BASF to place Paper Chemicals HQ in Basel

BASF has announced that from July 1, 2009, BASFs Paper Chemicals operating division will be based in Basel together with two associated business units: Coatings & Starch Europe and Wet End Chemicals.  The cynic would say that this is another tax-dodging ruse followed by other companies such as Hercules and Clariant where repatriation to Switzerland has saved paying higher taxes in Europe; on the other hand, BASF had to make some promises to Ciba and Switzerland that in acquiring Ciba, some major businesses would remain in Switzerland.   Basel was the HQ for Ciba's paper business.

The details are available on the BASF web site including the overall plans for the Basel site - Research Centre; European Plastics and Additives Business Unit; and the Business Centre Switzerland.   

Ashland Hercules to lose Hattiesburg plant

After the recent acquisition of Hercules by Ashland, the process of reviewing the organisation and its resources has begun.  There will no doubt be a number of cuts and the 'rationalisation' of assets of the merged comapanies, and this week it was announced that a small site at Hattiesburg, USA, will be closed at the end of the year.  The economic downturn and the inefficiency of the plant are cited as reasons for the closure.

The Hattiesburg plant manufactures paper chemicals and other miscellaneous products.

Even "The Chemical Company", BASF finds the going tough - what of the rest?

BASF announced that it will temporarily close 80 plants world-wide and cut production at a 100 more in a move which will affect over 20,000 workers over the next two months.  In effect, BASF will reduce output by 25%.

Three weeks ago, BASF said it was coping with declining demand and that 2008 sales would top last year's EUR 97.5 bn with operating earnings matching 2007 (EUR 7.32 bn).  All has changed.  BASF has now issued a profits warning for this year. 

In the view of the FT and industry experts, the move by BASF is a pre-cursor to a huge bout of restructuring among Europen companies, including job cuts and factory closures.  

Where does this leave the paper chemicals industry?  

For the stong companies:

• BASF is in the process of acquiring Ciba on the wave of their gloomy announcements.  So, tough times for Ciba under their new masters.  
• Kemira - has recently announced significant lay-offs and a restructuring programme.
• Ashland and Hercules are well placed to take advantage of the current climate, further  investing in Europe would be folly, but they could help in the market consolidation.  However, a recent Forbes.com article puts Ashland in a different light - Trashland!
• Dow Chemical - announced last week that a fall in demand would force them into a restructuring before year end.

Then there are the question marks:

• Nalco - quiet at the moment but in need of a freshening up.  Their cost-cutting waves have left them rather thin on the ground.  Rumours abound.
• Clariant was struggling before the economic crisis - time to make some significant strategic and tactical moves? Don't hold your breath, but desperate times require desperate measures.  The share price is moving close to being considered a 'penny stock'.  Their leading global paper group (technical and manufacturing) in the UK is on schedule to shut before year end in what appears to be an attempt to protect their high-cost Swiss base.  A good move when the Swiss franc gains against sterling?!
• Eka Chemicals - solid in their protective Akzo Nobel net but again, the economic crisis may force some moves affecting paper chemicals which is not core business for the mighty Akzo.  The inability to sell National Starch has been a recent issue.
• Buckman - recently there has been news that this smaller company has struggled, but it is not beyond them to find an innovative way forward.  They are more agile than the larger companies.

As we have stated many times in this weblog, the Chinese paper chemical companies are well positioned to take advantage of the Chinese growth market and further squeeze the sluggish European and North American manufacturers, cutting down their options to show any future growth.

Difficult times, for sure, but there are opportunities for the sharp strategic thinkers.

Ashland Announce Organisation after Hercules Acquisition

After the USD 3.3 bn acquisition of Hercules, completed on the 11th July, 2008, Ashland has announced the new consolidated company will be organised into 5 divisions.  

So where does that leave the paper chemicals activities of Hercules?  On the face of it, not much change.  Paul C Raymond, Hercules' current boss will head up the Ashland Hercules Water Technologies Division.  The other division are, Ashland Aqualon Functional Ingredients, Ashland Performance Materials, Ashland Consumer Markets and Ashland Distribution - this is now a company with USD10.7 bn sales for the 12 months ended September 30.

Hercules Shareholders Approve Takeover by Ashland

Shareholders of Hercules have voted to approve the USD 2.6 bn takeover by Ashland.  More than two thirds of Hercules' shareholders supported the proposal which values each Hercules share at USD 18.60 in cash plus 0.093 of a share in Ashland common stock.

