Clariant AG

Anja Pomrehn - Head of Group Investor Relations Hariolf Kottmann - Chief Executive Officer Patrick Jany - Chief Financial Officer

Thomas Wrigglesworth - Citi Patrick Rafaisz - UBS Peter Mackey - Exane BNP Paribas Theodora Lee Joseph - Goldman Sachs Andreas Heine - MainFirst Markus Mayer - Baader Helvea

Thank you. Ladies and gentlemen, good afternoon.

My name is Anja Pomrehn, and I also welcome you to Clariant's full-year 2016 results conference call and the live webcast. Joining me are Hariolf Kottmann, CEO; and Patrick Jany, CFO of Clariant.

The slides for today's presentation, they can be found on our website, along with our media release and the financial review. And I would like to remind the participants that the presentation includes forward-looking statements, which are subject to risks and uncertainties.

I, therefore encourage, strongly, listeners and readers to refer to the disclaimer, which is part of today's presentation. The replay of this call will be available on the Clariant website for 30 days.

Now I would like to turn over the call over to your host of today's conference call. Hariolf will talk about the full-year 2016 results, while Patrick will review our achievements in the fourth quarter of 2016.

With that, it's my pleasure to hand over the call to Hariolf.

Thank you, Anja. Ladies and gentlemen, good afternoon.

It's my pleasure to have you join our conference call. I'm delighted to say that in 2016 Clariant generated the highest profitability since the repositioning of our portfolio.

Clariant is, clearly, moving closer towards our profitability target, and again delivered improved results, despite the challenging economic environment we were exposed to. We, once again, significantly improved our operating cash flow, while also growing sales; absolute EBITDA before exceptionals, and, hence, the EBITDA margin; as well as increasing net income.

For the full year, Clariant continued to grow sales at 2% year-on-year. The sales growth was delivered from a strong performance in care chemicals and plastics and coatings.

The absolute EBITDA before exceptional increased by 4% in Swiss francs to CHF887 million, driven by care chemicals and plastics and coatings. The corresponding EBITDA margin before exceptionals advanced for the seventh consecutive year.

In 2016, it expanded, once again, by 50 basis points to 15.2% mostly due to a sharp increase in plastic and coatings. The net income rose by 16% to CHF263 million while the operating cash flow surged by 29% and climbed from CHF502 million to CHF646 million in 2016.

Based on these solid results, the Board of Directors decided to propose an increased dividend of CHF0.45 per share, which is 12.5% of the previous year; hence, between 2011 and 2016 Clariant increased the dividend by an average of 8.5% per year. The distribution is proposed to be made from the capital contribution reserve, and will be paid out in Swiss francs.

Clariant’s 2% sales growth in local currency was driven by higher volumes. On a regional level, Asia and the Middle East and Africa reported the strongest growth at 4% in local currency.

In Asia, the strong expansion was mainly supported by China and India. In North America and Europe, sales increased 2%, while Latin America grew 1%.

Looking at the business area results for the year 2016, the improved sales performance was driven by strong growth in care chemicals and plastics and coatings. In care chemicals, sales in local currency rose by 5% to CHF1.465 billion which was mainly provided by consumer care.

In plastics and coatings, sales in local currency progressed by 4% to CHF2.525 billion. The good sales performance in plastics and coatings was seen across all regions.

Despite the difficult market environment, sales in natural resources grew 2% in local currency and amounted to CHF1.184 billion. There was a decline in oil and mining services, which was compensated by the acquisitions and the continued growth in functional minerals.

Sales in catalysis declined by 8% in local currency, reaching CHF673 million due to portfolio mix effects and lower demand in Asia and North America, as anticipated. For the full year 2016, the EBITDA before exceptional items increased by 4% reached CHF887 million compared to CHF853 million in the previous year.

The advancement was driven by care chemicals and again, mainly plastics and coatings. The corresponding EBITDA margin before exceptionals of 15.2% was significantly above the previous year's level of 14.7%, primarily as a result of a sharp increase in plastics and coatings.

The margins in care chemicals and natural resources were stable; both business areas delivered results at the higher end of their respective margin guidance. Catalysis was below the previous year's level, largely due to the lower demand in Asia and North America.

Let us look at the business areas in more detail. In care chemicals, sales in local currency were up 5% year-on-year.

The strength in personal care and in home care contributed to the good growth. However, also, crop solutions and industrial applications delivered good sales performance.

The care chemical EBITDA margin before exceptionals remained stable at 18.8%, which is at the very high end of our margin guidance of 18% to 19% for this business area. As anticipated, in this transition year, 2016, sales of catalysis weakened by 8% in local currency due to continued soft demand in Asia as a result of delays at customer level; and in North America, which had a high comparable base versus the previous year.

This lower demand could not offset by the positive sale delivered in other regions. The EBITDA margin before exceptionals in catalysis decreased to 23.8%, as a result of the slowdown in demand and a lower contribution of specialty catalysts.

However, the margin is still at an attractive level, and is only slightly below our margin guidance. Sales in natural resources increased by 2% in local currency.

