr

Good morning Kevin.

Kevin McCarthy - Bank of America Merrill Lynch

Question for Steve on the tax rate, I think you had indicated in the script last night, you are looking at 22% to 23% for this year. As you look further out, it sounds like you have $100 million on a run rate basis, coming out of North America, and my question is, will that help to drive your tax rate back down in the out years, as your geographic mix reverse, or are there other factors that you think might keep it in the 22-23 range?

Steven Sterin

If you look across all the growth, as well as that has impacted US (inaudible). I'd just say, that we are probably going to be in that range, at least for a couple of years. I mean, there is certainly upward pressure on the rates, just given the margin rates that are in the world, and particularly the US or part of it. But you are right, we will get a little bit of help on that from methanol.

Kevin McCarthy - Bank of America Merrill Lynch

Okay.

Steven Sterin

Low to mid 20s over the next several years.

Kevin McCarthy - Bank of America Merrill Lynch

Great. Then as a second question I guess for Mark, is the volatility in ethanol pricing or the level of ethanol pricing have any bearing on the projects we are looking at, Indonesia and China? Perhaps you can kind of give us an update on the thinking and the next milepost for those?

Mark Rohr

Yeah, that's a great question Kevin. The answer is no. On the small scale, in that part of the world, in Asia, fermented ethanol can contribute -- these guys are looking for world scale operations and are looking for ways to upgrade basically stranded fuel. Be that, in the case of Indonesia and China, it's very low grade to all.

So we are moving ahead in Indonesia very aggressively, but its just a very long process. We actually secured property, only to get into it to uncover. There were 32 documented owners that weren't -- no one was aware that we got (inaudible), so we had to back up a bit. We have now got two properties we are pursuing aggressively, and we will start to negotiate with shortly. So I hope, within a few months, we have secured one of those properties, and can be in a position to go to the next phase of the project, which is a more public tender process, really to sort out the whole cost.

In China, slightly different approach. I mean, obviously, what we are looking at there is, how we make sure we can get the government to endorse coal-based ethanol, and so we are getting ready to begin engine testing, which is a necessary part of that. There is another series of testing, that actually takes some coal ethanol, convert the fuel grade, and start to use it in test vehicles in a number of locations.

In China, it's all about health, and so generally there is a big push for that. So we still remain optimistic about those projects. But I just want to caution you by the looks of it, they are not (inaudible)

Kevin McCarthy - Bank of America Merrill Lynch

Thank you.

Jon Puckett

Thanks Kevin. Kate, let's move to the next question.

Operator

Our next question comes from the line of Robert Koort with Goldman Sachs. Your line is open.

Brian Maguire - Goldman Sachs

Hey good morning. It's actually Brian Maguire on for Bob today.

Mark Rohr

Hey Brian.

Brian Maguire - Goldman Sachs

Just hoping you could spend a minute just commenting a little bit more on the strength at AEM, just trying together a couple of nice quarters here with 89% year-over-year growth and I think in the slides, you mentioned that there was pretty impressive growth in the base business, 53% for some of the end markets there. Just hoping you could talk more about what kind of new applications you might have picked up or be penetrated into to drive that kind of growth?

Mark Rohr

Yeah, when you think about these -- when you think about these engineered materials, each of which is branded by all the different producers. They all have superior properties and unique properties, so they fit into certain different applications. And what we have been doing is, going back and modifying the -- call them the backbone, in the way that we dramatically shift those physical properties. So you are almost creating a new polymer. And so, we are able to go into the applications that we hadn't gone into before, that's how you should look at it. So the uptick is really strong. I mean, these new platforms I think, (inaudible) introduced it. They (inaudible) that we have out in the marketplace, all have a lot of attraction, all are generating good business for us, and (inaudible) with some other things, we can still do.

So we think we can take these base businesses that are very good, and translate into many more uses for this product, and that's a big part of what we are doing this year, part of the money, (inaudible) $100 million to do just that.

