Evonik Industries AG

Tim Lange - Investor Relations Ute Wolf - Chief Financial Officer

Lutz Grueten - Commerzbank Martin Roediger - Kepler Cheuvreux Paul Walsh - Morgan Stanley Markus Mayer - Baader Helvea Andrew Benson - Citi Martin Evans - JP Morgan

Good morning, ladies and gentlemen, and welcome to our Q3 Earnings Conference Call. My name is Tim Lange, Head of Investor Relations of Evonik, and with me today is Ute Wolf, CFO of Evonik.

So let me hand over directly to Ute for the short presentation, which will be followed by the usual Q&A session.

Thank you, Tim, and good morning also from my side. Thanks for taking the time to be with us today.

Let us start the presentation with a highlight of the third quarter. I am very pleased that Q3 was another strong quarter for Evonik, the third in a row this year.

And it is worth highlighting the positive earnings development in our segments resource efficiency and performance materials. Both have outperformed this quarter, and I am confident that this positive earnings momentum is sustainable going forward.

So we clearly reiterate our outlook. We expect to deliver adjusted EBITDA in the upper half of the €2 billion to €2.2 billion range.

And although not yet part of our business, also the specialty and coatings additives business of our products has delivered a strong finish of a successful fiscal year. The $261 million EBITDA represent an 8% year-on-year growth in line with the long-term growth track record of the business.

This outcome is even better than our initial expectation of $250 million when we announced to you [in May]. This underlines that the intended acquisition is the right move.

The transaction will make us world leader in specialty and coatings additives, and already in 2017 it will be fully earnings accretive and contribute to Evonik’s profitable growth. I am also very pleased to report that we successfully completed the financing of the acquisition.

We have issued three bonds for a total of €1.9 billion and coupons between zero and 0.75%. This resulted in very favorable annual financing costs of only around €7 million going forward.

In addition to that preparations for day one are well underway. The antitrust process is on target, and we have received clearance from key antitrust authorities like the US and Germany.

All the involved functions of air products and Evonik are working closely together to guarantee business continuity from day one onwards. We are therefore fully on track to reach closing of the acquisition by end of this year.

Let me give you a strategic update apart from this acquisition. We continue to execute our differentiated segment strategy consistently through 2016.

Our growth strategy for nutrition and care and resource efficiency is based on three pillars; investments, innovation and M&A. We made good progress in all of these three areas.

Let me just highlight one of our most promising innovations. A project to develop, produce and market omega-3 fatty acids from algae on a large scale for aquaculture industry is on track and progressing well.

The product development is in the final stages and looks very promising. First customers are now becoming involved in the piloting of the product.

Performance materials is also making good progress and improving its efficiency. To give one example, we have restructured our acrylic sheet business.

The streamlining of overhead functions and global production will result in sustainable cost savings of €20 million by the end of 2018 from this measure alone. The segment has also worked on structural improvement and net working capital.

Together with cost optimization measures this will lead to an ongoing significant cash generation of the segment as intended with our differentiated segment strategy. Another core element of our strategy and our operating businesses is sustainability.

We strive to comply with [highest spenders] and sustainability and long-term oriented decision making. Therefore we are proud to report that Evonik has been included in the prestigious Dow Jones Sustainability Index World and Europe for the first time.

Only three years after listing this is an important milestone for us. Sustainability is increasingly driving innovation and fostering profitable growth.

This brings me to the financial highlights of the quarter. Apart from the solid volume growth of 3%, I would like to stress our high profitability level, which came in even above the previous quarter.

Adjusted EBITDA margin on group level was at attractive 18.3%. Our net cash position climbed again to more than €800 million, a result of the positive free cash flow generation you can see on the next slide.

Operating cash flow of €500 million was significantly higher than in the first two quarters of this year. Besides the good earnings development, we actively worked on our net working capital.

Our disciplined investment spending, CapEx, is broadly stable. So overall free cash flow was 218 million in Q3.

After nine months it already stands at €488 million. We delivered this strong cash flow generation despite higher cash out for taxes as guided.

This year we will see higher cash taxes due to higher prepayments based on the strong results of last year and outflow for tax audit related to prior periods. Cash out for taxes will normalize next year again.

With that let me move on to the performance of our operating segments. Looking at the nutrition and care segment, we have seen ongoing strong demand in most of our care and specialty additive businesses.