Adjusted for the acquisitions in the oil and mining services business in the fourth quarter of 2016, sales in natural resources declined by 2% in local currency. The oil and mining services business excluding acquisitions, which actually is well on track, reported a single-digit negative sales performance during the full year.

However, this decline was much less pronounced than the overall industry trend. Functional minerals experienced good sales growth in local currency, driven by emerging markets.

Europe and North America also advanced above the prior year's level. The growth in 2016 was largely supported by the expansion of the edible oil purification business in emerging markets.

The EBITDA margin before exceptionals for the business area natural resources was stable at 16.9% versus the previous year, which is also at the higher end of the margin guidance of 15% to 17% for the business area. This was achieved through continued disciplined cost management across the business units.

Sales of plastics and coatings climbed by 4% in local currency for the full year in 2016. In masterbatches, sales increased across all regions.

Areas such as packaging, fibers, engineered polymers, and medical specialties performed particularly well. In pigments, all regions reported a good sales performance, with particular strength in Asia, driven by India and China.

Additives also achieved sales growth across all, mainly driven by strong demand in Europe and in Asia. The favorable sales development was supported by all business lines in additives.

The EBITDA before exceptionals in plastics and coatings grew significantly by 18% in Swiss francs to CHF368 million year-on-year. This rise largely reflects a better product mix, higher capacity utilization, and the positive effect of the differentiated business steering, implemented at the beginning of 2016.

Regarding the financials for the full-year 2016, the gross margin was stable at 30.7% year-on-year, as the pricing was solid and absorbed higher idle costs. The reported margin was 30.2% which, however, included adjustments for exceptional items.

EBITDA before exceptionals progressed to CHF887 million, up 4% versus the previous year mainly driven by care chemicals and plastics and coatings. For another year in succession, the respective EBITDA margin rose by 50 basis points to 15.2%, from 14.7% the year before.

Net income climbed to CHF263 million year-on-year, this 16% increase stems from the higher absolute EBITDA result, lower finance costs, and an improvement in the tax rate. The operating cash flow could be improved – further improved year-on-year, rising by 29% to CHF646 million versus CHF502 million the previous year.

The cash flow after interest and dividends was CHF79 million versus CHF1 million last year which is well above our targeted zero result for 2016. The net debt also rose from CHF1.312 billion to CHF1.540 billion as a result of the bolt-on acquisitions in 2016.

Ladies and gentlemen, despite the demanding environment, marked by economic uncertainties, in 2016, Clariant has made further progress, and, once again, has produced a solid set of results. We have transformed Clariant into a more profitable, cash generating, and resilient specialty chemicals company through the ongoing success of the Clariant Excellence program and our five-pillar strategy.

In addition to this, we continue to emphasize our strategy to become true China insider. It is our vision to support China's transformation with our innovative and sustainable solutions.

We strongly believe that Clariant's future will be decided in China. China currently comprises approximately 40% of the global chemicals market.

It is expected to remain the main growth engine and to contribute about 60% of the absolute global growth in the chemical industry until 2020. There will be an increase in consumer demand, a need for more high-quality products and for more products that are developed locally.

Therefore, innovation, quality, and further local R&D activities will become crucial success factors. To face these opportunities, we are focusing on local adaptions, Clariant's local footprint, as well as identifying co-operations and partnerships; hence, Clariant has established technical development centers in six cities, with approximately 140 staff for R&D and application development, to support customers in various industries.

In addition, Clariant is taking actions to further strengthen its local R&D capabilities in China by upgrading technical service centers, building a regional R&D center at its new One Clariant Campus in Shanghai. Clariant will continue to leverage its comprehensive global innovation network and local R&D footprint to foster sustainable innovations, and to drive growth, going forward.

Clariant has, and will continue to, implement decisive measures to manage the Chinese market differently, including the relocation of Christian Kohlpaintner, a member of our Executive Committee, to China in order to strengthen the local decision authority. We will be able to focus on those segments most relevant to China's development, going forward; enhance our innovation activities; play a more active role in the collaboration of partners; and enhance our access to the market, not only to ensure a sustainable development, but also to foster Clariant's future growth.

Before I now hand over to Patrick for the discussion of the fourth quarter 2016, let us not forget the present. And let me conclude by summarizing Clariant's excellent full year 2016 results, despite the challenging environment, demonstrate the enhanced quality of our portfolio.

In local currency, Clariant continued to improve sales by 2%, and EBITDA by 4% in Swiss francs. For another year in succession, we expanded our EBITDA margin, which in 2016 was, again, 50 basis points higher than the previous year.

Net income grew 16% compared to 2015. And we significantly advanced our operating cash flow, year-on-year, by 29%, reaching a record CHF646 million.

And with this, I turn over to Patrick.

Let's now move on to the fourth quarter of 2016. The fourth quarter was one of the most profitable in Clariant's history.

It also compares favorably, in terms of sales and profitability, to the strong previous year fourth quarter. Sales in local currency rose 3%.

