Executives: Tim Lange - Head, IR Christian Kullmann - CEO Ute Wolf -

CFO
Analysts: Gunther Zechmann - Bernstein Martin Roediger - Kepler Cheuvreux Paul Walsh - Morgan Stanley Stephanie Bothwell - Bank of America Merrill Lynch Sebastian Bray - Berenberg Chetan Udeshi - JP Morgan Thomas Swoboda - Societe Generale Laurent Favre - Evercore ISI Oliver Schwarz - Warburg Andreas Heine - MainFirst Andrew Benson - Citi Geoff Haire - UBS Laura Lopez - Baader

Tim Lange: Good morning, ladies and gentlemen. Welcome to our Q3 Earnings Conference Call. With me today are Christian Kullmann, our CEO, and Ute Wolf, CFO of Evonik. And with that, I would like to hand over directly to Christian, for the short presentation as usual followed by the Q&A session.

Christian Kullmann: Thank you, Tim.

And just good morning, everyone. Thank you for taking the time to be with us today. Most of you will remember I've joined our strategy update that we had back in June, in London. There, we outlined our strategic agenda for Evonik. Since then, we've been working hard to execute and to deliver.

So today, I'm pleased not only to report another strong quarter, but also to prevent further details on our strategy and the first specific measures. Let me start with the highlight of the quarter. Like in quarter 2, we achieved another sequential earnings increase. Volumes were positive in all 3 chemical segments. And again, with 6% particularly strong in our biggest segment, Resource Efficiency.

High on our agenda, for this quarter and also going forward, free cash flow generation. We've worked on this and are pleased to report good progress. Free cash flow of €485 million is about 70% above the already strong prior year level. So strong operating performance as well as the healthy trends going forward give us the confidence to adjust our guidance for the full year to the upper half of the given range. Let me continue with strategy execution.

Since our kick off in June, we've successfully closed the Huber acquisition to strengthen our smart materials growth engine. This is a further step to make our portfolio more balanced and more specialty. Integration has started, and we can confirm synergies of $20 million. The next agenda point was our internal executive conference. Right around Evonik's 10th birthday mid-October, we gathered with the company's top 200 executives, to kickoff the strategic initiatives and to get everyone on board with our casual transformation.

Our management team is aligned and committed to our vision and to our targets. One of these targets is the realization of the €200 million cost savings in administrative and selling expenses. Before I explain these in more detail, I know, many of you are keen to get more insights on our 18% to 20% EBITDA margin target and how we'll get there. Here, communication follows strategy execution. That means step-by-step.

Main drivers for the margin uplift are; first, synergies. We have guided for $80 million from Air Products and $20 million from Huber Silica, fully implemented by 2020 and 2021 respectively. This corresponds to margin uplift of around 60 basis points. As of today, we are well on track to realize these synergies. Second, cost savings.

Cost savings of €200 million stand for another margin uplift of. But it is not only about synergies and cost savings. Innovation is the third margin driver, and will continue to play a key role in our growth strategy. New products, solutions and business models will make a significant contribution to the growth and profitability of Evonik. We will generate additional €1 billion of sales by the year 2025, with above-average margin potential, out of our 6 innovation growth fields.

These are designed to generate above-average margins, thus, representing another improvement of our group level margin. These levers will already bring us into the targeted margin range of 18% to 20%. And this is of high relevance and they are all very much in our own hands. But we see additional, and let me say significant, potential from portfolio optimization. We want to make our portfolio more balanced and more specialty.

Therefore, we'll strengthen our 4 growth engines by growth investments, customer-focused innovation and targeted M&A. But our portfolio approach not only consists of growth and acquisitions. While nothing is for sale at the moment, divestments are another and potentially the strongest lever to achieve our strategic vision and margin target. Now finally, our cost saving announced today. We told you in London, we are not satisfied with where we stand today in terms of efficiency and lean processes.

So within the last month, we analyzed our processes and cost structures across the whole group. That includes all aspects of admin costs in our management holding, segments and regions. Not only in absolute terms, but also compared to respective benchmarks, we've identified significant potential to become leaner, faster and more efficient. Selling costs are another area we've analyzed. Looking at the development of the recent years, we have seen a steady increase despite broadly stable sales.

We have to address this imbalance going forward. Our costs cannot and will not grow faster than our sales and earnings. €200 million in cost savings, that is our target. And we will deliver these savings by the end of 2020. Over the next month, the whole organization will work on this and break it down into specific measures in each respective cost center, business and region.

One aspect is very important to me. We are not simply implementing another cost-saving program. We want a casual change with more entrepreneurial action, responsibility and higher cost awareness. Many of our employees told me over last month that they feel hurt back by too many internal regulations and obstacles. We will remove these shackles.

We'll eliminate unnecessary regulations and streamline decision-making. Working on the details will take a couple of months. However, ladies and gentlemen, we are already locking in €50 million of savings for 2018. Here, we have defined the specific measures and now starting with the implementation. And, as I said, it's a beginning, with highest focus on free cash flow generation.

So we will make sure that the measures for 2018 have only minor onetime costs, and that will immediately strengthen our free cash flow in 2018. With this, I hand over to Ute.

Ute Wolf: Thank you, Christian, and welcome also from my side. Let me start with some financial highlights on Chart 8. The positive volume and price trend continued also into Q3.

All segments contributed to this development. Volumes were particularly strong in Resource Efficiency and better-than-expected in Nutrition & Care. Talking about price development. We are pleased to share with you that the price pressure in Nutrition & Care is barely easing. In Q1, we observed the price effect of minus 18, minus 11 in Q2 and now minus 6 in Q3.

