Earnings Call: Q3 2020

Oct 26, 2020

Greetings, and welcome to Celanese's Corporation 3rd quarter 2020 call and webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brandon Ayash, Senior Director, Investor Relations. Thank you. You may begin. Thank you, Doug. Welcome to the Celanese Corporation 3rd quarter 2020 earnings conference call. My name is Brandon Ayash, Senior Director of Investor Relations. With me today on the call are Lori Ryark, Chairman of the Board and Chief Executive Officer and Scott Richardson, Chief Financial Officer. Sonya Corporation distributed its 3rd quarter earnings release via business wire, and posted prepared comments about the quarter 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 the press release as well as prepared comments. Form 8 K reports containing all of these materials have also been submitted to the SEC. Because we have published our prepared comments yesterday, we'll now open the line directly for your questions. Doug, please go ahead and open the line for questions. Thank you. A confirmation tone will indicate your line is in the question queue for questions. Session. Our first question comes from the line of John Roberts with UBS. Please in the supply chain when the auto plants and other manufacturers shut down earlier in the year. So I would have thought that Celanese would have lagged the recovery of the customers, but it seems like you've been pretty coincident. Maybe you could comment a little bit on that timing issue. Yes, thanks for the question, John. I think what it's clear to us is, you know, we were saying throughout 2019 that we were seeing a lot of destocking in the auto chain. And so we went into 2020 with much lower inventories in our estimation than is typical in the entirety of that chain. And as we went through the first quarter, auto was still running well, certainly in the Western Hemisphere. And so we really have not seen any build up during the time we were down and we've seen really steady demand consistent with or even actually a bit better then you've seen auto builds recover. So I think what's different this time than maybe in past recessions or past downturns is just the fact that we had gone through a pretty significant period of destocking already in 2019. And then could you provide a little more granularity in your comment about rising raw materials in Is that causing you to activate your network any differently? Yes. So the real impact in third quarter from rising raw material was ethylene price So we really saw ethylene pricing up throughout the entirety of the third quarter, really in all regions of the world. I wouldn't say it's had a real difference in terms of our S tilt change in terms of our activation. We really haven't seen that passed through to our engineered materials. It's not, it's not been an impact there. Really, we have a long supply chain in EM. But we did see the impact, as you noted from our comments in the third quarter, especially in acetyls. It really we also saw some increases in methanol and CO at the end of the quarter. And some of those increases, we weren't able to pass through in pricing in third quarter, but would expect to be able to mitigate in fourth quarter. Our next question comes from the line of Bob Crut with Goldman Sachs. Please proceed with your question. Thank you. Good morning. Good morning. Gloria, thank you guys. Not too long ago. Stop talking about discrete project wins and EM. Just wondering if you could give us some sense of what you might expect, as we look into 'twenty one versus 'twenty, we'll be sort of at parity. Could it be better? Is there a chance be actually lower? How do you see those new project applications developing? Yes. So, we really stopped talking a lot about project wins, just recognizing that not all projects are created equal and just because we had a lot of wins and we were necessarily creating more value. But it is something we still track. I would tell you in the 3rd quarter, we were well on target with the projects. So as we go into 2021, I actually continue to expect to see the number of project wins going up. We've managed to build a lot in the pipeline, do some really good work by our commercial teams working virtually and using new formats for us like webinars and that sort of thing. And so we're seeing the number of projects actually continue to go up as well as the value of projects continuing to build, pretty significantly. Mean, maybe just a few examples of wind we've had during COVID and more recently. So as a result of one of our webinars, so we recently did one on electric vehicle batteries, we had over 200 customers alone attend that series of webinars across the region. And, as a result of all the work being done during COVID, we've also had some really good placements, so not just EVs, which are booming, but also we've had a big contract for LCP into one of the leading electronic manufacturers, which goes into smartphones and tablets and headphones. So Our commercial folks are doing a great job continuing to find those areas of growth, continuing to find those areas where our unique technology can really be applied at meaningful margins. And, you know, we it feels very good for us going into 2021 with some of the wins we've had this year and have tea up next year. And can I ask you, you started doing your share repurchase before the proceeds came in? Was that just a function of expecting the world to heal. And so it was a good time to start buying. And then you have a pretty short list of way Scott can spend that money on M And A next year or is it still a somewhat of a murky environment? Yes. So I think in terms of share repurchases, yes, we did start prior to the actual close because obviously we could see the close was site. So we wanted to go ahead and get in the market and start those share repurchases and spread them out over a longer period of time. As a result of that, clearly, we're in really good financial shape. We've been quite active, looking at M And A. On the positive side, we've