Lanxess AG

Oliver Stratmann – Head Treasury and Investor Relations Matthias Zachert – Chief Executive Officer & Chairman Michael Pontzen – Chief Financial Officer

James Knight – Exane BNP Paribas Martin Rödiger – Kepler Cheuvreux Thomas Wrigglesworth – Citigroup Global Markets Ltd. Markus Mayer – Baader Helvea Stephanie Bothwell – BofA Merrill Lynch Patrick Lambert – Raymond James Financial International Ltd.

Andreas Heine – MainFirst Bank

Thank you very much Emma. And a warm welcome from my end to you ladies and gentlemen.

I'm very happy to have our CEO, Matthias Zachert; and our CFO, Michael Pontzen with me. And before I hand over to the gentlemen, I'd like to briefly point you to our Safe Harbor statement that you will find on the second chart of our presentation because we will be making forward-looking statements as well.

With that, I would like to hand over to Matthias to run you briefly through the presentation.

Ladies and gentlemen, a warm welcome from my side as well. I will start my presentation on page number four, and dive into 2015 immediately a year in which we have achieved quite a lot, please recall that beginning of the year, we started with consolidating the business units from 14 to 10, we sized down the group functions respectively.

And we have equipped the senior managements of LANXESS not only in the boards with strengths and power, but also established below board level, a strong and good management team. With this strong management team, we were able to implement Phase 1 of the transformation, fast and focused, and could implement the restructuring that we committed to you already by end of 2015, a year ahead of plan.

Phase 2 was started in March. It is an ongoing process, and it has in course of 2015 already seen respective capacity reductions in synthetic rubber, of course with all eagerness and focus we continue implementing this as we speak in 2016, and the years to come.

Most importantly, it's definitely the breakthrough which we have achieved in Phase 3 as far as the alliance is concerned. The strategic gap that we had here to raw materials has been closed, and here with the best partner that we could dream off, Saudi Aramco, and with this number one in synthetic rubber and number one in gas and oil team up as a powerhouse, which will weather the storm in the current difficult markets, but we'll make sure that from 2019 onwards this business will harvest respective fruits and will accelerate.

So all of that has been achieved whilst financial numbers improved, which is visible on page number five. We have for 2015 delivered within the communicated guidance at the upper end at €885 million, despite a not easy macroeconomic environment.

As far as net income is concerned, of course we incurred less one-time costs than 2014, which will be continuing in the years to come, but in 2014 and even in 2015, we still had to absorb costs for the transformation. So net income has gone up respectively to €165 million.

And on page number six, you can also see that from 2013 onwards we got our balance sheet again into better territories, reducing again from 2014 to 2015 by roughly €100 million. On the basis of this, the Management Boards and the Supervisory Boards have decided to increase the dividends and to recommend to the shareholders assembly and to our shareholders, a dividend increase of 20%, which we will decide upon in May in our AGM here in Cologne.

It's a clear sign of confidence that we put into this dividend increase and it's a clear sign that we have now regained again a platform businesswise, financial wise that made us decide on this increase. As far as ARLANXEO is concerned, page number seven, I think, we can now look with energy, strive and ambition at a starting point April 1, 2016.

So within just roundabout nine months, even shorter, from the decision that we took in August 2015 to carve out the business, to April, we have achieved a [indiscernible] announcing the joint-venture with Saudi Aramco, starting the worldwide carve out process, establishing legal entity structures, management structures, getting anti-trust approval, finding the name, communicating it and eventually today we've announced also the Management Boards of ARLANXEO, which will go live on April 1, this year. On the closing date, we will receive for the 50%, a net cash proceeds of €1.2 billion, and of course, with this we enable not only the new lenses to have financial platform for reigniting the focus on growth and resource allocation, but also have the same possibilities in ARLANXEO to reinvest into product innovation and to reinvest of course also into potential consolidation moves going forward.

With this, I move to 2016 and beyond, which is reflected from page eight onwards. And here, of course, the proceeds that we will get from the ARLANXEO transaction will lead to €400 million of investments in organic growth in our existing businesses, Advanced Intermediates, Performance Chemicals, and High Performance Materials.

