Clariant AG

Anja Pomrehn - Head, Group Investor Relations Hariolf Kottmann - CEO and Executive Director Patrick Jany - CFO

Christian Faitz - Kepler Cheuvreux Peter Clark - Societe Generale Patrick Rafaisz - UBS Investment Bank Thomas Wrigglesworth - Citigroup Patrick Lambert - Raymond James Nicole Tang - Evercore ISI Udeshi Chetan - JPMorgan Charles Webb - Morgan Stanley Markus Mayer - Kepler Capital Markets

Thank you. Ladies and gentlemen, good afternoon or good morning.

My name is Anja Pomrehn . And it's my pleasure to welcome you to Clariant's 9 months 2017 conference call and live webcast.

I'm joined on the call by Hariolf Kottmann, the CEO of Clariant and Patrick Jany, the CFO of Clariant . A copy of the media release announcing the 9 months and also the third quarter of 2017 figures and also related investor presentations.

They are available on the Investor Relations section of the Clariant website, clariant.com. I would like to remind the participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties.

Listeners and readers are therefore strongly encouraged to refer to the disclaimer on Slide 2 of our presentation. A replay of the call will be available on the Clariant website for about 30 days.

And now I would like to hand over to Hariolf.

Ladies and gentlemen, thank you for joining us this afternoon. Before we start, let me make some short remarks concerning the news of the past days.

On October 27, we had mutually agreed with Huntsman to terminate our motor agreement. The execution of the mortor was at risk due to the increased uncertainty of securing a two-thirds majority of Clariant shareholder approval for the transaction and an EGM, mainly because of the accumulation of shares by our new major shareholder White Tale Holding.

Clariant will now again focus on our successful strength of loan strategy. Clariant and White Tale have already engaged in initial discussions regarding the company's new situation and the potential ways to work together in the future.

We have offered to present our existing growth strategy to White Tale and to listen to their suggestions. As per Swiss governance, White Tale's request will be discussed at the next Board of Directors meeting.

We will continue to conduct discussions with White Tale in an open and constructive way, but not in the public. And we will of course also continue the existing dialogue with all our shareholders.

Prior to the merger, we have always said that we will continue to proceed with our strategy, which is to build on our 5 pillars to strengthen our portfolio, which continues to grow based on our leadership positions in innovation and sustainability. We will therefore continue with our respective successful independent standalone strategy for further growth and value creation.

We remain confident in our future development opportunities for long-term value creation for all of our stakeholders and we are convinced that we will further strengthen our leadership position in specialty chemical. Having stated this, let us now review the highlights of our first 9 months.

In the first 9 months of this year, Clariant continued to successfully deliver further sales growth and profitability improvement due to the positive development in all business areas and most geographic regions. This development is evidence of Clariant's ability to consistently and successfully deliver on strategy.

We see the benefits of our achievements based on innovation efforts, our focus on sustainability and the clear commitment of our employees reflected in these results. Clariant is well on track to reach to 2017 targets, and with that, I hand over to Patrick to discuss the numbers.

Thank you, Hariolf. As you can see on Slide 4, in the first 9 months of this year, Clariant again delivered a strong performance and grew sales by 10% in local currency.

Organic sales rose by 6% as a result of higher volume. EBITDA before exceptional items grew by 10% to CHF717 million.

Enhanced profitability is primarily attributable to the upswing in catalysis and the continuing positive development in plastics and coatings. This corresponds to a 10% basis point improvement to the EBITDA margin to 15.3%.

Slide 5 reflects that in the first 9 months of 2017, organic sales grew by 6% in local currency with good volume growth across all business areas. Group sales exhibited 6% volume growth, the acquisitions added another 4% to sales, while currency had a negative impact of 1%.

This resulted in the sales of CHF4.7 billion for the group. On the regional level, particular strength was seen in Middle East and Africa, where sales rose by 16% in local currency, as well as in Asia, where sales increased by 12%, supported by good growth in China and Southeast Asia.

Sales in Europe increased by a solid 8%. Latin America had a slight negative growth of 1% impacted by the still challenging macroeconomic environment, which, however, showed signs of improvement.

North America sales rose by 16%, backed almost entirely by acquisition. Looking at the figures of the business areas for the first 9 months of 2017 in more detail, on Slide 6, care chemicals sales in local currency were up 9% year-on-year with consumer care raising at a mid-single-digit growth rate despite a strong comparable base.

Also the Industrial Applications business continued to grow soundly. Asia, the Middle East and Africa and Europe reported double-digit growth rate and also North America remained positive.

The EBITDA margin before exceptional items in care chemicals decreased to 18.1%. The decline was due to the already communicated ramp-up costs for new capacity, some delay in passing on raw material price increases as well as the maintenance shutdowns in White location, which took place in the second quarter.

This impact in the first half could not be fully compensated by the much improved third quarter. Catalysis sales rose by 19% local currency.

All business lines have seen a very good sales advancement. This includes 5% growth due to full consolidation of the Sud-Chemie India joint venture in the second quarter.

Organically, all business lines have seen a good sales progression. All regions contributed to the sales momentum, in particular Asia, Europe and the Middle East and Africa.

