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Annual Repor t & Accounts 2002

Natural personalities

C RO DA I N T E R N AT I O N A L P L CCowick Hall, Snaith, GooleEast Yorkshire DN14 9AA

Tel 01405 860551Fax 01405 861767www.croda.com

Croda International Plc A

nnual Report & A

ccounts 2002

Financial highlights 01

Chairman’s statement 02

Operating review 04

Financial review 10

Safety, Health and the Environment (SHE) 13

Board of directors 18

Directors’ report 20

Corporate governance 23

Statement of directors’ responsibilities 25

Report on the directors’ remuneration 26

Group profit and loss account 32

Group and Company balance sheets 33

Group cash flow statement 34

Other primary financial statements 36

Accounting policies 37

Notes to the accounts 39

Independent auditors’ report 57

Shareholder information 58

Principal subsidiary companies 60

Five year record 61

People are the heart ofour organisation and thecore of our business.

01 Croda Annual Report & Accounts 2002 Financial highlights

Financial highlights

2002 2001

Turnover for continuing operations £295.0m £285.6m

Profit before tax for continuing operations £38.3m £31.2m

Earnings per share before exceptional items 17.7p 14.4p

Dividends per share 11.5p 11.3p

Gearing 32.0% 36.3%

SALES BY MARKET 1998

■ Personal & Health Care 30%

■ Home Care & Plastics Additives 11%

■ Industrial Specialities 20%

■ Other 39%

SALES BY MARKET 2002

■ Personal & Health Care 54%

■ Home Care & Plastics Additives 15%

■ Industrial Specialities 19%

■ Other 12%

02 Croda Annual Report & Accounts 2002 Chairman’s statement

I am particularly glad that again we are able to report a verysatisfactory cash position, showing rigorous control at bothcentral and local level.

At £38.3 million, pre-tax profits of continuing operationsbefore exceptional items were 23 per cent above last year onturnover up by 3 per cent at £295 million.The Oleochemicalstrading margin has returned to a normal level of over 16 percent following the dip in 2001.

Our UK oleochemicals business achieved good growth in2002.The active ingredients businesses in France, Sederma andCrodarom, showed significant growth in both sales and profits.US oleochemical sales were 9 per cent higher in Sterlingterms and about 14 per cent higher in local currency, andmargins also increased. In fact, despite the currency turmoil inSouth America, sales increased in the Americas by over 6 percent in Sterling terms.

We have often said that product development in partnershipwith our customers is the key to our future. Although theHealth Care sector inevitably has long development cycles, ourpipeline continues to look promising. In the meantimeresearch and development continues with a number of newpatent filings in 2002.

The tax charge at 35.8 per cent is as expected giving earningsper share before exceptional items of 17.7 pence and a lossper share after exceptional items of 0.5 pence. In line with ourstated objective of increasing our dividend cover over thenext few years your Board is proposing a final dividend of7.59 pence making 11.5 pence (2001: 11.3 pence) for the year.

F I N A N C ELast year I paid tribute to the efforts that had gone intoimproving our working capital. It is therefore impressive that weshould have achieved further improvements this year. Net debthas been reduced by a further £11.5 million to £52.1 million sothat year end gearing has fallen to 32 per cent with interestcover at 10 times.

The results for the year demonstrate the resilience ofour core business and the wisdom of concentratingour efforts on the Personal and Health Care sectorswhich are demonstrating their ability to withstand thepressures affecting more cyclical markets.

Chairman’s statement

03 Croda Annual Report & Accounts 2002 Chairman’s statement

R E S T RU C T U R I N GOur oleochemicals businesses in the UK and Europe werereorganised with effect from the start of 2003. CrodaChemicals Europe incorporates the UK oleochemicalsmanufacturing sites and all the UK and mainland Europeansales operations in a single market driven structure underDavid Barraclough.The new structure is to ensure enhancedfocus on growth in our core markets and firmly places theonus on the Product Development and Marketing teams todevelop our businesses in those markets with themanufacturing facilities in the UK to support them.

