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Edited Transcript of EVK.DE earnings conference call or presentation 6-Nov-18 10:00am GMT

Q3 2018 Evonik Industries AG Earnings Call

Essen Nov 20, 2018 (Thomson StreetEvents) -- Edited Transcript of Evonik Industries AG earnings conference call or presentation Tuesday, November 6, 2018 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Christian Kullmann

Evonik Industries AG - CEO & Chairman of the Executive Board

* Tim Lange

Evonik Industries AG - Head of IR

* Ute Wolf

Evonik Industries AG - CFO & Member of Executive Board

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Conference Call Participants

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* Andreas Heine

MainFirst Bank AG, Research Division - MD

* Chetan Udeshi

JP Morgan Chase & Co, Research Division - Research Analyst

* Geoffrey Robert Haire

UBS Investment Bank, Research Division - MD and Equity Research Analyst

* Gunther Zechmann

Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst

* Knud Hinkel

equinet Bank AG, Research Division - Research Analyst

* Laura Lopez Pineda

Baader-Helvea Equity Research - Analyst

* Paul Richard Walsh

Morgan Stanley, Research Division - MD

* Sebastian Christian August Bray

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Thomas Swoboda

Societe Generale Cross Asset Research - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to today's Evonik's Third Quarter 2018 Earnings Conference Call. For your information, today's call is being recorded.

At this time, I would like to turn the conference over to Mr. Tim Lange. Please go ahead, sir.

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Tim Lange, Evonik Industries AG - Head of IR [2]

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Thank you, and good morning, ladies and gentlemen. Welcome to our Q3 earnings call. With me today are Christian Kullmann, CEO; and Ute Wolf, CFO of Evonik.

And with that, I hand over directly to Christian for the introductory speech.

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Christian Kullmann, Evonik Industries AG - CEO & Chairman of the Executive Board [3]

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Thanks a lot, Tim, and also warm welcome from my side. Thanks for taking the time to be with us. The third quarter of this year was another quarter with solid and broad-based earnings growth and in line with our expectations despite somewhat more challenging macro conditions. And we are confident that the robust demand in most of our end markets and businesses will continue into quarter 4.

Consequently, we today confirm our outlook for this year. But even -- or maybe especially in our currently volatile environment, let me start with a more strategic perspective and give you a short summary of how we executed and will further execute our strategic agenda.

Last June, we have set ourselves to turn Evonik into best-in-class specialty chemicals company. Since then, we started initiatives on all levels with the aim to improve our portfolio structure, our cost base and to initiate cultural change within the company. And progress is more and more visible.

The 2018 results are already benefiting from the initiated savings program. The broad-based margin step-up in our operating segments was only possible with the strict and swift implementation of these efficiency measures. Also on business line level, the progress is evident. We constantly improved our portfolio by selling or closing unprofitable assets and changing business models. The divestment of the Jayhawk site in the U.S., which we just closed on November 1, or the project Oleo 2020, the merger of our business lines, Personal & Household Care, are just 2 very recent examples.

We will also continue to strengthen and balance our portfolio. The exit from MMA is on track. And if we see the opportunity for bolt-on acquisitions, we'll have a closer look at it. We are targeting businesses with GDP-plus growth in attractive and resilient end markets with an EBITDA margin sustainably at/or above group average and a high cash conversion and of course, at a fair valuation.

Skipping Slide 4 and coming directly to a topic which is very important to me personally, cultural change. Our 4 new corporate values are the guidelines to our more performance-oriented culture. They are now drilled down into the organization. On the one hand, and especially for the values performance and trust, workshops for our executives provide toolkits how to establish the new values. On the other hand, bottom-up workshops for employees of all levels will fill the values speed and openness with more life.

Here, we will challenge our ways of working and share ideas across segments and hierarchies. Of course, it will not happen overnight. But I'm convinced that our new values will make Evonik a better, stronger and more performance company. And I personally am at the forefront of living these values every day. The organization can hold me responsible for that, and you can do so as well.