Hercules Paper Technologies announce first-half results - sales up, profit down

Hercules has announced their 2nd quarter 2008 results (click here). For the paper group, the following was reported:

In the Paper Technologies and Ventures Group, net sales in the second quarter increased 8% while profit from ongoing operations decreased 2% compared with the same quarter in 2007.

Paper Technologies sales increased 3% due to 7% favorable rates of exchange and 2% increased prices, partially offset by 6% lower volume. Product mix was flat in the aggregate. Volumes were lower in both North America and Europe while Asia volume was flat as compared to the second quarter of last year. North American volumes reflected lower sales of sizing products. European volumes reflected lower sales of strength chemicals. Price increases were achieved in the Americas and Europe while Asia pricing was lower in the aggregate. The favorable rates of exchange primarily reflect the strong Euro. Sales in fast growing markets, including Brazil, Chile, Indonesia, Russia and the Middle East, were up 26% compared to the prior year. Sales of new products continued to drive growth in overall sales and profitability.

The dollar-based companies, such as Hercules, with extensive overseas operations are benefiting from exchange-rate gains (low US dollar). It will be interesting to now see how Ashland integrate the successful Hercules paper business.

Ashland to acquire Hercules

In a move that will create a combined paper chemical and water treatment business with an annual revenue of over USD 2 bn, Ashland announced it will acquire Hercules in a total transaction worth approximately USD 3.3 bn. Ashland had previously boosted their involvement in paper chemicals by acquiring the Degussa-Stockhausen business and some Air Products business.

The deal is expected to be completed by year end and would result in Ashland having a combined pro forma revenue of USD 10 bn.

This move will put Ashland among the leading suppliers of paper chemicals which includes - Kemira Pulp & Paper, Ciba Specialty Chemicals, BASF and Nalco.

Hercules acquire Logos Química, Brazil

Hercules has acquired Logos Química Ltda, a small Brazilian-based speciality chemicals company (100 employees; annual turnover of USD 17 mio). The acquisition should help to strengthen Hercules' position in the pulp and paper market in Brazil, broaden their product portfolio, increase their manufacturing capabilities, and provide a broader customer base.

Hercules increase paper chemicals prices in North America

Hercules Paper Technologies and Ventures announce they will initiate price increases in North America on all their paper chemicals by up to 30%, effective June 16, 2008. The focus will be on chemicals such as sizing, wet-strength and retention/drainage aids. The justification is linked to oil, natural gas and agricultural commodities which has seen many of their raw material prices increase by over 100% since last year. Hercules also point out some concerns about the availability of several key raw materials.

In addition to the price of barrel of crude oil, raw material availability is becoming a significant factor in determining raw material and final product cost and pricing. This is the case for products based on crude oil and those based on natural oils (eg palm).

Bromine Activated Chloramine - Buckman vs BCL

In an interesting patent case, Bromine Compounds Limited (BCL) contested Buckman Laboratories Pty Ltd, South Africa's right to use 'bromine activated chloramine' as a biocide in the manufacture of paper - marketed by BCL under the trademark of 'Fuzzicide'. The patents were filed by BCL a daughter company of Israel Chemicals Limited (previously known as Dead Sea Bromine Group), in a number of countries.

It all started in March, 2005 when BCL instituted proceedings against Buckman Laboratories in South Africa for a patent infringement arising out of Buckman’s use of BCL's proprietary technology at several paper mills in South Africa.

BCL's press release (Nov 2, 2006) states that, 'In its counterclaim, Buckman admitted that the invention falls within the scope of the patent; however, Buckman argued that BCL patent
lacked novelty. On July 29 2006 the court rejected Buckman's argument, and further ordered that Buckman cannot use their competing process, and an inquiry into the damages suffered by BCL as a consequence of the infringement is to be held.'

Buckman requested leave to appeal which was opposed by BCL but upheld and the contest ended up in the Supreme Court of Appeal of South Africa where the following order was made (details are available on SAFLII):

a) The appeal is upheld with costs including the costs of two counsel
b) The order made by the court a quo is replaced with the following order:
(i) The plaintiff's (BCL) action is dismissed with costs including the costs of two counsel
(ii) The defendant's (Buckman) counterclaim for the revocation of SA Patent 92/4018 is granted, and subject to what is ordered in subparagraph (iii) below, the patent is revoked
(iii) The revocation order granted in subparagraph (ii) is provisional. It will become fully operative in respect of the patent concerned, if the patentee does not within one month file notice of an application to amend such patent, or if having filed such application, the patentee withdraws it. If an application as aforesaid is made and not withdrawn, it shall be decided at the hearing of such application whether or not the revocation order is to be put into operation.
(iv) The plaintiff (BCL) is ordered to pay the defendant's (Buckman) costs in respect of the
counterclaim including the costs.