Natural resources, care chemicals, and plastics and coatings contributed to the good performance; however, sales in catalysis fell against a very strong fourth quarter in the previous year. Adjusted for the acquisition effect in the oil and mining services business, year-on-year Group sales for the fourth quarter matched the previous year quarter.

The EBITDA before exceptional items increased by 3% and the EBITDA margin improved by 20 basis points, from 50% to 15.2%. On a regional basis, Europe led the sales expansion, growing 6% in local currency in the fourth quarter.

Sales in the Middle East and Africa grew 7%, while Asia increased sales by 4%. Latin America declined by 17% versus the previous year, because of a weakened demand in Brazil.

The 14% sales improvement reported in North America is attributable to the bolt-on acquisitions. For the next few minutes, I would like to focus on the development of the businesses in the fourth quarter, which was primarily driven by care chemicals and plastics and coatings.

Natural resources also advanced sales in the fourth quarter, supported by the acquisitions in the oil and mining services business. Catalysis had a strong quarter, but stayed behind a very strong comparable previous year.

The increase of the Group EBITDA before exceptional items, in absolute value, came exclusively from plastics and coatings; while the EBITDA margins before exceptional items continued to expand in the fourth quarter to 15.2%, from 15% in the previous year, reflecting the resilience of the Clariant portfolio. Care chemicals increased sales by 5% in local currency in the fourth quarter.

The growth was supported by all business lines. Despite the good growth rate, the care chemicals EBITDA margin before exceptional items declined slightly to 18%, from 18.1% one year ago.

A strong de-icing and consumer care business allowed the margins to remain stable, thus almost entirely absorbing the ramp-up costs for new capacities. Sales in the catalysis business area decreased by 6% in local currency.

Sales growth was impacted by weaker demand in Asia, and a very high comparable base in North America. Yet, quarter on quarter, petrochemicals started to stabilize, and syngas showed some improvement.

The EBITDA margin before exceptional items in catalysis was high at 30.7% in the fourth quarter of 2016, but below the 31.5% in the same period of the previous year. This was driven by the aforementioned weaker demand, and also as a result of a lower contribution of specialty catalysts.

Sales in the natural resources business area grew 7% in local currency in the fourth quarter of 2016. This growth was driven by functional minerals and the recent acquisitions in the oil and mining businesses, which, in local currency, had a positive impact of 13%.

The integration of these acquisitions is well on track. Functional minerals experienced good sales growth in local currency.

The natural resources EBITDA margin before exceptional items declined to 18%, from 20.4% in the previous year, following the lower sales pattern in the underlying oil and mining service business, particularly in the refinery business. Sales in the plastics and coatings business area increased by 3% in local currency year-on-year.

In master batches, the sales performance in Europe, North America, and Asia was favorable. In pigments, sales growth was most pronounced in Asia and the Middle East and Africa.

Additive sales also advanced, reflecting improved development in Europe, North America, and Latin America. The EBITDA before exceptional items increased significantly by 27%, in Swiss francs, to CHF68 million, compared to a weak quarter in the previous year.

Let's just summarize the fourth quarter 2016. Clariant grew sales in local currency by 3%, despite the continuous demanding and volatile market conditions in catalysts and oil and mining.

The EBITDA before exceptional items advanced 3%, in Swiss francs, and the respective EBITDA margin increased from 15% to 15.2%. The fourth quarter 2016 was Clariant's strongest fourth quarter ever recorded.

With this, I hand over to Hariolf for the outlook.

Thanks, Patrick. Ladies and gentlemen, as already mentioned, the year 2016 was a year characterized by uncertainties in the economic environment, in currencies, in commodity prices.

These were all external factors which we could not influence. However, we were still able to progress with Clariant's transformation into a more profitable and resilient specialty chemical company.

This was achieved as a result of the stringent execution of our strategy by means of innovation, sustainability, portfolio repositioning, and seizing growth opportunities. We believe that 2017 will bring little change to the macroeconomic environment, let me, therefore, come to our economic view on the current business year.

For 2017, Clariant expects the uncertain environment, characterized by a high volatility in commodity prices, currencies, as well political uncertainties, to continue. Moderate growth is anticipated in the United States, and growth in Europe is expected to remain stable.

We also expect that the economic environment for emerging markets will remain challenging and volatile. As to the outlook, for the full year 2017, we will continue to focus on growing our business by means of innovation, seizing internal and external 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 EBITDA margin before exceptional. We confirm, of course, our target for the mid-term, to reach a position in the top tier of the specialty chemicals industry.

This corresponds to an EBITDA margin in the range of 16% to 19%, and return on invested capital above the peer group average. Thank you very much.

And, with that, I turn the call back to Anja.

Thank you, Hariolf; thank you, Patrick, for taking us through the full year 2016 results, and also the achievements of the fourth quarter 2016. I think they represent another step forward towards our Group target.

We will open the line for questions now. I would kindly ask the participants to limit the number of questions to three, starting off, thus giving more participants the chance to ask questions.