A good EBITDA margin before exceptional items reached 24.6%, reflecting the strong pickup in new project and the refill business and an improved capacity utilization. On Slide 7, we see that natural resources sales advanced by 18% in local currency, driven by the acquisitions in the Oil and Mining Services business and the continuing sustained growth in Functional Minerals.

Excluding the acquisitions in the Oil and Mining Services in the U.S., underlying sales in Natural Resources rose by 3% in local currency. On a business unit level, Oil and Mining Services delivered double-digit sales growth lifted by the acquisitions.

Excluding those, sales were flat as a result of the challenging industry environment, which remains volatile and uncertain. Functional Minerals showed sustained sales force in all segments with strong single-digit growth in local currency, driven by positive development in Asia and Europe.

The EBITDA margin before exceptional items decreased to 14.2%, burdened by the current price consciousness of the oil market. The Refinery business sees weaker demand as we have already seen and communicated in the first half of the year.

Sales in Plastics & Coatings increased by 5% in local currency with sales growth in all businesses. In Masterbatches, all regions reflected attractive sales growth, apart from Latin America, where sales demand remained weak that has continually improved.

The sales improvement in Masterbatches was primarily led by good development in the packaging, medical and fibers market. Pigments maintained good sales momentum in Asia, where China and India contributed the most to the growth.

Europe also showed a solid improvement in sales development. On the business line level, sales in plastic as well as Special Applications reported continued good growth.

Additives delivered robust sales, which reported by all business line and solid demand in almost all regions. EBITDA before exceptional items rose by a solid 5% to CHF316 million despite a strong comparable base in the same period of last year.

Plastics and Coatings continued to benefit from the positive effect of the high capacity utilization as well as continued strong top-line growth. So in summary, as seen on Slide 8, in the first 9 months of this year, all business areas delivered a solid sales performance.

Group sales grew 10% in local currency to CHF4.7 billion, driven by higher volume across all business areas. The EBITDA before exceptional items showed an impressive 10% rise to CHF717 million, driven by Catalysis and Plastics and Coatings, which improved the EBITDA margin to 15.3%.

We therefore continue our path for further profitability improvement. Let us now move on to our Q3 figures on Slide 10.

In the third quarter, we saw continued sales and absolute EBITDA momentum. Sales growth accelerated by 12% in local currency to CHF1.57 billion.

Including acquisitions organic sales rose by an excellent 9% in local currency. The sales advancement was driven by higher volume.

EBITDA before exceptional items increased by 13% to CHF235 million, driven by the upswing in Catalysis, the increase in Care Chemicals and further contributions from Plastics and Coatings. The EBITDA margin before exceptional items increased accordingly to 15%.

Slide 11 reflects that in the third quarter, organic sales grew by 9% in local currency with higher volumes across all business areas. Group sales were driven by 10% volume growth, acquisition as a dividend of 3%, while pricing had a 1% negative impact, which resulted in total Q3 group sales of CHF1.57 billion.

On a regional level, sales growth local currency was led by North America at 22%. Excluding acquisitions, North American sales improved significantly by 8%.

Sales in Asia rose by 15% local currency and sales in the Middle East and Africa rose by 25%, while Europe grew by 6% in local currency. Latin American sales increased by 3%, improving significantly compared to previous quarters despite the continued challenging economic environment.

For next few minutes, I will focus on the development of businesses in the third quarter starting with Care Chemicals and Catalysis on slide 12. Sales in Care Chemicals increased by 10% local currency.

Most regions progressed with very solid growth. Asia was particularly strong with a robust contribution from China, South-east Asia as well as Japan.

Latin America remained weak with a continued weakness in Brazil. Both Consumer care and industrial Applications contributed to this positive development with double-digit growth.

EBITDA margin before exceptional items increased significantly to 19.4% as a result of an optimized product mix and lower ramp-up costs year-on-year. Catalysis delivered the strongest third quarter ever.

Sales rose by 33% in local currency. This development was mainly boosted by the demand increased in the Asia and the Middle East and Africa.

Organic sales grew by an outstanding 27%. The EBITDA margin before exceptional items in Catalysis advanced to 26% year-on-year.

The profitability increase was driven by the pick-up in demand in the Petrochemical and Specialty Chemicals Catalysis businesses as well as an improved capacity utilization. Through the fourth quarter, we expect that this year due to some early order shifting into the third quarter, the strong comparable previous year will be rather tough to achieve, particularly in terms of EBITDA due to the quality of the mix.

However, after a stronger-than-expected second as well as an outstanding third quarter, we do anticipate a good growth in Catalysis for the entire year 2017. We also announced today that Clariant has taken a further step towards the commercialization of bio-ethanol and the related licenses and enzymes, and have set up a new business line called Biofuels and Derivatives as part of the business area Catalysis.

Clariant will invest in a new full-scale commercial plant for the production of cellulosic ethanol from agricultural residues using the sunliquid technology. The plant is anticipated to deliver the first batch of product in 2020 with the sales potential in the mid double-digit million range.

This project is a good illustration for innovative and successful biotechnology expertise. Moving onto Slide 13.