Healthcare has delivered another strong performance across all product lines. We recognize a sustainable positive trend in the [API] business due to new customer projects.

The drug delivery business has continued it successful growth cycle. Also in comfort and insulation strong demand in PU foam stabilizers continued across most end markets.

The product mix remained favorable and also Asia after a period of weaker demand had shown a good recovery. In baby care, volumes remained below the prior year’s quarter.

The market situation remains challenging, which leads to persisting pressure on volumes and price. Efficiency improvement measures are underway.

In addition, we are adapting to the current demand trends and have reduced our production capacity by 40,000 metric tons in the US. Let me continue with Methionine where we have seen significant price volatility over the last two years.

In 2015, due to temporary supply shortages, prices reached historic peak levels, but have come down since then to long-term averages as supply and demand became balanced again. The attractiveness of this business remains unchanged, especially considering the long-term growth drivers like sustainability and professionalization of farming.

However, supply and demand of the Methionine market cannot be in perfect balance at all times. In the short run, capacity growth will not always be fully synchronized with market growth.

The development of the Methionine market in 2016 reflects – [Indiscernible] into the year after a short market in 2015, lower market demand and increasing supply that resulted in falling prices and destocking at our customers. In the second quarter, customers restocked and returned to quarterly order patterns.

This was supported by expected and unexpected competitor outages and has led to stabilization of prices. In Q3 however we have seen the end of shutdowns for the capacity ramp ups and temporary weaker demand in some of the emerging regions, and customers to return to more cautious order patterns to take advantage of softening prices.

Overall and despite the usual shorter term cycles, we are convinced that the underlying growth drivers and the supply demand balance are well intact. In our resource efficiency segment, the strong and resilient performance of the previous quarters continued.

Good demand across the majority of the businesses led to an excellent volume growth of 6%. However, against lower prior year comparables, which were impacted by a temporary weakness in Asia, and maintenance shutdowns in PA12 and crosslinkers.

Our adjusted EBITDA grew by more than 20% compared to prior year Q3. Demand in coatings and construction markets remained strong across almost all regions.

Looking at specific business lines it is worth to mention coatings additives we had strong demand in various high-end additives leading to a very pleasant product mix, and silica had a very positive development again in the rubber business as well as in special oxides. The EBITDA margin continued to be at highly attractive levels above 23%.

The raw material tailwind from the first half of the year started to slowly fade, and will continue to do so into 2017. For the fourth quarter we expect the usual year-end seasonality.

Additionally we will have a shutdown in our crosslinkers business. So we expect Q4 to be well below the first three quarters of the year.

In performance materials, the positive development from the last quarter continued. With regard to volumes, especially [Indiscernible] activities developed nicely.

We enjoyed a favorable supply situation and strong demand from coatings and construction customers in MMA. The C4 chain has seen an improving trend throughout the third quarter.

Price spreads widened, demand improved and raw material quality stayed on good levels. A scheduled maintenance shutdown limited further upside potential in this quarter.

Looking into Q4, please keep in mind that seasonality within our portfolio is most pronounced in performance materials. And we will continue maintenance in both [Indiscernible] and parts of our C4 chain.

After commenting on our operating businesses, let me continue with some pure technical accounting effects triggered by IFRS pension accounting. Reflecting the low interest rate environment we have adjusted our pension discount rate from 2.75 at year-end 2015 to 1.5 already in Q2.

In Q3 this level was confirmed. The pension provisions in Q3 were rather unchanged at €4.9 billion.

Looking at our pension plan assets they performed strongly over the last nine months. This is mainly the result of our CTA funding with €1.6 billion in cash over the last two years and also with parts of our former real estate assets.

As you know, we finished the CTA funding plan end of 2015. The excellent performance of 10% in our pension plan assets was able to partly balance the increase in our pension provision.

This leaves our funding ratio at a satisfying level of 60%. Regarding the P&L statement, there was no impact of the lower discount rate so far.

Pension service costs for 2017 however will be calculated with the discount rate at the end of 2016. As of today, this means we will have to apply a lower discount rate compared to the one at the end of 2015.

We have calculated the following sensitivity between discount rate and impact on service cost. The 25 basis point change in the discount rate triggers an impact of around €20 million on service costs, which are part of our EBITDA.

