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.

Thank you, Kevin. Welcome to the Celanese Corporation fourth quarter 2022 earnings conference call. My name is Brandon Ayache, Vice President of Investor Relations. And with me today on the call are Lori Ryerkerk, Chair of the Board and Chief Executive Officer; and Scott Richardson, Chief Financial Officer. Celanese Corporation distributed its fourth quarter earnings release via Business Wire and posted prepared comments on our Investor Relations website yesterday afternoon. As a reminder, we will discuss non-GAAP financial measures today. You can find definitions of these measures as well as reconciliations to the comparable GAAP measures on our website. Today's presentation will also include forward-looking statements. Please review the cautionary language regarding forward-looking statements, which can be found at the end of both press release as well as prepared comments. Form 8-K reports containing all these materials have also been submitted to the SEC. Since we've published our prepared comments yesterday, we'll go directly to your questions. Kevin, let's go ahead and please the line of questions.

[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.

Yes, good morning, Lori. Thanks for taking my questions. So, look, obviously a lot of moving pieces out there, but the tough first quarter outlook for a $1.50 to $1.75 of EPS makes the full year call for $12 to $13, look like a pretty chunky jump. I guess, can you help us to bridge that jump in earnings and help us to understand what some of the big buckets are that you expect to turn up or take a noticeable step-up?

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…

Got it. That's hugely helpful color. And then I guess just as the follow-up, just maybe a quick one on the debt redomiciling, it sounds like you're kind of part of the way there now, I guess. Can we think about all of this being done by the first half of the year? Is that the right way to think about it? Or you guys waiting for something in particular to maybe change in the markets like, I guess, how should we think about that because it does seem like the rates are lower as you're starting to refinance some of this debt out?

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.

Thank you. The next question is coming from Ghansham Panjabi from Baird. Your line is now live.

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?

Yes. Thanks, Ghansham. Yes, look, you're exactly right. I think there's two factors and we're really starting to see. Early in first quarter, we still had some material moving over from Asia, we expect that will be mostly done in the second quarter and for the two factors, one, that you called out. As we see demand picking-up in Asia, there's less incentive to put things on a boat, move it to Europe. But secondly with these low-energy prices that we're seeing and the ability to replace our higher-cost inventory with lower-cost inventory, that's resulting in better pricing for our European customers and so the arbitrage we expect will be closing here at the end of the first quarter and into the second quarter. And so that I think really helps restore the supply demand dynamics. That of course, we are seeing much higher demand now starting to really seeing demand pickup in Europe here in March in particular and we expect that to continue into the second quarter. So with higher demand, lower pricing for the customers because of energy and raw material costing and then higher demand in China making it less attractive to ship across. We think those three factors actually combined should resolve the situation in the second quarter.

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?

Yes. So I would say, North America has been a bit sluggish in the first quarter. So far we've seen more recovery in Europe as we go into March than we have so far in North America. But we don't have any reasons to think North America also isn't going to get there in the second quarter. I mean, auto builds are strong, we see signs that the destocking is over. Again, natural gas pricing in the U.S. and raw material pricing should expect North America to come back strongly as well.

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

Thanks very much. Can you tell us what the EBITDA of the M&M business was in 2022? And in the old days I think you guys thought it was $900 million in EBITDA. And plainly, it's operating at a much, much lower level. Can you diagnose what happened that is through these structural problems or raw material problems? And how much of the nylon is sold at monthly contract price and you know right now of that M&M business?

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.

Right. So in terms of getting the $700 million in EBITDA this year, you'd have to average, I don't know, $200 million or so for the next -- for the second, third and fourth quarters. How does the profitability lift from 80 to 90 to that 200 level? How do you accomplish that? Especially because when you read about Nylon 66, the general commentary from consultants is that there's overcapacity and margin pressure. Is the background getting tougher, but it's your own innovation or ways to change the business that's improving it? What are these dynamics that are lifting it in an adverse environment -- if the environment is adverse?

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.

Thanks so much.

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

Hi, thanks for taking my question. I guess, first, I wanted to ask on the [indiscernible] JV. Can you talk about how much cash you'll be getting into from that combination? A bit confused by the comments in the release about 0.7x leverage reduction, 12 months post close, if that's related with that or not? It seems like a big number, if it is. So can you clarify?

