Fuchs Petrolub SE
Q4 2016 Earnings Call Transcript

Published: 21 Mar 2017

[Executives:]

Stefan Fuchs - CEO Dagmar Steinert - CFO

[Analysts:]

Daniel Buchta - Main First Knud Hinkel - Equinet Bank Oliver Schwarz - Warburg Markus Mayer - Baader Benedikt Orzelek - UBS Martin Rödiger - Kepler Cheuvreux Uwe Schupp - Deutsche Bank

[Operator:]

Good afternoon, gentlemen. You saw that there are no ladies introduced, but anyhow welcome to all of you here in Frankfurt and welcome to everybody or everyone listening in our conference call. Today, with me is our CEO, Stefan Fuchs and our Investor Relations team with Reiner Schmidt and [indiscernible]. I would like to share our full year results 2016 with you and discuss the outlook for the year 2017 and Stefan Fuchs will start with some general remarks and highlights and so floor is yours.

[Stefan Fuchs:]

Thanks, welcome to you. Welcome to Dagmar and our telephone participants. First of all, I think today we published our full year result with yesterday's Supervisory Board meeting with all those administration things and then put our annual report. They are all very happy about the results. And I think most important is, we have published our annual reports which doesn't only have a different format, but also the name is emotional in the vehicle as we are always emotional. Other thing most important the content is very nice. So we are very proud of a very good year 2016 with a very strong finish and Dagmar and I as well as [indiscernible] is going to go with through the numbers, also a little bit to our credit sheet and so we move on some of the slides. So look at the highlights last year, we grew our sales by 9% and I think what is very good for us in the year 2015 for the first time is we surpassed the €2 billion benchmark, now we have €2.3 billion if you all remember, this is the first year with both large acquisition full in, so both Pentosin and Statoil we are full in. As you remember Pentosin was a more technology driven acquisition, so the sellers of the company, they had a very good product, very good approvals, but no global setup. We acquired it and could hold it our in our global footprint and I think that was a very nice acquisition for us from day one is fully integrated. Statoil was different. Statoil is a more regional background, so Statoil makes a strong in Northern Europe and stronger in Poland and in Russia. Last year, we spent the entire year to integrate it because Statoil was a cut-out only from the seller, so we had to dealing us or decouple us from the IT system from the administration. We hit in all those countries smaller legal entities, we have merged them all and I think we have made 5 to 8 legal mergers. We've integrated business from Poland and Russia, so that's all done. And now we have really a nice footprint in those regions. What is very good, the organic growth of 3% mainly I must say in Germany, Poland, Russia, China, South Africa and India. So mainly Europe and in Asia was really good. It's the eighth earnings increase in our order, the earnings per share went up by 10%, the EBIT by 8%, we have a 9% dividend proposal plus so the supervisor report and the executive report for policy step to our annual meeting on May 5 and that would be the 15th consecutive dividend increase in the whole, so more or less we distribute half of our earnings. What makes us very proud that last year we won the German sustainability award, which is really for both the lubricant company and the chemical company, a real big deal and since many years we are heavily engaged in the sustainability, but we from day one we said we want to avoid clean washing. So that's why we really went deep into the aspects social economic and ecological. The last one is the one that [indiscernible] it's the CO2 footprint of our product, so this is really for us a very big and a very nice achievement. As every year, we show you the sales and earnings per quarter and here you see the first thing if you remember Pentosin we acquired in 8 July 2015. So the third quarter in 2015 was including Pentosin, the fourth quarter 2015 was including both so as of October 1, we acquired Statoil and we hit in 2016, we would say not a very hot first quarter, so it was a normal first quarter we had a very, very strong second quarter. And we had a weaker third quarter and a very, very strong fourth quarter. And you see that even more on the EBIT I'm since many, many years now in the company, but for me it's the first time that I see the fourth quarter larger than the third quarter. And then also cleans up taking out to the outlook normally when we make our outlook it's in the month of October, we make our internal outlook [indiscernible]forecast and we had really the third quarter was below the second quarter and the month of October was a very normal month. So we made a outlook which confirm those numbers, but November and December we sold like there would be tomorrow and you have seen it in many other companies and I can also say now that the year started as it ended for now and bearing in mind that last year Easter was in April, last year Easter was in March and this year it's in April that is also that hit by last year the second quarter was so strong. So this year we will see different we will see a stronger first and a second quarter this what we think so don't under value the first quarter by four that's already said for now and that might be come in a moment to the outlook, so we agreed today that is not improving at 1 o'clock after lunch we jump from one to the other and make it a little bit more interesting.

[Dagmar Steinert:]

