Results of operations Performance Products

The Performance Products segment is made up of the Construction Chemicals, Coatings, Functional Polymers and Performance Chemicals divisions. In 2007, we increased sales to third parties by €1,564 million to €11,697 million compared with the previous year (volumes 3%, prices 1%, portfolio 14%, currencies –3%).

We posted sales and volume increases in all divisions. A significant portion of the increase in sales resulted from the acquisitions made in mid-2006. The Construction Chemicals division, which reported its first full year of sales, made the most significant contribution. The integration of new businesses also strengthened the portfolio in the other divisions and increased sales. In particular, the businesses with water-based resins and effect pigments in the Performance Chemicals division and the kaolin business in the Functional Polymers division contributed to the positive sales development in the segment.

In spite of negative currency effects and further increases in raw material costs, segment earnings rose, thanks to innovative, customer specific solutions in a challenging market environment. In total, we increased income from operations to €704 million, €35 million higher than in 2006. The Construction Chemicals division, in particular, contributed to this. The decline in the private housing market in the United States was more than offset by growth in infrastructure measures and commercial projects as well as the positive development in other regions. We also significantly increased earnings in the Performance Chemicals division.

In the Coatings division, business was satisfactory despite the weak American automotive market. Earnings decreased, primarily due to an impairment loss on property, plant and equipment and intangible assets in the industrial coatings business in North America. A significant decrease in earnings was posted in Functional Polymers in particular due to continuing margin pressure in acrylic monomers.

Segment earnings were less impacted by special items than in the previous year. Special items primarily arose from the integration of the businesses acquired in 2006 and an impairment loss on property, plant and equipment and intangible assets in the Coatings division.

As of January 1, 2008, the operating divisions Construction Chemicals and Coatings will be reported under the new segment Functional Solutions. For the remaining businesses in the Performance Products segment we expect positive sales and earnings development in a challenging market environment. We will strengthen our product portfolio through innovations and accelerate business development in the growth regions.