In this context, it is worth to mention that any higher service costs would only be relevant in the P&L, the annual cash out for pensioners is unchanged. So the cash flow for the next year is generally unaffected by this accounting effect.

Coming back to 2016, we had seen the positive trend from the first half continuing across most businesses also into Q3. Our overall balance portfolio and the ongoing strength of resource efficiency and performance materials has helped to balance sequentially lower earnings in nutrition and care.

Therefore we reiterate the outlook, which we had upgraded on the previous reporting date. We are confident to achieve an adjusted EBITDA in the upper half of our guidance range between €2 billion and €2.2 billion.

Looking ahead, we build on these strong fundamentals. We see sustainable good volume and earnings growth in resource efficiency and large parts of nutrition and care.

EBITDA margin in these two growth segments remain above 20%. In performance materials we successfully focus on efficiency and restructuring measures with most effects to come from 2017 onwards.

Also for the whole group, our operational and admin excellence programs ensure the compensation of sector cost increase. Free cash flow generation is strong in 2016.

We do not expect this to change and will remain disciplined in our CapEx spending. These strong business fundamentals will be further strengthened in the next year with the integration and consolidation of product specialty and coatings additives business.

We expect this business to continue on its excellent earnings growth track and to realize the first synergies of €10 million to €20 million. That closes our brief presentation.

Thank you for your attention so far. We are now happy to discuss your questions.

Thanks for taking my brief questions. The first one is on the superabsorbent polymers, you are still challenged by the over capacities in the market, however, you have already started an improvement program on cost cutting and also adjust capacities, when do you expect the first positive outcome here in your P&L, is this for Q4 or is this too optimistic, and we will see the first positive impact here in 2017, that is the first question, and the second one is on performance materials, I am quite [Indiscernible] by the plus 4% in volumes we have seen in the third quarter, how sustainable is this?

Is this driven by the pipeline effect and the additional capacities? Do you have edits and it is coming to an end at some point, or would you say this is really underlying demand, which can also be served by Evonik?

And the final question is just a question of clarification with your pension accounting, on page 13 of that presentation, how should we go into 2017, should we compare it quarter-by-quarter and saying now, Q1 2016 is 2.5%, and 1.5% in the first quarter of 2017. So there is an impact as guided, or should we have a look at it on a average year base?

Thank you.

Lutz, thank you very much. Let me start with the question on performance materials.

I think generally we have seen that the overall positive market development that we have already seen in the second quarter has continued also in the third quarter, generally positive market environment in the C4 chain and in the methacrylates, good butadiene demand combined with tight supply, especially in Asia has driven butadiene supplies up to the highest year-to-date level so far. Also MTBE has seen slight weakness at the beginning of the third quarter, but recovered quickly and has also seen pretty good demand throughout the quarter, plus the impact from some supply restrictions.

Also plasticizers has seen generally good demand, and also the MMA market and methacrylates remain strong based on the demand from coatings and construction markets. On the effect from the new capacities, yes, you are right.

We are still and for the last time in this quarter benefiting from the additional supply from our capacity additions in Marl and Antwerp, but also you have to keep in mind that we had some maintenance shutdowns in the third quarter in MMA and also in C4, so this is somehow balancing out. So, I think we are pretty satisfied with the volume development we have seen across that market going forward.

Clearly this is more as you know more GDP business, probably than a GDP plus business than the two other segments, which have also shown good growth rates over the course of this year so far. On pensions, if I got your question right, yes, this is distributed equally over the year.

So the effect – will have the same EBITDA effect in any quarter in 2017.

Okay. Let me continue with your question regarding superabsorbents, I think we discussed this now for a while.

The demand remains strong and attractive, so we see some 5% per year in this market. On the other side it will take at least one to two years from today for the market grow into the existing capacity.

So I think we are still not towards the end of this. However, in our business we had stabilization in Q3 versus Q2, so it is not getting better but also not worse.

So I think that is a good sign already and we have also experienced a sequential earnings stabilization in Q3, and from today's point of view this would be the expectation for 2017 that this stabilization continues. We continue to work on innovation as we have done throughout all the years in the past to intensify our strong ties to customers to really be sure we are ahead of the curve.

On the other side, I think for the short-term that is maybe even a little bit more important. We are working on our cost position as well.

We have reduced capacity. We are working on improvements in our raw material supply contracts, renegotiations based on market situation and supply mix.

