BOC Report and accounts 2005 - Alle jaarverslagen

Operating review (comparing 2005 with 2004) 43
The principal business factors driving increased turnover in 2005 were increased selling prices to recover higher
power and energy costs, increased turnover within the Linde BOC Process Plants business in the US and strong
demand for gases in the steel sector for most of the year.The recovery of higher power and energy costs is
estimated to have added approximately one per cent to turnover in 2005.Turnover also rose because of an
increase in BOC’s ownership of the business supplying nitrogen for enhanced oil recovery in Mexico and as a result
of changes to the terms of a supply scheme contract in the US.These two factors added approximately five per
cent to turnover in 2005 compared with 2004.
New plants had a relatively smaller impact on turnover during 2005.Those contributing additional sales
included a hydrogen plant supplying Citgo in the US and a new air separation unit supplying the Sinopec and BASF
joint venture petrochemical plant in Nanjing, China. New plants added less than one per cent to turnover in 2005
compared with 2004.
Operating profit increased less rapidly than turnover principally because of the factors that raised turnover
without a corresponding impact on profit.These included increased prices to recover higher input costs and the
changed contract.
During 2005, BOC continued to be successful in winning new on-site supply contracts with major customers
in the oil and petrochemical industries and in Asia with steel customers.Three new plants are under construction
for the supply of hydrogen to US refiners for the production of cleaner-burning fuels and to improve the processing
of heavier crude feedstocks.When these plants are fully commissioned they are expected to approximately double
BOC’s worldwide hydrogen capacity.At the same time, new air separation capacity is being added to satisfy
growing demand from steel and petrochemical customers in Asia.A new plant is being built for a petrochemical
customer at Map Ta Phut in Thailand and several large-scale plants are under construction in China for both steel
and chemical customers. One of the largest projects currently under way is the addition of a fifth production
module to the complex supplying nitrogen for the re-pressurisation of oil wells in the Gulf of Mexico.This facility is
already the largest nitrogen plant in the world and has already proved its worth in boosting oil production.The new
module will increase nitrogen production by approximately 25 per cent. Much of this new capacity is scheduled to
be commissioned in late 2006 and during 2007.
There were no operating exceptional items in 2005. Operating exceptional items in 2004 were for the
integration of the industrial and medical gases businesses of BOC and Air Liquide in Japan that began in 2003.
Europe Economic conditions were mixed during 2005 with some difficult trends in the UK and Ireland partly offset
by industrial growth in Poland.The adverse impact of lower merchant volumes in some sectors was to a large
extent offset by further savings from improved operating efficiency.
In the UK, industrial gases demand from the steel and chemical sectors was strong in 2005, leading to better
tonnage volumes. However, demand for liquefied gases declined as a result of generally sluggish activity in some
manufacturing sectors exacerbated by sharp increases in energy costs.These also impacted BOC’s merchant gases
business. Higher power costs were generally recovered in selling prices but increased prices led some customers to
reduce their consumption of industrial gases, while a few ceased production in the UK.
There has been another significant increase in UK power prices for 2006 and further selling price increases are
being implemented with customers.
BOC’s business in Poland continued to benefit from general economic growth and strong demand in the
steel industry.
Sales volumes were lower in Ireland as some traditional industries declined while economic growth was
concentrated in the service sectors.
Cryostar’s business as a manufacturer of cryogenic pumps, expansion turbines and compressors continued to
grow in 2005.These devices are used for a variety of industrial gas applications and for marine liquefied natural gas
(LNG) tankers.
The Americas Buoyant conditions in the steel industry led to strong demand for tonnage gases in the US during
the first half of 2005. Some slowdown became apparent during the second half and this, together with isolated
plant outages, reduced tonnage volumes in the second half and for the year as a whole. Higher power costs were
progressively recovered by increased selling prices in the merchant market for liquefied atmospheric gases and
demand remained firm. Carbon dioxide sales benefited from strong demand for enhanced oil recovery rather than
for food and beverage applications.
During 2005, BOC invested in new carbon dioxide capacity to satisfy demand for oil recovery in Texas and
made a number of smaller investments to optimise the US supply chain network and reduce delivery costs.
In Latin America, the contribution from the joint venture supplying nitrogen to Pemex for re-pressurising its
Cantarell oilfield was increased in 2005 as a result of BOC’s acquisition of Duke Energy’s 30 per cent interest.This
transaction was completed in September 2004 and increased BOC’s overall stake to 65 per cent. Construction of
a fifth production module that will increase output by approximately 25 per cent is now under way and on
schedule. Meanwhile some improvement in the efficiency of existing production units is expected from a routine
maintenance schedule that is currently in progress.
Africa Sales volumes increased in 2005 as a result of continuing firm demand for tonnage gases in the South
African steel sector and increasing consumption of liquid nitrogen by food manufacturers. Higher selling prices also
contributed to increased turnover. New long-term supply contracts were signed with customers in the metals and
automotive components industries. During 2006, investments will be made to fulfil these contracts and to satisfy
growing demand for liquefied gases in the merchant market.