Boc Disappoints With First-Quarter

A swift programme to batten down the hatches in Asia failed to prevent BOC Group plc from disappointing the market on Tuesday with a 9 per cent drop in first-quarter pre-tax profits. The industrial gases group, which generates nearly a third of its sales in Asia, reported pre-tax profits of £93.5 million in the three months to December, compared with £103 million.

Turnover rose 1 per cent to £902 million. The outcome was considerably below analysts' expectations and the shares fell almost 7 per cent, closing 66p lower at 905p. However, Danny Rosenkranz (above right), chief executive, said the results had been distorted'' by exchange rates and discontinued operations. Underlying profits in the north Pacific region had held up well''.

 

Currency movements cut more than £6 million from profits, which also suffered from a poor performance at Ohmeda, the soon-to-be-divested healthcare division, where operating profits of £5.3 million fell well short of the £13 million reported a year earlier. In industrial gases, operating profits fell 2 per cent on sales down 1 per cent, although performance was supported by the 50 per cent of Asian business backed by take-or-pay contracts.

The group also cut costs, reorganised marginal assets and limited debtors in the region - even hiring moped teams to collect cash payments ahead of deliveries. In its vacuum pumps business, orders were affected by a slowdown in semiconductor industry investments in Asia, but operating profits were flat on sales up 23 per cent. In its smallest division, distribution, the group experienced one-off difficulties because of a poorly drawn contract in the chilled distribution business. BOC said this was being addressed.

, but operating profits within the division fell 13 per cent, on sales up 8 per cent. However, the biggest disappointment came within Ohmeda, {..GC.-Ohmedadue to be sold to a medical equipment consortium for {GBP640m. Healthcare sales dropped 7.2 per cent to {GBP100m, while operating profits fell 59 per cent at {GBP5.3m. Tony Isaacs, finance director, said the proceeds from Ohmeda would halve the group's gearing, which stood at 66 per cent. The group did not plan to keep gearing at this reduced level in the long term, said Mr Rosenkranz, but it was keeping its options open. A share buy-back remained possible, as did an acquisition, but there were no firm plans yet for either. * COMMENT Mr Rosenkranz is a chief executive on the defensive. The setbacks during his two years at the top have not been his fault. But he is culpable for the group's sluggish responses. It hung on to the healthcare business for too long after the patent expired on its core product, Forane - it was clear BOC lacked the competency to reshape a new medical business. The commitment to its ailing distribution business is similarly perplexing. With the remaining divisions looking vulnerable in Asia, the chief executive will be under pressure to do more than ride the storm. Unfortunately, yesterday offered no indication of a change of gear. Forecast pre-tax profits of {GBP415m give a p/e of nearly 17. This is high enough for a company that seems to lack direction - however solid its underlying business. Copyright Financial Times Limited 1998. All Rights Reserved.