And we are also optimizing our supply chain, so we make sure that we use every potential here. So that would be the answer to this question.

Thank you.

Yes, thanks. I have two questions.

First is on the financial result, and particularly on the other financial income line, which was at a positive $3 million figure. I remember that you expected earlier a 20 million burn from hedging costs in that line as you hedge the takeover price of the performance materials business of your product.

Now I conclude from your report that you had only 5 million hedging costs in Q3 after [37 million] in Q2, can you explain why the hedging costs have been so low in Q3, and a follow-up on that, I heard you saying earlier that you expected also some 20 million hedging costs in Q4 as well, is this still the case? The second question is on the deal you have announced yesterday with METEX about biotech based methionine technology, I understand that you don't talk about the financial details, but maybe you can help us to get a better understanding about how you want to structure the deal, i.e.

up from payment and then some royalties depending on any milestones, or do you expect a certain fee to be paid to METEX, and in that regards to that deal is this a breakthrough technology offering a much cheaper production versus your existing chemical route? Thanks.

Okay, thank you. I will start with the question on the METEX, Tim will continue then on the financial result.

First of all is the non-binding offer [Indiscernible] towards a potential transaction. I think we are the market leader in methionine, and we understand this – by an aminoacid overall, we are market leader in aminoacids.

And in connection to that we are not only looking at existing production routes but also on alternate biotech route. You might be aware that for some of the other aminoacids we are also using biotechnical production processes.

So what is the strategic rationale to take a deeper look into this IP portfolio? Our objective is to have a potential excess through an alternative production process.

It would further expand our technology leadership in the overall aminoacid production for both chemicals, where we are a dealer and fermentative route. From a scientific point of view, the chemical route of methionine remains preferred over fermentative process so far and what we see in the market I think this is still true for the next years.

However, from a strategic point of view holding the leading technology on all potential routes to methionine and also other aminoacids is an important step for us to further strengthen our innovation capability. And we could offer potential for further development of fermentative produced aminoacids besides methionine.

What we see from today's point of view that our chemical route, we are the cost leader, we are the market leader, and from a cost point of view by far the most competitive one but again I think as a market leader we have to make sure that we know all routes, that we know the development in the market. So from that point of view I think it makes a lot of sense to have a look at this.

The technology so far is developed in lab and was proven only on small pilot scale, so if you imagine to go further to a commercial size that will take time and of course, a lot of effort. From our point of view it is really a strengthening of our leading position to make sure we know all the innovation in the market, and our maybe [Indiscernible] from a fermentative know-how to other products in the future.

The deal is – I think the details of the deal are not disclosed yet. So from that point of view I cannot give you more on payment terms and all that.

On the financial result question Martin, yes, we had some hedging effects in the second quarter. We did not have any in the third quarter.

This is a bit difficult to predict because this depends on certain parameters of the hedging we have done for the deal. Anyway it would go against the more favorable US dollar that we have now against the hedged purchased price.

So in the end it is anyway net-net, but no effects in the third quarter here. You are right on that.

In Q4?

Yes. In Q4 as I said.

We need to see how that develops depends on certain parameters of the hedging accounting here. Very difficult to predict, but in the end as I said its net net anyway and going against the hedge purchase price.

Thanks.

Good morning, great [indiscernible]. On the first question, give some guidance what you expect for CapEx in the light of the [indiscernible] APD acquisition and the methionine plan in Singapore which has started in groundbreaking of for the construction.

And secondly, in the current methionine market, how is your strategy and being the market leader in this market where the price decline is quite rapid. Are you refraining from doing business, are you reducing capacity utilization or is basically everyone producing at full capacity.

And last but not least, could you remind me what the pension cash outs per year are. So, of course these IFRS accounting disturbs quite a bit the accounting this the fluctuation and interest rates but what is the real cash out you have to pay for pensions on a yearly base, please?

Okay, Andrea. Thank you very much.

I'll start with the question for CapEx and the filing and Tim will then give you the details on pension cash out. Yes.

CapEx I think for the products business is a little bit too early to give a precise guidance. When we announce it here, I think one of the main guidelines that we outline that they really are not very cash intense.

So, nevertheless very CapEx intense, so this is of course what we also hear for the next quarter but it's in a little bit too early to really comment in more detail. But I would not see a major change in their CapEx spending from what we have seen in the past.

