BOC Report and accounts 2005 - Alle jaarverslagen

38 The BOC Group plc Annual report and accounts 2005
Risk factors
This document contains certain forward-looking statements which involve risk and uncertainty as they relate to future
events and circumstances.The following risk factors, as well as those discussed on pages 56 and 57 of the financial review
could cause actual results to differ materially from those expressed or implied by these forward-looking statements:
BOC is affected by the semiconductor business cycle
Manufacturers of semiconductors represent BOC Edwards’ major customer base, and BOC Edwards’ profitability
is directly linked to the demand of these manufacturers for vacuum equipment, services and industrial gases.
The semiconductor industry has experienced significant growth over the long term, but is cyclical in nature.
Any improvements in the level of demand for BOC Edward’s products or services may not be sustained due to
reduced demand from end users of technology products and/or excess supply of semiconductors.The competitive
nature of the semiconductor industry can reduce profit margins for suppliers of products and services to
semiconductor manufacturers. Either of these factors or a combination could adversely impact BOC’s financial
results.Any long-term reduction in the growth pattern of the semiconductor industry could also have a negative
impact on BOC’s financial results.
Acquisitions may not be successful in achieving intended benefits and synergies
BOC has completed a number of acquisitions in recent years as part of its growth strategy and may make
acquisitions in the future.While BOC identifies expected synergies, cost savings and growth opportunities prior to
completing any acquisition, these benefits may not be achieved owing to, among other things:
• delays or difficulties in completing the integration of acquired companies or assets;
• higher than expected costs or a need to allocate resources to manage unexpected operating difficulties;
• diversion of the attention and resources of BOC’s management;
• inability to retain key employees in acquired companies;
• inability to retain key customers; and
• assumption of liabilities unrecognised in due diligence.
The growth of BOC’s gases business will depend on the ability to win and execute large
projects profitably
BOC, through its Process Gas Solutions (PGS) line of business, has a strategy for growth that requires significant
investment each year to serve key customers in different geographies. Failure to execute projects successfully for
these customers will impact PGS’s ability to win new projects from these customers, and therefore may impact
BOC’s future financial results.The specific risks associated with major projects include:
• failure to complete the project on time owing to unforeseen construction problems (which may require BOC
to pay penalties under the terms of the customer contract);
• failure of the plant to deliver the contracted volumes and quantities of product required by the customer
because of design errors or errors in manufacturing or construction (which may require BOC to pay penalties
under the terms of the customer contract); and
• inability to operate the plant at costs assumed in BOC’s financial evaluation of the project.
The safety of BOC’s operations is critical to success
Industrial gases are hazardous substances and BOC recognises that managing safety in operations, transportation
and products is critical to achieve growth and financial results. Failure to maintain high levels of safety can result in a
number of negative outcomes, including:
• fines and penalties for breaches of safety laws;
• liability payments and costs to employees or third parties arising from injury or damage;
• exclusion from certain market sectors deemed important for future development of the business
(such as medical gases); and
• damage to reputation.
Additionally managing social, environmental and ethical matters is key to BOC’s reputation.
BOC operates in over 50 different countries and is therefore exposed to economic, political,
business and natural catastrophe risks associated with international operations
BOC’s overall success as a business with global operations depends, in part, upon its ability to succeed in differing
economic, political and business conditions. BOC encounters different legal and regulatory requirements in
numerous jurisdictions.These include taxation laws, environmental regulations, regulations concerning operational
standards and competition laws. BOC is also confronted by political risks such as the expropriation of assets and
the inability to export currency.The business risks and challenges faced in each geography include the need to
manage credit risks of local customers, appointing and retaining key staff, general economic conditions locally and
currency fluctuation. Recognition of changing market conditions in local geographies is critical to BOC’s long-term
success, particularly those where BOC anticipates significant investments to achieve growth, for example China.
Additionally, a good understanding of political and economic risks is essential to achieve success from investments in
new geographies. BOC’s operations are exposed to varying degrees of natural catastrophe risk, such as earthquake
and flood, as well as security risk, in the different countries in which BOC operates.
BOC operates in a highly competitive environment
The industrial gases market is very competitive, with several large competitors and a significant number of smaller
local competitors in different territories.Although the current trend in the industry is to seek price increases for
industrial gases, the industry has experienced falling prices in previous years.There is no guarantee that the current
trend will continue and there is a risk that competitors will seek to maintain or increase market shares by reducing
prices.These price reductions would result in lower revenues, profits and cash flows.