Another important element of our more performance-oriented culture is our new incentive system. From next year onwards, the new system will implement a leaner process and a strict alignment with our group financial targets on all levels. We want to encourage our employees to work together rather than in silos.

To achieve this, the financial targets of the group are the most important targets for every employee in contrast to individual goals like in the past. Along with this comes a clear differentiation of individual performance levels. This means that our performance is rewarded. But on the other hand, also underperformance is addressed more directly and different than in the past. It will have a tangible influence on the individual bonus.

With this, ladies and gentlemen, let me hand over to Ute for the third quarter financials.

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [4]

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Thank you, Christian, and welcome also from my side. In Q3, we delivered another quarter of healthy organic growth mainly driven by strong pricing.

On the volume side, most of our end markets have shown continued good growth more resilient like animal feed, Personal Care or Health Care anyway. But also markets like paints and coatings, engineered plastics or consumer goods have shown solid demand trends. Only towards the end of the quarter, and especially in auto-related end markets, we observed some signs of slowing demand. Additionally, we were impacted by low Rhine River water levels, high utilization rates in our plants and limited raw material availability.

Chart 8 shows some details on earnings growth in the third quarter. And the key message here is our growth segments are the drivers of our year-on-year earnings improvement. This confirms our strategic direction and focus. And we will continue to invest into our growth segments.

Progress is also visible on the free cash flow side. We improved by almost EUR 100 million after the first 9 months. Earnings growth obviously contributed to this while net working capital outflows, especially towards the end of Q3, had a lowering effect. Besides the already mentioned slowing demand in auto-related end markets in September, preparation for maintenance and the logistical challenges from the low Rhine water levels resulted in higher-than-expected inventory levels. Parts of this will be released in Q4, the other part should give us some free cash flow potential for the next year.

Resource Efficiency delivered another strong operational quarter with an earnings increase of 9% compared to prior year. Particularly pleasing, segment margin of 23.7% is on continued high level. Organic sales growth of 4% was driven by pricing, successfully compensating for higher raw materials. Demand was solid across most end markets, even against the high year prior year comps.

Our eco-friendly, waterborne Coating Additives had another strong quarter and so did high-performance polymers. Only auto-related activities have seen some slower demand. And our volumes were held back by product availability. This was caused, like in the previous quarters, by tightness in our own capacity. Additionally, we have to cope with the limited raw material availability, for example, for specific fatty alcohols. This will also continue into Q4. Nonetheless, we have no doubt that Resource Efficiency will have a good finish off a very successful year 2018.

In Nutrition & Care, Q3 was another quarter of improving operational performance with strong organic growth of 10%, both from volume and price. We continue to expand margins, driven by successful management of higher raw material prices and ongoing implementation of efficiency measures, like in Animal Nutrition. Operationally, Health Care and Personal Care with their strong performance are the drivers of the segment.

Also methionine continues to see robust demand trends and good volume development. The long-term growth drivers in this market remained very intact. On top of that, the third quarter benefited from competitive shutdowns in Asia. And also Baby Care has seen good volume in Q3 from premium as well as private label customers in Europe and North America.

Concluding with Performance Materials. Operational performance was good in Q3 both in C4 and in MMA. The majority of our end markets have shown robust demand. In MMA/PMMA, the expected softening of spot prices in Asian bulk business and standard grades became visible, while pricing especially for the more specialty applications remained healthy. The double-digit positive price effect in the quarter was mainly a result of notably higher naphtha prices.

On the earnings side, the time lag in the pass-on of our naphtha and C4 products had a temporarily negative effect. In addition, we had several extraordinary effects in Q3 with an impact on volumes and adjusted EBITDA, respectively. Limited raw material availability as a consequence of lower utilization rates in crackers, logistical challenges around the Rhine water level and scheduled maintenance turnaround in MMA impacted EBITDA by around EUR 50 million.

And the critical situation on the Rhine is holding on. It is actually more challenging today than it was during Q3. While we cannot predict the weather and hope for rain every day, the situation will have a negative impact on Q4 as well, the exact level needs to be seen.