On our CapEx, I think we several times described that we are now in the normalization after we had this strong growth CapEx spending in the last years if given indications what the range is. Of course in methionine plant is heavily CapEx intense that will then in one or the other year lead to somewhat higher CapEx spending.

But if you wait take then a longer ever rich over five or 60th, I think that will then fit again. But I think we have described it already in the past, so no change here.

On Methionine, the markets from our point of view, the market structure is intact. The long term trends are all intact.

Of course they are from year-to-year, some smaller fluctuation in market growth. Please remember we had a very strong market growth in 2015.

So, this year has maybe somewhat below ever its growth rate. We've given you some indication that in one or the other emerging market, growth was not as strong this year.

But again if you look back, the experience very well demonstrates that over longer period many years modular period that growth went perfect intact. But we as the market leader, of course, have our long term contracts with customers.

It is quietly the ordering behaviors from that point of view. We are working with our customers.

As usual they are here and there some changes and behave it how we describe it. But overall, we see the supply demand dynamic basically intact.

On pension cash out, I think we also have a slight on that in back of our presentation where you see that we have about this in last year 2015 about 550 million of cash out for pensions, which is both from the defined benefit plans and from the defined contribution plans. We don’t expect that to change significantly also going forward.

As we said the pension service cost is non-cash and also the other line item should be more or less stable. So, going forward we expect it to be somewhere between 550, 600 going forward.

Not much change, expected. On the cash time, affects up here [indiscernible].

Okay. Thanks a lot.

Hi, good morning. Thanks for taking my questions.

Firstly on the full-year guidance, makes Q4 look quite tame. Can you quantify the maintenance cost you are anticipating for P 12 Crosslinkers, and any other stat we should be aware of?

Secondly, on personal care specifically. Many of your customers have reported very weak volumes in the quarter.

Is that something you've seen in your business as well and what's the outlook for Q4? Have you seen a very strong start volumes in October?

Thank you.

Yes. I think first I would like to remind you that Q4 traditionally is the weaker quarter of the year if you compare that to the [indiscernible] of the other three quarters.

It's one on a 20 up to one on a 50 million difference I think if you take that calculation overall that fits. We've outlined that we had maintenance shut downs and we've had efficiencies.

So, of course that will way on their earnings in Q4 and also performance materials. As I said a normal seasonal pattern shows a slowdown especially toward end of November December in performance tiers and also in some parts of resource efficiency.

On the --.

Can you give any numbers around the maintenance cost incremental over last year?

No, we do not disclose these details normally.

Okay.

But it's not the major influence. The major influence is the seasonality and if you look at the quarterly development of the last year, for 10c quite well this difference that I describe between Q4 earnings level in the other quarters.

And if you apply that I think the guide --.

Okay, understood.

Maybe you go to personal care, we have seen a good development in personal care. We are ramping up or we have to ramp up new capacities in China and in Brazil in the last years.

So, step by step this is contributing to our growth overall. I think it's a very satisfying development there.

And any guidance you can give heading into Q4 in personal care?

We expect that the good earnings and safe development continues all though Q4 is always a little bit weaker quarter to a certain extent also for this business but.

Sure. Thank you.

Yes. Thanks, very much.

Morning Ute, Tim. Three questions please.

On the air product performance materials business, air products was kind enough to give us some guidance for their fiscal year just starting. Would you subscribe to that guidance, I think it implied something like a $184 million of net income.

Clearly, they won't have your synergies, would you subscribe to that number underlying. That's my first question.

My second question is on the EBITDA impact from the shut downs and the maintenance turnaround. So, can you quantify what it was for MMA and C4 in Q3, and for the crosslinking maintenance in the fourth quarter, please?

And then my final question is a bit more general. Excluding the non-cash pension costs for 2017, do you think you can grow your business from an EBITDA perspective?

And again, can you just maybe give us some thoughts on how you see methionine playing out next year both in terms of pricing and volumes within that, please. Yes, that, sorry that's excluding air products.

So, excluding air products. Can you grow the underlying business next year, net of the pension costs?

Paul, on the shutdowns, yes, it did have an effect on Q3, especially in performance materials where we had shut downs in both main businesses in MMA and in the C4 train. We won't give a specific guidance here on the EBITDA effect.

But yes, that had an effect in the third quarter and also the shutdown mainly in Crosslinkers in the fourth quarter will have an impact on the fourth quarter for resource efficiency. As for understanding, that we won't give any more specific guidance here on the call, on the specific EBITDA effect.