Thank you. Thank you very much to say because everything you were already told. But just let's have a look at the development of group sales and I would like to compare them against our original guidance we gave you more or less exactly one year ago. Organically, we grew 3.3% and we expected a low single-digit percentage growth. So we delivered with external growth from the acquisitions we grew by 8.6% and we expected high single-digit percentage growth, so we delivered, but if I count these numbers together we see a growth of 11.9% and that's roughly 1% above our original expected guidance, but that's I would say one of the things of the really strong first quarter. On the currency side, we had headwind and there we lose 3%, but anyhow at the end €2.3 billion sales, I think that's a good benchmark for 2017. If you look at the regions we see a mixed picture. We realized increase in sales in Europe and in Asia-Pacific, Africa only Americas did not really met our expectations and the figures are below the previous year. In Europe, the sales growth of course is driven by Pentosin and Statoil fuel and retail lubricants, but additionally more or less all European companies saw organic growth as well. About average we've seen organic growth in Germany, in Central and in Eastern Europe. In Asia-Pacific, Africa, we are on expansion course as you can see this over 9% organic growth and very strong in China, but on the currency side we more or less lose part of it. The region Americas, it was a difficult year and in North America as I already said our expectations hasn't been met and we face some difficulties in some industries, for instance the steel industry was quite weak and on the other side in South America, but that's just a smaller portion with steel organic growth. If I come now to our EBIT, EBIT by the regions, you can see as Stefan already mentioned an increase of 8% to €371 million. In our forecast, we expected a range of 3% to 7% or in beginning of November 4% to 6%. Europe again is dominated by the acquisition with €196 million EBIT compared with previous year figure €162 million, but you might remember in 2015 in that region we had these integration cost of €6 million, which we already accrued for Pentosin and Statoil. On the other hand, the amortization of the purchase price allocation of these acquisitions was in 2015, €3 million and in 2016 it's more than €8 million in the region Europe. So overall more or less it's comparable. In Asia-Pacific, Africa, the EBIT increase is €5 million that might seem a little less compared with 9% organic growth, but as I already mentioned due to a weak Chinese and South American currency, we lose here a lot. The decline in America is result of the North American development and what I would like to mention here is the minus €40 million from the holding and consolidation. It's the number doubled from the previous year and the reason is that we have more in the company sales that means from our Pentosin acquisitions we produced in Germany and for our Chinese clients we ship it over to China and therefore we've got quite an increase number of goods in transit and therefore we have this to eliminate this and got this minus €40 million. Now I would like to come to the P&L. We already talked about the development of sales. Our gross profit increased unproportionally by 7.5% and other works we lost 0.6% in the margin, but that's the influence of the product mix and slightly difference structure from these two major acquisitions. The other costs selling, admin, R&D expenses increased unproportionally again by 6.7%, so at the end our EBIT before equity increased by 8.6% which is not at that less than the increase in sales. The structure of our P&L 2016, 2015, the single lines are not left easy to compare because these different product mix influence every single line of the P&L. At the end, after the EBIT of €371 million, this year earnings after tax was €260 million, so we have a slightly lower tax rate of 31% compared with the previous year of 31.9%. In 2016, we closed two smaller acquisitions in North America and the impact on sales for the whole group was €5 million on an EBIT side €1 million. We acquired the Chevron global business with white oil and lubricants for the food industry and we brought Ultrachem, which saved industrial specialty lubricants, for example for compressors or industrial maintenance. For both acquisitions together, we paid €41 million and with both acquisitions we are going to strengthen our product portfolio in North America. But we're seeing more investments in our future. As you can see our R&D expenses rose to €44 million after €39 million in the previous year. Today, our R&D team is working on 620 projects all over the world. On the other hand, our CapEx reached a new record in 2016 with €93 million that was expected because one year ago we announced our three-year CapEx program with €100 million each year. For instance, we built a new test field in Mannheim, an office building in U.K. and did a lot of maintenance extended capacity in Germany. In Asia-Pacific, built a new plant in Australia, in Americas, our new grease plant, but there is one thing I would like to point out and that amortization and depreciation, you can see there are now €47 million close to €50 million and due to our plant CapEx program and investments that number is going up. The impact of our amortization from the purchase price allocation in 2016 is €9 million and it will be slightly higher in 2017 because the impact of the acquisitions Ultrachem and Chevron is only there in 2016 not for the full year and so we expect more than €10 million. Now, it's your turn again.

[Stefan Fuchs:]

So part of the 2016 initiatives was the Chicago grease plant, part of the 2016 initiative was our Chicago grease plant and which is one element of what we call the free continent concept that we have these specialty grease plants identical in Germany in Kiel, in Chicago and in Ningbo in China. Now that the Kiel plant is fully dedicated with regard to OEM first with grease as you know you have in your car, but it is the same to a tractor to construction machines and to long-haul trucks. You have about 30 different pieces for every component, this is the hand brake, the rear brake, seat adjustment, the air bag, the steering wheel which used to be hydraulic oil is now grease and those we too in a dedicated plant in dedicated equipment and the same applies what Dagmar said with regard to in the company elimination when we have first to increase which goes in for lifetime fillings into components, you have in the over for the product and then the over for the production side. So when we acquired Pentosin, we ship now a lot of volume from Hamburg to China which we will ultimately localize but it's not to our own discretion, so we need also our customers to have time to look our local manufacturing. For us to have a new development, we localize in the countries where we sell it, but it was part what Dagmar said with regard to the Pentosin volumes here also this is an investment which cost about $25 million and we have now made the first three batches fully automated, so I mean the concept is the same like in Germany, but Germany is a old plant that's our most modern plant and we cooked soaks at about 300 degree Celsius, we seek them before oil and we make specialty grease a little bit. We don't have a lot of sales out this plant in this year, so it takes a full year to get all your approvals on the manufacturers, so that is quite an investment for the future, but it's really a great line and we are very happy to have completed, it works, both really a massive achievement for us. The other one is in Beresfield, Australia, the East Coast, this is a replacement plant, so we have a old plant in Newcastle, which we will shutdown once this one is in operation and that's for mainly our coal mining industry customers within Australia.

[Dagmar Steinert:]

Okay. Let me now come to the balance sheet. Our total assets increased by 13%. We now got total assets of €1.7 billion and what is remarkable about our equity ratio despite its increase of total assets is stable with 72%. You see that the goodwill figures of €185 million, it's increasing due to the acquisitions in 2016, 2015, but even if that numbers increasing there is no fear of any impairment or anything, it's – and it's a low number compared to many other groups. On the liquidity side, our net liquidity is increasing. We increased it from €101 million to €146 million and our operating cash flow for the first time came out by €300 million. Free cash flow before acquisitions is one of our key performance indicators and you can see here that for in these five years only 2016 the number is below previous year, but if you bear in mind that we invested €93 million and in 2015, only €50 million, this €205 million a remarkable number. Now coming to the cash flow in detail, there you can see that we invested €22 million in our net operating working capital and that is due to well, the topic Pentosin and our increasing number of goods transit and of course it's due to the very strong first quarter we've seen in 2015. In the other changes there it's slightly increasing, there it's a first amount of the Chinese government spending for our investments. For acquisitions, I already mentioned we spent €41 million, so at the end our free cash flow is €164 million and out of that we spent €140 million last year for dividend payment. Now I just would like to get a bit more deeper into our net operating working capital. In the cash flow statement before you seem that we invest the €22 million, here while we didn't put down the number, but the absolute number of net operating working capital is went up by €30 million. The number and the cash flow statement is adjusted for currency effect. But, the increasing number of net operating working capital €30 million or €6.5 million as I already said it's due to increasing business and increasing in the company sales, but anyhow now we see there a number of 21.8% and in the year before it was 21.3% and as you can see it's raising, but I can assure you that's a topic we always have in mind and we carefully look at that. Our FUCHS value added, our central KPI for the revenue we paid for the whole management increased by 5% and there are the two or three elements the EBIT went up by 8%, the capital employed by 18% because we used for the calculation and average of four or five quarters and therefore in the year before, the acquisition of Pentosin and Statoil have been in there just for two quarters. The WACC is constant with 10%, therefore our FUCHS value added came out by €257 million and that's an increase by 5%. On 5th of May, the Supervisory Board and the executives report is going to make the proposal of higher dividend payment. We want to increase the dividend by €0.07 that's 9% and that will be the 15th increase in a row. And I think that's along with our increased earnings. Now for the outlook, I'd like to handover again.