If you want to -- if you have any further questions afterwards, we would include you in the queue afterwards. I hope you all understand that more people get the chance for questions.

I would like to open the line for questions now.

Hi, Hariolf, Patrick, Anja, thanks very much. My three questions, if I may.

I notice on your outlook statement that you're now talking about an absolute EBITDA and an EBITDA margin improvement. I think that's a slight language change from last year.

Can you talk about how you see that evolving, noting that you've got significant – a number of new products coming online in 2017? Are you expecting those new products to be above margin and therefore adding to that EBITDA margin improvement?

Or are they actually going to be slightly dilutive but there are other factors that you see developing to sustain both the margin and the absolute level of EBITDA? That's my first question.

Second question is on natural resources. Obviously, the oil price, the rig counts, where do you think the business is now in terms of the cycle?

Where could the inflection point be? And the third question is on your true China insider comment.

Is there kind of a strategic objective or a level of sales that you think will define you as a true Chinese insider? How are you going to measure whether you are or are not a true Chinese insider?

Thank you.

Right, I'll start with the two questions; and Hariolf will come back on the third one. Looking at our change in slight wording in outlook, including absolute EBITDA and not only EBITDA margins, you're absolutely right, that's a new component, because we also want to focus on cash flow generation.

And for us, as you know, 40%, 45% of the Group runs on absolute EBITDA, which is plastics and coatings. And you have also seen the contribution of that part of the business in the cash flow generation of 2016.

And we just wanted to highlight that, for us, it's not only about margin improvement, which we absolutely maintain the outlook for, but also about increasing absolute EBITDA to increase absolute cash. So we reflect, really, the way that we actually steer our business in two different ways: for plastics and coatings in absolute, and for the rest, and the whole Group, on the margin.

So it's not an indirect reference on terms of profitability of new products. However, just to answer that side question as well, we just reviewed, actually, our product launches in the last few years, and we can confirm that the new products do have better margin than the current portfolio.

So, on that point of view, it's more an intensification of margin through innovation that we would expect in the areas of the Group which are driving for that. And now, looking at natural resources development, just particularly on the oil business, you're absolutely right, I think the rig count has stabilized, or even grows in some areas.

And, therefore, I would say, as we understand the business, and I would say as the common current view in the oil industry goes, particularly in the United States, and we would expect that this translate into higher production and, therefore, higher use of oilfield chemicals, which is our market, in two, three quarters' time, which would, if figures maintain, would comfort our view that the second half of 2017 should see a stabilization or improvement in our oil business, which is also what we said when we actually acquired the two businesses, a few months back, saying that it was a good time for acquiring the businesses now. Looking forward, we would expect that end of 2017 the demand comes back, particularly in terms of oil chemicals services, and, therefore, I think that's probably what we can maintain as an outlook today, as well.

And on China, internal strategy?

Yes, concerning China, first of all, Clariant is very well positioned in China and have made, I would say, already in the past 10 years, very good decisions to catch business there, and to grow the business. But we get the impression more and more, and we started three to four years ago, that we do not grow all our businesses in such a way as it should be, or as it must be.

When we talk about becoming a China insider, for sure, we have defined mid-term targets, objectives, and strategies for each business unit. But China insider means in first approach to understand how you do business in China.

And we understand that there is a real difference in doing business in Germany, Switzerland, Latin America, or North America compared how you do business in China. And are sure that if we have this better understanding how we approach the customers in the Chinese way, where are the local heroes in the Chinese market, and not so much the multi-nationals with whom we do business all over the place, we would make a lot more progress there.

And this is then followed by several adjustments and organizational changes. In principle, our concept is called from fringe to core; that means we want to move the way how we treat the Chinese market from fringe of Clariant to the core of Clariant.

And this is also combined with the several key decisions concerning structural processes and governance.

Okay, thank you very much.

Thank you and good afternoon everyone. Three questions also from my side.

First, on care chemicals, can you talk a bit about what you're expecting in terms of growth in 2017, also including the margin prospects, given a very strong start to the de-icing season; ramp up of new products; but, at the same time, the new raw materials situation we're having currently? Then secondly, your U.S.

oil asset acquisitions, just wondering, I noticed the difference between the price tags of X-Chem and Kel-Tech, CHF140 million, CHF230 million, why exactly this big difference? What are the differences between the business portfolios?

And the third one, a very short one, the CHF53 million change in provision, which benefitted your cash flow in 2016, can you help a bit and explain where that's coming from? Thank you.

All right, Patrick, so I'll take them in their order. With care chemicals, indeed, I think we had a good growth in 2016, and we expect this growth to continue in 2017.

We've had a 5% growth, which actually is in line with our mid-term guidance of 45% and I would say that’s probably the range that we would also maintain for the particular year of 2017driven by the fact that we still continue to expand in personal care and crop solutions, with our innovations coming on, on the market. So that should support demand.

As you know, the de-icing is always an up and down. We had a little bit of a higher turnover in de-icing fourth quarter 2016, but not particularly impressive.

I don't know exactly what you refer about the start of 2017. The first quarter is not finished yet.

