Lanxess AG

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

James Knight - Exane BNP Paribas Martin Rödiger - Kepler Cheuvreux Peter Spengler - DZ Bank Lutz Grueten - Commerzbank Patrick Rafaisz - UBS Markus Mayer - Baader Helvea Andrew Benson - Citi Patrick Lambert - Raymond James Andreas Heine - Main First

Emma, thank you very much and a warm welcome to everybody on the phone. Welcome to the third quarter conference call.

I’m very happy to have Matthias and Michael with me. But before I hand over to the gentlemen, I'd like to point you to our safe harbor statement, since I am absolutely sure during the call and the presentation, we'll be making forward-looking statements as well.

With that I am happy to hand over to Matthias Zachert, our CEO for the first presentation.

Ladies and gentlemen, warm welcome from LANXESS Group and we are delighted to give guidance and of course comment third quarter developments. I’ll start with the presentation on Page number 4.

And as you can see the business highlights being summarized here. Third quarter came out with a strongest volume growth which was one of the key reasons why we performed nicely as far as EBITDA growth is concerned.

Besides that of course the key strategic moves were made. One, the first consolidating for one month of our Chemours acquisition.

The integration is running extremely well and we see a strong. I think all the Chemours people that are now joining the New LANXESS configuration of enjoying the strength and the atmosphere of our way going forward.

Also as far as the announced acquisition of Chemtura is concerned, we this year expecting the closure of the transaction midst 2017. And as far as the first preparatory steps for the integration is concerned, we are moving in a very good atmosphere, high professional level in the right direction.

I will make comments on this as well. As far as realignment of phase 2 is concerned, I can once again reconfirm that we are progressing extremely well and here the teams that have advanced nicely also in the past few months.

Some downsides are definitely the competitive price environments in some of our rubber grades. We had highlighted that already in the last few months.

This is something that will continue also in the fourth quarter and will definitely be also therefore the next one to two years. And as far as agro chems are concerned, clearly here we see the market is very soft.

It will become softer in the fourth quarter. It’s embedded however in our new guidance.

With this I’ll turn to the key highlights on the financials which you can see on the Page number 4. All in all, sales were down due to raw material price pass-through.

But as far as profitability is concerned, a very nice punch on the volume sides across the segments. I would like to indicate however that we saw some pre-buying activities also in the third quarter, which however we are not influencing the strong volume growth in the third quarter.

So this is potentially around about 1 percentage points all in all due to the rise in raw material prices that we have seen in the fourth quarter. Another element I would like to highlight is the improved product mix.

It was an element already visible in the second quarter. It’s an element that you can see again in the third quarter notably in our engineering compounds as far as high performance materials concerned and also as far as our performance chemicals business is concerned, where we punched nicely especially in the two business units where we also are in the process of acquiring i.e.

our bioscience business i.e. our additives business.

And eventually due to the volume growth hitting very good and lean cost structure, of course this ignited further the structural upgrade in margin but also absolute growth in EBITDA. So as far as net income is concerned, I think 50% plus leave a clear mark that the company is going in the right direction.

With this ladies and gentlemen, I turn over to Page number 6. Improving financial is one thing but of course we have to take care about sustainability and the quality this year as far as long term aspirations are concerned.

So we again entered the Dow Jones Sustainability Index World. And the other elements that we are quite proud to report is that for the very first time in the company history, we were integrated in the Carbon Disclosure Project and listed in the CDP lists in the A list which as a matter of fact only 200 companies worldwide have achieved so far.

With this I move over to the financials and I am delighted to pass on to Michael Pontzen. Michael, go ahead.

Thank you, Matthias. Hi everybody as well from my side.

Page number 7 you find the financial overview. You see sales as discussed declined by roughly 7% due to prices driven by the raw material deflation.

On the other hand, we posted for the Group a very strong 5% volume growth, which as well improved let’s say utilization rate for the third quarter which in turn then had a positive impact on the profitability and the same as true for the before mentioned phase 2 realignment program savings which kicked in a little bit faster than previously anticipated. Networking capital is basically on Q2 level.

We told you at Q2 results call that we expect inventories to increase. That happened now in the Q3, still we expect inventory to decline again, which basically is the usual seasonal pattern which you find in our accounts every year.