Due to adverse market conditions and consistent with ourstrategy, it was necessary to sell or close a number of our lesssuccessful activities.This included a major part of our gelatinbusiness, the textile chemical business, Brookstone, and thesale of our solvent recovery business.These units were notcore and could not, in the Board’s belief, achieve satisfactoryreturns.We are determined to focus our resources andmanagement on those areas which have the strongest andmost certain prospects for growth.This is in the best interestsof all of our stakeholders. Nevertheless, your Boardacknowledges the difficulties for those directly affected as wellas for those with responsibility for managing the process.

E N T E R P R I S E R E S O U R C E P L A N N I N GI am glad to report that the roll out across the Group of ourSAP enterprise resource planning system continues to go well,thanks to the great amount of effort invested in preparationand training at each unit due to be brought on to the system.In 2002 the installation was successfully completed at our salesoperations in France, Italy and Germany.The system has nowbeen in operation long enough at sufficient locations for us tobe convinced of the benefits of this investment and it will beinstalled in Brazil in 2003.

S A F E T Y, H E A LT H A N D T H E E N V I RO N M E N TIn my last Statement I wrote at some length about theimportance we attach to issues related to Health, Safety andthe Environment. It is an unusual (and unwise) manufacturernowadays that does not do so and we continue to give theseareas high priority, not only in this country but also globally.

P E O P L EThe Croda culture is one of notable loyalty to the companyand a surprisingly large number of individuals have worked inthe Group for the majority of their working lives.This cultureis of great value and I would like on your behalf to thank ourteam for their loyalty over the years as well as for their efforts during 2002.

O U T L O O KWe cannot entirely escape the consequences of what is goingon around us in the financial world and in common with manyothers face increased cost pressures. Nevertheless, we believethat in 2003, organic growth, new product deliveries and theexit from low return businesses will mean we are well placedfor further progress.

Antony BeevorChairman

ANTONY BEEVORChairman

The turbulence of 2002 proved once again that thereis no substitute for clarity of strategy and precisetimeliness of implementation. Croda had a good yearin spite of the global conditions.

ANDY BRAMLEYOperations Director(Rawcliffe Bridge and Leek)Croda Chemicals Europe

Andy joined Croda in 1990 as a Quality Controlchemist at the Rawcliffe Bridge site and worked in anumber of technical roles before becoming SiteDirector for the Leek operation in 2000 and thenManufacturing Director for both the Leek andRawcliffe Bridge sites in 2001. Croda has investedheavily in recent years on both sites, most recentlywith a GMP approved plant for the production ofmaterial for sale into pharmaceutical markets.Whilst further investment will be made whencommercially justified, maximising output andreturns from the existing plant is his key task.

We never wavered from our chosen path to increaseinnovation and add value for our customers. Our continuedfocus on Consumer Care paid real dividends in increasedprofits, cash generation and real growth in our core specialityOleochemical business. On continuing operations, sales were up3.3%, with the core speciality Oleochemical business increasingsales by over 5%. Operating profit for continuing operationsincreased by 15.9% and profit before tax, helped by lowerinterest charges, was 22.8% higher than 2001.The core specialityOleochemical operations returned to a more normal tradingmargin of 16.7% and now represents over 88% of groupturnover and nearly 93% of trading profit. It was once again atough year for the remaining industrial businesses but in spite offalling sales, margins were increased to a creditable 9.7% from9.2% in 2001.These businesses are well managed operationswhich performed well against their global peer group.

For the first time in a number of years we increased sales inthe UK for our continuing operations with particular growth inPersonal Care, and overall sales in Europe were up over 4%, inwhat was a very tough market. Sales were down in Franceand flat in Germany and Italy, but we achieved good growth inthe Benelux countries, Spain, Switzerland and especiallyPoland, Hungary and the Czech Republic.

04 Croda Annual Report & Accounts 2002 Operating review

Operating review


MIKE HUMPHREYGroup Chief Executive

SURINDER CHAHALResearch and Marketing Director(Personal Care and Health Care)Croda Chemicals Europe

Surinder joined Croda in 1987 as a developmentchemist at Croda Colloids and subsequently worked ina number of research based roles before becoming R&DDirector in 2001. Surinder has been particularly involvedwith the development of specialty proteins for thecosmetic industry where their use in Hair Careproducts is well established. More recent developmentsfor proteins have included their application in fabricconditioners. Following the recent re-organisation ofour European operations, Surinder was appointed to hispresent position and is looking forward to a closerworking relationship with the sales and marketing teamsand an increased speed of response to market needs.