Brian Maguire - Goldman Sachs

And just as a follow-up, I think in your prepared remarks, you noted that the consumer businesses are now contributing about 75% of segment income, and it gets pro formative for losing the Southern contract, that might do up to 85% or something like that, but compared to what it was about two years ago, it's probably only about a third or so, but just kind of your multiple over the last two years, doesn't seem like it has really gone anywhere to reflect the composition of those earnings. So it seems like the market is either treating them with -- capitalizing them at the same rate or may be not paying attention to the mix shift that's going on. So wanted your thoughts on that, assuming that they should be capitalized at a higher rate. Is there anything you guys think that you could do to kind of change that perception?

Mark Rohr

That's a great question. When you look at our performance historically, and if I want to be critical about it, we have had a (inaudible) facility, and so there is still lack of predictability. And I really think at the end of the day, that's the curse of commodity kind of businesses, in terms of multiples. So we are working really hard to demonstrate, that we can be reproducible with our earnings and very predictable, and so that has been our focus for the last year or so. You have seen -- I think you guys have seen that, and you certainly have commented on it, and to be honest, our stock has moved because of that. So we believe, that if we continue to focus on that, driving greater predictability, greater understanding on the part of our shareholders, that we will see the valuation start to change for this corporation.

Brian Maguire - Goldman Sachs

Great. Thanks very much.

Jon Puckett

Thanks Brian. Let's move to the next question.

Operator

We have a question from Vincent Andrews with Morgan Stanley. Your line is open.

Vincent Andrews - Morgan Stanley

Thanks. Two questions; in the quarter, in acetyls, you called out the higher VAM volumes due to timing. How much of an impact was that in the quarter from a margin perspective, and should we presume that that reverses out in 1Q?

Mark Rohr

Yeah that's single digit. We are always happy to call out and think a little better, but it wasn't a huge contributor.

Vincent Andrews - Morgan Stanley

Okay. Then as we think about the $100 million in 2014, what would the cadence of that be through the year?

Mark Rohr

Well, I think generally speaking, if you look at the net impact of that, we need to average something like $1 in a quarter of earnings to add, and (inaudible) that way, and we have a huge turnaround in our acetyl business in the second quarter. So broadly speaking, you're going to see for us to hit those numbers to the year, so it’s a bit backend loaded. So we have got more performance coming through in the back end.

So the way I look at it is that, those things that you could look at, that we shared in the script, that our productivity rate of those have been pretty writeable through the year. Raw material positions, energy positions, the impact of course though, shutdown that occurred, those things are writeable through the year, and the innovation and the other value add is going to be more back half of the year.

Vincent Andrews - Morgan Stanley

Okay. Thanks very much.

Mark Rohr

Thank you.

Jon Puckett

Thanks Vincent. Let's move to the next, Kate.

Operator

We have a question from the line of Jeff Zekauskas with JP Morgan. Your line is open.

Jeffrey Zekauskas - JP Morgan

Hi good morning.

Mark Rohr

Good morning Jeff.

Jeffrey Zekauskas - JP Morgan

Hi. I think in your earlier remarks Mark, you said that the possible hit to earnings from expirations in methanol contract is about $100 million. I would have thought, that on an annual basis, that would have been $200 million or $300 million, because I think you buy something like 270 million gallons and at roughly $0.50 and the price of an ethanol per gallon, depending on where you want to put it is, something in excess of $1.50 a gallon. So I was wondering, how you got the $100 million number?

Mark Rohr

Well that's the operating state, after we run an own facility Jeff.

Jeffrey Zekauskas - JP Morgan

So it's not for when you are in that transition period, before you have got that --

Mark Rohr

Yeah in the transition period and yet, dependent on -- you're doing the math. I mean, you can all argue with the absolute numbers, but shall I be doing the math correctly, there is a big step-up in base for some -- closer to market price, as opposed to producer front. But we are building a very-very efficient unit, and where it won't be exactly the same price, it's pretty close. So the net impact in the full year, going from a sudden situation to our own venture, joint venture methanol situation is $100 million.