With that, I hand back to Christian for final comments on our outlook.

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Christian Kullmann, Evonik Industries AG - CEO & Chairman of the Executive Board [5]

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Thanks a lot, Ute. Following our strong performance in the first half, we increased our group outlook for the full year in August. Quarter 3 was broadly in line with our expectations, and we generally expect the robust end market demand to continue into quarter 4.

While we are observing that some of our customers are becoming somewhat more cautious, but no broad-based or material slowdown is visible in our businesses as of today. So having said this, we fully confirm our guidance for all KPIs for the group and all segments. And in such an environment, it is even more important to focus on what we have in our own hands: first of all, the execution of our strategy; next, the realization of our saving targets; and the upgrade of our portfolio.

With this, I would like to close our brief presentation. Thank you for your attention so far. And now we are happy to take your questions. Thanks a lot.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question today from Knud Hinkel of equinet.

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Knud Hinkel, equinet Bank AG, Research Division - Research Analyst [2]

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My first question would be whether you consider your logistic chain, in general, due to the lower Rhine water level because regarding climate change, it could be a sustainable effect from my point of view. And second question, I would like you to give an outlook on your -- how do you perceive the methionine markets going forward in 2019 volumes and demand, that would be very helpful.

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [3]

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Yes, Knud. Thank you for your question. I'll start with methionine and then Christian will explore on the general logistic chain. For methionine, the general trends are very much intact. We see good volume growth in the market. We also see good volume growth in our own businesses for the full year. Also the price development is, if ask me, is relatively stable throughout the year as we had expected. Looking ahead, the market will continue to grow. As I said, the fundamental trends are very much intact. For next year, it remains to be seen how the new capacity will impact the market, especially in that year 2019. Sumitomo is already marketing the volumes towards the end of this year. And next year, as I say, we'll have another 40 kt and we will start our own plant in Singapore as well. We are prepared for whatever scenario occurs. We have our efficiency measures from our Adjust 2020 program in place. So we have further potential on the cost side and full flexibility on our global asset footprint. So we will secure our cost leadership even in a scenario where prices might come under pressure in the next year.

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Christian Kullmann, Evonik Industries AG - CEO & Chairman of the Executive Board [4]

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So the next question, first of all, let me take the chance to address that our team in our businesses and in our procurement, let's say, has really done a great job because they have to make sure that our logistic chains are working pretty well and will -- first of all. Second is that we'll make sure that we will have alternatives, creating during the next years. And first of all -- and third of all is, that we are now in a situation that we have already realized alternatives to make sure that we could compensate the slower shipping of our products and raw materials. But it is that certain that actual -- the situation, talking about the Rhine water, is really critical.

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Operator [5]

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We will now take our next question from Gunther Zechmann of Bernstein.

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Gunther Zechmann, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [6]

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Two questions, please, one on demand and one on your cash flow. Can you just highlight your exposure to automotive OEM customers, what that is on a group level and also quantify the slowdown that you said you've seen at the end of Q3? Maybe you can give some visibility around order books as well and how good your visibility is in that end market. And the second one on cash flow and your guidance, where I noticed were increasing free cash generation in this year. Given we're in November now and that it can be quite tricky to forecast your working capital moves into year-end, can you help us guide a bit more closely on Q4? And if I can bolt on an outlook question on that as well, what would be, in your view, a satisfactory outcome for cash generation on a constant portfolio for next year, please?

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Christian Kullmann, Evonik Industries AG - CEO & Chairman of the Executive Board [7]

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Okay, let me start with the automotive question. As of today, we do really not see broad-based slowdown in any of our markets and also not in our auto-related businesses. And having said this, for quarter 4, we do expect somewhat more cautious orders but these pattern -- but the patterns to continue. From this point on, if you look to our sales exposure in our end markets in the automotive business, we talk about roughly 15% to 20%. Having said this, it is notable that we have a high degree of diversification in our automotive product portfolio, for example, from silica for chairs via lightweight applications like polyamide 12 to the lubricant additives. And if you look -- I guess, this was another part of your question. And if you look to our sales within automotive, it is roughly 50-50. That means half is in the replacement area and the rest is in the OEMs.