In the Americas, we returned to the historically strong growthwe had enjoyed for many years prior to the second halfturmoil of 2001. Sales in the USA increased by nearly 9%. Insome parts of Latin America we increased sales substantially,compensating for the flat performances in the financiallychallenged areas such as Argentina and Brazil.There was also a welcome increase in sales in Canada.

In Asia, there was a mixed performance. Sales in Japan wereflat in extremely difficult circumstances, but there was goodgrowth in China, South Korea, and most of South East Asia.Sales in Africa, mainly South Africa, were up almost 10%, butas expected, sales in the Middle East dropped heavily due topolitical and economic uncertainty in the region.

Our choice of focus over diversification brought its rewards,with sales up substantially in our target area of ConsumerCare.There was a fall in sales revenue in Plastics Additivescaused by the drop in demand in the Middle East, exacerbatedby the volume driven strategy of some competition.

It was again a record year for new product introductions,including Keravis for hair strengthening, the Eyeliss and Ryzasolskin care active ingredients, and a number of products fromour Crodamazon range in Brazil.This bodes well for futuregrowth.We continued to invest in our core researchcompetencies and expect even more great ideas in the futurefrom our dedicated and creative science teams.

We moved swiftly to continue the strategic focus on truespecialities.We sold Croda Distillates, our solvent recyclingbusiness.We closed down the small textile chemicals businessand exited the manufacture of commodity gelatin products as the aftermath of BSE and continued regulatory pressurestook its toll.


Operating review

I am pleased to report that capital expenditure was againmuch better controlled.This does not mean we are ignoringour future, merely that the heavy expenditure of the last tenyears is bearing fruit. Singapore output grew in line withplan. Our recent investment in the USA is now fullyoperational, giving us both capacity and efficiency. Weconstructed and commissioned a brand new lanolin plant inBrazil and completed the new plant and capacityimprovements at Rawcliffe Bridge, which enabled thesuccessful transfer of the Westbrook business andsubsequent closure of the leased site in Bradford.The SAPsystem is continuing to provide benefits across Europe andthe roll out continues this year in Brazil followed bySingapore. Again, cash generation was strong with greatefforts at the business units backed by shrewd managementat the centre. We are proud of the achievements in onceagain reducing debt, but there will be no let up in the driveto reduce working capital.

Our decision to focus on organic growth seems to be whollyvindicated.We have the strength in our balance sheet to makesuitable acquisitions, but we also have the strength of mind topursue only those that will add true value.

O L E O C H E M I C A L S

R E S U LT S 2002 2001 %£m £m Change

External turnover 260.1 247.4 5

Trading profit 43.4 37.0 17

Margin 16.7% 15.0% 11

Capital employed 198.2 205.5 (4)

Return on capital 21.9% 18.0% 22

This was a strong performance in challenging marketconditions.Trading profits increased by 17.3% on a salesincrease of 5.1%.We continued to refine the product portfolioand returned to a trading margin of 16.7%. In spite of anumber of raw material price increases, we increased grossmargins.We continued to implement price increases and againimproved the product mix.

VANIA PACCHIONITechnical Marketing ManagerCroda Brazil

Vania joined Croda Brazil in 1986 in the technicaldepartment for Personal and Health Care, since whenshe worked in a number of technical and sales roles,before taking up her current position in 2000.Vaniahas been key to marketing of many of Croda’s rawmaterials into the Brazilian market, both from ourBrazilian manufacturing plant and elsewhere in theCroda Group. More recently the establishment of ouroperation in the Amazon has given Vania access to anabundance of new potential raw materials for ourprocesses. She relishes this new challenge.