In Resource Efficiency, we have successfully pushed through price increases to compensate for higher raw material prices. Performance Materials continue to enjoy tight MMA markets. The weakening U.S. dollar led to a negative currency impact of minus 3% on group sales. However, despite this pure translation effect, we continued our track record of sequentially higher earnings from Q1 into Q2, and now into Q3.

Moving on to free cash flow, on Chart 9. You all know that we were not satisfied with the performance after the first 6 months of the year. The more I am pleased that we improved free cash flow substantially in the last quarter. The result of hard work in many places is the highest quarterly cash flow since 8 quarters. The number of €485 million exceeds the already strong figure of last year by 70%.

As said, the success is broad-based. The earnings level was slightly higher. Net working capital better, and cash tax is lower, as we already pointed out in our Q2 call. Free cash flow will remain one of our top priorities also in 2018. We will continue to be disciplined on CapEx and networking capital.

On top of that, we will have less cash out for the integration of our acquisitions and today's announced cost savings of €50 million for 2018, will also give some support. Continuing with the performance of our segments and starting with our strongest earnings contributor, Resource Efficiency on the next chart. The strong operational performance of the segment continued into Q3. Strong and resilient demand across virtually all business lines led to another quarter of high single-digit volume growth. The excellent margin level was proved again despite a €15 million impact from the announced maintenance shutdown as well as headwind from the weaker U.S.

dollar. Again, we could increase prices by 3% in this quarter alone. This is the clear result of our successful product and solution differentiation in the specialty chemical market. Looking at high performance polymers, one of our smart materials businesses within Resource Efficiency, we experienced a strong demand for PA12. The business is currently running at high utilization rates.

Also silica continued on very robust levels. Volume growth in Q3 was even above segment level. Demand from tire customers was strong, especially in the Americas. Furthermore, the first contribution from Huber came in around €5 million of EBITDA for September. Looking at Q4.

The overall positive market environment for Resource Efficiency should continue with full benefit from the Huber acquisition. But please bear in mind the typical year-end seasonality in this business. In addition, we expect some negative impact from planned maintenance shutdowns in silica, crosslinkers and filings. Let's continue with Nutrition & Care on Chart 11. As expected, contract patterns in Health Care led to slightly lower contributions from exclusive synthesis.

Nevertheless, it remains a strong year for Health Care, with solid end of year performance expected for Q4. We recently signed new contracts with leading pharma companies and amendment for existing projects. This filled the product pipelines for 2018 and beyond. Our Comfort & Insulation business continued solid performance, both in legacy Evonik's as well as newly acquired Air Products businesses. The good margin development was mainly driven by favorable product as well as portfolio mix.

Furthermore, the good price environment, especially in EMEA, helps to further grow top line and margins. Looking at animal nutrition. The market sentiment for methionine has definitely improved over the last month. Our latest price increase announced in July was successful. Thanks to this, price levels finally bottomed out in August as already marginally higher in September, for the first time since September 2015.

Nevertheless, it will take until Q4 for the price increase to become visible in our numbers. The average price in Q3 was still below the average of Q2, also because of the weaker U.S. dollar. Volumes in Q3 were good. Demand in our shorter term contracts was even better than expected, especially with a strong quarter finish in September with high demand from Asia.

Against this background, it might well be that volumes in Q4 could be somewhat softened. To sum it up for Q4. The price increase in methionine will become more and more visible. This may be mitigated by potentially lower volumes. Further impacts come from the usual year-end seasonality on the overall segment level, ongoing negative currency effects and scheduled maintenance shutdowns in animal nutrition.

Nevertheless, market trends also for methionine look healthy for the start into 2018. Concluding the segment reporting on Chart 12. Performance Materials delivered yet another very strong set of numbers. With Methacrylates margins, clearly above the normal mid-cycle level. Market demand, especially from automotive, coatings and constructions remained very strong.

Already restricted supply was further tightened by outages in Q3 as well as limited acetone availability after Hurricane Harvey in the U.S. Prices and margins in Q3 were further supported by our implemented price increases, both in MMA and PMMA. We see this positive momentum continuing into Q4. For 2018, we continue to expect a margin normalization in MMA throughout the year. Although no signs are visible yet.

In the C4 chain, we saw another quarter with strong underlying demand for most of all products. As expected, the butadiene-naphtha spread normalized and stabilized into a more sustainable corridor. This is well above last year's level. To sum it up, we continue to enjoy the current market tailwind and performance materials as long as it lasts. Q4 will be impacted by maintenance shutdowns and the typical year-end seasonality.

With this, let me hand back to Christian, for the outlook.

Christian Kullmann: Thank you, Ute. Let me briefly summarize our presentation in 2 words. We delivered. Quarter three was another quarter of sequential earnings increase.

Free cash flow was strong. And looking at the remaining months, we are very confident of finishing the year 2017 within the upper half of the range. On strategy, we've delivered further details and first measures on the execution of our strategic agenda. Over the next months, there is more to come. We will continue to do our homework internally and communicate our progress step-by-step and as soon as feasible.

I'm looking forward to that, as we are just at the beginning of our strategic transition process. That closes our brief presentation. Thank you for your attention so far. And now, we are happy to discuss your questions.

Operator: [Operator Instructions].

Now we'll take our first person from the queue, Gunther Zechmann from Bernstein.

Gunther Zechmann: On the cost savings program, can you just comment how much of those savings will be reinvested in the business? And also are you changing the incentives so for operating managers? That's the first one. And secondly, on methionine, sorry to start on that one. Very strong volumes. You have some shutdowns, I think, in Mobile, in Wesseling and in Antwerp Q4.