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Gunther Zechmann, Sanford C. Bernstein & Co., LLC., Research Division - Research Analyst [8]

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Again, just to be clear, the 15% to 20% that you referenced, is that on Resource Efficiency level then or on a group level?

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Christian Kullmann, Evonik Industries AG - CEO & Chairman of the Executive Board [9]

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Group level.

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [10]

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Yes, Gunther. And now to the question on cash flow. In Q4, we will see different developments higher year-on-year earnings, a cash inflow from net working capital. So the buildup in Q3 will be then brought back to certain extent. Contrarily, we expect higher cash taxes if you compare to last year's Q4 cash flow. All in all, we expect the free cash flow more or less on prior year level, which then together with the first 9 months brings us to the level, which starts with a [6] at the beginning. As I said in last call, so the guidance notably higher will be met. We have to be realistic here. With the challenges in the Rhine water level, we might need to have higher storage for the raw materials or intermediates. So the cash flow will probably not be materially higher than just the 6 and in the first figure. If we look to next year, it is clear that our focus and our clear target is to cover our dividend with the free cash flow in any given year. For next year, there are also some technical factors. I'm sure you have seen that in our backup pages. The mandatory application of the new leasing accounting standards, IFRS 16. And we will adopt then [a mechanism] that the cash outflow interest is according to the industry standards shown in the financial cash flows so that we are now better comparable to our peers. What are the main moving parts for next year? We will have some onetime cash-out for our SG&A program, on a like-for-like basis, a more normalized cash taxes. Of course, a discontinued M&A cash flow will not be in that some point time next year. On the other hand, we will further intensify our focus on cost so that will drive the earnings line over the cash inflow. Strict net working capital management, we have now even more potential since the 2018 levels are somewhat higher than they should be. Normally, ongoing CapEx discipline, I think that are all the drivers of the cash flow for next year. To sum it up, we will continue our high cash flow growth also in the next years. And it goes without saying that in any given year, it is our clear target to cover the dividend with the free cash flow.

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Operator [11]

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We take our next question today from Geoff Haire of UBS.

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Geoffrey Robert Haire, UBS Investment Bank, Research Division - MD and Equity Research Analyst [12]

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I've just got two questions. First of all, very simplistic, could you just tell us what the cost savings in Q3 were from the cost saving program that you've got? And then secondly, a question on protein in China. I think there was some speculation that the Chinese government is going to try and reduce the protein content in China for animal feed. I just want you to explain us, what are the benefit or negative that would be for your methionine and lysine business, please?

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [13]

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I'll start with the cost savings. Our admin expenses are 5% down year-to-date if you compare that in the P&L. Majority of that comes from our SG&A program. We have announced some EUR 50 million will be realized this year. So that is more or less evenly spread over the year. And I think you see that in the year-to-date numbers in the G&A cost and also in the slower growth in sales cost. Also worth noticing, I think, is our decrease also on the research and development costs. So we also apply the cost discipline to research and development to really see that we apply our funds in a very efficient way. From the Adjust 2020 in Animal Nutrition, we saved around EUR 10 million worldwide this year. So I think that's in the numbers as well. But that is spread out over several conditions. And of course, we've seen some first benefits from our Oleo 2020. But basically early days, so I think more in product mix, and we will see more of that next year.

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Christian Kullmann, Evonik Industries AG - CEO & Chairman of the Executive Board [14]

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Thanks a lot for the question. I think I could answer in a nutshell because there's no substitution possible between lysine and methionine.

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Geoffrey Robert Haire, UBS Investment Bank, Research Division - MD and Equity Research Analyst [15]

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No. Sorry, I meant, obviously you've got a lysine business and a methionine business. If China reduces the amount of protein used, is that a negative or is that a positive for those products separately?