[Stefan Fuchs:]

Okay. First of all, what are our challenges and opportunities we are currently facing? I think very important for us is a globally networked and agile company. I mean it all started in 2012, when we defined our core values, which is trust, reliability, respect trading values and integrity, so that for us is very, very important no end of we have increased workforce for about 40% of the people working for us to-date, did not work for us couple of years ago and I think it's very important that we get them on the same company culture. In the old days, a lot of our communication been hierarchically as orderings so it goes up one ring and then it goes down to the ring and today we want the people talk directly o each other and you can't control communication today. So whoever has got calling up children those, you can't control and they just choose if you forbid what's happen in the company, they used the private phone new employees and still watching and I think that's very, very important to understand. So, we have taken this challenge and we have actually told our people to networks, so we have global network meetings between R&D, between marketing, HR, purchasing plants, quality management and they work independent of hierarchies, the experts and they made company decisions which for us a totally a new feeling so with those global networks we have a lot of communication going on in the open, people don't care anymore to go the MD or the regional manager or to VP, which I find really fascinating and it puts a lot of stress on the organization. We have also defined our leadership services last year which is a little bit more delicate, you know the values you can say it's given, no matter organization in China, Indonesia or in Germany or in the United States, the leadership principles is more sensitive so every organizational holds it out individually worldwide, we have been given us I think timeframe on it, so that will take time, but we've really become a more agile company which is very important. However, we also understand the event within 10 years from €1 billion to €2 billion on sales and now we marched towards €2.5 billion on sales, so we also have to adjust our structures to the size of the company. So there is also very, very important so in those networks we define standards for the full scope we can't always free and bend the wheel all the time. With regard to marketing standards, HR standards, all those things. So that's one important part which we have done our many years, we will continue to do so. The other part is the positive recall as you know we don't want to gain market share, adjusted market share, we want to make cash and we want to make money. I think that's the name of our game and when you look at the two other passwords, the digitalization or industrial 4.0 or e-mobility, it's also very important to us and let me start if e-mobility briefly about 30% of our sales relate to what we would call a larger automotive industry. For us automotive industry is a manufacturing process plus the finished vehicle, vehicle for us is a passenger car, it's a light truck, heavy duty truck, it's a forklift, it's earthmoving equipment and it's a tractor. So all of that for us is a vehicle, so it's not only passenger cars. Some vehicles might go to full electric, but we know the better equation is not the answer, if the better equation is answered, we don't know where the electricity comes from, so yes we believe clearly we have been in big cities, cost sharing and e-mobility will be an issue. We do not believe that their combustion engine will disappear. However, we developed new application so if we take a pure e-mobile, then we have no engine oil and no pure oil. We could activate our fluids and you've got more clear sales for just think about two application examples, so you have in your own car the handbrake and now we had a little thing and you put up was the handbrake today, you hit the button that makes only an electric impulse, but someway on the wheel there is still a mechanic election going and this needs a very, very high value grease which for us very interesting. In the old cars, we had new steering wheel, you actually had a metal component in and the impulse from your steeling wheel to the wheel, today again electric impulse for the hydraulic oil type some years ago. Today, the special decrease which is very interesting to us so therefore -- also therefore we built those grease plants, so it will be a different set of values in a comp and also important of what we see is when you look at the regions in the United States we have a relatively still small social business, we've got no aftermarket business. Aftermarket is not particularly low engine oil change for your life and said at the morning, but note aftermarket is also heavy-duty goods transport is what we would call 400 ton loaders in the mining industry. So it's a very technical application and that's where we want to go up in the United States. We see an increasing market in China so all in all for the mix many, many years we don't see a change in our business portfolio, so we will continue to hit the power trend for call which will be continue to have the power train called which will be in hybrids, yes one portion win the electric cost, we'll had 5% in 10 years, 10% in 10 years, so 20% in 10 years no one knows. But, I think we have very much as one time, we had product managements only for immobility to look for those new applications to talk to the high customer groups now to be at the one end of it so we feel pretty good about it. The digitalization is different that impact for us logistics, the manufacturing, the sales and the monitoring of our product. And clearly the oil is called a blood of engine or a machine and some people would like to hit the plug torque, to know-how is the engine doing and our senses in engines today. So we have senses in gear boxes, we have senses also in the process of fluids when you talk about a metal working fluids for cutting and grinding (ph), so that is one part what we see, we have now made a budget starting of this year before people we have spent alone unit which we call inoviga GmbH, they sit in Mannheim but not at our headquarter, they don't have to comply with any group regulations, but they have budget for one defined year and the budget last for many, many years, two people, two coming from the mechanical industry so they are mainly for data processing, but mechanical engineers so for much product processing, one person is e-commerce out of our sales structure, but only two years of the company and other person is economic person for the season procedures. We have told our organization that we have such a standalone value and our people are very eager and also many have good ideas versus mining customer, [indiscernible] customers, automotive customers and they communicate again thinking about what I told earlier about networks and agile company they talked directly to this new unit and they collect all the ideas, they prioritized them and then they define projects giving them big into regions, so this set alone own companies stay as a think-tank, it's not added if a 1000 people at the end of the day so the projects will be ruled out in the countries. We think it's very good, we worked together with machine tool manufacturers on data, we worked together with many car component manufactures. And I think again the one of the [indiscernible] in our industry, we see a very interesting for our sales. When you look of how much time we spent with our customers in checking concentrations, PH values and other things that which a machine can tell you. Also when you think about our R&D prospects, so we take different fluids, we make sample, we go to sample to a machine we tested, I think the more of our data will tell you what ingredients are the best for which application and at least to get a 90% predefined product before you go in final testing. So those two things are very interesting, we spend a lot of time and money of them. Coming to our outlook as the last slide I will tuck myself, we want to increase the sales in 2017 between 4% and 6% which is an overall number. We know that the two acquisitions in 2016 will play only a small haul, I mean we have put Ultrachem 50 million sales a year before December 1, so there will be 11 additional months. We bought Chevron tool one with 11 million sales of the impact will also be little. We see the EBIT going a little bit under proportional between 1% and 5%. There are two impacts, the one impact is the expenses, we committed for both of these plant CapEx new people for our course, very closed to that's not come immediately the next morning and other thing is also that we see a small increase in the raw materials that is a slight time delay plus when you have an existing customer base and you want to catch all material increase, your profit by definition should not go up but your sales will go up, so that's again a mathematical standpoint, which we have I think discussed very, very often now this own. So I think after really good record here to 2016 we just announced we will have another good year in 2017. The FUCHS value added will also call in a lower single-digit percentage when you know that the investments will play a whole in the capital employed. Therefore, low single and the free cash flow should be again around €200 million bearing in mind the second year of our three year CapEx program. More or less that was hit and we are more than happy to end our discussion.