Turning to Page number 8, you find the development per segment and you recognize that the New LANXESS segments and New LANXESS as a group is posting even in sales increase with an improvement on EBITDA which is driven by a very strong volume increases throughout the three segments. Jumping into the segments, you’ll find Advanced Industrial Intermediates, a very strong growth rate of 7% volume driven.

There is and I have to put some water into the wine because they was and there is a little basis effect because in Q3 last year, you will recall we had an unplanned maintenance shutdown back in the U.S. but still we were able to post very strong growth volumes and we were even able in our business units Saltigo to balance the weak agro business with our fine chemicals business namely with Saltidin.

All-in-all the strong volume improvement and therefore higher utilization rate lets to a margin improvement and EBITDA improvement in the segment. Turning to Performance Chemicals, here we posted volume growth and nearly all the use namely in our flagship business units additive where we recorded nice improvements in all our business lines.

With regards to prices, we saw mainly price declines at our leather business unit. You recall the story we told as well in the second quarter on a comparable basis chrome ore prices are lower than previous year.

Still on the sequential basis, we see that there is a slight improvement in the pricing structure. With regards to Chemours, you find in the portfolio part of the segment.

We post impact of the integration and the numbers basically came inline what we told you for the annual numbers and the annual numbers we told are roughly 100 million of sales and roughly 20 million of EBITDA. And keep in mind we recorded Chemours for one month in the accounts.

Looking at HPM, very nice improvement in profitability driven by the improve mix of products which we sold into the market and the volume obviously. So the strategic direction towards the compound business is truly paying off.

The price decline was driven by the raw material deflation which we’re recording, so all-in-all a very nice, a very strong Q3 follow-up high performance material business and all-in-all for the New LANXESS segments. Looking now at ARLANXEO, ARLANXEO still continues to record pressure on some of our margins namely EPDM in Asia still ARLANXEO was well was in a position to really post very strong volume growth in the different rubber grades especially coming from Asia namely China, which let to as well to improve utilization rates.

And in parallel to the support on the, let’s say fast implementation on phase 2 realignment, we were posting some EBITDA number around 90 million in a margin of 13% which is still not too bad for this segment in the environment which is given. That’s it for my side at this point in time and I’m handing over to Matthias again.

Thanks, Michael. So on Page 9, we highlight our new guidance.

Based on the good performance year-to-date and the acceleration in savings that we have put in place so far, we are upgrading our guidance to EUR960 million up to EUR1 billion EBITDA. As far as current view is concerned and here we factor in already what we see in the volume momentum until year-end, we this year considering that we will finish the year exactly midst points to the guidance.

And I think if you look into the last few years, the November guidance we have given for the full year has always been exactly delivered. So a few points I would set light on as far as Q4 is concerned which we currently see and we would like to pass that on as information to U.S.

We saw in September, momentum in volumes that were driven from our point of view due to the increase in some of the raw materials, so a certain amount of pre-buying cannot be ruled out. I’ve given indication that this was not the majority but it’s around about up to 1% of the volume growth we posted in the third quarter.

Second elements we would like to stress very clearly, fourth quarter previous year has seen a relatively strong base in advance industrial advance intermediates. The business is extremely solid also this year and so our clear belief is that it will continue in the next two years.

But the basis Q4 in 2016 and AII is simply the high one. So this needs to be flat.

Another point is we see that agro chemicals remain sluggish. We communicated to you in the summer already that Q4 will be the weakest volume performer in Saltigo and there is no change in this guidance.

And as far as automotive industry is concerned, we currently see that U.S. is clearly softer in Q4 and Europe is modest.

And therefore we factor in this seasonality in our guidance as well. On rubber, we clearly would like to stress that notably EPDM that pricing pressure is on and it is something we see for Q4 but also remaining very competitive in 2017 and 2018.

Last but not least, we do have some supply outages unfortunately the cracker and supplier in Singapore of the monomers again had a shutdown in October and this is going to impact most likely the fourth quarter in rubber. And also some shortages not substantial but some shortages on one product here in Europe is visible in our Advanced Industrial Intermediates business.

Not that visible to you but we are here at least facing some supply outages. So these elements we would like to take you into consideration.

Despite that we consider that when we reach that point of our guidance for the year, we would be able to have a fourth quarter which shows EBITDA growth rates, which might even be slightly better than the third quarter. So all-in-all, I think we give you a clear committed, realistic, strong guidance for the full year and for the fourth quarter and for this you should see that the New LANXESS is fully on track.