Is there any pre-buying in anticipation of these maintenance turnarounds that you saw already in Q3? And can you help me quantify those? Thank you.

Christian Kullmann: Good morning, Gunther, Christian here. Thanks a lot for your questions. First of all, yes. You know the executives in each single function will define their individual measures, how to reach their cost savings and for this, we will integrate cost saving targets into their individual bonus system so that we could make sure that we will have a good success on this way.

I think this was your question?

Gunther Zechmann: Yes. That's right. And also how much of the cost savings are you looking to reinvest over that duration of the program into the business?

Christian Kullmann: Okay. I think this one goes to Ute.

Ute Wolf: Yes, thank you.

Gunther, I'm not 100% sure what you mean by reinvest. Our target is clearly to improve the margin overall so the cost-to-sales ratio has to improve. I'm not sure whether that is the background of your question. On the other side, if you then look more towards the cash flow, we are committed to generate sustainably a positive free cash flow after dividend. So of course the cost savings helped by producing this free cash flow.

So this is how we will look at it. I'm not sure...

Gunther Zechmann: I believe, I understand you write them -- these net cost savings, that will fully hit the bottom line, the €200 million?

Ute Wolf: Yes.

Gunther Zechmann: Yes, okay.

Ute Wolf: Not the EBITDA.

Yes. Okay. You asked for methionine, the shutdown is actually in auto and other plants and only Mobile. They have seen release schedules and planned with a long lead time. So here, we are ready to produce the volumes that are needed.

Also in Singapore, we are not fully utilized yet. So from that point of view, those shutdowns do not really influence our capability to lever methionine. Overall, in the whole group, we have several shutdowns in Q4, in Resource Efficiency, in Baby Care as well, in the Nutrition & Care segment. These shutdowns together will account for a low double-digit amount and lower earnings. So maybe that answers the question on this side.

Gunther Zechmann: Great. And was there any pre-buying in Q3, especially from methionine, but also from any of the other product lines?

Ute Wolf: Yes, as I said, we have seen a very strong September. So, of course, that potentially could have an influence now on the Q4, but on the other side, we accordingly quoted for Q3, and we saw a very solid and very good volume development. So we really have to see how this works in the end. The overall market environment is good.

We really see good demand in Europe, in the Americas and Asia, South America and Middle East. Auto continue to be somewhat softer as of course the crisis is still lasting on there. So I think the overall picture is very healthy and continues to be healthy.

Operator: And now we take our next person from the queue. It's Martin Roediger from Kepler Cheuvreux.

Go ahead. Your line is now open.

Martin Roediger: Thank you, and good morning. I have 3 questions, if I may. Starting with the free cash flow.

And here, especially on the network and capital development, which was quite strong in Q3. Can you explain that in more details, especially the development of the accounts receivables? And in that context, on free cash flow, in general, what is your expectation for Q4 when you compare that with Q3? And the second question is on PMMA. You said that you expect the market normalization in 2018, we know that the market is very tight. This normalization should come from obviously capacity additions? I guess, you referred to those from SAMAC. So Mitsubishi Rayon and the SABIC on the one hand and on the other hand Petro Rabigh.

What is your best guess, in which quarter these capacities finally will come on stream? Because I think they're some, sort of delayed. And what are the PMMA capacities in absolute and relative terms from these 2 additions? And the third question is a basically clarification question on your statement on Health Care. You mentioned the contract pattern as the reason for the sequentially lower earnings contribution. I guess this is due to exclusive synthesis. Is that related to your Tippecanoe site in the U.S., which wonders me a bit because I thought the contract with Eli Lilly expires in 2018.

And are you really confident that the new projects in your pipeline, you mentioned in the speech, will fully compensate for the earnings impact from the expiring contract with Eli Lilly?

Ute Wolf: Yes, Martin. Thank you very much for this very comprehensive package of questions. I will answer the free cash flow and the Health Care question, and then Tim will give you all the details on MMA capacities and going forward capacity addition. Yes, free cash flow. When we commented on our free cash flow for the first half, we gave some hints that we had an exceptionally high working capital, as we had to build up inventories for planned maintenance shutdowns.

Some also in Q4 so because of the very long-term scheduling and planning. To a certain extent, we have now brought that back to normal. This is what happened in Q3. It was not a specific initiative to bring working capital to a low, very low level. It was really more bring it back to normal level.

And if you compare the 9 months figure over last year, you see that overall, we have built up some networking capital, which is normal if you have volume and earnings, and sales growth. So I would say we're rather back to normal and Q2 was maybe too high, if you want to put it that way, for several reasons. But now we're back to a more normal state, but that does not mean that we will not continue to optimize working capital, but of course this will be a gradual process, not a jump function. Q4, of course, has several influencing factors. Normally, we have lower earnings due to seasonality.

Q4 is the weakest quarter from the seasonality pattern. We have higher payouts for CapEx. If you compare this in the last years, so that are things, which will weigh on the cash flow in Q4. Nevertheless, we still expect some cash tax repayments because we all made our tax declaration and get some cash back there. A normal cash flow of the fourth quarter is somewhere between €150 million up to €200 million.

So that is may be a guidance I can give you. With Health Care, we have announced yesterday that we rolled over the contract with Eli Lilly. So I think we can take off that burden from your expectation so that is rolled over as they are really very, very much satisfied with the performance we give. On the other side, what we observed over the last years that producers tend to go back to the more Western part of the world for production as there have been some difficulties with quality in other countries. So this is, of course, what we are benefiting from.

And in addition to that, we are acquiring new products, new projects. So that our pipeline is well filled. You see this already this year and we are very confident that this pipeline will deliver also in the next year and beyond.