This will not be done within a year, but basically over the next two years to three years. After the AGM, we will start with our share buyback program, and of course, there are certain liabilities that's come due in course of this year, and so we will make sure that we redeem that accordingly.

So we've now with this established the platform in New LANXESS to focus on organic growth and in the years to come also we will not shy away from external growth, and fortunately, we do that in a period of time when valuations are turning into a more benign area. With this, I would like to hand over to Michael to address all financials in more detail.

Michael, your call.

Thank you, Matthias. Welcome as well from my side.

On page number nine, you find in brief the financial overview. Matthias already mentioned, we basically saw improvement in all key figures, so profitability was up, cash flow was up, CapEx was brought down.

If you recall the guidance we gave to you most recently on CapEx, we basically made it very narrowly. If you recall what we told you, what to expect from EBITDA.

So we are basically coming in on the midpoint of the guidance. So I guess we are back on track in delivering on promises, at least if you take a look at full year financials 2015.

The same is true if you look on the next page number 10, when it comes to Q4, pretty much as well in line as expected. We saw price decreases driven by raw material – lower raw material prices to a very large extent in the Polymers and here within the Rubber business unit.

I come to it in a sec. To some extent offset in the currency, overall EBITDA was at previous year level.

Please keep in mind that the results from hedging the negative ones are reflected in our reconciliation segment. Turning into the segments, you'll find on page number 11, the picture of the three segments which we have as of today.

The first one, Polymers. Within Polymers, I would like to distinguish between the rubber BUs and HPM.

The rubber BUs which will be transferred into ARLANXEO some weeks from now. We saw a rather good EBITDA improvement, but please keep in mind that there was an absent of Q4 2014, deval and ramp up, which we were recording.

On the other hand, we had positive effect from the realignment program and the currency, on the other hand, pressure on the margin was brought by the price decline which we were recording in the fourth quarter and some little volume decline coming from the emerging markets. On the opposite, HPM, very nice development in pricing and volume in the fourth quarter.

Advanced Intermediates, very robust as we told you on the Capital Markets Day. There was some price decline but nevertheless margin were kept stable, nice volume pickup, so overall margin improved further to 21%, which is a very, very good number for fourth quarter.

In Performance Chemicals, we saw a mixed bag of development. In principle, we saw flat prices and some relief on the raw material, which gave some hope, nevertheless, and that, is why we explicitly talked about it.

We saw pricing pressure from chrome in our leather business unit. Volumes came in as expected.

We told you as well. We see some smoothening of demand from China, but overall I think the segment is still in good shape.

And if you take a look in full year, margin, we're having a margin level which is rather nice. On page number 12, you see what we in future think about how to report on LANXESS.

We will split up the Polymer segment and therefore further increase transparency of the group. You will find today already some indication about the financials of HPM and ARLANXEO.

You see nice development in all four areas of the group versus the prior year. Still we have to recall and that as I said earlier, that we have negative effects from hedging which are recorded in the reconciliation line, but all in all, I think the business set-up is rather positive for the new group.

Giving an indication about the return on capital employed, which is not put here in writing, but if you do some math and if you take some conclusions out of the Annual Report, you could and you clearly see that the New LANXESS is way above the average of 8.4 percentage points, and rather in the ballpark of 15%, whereas ARLANXEO is rather in the ballpark of 5%. That's it from my side at this point in time, and I'm returning it back to Matthias, who presents to you the outlook for 2016.

Thanks a lot, Michael. So let's move to page number 13.

As far as the overall portfolio of our company is concerned, we feel that Advanced Intermediates, Performance Chemicals, and our HPM business units are on the track to deliver on 2015 levels, performance levels and above. As far as ARLANXEO is concerned, we took note definitely of the fact that here, we have to be cautious due to the fact that in the second half of the year, we do expect that through the new capacity expansion, we have to be more cautious on pricing.

