Investment: City applauds BOC bravery

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BOC'S DECISION to axe almost 5,000 workers around the world is a tragedy for those concerned. But yesterday the City was quietly applauding a brave decision by the industrial gases group's management.

The question is whether the cull will be enough to buck longer-term trends of economic slowdown in BOC's main markets such as Britain, South Africa and maybe even the US.

The short-term threats are obvious enough, with the downturn in South- east Asia and the strong pound ravaging the group's nine-month results.

Pre-tax profits of pounds 272.4m were down from pounds 325.4m last time, but in line with expectations. But the figures contained some nasty individual results, with vacuum technology showing a 48 per cent drop in third-quarter operating profits.

Fortunately the key gases division held up well, lifting operating profits by 12 per cent in the third quarter. It is here that the chief executive, Danny Rosencranz, has decided the future of the group lies.

The surgery announced yesterday reflects both the decision to concentrate on gases and the impact of immediate external trading problems.

One-tenth of the company's employees are to lose their jobs in a bid to bring savings of pounds 120m a year. The company has set aside pounds 167m as an exceptional charge to cover the reorganisation costs, but BOC thinks the restructuring could cost another pounds 100m in total. This may come from asset sales such as BOC's non-Marks & Spencer distribution services operations and maybe its German and Benelux gas businesses.

In a market sharply down, the shares yesterday gave up just 4p to 736p, reflecting the fact that some are now bullish about a stock which has slid from a year high of 1,035p. However, as countless companies have shown, reducing a cost base in a static market can become a never-ending process.

Stockbroker CSFB was yesterday among those keeping its 1998 pre-tax profit forecasts at pounds 380m. That puts BOC shares on a forward multiple of around 14, which fairly reflects a belief that the company is not out of the woods yet. Hold.