In the third quarter, sales in Natural Resources advanced by 16% local currency. The acquisition impact in the Oil and Mining Services business contributed 13% in local currency growth.

Sales grew slightly in the Oil and Mining business excluding the acquisition effect. Despite the slight growth, oil is still facing an ongoing adverse industry environment, particularly in terms of pricing.

Functional Minerals delivered growth in local currency, notably Asia reflected a strong sales development with particular strength in China. In Natural Resources, the EBITDA margin before exceptional items declined to 13.3%, burdened by pricing constraints, continued weak demand in Latin America and the one-time negative impact from hurricane Harvey.

Sales growth in the Plastics and Coatings business area was strong at 7% in local currency and in Swiss francs. In Masterbatches, sales grew in all geographic regions while Pigments primarily delivered good sales expansion in Asia, driven by China.

Additives showed continued vigorous progress in all major regions. In the third quarter, EBITDA before exceptional items grew by 4% in local currency to CHF95 million despite a strong comparable base.

Moving onto the overview on Slide 14 and the summarizing the third quarter of 2017, we increased sales by 12% in local currency, supported by all business areas and higher volumes, particularly in Catalysis and Care Chemicals. EBITDA before exceptional items grew by an excellent 13% in Swiss Francs to CHF235 million.

This was driven by the increase in Catalysis, the increase in Care Chemicals and a smaller contribution from Plastics and Coatings. The EBITDA margin before exceptional items on a group level climbed to accordingly 15% from 14.9% in the previous year.

With that, I hand over to Hariolf.

Yes, ladies and gentlemen, Clariant successfully grew sales and increased profitability in the first 9 months and in the third quarter, demonstrating that Clariant continues to progress along its path to become an even more profitable and resilient specialty chemical company. This momentum was achieved as a result of the stringent execution of our strategy by means of innovation, sustainability, portfolio repositioning in sales and growth opportunity.

This is underpinned by today's announcement of the commercialization of bioethanol and the related licenses and enzymes from our biotechnology research and expertise, having a sales potential in the mid double-digit million range. As seen on Slide 15 for 2017, Clariant expects the uncertain environment characterized by a high volatility in commodity prices, currencies as well as political uncertainties to continue.

We anticipate growth to continue in the United States, Europe and most emerging markets. As to our outlook, please move to Slide 16.

For the full year 2017, we will continue to focus on growing our business by means of innovation, sales and growth opportunities, and cost efficiency. We are confident to be able to achieve growth in local currency to progress operating cash flow and to further improve absolute EBITDA as well as the EBITDA margin before exceptional items.

With that, I turn the call back to Anja.

Thank you, Hariolf and Patrick, for taking us through the 9 months' respective third quarter 2017 figures. And we open here now the line for questions.

Operator?

Gentlemen, three questions please, short ones. First of all, can you please talk about current demand trends you see in your division has a pullback started with a same positive momentum that Q3 ended at?

And then second question, you mentioned hurricane Harvey impacts in your release, some of your peers are still seeing some effects in Q4, would you share this view? And then third and final question, can you please put some more granularity on Care Chemicals and which product lines were contributing to the positive product mix?

I'm presenting your questions in their order. I think the Q3 marked a good demand progression in most businesses, particularly as well in Plastics and Coatings.

I think we expect to see a decent development as well in Q4. I think the overall economic environment is supportive and continues to be supportive.

Obviously, there will be the usual seasonal effects. So, typically Plastics and Coatings, as it's weakest quarter in Q4 in all those valuations if you know.

But overall, I would say in this supporting environment, we expect to also have a decent growth progression in Q4. As far as the hurricane Harvey impact is concerned, I think it was rather limited for us in Q3 to a couple of weeks, where Logistics was a difficult in that area of Texas and access to particularly the Eagle Ford basin and was difficult to serve our customers.

This has completely been settled and business is back to normal, I would not expect any impact in Q4. And referring to Care Chemicals with a good development of the margin, we have actually had a decent rebound or very good rebound actually in personal care business as well in Q3 with double-digit growth, which helped the margins, you know that the year started quite strong and continues to be strong for Crop Solutions business, but our Personal Care was a bit slow in Q1.

Q1 has come on very strongly in Q3. And therefore, those 2 businesses having higher margins and this certainly helped as well the overall mix within Care Chemicals and we also had a good development within Industrial Applications in the Paint and Coatings segment, which also has a good margin and we were less dependent on lower-priced products to fill up capacity.

So, that helped certainly the margin mix.

Two questions, please. On the price effects, obviously it looks like natural results, this is tracking down the overall group price.

I just want to confirm that is the case on the other segments have some price inflation and how that corresponds with what you have seen on raw materials? And then the second one on Catalysis and the margin obviously with Q4 to come, you're probably going to be a top end of your guided range or above the top of the range of 24% to 26%.

Obviously, we've got by presumably ramping up or starting doing something next year anyway, but just wondering how we should look at that margin looking into 2018 and beyond, almost you have seen this big pullback in demand, so you tend to see a reaction always happens in the margin, but just how we should look at that margin going forward?

Referring to the price effect, remember that in Q2 slightly I'm happy about the evolution of the prices in Care Chemicals. I think this has certainly been corrected, it always takes 1 or 2 quarters for businesses to pass on.