And of course we also here factoring therefore the more modest economic environments, especially as regards Brazil and Asia. And from that perspective, even though we have started the year with the Annual Report, which was a little bit more cautious, and which took into consideration all the news flow we saw in January and February, which was very, very cautious on our overall end markets.

We have based on the good trading pattern that we've seen across the businesses in Q1, we've now decided in the Management Board in March on basis of Q1 trading to upgrade from our original guidance in the Annual Report to a stronger range of profitability of €880 million to €930 million. So in this guidance, we expect that Q1 will come in with €240 million to €260 million EBITDA, and we assume and we've factored in for the second half of 2016, a softer macroeconomic environments as far as rubber is concerned, notably, and with this we would like to turn now your attention towards the questions that hopefully all of you will have.

Please go ahead.

Afternoon, I'll try to ask these questions without coughing. I've got three to kick off with.

Firstly, returning to the guidance upgrade and the monthly volatility, just to be clear, was it the February numbers that inspired the full year guidance upgrade, or what you've seen in March. And maybe if you could talk about monthly volatility buying patterns, input volatility et cetera.

Are we in an exceptionally choppy waters at the moment, or is this similar to we've been used to in other years. Secondly, on the timing of the JV and thinking about future developments, marketing alliances, I think the message is very clear.

At the Capital Markets Day last year that further Phase 3 announcements are unlikely in 2016. Given that the JV's been – should be concluded a quarter earlier, would you still made that statement or is there now possibility that further Phase 3 announcements could be announced?

And maybe a thirdly financial question for Michael. In the fourth quarter, you reversed, I think it was €56 million of impairment charges and we got split, it's roughly two-thirds PP, one-third AI.

Could you just talk what were the triggers for that, and also maybe give an indication of which product areas in PP specifically you reversed some impairments? Thank you.

Thank you, James for all of your three questions. Michael will address number three.

I will address the first two ones. So as far as the quarter is concerned, slight indication, I would like to provide to you, we normally don't give indications on a monthly basis, but simply that you get a sense for it.

We saw January modest. So overall volume momentum in January when we started the year was relatively modest.

This changed in course of February, and also I can confirm this trading pattern, positive trading pattern especially after Chinese New Year. So we saw that March turns also into the right direction.

But of course, in the Management Board, we discussed very concretely and clearly, and we have seen a more robust demand last year especially in March as well. This was a time when raw materials moved upwards, and we saw a lot of order intake in March and April 2015.

So if you look into Q1 this year, January was soft. It can be, because a lot of our customers were modest in light of declining raw material prices, now in March, April raw materials are on the rise.

And therefore, customers might because of this start stronger buying, and therefore we are, here, clearly giving you the indication. It's something, which we see will give us a good footing for first quarter, but we are not blue-eyed to assume that this can continue for the rest of the year.

So for that very reason, I think we take a very clear view on Q1, but we also of course have to factor in the volatilities that are in the industry, that all of you have commented on. As far as emerging markets is concerned, I think, we take a very balanced view on this regards.

And for that very reason, we gave you, I think, clear indications on Q1, to help you modeling on the seasonality also for the rest of the year, with our annual guidance. As far as your second question is concerned, please understand that we have worked in the last seven months, eight months, literally day and night to get the joint venture established in record time.

You see little comparisons, where an entire business of this magnitude, 40% of our entire company has been carved out and established with everything that it needs, systems et cetera, in just such a short period of time. You cannot expect that we had in this period of time, a lot of capacity to think about other moves.

I think for that you need to have a management team. The management team has now been established and announced and we will definitely give the management team another chance for the next one year to two years to also establish their strategic moves, and then come up with recommendations how to play in this markets as a worldwide synthetic rubber powerhouse.

As far as question three is concerned, Michael you take it on.

Absolutely, Matthias. Hi, James.

Yeah, you were referring to the €56 million write-backs which we did in the fourth quarter, which are related to the impairments, which we did in the fourth quarter in 2013. Basically the €56 million split up into the so-called cash generating units, on the one-end side it's the business unit HPE, and the other is, and you recall that one year or one-and-a-half years ago, we still had the rubber chemical business unit and in there we had the accelerator and antioxidants.

