BOC Report and accounts 2005 - Alle jaarverslagen

Operating review (comparing 2004 with 2003) 51
Sales of industrial products increased in aggregate although some developed markets continued to reflect weak
manufacturing activity. Business development was helped by upgrading the retail environment of outlets in some
major markets and by the continued introduction of safety products to the markets in the UK,Australia and
South Africa.
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, as well as for the restructuring of the ISP business in the US
following the disposal of the packaged gas business.
EuropeTurnover and adjusted operating profit increased further in 2004. Manufacturing activity continued to
decline in the UK but BOC maintained a strong position in the market. Improved service levels enabled selling price
increases to be implemented.At the same time costs were reduced through improved productivity.
Modest increases in industrial product sales were helped by rejuvenation of retail outlets in the UK. Medical
product sales increased as a result of gaining additional National Health Service business and continued demand for
lightweight oxygen cylinders.The range of lightweight cylinders will be expanded by introducing additional sizes
during 2005.
The new business supplying helium to Oxford Magnet Technology for medical imaging devices began in 2003
and performed well throughout 2004. It was also the first full year of the refrigerant reclaim service in the UK,
based on an exclusive global licence with Hudson Technologies.A range of gases for scientific applications was
introduced during the year and some additional sales were generated following the launch of a mail order
catalogue for gases and related products. BOC’s Sureflow beverage dispense gas operation was expanded by new
business for Heineken outlets in Ireland during 2004.
BOC’s business in Poland was enlarged from February 2003 with the acquisition of Praxair’s Polish business.
2004 was therefore the first full year of the expanded business and there were further integration benefits.
North AmericaThe BOC Group announced on 27 January 2004 that it had signed a letter of intent to sell its US
packaged gas business to Airgas.This business had turnover of approximately US$240 million in 2003.The disposal
was completed on 30 July 2004 upon receipt of initial cash proceeds of US$175 million.
Following this transaction, the ISP business in north America consists of bulk medical gases, bulk supplies to
distributors, tube trailer and liquefied helium in the US as well as the Canadian packaged gas business. In total these
elements currently generate turnover of some US$450 million a year.
The impending disposal of the US packaged gas business created a challenging business environment for a
significant part of the year. US sales volumes and adjusted operating profit were lower in the period prior to the
disposal.
Turnover increased in Canada principally as a result of the acquisition of Air Products Canadian gases and
related products business with effect from April 2003. Cost synergies arising from the integration further boosted
adjusted operating profit in 2004.
Latin AmericaTurnover increased significantly and margins improved. Growth across the region was driven
principally by sales of medical products supplemented by sales of BOC-branded cutting and welding equipment.
Sales of packaged chemicals increased in Colombia and Venezuela.
Results improved strongly in Venezuela, despite a continuation of political unrest. BOC’s associated company
achieved better results in Chile but there was a sharper improvement in Argentina.
Selling price increases offset inflation in Venezuela and Chile but the trends were less favourable in Colombia
during 2004.A new customer service centre was opened in Venezuela and new business systems were successfully
implemented in Venezuela and Colombia during the year.
Africa Important sections of South African industry were depressed during 2004 because of the stronger currency.
Rand exchange rates reduced the profitability of gold mining and manufacturing for export in particular.At the
same time the cost of imported goods was lowered making them more competitive with those manufactured
locally. However lower interest rates began to stimulate domestic consumption towards the end of the year.
Despite the more difficult market conditions, adjusted operating profit improved significantly on the basis of
a modest improvement in turnover. Margins improved as a result of better productivity and operating efficiency,
partly offset by increased transport costs arising from the temporary shutdown of some key supplier facilities.
Sales of cutting and welding products increased in South Africa and so did both the sales volume and the turnover
of liquefied petroleum gas (LPG).Turnover of special products, including refrigerants, grew particularly rapidly.
Export sales of welding products manufactured by Afrox, BOC’s South African subsidiary, also increased
significantly.There was a modest improvement in adjusted operating profit despite the currency disadvantage.
Sales of the AfroxPac emergency oxygen kit for underground miners were substantially lower in 2004 as order
intake reflected weak activity in the gold mining sector.
A programme to renovate the Afrox retail network in South Africa with the development of a number of
‘Gas & Gear’ outlets and a range of safety products is under way. In addition a range of diving gases and a fire
suppression product have been launched in South Africa.
Good progress was made in growing both turnover and adjusted operating profit in the other southern
African countries during 2004.A new carbon dioxide plant supported growth in Nigeria.
JapanThe basis of accounting for BOC’s business in Japan changed during 2003 as a result of a merger. Full details
can be seen in the PGS section on page 49. In 2004 ISP’s turnover in Japan was slightly less than the previous year
but adjusted operating profit was higher through cost savings following the merger and from some asset disposals.