Okay. All questions around 2017.

It is a little bit too early to give really specific guidance here for next year. I think we express in our speech that we see, we are confident that the good volume and earnings growth in large part of nutrition and care and resource efficiency will continue.

The EBITDA margins will also see on good level for these two segment to remain above the 20%. Efficiency measures are further paying off and performance material and also some cash generation is on the agenda.

Yes. Products it is for us too early to comment on details.

I think we expect the business to continue to grow when we announce the deal. We also gave some indication what kind of growth potential we do see there.

Once we have the closing behind, I think we are in a better position to give precise guidance here what we see coming from this business on top. We will, we are expecting to realize first financials between 10 million and 20 million next year.

So, maybe that from our point of view. General trends for the segments in next year, I think for the majority of the nutrition and care businesses, we expect to grow the earnings.

We see healthcare on good track and the household care interface and performance there are on very good. Gross tax here also since many quarter.

Baby care, we described already that the situation is challenging, stabilizing, but we've seen no quick relief here from the market. So, that will be a challenge next year from today's point-of-view.

In animal nutrition, methionine prices have also now normalized throughout the year. If you look into next year of course, that is the effect that the ever rich price that we realize in 16 is higher than the price we have now in the Q, I the fourth quarter.

And then if you assume stable prices for the next year of course that is, yes, more or less technical effect on the ever rich price. Overall and despite the usual shortage on cycle, we are convinced that the underlying growth drivers and also the decline demand balance well in check.

If we turn to resource efficiency, we had a very strong year, 2016. So, they have relatively high comparable for next year.

Margins were to some extent supported by low raw material cost, more raw material prices that were not fully sustained into the next year. On the other side, we have seen that resource efficiency is on a very growth part, they have a very broad and resilient portfolio.

They really managed over many quarters to increase volumes, they have capacities that are still ramping up. So, from that point-of-view I think here foundation is laid for further good and profitable growth.

Performance materials, we had a good earnings recovery in this year since Q2. We expect a positive market environment to persist.

Of course, please keep in mind that market trends in this segment can change relatively quickly. On the other side, our restructuring and efficiency measures, that started to pay off in growth, contribute positive in the next year.

Two, just two follow-ons please, Ute. You talked about stabilizing prices in methionine last quarter and they sort of continue to drift down.

Are you seeing stability now, are your contract negotiations for Q1 next year showing you they're not getting any worse from Q4. And when you talk about growth prospect in resource efficiency and PM, is that net of the additional costs that you'll bear from the pensions?

Are you taking that into account when you say growth?

No, let me start with methionine. In Q3 and Q4, the market was as you said, sequentially slightly softer.

We had end of shutdown, here and there capacity ramp up and also in some regions, I mean, merging regions weaker demand at least on a temporary level. This preceded in a more cautious estimate order patterns, but we have also seen in the past that this can change relatively quickly again.

So, for us we look on the long to medium term trend and we see the global supply demand situation more balanced going forward. So, from that point-of-view, the long term trends are in track and as said slight demand situation is balance going forward.

Okay.

On the growth in performance in Q1, this was efficiency I guess there today a bit too early to gradually specifically on any five or 10 million on 2017 will do that as usual. In March, I think would stress that we see good environment in both segments as proven also with strong performance in the third quarter.

No reason at the moment to believe that anything should revert here. But as far understanding that we don’t want to guide here and yet on any 10 million or less even into 2017.

Understood, Tim. Thanks very much, thanks Ute.

Yes, good morning, Ute, good morning Tim. Three questions I got.

First question is in as an add-on question to Martin's question on [indiscernible] the technology just on that you're interested in. can you help us is this a complementary technology to the technology you already have from the white biotech root here.

What is different? And also secondly, will you then use this for human applications where you have then a price premium for pure methionine and do you see other companies which have a similar technology which might come to the market midterm as well.

And do you also do expect counter bits for this technology, that might build all the companies which you might be interested in. and then second question on the interview you see or recently gave on acquisition, so in M&A.

are larger acquisition still a option and how do you see this going forward from your portfolio. How satisfied are with the current portfolio.

And then lastly, regarding add-on question on Paul's question. As the methionine process and with going then does this going down next year.