Tim Lange: Let me continue on MMA and the new capacities. Yes, you're right.

We're still expecting a margin normalization in the course of 2018, although as we just said, we are not yet seeing it, also not for the start into 2018. The new capacities are, first of all, the joint venture between the Mitsubishi and SABIC. Again, from what we hear from external sources and from the market, also we are not inside as they are, is that first volumes have become available in the fourth quarter, or are now becoming available and the joint venture is starting to produce and to send the first product to the market. This is a capacity of 250,000 tons. And the second startup is the joint venture between Sumitomo and Saudi Aramco.

Here, first volumes according to external sources, are expected in the first quarter of 2018. So let's see how that ramps up. Total capacity here is 90 kilotons of MMA.

Martin Roediger: My question was on PMMA not on MMA.

Tim Lange: PMMA is also in the respective capacities included, but the more relevant for us is the MMA capacity.

That's our main earnings driver at the moment. PMMA market as you know is a little more fragmented. So therefore not that relevant. Relevant for us is MMA.

Operator: Now we will take our next person from the queue Paul Walsh from Morgan Stanley.

Please go ahead. Your line is now open.

Paul Walsh: Yes thanks very much. Good morning Christian, Ute, Tim. 3 questions.

Firstly, can you just quantify how much synergies you've delivered so far in '17 of the €85 million? And perhaps how much you expect to deliver in 2018? Secondly, I think Tim has alluded to it there, but also on methionine, so MMA and methionine. I guess Q1 looks like it's still starting up year-on-year, so in MMA in particular, the roll off more expected in the second half or not i.e. the net drain on next year's numbers, I guess, mitigated by weak first half comp and then the tough second half comp? And then just final question, some comments in your opening comments, Christian, around portfolio change, divestments including that. Anything else to add on that? Maybe not, but just curious if there're any additional comments around the pace of portfolio change?

Christian Kullmann: Thanks a lot, Paul. Let me start with the portfolio management.

You know, we have set our sales to create a truly specialty chemicals company, and I think it is quite crystal clear that this will not happen overnight. So first of all, it is for us of high relevance that we could start with the realization of our synergies and with cost measures because these are things we have pretty much in our own hands. On the other side, and there's no doubt about it, it is crystal clear that we are all aware that our portfolio measures would have the highest lever to reach our strategic and margin targets. And therefore, we have an eye on this. But as you know, and you know it pretty well, our strategy is organized like working on step-by-step.

I think the second one goes to Ute.

Ute Wolf: Yes. With the synergies, Paul. Yes, we have so far around €11 million synergies for this year, mainly from the APD, of course, as Huber was only closed. In September, for next year, we are looking for additional €25 million.

So if you compare then €16 million over €18 million that will add to the €11 million. Also mainly from APD and potentially the first and a synergy impact from Huber. For methionine and MMA, I'm not sure whether I got your questions right. I think you wanted to understand over the year how we see price development for both of these products. Right?

Paul Walsh: Well, basically, it's just the timing.

So expecting a rollover in MMA/PMMA. The question is, is that going to be a big net drain in 2018, or you end up, up year-on-year in the first half and then down year-on-year in the second half. So actually the net drain is fairly limited, so it's the timing issue as much as anything?

Ute Wolf: It's a little bit difficult to discuss that really in very much detail, because these new capacities, as Tim said, they are already technically, mechanically ready, they're ramped up. They will be introduced into the market and that will have an effect. We have seen in these more cyclical markets that things can change relatively quickly to either side.

So it is really difficult to say whether the first half would still be good or might be already impacted by that. We are maybe more cautious, as we know the cyclicality of the businesses from the past. I think so far what we see these capacities are ready, they are ramped up and they will get into the market according how then these competitors will premarket or market the volumes. For methionine, I think that was also the question?

Paul Walsh: Yes.

Ute Wolf: What we see really that the price increases now work.

They will carry into, over into 2018. So from that point of view, we are cautiously optimistic here for Q1, on the price side. On the volume side, Q4 is the strong quarter. Obviously, methionine Q1, then seasonality, somewhat weaker as, of course, then Chinese New Year has happened. If you look further down the road for 2018 towards the second half of the year, there are some uncertainties about the arrival of the announced new capacities.

You might remember that Sumitomo has 100 kt announced and add to it another 40 kt. Today, all existing capacities are well utilized, so from that point of view the market is not over delivered so much from our point of view. But we have to see how then the 2 new facilities are mechanically ready, how they will be ramped up and how the volume will then be introduced into the market. The market itself continues to grow by 5% to 6%. As I said, we see good demand in all of the markets.

So I think from that point of view, the volumes step-by-step will be needed.

Paul Walsh: That's great. Thank you very much.

Operator: Thank you. And now we take our next person from the queue Stephanie Bothwell from Bank of America Merrill Lynch.

Please go ahead. Your line is now open.

Stephanie Bothwell: Thank you. And thank you very much for presentation. Just a point of clarification on the cash flow question that was asked earlier.

And obviously Q3, very strong cash flow performance. And I note your comments earlier in terms of what the Q4 cash flow typically looks like, but given that you do not have 9 months under your belt, please can you confirm that you do anticipate that the free cash flow generation for 2017 will in fact cover the dividend? Linked to that, at the June strategy updates, you alluded to the fact that you may look to update us on your medium-term CapEx plan. So, firstly on that, is €900 million still the right number to use for sustainable CapEx? And secondly what is the total CapEx expectation, which we are factoring in for 2018? And my final question is just on the cost savings program. I appreciate you're still sort of ironing out the minute details on the total €200 million, but in terms of the first €50 million, which you've already defined for next year. Please can you provide us with some tangible real-world examples in terms of where you actually intend to take out cost, perhaps also on a divisional basis, if possible? Thank you.