In 2016, we have established operationally, but also strategically a platform with which this company is going to accelerate and transform itself further structurally in the future years. Ladies and gentlemen, this is what we would like to convey from the LANXESS side, and we are very happy to take your questions now.

Good afternoon. I’ll kick off with three if you don’t mind.

Firstly on automotive, I understand the comments on the fourth quarter, but is there anything you can see or your customers tell you that might just give us a stair to have a think about 2017 whether there are any grounds for continuing that cautiousness or conservatism if you like? Secondly, an old question, the FX hedging losses in the reconciliation line, if we projected forward spots, what should we model for that cost a loss in 2017, please?

And thirdly, in terms of phase 2, you’ve consistently beaten at least the timing on the benefits. Could you rule out or are you prepared to rule out at some stage upping the eventual cost cutting target and is that something we might expect around the full year results next year?

Thank you.

James thanks for your questions. I would take number one and number three and Michael will address FX.

So as far as automotive is concerned, I think the overall the automotive industry into 2016 had a good run, so what we what we see in our current feedback from the industry is simply there's a softening in the U.S. for the month of October, but overall not across all OEM companies, so simply we see that like in any other year fourth quarter of intends to be a little weaker and this is something we can see also for the North American industry while so far year-to-date the business performed very nicely, and we see it also for the European industry.

So here there's nothing fundamentally that has changed, the only element for 70, where we assume automotive industry will be again a reasonable contributor, the one thing we would like to highlight is we had a very good momentum in China in 2016 also based on certain governmental subsidies. These are running out in the next few months and now we have to see if China will continue with this will change them, and therefore we simply would like to highlight that it's not a given that the growth rate that you've seen in 2016 will be the same in 2017 and for that the reason we simply are modest and keep our feet on the ground.

As far as your question on phase 2 is concerned, I think we advanced very well so far, and if there is more in the game or not we would comments with our fourth quarter conference call. We would count our innings beginning of the year and compare that versus our original estimates and then we would see what comes out and this would be then communicated with fourth quarter numbers.

Michael how about currencies?

James, thanks for your question. With regards to the impact in the current year we adjusted our number to that we now expect an effect of roughly $70 million in our 2016 numbers which is basically driven by the obviously change in currency rates, and here you know the two major FX rates are U.S.

dollar versus euro and Brazilian real versus the U.S. dollar.

And as we saw some developments here we adjusted our let’s say rate for 2016 with regards to 2017 we obviously don't know what the rates will be, but you know that the hedging portfolio of ours is adapting and we have a rolling forecast or let’s say rolling approach with regards to hedging so the number for the hedging next year should decline further if all ethics rates they the same, but it's way too early to give a guidance on that, because we don't have a view on the on the rates for next year.

Next question please.

Yes, thanks for taking my three questions. First on the strong volume growth in Q3 in Asia given the strong demand you said the pre buying had only a small impact.

So what was the back ground for that strong demand, I guess this comes from the automotive into the tire industry that maybe can get a bit more lights on that? And the question is on ARLANXEO obviously a quite strong performance in Q3 also earnings wise, and I would like to know to which extent have you been held back in selling digital volumes, having supply problems or having problems from your supplier in Singapore, so have sold more volumes maybe you can give us some indication on that?

And the third question is on cash flow obviously very strong performance Q3 and you had yet networking capital reduction. What is your expectation for network capital sales ratio by year end, and also beyond, and maybe you can give us some indication to which extent that net worth and capital sales ratio will change after taking ARLANXEO out of people for you and putting Chemtura into you before you?

Well, let us take them one by one. So I would like to be a little bit more specific on third quarter volume growth of roundabout 5% here.

Indeed as I said before, we had roundabout up to 1% volume where we assume that this was back on fourth quarter, so pre-buying due to increase in some of the raw materials for some of our respective product offerings. So that was roundabout up to one percentage point.

So the other reasons for seeing this strong growth in the third quarter was definitely Asian momentum, we saw here that we started Q1 in a very sluggish, volume momentum in China or in the chemical industry picked up in Q2 and as a matter of fact turn to an even stronger momentum in third quarter, and therefore that was definitely one of the driving forces behind the uptick in volumes. I would like however to allude also to the fact that we saw no negative impact anymore in the third quarter on ARLANXEO here the supply issues basically finished with the second quarter, but they would come up again in the fourth quarter and third quarter we had a normal supply situation.

