Cost-cutting keeps BOC on target

THE BOC Group has claimed more success in its battle to turn around profits, although the industrial gases company admitted it had lower costs rather than higher sales to thank for the latest progress.

Chief executive Tony Isaac reiterated that BOC was on track to hit its profit targets by 2004 after reporting an 8% rise in operating profit to £135.8m for the three months to 30 June. The result enabled BOC to achieve the double-digit underlying earnings growth it needs to meet its goal of increasing profits by 40% between 2000 and 2004.

But Isaac said demand for its products from the semiconductor industry had deteriorated in the past month after steady growth in the first nine months of this financial year. Profits from that area would be lower in the current quarter.

The supply of vacuum technology to the semiconductor industry accounts for about 10% of BOC's revenue and a recovery in this area is seen as important to the company's turnaround.

Orders from semiconductor makers grew from £30m in the first quarter to £62m in the latest three months. But Isaac said they were now running at about £50m for the current quarter. 'The sentiment of the semiconductor companies and those who follow them has come off again in the last three to four weeks, though it is still much better than the first quarter,' he said.

BOC cut annual costs by £90m and Isaac revealed the £105m target had been lifted to £120m following the merger of one of its US businesses. About 1,200 jobs have been cut of the previously identified 1,500 and a further 200 will be lost as a result of the US deal.

JP Morgan analyst Colin Isaac said the figures were slightly better than expected, with a comforting rise in margins. 'They are showing the restructuring is leading to bottom-line benefits and I think they will achieve their profit targets,' he said.

The process gas division reported a 26% rise in third-quarter operating profit to £50.2m, helped by increased demand from US steel producers after the new import tariffs imposed by America.

The industrial and special products arm recorded a 5% rise in profit to £54.3m. BOC Edwards, which supplies the semiconductor industry, saw profits slump 31% to £9.1m. This was still double the second-quarter profits.