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.

Yes. And then, Josh, with regards to the covenants, the way our covenants are structured is gain on sale of assets is included in EBITDA. And so because this has a very low book basis, and while it's an efficient transaction, that $450 million will be largely gained. So you get the gain that goes into the EBITDA piece, using then the cash proceeds to pay down debt at the same time. And there's a partial offset, obviously, in EBITDA from the 70% that would go to Mitsui. But that math then works out to be because it's in EBITDA, about a 0.7% reduction for the debt covenant purposes.

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?

Yes. So for adjusted EPS, we will go ahead and exclude that gain as we do have past transactions. And then on free cash flow, we had previously said $1.5 billion of free cash flow, which included about a $200 million improvement overall in working capital. If we see that same $200 million improvement in working capital and we saw inventories move up a little bit just with the lower demand in the fourth quarter, then we would see free cash flow likely a little lower than that 1.5 billion just because of the lower earnings that we have. So we're still working through kind of exactly how the working capital will play out this year. But if we see something in that range, we would expect to be a little bit lighter than the $1.5 billion.

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

Great. Thanks. Good morning, guys. First question on pension. Your $12 to $13 a share EPS guide, I believe, includes $100 million hit year-over-year on pension. When you talked last quarter about $13 to $14 a share, how much pension were you impact are you expecting at that time?

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.

Got it. Okay. That's helpful. And then maybe just more of a segmentation or clarification question, but it seems like M&M EBITDA, if I'm reading correctly, is sort of allocated between earnings and EM and from centralized or other costs and other. So if you do deliver, say, 7.25 EBITDA from the M&M business this year, is it correct to interpret that we'll actually see it reported at something like 8.25 or so higher in EM EBITDA, but also, I don't know, $100 million or so higher other costs to offset that. Is that the correct interpretation?

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.

Great. Thank you.

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

Hi, good morning, everyone. Just a quick clarification around the subject made on the prior question. For M&M in the fourth quarter, you had guided to $50 million to $60 million of EBITDA. And then there are kind of two numbers discussed in the prepared remarks, one is 56, one is 39, which is the actual apples-to-apples comparison, the 39 or the 56?

It's a 39.

It's a 39.

Yes.

Okay. And then if I could ask this is the first quarter I can remember and I don't know how long where your volume in automotive was below build, and that takes us through a variety of good batter and different auto environment. So I just if you have any further color on sort of why that happened, because like I remember other times where things were tough, but your team found a way to your innovation or your activations or what have you. So what happened this time that was different?

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.

Okay, thank you for all the detail. I appreciate it.

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

Hi, good morning. If I did the math for '23 for adjusted EBIT for EM, it looks like you need to be between $12 and $13 and an acetyl chain, $13 to $14. But I guess my question is, if we think about where they could be longer term, maybe '25, '26, where do you think EM should be able to get to? And then if the $13 to $14 is the new foundational, what would the mid-cycle acetyl chain potential be couple years out?

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.

Great, thank you.

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

Good morning Lori. Lori, obviously in the prepared remarks, a lot of commentary around destocking, restocking and the like, I was hoping you could give us some historical context as you look at your portfolio. In terms of destocking, historically, how long you have your destocking cycles lasted? What did the restock look like once the destocking was over and the like? I'm just trying to get some sort of perspective in terms of where inventory levels are right now, what the bounce back could look like and the like?

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.

Understood, understood. And as a follow-up, on the acetyl chain side, you guys talked about how pricing through the quarter was Chinese pricing at cost curve levels. Yet despite that, you guys, obviously, idled some facilities, yet you generated around 25%, 26% EBITDA margins. So I'm just trying to get a better sense of Celanese's cost curve positioning as it sits right now?

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.

Thank you. Next question is coming from P.J. Juvekar from Citi. Your line is now live.

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?