had most of our management team together now since June. So we've been able to use that to really reset our sites on M and A, do a broad or look at M And A targets. I would say we have not a short list, but a pretty well defined list of those things that we're interested in both from a bolt on standpoint as well from a larger, you know, more transformational M and A standpoint. We do see the markets starting to get better as people stock prices are improving. The discussions can get more serious. People are, I guess, feeling better about getting value for their assets. So the discussions are ongoing, but as we all know, this takes some time. So I think, yes, it's probably well into 2021 before we'd be able to action anything. Great. Thanks very much. Thanks. Our next question comes from the line of Duffy Fischer with Barclays. Please proceed with your question. Yes, good morning. First question is just kind of around the level of business today and then when we think about that going into 2021. So if the world doesn't get better from here, your Q1 EBITDA was down about 15% year over year. This quarter was down about 17 does the world feel about the same as it did in Q1 and that would be flat at this level of economic activity in Q1 next year? To start out or how would you gauge that economic level today and what we should use that to model into 2021 for you guys? Yes, so we let me just start. If we look at 4th quarter, we actually see our volume and pricing being up in 4th quarter on kind of the base materials, but we still do expect that December seasonality. So in acetyls, Maybe seasonality is happening today. If we look at snow happening in some of the Western And Northern States, you know, in acetyls, we typically see some drop off in demand for emulsions and bam and powders as we see a slowdown in the construction industry due to weather. In Engineered Materials, we typically see not so much of a volume drop, but more of a margin mix effect as we see Western Hemisphere companies take time off over the holidays. That volume is usually replaced by a pickup in China and Asia. But usually at slightly lower margin. So we still expect some seasonality in Q4, but on a growing base, if you will. Of increased volume and pricing. As we look to 2021, You know, look, we have a lot of uncertainty right now with COVID. Our expectation is that 2021, we will continue to see growth in recovery back to 2019 level, sometime in 2021, so continued recovery out of 2020. The reason we provided the guidance we did is, we don't know exactly what that looks like. And given all the uncertainties around COVID in the world today, It's kind of hard to call that. So that's why we called out our controllable actions. The things that we know will add a $1.25 EPS over today's earnings. So if you took your expected earnings for 20.20 at $1.25, I'd say that's pretty much the floor of what we'd expect next year. Maybe to put it in perspective, if you assume Q3 demand levels would persist for all of 2021. That adds kind of another dollar on top of that for volume growth and price growth. So, we are a more positive 2021. But again, just uncertainties around COVID right now, what that might happen as we see going on in Europe and the U. S, we just haven't really put out a definitive outlook for 2021. No, that's very helpful on that dollar comment. And then, could you also line out what losing polyplastic does we anniversary that over the next three quarters? And is there anything else discrete like polyplastic that we should think about taking out of 2021 when we go forward? Yes. I think the discrete things, poly plastics, call it roughly $10,000,000 a quarter, comes out starting now in the 4th quarter. So that needs take into place. And then I think the really discrete things are what we called out in the earnings. So kind of $0.25 for productivity, net productivity into next year, $0.50 for lower turnaround expense into next year, that is for certain And then another another $0.50 per share repurchases, half of that being for the repurchases we did in 2020, offset by by plastics and the other half being for share repurchases we plan to do in 2021. Great. Thank you, guys. Thank you. Our next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question. Thanks very much. I think year to date, other activities in terms of EBITDA is maybe a benefit of about $46,000,000 and at least on an operating EBITDA basis. I think it was about $30,000,000 in the quarter. Can you talk about what's behind those trends whether they will continue and whether your pension revaluation in the fourth quarter will be larger than it was last year? Yes, Geoff. The biggest chunk of the year over year, other activities is that that pension income component, which is in the neighborhood of it's between $25,000,000 $30,000,000 a benefit year over year. So that's the largest benefit. You have seen a little bit of movement up and down in other from quarter to quarter this year. Particularly kind of hitting the low point here in the third quarter, largely driven by timing of some compensation and benefits. Payments. We'll see a little bit of an uptick. Think about Q4 being slightly higher than Q2 was as we finish out the year and part of it's just timing of when some of the stuff has come through. So, in the end, as we look forward into next year, We expect a slight uptick in underlying expenses, and that will more than likely be offset by the Q4 pension adjustment. I mean, a lot's going to depend upon what happens with markets We expect interest rates right now to hold relatively low. And if things stay where they are, then we'll have a slight benefit in pension income next year, which, as I said, would probably be offset by some income or some expense increases. Okay. And then, in terms of your share repurchase, It sounds like you're going to execute it regardless of the Celanese price. Is that true? That is it doesn't matter whether it's at 100 or 120. You're going to spend the $500,000,000 you've allocated this year