If you then go back to the base in 2015 reflect in third quarter of 2015 that we had a force measure in North America which of course a lower to base and this were basically next to good organic growth and momentum and many of our good products the reasons for the higher volume momentum, which we saw in third quarter. So with this I think we've addressed question one and also question two.

And as far as networking capital is concerned the one point I would like to make last year's ratios for networking capital should be somewhat also the ratios for the fourth quarter. I would recommend to you to here take this into consideration we don't guide hearts on networking capital ratio, so if I think the historic performance is a good indication.

And now projections on mix and how those changing ARLANXEO versus Chemtura et cetera, I think these are questions operationally we will answer once the businesses have been on board its or one day deconsolidated.

Thank you.

Most welcome. Next question please.

Yeah, good afternoon. Thank you for taking my questions.

And first on Chemtura which you will close next year may see cyclicality have Chemtura compared to performance chemicals in the same range or is it more resilient. And then on your financial results, which was much better in the third quarter.

So it's probably based by erode it's based on lower exchange losses mainly can you give us a run rate going forward? And then on your competitive situation in the other rubber product lines which are not EPDM how do you see the competition from Middle East and China at the moment for ARLANXEO?

Thank you.

I will address first and third question, Michael will take up the question number two. So the cyclicality is concerns on Chemtura the one point I would like to make is I mean it's a chemical business, so it has its own cyclicality, it's definitely less cyclical than the assets intensive business that we have in ARLANXEO point number one.

Point number two it has a very complimentary and different industry than our existing lengths of portfolio we clearly increase the lubricant additives which we currently have only marginally in our performance chemicals business. So here we open up a completely different new industry that we know very well, and this will reduce the overall cyclicality of ARLANXEO’s portfolio.

As far as the flame retardants are concerned this is very much in line with the flame retardants we have, so it's the same cyclicality of the performance chemicals in this very space that we have. And as far as the organic leather are concerned again they suit different industries or different customers that today we don't have.

So if we look at the businesses that one day would be deconsolidated and the control of business that will enhance of our additives business, the volatility of the LANXESS group will be visibly will be reduced. Now as far as the third questions concerned EPDM clearly we see that new capacities are now entering the industry in the Middle East notably stemming from the joint venture between Exxon and SABIC.

So this is something that we see and we assume that this would be an elements spilling over into 2017. And capacities in the Asia have already been added in 2015, putting pressure on margins and also this we assume would continue in 2017 and 2018.

And with this, I hand over to Michael for the financial results.

Peter, with regards to the financial results, please keep in mind that in the third quarter, we posted roughly 6 million income in the reported number, due to the fact that we sold a share in [indiscernible] is a procurement platform. We briefly highlighted that in Q2 already but we were in a position to record the positive effect in the third quarter.

So you have to basically add that 6 million from that affect which gives you a good indication of maybe a run rate for the next quarters to come.

Very, clear. Thank you.

Yeah, thank you. There’s one question left and it’s again on the guidance.

And if I take the midpoint of the guidance, as you already pointed out then you expect an acceleration of earnings growth in the final quarter. So compare that to the third quarter I think you talk about 200 basis points acceleration.

And I’m just trying to find out whether it’s coming from, is it New LANXESS doing better, is it ARLANXEO doing less than expected or it’s also the base effect from the unskilled maintenance shut down out of Q3 last year spinning over into the final quarter last year lowing the base on comparables? Thank you.

Valid point Mr. Grueten.

So here I would basically say that as far as the three divisions of New LANXESS are concerned, we see that they despite all clarification points I’ve mentioned for fourth quarter are fully on track and therefore in light of the momentum that we have here, we do see that these businesses will strongly contributes towards the performance we have in the fourth quarter. And secondly, the cost savings that have been implemented throughout the year, we foreshadowed to roll through the cost base as the actions have been implemented and that gives us the reason to guide the 200 basis points higher for the fourth quarter.

And the base effect out of the unscheduled shutdown spinning over in Q3, Q4 last year into this year?

Well, this is taken into consideration. So here we had the implications notably in the third quarter last year as fast as intermediates are concerned.

So we came back with full steam volumes and with the high prices. So therefore we had a very strong volume pickup due to the shortness of the products and it cranked incremental volume came with higher pricing.