Price increases linked to raw materials is starting to take place in Care Chemicals was also a factor, which helped the margin improvement there. And I would say this is an effort which goes through the whole company.

Certainly, we could have done it a bit faster, but it's coming now and therefore we maintain our guidance for the whole year. We should not have a significant impact in offsetting raw material costs to higher prices.

One area as you likely mentioned is facing environment, which is more difficult in terms of volumes and pricing that's certainly oil services, where we see continued pressure from customers and from competition to operate in a lower-priced environment. Our traditional method has been quite successful in the last 2 years to offset this by offering innovation and new added value to the customer.

But it is a difficult environment to operate. So, I just confirm what you say that, probably the pricing dynamics are starting to be positive in most businesses, while in the oil and mining business, it is more difficult and it will take more time.

Looking at the performance in Catalysis, overall, I would say the Q3 was certainly a great quarter. We also had, as we mentioned, a few orders being pulled in from Q4.

Those orders were particularly good, I think, in terms of margin being more related to our petrochemicals business and some nice businesses and especially chemicals, it has a big boost of the margin as you see it in Q3 compared to previous year. The mix in Q4 will be a bit different.

We have more syngas orders. In syngas, I would say competition is alive and actively working on price and therefore, as you know, syngas has typically lower margins than petrochemicals.

And I would expect this to be the case in Q4. So, we will have good sales, but remember that Q4 last year was the absolute record in terms of absolute sales, but also in terms of margin.

And therefore, it will be a bit difficult to reach that level. I think in sales, we will get there in terms of margin, probably due to the mix, it will be more difficult to reach the previous-year basis.

But the year will be good. The year, it's fine, in terms of sales.

In terms of growth, we confirm the growth; in terms of EBITDA margin, I would maintain our margin guidance that we will be within the range at the lower end of the range for now and then we will see what specific orders impact during Q4. There's always a certain degree of uncertainty on the last day's calculation, which we would respect.

Looking at 2018, we would expect and we will come back with a precise guidance when we come out with our results in February. But as we guided, previously, we would expect sales dynamics to be positive in '18 and '19 and we'll come back to the implication of the mix and therefore the margin when we issue our full-year guidance in February.

But as we said back two years ago, we are still on track to deliver a good growth in '18 and '19 with this margin as well.

Couple questions, also on Catalysis, in particular some liquid plants. Can you give us a CapEx number for that and also you mentioned that you would reallocate associated costs from corporate costs to Catalysis?

Can you also give us a number here and is my conclusion correct that that will then depress margins for the next couple years before we see as a new plant generate revenues? And then actually a follow-up on the margins in Natural Resources.

You still have positive organic growth in Q3, so that the year-on-year decline, even with a very poor business in all services seems pretty tough, is there some weakness in Functional Minerals as well which we haven't talked about?

Well, starting with the Catalysis, I think we are in important moment in history, so to say, as we are starting to commercialize our enzyme activities, you know that we have been spending a lot of money, and time and effort with the great people in developing new technologies in enzymes. We are now at a point where we start the commercialization of it and therefore we transferred it from a cost block in the corporate costs to actually a business which will be reported within Catalysis, but it is operating separately from the business unit Catalysis.

And there we will show a couple of things. We will show the sales of licenses and we sold license for that technology already this year and it will hopefully continue in the years to come and then the enzymes associated with the plants and obviously as well as sales of our own plant, which we just announced today, which will generate sales starting 2020.

So, we are reducing the corporate R&D and having already biotechnology business, we call it biofuel, because it's focused on bioethanol. So it is a big shift.

I would say the CapEx [indiscernible] plant which is necessary to demonstrate the capabilities of our enzymes. It is a high investment, is a 3-digit investment.

We get some subsidy, so I would say the cash impact overall is 3-digit slightly above, that's the order of magnitude if you have to count on. And we reallocate costs, which are currently reported on the corporate costs in the range of around CHF20 million to that activity.

Now, to the question, what I would be able to do with the margin, I think once the plant is up, obviously note that in 2020, then the margin is actually quite significant in that business, just with the sale of the actual bioethanol, sale of licenses and sale of enzymes have a tremendous margin. So, that will be a very EBITDA-intensive business when it's operating.

And then the actual success in '18 and '19 on the actual P&L in '18 and '19 to put it correctly will depend on the sale of investments in the coming years. And that's really where we will guide on when we come out with our full-year guidance for 2018.

Now looking at the Natural Resources follow-up on the goal, I think we see the expected increase in demand coming in Natural Resources, but at a slower pace than expected. So while we stated that already in Q2 where we are positively noting the rebound of the Catalysts market at a stronger pace than we had expected.

The Natural Resources in particular in oil, we see just a slow recovery and actually much slower than what we had expected for 2017. So, in Q3, we actually had growth in oil and mining for the first time on an organic basis without acquisitions.

So, it shows that demand is coming up, but obviously just at a very slow pace. So, this is why we are a bit, I would say, expecting more from that business for 2018.