and I guess a similar amount for next year. Is that fair? Well, yeah, I think it's fair. I think, you know, the 500 this year that we have or what we have remaining this year is really to remain accretive on our polyplastic sale. So that will continue. And I would say for next year, the 4 to 500 we have allocated for next year is really the balance of cash flow following CapEx, following dividend payment. And Scott may want to comment further, but we generally like to remain in the market on a fairly steady basis, regardless of the price. And we don't really see that changing as we go into next year. Yes, Geoff. Consistency has been, exactly how we've operated when it comes to repurchase is over the year. We have been opportunistic from time to time, but we like to have kind of a set level that we remain in the market. And That's what we plan to do here in Q4 as well as into next year based on, with those levels that we outlined. Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question. Thank you. On the elective surgery comments and engineered materials, I mean, it sounds like this is a deferral not a destruction of demand. And it's just a question of when folks are going to get back and do those procedures. But I just wanted to kind of understand the cadence of the destocking. I might have guessed it would have happened more in 2Q versus 3Q and it obviously caused a big mix disruption. And so maybe you can just bridge that with, is this just something that once there's a vaccine people are going to get back and have their hips or their knees or what have you done? And how far in advance do your customers then need to rebuild the inventory that they're taking now? Yes, great question, Vincent. What we really saw in 2Q were no electric elective procedures happening. And I think if you read, Johnson and Johnson or anybody's release, that would back that up. I mean, just no elective surgery was happening in 2Q. So basically in second quarter, everybody was sitting there with the inventory they had at the sudden shutdown in March of all elective surgeries across the U. S, which is the primary markets of those end too. And so we have seen in 3rd quarter that elective surgeries are starting to re happen. But what we're also hearing from our customers is people are using that inventory they've had sitting on the waiting to see how fast this all comes back before starting to reorder. Look, it's not along. We carry inventory, so it's not a long supply chain. They know we have available. We are starting to see some slight uptick again in 4th quarter. So we fully expect this volume to come back across 20212022. I think it's not just the hospitals being open. But again, these are generally older patients getting this. So it's also people being comfortable either because there's a vaccine or because they build the virus under control that people feel comfortable to go back to the hospital again to have these procedures. And then if I could just follow-up on the comments about, manufacturing facilities fully staffed and operating to meet improved demand. Maybe more specifically in Acetyl, what rates are you operating at, in each region? As I recall, there were some, an asset down in Europe and maybe some lower utilizations in Asia. So just maybe a check-in on where those are would be helpful. Yes. So I would say for asset hills, I mean, all of our facilities are back up and running. We do have a short, turnaround at Clear Lake. Actually that we're in at the moment. We had a short downtime in Singapore. So a number of small maintenance downtimes that were planned into the numbers. But really everything is up and running. All of our staff is back at full force. I would say certainly for derivatives, things are pretty much running at 100% to meet the demand and you know, in acid, we're running to meet demand as well. So you know, we are fully staffed, fully ready to go and and actually have seen for the last, several months the demand there to pretty much run full. As we pointed out, I mean, for acetyls, we are just slightly under 2019 volumes already at this point in time. Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question. Hey, good afternoon. Nice quarter. Laurie, when you think about that dollar upsize for 2021, does that assume that the acetyl chains, sort of the trends you're seeing now, pricing at 300 and sort of the optionality focused downstream, you know, tumultuous potters would would would stay in that range for that dollar? Yes, it's not as really just throwing that out as an example, Mark, Mike, sorry, as the range that we would expect to see. So 3rd quarter kind of being our best quarters this year, if we saw that continued next year, that would get you the dollar. There are, you know, any multiple of the ways to get there. I would say though as we look to 2021, I mean, we seeing an uptick in asset prices in China. Today, up closer to kind of the mid-three hundred mark up from the $300 per ton we were at in 3rd quarter. So clearly that's an upside in acetyls. As I said, we're already being close to 2019 volumes in acetyls. The story there is really when do we see utilization get tight enough? We start to see some price recoveries, which we think we're starting to see now. Again, some seasonality expected in derivatives in December, but we would expect that that's come back in January. Yes, Mike. I think just to add, I think what's really important as we think about that is really contribution margin. And so we may see pricing move up as raw materials move up. So we've seen a lot of our fundamental raws increase here over the last 2 or 3 months. And if that were to hold, these prices hold, so we really look at contribution margin. So you kind of the current conditions were to continue, as Lori mentioned in the third quarter and what we're seeing here in the fourth quarter, that dollar is the level you'd see. Understood. And then I think in your prepared remarks, you talked about $400,000,000 or so to be used for organic growth. Can you maybe talk