These two business line are now one cash generating unit within our AII business, and simply here the performance changed to the better – to the much better in course of the past 12 months. So therefore as we have to review the impairments and the value of the cash generating units, every year we were in the position to write back some of the depreciation we did in 2015.

So therefore we saw €19 million in AII relating to the accelerator and antioxidants, and €37 million to HPE. Thank you.

Very clear. Thank you Michael.

Yeah. Thank you very much.

Welcome.

Yes. And thanks for taking three questions.

Regarding Advanced Intermediates, you mentioned margin was astonishingly high in Q4 with 20.7%. One year before, you had some windfall profits, thanks to raw material costs, which you have not fully passed on immediately.

So the comparison base was already high. You mentioned in the Q4 report that you had good utilization rate and strong dollar.

Were there any windfall profits in Q4, or is there a seasonal pattern that now Q4 becomes the best quarter for that segment? Second question is on tax rate.

The previous guidance was above 30%. You ended up with 42% in the full year, of which 57% was tax rate in Q4.

What makes it so difficult for you to estimate the tax rate. The story cannot be that, that you cannot use the – that the tax rate advantage in Singapore because that is nothing new for you.

Is the reason to special items either negative in the previous quarters or now positive in Q4, which makes it so difficult to estimate the tax rate? And finally, regarding the outlook for ARLANXEO, beside the ramp-up of the facility of Exxon SABIC probably now in Q3 2016, is there any other rubber capacity by any other competitor to come up in 2016 or 2017?

Thanks.

Martin Rödiger, thank you for all three questions. Michael will take the one on the tax rate.

I start with AI and ARLANXEO. So as far as Advanced Industrial Intermediates is concerned or the segment AI, Advanced Intermediates is concerned, I would say, that was simply a rock solid quarter that we've shown.

In entire year 2015, you've seen that the performance was strong, solid, resilient. If you look into the third quarter trading of 2015, you will find out that this was a good quarter, but we had here due to quarterly contracts shift from second quarter to third quarter, we've continued seeing falling raw material prices in Q4, as we see now in Q1, and that of course also led to positive implications in the Advanced Intermediates business, and Advanced Industrial Intermediates business.

We are also quite happy about Saltigo, which had stronger momentum than originally anticipated in Q4, and for that reason we started also in 2016 now, despite the difficult environment that we clearly see in the agro chemicals on a reasonable footing. So I would say that overall Advanced Intermediates continued on a strong note in Q4.

We have also reconfirmed that in 2016, it should go in a very healthy direction, and that's the reason why we considered this segment as so rock solid in terms of international strength, competitiveness, technology platform, and diversification. As far as ARLANXEO is concerned, I can confirm to you that this Exxon SABIC capacity is the only meaningful capacity that remains to come on the market.

It has been announced several years ago. We knew this since several years ago.

And therefore, this is the big remaining capacity that will come on stream with 400,000 kilotons, and of course we are not blue-eyed to assume that this will have no effect on the market. We therefore anticipate that in our full-year guidance.

And with this, I turn the words to Michael.

Thank you, Matthias. Martin, let me put it like this.

Our guidance was that the tax rate will be for the full-year around 40%. And we came in for the full-year at around 40%.

We said and that is true that in the mid-term, the tax rate will go down to 30% to 35% and that is true. Obviously, on a quarterly basis, it is hard to guide and to be exactly at around 40%.

So there are some ups and downs, especially in a quarter like the fourth quarter, where the earnings before taxes is rather low, and you have deviation of just a few million that ends up in the tax rates, which is not exactly what your expectation was. But as said, we came in at around 40% for the first nine months and my assumption and the guidance, which we to a large extent gave was in the ballpark of the 40%s and mid-term it will be reduced to 30% to 35%.

Thank you.

Good afternoon, gentlemen. Thank you very much for taking my questions.

I have three questions, if I may. Firstly, just to pick up on Mr.

Zachert. You said that the M&A environment was more benign.