[Q -Daniel Buchta:]

Can you hear me? Yes. Thank you very much for taking my questions, Daniel Buchta from Main First. I have two questions on the guidance, on the sales side you mentioned already that the first two months in 2017 started very good. If I do a rough calculation and it might be 1%, FX maybe 1%, 1.5% so does this imply organic growth to be 2% to 4%, is this roughly correct and how does just hit to your wordings on the first two months, then for the EBITDA you said 1% to 5% Q4 was very strong with respect to margins and again you said that the first two months are very good and does this mean that Q4 cannot be kind of taken as a new normal for FUCHS I would say yes, thank you very much and how does this fit to raw material cost.

[Dagmar Steinert:]

Start with the outlook, your question on our outlook for the sales range of 4% to 6%, yes, they are -- these minor acquisitions with Ultrachem and Chevron included I would say it's an impact of 1% or a bit less than 1% and fixed cost is always very difficult to predict from today's point of view, it might be around 1% as well. So, but you never know how the development will be during the whole year, therefore if you deduct these acquisition related growth, there will be a range between 3% to 5%, but it's somewhere around there and just taken to account last year we had an organic growth of 3.3%. And your question on EBIT was on the outlook as well, well, that's unproportionally because we got an increasing cost base, we've got more depreciation due to our investments, we start normal inflation increases from wages and salaries, then of course we've got our slightly increasing amortization of the purchase price allocation and due to the raw material prices, we just expect them will slightly to increase and raw material real price has increased slightly of course it's always very difficult at what time are you passing two or three customers are you doing it or you stick to your prices and just putting altogether we expect the earnings, the EBIT to be slightly below the increase of sales.

[Knud Hinkel:]

Okay. Good afternoon, Knud Hinkel from Equinet Bank. Thank you for taking my question. With regard to your revenue guidance, could you maybe break this down a little bit into volumes and price, what is volume, what is price, how much of this is goes into these factors. And secondly, you made a number of bolt-on acquisition for the last couple of years maybe you can talk a little bit, gave a bit of color on the view pipeline you're seeing right now for this year and the coming years. Thank you.

[Dagmar Steinert:]

Well, let me start with your question, volume and price for the sales we don't split between volume and price because for us it's always a question of product mix and if you look at our business model we are in the specialty business not in the commodity business. And of course, with our new products we usually have product with less volume but hopefully with a higher price, therefore if you would split that figure, it might be even misleading, but today we don't see any big price changes or issues on the horizon, but we won't split that number. And would you want to take the second?

[Stefan Fuchs:]

On the acquisition side, we always look at projects, but it's difficult to tell you what we are doing the next one to two years. When you think about Statoil was for us a large acquisition. In 2015, we looked at it somehow for five years plus and all of a sudden, they came to us and the deal had to be made in six months, so it might be that something happens and you say Stefan Fuchs told me something wrong on 21 March, but I can't tell you. There is nothing big in the pipeline at the moment, but let's wait and see what went missing most important we have a really good organic growth plan and not from our history, we don't do everything worldwide really at the same -- with the same focus in the same bet. I think that's a big part where we see cost potentially and now we have double digit market -- right market ratio in Germany, but it's less than 2% in the States and less than 2% in China to mention two big markets who I think we have enough one to call if you can hit on would be very nice and we have a certain preconditions, what we would like, how we would like to acquire, but if you're seeing for the last decisions, we've done deals, we've done share deals, so we've got everything and then we are flexible it must makes sense financially and strategically.

[Dagmar Steinert:]

Next question?

[Oliver Schwarz:]

Oliver Schwarz, Warburg. Thank you for taking my questions. We've talked quite a bit about raw material prices, raw material price increases, how do you correctly missed as you're not expecting a major price increases for the raw material side, what kind of increase have you factored in your outlook just let's say a rough percentage lever. If you could share that was -- that might be helpful and if raw material prices for your business is not increasing significantly why is that -- it's base oils, it's your raw material based, almost completed decoupled from the movements of the crude oil price or are there split over effects to be expected in that part of the petrochemical business. A second question completely unrelated to be outlook finally, scalability of R&D expenses, it seems like over the last year's R&D spent increased quite substantial is that due to the higher level of complexity of your product range is that because there are more regulations to be followed or is that because there are certain [indiscernible] with what the acquisitions are doing and the established business is doing and is there a trend here that R&D is going to increase in relation to sales or is the opposite show are we to expect the level to comedown a bit when you're going from €2 billion to €2.5 billion and say it's over the next couple of months here or whatever. And perhaps lastly, in general is your tax rate to comedown over coming years or is that to stay at the current level due to the increase in depreciation for PP&EA that is not tax deductible. Thank you.