about some of the areas that you're going to invest in to, to drive some growth for the next couple of years? Yes. So we're predicting $400,000,000 to $450,000,000 of CapEx for next year. We're still finalizing that number, but I feel comfortable we should be well north of 400. It is to support organic growth as well as our run and maintain, level of maintenance, which we typically have in there you know, 150 to 175. So included in that number is the restart of the seedy gas expansion Clear Lake. That happens at the end of 2021. It seems like the Bishop GUR. We previously announced some expansion in our VAE and VAM. Facilities around the globe. So that, that number is built in there as well. So a lot of things that you've already heard about, but just really seeing them start hitting heavier capital next year. Yes, and our teams are pushing hard on cost reduction capital as well, Mike. And so we're working to accelerate projects as we talked about earlier this year. And so embedded in that number is capital needed for some of the productivity gains that we called out in the prepared remarks. Our next question comes from the line from Hassan Ahmed with Alembic Global. Please proceed with your question. Sorry, sorry to bore you guys, but another question about the 2021 guide. I know you guys had said that obviously, as the EPS stands right now or Q3 was the strongest quarter. But as I take a look at Q4, guidance, the midpoint, call it, you know, slightly north of a dollar 50. And then I sort of think about, the one offs seasonality as well as some of the turnarounds. You come up with a number recurring, which is North $2. Right? So I'm just trying to understand or get a better sense of run rate sort of EPS as one thinks about 2021. So I mean, it seems barring those one offs, one's already north of $2. And then you have, $25 worth of productivity, another $0.50 worth of buybacks. So it seems without much improvement from Q4 levels, one could hit maybe $9 in 2021. Am I thinking about this the right way? Yes, I think that's right. If you look at where we are, we guided to in the year somewhere $7 or slightly above $7. If you add on the $125,000,000. That is based on controllable actions that we outlined in the comments that gets you to $8.25 plus maybe a little bit more. And then if you consider some level of recovery, again, as if it were Q3 for the year, you can quickly then get yourself to 9 or a bit north of 9 next year. Again, our big caveat on that is just seeing the resurgence of COVID and not knowing what that's going to do to market in Q4. Into next year. That's why we haven't called out a specific level of recovery. Of course. Of course. Makes complete sense. And as a follow-up, you pointed out a $5,000,000 sequential hit from Avincina. Now, you know, if I recall correctly, there tends to be a quarter's lag between what oil prices do and the impact that being felt in your results in Avincina. So is it fair to assume that Avincina could be somewhat of tailwind come Q4? Yes. So, Evincina is a quarter So if you look at methanol prices, they were at very low levels in Q2. That's the additional $5,000,000 sequential hit. We saw this quarter from Ibancina. Now with methanol prices recovering, we would expect to recover that $5,000,000 from Ibancina in 4th quarter. Debbie, no. But you won't see it flow through Hassan on the equity earnings line because it'll be offset by the roughly $10,000,000 or so that comes out from polyplastic. So you just look at those 2 together down 5Q3 to Q4. Our next question comes from the line of PJ Juvekar with Citi. Please proceed with your question. Yes. Hi. Good afternoon. Hi, PJ. So a question about your Blu ray cellulosic plastics. I think that's biodegradable plastic for food takeout, etcetera. How big is that market? And how much polyethylene or PET can you replace with cellulosics? And how do you price it? Do you, charge a premium over, let's say, PE? Yes. So let me describe it this way. The accessible market for this material could be huge. The reason we went ahead and made the marketing announcement is we're at that point now. We need to get material out to customers. We need to give them the chance to try it out. It is a more costly product than PE. That's why this hasn't really been a factor in the market today, but we also know that there are customers out there who are looking for a sustainable, biodegradable solution who are, you know, less sensitive to the price point. But that's what we really that's why we made the announcement. We really are in the process of getting material out to customers. We've had a few small purchase agreements made for people who are going through trials. But we need more time frankly to find out what the price point is on this and what the demand is really for replacement of more traditional PE products. Okay. Thank you. And then secondly, as you bring more of your acetyls production in the UI, you are more exposed to, you know, natural gas prices here. And maybe, Scott, you can comment about that you're concerned about rising natural gas prices because of lower associated gas production. And are you hedging any part of your natural gas purchases? Thank you. Yes. So, look, we don't expect rising natural gas prices to have a really material impact on our business. It does have the potential to slightly compress margins, but this is the value of our global network. The fact that we can choose where to make the acetic acid, where to sell it. We can flex our production levels. We can flex further down into derivatives, which are less raw material sensitive So we really are not expecting any material impact, from this in the fourth quarter. Yes, P. J, we do take some short term positions from time to time, but, nothing that I would say is long term in nature, if you will. Our next question comes from the line of Matthew Deo with Bank of America Merrill Lynch. Perhaps this isn't the case in EVs, but has COVID slowed the pace of innovation at CEE or the customers at all? Would think just given