And we had a quite a strong start as well last year. So we'll see whether we match or we don't match the previous year figure, the jury is still open.

But I think more fundamentally, growth is driven by the innovation products that we launch in personal care, crop solutions; but also on the industrial area, which is doing pretty well as well. For 2017, we will have new product launches at good margins as well, on the one hand; and on the other hand, you'll have, as you rightly say, raw material costs coming up.

We would expect raw materials for the Group to increase by 2% to 3% in 2017, which will imply that we start to increase its prices in a couple of quarter's time when those costs actually translated into our P&L. There is always a time delay there, so there is time to adjust there on that side.

And also, obviously, as we mentioned as well, I believe that we also have higher capacities in ICS. So we'll have to cover those additional costs, which could have – or you have seen in Q3, for instance, as well as in the first part of 2017 to the growth and uses those capacities.

So, as usual, there are some ups and downs, but overall, I would say very solid and a good development forecasted in terms of growth for 2017.

Does that also mean, for your Group guidance, then that your growth expectation includes 1% to 2% pricing components, as well?

It's part of what we see coming in 2017. As you know, in terms of pricing, I realize you just slipped another question through there, but…

Number four.

…indeed, I think, as you know, since 2009 we actually have not lost a single quarter in terms of pricing. It came a bit under pressure now in Q4.

But overall, I would say, we have always been able to maintain prices when raw materials were coming down or to increase prices when raw materials were pushing up; and that's certainly a job we need to do now in 2017, after having had two years of more maintaining prices while raw materials were coming down. Now, looking at your oil and mining, of the acquisitions, we typically take it as a combined because the multiples and the price are quite different between both pieces.

Nevertheless, it is a combined operation because we have synergies between both of those businesses and, therefore, we really looked at it, although they were two acquisitions, as one project. Therefore, don't get too disturbed about the different multiples; that always depends on expectations, and performance, and synergy potential.

[indiscernible] reached optimum with a very high profitability; others, we see more synergies we can actually extract from the business and from the combination of both. That explains the different approach in the two projects.

But overall, just to close on that subject, combined, it's a multiple of 10 times, which is very much in line, bit on the lower side, of what has been paid in the sector. So we have a market multiple on quite low absolute findings.

Now, looking at the cash flow generation, indeed, the CHF53 million is the difference in provision. It just really means that we didn't release the provision to achieve our net results; we actually were able to increase provisions, that comes from pensions, and so on, in the P&L which are not cash-effective.

Therefore, that was one major difference compared to previous year, where I think we had only CHF7 million being reversed on that.

Okay. Thank you very much.

Thank you. Afternoon, everybody.

I'll ask three questions as well then. And, I suppose, following on from the provision issues, on restructuring, I noted the restructuring cash outs were very low versus a P&L charge that was slightly above what we've been expecting.

I wonder if you can just talk about phasing of restructuring cash out, and also guidance on P&L restructuring charges, please. Secondly, I just wanted to know if you were – the increase in the dividend was intended to be any indication about a slightly more generous payout ratio or dividend policy, going forward, as you're building comfort around cash flow.

And the final question, really, trying to pick up on the plastics and coatings debate, I think, that appears to have taken place in the press this morning about your – or Clariant's commitment to that business. If I go back a few years ago, you used to talk about this being less core than the rest, because it's more GDP-orientated, and so on, and slightly more challenging business.

You sound a little bit more committed to that today. I hesitate to say, is that a negotiating strategy, you won't debate or discuss that.

But is it because you think the new business model is now working and it's sort of winning back confidence of you as the management team, please? Thank you.

Thank you. So I will take the two first questions, and Hariolf will take the third one.

So looking at the restructuring amount, indeed, the cash out was CHF37 million, compared to P&L charges, all in all, of CHF107 million, so quite a difference there. But you have to see that there are always some impairments, some non-cash costs associated to those exceptionals, so not everything is expected to be turned into cash.

And then, you have the timing component, specifically, when we build our shared service centers in India and Poland, you have double work; and then, at one point in time you have severance payment for the persons who have to leave in consequence of this implementation. That is a deferred effect between the P&L in one year and the cash on the other.

But overall, I would say the cash out was in line with our forecast, and will not lead to an excessive increase in 2017 in terms of cash out. We probably have a more consistent or equal cash out and P&L charge in 2017, but we won't have sort of an accumulation effect for both years from that.

There was quite a non-cash component in the charges this year. Now, looking at the dividend, indeed, we proposed a dividend increase of 12.5% this year, which is really in line with the cash flow generation.

As we highlighted last year, when we did not increase the dividend, we link our dividend increase to the cash flow. And overall, I think our dividend policy is unchanged: to maintain or increase the dividend every year, but linked, obviously, to the cash flow, as we rightly say.

We certainly have room to progress in terms of dividend yield. Compared to the average of the industry, I think we are still a little bit behind, so I think that's certainly one component of the decision-making, looking forward, but the policy is unchanged: stable or increasing dividend, and mostly linked to the cash flow evolution of the Group.