At present, obviously, we've seen equity valuations come down in public markets, but are you saying that things have become easier to do in private markets as well, and I wonder, what do you think is kind of driving that, given that your guidance has been pretty robust? Second question, if I may, can you just talk about, a little bit about utilization rates, obviously you had idle costs running through 2015 in the rubbers business.

Can you tell us where your Singapore plant is now in terms of utilization rate, and obviously in the light of natural rubber prices, kind of picking up, how do you see those utilization rates progressing, through the course of 2016. And a third kind of more nitty-gritty question, you obviously cite the chrome ore prices weighing on Performance Chemicals.

Can you give us some kind of size of the sales of on an annual basis or some kind of order of magnitude of how big chrome ore is as an impact, given that you have cited it. Thank you.

With pleasure. Thank you very much for all three questions.

Let me take them one-by-one. As far as valuation is concerned, this is not addressing only one or the other market, public or private.

In general, if we look at the valuations, I would like to recap what I've said a few months ago. We started 12 months ago, the analysis on what we do, should we be in a position to have strengthened our balance sheet again.

We are now in a situation where we will come to such a platform of financial strength. And therefore, we should have prepared plans ready what we do organically and un-organically.

So this work was started 12 months ago, and we are therefore with focus and care, prepared to invest in organic growth, but also in M&A. What we've seen in 2014 and 2015 was definitely that any kind of investment was extremely high valued, and what we see now that benchmark simply go down.

And therefore the only statement I make is, we have all the power, we have the strategic analysis ready to be active, but we take that with care and profitability and value accretion in our minds. And it can be in private markets, it can be in public markets, it can also of course be organically, but we have no hurry to build here a rock solid powerful LANXESS group.

That's all I would like to say on the valuation side. And as far as your third question is concerned, on the business, on chrome, I would like to say we are not reporting on a business line level.

The only indication that we give is leather chemicals all in all. We've given the indication.

A lot of analysts said this in the neighborhood between €300 million and €400 million I think indications that we've provided in the past is that chrome ore is simply a little segment of this, but of course it's one that in Performance Chemicals despite that is visible. And that is where we flag that pricing is soft, and its commodity, its raw material, and this of course has good times, it has currently bad times.

Our assumption is that here we are currently at a trough level which will pick up again, and for that reason, we currently give you guidance on the troughiness of chrome for the next several months to come. If it improves, we rejoice, but we would also like to flag the negative stuff that we see in current market environments.

As far as utilization rates are concerned, we've given you indication last year that there will be only a gradual ramp-up of our Singaporean plant; we stick to this. What keeps us away from our last year's indication is today there is one element that we are flagging.

It's that one of our raw material suppliers in Singapore had unplanned turnarounds, which lasts most likely another few months, potentially even two quarters. We consider that Q1, we will be able to address our raw materials for other areas, but therefore we factor into our guidance that we most likely will see here utility or idle costs also in the second quarter, and potentially even third quarter should this cracker not come back to stream.

So this is embedded in our guidance, but for the reason we are flagging it. And we will not, however, give indications on singular plant level as far as utilization is concerned.

Next question, please.

Thank you very much.

Most welcome.

Hey, good afternoon, gentlemen. Two questions, [indiscernible] smaller questions on the guidance and then another one more on the cost savings.

Firstly on the guidance, if you want to, if I want to bridge for 2016 on the EBITDA level, as I divide the data, I assume that you had roughly €50 million inventory devaluation effect and roughly €10 million negative startup costs in 2015, that you will have then roughly €50 million costs in 2016 from the joint venture and then additionally roughly €50 million positive currency impact due to your 12 months rolling forward hedging strategy. Is this the right method then another few millions from this idle costs from the supplier, just elaborate it.

And then secondly, on the facing of this coming cost savings or facing the effect when they're kicking in, maybe you can update us here what kind of effect you should expect, is €20 million the right number for 2016, and of what kind of part is coming then from the rubber part and what kind of part is coming from the New LANXESS? Thanks.

Thank you very much for your two questions. Michael, you will address them?