restrictions around staffing and R And D Labs, you may just have a slowdown in the pace and implementation of new business. So, great question, Matt. I would say what, when we first went into COVID, I mean, certainly it had an impact as one I think people thought this was not a long term thing. And so things were just put on hold for a short period of time. I would say all of our customers ourselves included have now adjusted to the new world of COVID. And if anything, we've seen the pace of innovation pick up. Again, most of our folks are back in office and facility. So we've been able to do a lot of things for our customers. We also see our customers coming back. And we also see them getting more comfortable with doing more remotely. So going back to my previous answer on wins, we are still seeing projects win. We are seeing high value project wins. And we feel, very excited about the pipeline of wins in Engineered Materials for next year and the innovation that's gone into that. You know, it really was helpful for us that at the end of 2019, we really focus our strategy on what we considered a few emerging trends around 5G and electric vehicles and medical and pharma and sustainable solution. And that focus on that innovation and keeping that pipeline strong through COVID is really helping us now as we move into recovery and we see those areas continuing to emerge as winning sectors. Okay. And maybe on the same light, how long is it going to take you to fill out the new GUR capacity and what EBITDA contribution and expansion, what would that look like? How does the most of this is going to EV batteries maybe if you can provide a little bit more color there. Yes. So the expansion that we announced in Bishop, the 15 KT expansion should be online early 2022. It is really supplying our global network for electric vehicles and at the current rate of growth in electric vehicles, about 25% a year, quite frankly, that will be sold out the day at start. Our next question comes from the line of David Begleiter with Deutsche Bank. Thank you. Laurie, just on 21, you highlight a number of tailwinds for next year. Are there any headwinds we should be thinking about for next year from a bridge standpoint? No, not really, David. I mean, for us, the headwind is, does something happen to the economy because of of COVID. And that's why we haven't called out any specific projections for us in terms of volume and price growth. But no, you know, we intentionally pulled a lot forward into 2020 this year in terms of facility changes, inventory draws, all of those things to take advantage of the low demand environment. So we really don't see any major headwinds going into next year. Okay. And just on EV, Laurie, where are your sales today for EV related content? And what can I be do you think in 3 to 5 years? Hi, David. I don't think I have an exact number. I mean, I would say, you know, GUR has other applications 5 EV, EV is certainly the fastest growing of those applications. And we expect, electric vehicles the market for electric vehicles of which we are pretty significant player in the lithium ion battery separators to grow at about 25% per year for the next 5 years. Yes, it's a tough question, David, because, there's a lot of app locations where we have content on a vehicle that it doesn't matter if it's an ice vehicle or if it's an EV vehicle. So sometimes it's hard for us to fill that out. If you look at EV specific applications, it's very low single digits of the percentage of EM's revenue today. Our next question comes from the line of Dan Shimujabi with Robert W. Baird. Please proceed with your question. Yeah. Thank you. Hi. Good afternoon, everybody. Thank you, Jonathan. Hey, Laurie, would you be able to give us a sense as to what the volume exit run rates for the Engineered Materials segment was, as you cycled into the 4th quarter, what are you sort of baking in for the 4th quarter specifically? And also, I realize this is real time, but what do you hear from customers given mental lockdowns in Europe at this point? Overall for We expect probably 10% growth. That's so for the company. I'm not sure. I really haven't specified between EM and AC, but we expect about 10% growth before the impacts of seasonality for volume and price, going from third quarter to 4th quarter. I would say what we're hearing from our customers. I mean, just if you look at our order book, that's probably the easiest way to talk about this. If you look at EM, you know, October, is showing some modest improvement over Q3, the average of Q3 November is pretty consistent with that. December is we don't have as much view on that yet, but it's still showing that same kind of level of modest buying growth. But again, we get some margin impact in December. And so far, I would say we have not really seen any indications of demand destruction associated with this second wave of COVID, either in Europe or in the U. S. Okay, great. Thank you so much. And then in terms of productivity, I mean, you're calling out, call it $0.25 in EPS, $0.21 versus 20 net of the $35,000,000 at the midpoint of temporary cost savings reversal. This year, I think your productivity number was $200,000,000 plus. Is the 'twenty one drop huddle year over year basis a function of just lower CapEx this year? And then as you ramp that up, the trend line improves materially in 2022? Or something else we're not considering? Well, I think you have to look, I mean, look, 2020 was an exceptional year with exceptional headwinds. So We went into this year, planning to get about $150,000,000 of growth productivity. We bumped that up to your organization to 200, which we will get that this year. We also have another $30,000,000 to $40,000,000 of one time costs. So if you look at Nick year in comparison, we're currently targeting for at least $100,000,000 of productivity on a gross basis. That actually pretty typical to the level we've achieved over the last few years. If you just, if you don't look at 2020, so we put that target out there of 100,000,000 quite sure we'll achieve that. It's a little it looks a little lower when you look on the EPS because you have to offset that with the one time cost savings we had this year, things like not running our is. So we fully expect those costs. We'll come back in 2021 as we see ourselves running closer to full. And so that, that discounts that number a little bit. But actually the $100,000,000 gross we have is pretty consistent with what we achieved most years. And of course, we'll push for more about $100,000,000 of what we've baked in down. Yes, Ghansham, we did have the, the tow plant shutdown that occurred at the end of 2019, which was kind of a a big item as we started 2020 within this year's number. And we don't have an item that large as we go into 2021. Okay, perfect. Thank you so much. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question. Yes. Good afternoon. Now that you've closed the polyplastics transaction, what is your estimate of the after tax proceeds will be the first part? And then secondly, of the proceeds, I think you mentioned you intend to use $400,000,000 to repurchase shares just in the fourth quarter. And I was wondering as a practical matter, if you determine whether to do that via ASR or open market repurchases? Yes. So for polyplastics, we expect the after tax proceeds to be something greater than $1,300,000,000. We are repurchasing associated with that $500,000,000 to assure there's the deal is accretive. We did do a portion of that in 3rd quarter and do the remainder in fourth quarter. Scott, you may want to answer the rest of the question. Our strategy, Kevin, on repurchases, has been to do open market and that's, our plan here in the fourth quarter as well as for the $400,000,000 to $500,000,000 that we outlined for next year as well. Okay, great. And then Scott, as a brief follow-up for you. I just had a housekeeping question on free cash flow in the third quarter. Like you mentioned in the materials yesterday that it was 351,000,000, so apparently a strong number there. Of that amount, you said you used 184 to return to shareholders. Can you speak to what the balance of the free cash flow was used for? It looked like net debt just declined a little bit. Yes, we did end up. We built a little bit of cash Kevin, just mainly for uses geographic mix of where we needed cash. So cash on hand increased by roughly about $100,000,000 from Q2 to Q3. Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question. Thanks for taking my question. I guess I was just kind of curious if I could ask this a different way. Maybe if you could help us understand your your own volume levels, you know, from an exit run rate standpoint in in Q3, in both EM and AC, on a percentage basis, are you running maybe about 80% or 85% of of normal in certain markets or how do you kind of characterize your exit run rates on volume in each segment? So I would characterize that, you know, acetyls, we are just 1% below our 2019 levels. So I would characterize it as we are running pretty full everywhere again. You know, maybe we don't run every city a plan full every day. That's not how we run it. It's not our strategy. But we, you know, our down through derivatives, everything is running full. I mean, in Engineered Materials, we are within 10% of where we were in this quarter in 2019, which is a pretty full quarter. So with the exception of things that are down for turnaround are starting to go down for turnaround, like the IPH Tom, I would say all of our facilities are running full. Okay. Thanks. And then do you have any updates your footprint optimization plan in AC and then also potentially adding some capacity in E in China? Thanks. Yes. So as we said last quarter, for we've talked about the, acetic acid expansion in Clear Lake and optimization of our network. To do that. We have delayed that expansion 18 months, just in light of lower oil prices and other things that may get attractive continue to produce in other parts of the world. So that continues. So no announced plans of what going to do with the rest of our capacity. And then in EM, we are continuing with a localization project in China Again, a little bit of a change from where we were say, half a year ago. And that originally, we were looking at developing another site in China technology capabilities there. Due to some changes in Nanjing, which is where we have our other facilities, we actually had some more land and facilities available to us. And so we've actually, redesigned that project if you will take advantage of the efficiency of being able to expand on our existing locations. So those plans are continuing. You'll see more about that coming up. But those plans are continuing, on a page consistent with how we see the demand continuing to grow in China and the Asia region. Thanks. Our next question comes from the line of Alex Yee Freeman with KeyBanc Capital Markets. Please proceed with your question. Yes. Thank you. Good afternoon, everyone. You've recently announced a pricing increase in Engineered Materials of up to 10%. Could you tell us what's your active realizations maybe over the next couple of quarters? And also could you discuss what led to this announcement? I'm sorry, let's say I didn't hear the last part of your question. Just could you discuss what led to this announcement? Do you see tightness in any product lines or something like that? Thanks. So yes, we just did announce a price increase. I mean, as with all these things, they take a little while to work through. So if you think about it with increasing raw materials with, so, especially ethylene, but also increasing raws lead to IRCic acid and all those building blocks chemicals that go into polymers. We announced a price increase to try to get out in front of that to make sure we didn't have margin compression. So that's that's what goes behind the announcement. It takes us, you know, it does take some weeks or months to work through the price increase depending on contracts, pending on, everything else, but