Now referring to why this is still 3% when it was already 3% before despite oil being better, it really refers to the fact that Functional Minerals had a great start of the year. And now we compare Functional Minerals in the second half to absolute record quarters in Q3, Q4 on an historical basis for Functional Minerals, driven by the factors last year as you may remember that demand was pushed a little bit by the El Nino effect, we had low crop qualities in South America and lower crop quality implies a higher use of Bentonite clay to purify the edible oil mainly.

And therefore, we had exceptionally high sales in Latin America last year for Functional Minerals. Given the fact that this year's crop is better, because El Nino effect has not happened.

We come back to a normal level of demand to astound level, but not to the extraordinary levels of demand we experienced last year. So it is just, I would say, a normal fluctuation of the business, which continues to be very strong and very good in terms of profitability also compared to Q2.

Couple questions if I may. Outside of Catalysis, obviously your organic growth in Natural Resources representing very good sales growth numbers in Plastic and Coatings and also in Care Chemicals, is that reflective of using the underlying demand conditions of the market or do you think you're taking market share in these areas now?

And the second question if I may, a kind of follow-up to Peter's question for the Catalysis. I think I understood from your release that it's mainly the kind of the refill business that has been driving growth thus far, is that fair?

And where are we on the polypropylene catalysts that was supposed to kick in this year, sorry next year if I recall correctly?

So, first of all on the sales growth pace in Plastics and Coatings, and Care Chemicals, I think we certainly live in a quite a good economic environment. You should not forget that this is why you see good figures across the board in all the whole industry.

I think overall I would say Europe has turned the corner 2 years ago and is going well. Asia has turned the corner beginning of this year.

And therefore, we have 2 big regions going well as far as the U.S. is also progressing where we missed also on growth a bit last year, but this year is better.

The only area of the world, which is a bit weaker is Latin America. And there again as we mentioned today, we probably see hopefully the first signs of the progress and particularly in Brazil during Q3, but to be confirmed in Q4.

So overall I would say we should not forget that the overall markets are good, particularly when you look at the plastics chain which is doing well compared to coating. And that certainly helps our businesses, our Masterbatches and Additives in particular compared to the business which is more dependent on the coating.

But I think this is a good environment and we are progressing well, I would say, in Additives in particular. We are certainly gaining market share, because we are growing more than good double-digit growth rate, which is faster than what we can see the market is growing.

In terms of Care Chemicals, I think we're short 10% growth now in Q3, which is certainly, as far as I'm aware, better than our competitors. And therefore I would probably think or be let to think that we are gaining market share there, in particular [indiscernible] our Personal Care business and the continued strength of our Crop Solutions business.

And Patrick, do you think it's the sugar-based surfactants, is that kicks off yet in this quarter, is that enabling what's driving the share gain in Personal Care, any particular applications?

I think the demand overall was not bad. And certainly we are progressors.

We are ramping up a lot of new innovations, new products [indiscernible] we talked about last year, which actually was the first quarter last year when -- in Q3 last year when we put it in the market and we started the amortization of the plant which had a drastic effect on our margins at the time, where we are starting to feel customers are lining up. And therefore obviously it is a good development and we also see some good development in other areas of the higher value applications.

And as I mentioned, I think in the first question today, we also had less dependency on lower-end products to fill our plant. Typically what you do when you have a new plant, you fill it up with more commodity business, which you can find it on many competitors just to avoid the repeat and then progressively you ramp up the quality and increase the margin.

And that's the constant work that Care Chemicals has been quite successful at. So, yeah, good demand, which allows us to shift to higher value products and probably through innovation gaining market share again there.

If you look at Catalysis, yeah, I think the demand is actually coming back in decent way in terms of petrochemicals. Not so much as well by refill , but also by new plants.

It's not on your refill impact, it's also new plants, but in particular in the Middle East in Africa, where we began a few interesting contracts starting in Q2 and continuing in Q3. So I think it's a good mix between new and refill.

In terms of Syngas, I think demand is still pretty low rebounding, but not yet at the level we would expect. So, we still expect Syngas to probably come back a bit stronger in 2018 and 2019.

Methanol prices are nice enough, so demand is picking up. Ammonia is still very low.

And therefore, demand is still quite depressed in that area. So it's a bit of a mixed picture when you look at the syngas business.

The petrochemical is really strong. I think our customers' industries are benefiting from good yields, good demand and therefore they're investing our changing catalysts when they need to.

That's a healthy environment I would say. And we're also coming back in Specialty Catalysts, where last year we were a bit rich.

I think this is traditionally a good margin business being on one-on-one relation, more technology oriented, that's helping the margins as well this year. We got a question on polypropylene plant.

I think the good demand coming back in our areas of expertise allow us to see good volumes and good profitability and marked little bit, I would say, the polypropylene ramp-up, which is to be fair slower than what we expected. And therefore, I would say it's a fortunate evolution of demand, our demand bounced back earlier.

We have been less dependent on polypropylene starting exactly to our expectation in 20 17, but everything's on track, so the plant is running. All the mechanical and quality tests are passed.

And we are starting to produce, I think, in the last weeks in a continuous manner. So, from that point of view, I think it is looking good for 2018, usually probably something which will then allow us to go further in 2018-2019, but it has been a bit disappointing in 2017.