Absolutely. Markus in principle, the numbers you were giving are right.

These are basically the numbers we were as well presenting to the Street. When it comes to the cost saving of roughly €20 million, we didn't gave, let's say a breakup now per whether ARLANXEO or New LANXESS, but in principle, the number of €20 million from the, let's say from this as well.

On the other hand, I ask you to add back the negative effects, which we are expecting for the year 2016, which is on the one-hand side, which is sometimes forgotten basically the inflation. Please recall and you find the number in the Annual Report where basically, and this is just one example, personnel costs in the amount of €1.4 billion.

And if you apply 4 percentage points increase, which we're recording in the past years globally, you have to add back another €50 million to €60 million. And Matthias was mentioning the outage of our supplier in Singapore, and we were referring to the margin pressure, which we're basically expecting in the rubber business.

So that is what you have to put into your model as well, and then you might end somewhere in the mid-point of the guidance, which we were giving to you.

Maybe an add-on question on that. For this cost savings, I fully understand that you do not give the split-up for the €20 million for this year.

But for this coming cost savings, maybe a split-up on that kind of number. And then on, what you said, then lastly on this negative effect from this Exxon SABIC capacity addition, is this [indiscernible] or this is not yet fully in the market, and at least in the prices you see in the market because everyone knows this, and everyone is potentially also then negotiating this kind of knowledge?

Well, this is public information. And therefore if you look into the Asian cracker markets, it's something that has been communicated respectively, and we are doing this of course here as well, that it has implications.

We mitigate that currently through sourcing our raw materials elsewhere, but of course the longer the cracker will be out, the more logistical transportation costs et cetera we have, because our source is of course close by. And therefore, we do everything to mitigate it, but eventually it's not in our hands.

And therefore we are assuming that this is not only lasting for one quarter, but potentially two quarters. And we factored that in because this is now our assumption we stepped into the market for the first time on 2016 and it would be blue-eyed to not factor that in.

And for that very reason we do our best to mitigate the respective costs, but we take the liberty to be as transparent as we can.

And Markus just to add maybe from my side. The savings, which we have basically out of the second phase of the realignment program, are to a very large extent related to the closure of the [indiscernible] so that would hit or let's say therefore we would see the benefits in ARLANXEO, on the other hand and that has been the last piece of the cake.

You have to, as well, take into account and that is what we discussed as well. We expect this synergy starting from 2016 onwards in the ballpark of roughly €15 million as well.

I think that is then the complete picture.

Okay. Perfect.

Thanks.

Yes. Hi.

Good afternoon and thanks for taking my two questions. Firstly on the cost savings that you've just been discussing.

We know that the closure of the [indiscernible] site will yield around €20 million in 2016. But if I look back LANXESS obviously had a pretty positive track record in being able to deliver over and above its cost savings targets.

So I wonder that in 2016 what the potential was to accelerate some of those cost savings that you expect in the outer years, if market conditions were in fact proved more challenging than you originally anticipated? My second question is on Intermediates.

In your outlook statement, you highlight that volumes in agrochemicals for AI will be at a similar level to 2015. But then if I look in the Annual Report, you say that you expect slower growth in the ag segment in Saltigo in 2016?

Could you perhaps just give us a little bit more color in terms of squaring those two comments? Thanks.

I am not sure if I have understood your second question correctly, but I will start with the first one, and then you might...

Okay.

...reiterate your second question. As far as savings is concerned and acceleration is concerned, I think you've seen that in 2015, we've done a pretty good job as far as the admin savings is concerned.

And that was one of the major drivers for us being able to not only keep our guidance, but even increase our guidance while other companies in light of the turbulent market conditions that all of you have written about, 2015 second half, we were able to keep our guidance and even increase it. But of course the administration savings, cost savings have now been implemented.

We have cut 20% of the entire workforce in the admin area, and this is now implemented. It's a lean and competitive SG&A set up.