[Stefan Fuchs:]

I think, let me start with R&D expenditure, the R&D expenditure is 2% of sales. So I think it's not very, very critically whether we come to a level where we freeze it in or not freeze it in. One of the main reasons is within the past, we had mainly -- the expenses are big chunk of them in Germany and we followed German OEMs and had more or less copy German technology into other market. We spent a lot of money trooping up our R&D capacity in the United States as well as in China. And if you look about I'd say 5 to 10 years ago, there were three different technology ideas, that was a European/German, there was American and there was a Japanese, to-date it's also a Chinese R&D, so there is no longer the coping mold, we want to hit a R&D hub in China for the equipment manufactures in China. So it's no longer than you can just go is the pick of our German or European customers and move with them. That is one of the reasons that we want to increase our footprint over there and they have global meetings to exchange source, that was a reason why deliberately we have increased it from €30 million to €45 million and it was also by size, but it's not the most critical course item, I won't say this is one of our CTO, but it's for us a part of our cost plan. And then, you come to raw materials we have 60 operating companies with 10,000 different products, so we can't split out and how we have punctured it for sales price increases. With various countries vary at the moment in sales price increased its customers and I think we've always done that quite good over the years. We've got three things behind the one is good, other one is currency and the third one is availability. So the availability don't forget that one, we have the PA or fully synthetic based oil which went up rapidly while base oil went down significantly. So that has stopped now over time, we see that the currency impacts, so countries like typically Brazil, Australia, the U.K. and South Africa, those countries import almost 100% of the chemistry, so we are fully currency dependent on those countries. And the goods price since it went up to 55, it doesn't come from today to tomorrow, but it had some impact even if you had the fixed stage of the refining space, a couple of examples that is six times this issue for [indiscernible] all the better lease, clearly there is some by sense at all, so we had made dedicated buyers increases with those type of products. So we can't split it out how much was it is and how much if you bought, but I think that much I did, it won't have a major impact when we say 4% to 6% growth it's not one-third of that growth which goes back to price increases that also answers your question I think. And I think tax rate?

[Dagmar Steinert:]

Yes. The tax rate in 2016, the tax rate was 31% and we expected to stay around at level because it's a mixed picture in the different countries, some countries with higher tax rates, some countries with lower tax rates and even for our acquisition in North America, we are able to protect reason to have the amortization of the goodwill done for tax reason, so overall it will stay around that level.

[Markus Mayer:]

Markus Mayer, Baader. Three questions, that's all, first on the issues we elaborated on transporting goods from Germany to China and this affects on your networking capital. How do you think this will change in 2017 and then this will affect them fully out of our balance sheet or P&L, that's first question. Second question basically the compact of the guidance question and this is also done asking if this kind of moving parts what kind of a sector will have in 2017 together this relatively low base in your North American business or mining oil et cetera customers and not a best year. And then, also the two new plants in North America and also in Australia, what kind of impact there you might have in 2017 already or then was a Chinese plant in 2017. And then last question, Chicago grease plant so when they start this plant and they are starting or what kind of technique do you expect for I think the Chicago plant has already started what kind of impact do you expect then out of this plant, so is this kind of a which you can do 2017. And then the last question on the -- what you said on this second [indiscernible] business in North America where is the certain opportunity there and if I'm right that is a quite highly competitive business and when you step in, should we then expect that the margin for the product mix will go down and the group do you see this just from return on invested capital perspectives, but you can leave to your plant availability and there is also return on invested capital as interesting from the business.

[Dagmar Steinert:]

I would say I would start with goods in transit and then you can cover the North American questions. We won't see a change in 2017 because we have to produce in Germany that's due to the approval which you got from our customers and you always get a approval for a production plant and that's nothing you can easily shift to another plant or to another country of course in a long run we want to produce our product which we sell in China, we want to produce them in China, but it's nothing what we'll change in 2017 or 2018. It will take a longer time.

[Markus Mayer:]

May I add another question on that, so this higher net from capital around 22% long run was about 20% of sales, is just then solely this Chinese plant effect or the shipping effect transport effect and then this is then over so we don't expect that than also net from capital is going down there and also to €7 million extra cost as the income line. There is also kind of effect this – we should them expect to fall away in 2018 for example.

[Dagmar Steinert:]

Well, the effect out of these higher goods in transit is a major effect, but not of course the only effect.

[Stefan Fuchs:]

And when you look to the U.S., first of all the Chicago grease plant and we are now in the starting place, we have made the title cases, they all came out nice, now we check them internally in Germany then we manufacturer customer basis. We get the customer in, [indiscernible], nothing will happen in 2017, I think that just given the tool one or the other move from easily Germany plant or the Kansas City grease plant of lots of critical customers, but more or less not too much, but the expenditures fully there was also last year and when we built it and the people going at the end of last year, so additional investment for the future about nothing which will burn the hole in the 2017 earnings, when you go to our U.S. business and that's when you say what's the whole potential of the FUCHS will clearly in the U.S. we are – I think the number one player when it comes to metal working fluids versus cutting, grinding, drawing and stamping, they are very good in mining, but weekend automotive, has nothing to do with the market. Every market has a technology and also the U.S. market had some very high end products, so then we say it's a competitive market, they are competitive areas, but not the entire market. And when you go to China, we are very good in automotive, so in China we have build up a massive detail automotive business, very positive below what the last five year is really nice and we'll not get there where we want to be on the industrial side and that shows the differences in the FUCHS where we have a huge potential to call, but it's easier said than done so we need to call customer by customer, so when we go into the United States we are not going to go head on with companies like Valvoline, [indiscernible] but they have a totally different philosophy and when you look at our mission statement, our mission statement says lubricants, technology people. So, we want to be the technology partner, we say our customers, our products have payback to the customer, so we don't do mass advertisement and you can't denture all the weddings, so therefore we won't go into like cheap lube market, but we go too long haul transport companies, we go to the mining industry, we go to the German car makers [indiscernible] and those type of things I think there will be success, not so much competitive as many other areas.

[Markus Mayer:]

Another question on that, that is mean then that you basically wanted to prove as your larger German OEMs in GS as well, this is kind of approach.

[Stefan Fuchs:]

The international OEMs must not be terminal OEMs, so the world is no longer our OEM, [indiscernible] especially since the OEMs steel manufacturer everything on that own anymore, so they get most of them gearboxes with the oil and so the gearbox manufacture suppliers all the industry and we get the grease components refills, so you don't talk only for the manufacturer of the tractor, the forklift or the car, so we talked to the components of manufactures, both OEM and aftermarket.

[Benedikt Orzelek:]

Thank you for taking my question, Benedikt Orzelek from UBS, just couple of effects, just for clarification could you give us a growth target for the EBITDA for 2017 and what's the Pentosin margin looking like right now, is it on a group level or is it not there yet? I think we see some recovery in some end markets that were quite weak in the past years especially in the U.S., do you also see that and do you seeing improvement there and maybe last question as you mentioned an opportunity coming from the electrification of combustion engine cost and can you quantify that a little what's the risk there was opportunity for -- coming from the electrification of cars? Thank you.