Jeffrey Zekauskas - JP Morgan

I see. And then, as my follow-up, I am a little puzzled as to whether you've issued earnings guidance or you haven't? In that, you said there is $100 million in costs that -- you're $100 million benefit that you can accrue, which is about $0.50 a share and you said your taxes will hurt you by about $0.25. So are you basically saying that all things being equal, you will earn $4.75 next year, or are you saying that's what we will earn, exclusive of whatever benefits we get from the economy? And so in a way, it's not really our earnings guidance, its just a couple of components that people should keep in mind when they think about our earnings?

Mark Rohr

Yeah well, it may be the latter. You know, I really don't give guidance in there, but I think what we tried to say, and may be using the term adjusted earnings that I use so much -- its confusing. But what we tried to say in that, is that the things that we are really focused on, we are expecting to contribute $100 million. I am also saying, I expect base business in some areas to improve. I didn't elaborate on where that was and -- if I don't really want to do that. But I wouldn't have working our asses off to get it. But unlike last year, where we didn't -- we went out of our way and said there wasn't a base business improvement, which was largely true. We are expecting a little bit this year, and I have been said, I need that, because we are expecting more of those profits shipped into higher tax jurisdictions, and so there is a net of that. So the taxes, you roll all that up, I think I was pretty clear in saying that we would expect our earnings to improve in 2014, as they improved in 2013.

I don't know if that's guidance or not, I am not going to call it guidance, but I think its pretty clear what we are saying, where we think we are going to be.

Jeffrey Zekauskas - JP Morgan

Okay great. Thank you very much.

Mark Rohr

Thanks a lot Jeff. Appreciate it.

Jon Puckett

Thanks Jeff. Kate, let's move to the next question.

Operator

Next question is from the line of Hassan Ahmed with Alembic Global. Your line is open.

Hassan Ahmed - Alembic Global

Morning Mark. Obviously, we saw some margin expansion within the AI segment quarter-over-quarter. I was a bit surprised by that, keeping in mind, it seemed pricing only went up a percent and we saw this huge sort of surge in methanol prices over the course of the quarter. So what I am trying to understand is, is there some sort of a lag between methanol prices going up, and you guys feeling the impact of that?

Mark Rohr

I am going to let Steven take that and start with that.

Steven Sterin

Yeah. I mean, margins were up a bit, little bit higher volumes, (inaudible) and also our ability to -- as Mark said, the industry tended to lose price off with methanol. But keep in mind, one of the key drivers is that, we had a couple of months of benefit from our plant shutdowns in Europe that we talked about. So I'd say, it's more structural what we have done for our costs, that's also part of getting a full year benefit of next year's part of the growth for the business.

Mark Rohr

And the comment I'd make for you, this is a more directional comment, is that we have changed our ability, engaged in the market a little bit as we have gone, but we (inaudible) formula based contracts to (inaudible) price our product, and that has helped us in periods of inflation, I think make sure that we are not getting beat up by raw material inflation.

Hassan Ahmed - Alembic Global

Sure enough. I would imagine obviously, with methanol going up, particularly in the US, the Southern methanol contract would have obviously looked even more attractive through the course of the quarter. But if one were to sort of, let's say split the AI segment into the non-US part and the US part, did the non-US part actually also experience margin expansion?

Mark Rohr

Yeah.

Hassan Ahmed - Alembic Global

It did. Okay. Thank you so much.

Jon Puckett

Thanks Hassan. Kate, let's move on to the next question.

Operator

Our next question comes from the line of James Sheehan with SunTrust. Your line is open.

James Sheehan - SunTrust

Good morning. Just wondering what you are seeing in your European end markets, and how large a contributor to 2014 could Europe be?

Mark Rohr

Jim, you are talking about downstream?

James Sheehan - SunTrust

Downstream, yes.

Mark Rohr

Downstream AI business; yeah, we are seeing a little more contribution start to come out of that business, and so we would expect it will be some incremental contribution to that business. Next year, I don't know if it would be a double digits on it. But I expect we are going to get $0.02, $0.03, $0.04, $0.05 out of that, if we are good.