Ute Wolf: Yes, Stephanie. Thank you very much for the questions. The free cash flow of 2017. As I said, we have made good progress. I gave you some indication where the fourth quarter normally is.

I think it is today too early to really discuss whether it's €20 million higher or lower in the longer term. It is clear that the free cash flow sustainably has to be higher than the dividend. In the fourth quarter, you have payment for CapEx, so it really depends when the equipment arrives and how the project is progressing. So there is some forecasting difficulty for Q4. So I cannot be more specific on this.

Sustainable CapEx, we've always described this to be in the region of €900 million to €950 million. I think that's still the level of what we see in the sustainable CapEx level, half of that is maintenance and half of that is more or less available for growth. So I think also good basis for the organic growth. CapEx in 2018 will of course be influenced by our methionine plant in Singapore. So we've €150 million more CapEx for this project alone than we've had in this year.

But nevertheless, we will do everything to compensate and bring the overall CapEx spending as close to the normalized level as we can.

Christian Kullmann: Okay. You've asked for some examples about the measures behind the €50 million target for 2018. Also example, we'll postpone new hires and we'll have them critically review about open positions in the relevant functions in admin and in sales. To give you a concrete example, the normal fluctuation in the relevant function is about roughly 350 employees per year in the SG&A area.

And by postponing the replacements of these employees, for example, for about half a year, we can already save a double-digit million amount. Beside this, we have adjusted direct pension commitments to today's lower interest level and that will reduce the personnel costs also by double-digit million amount. And then you have asked how do we proceed from now on to specify the €200 million. We will break down the individual targets into the organization, based on an ideal target organization as well as making use of external benchmarks. So we'll implement incentive systems based on these individual targets, as I've mentioned a few minutes before.

We will provide the necessary tools to reach the targets from a corporate level and the executives in each single function will define their very specific individual measures, how to reach these targets. Having said this, it is crystal clear for us that we will organize this process with close alignment with our work councils like we did it in the past, I think, that's it. Okay?

Stephanie Bothwell: I just, to come back very briefly on the CapEx point. So for 2018, if I was to see €1.1 billion to €1.2 billion in CapEx for the year, would that be broadly in line with your expectations?

Ute Wolf: As I said, on one hand we have higher spending on the specific project of the methionine plant in Singapore. And on the other side, we are committed to get as close to sustainable CapEx level as we can.

So I would not be satisfied with such a level. And more specific guidance in March.

Operator: And now we take our next person from the queue Sebastian Bray from Berenberg.

Sebastian Bray: I would have 3 please. One is on potential volume constraints in Resource Efficiency.

All things being equal, what would be the maximum volume you could grow at, if you wanted to, given what is appeared to be closed to full utilization in chain such as polyamide? The second question is on the cash cost associated with removing, as I've understood it, €150 million above the €50 million from your SG&A and sales cost line. If you could give any indication of what kind of cash cost you think will be required to achieve this? That would be helpful. And thirdly, the free cash flow in this quarter has clearly been very favorable. As part of the review, which your business unit leaders are going through, could we expect to see specific free cash flow improvement measures and target set at the start of 2018? Or is this more of an incremental improvement where we basically just see aggressively better results for up in next 1 or 2 years?

Christian Kullmann: Sebastian, we will break down our costs targets and define with respective and detailed measures over the next month. Beside this, you can be assured that I am pressing ahead with the execution on our strategy.

I would say in the same manner, as I did between now and my initial update in June. But I ask you for understanding that we could not have any, that we could not have all the details today. However, I am committing, I am committed to reaching the target and feeling why did you can hold me accountable for that.

Ute Wolf: Okay, Sebastian, on the volume constraints, we have a long-term capacity planning, so, of course, we know all the markets, the dynamics and we try as early as we can to really plan for new capacities. One example is silica where we really have a silica master plan, if I may say so.

We have a new capacity, just opened up last year in Brazil, which deliveries not only to South America but also to North America. And now there are new capacities, all will come next year in the U.S. with the addition of the Huber sides. We, of course, have some more room for optimizing our plan. So give you one example here of silica.

PA12 has a very good volume development, runs at good capacity utilization rate. But it's not in a situation where we would spend or run out of capacity in the next year or so. So from that point of view, of course, we have good utilization rates. It takes long-term foresight to really see when we do need a new capacity but it's not that the segment cannot grow next year, because all the capacities are fully utilized.

Sebastian Bray: Sorry, just to come back on this.

It's not so much the segment not just growing, but can you continue to grow it 5% to 6% volume rate in Resource Efficiency as per your current CapEx plans?

Ute Wolf: What we said we want to grow GDP plus in our volumes. I think Resource Efficiency has delivered that over the years. Some years were somewhat higher, somewhat lower. This is what is the basis of our capacity planning. This is what we, of course, have to take into account in our long-term CapEx planning.

So I think overall that's more or less taken into account. There might be one single market where there, maybe the, it's not a perfect fit, but overall, we have a very long-term view on that. With designed our sustainable CapEx exactly in the way that it leaves enough room for growth CapEx to deliver the GDP plus volume growth that we have in our KPIs. On the free cash flow, it's really about the sustainable level of free cash flow, which is higher than the dividend. That is incorporated in the targets of our segments and so that they really year-over-year will then work on that and deliver into that.

Sebastian Bray: Thank you.