[Stefan Fuchs:]

I see when you come to the U.S. this year a recovery of the business we've seen it at the end of 2016, but don't forget it's very, very, very strong European business in 2016, so let's say that they can touch high on in 2017. We saw very good Asian business and we saw not such a good U.S. business but again for us it's a crisis scenario because we earn 5% less, so what at least still make it 20% EBIT margin or 18%, so it's not like a loss of 18 units that we see recovered, we saw it at the end of last year and we see at the beginning of the year. The e-mobility don't forget and don't get me wrong, yes it's opportunity but there is also said certain applications will follow, so 10 years ago we supplied lot of the steering wheel fluids that has partly died. But, we have developed and increase for both handbrake and the steeling wheel which is quite nice, so if you only sit in front of the snake and do nothing then it hits you, but we always hit in our history application staying perhaps, but we will agile enough to define new business now with we can get the whole impact. I think the EBITDA in the Pentosin margin, Dagmar?

[Dagmar Steinert:]

Well, EBITDA as I showed on the one chart was the CapEx with investments. We expect our amortization and depreciation to be about €50 million. And Pentosin margins when we both Pentosin, it was already a business with quite a nice margin, but with all the integration into our FUCHS, our Mannheim subsidiary .We have been able to lift some synergies and I would say the increased margins there, but we are not able to split it anymore because it's our in the FUCHS [indiscernible] business.

[Martin Rödiger:]

This is Martin Rödiger, Kepler Cheuvreux. Few question also from my side, regarding the refill business I understand that this much lower in terms of size than the first fill business for you. Can you get help me to understand the size, if it's one-third of the first fill or is it one quarter or even less? And secondly, regarding this refill business, you published this high about the end customer industries I would like to get understanding is the refill business part of the automotive business so 30% or is it part of the trade and services business which is 28% exposure. And then on Asia, we saw very good organic top-line growth in Q4 or 23%, was it solely related to China and India or did you see also other countries within Asia, now contributing to that strong performance. Sorry, for another two smaller questions. The comparison base in Asia in Q4 was relatively high because we saw on a region basis, the [indiscernible] figures only slight earnings drove and partly related will affect that you had this high earnings from associates or joint venture, but there was also even before income from equity we have a high comparison base maybe we can remind me that. And finally just trying that the question on the two acquisitions, Ultrachem and Chevron, you mentioned in your speech, purchase price of €41 million, but in the end out it's €48 million, it's the difference end of rest value and equity value or is it just anything else?

[Dagmar Steinert:]

So, let me just start with the last question. The purchase price and the definition of the IFRS, yes it was 48 and €2 million are earn out which you deduct these €2 million, it was a purchase price of €46 million and then we got €5 million cash with Ultrachem acquisitions. Therefore we had a cash out we paid €41 million. So the EBIT increase in Asia-Pacific, we had equity companies there are very strong, but they are quite stable in the earnings from 2015 and 2016, so there is no I think €1 million difference, it's not a big issue, but in Asia-Pacific, we had these really strong headwind from currencies and we had due to the product mix in Australia to a bigger project we lost margin points.

[Stefan Fuchs:]

With regard to the automotive, the normal creature we have of course is OEM and first will that's the same for us and everything else you call aftermarket. The refill -- there is no refill because today the cost and machines don't use oil anymore, you have a oil inside and then you change it after sometimes. From the OEM, it's part of the cost segment of the 30% of our first fill business that was the one question. The other question I would assume that the aftermarket is bigger than the OEM market. So it's not smaller because we've got significantly more car inventory than annual car protection and the car inventory needs to be maintained all the time. So I think I can't hit, I don't have the effective that with me, but I think it's only logic that the aftermarket must be bigger than the Brazil market. But that the aftermarket is bigger than the OEM business, I think we of course so many data we published with our automotive play dip on down, but we saw more or less we have 30% in the car industry and we also say on the product standpoint we of course 45% automotive lubricants, now the automotive lubricants 45% aftermarket for example you will find in the customer charts, the aftermarket you will find under energy and mining or you will find them the agricultural aftermarket or you will find it in transport, services, and distribution. So don't mix up the product related breakdown and the customer related breakdown.

[Knud Hinkel:]

Okay, once again Knud Hinkel from Equinet Bank. One follow-up question on the grease plant, you said that we shouldn't expect too much contribution in 2017, so how much revenue contribution do you expect if these plants run at full capacity?

[Stefan Fuchs:]

For us, our customers are very conservative and it's for us easy to spend the money to build such a plant, I think most importantly we had employees, the people selling the product and applications engineers and the chemists, we employ them five years ago. So the pipeline is full for the moment, we have customers in the U.S. we supply out of German grease plant and the grease business is calling so the German grease plant is at capacity at the moment. So I think the group is waiting for the new grease plant with two TCF calculations. And then I think you will understand we don't want to display them here but clearly we have a plan with customer names slightly out and we're getting border from that mine which we need and we want to build such at all and I think that makes a little sense of.

[Knud Hinkel:]

Grease plant in U.S. basically just can you talk us through to whole approved the process and basically my understanding from what you said is that you're running the plant without selling the product, is there a way to can quantify the burden you've taken in 2016 on this one which may then basically turn into profits hopefully starting 2017 and 2018 on routes, this would be my first question. Second one is on CapEx, so we have still 200 million left basically for the three years program, any kind of major projects you can share with us here on this one and then perhaps what happens next basically, so looking beyond the three years phase, so 2019 are we falling ground to DNA level or what are your plans beyond this? Thank you.

[Stefan Fuchs:]

I think on the grease plant, the nice thing about the FUCHS, we always publish EBIT, so not adjusted, not neutralized EBIT, and we will see our profit falling this year again, but we won't say how much the burden of starting investments are and sorry for that. But, I think it's a number which we can assume. But, we are not going to publish and how much the one or the other one. When you look on our D projects we have 200 million left, yes, but that must had 50 million in the base load round about. Also we see 50 million, we need for smaller projects and for regular maintenance and exchange projects, so we have 100 left, out of the 100 we have in China, where we build a new plant in WuJiang where we have to move out end of 2018. We have South Africa, maybe also invest in the grease plant not the OEM type grease plant like we did in Chicago but also a grease plant. We have extensions in Germany. So we have got Lubritech where we build automated warehouse and office extension, we have the plant in Sweden, don't forget we have handed the plant in Sweden from Statoil and we have acquired the property end of 2016 as we published it. I think that was more of it. The question, what will happen afterwards we have all the internal discussions about this [indiscernible] because they assume that they are still be more than 50, but certainly not 100 a year because once we have done the big projects then we go into fine tuning the other plants, the problem is when you build a new plant in Russia, it's a one time investment and Russia is really a booming market, very nice. And then, it is easy. We come to capacity. We add four tanks, two blenders and that's it. What is more difficult to say is like the huge plant Chicago and Mannheim, which are coal up plants there you have pre-given logistics and those are tough basis for us to assume how much will be the CapEx required for the year. New plant in Asia, so when we build the WuJiang plant, we already know in the tower, the first extension, the second extension and the third extension, so those extensions when they come, I'm very happy because then the business is gone also.