For that very reason, you should not assume that in other areas of the organization, we can simply accelerate. If you do cost savings in the operations network i.e., production plants network, of course here when capacities are long, when macroeconomic environments is less benign, you can always readjust, but taking costs out of the production is something that is not implemented from one day to the other, from one year to the other because you have to redirect product flows, you have to approve your products with customers.

And therefore my clear feedback to you is, the savings that we communicate, we want to implement, but you should not assume that we can always just accelerate any savings based on the history, we have put in place in the last 12 months. On your second question, I would be glad if you could reiterate your comment, because I have not fully understood the question.

Sure. Sure.

So within the presentation slides, in the outlook section, you highlight that you anticipate volumes in agrochemicals to be on a similar level to 2015, and but then if I look in the body of the Annual Report, you say that you expect slower growth in ag segment of Saltigo in 2016. So I just wondered if perhaps you could give us a little bit more color in helping to square those two comments?

Well, I think, what we want to say here is basically the agro market in 2016 will not be a great one. This is communicated by, I think, all key five players in the ag chem industry and this is the reason for the consolidation happening.

And, therefore, we gave guidance to you to the markets, we acknowledge this. We are not blue-eyed.

We see that the agro market overall is modest and we will only see that in the second quarter after May, most likely we see if it's coming out stronger again due to the overall set up in the agrochemical seasonality. So we clearly factor in, in the agrochemical market 2016 should be a soft year.

If we then, however, look into our product portfolio that we have and to the mix that we have, we have products in Saltigo where we are having strong mix setup. And that makes us believe that whilst the overall agro market is soft, we should perform reasonably well.

This is how you should understand the guidance we have provided.

Okay. That's very helpful.

Thank you.

Very welcome.

Good afternoon. A few question from my side.

The first one, I think, relates to your view, your outlook on tires market. I think if I look at the comments of all these companies, they are citing a pretty reasonable volume growth, especially in replacement markets where [indiscernible] have been pretty good last year, so it should accelerate.

Is that something you are seeing, discussing with clients and what's your view on volumes in the synthetic rubber to tires industry in 2016? That's my first question.

And if you can comment a bit more on your view of China in that regard. The second question is on hedging.

I think I kind of remember the €15 million bridge for this year compared to last year. Could you elaborate a bit on what should we use as an average rate of hedging in 2016 versus 2015 for us to calibrate a bit more of this €15 million is possible?

And the third question is very simple on accounting, are you going to allocate the reconciliation to ARLANXEO, so that we can also still see the minorities interest we have to take out? Thanks.

Patrick, I will take the first two questions. Michael will take the second part.

So as far as volume growth is concerned, we take note of the, of course the report that all our tire manufacturers are doing. We are following them.

We are talking to them. We have custom feedback of course in all the customer meetings that we have.

And so, overall we expect the volume growth in tires to be somewhat in the area of 2% to 3% this year. If overall momentum is stronger, it might be at 3%.

You have also some other market players that are softer in their tonality. But if you look at our tire customers, they're all in the camp between 2% and 3%.

Some are softer on OEM, some are stronger on replacements. And of course if you look at the entire global momentum, we see tire this year growing volume wise between 2 percentage points and 3 percentage points.

China is a little bit more delicate. At the beginning of the year and at the end of 2015, that China was expected in the tire markets to soften in terms of growth rates, and we have seen that in January.

But we see now also that the OEM industry in China is picking up. And we see also that replacements is healthy.

But as far as China is concerned, I come back to what I said last year. we see the – generally the Chinese markets from the tire production landscape, but also from the synthetic rubber landscape in a situation of overcapacities.

We therefore consider that 2016, 2017 in the Chinese markets there will be a stronger consolidation happening unless it is mitigated by further credits coming from the Chinese government. We saw last year clearly that a consolidation process started on the side of the tire manufacturers in the Chinese market, local markets.

It's now developing a little softer because we see that also the government in China is somewhat mitigating here, supporting through credits again. And therefore tax schemes, OEM supports, and therefore we have to see how strong consolidation will play out in 2016 and 2017.

Fundamentally, it's healthy if the markets consolidate. And that's my take on China.

Michael?