And this year, we will moderate volumes in fourth quarter with good prices but of course both being at normalized levels. And that was the point I made for Advanced Industrial into Intermediates.

So here in this area, the business is performing very strong in Q4 but in Q4 last year, you simply had an uptick due to the tight market in the third quarter 2015.

Thank you so much, very helpful.

Very welcome. Looking forward to seeing you on the road tomorrow.

Thank you. Good afternoon.

Few follow-ups from me and a question on high performance materials, I’ll start with that one. Very nice margin progression here in the quarter and of course you mentioned mix and higher share of compounds utilization rates, but how did the underlying margins for polyamide and the compounds evolve, please?

That’s the first question. Then secondly, can you talk a bit more or in more detail about the pre-buying that’s 1% volume effect, where exactly did that happen, can you split it out maybe geographically and per business unit at least qualitatively?

And the third question and I hate to come back to this but ARLANXEO, actually year-to-date and Q3 EBITDA performance in absolute terms is pretty good given the best situation. So given potential further cost takeouts in 2017, how bad can it become with the competitive pressure, how much downside do you see on absolute EBITDA here?

Thank you very much.

Hi, Patrick, well, all very qualified questions, so let me take them one by one. As far as the HPM business is concerned, I think we very clearly alluded to the fact that’s here, it was the mix that turned the business nicely upwards of course in currency some raw material benefits et cetera same communication as in the past but basically here the strong message we would like to convey, we change the mix in the segments and this makes the business stronger, one.

Two, in HPM, we were able to takeout also costs visibly in the cost of goods sold which also is benefiting this business. And then third, next to mix costs we had a volume uptick nicely and here especially on the engineering plastics side, the engineering resins and all of that led to an absolutes.

Improvements and if you then have better mix costs higher utilization of course you see structural upgrades in margin. So that was basically the driver in third quarter as it was a nice driver in the second quarter.

And we highlighted to you that we would like to bring this business in the next several year further closing the value chains making this business far more resilient than it has ever been in the past. So here I think we just progress nicely.

You asked and the second question for your pre-buying, the most visible pre-buying we definitely had in rubber in the third quarter and that explains to you potentially why the business year despite clear price erosion we suffered in third quarter a structural price decline notably in rubber. But we were offsetting this through A, put momentum on volumes; and B, we are quite focused in implementing phase 2 in an accelerated way not only in the New LANXESS but of course in the areas where we have structural issues.

And that basically led to the fact that here we were able to keep the margins but of course we cannot accelerate always further. So here I would like to clearly loots or indicate to you we are doing everything to manage this business as best as we can.

I think we have one of the very competitive platforms but at some point in time, we simply have to sweat also in rubber through next one, two years of oversupply and then this business should turn again. With this I would like to hand over to the next question.

Good afternoon, gentleman. Three questions for from me.

Firstly, again on HPM, the strong growth and maybe update us on a yearly base, where do you expect your capacities which you’re sell externally, where do you stand in terms of utilization for you internal demand? And secondly, on the raw material tailwind, you’ve experienced in this business unit and other, what do you - if you expect to remain this tailwind in the fourth quarter and also then going into 2017?

And then lastly, the start-up of the plant, do expect any kind of impact for your Advanced Industrial to Intermediates? Thank you very much.

So let me address them one by one. In the Capital Markets Day then that we had on meet the management we get indication that the 2016 merchant market exposure that we have in couple has been visibly reduced versus previous year to something now being around 10% to 15%.

So there's no change in communication from just something that we said three months ago, so this is our view on how we by and large we finish 2016. As far as tailwind is concerned in the fourth quarter we should not speak about tailwinds, anymore because we see now that raw materials are on the rise again.

So he would rather be in products like EPDM the squeeze because if some C2 C3 move up whilst additional capacities come on the markets. We cannot talk about tailwind anymore.

In the other grades as far as performance chemicals and intermediates and HPM is concerns our view is that here we basically keep our margins by and large in the same corridor compared to of course the seasonality that we have. So here the raw materials are less important compared to rubber.

And as far as the methanol capacities are concerned. I mean here in the past we've seen competitors as well, we don't see any implication negative, because the situation that we have with our methanol production is that we have long term contracts that are basically not only for quarter, but for many, many years with our strategic customers and for that the reason we think that we're very well positioned here to continue the momentum that we had in the past few quarters.