[Daniel Buchta:]

Yes. Some follow-up question from myself, Daniel Buchta from Main First again. The first one on the organic growth in the fourth quarter and it already was mentioned that the Q4 in Asia Pacific was very strong with nearly 23%. And can you give some reasons why this has accelerated so significantly, is it cross-sale from Pentosin, was there any pre-buying ahead of fees related to raw material cost inflation or what is the reason behind this? And then, what we also have heard in the presentation is that there was no typical season margin dilution in Q4. Actually, it was very strong especially again in Asia Pacific, but also partly in Europe. Have there been any kind of one-offs in this, which will not reoccur again or just to understand why this was so strong. And last but not least, in Q4 again, there was a positive non-operating income of 4.7 million, why that was still negative in the first nine months and where is this from?

[Dagmar Steinert:]

Okay. Well, the organic growth in Asia Pacific in the fourth quarter, it was very strong in China and one of the reasons is that the Chinese government always at the year end announces that they might skip some tax benefits or some grants. And therefore, usually or quite often in the last month sales are increasing. And in this year it was just incredible. But all other companies are in the region as well had an increase in sales. Therefore, there is a question we got 54 companies, and if ever a company gets a bit more, you just see more.

[Daniel Buchta:]

So, this means then in Q1, and also in Q2 probably we won't see that strong figure anymore because of tax effect or the regulatory changes should be done in Q4?

[Dagmar Steinert:]

Well, I would suggest let's wait until April numbers of the first quarter, but for us it was really extraordinary to see that growth in the first quarter. You asked for this special other income in the first quarter that's -- it's all operating, they are no one-off items, it's just at the end of course, you have a careful look at your accruals, careful look at your receivables and you calculate everything exact. So it's nothing special and what's in there as well are some currency effects because our inter-company loans we are always hedging and therefore to get currency effect, sometimes positive, sometimes negative and in that time it was positive, in the year before negative.

[Unidentified Analyst:]

Thank you. [indiscernible] from Kepler Cheuvreux. On electric vehicles maybe a naïve question, but have you ever done the exercise of looking at comparable models, let's say I think there is a Volkswagen e-Golf out, so fully electric vehicle and compare that's to normal Golf how much grease and lubricant content that model has, the EV model against the other one? Or I don't know Tesla versus BMW 5 Series or something like that? And if you have done those comparisons, what's the value added for you or the value content? Thank you.

[Stefan Fuchs:]

If competitors think clearly, so if you just watch the combustion car with e-mobile car, clearly the e-mobile car has got less euros per car lubricants than a combustion car. I mean there is no engine oil, no gear oil, if activator fluids, if more increase, we don't the pricing of all the products. But again, this is only one small facet of the cake because we see a) opportunity in North America, we see the Chinese market continue to grow, we see the e-mobility may come more but nobody knows exactly when it will come into big cars or automatic car sharing. But, I think there is a big portion of the hybrids with full power train, on a hybrid you see rather more lubricant sales per car than on a combustion engine. So, if you can look only at the small sector.

[Unidentified Analyst:]

I have two questions. One is again on the yeast effect, maybe you can quantify us a little bit what kind of factors might be for Q1? And then, the second question is on your zero corporation, is this something which you see in a long-term as a more relevant market that for example and change saw oils you need more kind of sustainable green lubricants and greases and [indiscernible] which are based on crude oil, is there something you see in other kind of areas like aqua industry?

[Stefan Fuchs:]

I think the Easter impact the way quantified, it is difficult, but I said last year, the first quarter was not where we wanted it to be. And the second one was overly strong, therefore this year we will see a shift into the first quarter, so the first quarter, I think will be stronger. But, the second quarter might be a bit weaker but its not so easy don't forget in China, there is no Easter. So, it will impact North America and impacts Europe and China plays a big role for us. But, has to be seen but we see if there is an impact specific to quantify. On the zero corp, the chain oil is a product which is very often cited because it's a total last lubrication, but [Petla] [ph] only willing to pay the premium when they have to. So if there is legislation, [Petla] [ph] willing to we know that there are new products based on yeast compared to oil products also better with regard to the total usage in euro term. So that is actually -- have a longer life to be changed. But, at the end, those regular customers like farmers, forest people they pay for if they have to. But, we see also for some automotive applications, this industry with all new products, we have Easter into that, one portion of it, we have got Project 50 University on Allegis and that type of things or for us we are independent, we don't need to use refinery product. But, again, we need to have a product which is there long, long-term, I mean if we get a favor of our OEM business, those demanding customers, we can't say we have a nice product actually is played very safe no longer there, raw material base, they would kill us. And therefore it's important that whatever we do is there for the long-term.

[Unidentified Analyst:]

Other question on that. Is kind of new yeast oil decreases, do you also demand more additives and is the marker already there for our suppliers already there to give you this additives you need for this?

[Stefan Fuchs:]

Yeast has nothing to do with the additives, it's one of the functional fluids, so it's one of the base fluids. But the easiest example for most of the people 15w40 engine oil was -- is still, I mean it's still available, it's a pure carbon-based oil and the additive package. And today a 5w30 oil you put in your BMW or Volkswagen has a fully alcohol engine or fully synthetic based oil. It is mostly yeast in it and has different Chemistry in it. But it's a total different tool.

[Uwe Schupp:]

Just one last for me Uwe Schupp from Deutsche Bank. Stefan you had a relatively meaningful release of provisions for redundancies apparently, I would guess about $5 million was that because I'm guessing the Statoil restructuring was cheaper than expected or was there any other reason behind?