Operator: Thank you. And we take next person is Chetan Udeshi from JP Morgan. Please go ahead. Your line is now open.

Chetan Udeshi: Yeah, hi thanks. Maybe just first question on, again, sorry to come back to the cost savings that were announced today. if I do the math, €200 million or €50 million per year, is roughly about 2% of your current SG&A expense or probably slightly lower. So will you, will this incremental savings offset the normal inflation of the business? Or in other words should we be adding all of the €50 million to the EBITDA next year or it's going to be less than €50 million? And the other 2 questions are on methionine where, as you said the prices have gone up, but there is some volume impact and you said the demand is strong. So I don't necessarily understand why there's a volume impact if the demand is strong? And some of the external price data is also suggesting the price is now beginning to rollover as such from the levels we saw in Q3.

So can you comment about this dynamic between the price increases and volume and how it ties with the demand strength?

Ute Wolf: Yes, Chetan. The €50 million chunk for next year is a net number. I think Christian tried to describe the concrete measures that are really lying behind that. We are now in the phase of setting up our battle for next year and we made sure that these €50 million are allocated to department segments to the level really where they can be in the end realized. It's a bunch of several measures, but the overarching principle is that this amount arrives with high certainty in next year.

So I think this is how the €50 million were designed. Some of these measures will then be the first step towards the overall cost savings targets, but we designed that in a way that it really is realized next year. Methionine. As we said, we really see the price increase works. In our numbers, you don't see the effect, not yet in Q3, and of course, by the weaker U.S.

dollar, as we're Europe-based company, that works a little bit against that. Volumes were good and you might remember that we were prepared to take some hit in the volumes. That is not the case. So the volume development was really good in the overall segment. And especially in animal nutrition, we see healthy demand in the market.

The market is really developing very nicely, growing at 5% to 6%, as really the long-term trends indicate. We see that also this year, especially in the regions, North America, Europe and Asia; as described, South America and Middle East, here, of course, the economy is somewhat weaker and volumes are also not as strong as in the other markets. So from that point of view, it could be technically, of course, that volumes in Q4 could be somewhat lower, but again, we were cautious for Q3 and then it's really turned out the other way. So we really have to see how it works in Q4. Specifically, the overall trends are very positive.

The price increases are, have been accepted by the customer. So this is where we stand.

Chetan Udeshi: Can I follow up on that point, because if I look at Nutrition & Care volume growth, it's 2% versus much higher number in the first half and 2% on a weaker base where last year it was 0%. So where are you seeing sort of volume impact in Q3, nutrition outside methionine?

Ute Wolf: Yes, if you take the whole segment, of course, there are other influencing factors. If you think of Baby Care, they still suffer also in volumes.

So that is of course then mitigating the overall number for the whole segment. But animal nutrition was exactly in line with the strong market as I described it.

Operator: Thank you. And now we'll take our next person, Thomas Swoboda from Societe Generale. Please go ahead.

Your line is now open.

Thomas Swoboda: Yes, good morning. I have 3 short questions. And firstly, the cash outflow for the integration of the 2 acquisitions you expect for 2017. If you could help us with a number? That would be very helpful.

And secondly, also on cash flow. The difference between the cash taxes and your P&L taxes, do you expect that to continue in 2018? Or should we see a similar tax rate, the cash tax rate in 2018, again? And the third question is on portfolio management and this is really a clarification. What is your priority? Is it external growth in terms of portfolio management or is it rather portfolio pruning or both? Thank you.

Ute Wolf: Yes, Thomas. Thank you very much for the questions.

Cash out for integration costs in this year is roughly €60 million. We had IT integration and others so that was a relatively big chunk here to be paid. Cash taxes will be higher next year as we still have tax refunds in this year, which belong to the year '16. So that's always a little bit difficult to explain, but as we are now, if we do not have these high fluctuations in the earnings, should be them back to normal levels, somewhat higher than this year.

Christian Kullmann: Okay.

Talking about the acquisition strategy, it is of utmost priority for us. It's integration of the specialty additives from the product and the precipitated silica from Huber. This is key and this is what we consecrate definitely very strong on this. Besides this, what's presented our strategic agenda back in June, since then we have concentrated on the execution of this agenda and as today, we have presented the first results, more will follow. But it is crystal clear that we are working on a more balanced and more specialty portfolio.

And there are two sides of the coin. The one is, a very targeted and very disciplined acquisition strategy. And on the other side, also, that we have to concentrate on potential divestments as well. But in the nutshell of highest and utmost relevance and the first priority is the integration of the Air Products business and the precipitated silica from Huber.

Operator: Thank you.

And now we take our next person from the queue, Laurent Favre from Evercore ISI. Please go ahead. Your line is now open.

Laurent Favre: Yes. Thank you for taking, two questions.

The first one, I see headlines on the Bloomberg, saying that a spokesperson of Evonik concerned that you were, you had decided against a Clariant take over. Separately, CVC has mentioned you, as being a potential partner to break up Clariant, so that they would take P&C and you'd take the rest, I suppose. Just to be clear, the spokesman comment, was that referring a full takeover of Clariant or was that referring to a deal, a joint deal together with CVC? That's first question. Second question, I'm trying to really understand what's new in the cost cutting program. I think at the end of last year, the Administration Excellence program had identified €230 million of potential savings on the admin side.

So just to understand if the announcement from this morning is on top of that €230 million? And related to that On Track 2.0 delivered, I think, €600 million over 4 years, if I read the annual report, which is about €125 million per year. If I assume net inflation of €75 million, that means that On Track 2.0 would have delivered €50 million every year in the past 4 years of net EBITDA improvement. Why have we not seen this net EBITDA improvement, in other words why should we be so confident or should you be so confident of €200 million as a net number given that the growth savings don't seem to be a lot bigger than the On Track 2.0?