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Tim Lange, Evonik Industries AG - Head of IR [16]

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Separately. That's a potential positive for lysine, especially for lysine. But I wouldn't overestimate it for the next year.

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Operator [17]

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Paul Walsh of Morgan Stanley has our next question.

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Paul Richard Walsh, Morgan Stanley, Research Division - MD [18]

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The first question I have is there's been a sort of notable change in the dynamics in the top line in the third quarter with volumes down slightly but pricing up strongly. Other than the cyclical dynamics in the Performance Materials business, has there been a change across the other 2 divisions in Nutrition & Care and Resource Efficiency to go much more for price versus volume? That's my first question. My second question is I know, Christian, you just said no notable slowdown in volumes. But hypothetically, if that was something to pan out moving into next year, on the cost-cutting front, can you dig deeper? Would you find other ways of being able to drive EBITDA forwards, given the SG&A programs and the other initiatives you're taking to take out cost?

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [19]

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Thank you for your question. I'll start with your question on the dynamics in volume versus price development. In Nutrition & Care, pricing, the pricing influence was 5% year-over-year. That has several influencing factors. Part is product mix, especially in Health Care and Personal Care. Additionally, we had price effects from successful pass-on of higher raw material prices that relates to the silicones, where we saw sharp price increases towards the beginning of the year. But also Baby Care has pass-on mechanisms of propylene prices, which were weighing on Q2 a little bit and now in Q3 that these prices are passed on. Animal Nutrition has, of course, on the pricing side, easier comparables year-on-year. But we expect, as I said, prices to be fairly stable. If we look to Resource Efficiency, as I said, the volume development was also due to raw material constraints, was due to capacity constraints. You might have seen that we opened our new silica plant in the U.S. just a few days ago. So this is really badly needed. That is a little bit the story behind volume and price development in our 2 growth segments.

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Christian Kullmann, Evonik Industries AG - CEO & Chairman of the Executive Board [20]

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Paul, the answer to your question, let me say, this is graven into stone, yes, we see further potential on business level. For example, we are not satisfied with the business line Baby Care in this respect. But as you know, and you know me pretty well, we will do it step-by-step.

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Operator [21]

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We now move to Chetan Udeshi of JPMorgan.

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Chetan Udeshi, JP Morgan Chase & Co, Research Division - Research Analyst [22]

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Just wanted to ask a question around the volume growth dynamics because you addressed previously saying that in Resource Efficiency, you're capacity-constrained. So thinking about next year, if the demand environment remains okay, how should we think about possible volume growth in the Resource Efficiency business next year?

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [23]

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Yes. Thank you for the question. I think the volume growth in RE will be moderate overall next year. There are different influencing factors to that. As I said, we now just opened the new silica plant, which is really part of our master plan for our silica facilities. So that was relatively badly needed. That has started just a week ago or so. We will have new capacities also in other products, like our gas filtration or in our can coating business. Of course, we have macro uncertainties. Christian alluded on that. We have seen some signs of slowdown here and there. We have to see how that works out in the next year. It's a little bit too early to really forecast the volumes. But these are some of the influencing factors.

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Chetan Udeshi, JP Morgan Chase & Co, Research Division - Research Analyst [24]

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Can I just follow up? And just to understand this better, I think at the Capital Markets Day or Meet the Management, the aim that was presented was to grow faster than the GDP. And especially this year, when we look at the volume growth, it definitely seems more on the weaker side in aggregate for the business. So at what point do we start to see that improving towards more than GDP level? Is it once your expansions come online maybe in 2020, '21? Or is it possible that maybe at some point of 2020, 2019 might also see an acceleration? Well, not in Resource Efficiency then, but just generally across the group.