we do expect to see those price increases flow through as we move into the fourth quarter. Thank you, Laurie. And, also on Engineered Materials, your volumes were down 10% year over year. You just had in forget remarks that automotive volumes were down 3% to 4% year over year. It also seems like appliances, electronics are doing well. So it says the minus 10 percent primarily due to medical devices. This seems a bit tied relative to the weight of medical and your total total volumes. Yes. So I would characterize it. Our volumes were down, a little less than 10% year on year. If you look at all of our end markets, from an industry basis, that was that is still down 10% to 15%. So we're doing a little bit better, I would say, than the end market. Auto, we're down just 3%. Again, auto itself was down closer to 3, a little bit higher than that, closer to 4%. We were helped there by the fact that we think we're aligned on good flat forms like trucks and SUV in the U. S. And Germany, which has proven to be more robust as well as EV. Industrial is actually up a little bit. Year on year, which has been a help for us. Electronics is pretty flat, but we are seeing appliances, down year on year closer to that 10% and medical, as we said, is down about 15% currently year on year. So just really two sectors I would say that have the biggest impact appliance and medical. But remember, auto is the 3rd, so even 3% down on auto is a fairly big impact for us. Makes sense. Thank you. Our next question comes from the line of Lawrence Alexander with Jefferies. Please proceed with your question. Hi. Thanks. 2 quick ones. First, on EM. What is the culture around the growth platforms of the growth priorities? I. E, should we expect to reshuffle every 3 to 5 years, so that 5G might be replaced by a new growth theme? Or is it a organic evolution sort of bottoms up driven by just the project mix? And secondly, on acetyls, Should we expect a 0 carbon acetic acid production project in the next 5 years to be announced within the next 5 years? And if so, would it have to be a greenfield or could you retrofit an existing facility? Yes, great question. I would say on Sorry. Let me answer the last question first because I've already forgotten your first question because I got to thinking about the last one. So for Aptotil, what I think in the next 5 years, I would not expect a 0 carbon technology. I think difficult to do. I mean, there are always ways to get to 0 carbon through purchase of credits, etc. I'm not sure yet. That's what our customers demand. That said, we constantly are looking at ways to reduce the carbon footprint of our existing facilities, whether it be through energy efficiency projects, the purchase of solar energy, for our projects, like we've just done a big contract in Clear Lake, the use of bio based methanol, which have a greener footprint. So we're constantly looking at ways to reduce we're not on track for a 0 carbon plant. Again, unless we see a big change in demand from our customers. Yes. And on your first question, Lawrence, about the Engineered Materials Growth Programs. I mean, this is our model. We work this We're constantly working with our customers and evolving those focus areas and where we have, our resources on innovation, to be able to adapt to the changing landscape. So yes, today, it's things like 5G electric vehicles, sustainable and recyclable polymers. As we go over the next and really it's something we're evaluating really every year is where should our focus be and continuing to adapt. So yeah, 3, 4 or 5 years from now, we will be talking probably about some different things. I would just add to that though. I think this is a little different than we've we did say several years ago, which was all bottoms up. We've added this overlay of themes because what we found is by waiting for the customers to come to us, we weren't necessarily getting to the right customer early enough in the development process to be their supplier of choice So it has to be both going forward. It has to be bottoms up as well as us looking at the landscape in the future and saying, what are the emergencies and how do we make we're there from the beginning, not waiting for someone to come to us. Our next question comes from the line of Vabash with BMO Capital Markets. Please proceed with your question. Hi, good afternoon, Laurie. This is Bhavesh for John. So in terms of acetis, we were a bit surprised to see acetic acid and WAM pricing being as soft as it was in China. And yet the industry itself seems to be running at a pretty low downtime. Are you surprised at the high operating rates we are seeing right now? And then how should we think about the supply side of the equation as we think about next year? Yes, Vivek, you may remember, we called this out in our earnings call in 2nd quarter, which was we did expect modest volume recovery, which we saw a bit better than expected. Expected fairly flat pricing. And the reason was we said we didn't see the fundamentals in the industry to support more pricing. And I think in fact, that's what we saw. So we did see an increase in demand in China, almost a 10% Q on Q increase in demand, but we also saw outages fall by a third. So then more supply came on to basically meet that demand. And as a result, utilization was pretty flat right at that 70% level. And that's why we didn't think we'd see pricing increase. And in fact, while we didn't see the pricing increase. Now as we move towards the end of the third quarter and into 4th quarter, we are seeing raw material prices come up that's our need to push prices up. Generally, that results in slightly better margins. But I would say to really see a good strong price recovery, we're good in margin recovery. We're just going to need to see that utilization, especially in China, continue to improve. Got it. And then a good question on, in terms of how the sales are. So what percentage of the acetylase business is being sold to the derivatives like emulsions and powders? How should we think