Yes, no, thanks for the question, P.J. Look, maybe to clarify, so VAM going down in Frankfurt wasn't because VAM couldn't make money in Frankfurt. It was just we saw the demand go down so much towards the end of the year. I mean VAM demand in December was down -- in the fourth quarter was more than 50% off Q3. So we had a really huge demand destruction in the fourth quarter because of pricing, because of the weather, because of destocking, because of all of those things. And so -- but even at that, I mean, we could have run VAM profitably, it is not normally the most expensive VAM production in our network, but because of the high pricing we were seeing in Europe last year. It just made sense because the total capacity for the globe was down, it just made sense that we - shutdown that facility that was challenged due to energy pricing and move material from other lower cost energy locations. But we're starting it up now. I mean, the March order book for VAM in Europe is really the strongest we've seen in six months. So now we need IPH. And it makes sense, we're going to be about -- I think that the order book right now is about 85% is what we saw in the third quarter. So it makes sense to start a VAM. We have lower energy prices. So again, Frankfurt returns to not being the highest priced one. So again, this is the beauty of a global network. We have the optionality to take units down to skew where we make it based on what is most cost competitive at the time based on where the demand is at the time. And that just happened to be Frankfurt last year, but it could be something different in the next year. But that's why we like having all of this optionality around the globe.

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.

Yes, so I would say if you look at the portfolio from M&M, certainly, nylon was the most challenged. I think elastomers was more robust then. And even within the nylon portfolio, high-temperature nylons and some others didn't see the impact. It was more, I would say, in Zytel and the PA66 line. And as we've called out before, I mean, there were many issues around decisions being made around pricing, both positive and negative, maintaining volume in standard grades and those sorts of things. And there were very high raw material costs and a take-or-pay contract that requires them to take us. So, I think there's just a lot that went into that underperformance in 2022. But the good news is these are things that are fixable. And this is what Tom and his team have been working very hard on in the last three months is moving the pricing, getting the inventory down in the fourth quarter, which certainly hurt us in the fourth quarter that will help us now as we go forward in 2023 and are able to sell lower cost basis inventory, more in line with pricing. So, I think the good news is going forward, this is all stuff that is fixable, and we are working rapidly to do so.

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.

Thank you. Next question is coming from Kevin McCarthy from Vertical Research Partners. Your line is now live.

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?

Yes, so the project itself is going well. We are still anticipating an on-time, on-budget startup mid this year. So, we expect to have it running for, let's just call it, roughly half of the year. At the time we did the project, we called out while we have the ability to run 1.3 million tons additional, we really did it as a productivity project. So savings that we get from being able to move volumes directly to Europe, savings that we get from catalyst savings, energy savings, et cetera. So of that $100 million a year credit, we probably will only see about $25 million of that this year, because we have start-up costs, we have ramp-up time, all that sort of thing. So I'd expect to see about $25 million of that credit this year. And then next year, we should be at the full $100 million. Now having said that, to the extent that demand, deliver -- continues to grow robustly and energy prices continue to be so favorable on the Gulf Coast, it will make sense to try to run the unit for volume as well. What point that will be at? I couldn't say at this point. It's going to depend on demand and raw material and energy economics. But if that were to happen, that clearly is a higher return case for that project than we had with just the base productivity number that was baked in there.

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?

Yes. So capital, we still expect to be in kind of that $550 million to $600 million range. And that where we land there will really be dependent upon where we see the demand recovery as well as the outlook into the out years and as we continue to really put the combined EM and M&M portfolios together. And then from an interest expense standpoint, we're in that kind of 600 -- again, that $550 million to $600 million range for the year, and we'll have about quarter of that here in the first quarter.

Thank you very much.

Thank you. Next question today is coming from Frank Mitsch from Fermium Research. Your line is now live.

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?

Yes, so we're assuming our 2023 forecast is basically assumes flat in '23 to the second half of 2022. So that's kind of like at an $85 million range, which really aligns pretty well with the IHS outlook this year, which they're forecasting an increase of 3.6%. That is almost exactly the same number. And that really is assuming U.S. and Europe, about 5% up; Asia, up about 2%, with China being the weakest point at 1%. Still I would say we're still about 5% lower than 2019. But we do believe that, that we're pretty consistent with IHS in this. We believe auto builds are going to be constrained by chip availability, not by demand. We think the pent-up demand is still there. And so to the extent chips would be more available, I think autos will build - other years as we've seen sometimes they're not as available and - but we're assuming kind of flat to second half 2022. I would say our - we would expect our contribution ourselves into auto to be maybe a couple of percent above that. And that's based upon a few things. One is the locations where we're stronger. So historically, we've been stronger in the U.S. and EU. Now with M&M, they've always been a bit stronger in Asia. But even having said that, I think we think we'd be a few percent above that. The other thing is the presence that we have in electric vehicles. I mean, we - over 10% of our sales by volume go into electric vehicles from the Heritage EM portfolio. And we continue to see that EVs are growing at a faster rate than ICE if you look at the forecast going forward so based on that, I would assume a couple of percent kind of low single-digit percent that we would expect to be over the build rate in terms of our auto growth.