Can then this 110 million higher EBITDA for nutrition and care the next year. Are you satisfied with this consensus?

That's all from my side.

Okay. Thank you, very much.

I'll start with the M&A and then Tim will give you more details in the consensus for next year. Yes.

With the acquisition of air products performance materials division, we have completed strategically important acquisition, so our main priorities are for now when we're closing the deals and to successfully integrating this business to really generate the full very potential. Apart from that, profitable growth is and remains the integral part of our strategy also going forward.

And as we've as illustrated many times, our growth strategy continues to be based on three strong pillars, investments in our own technology and then side innovation, that's giving you I think a very promising example might be end left of M&A. you see we have also smaller M&A opportunities that we pursue.

So, this is how we look at it.

On the follow-up questions on mid, Markus, yes, this technology is complementary to what we have so far. It's a promising technology for methionine especially, which could be as you also said could be applied also in other fields.

So, generally interesting biotechnology, fermentation technology which doesn't have to be limited only to methionine potentially also other amino-acids or even outside the efficient space. So, this is promising technology.

On the specific target, we have read on exclusivity. So far we have now committed a binding bit.

So, we are confident on this transaction too and process for the end. This thing so far.

So far on this deal, on the consensus for nutrition and care for 2017, I guess you've also seen over the last week, some updates here on the general methionine markets and also some analyst updates on the and on Evonik and also nutrition and care with the mobility picture on that segment going into 2017. And Ute already described, the average pricing effect for methionine where simply for more or less technical reasons as the prices come down in the course of 2017.

The average price for 2017 will be below the average price of 2016 and that should give you an indication for earnings development in 2017.

Okay.

Yes, thanks. Thanks, very much.

Okay, couple of questions. You do seem to be losing market share in superabsorbent polymers given the volume growth.

That this is being talked about by [indiscernible] and also you got to do with the excess [indiscernible] there, the new latest technology. So, can you sort of give a midterm plans and now you intent do completing that space.

Secondly, the restructuring programs, and I might be just being stupid or can't said in the release, but can you just give an update on the benefit to EBITDA of this year and next year. The incremental benefits you hope will be delivered to -- whether it's still if it's the bottom line, but they delivered.

Can you just talk a little bit long terms, I mean also you talk here about methionine in your supply demands bands being stable. But when would you believe by some of the models you have that the market conditions may actually improve.

Are you giving a relatively cautious assessment for 2017? And lastly, is there any update on the shift ons thinking about the shareholding in you company, thanks.

Okay. Tim will take the question on the restructuring program.

I think methionine we just acquired the long term growth drivers, the long term drivers we see. If you look back, I think that picture is more or less perfectly intact.

If you look back the last three years, we have seen short term volatility in this market, yes. But over a longer period of many years I think the market has always shown that the growth drivers are in fact and that the development is intact.

I think we should apply potential new capacity second forth. So, I think that is all known in the market.

And as we say from our point-of-view, we see the long term trends well intact and also supply demand will more or less balance from the point-of-view. You'll really have to understand that we cannot comment on any plans of the foundation.

Four superabsorbent, we describe that will take some times until the market growth into a new capacity. From our point-of-view we are still in many aspects a leading player in this market technology but also innovation plays an important role.

You had the new entrance especially in Asia in the last year. So, of course that's amongst other factors led to this capacity growth.

But in our point-of-view we do the homework now to stabilize the business forever to really underpin all market position with new technology innovations and product innovations. So, that's how we see it.

But it will take some time until this really be as fruit in form of better earnings and yes bottom-line.

To this question on the restructuring program, Andrew. I think you are aware of the two programs we have on track.

Being the first one, I think we have completed that successfully with savings gross savings of more than 500 million meant to compensate as our effect of cost increases of also more than 100 million to a year. So, that is completed successfully towards the end of this year.

Going forward, I think we continue to aim to compensate at least or even overcompensate this sector cost increases that we have of more than 100 million per year. So, even without the new on track program, you can be sure that we monitor that closely and in for further sector cost compensation in any given year.

The second program is on our administrative function, and excellence. Also here we are making good progress.

We've just think in the last week, opened a new service half year for financial services in Costa Rica. And so, continuing to execute on the measures here.

The total growth saving number here was 230 million. I think we've already gone through quite some measures and they are still something to come, I would say about 50 million 60 million growth in 17 and 18 or being growth numbers.

