Last Update: 03/11/2010
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Part of the audited Consolidated Financial Statements and Management´s Analysis

Paper Chemicals

  • Growth in sales and volumes due exclusively to the integration of Ciba businesses in the division
  • Difficult business environment in the first half of 2009; recovery from a low level in the second half
  • Earnings in the combined paper businesses were negative due to integration costs, impairment charges and restructuring measures
  • Outlook 2010: improved sales and earnings thanks to restructuring and rapid integration of the Ciba businesses

Paper Chemicals – Sales by region
(location of customer)

Performance Products – Paper Chemicals – Sales by region (pie chart)

The Paper Chemicals division was established on April 1, 2009. It comprises BASF’s paper business, which previously belonged to the Acrylics & Dispersions division, and the newly acquired Ciba paper business.

In 2009, we posted sales to third parties of €1,326 million, an increase of €296 million in comparison with the previous year. This included a contribution of €479 million from the integration of Ciba’s paper business. Therefore, the sales growth was exclusively due to the Ciba business included in the division since April 2009 (volumes –11%, prices –7%, portfolio 46%, currencies 1%).

The business environment was difficult, particularly in the first half of the year. It was not until the second half that we saw a slow but continuous recovery – albeit from a low level – begin in the paper industry. This industry has for many years been characterized by structural problems such as overcapacity and declining demand. The effects of generally weaker demand could be felt in all regional business units. In particular in Europe and North America, the economic crisis intensified the declining trend. In both regions we faced the challenge of having to adjust our capacities to the significantly lower demand. On the Asian market, our sales volumes decreased as a result of the economic crisis especially in the first half of 2009. In the second half of 2009, we experienced rising demand again, in particular in China. After a weak start, the South American market recovered slowly over the course of the year. Overall, we were able to maintain margins despite declining prices.

Sales and sales volumes of kaolin minerals declined considerably due to the ongoing difficult market situation in the paper industry. The business was also negatively affected by high energy and freight costs.

To some extent, we were able to compensate for the expenses resulting from the lower capacity utilization with strict cost management. Income from operations in the merged paper businesses was adversely affected by high integration costs and the creation of structures in the newly established division. In addition, there were significant special items in 2009 due to impairment charges and restructuring measures. Overall, earnings were negative.

In 2010 we expect the economic environment to remain difficult along the entire value-adding chain in the paper industry. The pressure on our business will be further increased by our customers’ overcapacities and their portfolio adjustments. Simultaneously, we anticipate rising raw materials prices which we will not be able to fully pass on to the market. Planned restructuring measures and the rapid integration of the Ciba operations will contribute to improving sales and earnings in 2010.

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