Cautious optimism about 2017

Christian Kohlpaintner, member of executive committee, Clariant.

A1 Clariant is convinced its future will be decided in Asia, and especially in China. China is one of our target markets which has a future perspective and shows a strong growth potential. Asia has become the largest chemicals market in the world, with China accounting for more than 40 percent of the $3.8 trillion global chemicals market. At the same time, China is the main growth engine in our industry and will contribute roughly 60 percent of the absolute global growth until 2020.

Macrodata shows that the economic center of gravity continues to move east, in particular towards China. A growing middle class with significantly higher disposable income, urbanization as well as an increasing demand for sustainability are only some aspects of this shift.

Over decades, GDP growth in China has been quite high. This rapid growth has led to higher income and wealth, but also to serious challenges like overcapacities in many industries, excessive energy consumption, and pollution of water and air as well as safety and health concerns. The competitive landscape is also changing; costs of labor, logistics and raw materials are rising while more players are entering a market with customer needs changing at a higher pace than ever.

But even with all the challenges in mind I am convinced that the positive development in China will continue.

A2 I am convinced that China's new Five-Year plan and related industrial policies will bear fruit. These policies will enhance China's competitiveness in manufacturing by promoting innovation, quality and green chemistry as well as by nurturing talent.

Clariant's strategies are in-line with China's policies and respond to China's mega trends. Our strategic pillars, "Focus on innovation through R&D" and "Add value with sustainability", play an essential role in our corporate strategies. We are not only transferring knowledge, technology and experts to China, but more importantly we bring true research to the country and to closely collaborate with the Chinese to innovate and to develop solutions locally. It is our focus to further support China meeting the challenges under the "New Normal".

For Clariant, sustainability is an important driver for innovation, and environmental and social responsibilities are fundamental to our future economic success. Through our global initiatives like the Sustainability Dialog Summit and our Open Innovation website platform we will foster connections with local innovators and encourage dialog and collaboration to achieve sustainable success.

A3 Clariant continued to grow both in sales and profitability in the first nine months of 2016. The good performance reflects our focused execution of our strategy in all our businesses to foster growth and improve returns despite the continued challenging economic environment. The advancement in the current year results from our focus on delivering more added value to our customers, an increased commercial agility of our organization as well as continued cost discipline. We are therefore on track to achieve our targets for the full year 2016. On a regional level, sales growth was led by Asia, which recorded an increase of about 8 percent in local currency reflecting the strong improvement in China.

In 2017, we expect the economic environment to remain challenging and with increased volatility in particular on the raw materials. However, since our business in China has been able to get back on track, we believe China will be the key growth contributor for Clariant globally.

A4 The impact of the stronger US dollar is not limited to the China market. As a Suisse listed company but true global player, Clariant is well-balanced in its global presence.

We expect moderate growth in the United States, while growth in Europe is expected to remain stable but rather weak. Clariant is holding strong belief in the positive development of Asia, especially China. Clariant is expanding its footprint in China, to serve the China market, as well as the global demand.

The Chinese Government is increasing the flexibility of RMB exchange rate to absorb the capital pressure, together with the adjustment and upgrading of the industry. However, we are confident that China will recognize the necessity to maintain the stability of the RMB in order to further build trust in its currency.

In spite of the increasingly challenging economic environment, Clariant is confident to achieve growth in local currency, as well as progression in operating cash flow and EBITDA margin before exceptional items.

A5 We will continue our investment in China from different perspectives. To facilitate the execution of timely strategies in our region, we will continue to move more decision authority into Asia. At the same time, we will keep on investing in our local talent development and create more opportunities for local talents to grow within our organization.

Meanwhile, our investment in innovation will continue, as we make it our priority to place an even heavier focus on addressing the local needs by innovation. For instance, with our One Clariant Campus (OCC) project running full steam, the new headquarters facilities will provide us with a high impetus to demonstrate our local innovation capabilities and to enhance our collaboration with external stakeholders. And on top we will continue to invest into manufacturing capabilities, wherever they make sense and create value for Clariant and our stakeholders.