[Dagmar Steinert:]

No, it's a lot of acquisitions there is no single one bigger than one million or close to one million. Yes, we had a bit more accrued for this restructuring. We needed less than we usually expected. We could release a bit for some other issues in South America. We had 100,000 for variable pay in Germany. And so it's a lot of single positions, but there is no major position which I could name.

[Uwe Schupp:]

Is the organic growth in South America strong enough to restart your considerations regarding the plant in Brazil for maybe next year or is it too early for that?

[Stefan Fuchs:]

Least regarded. But my colleagues in the Board had almost killed me, but I mean it's a valid question, we bought that property, its there. I do believe somewhere along the line, we need a new plant, but we haven't really planned it. I mean it's not a project for 2017 nor for 2018. We have given our team there some cash flow targets, so if we make them, it's always the best starting point to discuss if you are a CFO. I think the Brazilian market sees the end of the tunnel now. Argentina is still down pretty much. But, I would say the fund in both markets is really nice last year. So I mean it's not that we have a crisis scenario that we have no structure, we just wait until it starts again. But, Brazil is still unfortunately a very go-up country. And it is very difficult to predict when they come out of their hole. But, I have not given up in my mind we need to plan somewhere along the line but let's wait and see.

[Unidentified Analyst:]

[indiscernible] Bank. Two long-term questions with regard to combustion engine, there is lot of shift from diesel engines to petrol engines especially in Germany. Secondly, very long-term question assume what if large part of the manufacturing industry switched to 3D printing, is that something you have on your radar screen? Thank you.

[Stefan Fuchs:]

Clearly, when you look on the diesel side, I mean that the diesel engine for the entire chain, I mean is to clean the engine. But, at the moment politically, it's some killed in Germany and the United States also some tied into this scandal, what common individual did certainly wrong, but since Germany was the leading manufacture of diesel many people are hopping on the train to go against this diesel part. For us it makes no real difference honestly with regard to lubrication, but I think for the German car industry we don't do ourselves a favor and I think picture was right to say what Stuttgart one part against the car industry in Germany and the diesel is not a car, which is at the end, if what comes out of the diesel is what is in the description of the diesel that's cool. So, I mean that given that the diesel is not a dirty car, but I mean we just have to wait and see how it goes, Fuchs makes million dollar no difference as we lubricate a diesel car or like regular gasoline car. 3D printing is interesting, we also grew up on 3D printing because there is also some parts which goes into those products. But, when you come to metal components, yes, I mean if you done it components and have asked away from it you will machine them. And it has an impact on our metal working industry, there is no material impact, you will see in the numbers, but 3D is also something we work together to lift the industry because there are two different message of this 3D printing as you know the one is clear printing type of thing, the other is printing it up out of powder. But, it clearly there is also impact we are going to have.

[Operator:]

One last question.

[Unidentified Analyst:]

It's just housekeeping questions. You get compensated for the move of your Chinese plant from the art of the new location. So as you know, there are already payments from the Chinese governments to you in the process, I think that was in 2016. Can you elaborate on the magnitude, now are we to expect more to come in 2017 or only in 2018?

[Dagmar Steinert:]

We got -- in 2016 we got around $11 million payment and we will get a similar amount this year. And we will expect the last one in 2018.

[Stefan Fuchs:]

But it's not in the P&L, it's in the cash flow and the balance sheet.

[Dagmar Steinert:]

Yes.

[Stefan Fuchs:]

So, one last statement from our side, you have on May 5 with our channel assembly, I don't know how many analysts sections are on the phone today, but I think very important is maybe we take two minutes to explain again the two-tier model in Germany. So, we have a Supervisory Board which is made of six people, four represent the shareholders and two represent the employees. So, that sets the one part and the Supervisory Board is actually now elected every five years. Our Supervisory Board President is Hambrecht. He is the former CEO of BASF before him it was Professor Strube former CEO of BASF, before him was Dr. Muller Beckhoff also a very decorated international manager from ABP. So, we had always had very, very strong and independent which is important, independent heads of our Supervisory Board. We have also on our Supervisory Board Dr. Schipporeit, he is our financial expert. He is also the financial expert of Deutsche Boerse and of SAP and also a very renowned person. We have got Ingeborg Neumann, she has she has her own business in Berlin, Peppermint Textiles, a little over 100 million in sales. So, she is also a very good with regard to commercial aspects. We have got two employee representatives from our own business and we still my father on the Supervisory Board, he is 78 years old and he is healthy, so nothing about his health, but he gave up a lot of positions and he said now its time for him to hand over. Also important, the family-hold 54% of the voting stock, but 27% of the preference shares and that family has the right to claim a seat in the Supervisory Board. You know my father 13 years ago was the first Fuchs ever in the Supervisory Board, but then we have right and we want to keep that seat. I might be a coincidence as always say, there might also be a time when old folks in the first hand or in the Board or maybe not even running the company because you can't claim for such a position. Supervisory Board is different so that the family is very united. It's my father and two sisters and then many siblings in my generation. And my sister was elected by the entire family to succeed my father to represent the company. She is 52 years old. She is a veterinarian, as made a financial MBA and she will be voted for in the Annual Meeting, so we didn't go to court to get her appointed. And I may say my father retired 13 years ago and many of you know but I think you see many companies where the handover whether the family involved or not doesn't work, and if the family is involved, it makes it even more complex. I don't know many cases which went as well as our case. So he has step down 13 years ago. He moved out of his office. He handed me the keys. He didn't talk to my colleagues. He didn't get involved any more and he just played his role which was important on the Supervisory Board and that is for me a lot of respect and credit towards my father. And now, it's the final dot on the eye that he says he is 78 years, I will make the decision and I will step down. And that's what happens on May 5 and my sister will be or will ask the shareholders simply to be reelected for him. She will most likely not become the Deputy Chairman of the Board because the other people longer on the Board, so Dr. Hambrecht will continue to be the Chairman of the Board. The family again continues to believe on, you can't have a family member being the CEO of the Executive Board and the family member being the Supervisory Board, President so that we don't aim for and it would not be according to corporate governance, but I think it's worthwhile mentioning it to you and therefore we have an emotional part of our shareholders assembly coming up in May.

[Dagmar Steinert:]

Okay. So thank you very much and for your questions, for your interest and I would like to invite you now for some finger food or drink or a coffee.

[Operator:]

Ladies and gentlemen, the conference has now completed and you may now disconnect your telephones. Thank you for joining and have a pleasant day. Good bye.