But at the end of the day, we won't see it, because the rest of the activities is running.

Almost all my questions have been asked, but just to come back a bit on the biofuels and the licenses. I understand you had signed in September the deal in Clariant in Slovakia.

And they were actually building a plant, they are using your technology. So, I'm still questioning do you have a need of clients to build its own plant to demonstrate the feasibility of your sunliquid technology versus Enviral doing it for you?

If you could put some light on why you still need to be at this plant? Second, on the income from the license as it impacted Q3 already in the corporate line or where can we see it, or if you don't see it, when are we going to see it?

Thanks very much for asking the question because of the question I was asking internally though in time as well.

The answer is?

The answer is that actually yes, you need to do it, that's why we approved it. But I would love to save the expense, no I think it's just to be seen in the fact that the license has been sold to an existing producer of bioethanol, which has a first generation plant and is now beside its first generation bioethanol plant putting second generation with our technology in.

And therefore, to me that was a special construct and shows actually that we have another market we didn't think of, which is really the retrofit of first generation bioethanol plants, which can be actually applied as well with our technology. And it benefited in that particular case from the whole energy topic of our customer, which can then operate in a better environment combining the first and second generation plants on one site.

So it's very specific case. But the advantage is that obviously they have streamed the old technologies available in the market and I have come to the conclusion that ours is first of all the only one really operating at the desired deals and the one that they could really construct in a reasonable amount of time.

So, that was a good success. So, first of all, your current plant is still and necessary because when it proves the whole concept, it proves that the technology we have allows you to actually see your all enzymes, you are less dependent on deliveries of enzyme and you are from the CO2 point totally autonomous as you use your own [indiscernible] and so on to generate the electricity you need for the total process.

So we actually have almost a CO2 neutral plant operating. And that's a fantastic business case when you look at the environmental approach, which is the old point of the second generation bioethanol.

So not only do you avoid the competition with food, but you also produce bioethanol on a close circuit. And therefore not releasing any CO2 in the whole process even counting your processing of the plant and the energy and the steam basically you need to do the process work.

So it's a different logic. It's not only the economics, but also the environmental aspect of it.

And then we will be able to tailor-made our enzyme and to show and adopt it to what our customers actually have different qualities of [indiscernible] on different feedstock as well. So it's necessary to prove the positive action it can operate it in an economically viable and manageable also from an environmentally sustainable point of view as well.

So, it absolutely makes sense. We have great interest actually in the Slovakia plant and it would be quite an interesting development, our own business case and obviously it's not our business to sell bioethanol just to make it clear, we are just there to show that it works.

But even that business case of producing bioethanol will have margins, which are higher than our group margins today or our margin articulation far above 20%. And therefore, it makes absolute sense and that business case we can offer to our customer.

Which mix do you think that you could sell that plant down the line if very successful in terms of technology?

Absolutely, without entering too much into detail because I don't think we have communicated too much of that, but we have a fixed contract as well for the uptake. So we take zero risk, and after that period, once the plant is processing, I think any study you look at will look at between 100 or 200 or 300x necessary in the world and that wouldn't be a problem to then potentially as you rightly say sell our plant as one operating manifest.

In terms of licensing, the first license, you've booked already or?

Your second question, so the second license has been agreed on. We have received a downpayment of smaller one and license will end the linked to the milestone payment -- is linked to milestones of the building of the plant itself or customers.

So, it will be doing in '18 paid in pieces are going into the milestones of the contract.

A quick follow-up, did you expand some of the sales merger expenses in Q3?

Yes, we did as exceptional. So we don't really show it today, because we already talked about the EBITDA before exceptionals.

But you will see that full impact in our yearly results in Q4, roughly through the bookings, a few residual costs here and there across the world in the next few weeks and you'll see that in Q4.

You can't quantify for us for forecasting purposes?

It's certainly too expensive for something which hasn't taken place.

I had two questions, the first one was on the long-term margin target is a 16% to 19% EBITDA, which you sort of, I think, have been reiterating along with your standalone 5-pillar strategy. In response to the first White Tale that you commented that CHF300 million of standalone savings for current wasn't necessary sustainable.

Can you remind us how we get to the top end of your margin target range from the 16% today? And what's that opportunity in terms of cost efficiencies versus product mix and growth?

And then perhaps you could comment a bit on why you feel that CHF300 million was not sustainable? And then the second question was just a quick one.

Would you be able to give us a quick update on how cash flow has progressed in the quarter? I need a -- give the numbers, but perhaps just some comments.

Thank you.

Let me starting with the last question on the cash flow, we just reiterate our guidance with an improved cash flow for this year and I think that's where we will keep it. Basically, the cash flow always comes in in Q4 in the group and therefore that depends always on the Q4 performance of our business.

Now looking at the guidance of 16% to 19% EBITDA margin, it still stands obviously and I think we are progressing and getting into that range. I think it always depends not on the cost position, you know that we have an excellent cost position in terms of benchmarking with competitors and we do that regularly.

We also have a great client excellence effort. We generate CHF80 million to CHF100 million a year, which certainly then allows us to offset inflation and therefore we have maintained a very good cost base since the restructuring we did back in 2010, 2011.