Christian Kullmann: Okay. Let me start with the rumors about Clariant. You know, we can confirm definitely that we currently have no specific plans to acquire all or parts of Clariant, and this is what we could say about this for today.

I guess, the next one goes to Ute.

Ute Wolf: Next answer will be somewhat longer. Thank you, Christian. Yes, what is now different? On Track, we've been pursuing that since now nearly 10 years. On Track is designed to compensate for effective cost increases.

If you look at our cost base and apply a 2% to 3% cost inflation overall, we need this €120, €125 million every year to just safeguard the margins. So that is what this program is doing and it's more targeting really the operations, so our production sides, procurement, and other functions like this. Admin Excellence, we have done, we have done very successful initiatives there. We have outsourced financial services. We harmonized IT platforms, outsourced also some things in IT, really made more efficient use for printers and all these optimized office space and all that.

And if you look at the development of our admin costs, you see they were not growing so much over the last years, because we've had these successes. But in the end, we are not at a level where we have to be. This is what we have to admit. We still have some fields and some processes, which are not in the right shape and this is what we will target now. This is what we will address now to really have leaner and more efficient processes throughout the whole company.

It's not just one department having to cut cost or being more efficient on one way the other. It's really processes that run through the whole company where we have to get better and we will get better and by this have lower costs.

Laurent Favre: And to be clear, that would be without cash, specific cash costs? So that's would just being better every day and not replacing departure that is retirement or natural attrition?

Ute Wolf: So the portion for '18 does not imply any cash cost for the overall program. We are still in the analysis phase, more to do with these measures. So that's a little bit too early.

So we have to ask for some patience until we give you an update what has really been the pace of this program and what might be potential cash cost linked to that.

Operator: Thank you. And we'll take our next person, Oliver Schwarz from Warburg. Please go ahead. Your line is now open.

Oliver Schwarz: Thanks for taking my 2 clarification questions. I think, the second was partly answered already about the savings of the €50 million, judging from the measures implemented in 2018 as you cited. It seems that they were likely to be one-off costs savings and the more recurring savings that you need to reach the 18% to 20% EBITDA goal. The €200 million, they should be recurring, hence we will see, let's say, the implementation of recurring cost cuts or cost measures by the year of 2019. Would that be a correct take? That would be my first question.

And sorry to label the methionine, complex again, I guess, I'll try to, just for all the moving parts, first you said that we were seeing a sticking of the price increases that might lead to lower volumes in Q4. Is that because customers may have switched to other suppliers that gives you lower volumes in Q4? Or is that just for the sake of Q3 having had some pre-buying while Q4 might see some capacity restraints due to the turnarounds you alluded to? So is that simply, basically a timing question? And methionine or is there a structural component in there as well? Thank you.

Ute Wolf: Yes, let me start with the second question. As we said, we had a very good volume development in Q3. Somewhat better than we had hoped for.

So it's more technical. Reaction if then maybe in Q4 one or the other contract was then already handled earlier. So that is more what we meant. The market itself, we really see the market developments, really according to the long-term trend, 5% to 6% volume growth in the markets, now very, very sustainably over many, many years. If we look at the regions, we see good demand in the main regions like North America, Europe and Asia.

So there is nothing, which really could represent a cloud in the sky. It's more really a tactical and maybe from quarter-over-quarter effect. But again, we were cautious for Q3 and now I think, it's better to be not overoptimistic for Q4. I think that's all we can say to that. To your first question, I'm not sure whether I understood it in the right way.

So the €50 million are a mix of maybe more 1x measures and also long-term. But if you look at not replacing somebody who leaves, of course, then in the course of the year, you might also get to the point that the position is canceled. And so that is maybe, one way to look at it. So partially that is the preparation then also which goes into the €200 million.

Oliver Schwarz: Very clear.

Thank you. Might I sneak in a follow-up question on methionine. Is your, let's say pricing behavior...

Christian Kullmann: Sorry, sorry, Oliver, we've talked about this enough now. I think all the questions are discussed and answered.

I think there's other questions in the line. We could pass, we should pass it onto the next question. Thank you very much, Oliver, for your understanding.

Operator: We will take our next person, Andreas Heine from MainFirst.

Andreas Heine: Yes only three minor questions left.

The first is you have mentioned a number of maintenance shutdowns in Q4, but put only a rather low number of low single, double-digit million behind this. Is that the incremental impact from last year where you probably also had in Q4 quite a number of maintenance shutdowns to this year. Or is the total impact only is this low double-digit number? Second, and you mentioned there's more to come. I don't know whether you meant in this, the context of more cost savings so that you screen your, the spending of the company in all areas in more detail over the coming quarters, to come up with even more ideas on cost savings or whether that was meant you come up with more on the portfolio side if you could clarify this a little bit? And last question on your operational business, in crosslinkers where you have a very nice growth and strong margins, do you see how more competition, one of your competitors who mentioned that in aliphatic isocyanate, there is more, there is some price pressure from one player adding capacities. Is there a spillover to your use of your own chemistry or is it completely separate?

Christian Kullmann: Okay.

Sense a lot, Andreas. Let me start with the first part of your questions. It is not to announce something and then, or to promise something and then not to start to deliver. Therefore, we concentrate, first of all, on our, on the execution of the things we have announced, because this is where we will definitely deliver. In other words, more to come, yes.

In strategy execution, yes. But first of all, we have to do our homework internally. Ute?