Yeah, Peter, concerning plastics and coatings, talking to media is sometimes a bit different than talking to analysts and investors. But, in principle, our position has not changed.

When we explained the carve-out to market as well as to the media, we always said we want to allow and we want to force our management for differentiated steering. And from today's point of view, I think, including the stronger demand of the market and differentiated steering in plastics and coatings, the recipe works.

Everything currently, from a financial point of view, looks very nice. We also said that this carve-out would give us certain kind of strategic flexibility.

Plastics and coatings could be viewed as a special kind of currency. Just in case if there would be an opportunity to upgrade our portfolio with additional business, or with a business who would fit to our existing portfolio, plastics and coatings could play a role in this kind of concept.

But to avoid any kind of speculations or rumors, or to avoid misunderstandings, we were crystal clear this morning, when we talked to the press and the journalists, that we do have currently no project for divesting plastics and coatings and making a multi-billion Swiss francs acquisition on the other end of the spectrum; therefore, the very clear statement this morning. But, in principle, nothing has changed compared to one or two years ago.

Thanks very much. Just before I go, could I just go back to the restructuring charge, and the P&L restructuring guidance for 2017?

Are you still comfortable with 1% of sales?

I think we'll be moving to our 1% of sales.

Right, okay. Thank you.

You are welcome.

Hi, good afternoon. Thanks for taking my question.

So, I have two. So the first one is actually on your recent U.S.

oilfield chemicals acquisition. Can you give some color as to how we should think about the profitability or margins profile relative to your natural resource Group margins, at this point in the cycle?

And is there much more operational leverage there that we can expect when U.S. activity picks up?

And then, a second question is actually on China. So you made some interesting comments about wanting to grow in China, can you give a comment around what divisions would you be thinking about wishing to grow in China?

Knowing that China's not a big oil producer, I'm supposing it's more care chems, or catalysis. Is P&C likely a target there as well?

And then lastly, is more the impact of FX controls that China has placed; is this something that's likely to impact your business there? Thank you.

All right, looking at your questions in their order, the oilfield chemical acquisition, it's clearly a variable expansion of our business activity in market share in the U.S. We gained a lot of breadth and presence in the U.S.

allowing us to gain access to new customers. So one part of the payback is that only synergies, in terms of costs, which they are; but is also in actually being more relevant in the market, and, therefore, being a more serious player for the big oil companies in the U.S., being able to really accompany them throughout any single field in the U.S.

So that’s one part of the commercial advantage of having a 50% market share, in terms of 5% market share before. The margin profile itself is very similar.

When we acquired the businesses we said that they would not be dilutive; I think this has been shown in Q4 as well. You'll be able to see that in more detail once our annual report is actually published next week.

You'll see that the margins are actually pretty high already now at this point of the cycle, and without any synergies. So it looks pretty good, as soon as we get more sales through higher market presence; and, as a third element, as soon as, as we previously discussed, the oil cycle ticks up in a way and there is more demand in the U.S.

again. So we look forward to having quite a nice leverage from these acquisitions, looking forward.

Now in terms of your second guidance was about – question was about China, which businesses would really we focus on going into China. I think you're absolutely right, the oil and mining business, it's fairly small, given the markets in China but all the rest of our portfolio is extremely interested, and already present in China.

Care chemicals, certainly, as a first area, a few years back already focused on what we call the local heroes. So expanding market share with extremely well-performing and well-positioned Chinese companies which are gaining market share, compared to the traditional multi-national customers in care chemicals and personal care.

And that's certainly also fueling our growth right now. And there's lots more to explore, which is why we – Hariolf previously mentioned in his speech that we'll put more R&D, more people on the ground there to even have more local products and benefit even more from this trend.

But it also concerns all the others. Catalysts is an extremely important market for our catalysis business in the future.

It has been a bit slow and, therefore, there will be a huge ramp up in 2018/2019, by natural growth; but also by just filling the business, which has been delayed now since a few years in terms of refill. So there will be a nice growth looking forward.

Coatings is eminently present in China. We are aligned with the biggest pigment manufacturer, we have a joint venture with them in China.

We have a very good market presence therefore in pigments. Masterbatches is absolutely well positioned, number one, number two in China.

So we are there and there is more things to develop, so, basically, just reinforcing, focusing, and putting more resources to consequently take advantage of the growth. But we are there already.

And looking at your question on the foreign exchange control, we have not really been impacted at all by the controls. We have taken different financing steps before and, therefore, we have not been impacted by the current controls, which we would expect, at one stage, to be lifted again as soon as growth and dynamics in China improve.

Okay. Thanks very much.

Yes, good afternoon. Also, three questions from my side.

First, I would like to have an update how the polypropylene catalyst plant is running, and how you are able to ramp it up and to load it? Secondly, on the cash flow, it was a very strong one, indeed, in 2016 and you have the ambition to increase cash flow even more.

But looking on the very low net working capital need you had in 2016, restructuring cash out already been very low, the others line in there also very favorable, tax rate being – cash taxes also low, so it looks like that 2016 there were a number of favorable things in the cash flow. Would you outline a little bit how you can improve this in 2017?