So, direct benchmark of comparable competitors shows that we do have an advantage there. Now when you look at how to achieve the margin, obviously we have not therefore come back, but it will come by further growth and further innovation.

I think if you look at how Catalysis have progressed since we own the business, if you look at Care Chemicals how they have progressed as well or how Plastics and Coatings have progressed in the last 2 years, I think, with the right focus and the right approach. And there is always a mix of cost in Plastics and Coatings.

We are taking cost out every day. We just don't talk about it, but it's part of normal business.

Good progress. To reach the 16% to 19%, we need the one element, which is a bit weak this year is Natural Resources to come back and get the leverage as well of our acquisitions we did last year.

I think , if you have a year, looking at '18 and '19 why you have a good Catalysis business, which forecast and a good Natural Resources which we expect to then I think the 16% and 17%, 18% is absolutely in the range and actually reached very quickly. You had a sub-question on why don't we think on a minute, it's sustainable, while you can always get as merger cost as you want in a company, you can take older cost out if you close it as an extreme.

But if you look at building value in the mid-term, we probably believe that we have to spend in R&D. We believe that we have to spend in plant excellence in terms of process optimization, because that saves you CapEx, but it's a matter of investment as well in the group and having top notch processes.

So, on a short-term mind of view, you can take out the cost that's clear. But you would pay for it in the next 2 to 3 years.

And I think that's clearly not where we position now ourselves. But nevertheless the 16% is getting pretty slow honestly speaking, and as soon as we get Natural Resources rebounding a bit as this should have been this year, I think we'll be very close to that bench already.

The other way to reach our guidance is to do a merger, we had it. And because of a handful of shareholders, we couldn't really give it to our shareholders.

We just had a huge missed opportunity around CHF4 billion to CHF5 billion value creation. It's a task, we won't talk about it, but it was certainly in our hands.

Now, we just have to talk about our others.

I had a question on Catalyst business. So when I look at the sales now, they seem to be approaching the run rate you had 3 or 4 years back or even surpassing that.

So where do you think we are in terms of cycle within the Catalyst business overall from new capacity refill, etc., because you talked about growth continuing to next year, so it would be helpful to get your view on where do you think we are in terms of adoption for new fuel refill in petrochemical and syngas market? And on Natural Resources, oil prices have gone up to almost $60 dollars, but yet the price margin in that business is low.

So what needs to happen for the margin in that business to improve, is it oil prices going up further from here and why you guys not seeing any benefit from the shale activity increase you've seen over the past year?

So, I'm starting with the catalyst question. I think we are very clear on the cycle.

I think there is not too much new to say about it. Back in 2015, we guided for 2 years of low growth in 2016 and 2017 and then 2 to 3 years of high growth in 2018, 2019, 2020.

We are now in the phase that this growth anticipated for 2018 based on our view on customer refill cycle on profitability of our customers, and new build has come a little bit earlier in a stronger level. So don't take the Q3 growth rate as the market growth rate, which is as always dependent on single order.

We get on 6% to 7% along 5-year period . And that's where we will be, that's where we have been between 2011 and 2015, that's where we will be between 2016 and 2020.

So if you take it from all 5 years view, there is no uncertainty in that market. It is where do you invest, where do you have a competition and advantage in terms of technology to extract more margin or share more added value with the customer to put negatives.

In terms of demand, it is there. If you look at the yearly view or even worse at the quarterly view, you'll get very, very distant growth rates between 2012 and 2022 to look to judge that business.

So, overall, we are turning the corner and we are certainly entering into a growth phase, which we see continuing for the next couple of years through the different segments. There will be different rhythm in Syngas and Petrochemicals and Specialty Catalysts.

But overall, I would say '18 and '19 will be years of growth of the last three quarters of 2017 as well. What I indicated before just to possibly answer one of your questions, Syngas has not come back yet and that certainly is starting to come back slowly that we would expect more to come on 2018 and 2019 growth and that's why the margin is high as well.

Growth in the Q3 was mainly driven through Specialty Catalysts and Petrochemicals with as well good growth prospects for the next few quarters. Now looking at the Oil and Mining, I think we are not producing the oil.

We are helping people to produce the oil. So for now, what you see is that the margin that our customers are coming up again at the oil company, but they, I would say, continue to be extremely cost focused and cost conscious.

And therefore, I think the margin environment of anybody who delivers to the oil industry resides tonnes of chemicals is very much under pressure still for now as you can see from our peers. So, if you look at the Baker Hughes, if you look at Halliburton in terms of profitability, they're certainly not at peak right now and are still in a difficult situation.

The same environment applies to us. Overall, as volumes increase, profits increase and we can place innovation to further improve our offering, we will be able to increase margin as well.

But right now, I think we are more interested in defensive environments more than growing environment in all Oil Services industry, but it will come back. And as you rightly say, production of shale oil in the U.S.

is slowly picking up, there has been a lot of boom in drilling well, so it's good for the peak who do the rigs and so on. But actually a lot of those wells are drilled, but not completed.

And therefore, they're just in a standby position when the oil price will increase, they will be activated. We get our business when oil is pumped, not for drilling the well.