Patrick, with regards to hedging, you're right. We expect a €50 million improvement versus 2015 and we gave the guidance on the U.S.

dollar expectation of $1.10. But please accept that we are not giving any more details on hedging rates or any other, let's say, average currency rates on which we did the hedging.

With regards to ARLANXEO and the impact, we still fully consolidate ARLANXEO, so therefore, there will not be any changes in the way we report. Of course, you will find in the net income, the share which we will, let's say, which belongs to Saudi Aramco in the ARLANXEO joint venture, that will be obviously then the net, net, net number, but otherwise all other reporting structures will remain the same.

So you're not going to separate reconciliation.

No, not. We are not going to do that.

Okay.

Three questions, if I may. I'll come back to the corporate cost line.

It still looks quite high if ARLANXEO is a separate joint venture. Is there anything you can do to bring this line to a smaller expense in light of the small organization excluding the standalone business of ARLANXEO?

Secondly, on Performance Chemicals, you describe it as more, let's say, stable development in the current year, and outline that the leather business [indiscernible] chromium part in it will be down. Is there any other business line where you expect a decline or all others at least slightly increasing?

And then, one question regarding the organic growth project where you want to spend an additional €400 million. These organic growth projects will also last several years – two years, three years and the free cash flow you generate is quite decent in dividend, not too high, so you would be able to finance these additional €400 million also without the proceeds of the joint venture.

So why do you allocate these €400 million which you can only spend over the next two years to three years to this rather than allocating this for a different use? Thanks.

Well, Mr. Heine, as far as the €400 million is concerned, I think what we tried to elaborate on in third quarter last year, in our Capital Markets Day event is that the €400 million of projects that we have identified are projects like the one we do in the [indiscernible] in Saltigo that are financially very attractive investments.

And therefore we wanted to make sure to you that we have enough projects in our organization where we can structurally enhance our business, enhance our current portfolio and make businesses grow that in the past got less attention because the focus was rubber entirely. So that was the clear idea to make sure that you understand that the three divisions that we comprise as the New LANXESS have all the potential and market technology position to go for growth in a financially attractive way.

As far as financial strength is concerned, we definitely have financial strength now again, and we will use this in the right resource allocation to one, show clear signs to shareholders that we also acknowledge that shareholders helped us in more difficult times 2014, and of course here in alignments with the Supervisory Board and Workers Council Representatives, we decided together to go for the share buyback program. We of course are looking at the dividends.

We of course are looking at other organic and inorganic investments. And I think therefore it's a balanced resource allocation that we have communicated to the Street.

I think Michael will take the first question that you have mentioned.

Yeah. Andreas, with regard to corporate costs and the level of the corporate costs.

On the first, let me or let's say first address that we obviously already worked on it with the realignment program. We will bring the costs down and the guidance for 2016 is already that you see that costs are brought down.

But yes, we obviously have to work on the cost base in the reconciliation line. But still on the other hand, we have some years to go down the road where we have agreements with ARLANXEO to take up some of these costs as well for the next years to come.

And with regards to the Performance Chemicals outlook, I think we basically made it rather clear when it comes to volume we explicitly said that MPP and LPT are expected to experience some volume growth in 2016 over 2015 and we said as well that the new flagship business units, IPG and ADD should as well benefit from new capacities and newly established business platform. You know that we expect our new IPG plant in China to come on stream in course of the next few weeks.

So therefore, I think the expectation for the Performance Chemicals business goes into the direction that even though we have this – let's say more uncertain environment that we will as well rather be robust in the next quarters to come.

Thanks.

I think this was the final question.

Ladies and gentlemen, on the basis of this, I thank you for your participation to full year conference call 2015. We would see us on the road.

Michael and myself we'll start road showing with our strong IR team now. I wish you all the best for the seasonal holidays that are for some of us in front of us.

I'm looking forward to seeing you all with Q1 conference call and perhaps face-to-face in our run that we will organize for the June 19 with great energy and excitement. Thank you so much.

Take good care. All the best.

Bye-bye from LANXESS.