And then lastly, on the financial results, could you give an update what these hedge costs might be on today's spot rate in 2017, and how the interest result will improve in 2017, having in mind that the maturity of the Eurobond will be in this year? Thank you very much.

Andreas, as I take the PC plant and Patrick will continue with number two and three. Our propylene catalyst plant [indiscernible] started up very well.

We had, as usual, I would say a few problems in the first hedges; not all of them where - but from this point of view, we are still confident that we will utilize the capacity, sooner or later, at the expected and planned level.

Looking to your second question of cash flow, indeed, we had strong cash flow generation but pretty much in line with what we promised by mid-year. You remember, by mid-year we had an advantage of CHF144 million, I believe, or CHF143 million compared to previous year, and we just exactly maintained this advantage and we carried it, on brought it home, in December at CHF144 million.

So it was very much in line with what we had predicted and, therefore, you can trust us when we say we’re going to improve again next year. The content will be certainly higher absolute EBITDA.

Clearly, there's a component of improving profitability. Then I would say we certainly will have lower interest costs.

That's another element. I will come back, as it refers to your first question and then I would say that net working capital actually was the one element where we could have done better in 2016.

We didn’t reduce or maintain working capital; we actually increased working capital at this level, of course, which was a little bit more than what we had expected from our businesses by year end. From that point of view, I think it was not as good.

The positive read of this performance is that we now do have enough working capital to have a good start in 2017 and 2017 should therefore benefit from a more efficient working capital. If we look at cash flow drivers for 2017, it’s about absolute EBITDA, better working capital management.

And referring to your first question now or so, lower interest costs. We have repaid our Eurobond now in January already; that will probably impact interest costs by around CHF15 million, a little bit more CHF15 million a year which is a pure cash saving and we would expect the total financing cost of the company to have come down from the various refinancing we did last year.

So I would say interest will be another contributor CHF15 million plus in terms of cash flow improvement for next year. And that should be particularly the biggest component of reduction of financial cost in 2017.

Yes, good afternoon. Some more add-on questions on Andreas' question on capacity additions.

Regarding the other capacity additions you clearly have in the cocamide plant to ramp up, but also the capacity additions you had last year in China, and, in particular, the additives product or the high-performance pigment in China, or the industrial and home care expansion in China as well, also [indiscernible] performance polymer addition in Germany, can you give some color where do you stand in terms of utilization? And also, add-on question on the whole capacity addition team, what kind of ramp-up costs had you in 2016?

And what do you expect in 2017? And then, the last question is on functional minerals.

You said you had a nice growth from the merchant market side, in particular, from the edible oil fluctuation. Am I right that also the growth outlook for this kind of business is also highly interesting in the pharmaceutical packaging?

And what do you expect from this side over the next year, too? Thank you very much.

Right, Markus, taking your question in the order, so looking at our capacity, frankly, we have, last couple of years, increased capacities in most of the areas of the group. We talked about polypropylene before but, obviously, you're right, we had a glucamide plant in – chemicals capacity in China; Clear Lake in the U.S., and various capacity increases in plastics and coatings for pigments and masterbatches activities.

Overall, I think it just shows the fact that we think that the most value-accretive growth that we can have is through organic growth, by placing innovation into the market and that is certainly where we expect the returns to be the highest, and to contribute the highest in terms of return on invested capital looking forward. The positive side as we mentioned in earlier questions, higher growth at higher margin.

The downside is that obviously when you have all those things coming onstream in 18 months time we do have higher idle costs. Capacity utilization overall is around 80% in the group.

We have had a rise in capacity utilization in plastics and coatings, obviously the sales figures are there, therefore they are really pushing that and it’s very nice but still it has the room to improve particularly in the high value areas where continue to expand because we see a very attractive market, a very attractive margin as well. And the capacity utilization has certainly not risen as much in terms of catalysts, logically speaking, [indiscernible] was down compared to previous year.

That has slightly decreased. So, overall, I think 80% of the group is still valid.

In terms of ramp-up cost, I would say we haven’t seen that much on the visual from the amount in plastics and coatings but obviously the results of the catalysts and the results of clear chemicals do reflect higher capacity and idle costs but we will be a factor for catalysts next year as the PC plant is now finished. Will not be, obviously full in a month time, it is starting to ramp up.

We will have some impact during the year probably in the first half of the year. And as we mentioned already before, we quantified I think in Q3 of 2016, the total idle cost of new capacities in care chemicals is around 1% of sales which also became apparent in Q3 and was master bit in Q4 because we had a decent de-icing business has been more in the last year but also quite a nice crop protection stabilization in other areas.

So, that actually was compensated from that particular quarter, but the added facility will be there. We certainly de-felt during 2017.

But overall, I think that’s a price we pay for growth and improved results in the future, and it should not really affect the group performance to a level that we should be talking about.

Now may I – I have a question on this? Do you then expect basically the same kind of run rate you had in 2016 also going to 2017 and, therefore, there is no base effect, positive or negative?