Steven Sterin

We have been growing about, in all of the segment, which is a nice 40% to 50% of that business.

Mark Rohr

And I think the current forecast in the industry for all of the growth is 3.5% growth next year.

James Sheehan - SunTrust

Okay, great. Then --

Mark Rohr

Jim I may misunderstand your question, so I will make sure Steve and I aren't confused. So I was talking specifically about downstream acetic acid derivatives, we are expecting that and strategically tighten up a little bit, so we think there should be some contribution from that Steven's point and materials -- Europe is certainly learning how to deal with its debt, and it seems to be in a better situation and shape, as if you will have 1%, 1.1%, 1.2% GDP growth in Europe. Germany is expected to be better, and that's going to translate and increase all the sales, as Steven said, and you get different numbers. I mean, some numbers are 5% to 8%, 3% to 4% is more than an average in there. So we should expect improvement as well, and contribution from AEM growth in Europe also.

James Sheehan - SunTrust

Terrific. Then just on the benefits you are seeing from plant operations. You specifically targeted this $15 million to $20 million level of additional benefits, and I am just wondering if that is related to more plant closures in the business, or if you could just give us a little more color on what exactly that means?

Mark Rohr

No Jim, we don't have any closures planned that we are focusing on right now. What I would say is, we are operate our units, we are finding that -- I don't want to say that. There is more we can do to better operate these units, and the team is working very-very hard on that. We are having some tremendous success in some areas; some other areas, we are still struggling a bit. So we are expecting to, net-net, produce more out of just better operations this year than we did last year. It also represents a risk to this. If we can't do that, then we will struggle and we will have to find (inaudible).

James Sheehan - SunTrust

Thank you very much.

Mark Rohr

Thanks Jim.

Jon Puckett

Thanks. Kate, let's move to the next.

Operator

Our next question comes from the line of John Roberts with UBS.

John Roberts - UBS

Good morning. Steven, in the 19% underlying tax rate for 2013, what was the percent of income from the US, and could you at least give us a range for 2014 that [fits] with your higher tax rate?

Mark Rohr

We haven't shared that level of detail. When we put out the 10-K, you will get a lot more specificity on kind of how the [rate was scored]. I mean, the US is clearly more than 16% of the -- our pre-tax income. It doesn't take much to move up 19 to the low 20s growth that we talk about today, that's occurring not only in the US, which is part of it, but also in Europe, which is a higher marginal rate, and even Asia is higher in our current rate as well. So its not big swings, but its continued growth in the US, as well as other high tax jurisdictions.

John Roberts - UBS

Then Mark, in Engineering Plastics, do we have an update on the vitality index or percent of sales, products during the past five years?

Mark Rohr

I didn't do the math on that unfortunately.

Steven Sterin

No John, I don't have it at the tip of my tongue. We are -- this growth is positive. We are seeing good success there. I just can't quote an exact number.

John Roberts - UBS

Okay.

Mark Rohr

Okay, thanks John. Kate, let's move on to the next.

Operator

Our next question comes from Mike Ritzenthaler with Piper Jaffray. Your line is open.

Michael Ritzenthaler - Piper Jaffray

Thanks. Good morning. The innovation pipeline has important expectations in 2014. Just a follow-up on John's question, or may be asked a little bit differently. What were the [M+1] earnings in 2013? Is that something that's quantifiable? May be in sales, instead of earnings? Just trying to gauge the size of that $30 million incremental earnings?

Mark Rohr

I don't have it in front of me. What I will say is that all -- well, we really looked at --

Steven Sterin

I think the way I think about it is, when you look at AEM where the percentages that the -- when you exclude affiliates, they had about $40 billion of earnings growth in that segment. So I think that's a difficult question of, both (inaudible) penetrations as well as commercial, based off the new product platforms in the material space.