Okay. Thank you very much.

That’s helpful.

Most welcome. Next question please.

Yeah sorry, sorry I'm on mute. Sorry apologize.

Matthias you've expressed results series of sort of cautionary comments on the fourth quarter and you’ve upgraded guidance perhaps you could just refresh me on what the good bits are to be expected in the fourth quarter? You haven't mentioned I think about butyl reflect our BPDM is being a challenges, is that doing better than expected.

Can you just give us some indication of your initial considerations about Chemours Now as it will that better part of the business, and how you think that will do in the coming quarters? And lastly from strategically you've made Chemtura where you're planning to complete the camp Chemtura deal in the - during the course of first half, and not always as a fairly significant deal in the context of LANXESS so where does that leave if not resource for ARLANXEO to also acts as a consolidated in the market?

Thanks.

Thank you, Andrew for all four questions. So as far fourth quarter is concerned as I indicated before in the new lengths of divisions we have a good momentum, and we see that this is ongoing in the fourth quarter despite everything that we've highlighted.

The second point I would like to stress is the cost savings we implemented in 2016 of course got bigger quarter-on-quarter, so the level of positive impacts will be most visible in the fourth quarter as they add up stronger as more and more actions have been implemented and course of 2016. So I think these are the two elements that make the guidance on fourth quarter.

As far as the butyl concerns, I would say there is no change the competitiveness in butyl remains, but here we've seen that despite pricing being already pretty low we were able to keep our market share, our volume momentum, and for that the reason it's a tough fight. We are not pushing volumes, but we are disciplined on pricing, and pricing here is very tough already there's still a possibility that this is going to change slightly downwards, but it can also change once the market has absorbed all additional capacities over the next 12, 24 months our view was then it can change upwards.

As far as Chemours’ concern for the fourth quarter of course different to Q3 we would have two incremental months. This is not going to rock the needle, it might be $1 million to €2 million of EBITDA being added to the P&L versus Q4 2015, but of course we always enough to take anything incrementally.

And as far as the last question is concerns of course Chemtura is an acquisition where we have to clearly focus our entire resources on to make it a success. With this automatically I can confirm what we've said in the last few quarters.

In ARLANXEO the joint venture is now up and running for six months, in ARLANXEO we are prepared for taking consolidation moves, but this will take time. We are prepared to make small acquisitions as a first step that can happen any time, but don't expect that we here over the next 12 months come out with something very meaningful for that we first of all have to get the Chemtura acquisition integrated once it is approved by shareholders and antitrust authorities and make it a full success and then we continue considering what the future is going to offer as opportunities for our company.

Thanks very much.

You're most welcome.

Hi good afternoon, hi Matthias, Michael, few questions on my side. The first one of EBITDA bridge I’m and always trying to get all the moving pieces and looking at in particular again HPM in €35 million you mentioned the sources of income could we assume that that the actually pretty equivalent in terms of cost volumes in mix contributing to the €35 million EBITDA year-to-date the progression, question number one.

Question number two, unlike the challenge with the I guess outlook thus for Q4 because I understand the comps but growing into 2017 we are seeing volumes actually picking up in all major protection companies in this quarter and next on better supply chain invent to is et cetera, et cetera and strong demand. Is that your view of so far 2017 that it's not as bleak as it looks in Q4?

That's a question number the two. And question number three pricing.

Again I got it bit wrong this quarter, bit higher impact negatively on prices. How do you see prices in Q4 in terms of what you're seeing so far in EBITDA in our metrics, I was surprised of your negative in advance intelligence in particular if you could explain a bit more why it was down with 6%, 7% in Q3 I know it's mostly I will might expect it looks pretty big in my calculations?

Thanks.

Patrick, Michael would take question on the bridge. Let me let me take agro your pricing question.

As far as fourth quarters concerned I understand that we are having a similar view on the agro momentum, so I would solely comment on 2017. Here we get mixed feedback from our customers.

Some are more starting to be more positive. Some are sticking to their own original guidance.

And for that reason the one element I would like to highlights from all customers we get the feedback which is in sync that they will still full course in the first half of the year on basically depleting their inventories so we consider that the first two quarters 2017 will be remains soft and softer compared to the first two quarters of 2015. Once they see however momentum in their order book of course they will then have to start production latest in third quarter 2017 and that automatically with a delay of three to six months once they are moving upwards.