TAKESHI KORESAWAProduction and Technical DirectorCroda Japan

Koresawa-san has been with the Croda Group forover thirty years. During this time he was key tothe development of Croda’s “Snow White Lanolin”,a very successful ultra pure lanolin.The processdeveloped for the production of SWL remains atthe core of the Shiga factory, though the plant isnow also used for the super refining of many otheroils, waxes and esters.According to ancienttradition in the area of our factory, to be asuccessful merchant, the seller, the customer andthe public should all benefit from your actions andKoresawa-san continues to actively develop newproducts and technologies embracing this “Goodfor three sides” spirit.

We achieved good growth in Personal Care, led once again by Sederma.They enhanced their leadership in the Activesmarket with another sparkling set of new productintroductions. Last year’s key product launch, Matrixyl, was agreat success. Planned customer launches in 2003 will ensurethat it becomes the most exciting new product for Skin Carein recent years. Our plant extracts business, Crodarom, alsohad a terrific year by moving up the value chain with anemphasis on quality and innovation.

In North America, the drop in performance in 2001 wascompletely reversed by aggressive marketing of both new andmore mature products.The new capacity in Mill Hall has beenvery welcome and we look forward to more progress in 2003.

The most significant event in this sector was the formation of apan European company, combining all the sales and marketingoperations throughout the European mainland with the fourmain manufacturing operations in the UK.This new operationfaces the market place through customer and industry focusedbusiness units, supported by a unitary manufacturing andlogistics resource.With the exception of Plastics Additives, thisbusiness demonstrated good growth in sales and profits andthe new structure will accelerate the process.

In the planning of this new operation, it became obvious thatthe commodity gelatin business was unsustainable.With someregret, especially for the people involved, we decided to exitthis business.We also closed the Westbrook site in Bradfordas planned.

In Latin America, we opened the new high quality lanolin plantin Brazil, which has put clear water between Croda andindigenous manufacturers in this important region.TheCrodamazon project continued on its upward path, withlaunches in Europe and the USA which generated a numberof exciting enquiries.The financial instability in the region wasextremely well managed and good growth was secured in anumber of countries.


Operating review

CLAIRE MAS-CHAMBERLAINScientific DirectorSederma

Croda’s acquisition of Sederma in 1997 broughtmany new technologies and research methods tothe Croda Group. Sederma’s ability to innovate anddevelop new products has always been key to theirsuccess.They focus on developing new activeingredients for Personal Care. Many of the world’sleading cosmetic houses rely on Sederma productsfor their own marketing claims. Claire uses herimagination and inspiration to create and supportnew active ingredients. Her excellent knowledge ofskin physiology, biology, technology and a sensitivityto markets trends are invaluable.

The Singapore plant increased output again and sales from thisoperation were up over 16%.There was excellent progress inPersonal Care in China and most of South East Asia.Wemaintained sales in the Japanese market in adverse marketconditions and the innovation and high quality workforce atCroda Japan give us cause for optimism going forward.Theteam at Croda South Africa increased sales by a very creditable10%. Emlyn Horne, who has managed this business verysuccessfully for many years, retires in April and I would like tothank him for his exceptionally successful leadership throughoutall the turmoil of recent years in this important market.

There was strong growth in our Health Care business whichincreased sales by over 14%.We invoiced our first commercialquantity for the exciting Asthma project and we are fullyprepared for supply of Polidocanol to Provensis.Though both ofthese projects will not have major impact for some time, solidprogress is being made.The new ultra high purity lipid plant hashad a positive impact as we move the business into the highervalue added area of pharmaceuticals. Globally, Health Careremains one of our key growth platforms for the future.

The renewed focus on Home Care has produced excellentresults and much new business is in the pipeline.We continueto do well in the supply of additives for wet wipes/non-wovens.The project to transfer protein technology from HairCare to Fabric Care has been successful and we expectsignificant sales in this new business area.

Once again, the results for speciality Oleochemicals wereunderpinned by our global marketing network, which we willexpand again in 2003.This global spread is a major strengthfor Croda and enables us to be much less reliant on one ortwo major customers than our peer group.

In the last annual report, I remarked that 2002 would be abetter year for our core business, and so it has proved to be.The pipeline of new products means we should expectfurther solid progress in 2003.