Mark Rohr

So (inaudible) to tell you what -- here is what we know, when we look in the auto space, that we are up 6% year-over-year on our penetration, and that is measured globally across all vehicles in the world. So we continue to be able to drive in the new applications in that space. If you look at it in -- even businesses like EVA, food and ingredients, cellulose acetate, we are having traction on our new product introductions that keeps us very encouraging and encouraged. But I will also say that most of those are M+1. Going out M+2, M+3, the reality is, it just takes longer, and so we are not seeing as much uptick on the near term, even though we are working some very good projects there. One that Steve mentioned is Celotex, which is a new filter process for cigarettes in markets like China, where everything is about the harm index, and how you reduce the harm index.

So I (inaudible) directly, but we will do a better job in future calls.

Michael Ritzenthaler - Piper Jaffray

I think you did. I mean, Steve had said about 2013 for these and some of these M+1 earnings. I think that puts it in the right context for us. And then just last question here, on the rationale for plant closures and being (inaudible). I realized that they weren't vertically integrated. But can you speak a little bit about the volume shift to other plants, maybe in Germany and other places, and whether there's any timing with the work counsels or anything, that still is yet to be worked out with those closures?

Mark Rohr

No, no. We went through that process in a very proper fashion, with the work counsel completely throughout the process. So no, we completed all those negotiations and the plants are coming out running and we are going to process now and decommission it completely. So that's over. What I will say is that, in the case of the French plant -- that product has been produced elsewhere, and pretty much is the case, and the plant is paying us well.

Michael Ritzenthaler - Piper Jaffray

Excellent. Thanks guys.

Jon Puckett

Thanks Mike. Kate, let's move to the next and let's have this be the final question.

Operator

Our final question comes from the line of Nils Wallin with CLSA. Your line is open.

Nils-Bertil Wallin - CLSA

Thanks. Just got into the water there. One kind of a broad macro question. At one point, Celanese was kind of thought of as a top line grower, GDP plus 100 or 200 basis points. Has that changed at all? I mean, I know obviously you are focused more on innovation. But what I am trying to understand is, if we get 3% to 4% global growth next year, should we see Celanese just on the base business, X innovation growth for 4% to 6% top line?

Mark Rohr

Yeah, really great question. I have a hard time seeing our base growing 4% or 6% volumetrically through the year. But what I will also say is that the -- the quantity of chemistry needed to drive GDP is changing. If you look at it, by China, we are still seeing 7% GDP growth. I don't think you will find any multinational chemical companies that's over their standard of business of growing 7% or 8%, which was the case a few years ago.

So I think all of us are seeing a little disconnect between chemistry and GDP, as it relates to base business. As it relates to specialty business, there is no doubt we are a multiple to GDP. So if you look at AEM business, we have had multiples of GDP in that business. We think we can get there in a slow growing business like acetate all the time, going forward, then you look at our smaller businesses like EVA and coarse. They have had some base business too. Deterioration has offset the kind of growth we are getting there.

So I don't know quite how I would characterize it next year, but I would put it as a multiple of GDP next year. If we are up 3% in the US, I would think, when you get 3% of our business in the US. If Europe 1%, then Europe -- I mean, I don't think you will see it. In China, its probably pretty flat. So our growth next year is going to be more driven by new products introduced and innovative things that we do, than just (inaudible) GDP.

Nils-Bertil Wallin - CLSA

That's really helpful. Then just a housekeeping question. Consumer specialties volume was, I believe down year-on-year slightly. But my understanding was that, you would have left this bottom enclosure right now. So is there some vestiges (inaudible) in there, or is it just a mix issue?

Mark Rohr

No its all [spondee], and we have -- that it should be pretty -- comp should be pretty good. I am looking to Steven. (Inaudible).

Nils-Bertil Wallin - CLSA

Great. Thank you very much.

Mark Rohr

Thanks a lot. I appreciate it.

Jon Puckett

Thanks Nils and thanks everybody for listening today. We will be around today for calls afterwards. Thanks for your time this morning.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a good day.

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