We would see this picking up in the order book on our end basically three, six months afterwards. So I think this timing is the one that you have to take into consideration.

Once they have again a filled order book three, six months later they would come back ordering more strongly from our ends and that might be the little disconnect in the tonality that you received versus the tonality that we receive. And then on pricing we - let's I would like to make the following point pricing squeezes in the elements or advanced intermediates we normally don't have we have pass through closes however we've passed through closes that are having a three month delay between top line and our raw materials side.

So here this is something you always need to take into consideration as structural price sits we only took in rubber in one of the other divisions of the new links [ph]. And I hope this clarifies your mathematics and Michael will take the question.

Would you quantify a bit Q4 at this state or?

We will definitely once we communicate our Q4 numbers in March. And today I think the one thing that we've given in the firm way this rock solid full year guidance which implies already the fourth quarter with a high level of operational and financial updates, so I think this is something that should suffice.

Thanks Matthias.

Patrick with regards to the let’s say bridge on HPM you understand that we will not give any details how we've now splits between the different elements, but you can imagine if we grow in the first nine months the volume by 10% that does have an impact, a major impact on the improvement on EBIDA, because it does not only mean that we have higher let’s say cost absorption, but as well obviously through the higher utilization rate we have as well in improvement. Obviously in the second element is mix the mix effect as we have an increased number in the compounds in the end compounds in reduction and the capital outcome.

And the third element as mentioned before as well is the improvement on the Phase 2 of the realignment program, which does have as well a major impact on the profitability, so but please understand that we do not quantify now each and every element of the bridge.

Thanks Michael.

Yeah two I left, one ARLANXEO, I would like to understand the net earnings were look to the minorities it was a slight loss, the ARLANXEO profits according to the comments you made were probably substantially weaker Q4 which fits to the seasonal pattern. So we see them quite a significant loss in the minority’s line in Q4.

And then and Q4 guidance as according to my model after what you have adjusted for the corporate line and the hedge impact then there is a strong increase or strong improvement in Q4 in the others, and that would bring already the earnings to the upper end of your guidance. So in I understanding is from your comments that basically the operating earnings might be slightly down year-on-year and so that higher performance mature rates and performance can make us are not fully able to offset the potential decline in ARLANXEO and the advanced intermediate is at in the right really reading?

Thank you.

Andreas let me start with the ARLANXEO earnings in the Q3 and your assumption on Q4. The one comment I would like to give on the Q3 ARLANXEO earnings we had let’s say a special booking effect, which we were posting in the third quarter with regards to the share between ARLANXEO and the new LANXESS why the result in the second quarter was a little bit too good and the third quarter little bit too bad, but if you put two numbers, the two numbers together.

It will come to the right number for ARLANXEO and that will put then ARLANXEO on net basis positives in both quarters for Q2 and Q3. With regard to Q4 guidance if you please take as well a look into the overall level of the reconciliation segment, you saw as well that the Q3 number for the reconsolidation segment last year was coasted a little bit too good because we were talking about one supplier invoice which were improving let's say supporting the Q3 number.

So therefore we had some shifts betweenQ3 and Q4 last year which we do not expect this year with regards to hedging, yes they will be an improvement over last year's number, but that should be in let's say the number and the range we gave to you before when it comes to the operational results. I don't have your model now in on top of my head, but I think what matures Matthias said earlier is true and will become through for the different segments.

So HPM is still doing very well advance intermediates we were referring to a very strong Q4 last year. Performance Chemicals we see further let's say positive momentum and with regard to ARLANXEO that it's hard to say at this point in time, but as mentioned the headwind is still in the market pressure on margin is in the market and accordingly we stick to the guidance which we gave with regards in the Q2 results presentation that we expect ARLANXEO to be worse in the second half of 2016 compared to the second half of 2015.

Thanks.

Ladies and gentleman I think we are through with all your questions, I would like to thank you for your time and your commitment to our company. I would like to stress that we are energized.

We are fully focused on the business in 2016. We operate efficiently but also strategically have taken the right steps to make something strong and great out of this company over the next several years.

And the entire team is really energized to make this happen. We all wish you good finish of the year and looking forward to see you on the road or latest in 2017.

Thank you so much and see all of you soon. Bye, bye.