OT H E R

R E S U LT S 2002 2001 %£m £m Change

External turnover 34.9 38.2 (9)

Trading profit 3.4 3.5 (3)

Margin 9.7% 9.2% 5

Capital employed 21.3 21.8 (2)

Return on capital 16.0% 16.1% (1)

It was another difficult year for these small units whichoperate in a much more depressed environment than ourcore business. However, it is pleasing to report increasedmargins which resulted in flat profits on turnover down by over 8%.

Baxenden Chemicals again produced good results inchallenging market conditions. Fire Fighting Chemicalsincreased profitability after a poor year in 2001 and Seatonsperformed well as it outsourced manufacture to mainlandEurope.We exited the solvent recovery business by sellingCroda Distillates. Croda Application Chemicals and our smallcompany in Australia, Celtite, both had difficult years butremained in profit.

S U M M A RYIn 2002, we increased sales, increased productivity, increasedmargins, accelerated cash generation, increased innovation,reduced debt, continued to sharpen our focus and mostimportantly, substantially increased profits. Behind theseachievements is a committed creative workforce, a consistentstrategy, and an unrivalled ability to implement change.Wehave learned from both our successes and our failures and wewill be stronger because of these lessons.The corporateculture of innovation and common sense has enabled us toachieve much over the last few years.There are no certaintiesin these times of political and financial turmoil, but we willcontinue to try to deliver on our commitments to all ourstakeholders and look forward to the challenges of 2003 and beyond.

ABEL PEREIRAResearch Director – Product DevelopmentCroda Inc

Abel joined Croda in 1978 as a 17 year old for whatshould have been a summer job and he has beenwith us ever since! In the early 1980s Abel played animportant part in establishing our manufacturingoperation in Brazil when he went there onsecondment. His help and assistance was invaluable,especially as he speaks fluent Portuguese.Abel hasworked directly in manufacturing, technical services,marketing and sales, but has spent the last ten yearsin a lab based role, being promoted to his currentposition in 2000. He has been directly responsiblefor nine patents, with another eight pending.Thesehave a particular emphasis on products for sale intothe Hair Care market, an area where Croda Inc isrecognised as a market leader.

10 Croda Annual Report & Accounts 2002 Financial review

Financial review

T R A D I N GWe continued to make progress in 2002 with overall sales of£295m for the continuing businesses up 3.3% in sterling terms,an increase of almost 6% on a constant currency basis.

In terms of sales volumes the picture is mixed. Sales volumesrose by nearly 7%, with the major exception of the high volume,low value technical oils business, where volumes fell 15%.

Operating margins returned to their pre-2001 levels at 16.7%for Oleochemicals and 9.7% for the Other businesses,producing margins for the continuing operations of 15.9%compared to 14.2% in 2001.

In line with most companies we will experience increasedpension and insurance costs in 2003.The change in pensioncosts is detailed later in this review and insurance costs areexpected to rise by just over £1m to £5.5m.

E X C E P T I O N A L I T E M SThe exceptional items relate primarily to our withdrawal froma number of business areas which were declining in terms ofvolumes and margins and where we saw no profitable futurefor the Group. In one case, our solvent recovery business, wewere successful in selling the business but in the other casesthe businesses had to be closed.

The total exceptional cost for the year was £28.9m, althoughthe net cash cost will be a modest £4.2m.

The trading losses of these businesses totalled £2m and havebeen reported in the Profit and Loss Account under theheading of discontinued operations.

TA X AT I O NIn last year’s Financial Review I noted that even with theintroduction of FRS 19, the new Accounting Standard ondeferred taxation, I did not expect our tax rate in 2002 toexceed significantly the 34.7% reported (pre FRS 19) last year.In line with our expectation, the tax rate on our tradingoperations for 2002 was 35.8%.The adoption of FRS 19 hasincreased the comparative rate for 2001 to 40% as aconsequence of the Standard’s requirement to make fullprovision for deferred tax on fixed asset timing differences.