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?

Yes as I said earlier, Frank, on the free cash flow question, we'd like to see at least a $200 million reduction, which will largely come out of inventory as we work through the year. I mean, that's going to largely be dependent on a few things: one, being able to bring absolute volumes down; two, depending on what were to transpire with raw materials. And I think with energy and gas already coming down, that will give us some wind at our back. But we really would like to see the volumetric reduction kind of contribute to that $200 million in total and then any pricing reduction be on top of that. So we're kind of hoping and planning for that $200 million reduction right now.

Thank you so much.

Thank you. Your next question today is coming from Matthew DeYoe from Bank of America. Your line is now live.

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?

Look, I don't think there is a concern internally. As we've said since the time we did the deal, I mean, there are always levers that we can do. I mean from an asset sale standpoint, again, we don't feel we're in a position we have to do an asset sale. I mean we did food ingredients because we have the right partner with the structure we wanted that would give us both benefits and allow us both to participate in the growth in that business. And so the timing was right to do that. And I would say we will continue to be opportunistic with our businesses, both our legacy businesses as well as our acquired businesses. If and when we have the right buyer at what we think is a fair price, of course, we would consider it. But we believe that although this year has started slow, the recovery we expect to see this year, our ability to generate cash from working capital and others that we will be able to meet the expectations of the rating agencies this year as well as next year and into the future. Scott?

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.

Okay. I know I appreciate that. And then on the VAM and EVA side. So I know acetic acid is pretty stable from a supply perspective outside of yourself and what you're doing. But it sounds a call for like decent VAM and EVA capacity growth over the next two years. Does that impact your spreads? I know demand growth there has been pretty good. Does that get absorbed? How do we think about that?

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.

Our next question is coming from David Begleiter from Deutsche Bank. Your line is now live.

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?

Yes. So I -- look we typically see seasonality because, obviously, when it's cold and snowy and things people aren't painting outside. And so that's typical. I would say also this year because we're coming off a period of high pricing for many of these materials because of the higher raws and the higher energy we saw during 2022. I think people took the opportunity much like we did in EM, for example, to draw down some of their inventories through the end of the year and get rid of higher cost inventory to make room for lower cost inventory going forward with anticipation of lower energy and raw material costs and pricing. So I think that's really the dynamic that we saw this year. Again, in the U.S., we haven't really seen the pickup yet as we have, say, in Europe, but I think it will come. There's no kind of structural reason that we think paints, coatings and construction is going to be off in 2023 versus 2022.

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.

Yes. Look, I think it's a number of things. We've continued to invest in our acetyl assets, both foundationally, so investing in reliability and quality, energy savings, productivity. So we've continue to improve our cost basis. From that, we've improved our contracts in many of our areas for raw materials for the acetyl chain. I think that's probably the primary improvement we've seen in our sales over the last few years. The operating model we use in acetyls taking advantage of that end-to-end as well as geographic optionality is really strong. It's running really well. But I would say it's really the improvement in productivity, the improvement in contracting, as well as some of the minor kind of capacity adds, that capacity creep that we've had across our facilities, which gives us additional optionality and the addition of Elotex, which gives us further optionality down into the chain, which is especially helpful as we move into these kind of slower winter months.

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

Certainly. Our final question today is coming from Jaideep Pandya from On Field Research. Your line is now live.

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.

Well, prior to the acquisition of M&M, obviously, we were a big buyer of nylon and would have been unhappy to see shutdowns in the upstream because that would lower price. But now that we both polymerize as well as compound nylon, I would say, generally, I would consider this a help for us as it tightens up the amount of nylon being produced and should raise value across the chain.

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.

Thank you. I'd like to thank everyone for calling in today. As always, we're around if you have any follow-up questions. Kevin, please go ahead and close up the call.

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.