Ute Wolf: Okay. Then I will continue with the 2 other questions. The amount was just the earnings impact isolated in Q4.

I think it does not make so much sense to compare it to quarters of last year, as maintenance really appears relatively erratically. We pre-produce an inventory so to, of course, bridge those times when we are out of production. I think one consequence of that was the relatively high working capital towards the end of Q2. So that has a very long-term lead time. So maybe that gives you some color how it works.

Crosslinkers, I think we have several influencing factors here. One very important thing for us is that Wanhua has -- a supplier of Wanhua, to be precise, had to completely stop the production in China in July. The outage could be relatively long from our point of view. It's a little bit unclear still, but as a consequence Wanhua faces problems along their whole isophorone chain and are really not able to process IPD or IPDI from IP. So of course that opens up some opportunity for us.

So we see this more as a positive chance here for us. So we're not overall -- not negative for the business given the pros and cons and the development in the market.

Operator: Thank you. And now we take our next person, Andrew Benson from Citi. Please go ahead.

Your line is now open.

Andrew Benson: Yeah, thanks very much. Not surprising that most of my questions have been answered, but just really tiny things. You mentioned challenges within the amino acids or, I guess, the non-methylene business. And I wonder what you're doing to address that? What are you doing to try and improve the SAP business as well? And if there are any hedging in place that would protect against currency volatility in 2018? Thanks.

Ute Wolf: I'll start with the hedging question. We have a rolling hedging concept, mechanism for ABEX. We hedge around two third of the exposure over the next 15 months. So from that point of view, in our guidance, you always have these hedges included when we give the guidance for the full year, that has not changed. And Christian will update you on the amino acids and SAP in a minute.

Christian Kullmann: Okay. Thanks a lot, Andrew. As I've already mentioned, first of all, we have to do our homework internally and then we will present the results and you can be assure, we'll come back to this next time we will present how to move on here in this.

Operator: Thank you. Now we will take our next person, Geoff Haire from UBS.

Please go ahead. Your line is now open.

Geoff Haire: Hi, thanks very much for taking the questions. And thank you for your patients with all of these questions. Two very quick questions.

One is obviously the sort of preferred mechanism of companies coming together as mergers within the chemical sector at the moment. I just want to check is there anything that, particularly given your major shareholder RAG that would prevent you from merging. If that's the route you wanted to take? And the second question is, I know is that there is a headline of Reuters talking about extending job guarantees out to 2021. Was this something that you felt you have to do in light of the cost saving programs that you're taking on to satisfy the works councils? Thank you.

Christian Kullmann: Thanks a lot for your question.

First of all, the management team is running the company. And we make the decisions and that's it. Full stop. I couldn't explain it in a more precisive way. Okay? Next question was about…

Geoff Haire: I noticed from Reuters this morning that you -- there has been an announcement saying that you've extended job guarantees through the 2021.

What I wanted to know was did you have to do, did you feel you have to do this in light of the cost savings programs that you're doing to get the support of the works council in Germany?

Christian Kullmann: It is about the measures, were defined and already implemented. So we will concentrate on the postponed, first of all of new hires. And we would have a very precisive review of open positions in the relevant functions and all the other things we have given to you during this call, all things we have aligned, we've discussed with the representatives of our employees. I think this answers your question?

Geoff Haire: So from what you said, does that would mean that there will be no job redundancies connected with the €200 million of cost savings given guarantees?

Ute Wolf: The guarantee you see is very specific kind of guarantee. I would suggest that the IR team speak to some clarification, because this includes a very specific kind of job reduction.

Christian Kullmann: Okay. Maybe something to add to make it clear, a little bit clearer. You know, linear structures and the more efficient processes that is crystal clear, will in the end lead to adjusted headcount requirements and that's it. Has it become clearer to you now?

Operator: [Operator Instructions] Now, we will take Laura Lopez from Baader.

Laura Lopez: I know it's already late, so 2 more.

In Baby Care, the market conditions continue to be weak, as you mentioned, but that clearly guided market has become tighter to several supply chains disruptions. And do you expect to have an impact on that in the upcoming quarters or maybe higher prices also in Baby Care driven by higher acrylic acid prices. And in your Health Care business, so this shift towards Western players, have also been mentioned by several of your competitors, and which is causing also a tightness in the market in terms of capacity. So it would be interesting to know how is Evonik in terms of capacity? So you say your pipeline is already full for 2018. And so do you have enough capacity to secure growth moving forward in this business?

Ute Wolf: Yes Laura.

In Baby Care, we will have field propylene price passed on in the next month. With regard to acrylic acids, we have in many cases, our own production where we radiate the source from. So we are maybe not that much exposed to the open market, to the free market here. But of course, the overall market is still suffering from overcapacity. So it will take some years until this unfavorable global supply demand situation will then resolve.

But I think, the specific acrylic acid, we have access to more or less own capacities on joint ventures. So, I think, we have maybe exclusive access here. Health Care, the way it works, we have, of course, our existing capacities, which are well field with the rollover of the Eli Lilly contract, I think that's a good step for the existing capacities. The lead times are very long in this business. So if you really decide to reallocate or relocate the production, you really have to register that with the FDA and all these others.

So if you need capacity additions, you have time to do that. And in our case, of course, we have a funding scheme that our customers more or less pre-fund these capacity additions so that for us that's also under cash perspective, a very attractive way to do the business.

Operator: Thank you, ladies and gentlemen. That will conclude our Q&A session. As of now, I would like to hand the call back to our host for any additional or closing remarks.

Christian Kullmann: Ladies and gentlemen, this brings us to the end of today's call. We've really enjoyed it. Thanks a lot for your attention, and goodbye.