D I V I D E N D SAgain I refer you to last year’s Review on the subject ofdividends when I pointed out our dividend cover at that timehad fallen to 1.4 times and that it was and remains yourBoard’s intention to increase this over the next few years.

Accordingly the Board is proposing a final dividend of7.59 pence making a total of 11.5 pence for the year.With theincrease in our earnings per share before exceptional items,this raises our cover to over 1.5 times.With strong cashgeneration again in 2002, the cash inflow per share is20 pence giving a cash flow dividend cover of over 1.7 times.

C A S HIt was another very successful year for cash generation, withnet debt falling by £11.5m to £52.1m and this, together withlower interest rates, has led to a reduction in our interestexpense from £5.3m to £4m.

We further reduced working capital by £1.4m, withinventories in particular falling by almost £5m. Our sales daystied up in working capital decreased from 87 in 2001 to 76 in2002. As already discussed elsewhere in the announcement,capital expenditure was relatively low in 2002 at £14.1m.


BARBARA RICHMONDGroup Finance Director

98 02010099DIVIDENDS PER SHARE

0

2

4

6

8

10

12PENCE

98 02010099INTEREST COVER

0

2

4

6

8

10

12TIMES

98 02010099GEARING

0

20

40

60

80

100%

98 02010099WORKING CAPITAL

DAYS SALES

0

20

40

60

80

100

120

The cash outflow on taxation returned to a more normal levelat a little under £11m from the abnormally low £3.7m in 2001.

T R E A S U RY P O L I C YThe Group’s treasury policies are approved by the Board andsubject to regular reporting and review.

The main financial risks faced by the Group relate to currency,interest rates and the availability of capital.

As far as currency risk is concerned, transaction risk is hedgedup to two months forward by the use of foreign currencybank balances and forward currency contracts.Translationcurrency exposure is not hedged but the risk is reduced bymatching interest expense to foreign currency earnings whereit is efficient to do so.

In terms of interest rate risk the policy is to maintain at leasthalf of the Group’s borrowings at floating interest rates, withinterest rate swaps being used where appropriate.

P E N S I O N SAs previously reported Croda operates defined benefit anddefined contribution pension schemes.The vast majority of ourUK employees, who currently comprise 56% of the totalworkforce, are covered by defined benefit schemes and havebeen for many years.The current depressed state of the UKstock market has had an impact on the Group’s pension fundsand the accounting for their funding. In order to attempt toprovide a useful representation of our current pensionsituation and comply with the requirements of SSAP 24 andFRS 17, I have summarised in the first table overleaf for our UKpension schemes the balance sheet position at 31 December.Also included is the actuarial position at 5 October 2002, thedate of the latest actuarial valuation of these schemes which iscurrently being finalised.


Financial review

Not surprisingly the net liability of the pension fund asmeasured by FRS 17 has risen to £62.8m at the end of 2002compared to the net actuarial liability of £24.6m. Asmentioned in this review last year, FRS 17 measures a longterm fund at a single point in time. In terms of fundingdecisions it is the actuarial values which are of mostimportance. Accordingly, whilst the net liability under FRS 17has risen to £62.8m, the net actuarial deficit of £24.6m doesnot give the Board significant cause for concern, representingless than 10% of the market capitalisation of the Group.

In addition I have produced a table below showing the chargeto the Profit and Loss Account for our UK schemes under thetwo Accounting Standards in 2002 and our estimate of the2003 expense.

The table below illustrates that as a result of the October2002 actuarial valuation of our UK pension schemes, ourpension expense will increase under both AccountingStandards in line with most companies. A further point ofnote is that the cash funding of the UK pension schemes bythe Group in 2003 is expected to be approximately £6mwhich is very similar to the amount paid in 2002 and,therefore, the cash flow will not suffer the same increase incost as the Profit and Loss Account.

Under the current Accounting Standard, SSAP 24, we do notexpect any significant change in this pension expense in thenext few years.The full implementation of FRS 17 in 2005,however, will mean it is not possible to determine pensionexpenses more than 12 months ahead.