The text of the appeal judgment makes interesting reading and this case raises questions regarding how many 'articles of commerce' are being patented for uses where the 'inventive step' is difficult to justify. The issue is usually that once a patent examiner has ruled that a patent is acceptable, it is very expensive, and risky to challenge the ruling and so nothing is done. It is more likely that something will happen when a company decides to enforce a patent and the defendant stands his/her ground and puts up a good defence.

Bromine activated chloramine (BAC) technology is marketed as Deilurit by BK Giulini and Spectrum XD3899 by Hercules with the latter having success in the paper industry. The ruling only covers the South African patent - should the remaining patents be challenged? Ammonium bromide mixed with sodium hypochlorite.

Hercules post reasonable 1Q08 results despite the challenges

Hercules Incorporated reported:

• Net income for the quarter ended March 31, 2008 of $32.4 million, compared to $80.3 million for the first quarter of 2007.
• Net income from ongoing operations for the first quarter of 2008 was $38.9 million, an increase of 13% compared to $35.7 million in the first quarter of 2007.
  
• Net sales in the first quarter of 2008 of $558.3 million, an increase of 11% from the same period last year.
  
• Volume increased of 7% and pricing increase of 1%
• Rates of exchange contributed to a sales increase of 5% for the quarter.
• Regionally they saw net sales increases vs previous year in: North America 6%, Latin America 25%, Europe 15% (3% if the impact of the Euro is discounted), and Asia Pacific 15%.
• Profit from operations in the first quarter of 2008 was $67.4 million, a decrease of 4%.
• Cash flow for the quarter was $29.7 million ($25.8 million for the same period last year).

The net sales of the Paper Technologies and Ventures Group for the first quarter 2008 increased by 7% and profit from ongoing operations also increased 7%. Paper Technologies sales increased 2%, benefiting from favourable exchange rates but loosing ground with price decreases and an unfavorable product mix.

Hercules remained optimistic about revenue, earnings and cash flow in 2008, but recognised the impact that higher raw material, freight and energy costs will have on the business.

Barron's give Hercules an optimistic future - potential acquisition by Nalco fades

Some interesting comments from Barron's Magazine as they upgrade Hercules from 'peer' to 'outperform'.

Their positive view is based on:

• Recovery of Aqualon margins by the first quarter of 2008 as the new methyl cellulose (MC) and sodium carboxymethyl cellulose (CMC) plants in China become fully operational.

• The company's pension-plan immunization effort, which will save $25 million or 15 cents per share per year, and be effective in the first quarter of 2008.
  

• Aggressive share re-purchases at current low stock-price levels.

• The company's improved debt profile which would allow the company to change debt covenants and remove the restriction on share repurchases.
  
  
• The potential buyout of Hercules by Nalco Holdings now being very unlikely, given antitrust issues along with retirement of the once Hercules and now Nalco's CEO, William Joyce, further reduced the likelihood; however, the option of a JV of the paper operations with a large European supplier is seen as a future option, although an imminent transaction was not being considered by Hercules' management.

Hercules Paper Technologies & Ventures Opens Shanghai Technical Center

Hercules opened a new technical centre adjacent to its manufacturing plant in Shanghai. The facility will also include training and office space and will become the primary headquarters for the Paper Technologies and Ventures Group in Asia.

The details are on Hercules' web site.

Hercules results for 3Q07 - paper chemicals relatively flat

Hercules Incorporated (NYSE: HPC) reported net income for 3Q07 of $42.4 million, or $0.37 per diluted share, as compared to net income of $34.2 million, or $0.31 per diluted share, for the third quarter of 2006. Net income for the nine months ended September 30, 2007 was $150.4 million, or $1.31 per diluted share, as compared to a net loss of $3.4 million, or a loss of $0.03 per diluted share, for the same period in 2006. The details are available on the Hercules web site.