Is this the right reading on what you said?

It probably will certainly have an effect, particularly in care chemicals, I would say, during the first half of the year compared to the second half of the year. There's the timing of ramping up, physically speaking, those capacities.

And when we look at functional minerals, indeed, very good in emerging markets driven by the edible oil, which was a little bit favored this year as well by El Nino effect. The quality of crop was not favorable, implying a higher use of absorbents to purify the oil.

We would expect this to continue because of the natural growth of this market particularly in Asia, but maybe with the less dynamics because the El Nino effect is receiving but still that will be one element of growth for 2017. The actual pharmaceutical package part we now report on the masterbatches, so on the plastics and coatings.

And is actually doing pretty well ramping up and also expanding Nina [ph] to serve the pharmaceutical production market there, but it is certainly a very attractive piece, which is gaining activity from year-to-year.

Okay, perfect. Thank you very much.

Okay. Thanks very much for the question.

And I think in masterbacthes, it’s all bit of a simplification when you talk about commodities, or not. We do have more standard masterbatches, as we call them.

We just typically white and black masterbatches, where it's more about production efficiency, sourcing of raw materials and it is in the right quality for anything white we know of in terms of plastics. I think both components, black and white, are a minority of our masterbatches business, probably, one-third of that business; and two-thirds is focused on color masterbatches.

So there we match specific colors and specification in terms of whiteness or color-fastness, rigidity, and so on for different plastics; in addition to the medical specialties we just talked about before, and high temperature polymers, which are extremely interesting area where we are expanding as well nowadays. So it’s a mix really of pretty standard but decent profitability and extremely good return on assets on the more standard side, and higher margins business on the other side.

But it’s a interesting business.

Thank you. Just a quick one on catalysis and the theme during 2016, which was the refill cycle, which got delayed and delayed.

Do you have any new visibility or insights into when the cycle might turn again, and when delayed refills might start to pop up again? Thank you.

Yes, thanks for your question Patrick, because it's an important point there. Indeed, 2016 was what we call a transition year and as we often talked about it.

You remember that last year at the same time we said that 2016 and 2017 will be transition year where we come down the very high peak in the U.S. while the ramp up of demand in China is not totally yet there and therefore growth will be difficult to realize because basically in 2013, 2014 really is, from a very dynamic environment in the U.S.

particularly linked to the investment due to shale gas. We are exactly in that period.

And 2016 was really the reflection of a slight reduction of sales in the U.S. while China stabilized at the end, but didn't really pick up.

So that’s where we are with a slight negative in terms of sales. We had good progress in Europe, good progress in Middle East, Africa in terms of refill business but it was enough to really inject some growth in the business given the two macro cycles there.

Now, if you look at 2017, it will still be probably a year of transition. As we indicated last year, however, you might have noticed that in our press release when we talked about the fourth quarter now, we signal that petrochemicals are actually quite stable and syngas had stabilized, which is quite new.

I think we had an erosion of syngas repeatedly during many quarters and fourth quarter was actually not that bad in terms of syngas. You also probably know that ammonia prices have gone up, that methanol prices have gone up.

So from that point of view, I think our expectation but somewhere by the end of 2017 but for sure by 2018 as we previously mentioned we should see ramp up in demand particularly in the syngas in China. And then nobody really knows where it’s going to be in Q3 2017, Q4 2017 or Q1 2018 but it just confirms the fact that things are changing slowly.

This year we saw new demand. We have own new contracts as well looking for what 2018, 2019.

So it reinforces our view that 2018, 2019 will be good years for catalysts and 2017 will be a year of transition and when exactly it picks up is currently hard to say but the order entry is up, the basic currency prices are slightly rising slowly. So it looks comforting from the dynamic point of view but again we’ll see how the year develops in that area for 2017.

That's pretty clear. Thank you very much.

Yes, thanks again. Just a quick one.

The associate number was quite a bit higher in the second half of the year than the run rate. Obviously, that flatters the margin.

I just wonder if you could talk – is there anything there we should be aware of in terms of unusual activity versus ongoing profitability, please?

Income from associates, right?

Correct, yes. So it's been running mid to high 30s, and it was over 50 in the second half.

We certainly had a good development on two fronts there, one from the main associates, the infrastructure companies in Germany. We share the sites there with different owners as well and they are running actually pretty fine, probably linked to the general quite satisfying economic environment to Germany.

And the other one was also some income from our Stahl participation. You know that we sold our leather business a few years back now and also we see some proceeds from that participation as the business is really running well and we have full synergies on that divestment.

So that were the two main impact in terms of increased associates but overall reflecting good performance of those company.

Okay. Thank you.

You’re welcome.

Ladies and gentlemen, this concludes today's conference call. I apologize that we have no more time to respond to the remaining questions, or the questions on the web.

However, the Investor Relations team is available for further questions and I assume we’re going to meet with many of you throughout the next coming weeks. So once again, thank you very much for joining the call and have a good day.

Bye-bye.