BOC Kenya retains dividend despite profit drop

BOC Kenya’s earnings slumped by 21 per cent in 2009, signalling the agency with which the firm needs to enter the lucrative carbon dioxide market.

BOC announced a Sh231 million in pre-tax profit compared to Sh295 million in 2008 in a slow year that also saw the firm’s three-year bid to enter the carbon dioxide market fail after its botched acquisition of Carbacid Investment — which is the largest maker of the gas.

While 2009 was a difficult year for business, BOC’s performance vindicates analysts’ observations that the firm’s core business is headed for maturity amid fresh pressure from new competitors, hence the need to diversify its business further.

Earnings decline

“The year was a challenging one and demand was lower than expected,” said John Kariuki, BOC’s managing director.

The firm has seen its earnings decline in the last two years, which BOC’s management attributes to the challenges of increased operating costs driven by higher transport and energy prices. Mr Kariuki said BOC would seek to reduce costs while upgrading existing facilities to rev up revenues.

Despite the fall in earnings, the firm’s final dividend payout remained unchanged at Sh6.80 per share which still places BOC among Nairobi Stock Exchange (NSE’s) favoured picks for investors seeking high returns.

The firm’s share prices closed the week at Sh155.

BOC will however have to grapple with cutthroat competition in the industrial gases market as new entrants into the business raise stakes.

With recent technological advancements, smaller and more efficient plants mainly from India and China have entered the market.

Other players include Nairobi’s Chemigas, Noble Gases, Welgas, Carbacid, Crown Gases and Mombasa’s Synergy Gas.

Twiga Chemicals deals in one product line, Ammonia, while Kisumu’s Spectre International has the capacity to produce carbon dioxide as a by-product.

“It may be wise for BOC to concentrate on its core business, where it is currently facing increasing competition by improving service delivery to key customers,” reckons Martin Nyanjom, a management consultant with Gem Consultants in a recent opinion piece in the Business Daily.

Heavy consumers such as hospitals have installed production units and may be considered competitors, especially in bulk oxygen and nitrogen supply.