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [25]

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So we have seen good volume growth in Nutrition & Care. I think that's not so much a point of discussion for today. Resource Efficiency has demonstrated volume growth for many, many years. In 2017, 6%, which is substantially more than the GDP growth of that year. As I try to explain, we have step-by-step new capacities coming online. So that will help, of course, on the capacity side for next year. In Resource Efficiency, as I said, the silica plant in the gas filtration, we have in other plants. We are not still at a full capacity yet. We see good demand for many, many of our applications. We talked about the situation in coatings but also crosslinkers has good demand. So there is room to grow next year. I would not overestimate the situation this year. We had specific influences this year. You might remember the strike in the French railway at the beginning of the year influenced a big part businesses in Resource Efficiency, which is really a mix of very isolated and single factors.

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Operator [26]

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We take our question now from Thomas Swoboda, Societe Generale.

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Thomas Swoboda, Societe Generale Cross Asset Research - Research Analyst [27]

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I have two questions, if I may. The first question, little bit more complex and is regarding the input cost inflation that is building. I mean, so far, you are passing on your raw materials cost increases perfectly on. My question here is more towards 2019, energy prices, wage inflation, other cost inflation. I think when you presented your strategy at the beginning of the year, you said, Mr. Kullmann, that you want to buffer input or eliminate input cost inflation on the operating level -- on the operating business level. I just want to ask you again, how do you feel about delivering on that? And how do you see inflation overall developing in 2019? The second question, it should be quite quick. I'm just interested if you could give us a better hint on what we should expect from CapEx in 2019 as you are building on the PA12 plant, how should we think about CapEx, please?

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [28]

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Yes. I wrote down a lot to really make sure I got your complex question right on the cost inflation. We have implemented since many, many years attractive cost compensation program. We've been very successful in that. You might remember that every year, we take out EUR 120 million of cost to compensate factor cost inflation -- factor cost increase. So that is mainly wage inflation but also others like energy cost and so on. For energy cost, we also have pass-on mechanisms in some of our products, so over a formula pricing, yes, hedging our exposures on natural gas and also the carbon permits. And we, of course, we use wherever we can that we have self-sustained -- self-sustained mainly for electricity, so we have our own generation on the sites, which is very efficient in the management but also very efficient under the energy cost field. We see a more -- smaller effect from the recent European energy crisis as less than at EUR 20 million for next year. But again, that's just very [isolated]. On the labor cost inflation, we have seen the big tariff agreement. So that is 3.6% for the next year. Again, that is something we have to compensate via our factor cost compensation program. Raw materials are passed on by formula prices for many products or even with price increases in our end products. I want to draw your attention to the very, very sharp increase in siloxanes we have seen at the beginning of this year. We managed very well to pass that on in the price and at the same time, improve our supplier base here. So that is how we deal with these cost inflation issues. It's something we have done really for many, many years. So this is built into the everyday management. It's built into budgeting. So this is how we look at it.

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Christian Kullmann, Evonik Industries AG - CEO & Chairman of the Executive Board [29]

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Okay. Talking about the CapEx 2019 and going forward, it means that after years with higher share of growth CapEx for Nutrition & Care, now Resource Efficiency will receive a higher share. Resource Efficiency has grown very resilient over the past years. And the capacities are on high utilization level. In order to continue this growth path, future investments are needed here. The CapEx peak in Resource Efficiency will be in 2020 because there's a new polyamide 12 plant in Marl. And then at this point of time, we will reach the highest cash-out level. Nutrition & Care now has its ideal global footprint for methionine plants reached. In other words, Evonik will not invest in methionine capacity expansions such as the Me6 for the next 10 years. Market growth in these businesses can be served with smart debottlenecking measures. Investments in our business lines are in a much smaller scale and are included in Nutrition & Care growth CapEx budgets, I guess, is what's the answer to your question.

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Thomas Swoboda, Societe Generale Cross Asset Research - Research Analyst [30]

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Yes, it's perfect. It was very helpful.

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Operator [31]

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We now move to Laura Lopez of Baader Bank.