With regard to their paper activities:

• Paper Technologies and Ventures Group (PT&V):
  Sales 3Q07: Increased from £274.6 mio to $287.6 mio (+4.6%)
  Sales 9 months 07: Increased from $795.2 mio to $858.7 mio (+8%)
  Operating Profit 3Q07: Increased from $25.8 mio to $34.6 mio (+34%; 12% of sales)
  

• Paper alone (excluding Ventures):
  Sales 3Q07: Increased from £217.6 mio to $226.0 mio (+3.8%)
  Sales 9 months 07: Increased from $624.4 mio to $674.8 mio (+8%)
  

• Pricing was flat compared to the previous year. Price increases were achieved in North America, while pricing was lower in both Europe and Asia.

• Volume growth was achieved in the Americas and in Europe, whereas Asia was lower.

• PVT raw material cost increases were $3.0 million.
  

• Severance, restructuring and other costs in the third quarter of 2007 were $1.2 million as compared to $1.5 million in the same period of 2006.
  

• SG&A costs were higher than the previous year.

• Approximately $0.06 per share of the third quarter 2007 earnings are attributable to the sale of certain patents related to paper treatments to enhance printing.

The outlook - Hercules expects Paper Technologies' margins to be maintained with sales of new products and growth in emerging markets offsetting raw material increases. They also expect pricing initiatives to take effect in the fourth quarter and early in 2008.

Hercules acquire speciality surfactant business

Hercules acquire the speciality surfactant business of Dexter Chemical. Dexter is a leader in phosphate ester surfactants which are mainly used in paints and coatings.

Hercules New Technology Enables Papermakers to Produce Biologically Active Tissue Papers

Herculese announced a new technology, Dimension™ L1700S converting additive containing BATP, an environmentally-friendly, biologically active material. The converting additive is applied to tissue products, without affecting the normal tissue properties or shelf life of the finished product. When the tissue is flushed, it becomes bioactive allowing all organic material, including cellulose and natural waste products, to be rapidly biodegraded.

Tissue products using this technology are useful in all types of septic tank and eliminate the need for supplemental maintenance powders or liquids. In addition, sludge removal or tank cleaning is reduced or eliminated.

The additive is claimed to be extensively tested and is nontoxic, nonirritating and completely safe to use.

Hercules publish 2Q07 results - Paper Technologies helped by exchange rates, modest price increases ....

Hercules has reported its second quarter results. The results for the whole company showed the net sales for the first six months of the year at USD 1.051 billion, an increase of 10% over the same period last year (when the FiberVisions transaction was excluded). For the second quarter, volume was up by 7% and pricing only increased by 1%. Some highlights:

• USD 221.7 mio was received in expected federal and state tax refunds (USD 23.2 is due in July)
• USD 124 million was paid in may in connection with the Vertac litigation
• Paper Technologies & Ventures, 'Continued to deliver solid performance.' Sales increased by 8% and profit from operations increased 58% (compered to same period in 2006).
• Paper Technologies sales increased by 9% due to 10% increased volumes. Prices increased by only 1%. There was a 3% exchange rate gain (weak dollar) which partially offset by a 5% unfavourable product mix change. Price increases were mainly achieved in North America with modest increases in Asia. Volumes were up 3%, including the Mead Westvaco rosin size alliance.
• Increases in profitability were from the price increases (modest!), favourable exchange rates and lower S&GA costs (the latter are lower year-on-year primarily because of high patent costs in 2006).

The figures for Paper Technologies were:

• Sales 2Q07: USD 227.6 mio (vs 208.6 in 2006)
• Sales 1H07: USD 448.9 mio (vs 406.7 in 2006)
• 'Profit from Operations' 2Q07: USD 26.2 mio (vs 16.6 in 2006)
• 'Profit from Operations' 1H07: USD 54.2 mio (vs 31.2 in 2006)

Hercules win award for green chemistry

Hercules receives Presidential Green Chemistry Challenge Award.

In cooperation with Professor Kaichang Li of Oregon State University and Columbia Forest Products, Hercules received a 2007 Presidential Green Chemistry Challenge Award for the Greener Synthetic Pathways category. Specifically, for its part in the, “Development and Commercial Application of Environmentally Friendly Adhesives for Wood Composites.” A formaldehyde-free adhesive made from soy flour and Hercules’ unique polymer chemistries was developed and commercialised.

Established in 1995 and administered by the US Environmental Protection Agency, the awards recognise chemical technologies that use the principles of green chemistry in their design, manufacture, and use. The American Chemical Society convenes the independent panel of technical experts who judge the award applications.