BOC Report and accounts 2005 - Alle jaarverslagen

Risk factors 39
BOC relies on development of, or access to, technology to support business growth
BOC’s success is dependent in part on its continued investment in technology to develop new products and
services across all businesses, new applications for existing products or to design effective means for producing
industrial gases. Failure to access or develop technology or anticipate, manage or adopt technological changes in
operations or product applications on a timely basis will have a material impact on BOC’s future results. For
example, the rapid development of technology in the semiconductor sector requires BOC Edwards to be aware
of changes in customer technology requirements and to introduce new products to meet those requirements in a
timely manner. Failure to do so could result in reduced market share and profitability.
Recognising and anticipating changes in the manufacturing economy is key to BOC’s success
BOC’s industrial gas businesses serve a wide range of manufacturing customers in major geographies such as the
US, UK, Japan and Australia.This is particularly true of the Industrial and Special Products line of business which
provides products and services to customers involved in the welding and cutting of metal, a major source of
revenue for this division.As customers in these traditional manufacturing-based economies seek to move their
manufacturing operations to lower cost territories in, for example,Asia and Latin America, the risk arises that
BOC’s operations in the major geographies will have lower growth opportunities. Failure to recognise these trends
and manage the consequences, through the development of alternative markets and/or meeting demand in higher
growth territories, could have a negative impact on future Group financial results.
BOC’s success depends to a significant extent on its key personnel and employees
BOC’s performance depends on the skills and efforts of its employees and management team across all of its
businesses. BOC recognises that failure to attract new talent and retain existing expertise, knowledge and skills in
operations, products and infrastructure areas such as information technology could have a negative impact on
revenues and profits. In addition, the success of BOC’s acquisitions may depend, in part, on BOC’s ability to retain
management personnel of acquired companies.
Litigation may have an adverse impact on financial results
The global nature of BOC’s business exposes it to the potential for litigation from third parties. From time to time
BOC is involved in lawsuits, resulting from current and past operations or products.The outcome of these lawsuits
may result in damages and awards which could have a material impact on BOC’s profitability, its business operations
or financial condition. Examples of litigation in the US for past products include allegations of injury arising from the
use of welding electrodes previously manufactured and distributed by BOC in the US.
Increased energy costs could reduce profitability
The production of industrial gases requires significant amounts of electrical energy. Energy costs are a key
component of the cost of manufacturing industrial gases, and increases in these costs can impact profitability if they
cannot be passed on to customers.Accurately predicting trends in energy costs is difficult to achieve as energy
costs are to a large extent subject to factors beyond the company’s control – for example, political conditions in oil
producing regions. BOC also operates large fleets of commercial vehicles in certain major geographies.An increase
in energy costs associated with the use of these commercial vehicles may negatively impact profit levels.
Further consolidation between major competitors may impact BOC’s competitive position
A merger between any of the major competitors to BOC within the principal geographies, subject to competition
authority consent, could result in a longer-term deterioration of BOC’s competitive position resulting in reduced
levels of growth. Possible consequences could include:
• an uncompetitive cost base for large projects;
• an inability to participate in further consolidation due to competition concerns;
• retention and/or recruitment of key personnel;
• weakened geographical positions.
Managing joint venture relationships is a key success factor for BOC
BOC needs to ensure that the selection of joint venture partners in new ventures and the relationships with
partners in existing relationships is managed effectively to ensure the full potential for the joint venture is achieved.
Failure to achieve alignment of objectives and manage relationships effectively may negatively impact future growth
and profit levels.
Failure to renew major contracts could reduce profitability
All of BOC’s businesses operate in very competitive markets.The loss of major contracts through competitive
forces, changes in customer purchasing strategy or changes in customer location, could have a negative impact on
Group financial results.
Identifying growth opportunities and productivity improvements are necessary for longer
term success
Failure to identify and execute growth and productivity opportunities effectively will limit increases in profitability.These
risks can materialise from inadequate processes or a lack of resources to identify opportunities and exploit them.
Adoption of accounting changes or new regulations can increase costs and reduce profitability
The implementation of new accounting requirements (for example, International Financial Reporting Standards) or
regulations (for example, the US Sarbanes-Oxley Act) can incur significant costs which reduce profitability. Increased
costs arise through recruitment of additional resources, consultancy fees to support implementation or increased
external audit fees.