Far East boosts Burmah Castrol

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The Independent Online
Soaring demand for Castrol lubricants in the buoyant economies of the Far East kept profits on a roll at Burmah Castrol last year. Volume growth of more than 20 per cent in markets from India to Vietnam more than made up for sluggish conditions in the maturer markets of Europe and the US.

That growth confirmed the wisdom of the group's decision to focus the bulk of its marketing spend on the fast growing markets of the Pacific Rim. One of British business's most successful exporters to Asia, Burmah raised eyebrows last year when it took 150 of its most senior managers to China for a strategy conference.

Profits, which jumped 15 per cent before tax from pounds 219.5m to pounds 253m, also benefited from the decision in the middle of 1995 to pull out of petrol retailing in the UK, where a vicious price war has sent profits tumbling at Burmah's former rivals. The sale of the business for pounds 83m to Frost Group was made just before the price war broke out in earnest.

Lawrence Urquhart, chairman, said: "As we enter 1996, Asia remains buoyant while South America exhibits signs of recovery. However, subdued market conditions are eveident in the developed markets of Europe and North America, although activity is forecast to pick up later in the year."

After a 17 per cent increase in earnings per share from 57.3p to 66.9p, the dividend increased 12 per cent to 36.25p.

Burmah remains dominated by its Castrol lubricants business, where profits increased by 13 per cent to pounds 204.3m. That reflected a 5 per cent volume improvement as the company continued to take share of a global market growing at only about 1 per cent a year. Although car ownership around the world is growing fast, modern vehicles use much less oil.

In Europe, flat consumer markets were offset to an extent by strong industrial demand and profits, up 17 per cent to pounds 103.4m, were also given a lift by trading up, where consumers are prepared to swap regular lubricants for higher margin synthetic products. In North America, consumer demand actually fell slightly as retailers added to the gloom by destocking.

The Asian story remains bright, however, with profits up 14 per cent to pounds 70.9m. Reflecting the importance of the region, which is expected to overtake Europe in volume terms soon, the Far East management has been relocated from Swindon to Hong Kong at a cost of pounds 2m.

The other main bright spotcame from the formerly troubled chemicals arm, where profits jumped 28 per cent to pounds 62.4m after a particularly strong first half carried the division through a progressively difficult year. The group's target return on sales of 10 per cent was almost matched with an underlying margin of 9 per cent achieved.