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Laura Lopez Pineda, Baader-Helvea Equity Research - Analyst [32]

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I have two questions. So can you please give us an indication on the sales and EBITDA impact of the sale of your agrochem plant in the U.S. will have in 2019? And I don't know if it will also have an impact in the fourth quarter because I think you announced the closing a week ago or something like that. So maybe what will be the impact on your P&L resulting from that business now going away? And my other question is in your active pharmaceutical ingredient business, we have heard some other competitors referring to some raw material disruptions coming from China. And we actually have some profit warnings because of raw material supply issues. So have you felt that? Have you been able to compensate for that? Or do you see this also as a risk for the Health Care business moving forward?

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [33]

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On your question regarding Jayhawk, this is really a very small business, so it has no major influence on the group overall and also not in Q4 for the sale -- for the purchase price, we said a high double-digit million number, so but really it's not worth really working on your model to adjust for that. It's really very minor for the overall group.

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Tim Lange, Evonik Industries AG - Head of IR [34]

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So on Health Care, as you know, very successful year in 2018. We're very satisfied with this business. It's becoming like a really cornerstone of Nutrition & Care. As we said already at our Meet the Management in September, the year 2019 will be more a transition year in Health Care with most likely only stable earnings, which is already a success, we have to say, because we have the last, if you want, legacy contracts in this business expiring at one of our sites. But nevertheless, we'll be able to keep earnings most likely stable in Health Care. The market is looking very good and we are very well positioned with our business. So the long-term growth is intact as we said, targeting 10% CAGR over the next couple of years in the Health Care business.

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Operator [35]

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We now take a question from Sebastian Bray of Berenberg.

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Sebastian Christian August Bray, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [36]

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I would have two, please. The first is on the volume growth again. Excluding the impact of a new methionine plant next year, and are you also at capacity in your Nutrition & Care business? The second one is also related to volume growth. If I knock out the one-off effects, which I think were mentioned earlier during the call, I'm still getting to a figure of about 1.5% to 2% for underlying Resource Efficiency volume growth. Are there any projects for 2019 or 2020 that would potentially move this -- move the volume growth level from this figure?

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [37]

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I'm not sure whether I got your question right. Volume growth in Nutrition & Care will be driven -- is driven this year and will be driven next year by nearly all business lines. Tim explained the situation in Health Care. In Animal Nutrition, we see a very healthy market, a very robust volume growth. Also on our Personal Care business, we see very good demand. We repositioned our products there so that worked very, very well. Baby Care has started to show some volume growth in this quarter. So we see a lot of volume growth potential there for the next quarters. In Resource Efficiency, your calculation, I think, is more or less correct. I can reiterate what we see for volume growth for next year, as I said, new silica plant is just starting so that will -- is needed very much and will produce and deliver into the American market, specifically the North American market. We see good demand in our proteins. We see good demand in our crosslinkers. We see good demand in our polyamide business. So here, it's really off of a product mix set that made sense. We see good -- we have new capacity for our gas filtration and for our powder, which goes into [3D printing]. So there is a lot of bits and pieces, which have become online this year, which will start production towards the end of the year, early next year and will then help volume growth for next year in Resource Efficiency.

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Sebastian Christian August Bray, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [38]

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Just as a follow-up to that, if I look at your pipeline towards 2020 and from what I understand, in your polyamide facility, the big one is due to come online in 2021. Am I right in saying that it looks as if the macro environment remains the same, there will be roughly 2 years of 1% to 2% volume growth in this area?

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [39]

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You're talking about the polyamide business on an isolated basis? Or what are you talking about?

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Sebastian Christian August Bray, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [40]

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I'm asking for the Resource Efficiency segment as a whole, it looks as if you're comfortable with a volume growth rate of 1% to 2% for 2019. If I look at the pipeline of projects coming online to Evonik into 2020, I think there's a bit more fumed silica. But broadly speaking, I'd expect the uplift to be similar. Would you also be comfortable for volume growth rate of 1% to 2% for 2020 in Resource Efficiency?

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [41]

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Sebastian, again I really described a lot of new capacities that come online, which will fuel volume growth, which are there already to be marketed. We also have some debottlenecking here and there. Of course, 1% to 2% volume growth is not in line with our target. I think it makes limited sense to discuss 2019 now in very much detail as we are still finishing '18. We will come up with the guidance early next year in March. And I think then we are ready to give you very detailed expectations on volume and everything for the segments.