2002 2002 2002 2001 2001Actuarial SSAP 24 FRS 17 SSAP 24 FRS 17

(estimated)£m £m £m £m £m

Asset/(liability) (35.1) 32.2 (89.7) 28.7 (5.6)

Deferred tax 10.5 (9.7) 26.9 (8.6) 1.7

Net asset/(liability) (24.6) 22.5 (62.8) 20.1 (3.9)

P RO F I T A N D L O S S E X P E N S E 2003 Estimated 2002SSAP 24 FRS 17 SSAP 24 FRS 17

£m £m £m £m

Before operating profit (6.0) (4.4) (3.6) (5.3)

Financing - (0.8) - 2.8

Net cost (6.0) (5.2) (3.6) (2.5)

13 Croda Annual Report & Accounts 2002 Safety, Health and the Environment (SHE)

Safety, Health and the Environment (SHE)

C RO DA I N T E R N AT I O N A L S A F E T Y, H E A LT H A N D E N V I RO N M E N T P O L I C Y

Croda International Plc will operate its business in amanner which actively seeks to prevent or minimisethe possibility of its operations causing harm topeople, plants or animals.We will strive to provide thematerial and resources to educate and involve everyindividual in the Company in achieving this objective.

It is my belief that aspiring to excellence in themanagement of Safety, Health and the Environment isvital to ensuring the long term future and profitabilityof the Company.

P R I N C I P L E S :1. We believe that all accidents, incidents and work-related ill

health are preventable and we will manage our businesswith this aim including the provision of adequate resourcesfor the prevention and control of major accidents.

2. Because we are human, mistakes will be made; but becausewe are committed, intelligent human beings we willinvestigate to identify the basic causes and take action toprevent these mistakes being repeated.

3. As an absolute minimum we will comply with all nationalregulations but in addition will set our own demandinginternal corporate standards on matters relating to safety,health and the environment and endeavour to complywith them throughout our international operations.

4. Divisional management teams within the Company will bemeasured for their contribution to the continuousimprovement of safety, health and environmentalperformance in their area of responsibility.

5. We will continue to search out new ways of conserving allthe natural resources used in our processes.

6. We will continue to innovate in order to improve ourproducts and processes so that their effect on safety,health and the environment is reduced.

7. We will continue to improve communication and theexchange of views with employees, employeerepresentatives, customers, contractors, suppliers,neighbours and any other individual or organisationaffected by our business.

Mike HumphreyGroup Chief ExecutiveDirector responsible for SHE



The Group controls its business by the delegation of much ofits management responsibility, including SHE matters, to itsdivisional managing directors and general managers.

The overall strategy and review of SHE performance withinthe Group is controlled by the SHE Steering Committee andis assisted in this by the Group SHE department in settingstandards, providing guidance, brokering best practice andauditing the sites.

A Group Environmental Management System (GEMS) wasimplemented in 1995 to provide sites with a framework uponwhich their individual environmental management systemscould be developed. UK sites were audited against theircompliance with GEMS in 1996 with follow-up auditsconducted in 1998/1999.The audit process was repeated atall Group worldwide manufacturing sites in 2001/2.

Similarly a Health and Safety audit based upon Health andSafety Executive guidelines has been performed by GroupSHE on all UK manufacturing sites in 1998 and 2000.Overseas sites are also regularly reviewed. A new round ofHeath and Safety reviews for all our sites is planned for 2003.The results of these audits are used to focus annual GroupSHE objectives.

The audit process, used by the Group SHE department toaudit the manufacturing sites, has been externally validated byenvironmental consultants URS in 2001 as being in accordancewith ISO auditing standards.

A more detailed report on environmental matters is availableon the Group’s website www.croda.com. Printed copies canalso be obtained by writing to the Company Secretary at theregistered office.

I N D I C ATO R S O F S H E P E R F O R M A N C EThe Group SHE department has issued a number of GroupSHE objectives over the last five years against which themanufacturing sites have been required to produce targetsand at regular intervals to report progress.

In 2001 the Group published several safety, health andenvironmental targets. Progress against these targets is givenin the following paragraphs.

Since the publication of the original targets several structuralchanges have taken place within the Group with the openingof one site, the sale of some sites, the closure of some sites,the assimilation of one site into another and the withdrawalfrom a significant market area.

