Covid-19 breaths life into BOC Kenya earnings

The Covid-19 pandemic was a blessing in disguise for industrial and medical gases firm processor-BOC Kenya which has reported an 81.9 per cent jump in profit for 2020.

The listed company's net profit  for the year ended December 31 almost doubled to Sh101.7 million from the Sh55.9 million reported the previous year, as the firm cashed in on sale of medical gas.

This, even as earnings from industrial gas remained subdued due to a slow down in industrial activities in the wake of the pandemic.

In the first half of the year, the financial results were subdued primarily because of the economic environment after Covid-19 containment measures were effected by government, the firm notes in its financial statement.

Performance improved progressively in the second half of the year after the measures were eased.

“The upside in results for the full year was primarily from medical gases, a revenue stream that has shown consistent growth over many years due to increased investment in both public and private sector health care facilities,” the firm says in the Group audited results announced through the Nairobi Securities Exchange (NSE), yesterday.

In 2021, BOC Kenya expects that demand for oxygen will follow Covid-19 infection rates and hospitalisation trend, it said.

The company will therefore be seeking to ensure adequate supplies of oxygen for its healthcare customers despite the difficulty of predicting infection rate or demand for oxygen, management has said.

During the year under review, its revenues hit Sh1 billion up from Sh975 million the previous year, when it business was mainly driven by industrial gas. 

Cash generated from operations grew 87 per cent to Sh76.7 million  from Sh41 million in 2019, as sales from medical oxygen boosted its cash-flow.

It is anticipated it could it could take up to a year to close the gap between demand and supply for medical oxygen used to treat patients, with the Covid-19 pandemic yet to be fully contained amid the high number of cases being reported in the country.

Whereas there was an increase in demand for medical oxygen and related infrastructure projects towards the end of the year, demand for industrial oxygen ( other industrial gases, equipment, and other products) were depressed by a generally difficult macro-economic environment, the company notes.

Also, in supplementing local production of medical oxygen with imported product to meet increased customer demand, the company incurred higher costs of importation that it could not fully pass on to customers.

“Meanwhile the industrial gases sector continues to be a challenging one because it includes the price and income sensitive mass market ( Jua Kali) and it is also the sector most profoundly affected by illegal filling of the company's cylinders,” the firm says.

Health CS Mutahi Kagwe last month said the country was running low on quality cylinders for medical oxygen in health facilities.

The government has been keen to ensure steady supply of oxygen in hospitals amid fears of low supplies and increasing demand.

According to the Health Ministry, the total production and requirement for the industry was about 410 tonnes as per last year.

But with the rising cases of critical care patients in need of oxygen in the country, that has quickly gone up to about 560 tonnes in January and the country is now heading for demand of double the last year figure at 880 tonnes.

Meanwhile, BOC seems to be considering a turn-around from the proposed buy-out by Carbacid (currently frozen pending determination guidance from the Capital Markets Tribunal (CMT)).

BOC board and management has said it has developed a strategy to defend its market position and break into new segments through focused internal alignment.

“The board and management are committed to ensure sustainable improved financial performance of the company in the coming years,” it said.

According to management, this will be achieved through protecting the company's base business, creating new business streams, turning around its customer service operations and strengthening execution using its workforce, pointers of a possible continued operations as a company.

The takeover plan was frozen last month pending guidance from the  Capital Markets Tribunal , pushed by minority shareholders.

This is mainly on the share value which has rallied since last year, hitting a high of Sh67 last Thursday.

BOC Kenya began the year with a share price of Sh63.00 with the price valuation making it among the top gainers at the NSE year-to-date.

Last month, billionaire businessman Ngugi Kiuna, a shareholder in BOC Kenya, sort to quash the buyout citing the undervaluation of the company by Carbacid.

Listed local investment firm Carbacid Investments Limited which has partnered with Aksaya Investments LLP in the buyout plan had offered a take-over of Sh63.50 a share for a total of just over Sh1.24 billion.

However, an independent advisory of the offer by Dyler and Blair Investment Bank placed the value of BOC at a higher Sh91.76 per share.

“Pending further guidance from the CMA or CMT, we wish to inform you that no further action should be taken in relation to the activities set out in the transaction timetable provided in the takeover offer document forwarded to you on February 19,” BOC said in a notice to shareholders on March 22.

If the deal fails to come to fruition, it will be a flip similar to what was witnessed in 2009, when BOC had wanted to acquire 10.6 million shares in Carbacid, only to withdraw the offer later.

BOC Kenya, a subsidiary of Germany's Linde, had placed a bid for the carbon dioxide manufacturer after it was suspended from the bourse in 2005 on cash flow issues.

Yesterday, it announced  a growth in its asset base valued at Sh2.1 billion as at December, up from Sh1.9 billion in 2019.

The board of directors have recommend payment of a final dividend of Sh4.15 per share, a much fair payment to shareholders compared to the Sh2.35 per share interim dividend recommended last year.