And on top of that, we already mentioned that on the call for performance in 2 years and with their role as efficiency contributors, efficiency in our portfolio, they would execute on further individual efficiency programs. I guess Ute just mentioned and the restructuring program in our sheet business which low in business and low and should generate 20 million savings by 2018.

We'd see first contributions already in 2017 and they are working on more efficiency and cost savings measures in that segment performance into it.

All right, okay. Thank you, very much.

Yes, hello. I have two questions please.

First is on performance materials. You in your strategy you said once you want to dispose this division at some point of time.

However, you did not feel that at the low earnings level, it was appropriate to put it on the shelf. Now we see some improvement in the profitability of this business.

Are you again thinking about putting it on the shelf or is it still too early. That's the first question.

The second question is on the higher cash taxes you mentioned before. I understand this is an effect just effecting 2016 because the base from methionine is basically much higher from previous year.

Two small questions on that. Firstly, can you quantify this effect if for 2016?

And secondly, how quick this should reverse? Is it basically already in 2017 or will that we split over couple of years?

Thank you.

Okay. Thank you very much for your question Thomas.

I will start with the M&N and then we will guide to details of taxes. As of today sale or joint venture of performance it is not our agenda.

We have a differentiated management approach in place and consistently drive each segment towards efficiency with that we aim to improve currently weaker profitability levels and to improve the free cash flow levels. Nevertheless it is of course our responsibility as management to constantly evaluate and optimize the group portfolio so there is a clear focus for performance materials all in all as a cash generator.

Short and contingency measures are in – have been initiated to mitigate market effect like in production and logistic cost savings, overheard optimization. The spectrum project are in execution to strengthen the cost efficiency and the competitiveness.

On the cash tax payments yes you are right, somewhat elevated level this year and after the first nine months of 2016 already are close to 400 million of cash outflow for taxes compared to that last year 2015, first nine months was only 200 million. The reason for that you already explained mainly two reasons.

The higher case bases of the last year of 2015 which is the basis for the tax prepayments in this year 2016 and also we had cash outflow for tax audit relating to other periods also in the cost of 2016 which also won’t reoccur so yes absolutely we see for 2017 we see the basis or we see the level of cash tax payments significantly lower and more normalized again in 2017 plus and also to recall this will have the first benefit, the first tax benefits from the product deal which we guided with $50 million - $60 million also in 2017 and so we should see here significantly lower cash taxes in 2017 compared to the sum of elevated level in 2016.

This is very clear. Thank you very much.

Yes. Just getting back to your methionine comments, and I appreciate its difficult forecasting where the price might be.

But you appeared for taking it back for most of the year by the severity of the [indiscernible] and I think as recently as Q2 you said you probably was stable and it went down again. So I am just wondering about the visibility in this particular commodity chemical where you feel your visibility is such that at this point you’re hopeful that going forward were into more stable environment particularly given obviously as you say yourself very much lose the price side situation and in some areas weaker demand as well?

Thanks.

Yes. Thank you Martin.

Again to methionine after a volatile price development in 2015 and 2016 markets and customers are currently more short term oriented than they were in the years before. I think we have just drive that also in one or the other quarter.

In this market environment small changes on supply or demand or even expectations on changes can result in notable effect as we have been in Q2 when the announcement of plant shut down stipulated change in customers buying patterns to price sentiments. While the fundamental and long term trends can be forecast whether to be accurately the short term events and the implications are very difficult to predict we see some short term volatility we have seen that in the past years.

But on the other side if you look back on the development over the last years on a more ever rich spaces are compounded basis I think the market is very, very well on track with its long term growth drivers and long term trends.

Thanks.

Yes, sorry for the follow-up I mean just on the dividend I know you are thinking about the dividend given the cash flow generation I think the base case is flat this year versus last year, I am just wondering what your thoughts were around that please?

Yes. I think it's early to discuss the dividend because first of all that is an internal question with our boards and supervisory boards.

If you look at our dividend policy I think that gives an indication where we see payout ratios and development overtime I think we made quite a significant step in dividend increase in this year so maybe that gives you an idea what could drive the decisions going forward.

Thank you.

Thank you very much. So that brings us to the end of today’s call.

As usual we will be on the road in the next week, Frankfurt, London, Zurich and the usual conferences. We are looking very much forward to meeting you there.

Thank you for your attention and good bye.