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Operator [42]

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We now take our question from Andreas Heine of MainFirst.

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Andreas Heine, MainFirst Bank AG, Research Division - MD [43]

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I have only a couple of smaller ones. Maybe you can give an update also how the MMA disposal process runs? I think it was that you were earlier saying, it should be done -- should we come up with a potential buyer before Q1, you said more a Q1 issue. Second question, again on the constraints on the volume growth. Could you may be split a little bit how much of -- how much was the impact on, let's say, these temporary Rhine issues and raw material supply-constrained because of this and how much you hold back by raw material supply being anyhow tight, not only because of the logistics? One question on the automotive, you said 15% to 20%. Will that materially change when you sell the MMA/PMMA business? I think that has quite a high exposure to automotive. And then one question on siloxane, where you were able to push through prices. Could you also say how the situation is here? You have seen that there are some prices came down in China. Do you see also a relief from very high siloxane prices in other places? And does the tight siloxane market also constrain your growth in the respective silicon businesses?

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Christian Kullmann, Evonik Industries AG - CEO & Chairman of the Executive Board [44]

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It was really a couple of questions worth taking. Let me start with the MMA divestment process. First of all, the MMA process, the disposal process for MMA is progressing and it is, in fact, really on track. As you know, we have sent out a teaser in July. And since then, we have quite a good amount or several handful of good amount of interest. Having said this, the info memorandum has been sent out around the beginning of October. And in this quarter, we will have the due diligence being ongoing. And that will lead to the result that will hopefully be able to identify the winner of the rate in the first quarter of the next year. So in a nutshell, fully on track.

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [45]

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Okay. Regarding your question on raw materials and raw material availability, the main impact on the low Rhine water levels is in PM, so they are really very much dependent on transportation with barges or ship. Within Resource Efficiency, it's a little bit a different picture. It's mainly the fatty alcohols that I mentioned in my speech, which go into Oil Additives. So that is where we have seen some limited material availability for the raw materials. The siloxanes, we are -- the whole year, we have been working on really diversifying our supplier base to be here -- have a sufficient supply both on the quantity but also on the price side. So on that point, I think we are fine there. If we look to the volume development in Resource Efficiency in the third quarter, it's really partially higher plant utilization levels than the limited raw material as I described, and towards the end of Q3 in some auto-related end markets, some signs of more cautious customer behavior. So that is the mix we have seen in Resource Efficiency in Q3.

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Tim Lange, Evonik Industries AG - Head of IR [46]

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The last question, Andreas, I think, was on MMA and auto exposure. Yes, I think generally, the strategy is to make our portfolio more balanced. And that is also in line with exiting the MMA business, which has a bit more exposure to mostly businesses like auto, like construction and like coating. And therefore, on the other hand, the key target is to enter potentially also via bolt-on acquisitions in more resilient end markets and more resilient businesses. So therefore, you're right, that's in line with the overall portfolio strategy. I think that's all.

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Andreas Heine, MainFirst Bank AG, Research Division - MD [47]

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I have just one point on the siloxane. Do you see that the prices are coming down as we have seen that in China? Is that only a Chinese issue? Or do you see siloxane feedstock costs with less pressure going into Q4 and 2019?

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Ute Wolf, Evonik Industries AG - CFO & Member of Executive Board [48]

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I think there is a differentiated picture. We have seen some relaxation in some markets. But again, for us, it's really to secure the supply very early, very reliably. And this is exactly where we stand throughout the year.

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Operator [49]

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Ladies and gentlemen, I would now like to turn the call back over to your host for any additional or closing remarks.

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Christian Kullmann, Evonik Industries AG - CEO & Chairman of the Executive Board [50]

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Okay. Ladies and gentlemen, this closes our -- today's call. We really enjoyed having had you. So thanks a lot for your attention, and goodbye.

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Operator [51]

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Thank you. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.