And therefore, we are a bit uncorrelated from the rig count a little bit.

It's Charlie Webb here on the pool. Just 2 questions.

Firstly, clarification on Catalysis, was it the suggestions that sales in Q4 in Catalysis would be flat and then margins would be a touch down year-on-year? First, could you just clarify that?

And then secondly just on inventories, is anywhere in the portfolio where you see your inventories as being low given outages exaggerate maybe hurricane outages that you would look to build in Q4 and maybe Q1 of next year.

We're looking at the fourth quarter and currently that's what we guided for. We said the Q4 last year 2016 was an absolute record quarter both in terms of sales and in terms of profitability.

I think therefore it will be difficult to show any significant growth compared to that fabulous quarter of last year. In terms of mix as well, I think the mix will be different in Q4 as far as we can see it today.

It is probably more linked to more syngas business and less petrochemical, and there is a natural layer different in terms of margins. So, certainly the margin of previous year should not be taken as a reference from the product mix that we will have in Q4, but overall a very good year for Catalysis.

And then for 2018 in Catalysis, if you're expecting incrementally the growth to largely come from Syngas, although I'm sure there will be some growth in chemicals as well. Would you expect the mix to be slightly negative which maybe is offset by the fact that you have the absence of ramp costs, is that fair as we think about the margins [indiscernible].

Overall, the profitability should be good next year as well. I think we will have probably from the mix point of view more Syngas from this year, but we will also have obviously more polypropylene, because we didn't sell too much .

I think from that point of view, the overall profitability will be absolutely on track . And in terms of inventory, I guess that you are asking about our own inventory.

And I think we have seen good levels of demand from particular industry. So, particularly, the plastic chains continues to be volumes.

I think we were a little bit suspicious of the goals we've seen in Q1, Q2 thinking that the whole chain is maybe restocking a bit and that would cool off. It doesn't seem to be and demand continues to be strong.

So I think we will continue to deliver. We are probably a bit short of inventory there, but overall I think there is no -- I wouldn't expect any major swing of inventory in anticipation of future demand.

I think we just run through, because we expect Q4 to be good and Q1 to be good.

Three questions in mining, certainly maybe already added, but can you quantify the U.S. hurricane impact and has it for you been a loss business or should yield a catch-up effect in Q4?

And then secondly, again on sunliquid, should we expect further kind of project as you have communicated today or do you expect that this one plant has been enough to show the market that this technology is working? And then also on this new unit besides the revenue streams you've said, should we also expect our wide variety of products besides ethanol and related enzymes under this unit as well [indiscernible] like Oil and Mining services or so.

Markus, I'll take your question in the order. I think hurricane Harvey had a, I think, ratherly a lower single-digit impact on the Oil and Mining, so, it was very just a week or so, 10 days of interruption or difficult deliveries in the Texas area there.

It is not really something to catch up. I think just the oil production was down all over in the fields and [indiscernible] you ramp up again when the roads are clear and have the access to the wells have been reestablished and that's it.

So, it's not a catch-up in any case. We didn't have any big plant shutdown, which is producing for market around the world, which is shut down and you have to catch up something.

There's really local demand, which just came down and is back up. So, I wouldn't expect any positive impact on that, fairly marginal in our case.

Now when you look at biofuels, clearly this is the only plant, where we were doing. We prove the concept of this sustainable approach on the energy consumption and on the enzyme production consumption and the yield most importantly for the customers and that is then I would say a proven business case which can be duplicated by our customers around the world.

We actually try different feed stocks already in the pellet plant we have and very successfully. So, I think that is more than enough to validate the concept for spreading this technology around the world.

So, expect only one plant and one revenue stream from bioethanol. Let's do the licenses and enzymes.

We are certainly -- that's one part is probably half of biotech effort, the other half is certainly focused on developing enzymes for other areas. You're absolutely right and we have talked about in the past that we certainly see application first in the Consumer Care area and potentially as well in the Oil and Mining area.

These are enzymes, and when they are ready and enter the market, will probably be then reported in those respective areas.

But then add-on question, this unit, basically the growth will be kept or at least not kept fully, but has only been the growth, which is coming from the enzymes in the future, because the sales from the license at least so far and also from the own plant has been limited, so is the unit which is basically more than up for sale over a period of time?

I think that it is 1 plant. The total market is in hundreds depending on [indiscernible].

The business proposition there is to sell the license and actually having probably [indiscernible] one of the only processes which actually works to manufacture second-generation bio-ethanol. As this is then required a bit around the world in Europe, in the U.S.

and in China as well recently in a big scale from the regulator, you do have a tremendous need to build up this capacity of producing bio-ethanol via second-generation process, so avoiding the competition with food by using residues. And therefore, that's our market.

Our market is to sell the licenses. The mainstream will be licenses in the first 3 years and then as more as you have more plants operating, the enzyme sales will then replace that.

So, at the end of the day, our projected sales in 2020 from the actual bioethanol itself will be a minor part of the total of it.

Ladies and gentlemen, this concludes today's conference call. If you have any further questions, please do contact the Clariant Investor Relations team.

We're happy to help out. Once again, thanks for joining the call today.

Have a nice day.