about maintaining that dynamic going forward? Because it certainly seems that that's smoothing out some of the volatility in the business. Yeah, absolutely. And that's definitely part of our strategy, which is to control as much of the chain as we can so that we always have the choice not just geographically where to produce and where to sell, but also where in the chain to produce and sell. So if you look at our flexibility, we move anywhere from 40% to 60% of our acetic acid into downstream derivatives. And we flex that depending on on what's more attractive. And constantly, we try to we're continuing to build more BAM, more BAE. We've bought Eulitex, we continue to do things to give us more flexibility in that chain and more ability to move things around. I mean, and, you know, a good example I think of that is, if you look this year, you know, this quarter, sorry, 3rd quarter, The amount of acid we sold into China was actually 20% less than what we sold in 2019 at the same time because of these kind of $300 a ton that wasn't attractive. We moved that volume into derivatives in China, which had better margins and also into other regions of the world. And you can see that really as well in the total. If you look at kind of the share of ad still earnings, that came from from the very end of the chain, emulsions and re disburseables, Last year, that was around 15%. This year, that's around 25%. So I think that just shows the flex, just an example, the ability that we have in the model to really move, to where the better margins are, whether it be geographically or, you know, asset versus derivatives. Great. Thanks for your time. Our next question comes from the line of Frank Mitsch with, freemium Research. Please proceed with your question. Thank you. Good afternoon and congrats, Brandon, on your new role. If I could just follow-up on that Acetic acid question, in China. I just saw something in Isis that showed operating rates reaching levels not seen, in a year over 90%. Seems rather high. So I guess, are we ready to declare that China is fully back? And we're we're restocking or how do we think about operating rates over 90% in China? Yes, I'd have to see the data, Frank, to be fair. There's a lot of different numbers reported. We are not seeing that kind of return in terms of utilization based on the numbers that we look at. Demand is strong, Frank. I mean, there's no doubt it has improved in China. I don't know if we're ready to call it that it back, if you will, but certainly, demand was strong at the end of the third quarter. And so far, the order books as we see things into November, do suggest that the end of the year in China in acetyl should be, pretty good. Got you. Thank you. And, and Scott, I think Sony's had been talking about a 2020 free cash flow target most recently of $800,000,000 plus. Following this very strong third quarter, you're about $30,000,000 or $40,000,000 short. How do we think about 2020 free cash flow for the company? And I guess, a lot of the discussion has been on 'twenty one and you're going to see higher earnings from productivity, turnarounds, recovery, but you're also going to see higher CapEx. Can you talk about what your expectations are on the free cash flow side? Yes. The $800,000,000 to $900,000,000 for this year is still a good number. We think we'll be in that range, even with some tax payments that will be made relative to, the transaction that we completed. So that's still a good range for this year. And then as we look forward into next year. A lot will depend honestly, Frank, as to where demand is, but we think that, working capital inventory levels will be kind of at the run rate where we need them as we end this year. So we shouldn't have a big working capital pick up, that occurs next year. And so it should be pretty robust and we feel comfortable with where cash flow is going to be to call out that, those repurchases of $400,000,000 to $500,000,000 for next year. And we expect those to come from free cash flow. Great. Thank you so much. Doug, we'll make the next question our last question. Our last question comes from the line of Matthew Blair with Tudor, Pickering, Holt And Company. Please proceed with your question. Hey, good morning. Laurie, I was just hoping to circle back to the electric vehicle space. I mean, it really sounds like your opportunity is in the battery side. Did you have any other opportunities we should be thinking about? And also, does the growth of EVs, does that help existing plastics business into the auto sector? Thanks. Yes, we we talk about, lithium ion battery separators because we are such a major player in that component and clearly the easy one to see. But frankly, EVs in themselves are a great opportunity for the polymer space. I mean, so you think about the literally miles of electrical cabling, all of which needs connectors. That's a great opportunity for us. You think about how quiet EVs are and the fact that now people don't want to hear all the squeaks and things that used to be covered up by the sound of the motor. So a great application for things like palm that have really good tribology and can minimize the amount of wearing between components that lead to those squeaks. The electric vehicle has significantly more, accessible polymer space, if you will, for us, than a conventional vehicle just in terms of because it needs to be light in order to have range and all those things I just spoke about. So We actually have system and more and more, under the hood there as well. So it is a big space for us. We see continue to see it as a big opportunity. And one, as I said, we've really been focused on since the end of 2019. There's no further questions. I'd like to hand the call back to management for closing remarks. Thank you. We'd like to thank everybody for listening in today. As usual, we're available after the call for any further questions you might have. Doug, please go ahead and close out the call at this time. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.