Where necessary the original objectives and targets havebeen re-based on current operations manufacturing at theend of 2002.

In the example of one site being assimilated into another thestatistics of both sites combined have been retained.

I S O 1 4 0 0 1

All manufacturing sites have been required to document aplan of action that will lead them to achieving ISO 14001accreditation by the end of 2003.

Already 50% of the manufacturing sites have achievedaccreditation including Croda Brazil which achievedaccreditation in 2002.

The remainder of manufacturing sites are expected to meetthe target in 2003 with the exception of Crodamazon, a newmanufacturing site in 2002, which has been given an extensionuntil 2006.

Objective: For all our manufacturing sites worldwideto attain external validation of their environmentalmanagement systems.

Target: All manufacturing sites to be accredited toISO 14001 by the end of 2003.


E N E R G Y C O N S U M P T I O N

For many years now our manufacturing sites have beenencouraged to improve their energy efficiency, not only toachieve a reduction in their impact on the environment, but aspart of good manufacturing management. For some thisprocess of improvement has resulted in very little scope forimprovement at the present time while for others thereremain opportunities for further efficiencies.

Many of the UK manufacturing sites qualify as members of thechemical sector agreement with DEFRA in order to achieve arebate on the Climate Change Levy introduced by theGovernment in April 2001.The chemical sector has set aphased target of an 18% improvement by 2010 in energy useper tonne manufactured from a baseline performance in 1998.

Each qualifying site within the chemicals sector has beenrequired to set its own energy efficiency targets which havethen been agreed with DEFRA. It is anticipated that a selectionof sites will be audited by DEFRA in order to validate theenergy efficiency returns in addition to internal audits ofenergy efficiency.

All Group UK sites which completed the year with theirindustry sector agreements met their agreed targets withDEFRA without the need to purchase energy credits by wayof emissions trading.The opportunity has also been taken tohave the excess improvement externally validated so thatthese emissions may be traded at some time in the future.

All sites that do not qualify for entry into the chemical sectoragreement have been required to set targets as if they were inthe agreement.

Objective: To implement energy conservation policiesat all UK manufacturing sites in line with the chemicalsector agreements with DEFRA.

Target: Energy consumption per tonne to be reducedby 18% by 2010.


Calculation of the energy efficiency of each site has becomeincreasingly complicated as DEFRA have developed formulaeto take account of changes in product manufacturing profilesand the degree of capacity utilisation of the plant.

In addition the method of calculation of the energy used haschanged and is now different to the energy calculations usedby the Group since 1991 in their Responsible Care reports tothe Chemical Industries Association.

In order to maintain clarity, Croda has decided to continue toreport its energy efficiency simply as energy used per tonne ofsaleable product manufactured.This does not take intoaccount changes in the energy requirements of the productswhich may change significantly with time and does not takeinto account the benefits of high growth years or the negativeeffects of low growth years. As a result the reported figuresare expected to produce more variation from year to yearbut averaged over several years are still expected to show thesame target improvement.

Performance on energy efficiency was adversely affected bythe planned withdrawal from the gelatin market since this is ahighly energy intensive manufacturing sector. During theplanned run down in manufacturing, the Group experienced asignificant reduction in output without a comparable reductionin energy use. Despite this our energy used per tonne ofmanufactured product decreased by 1.8% in 2002 comparedwith 2001.

WA S T E R E C Y C L I N G A N D R E C OV E RYOur sites have recently started to identify the total amount of waste that is disposed off-site and how much material iscurrently recovered and recycled, for example packagingmaterials, raw materials and some by-products from primaryproduction streams.

In 2002 our tonnage of recycled or recovered waste increasedby 3.6% while the total amount of waste reduced by 1.5%.Our percentage of recycled or recovered waste increasedfrom 72% in 2001 to 76% in 2002.

WA S T E D I S P O S A L

The figures for waste are for waste generated by themanufacturing operations. One off disposals of waste notdirectly associated with the manufacturing process, forexample construction excavations or contaminated landremediation, are excluded.

In 2002 the tonnage of waste sent for landfill reduced by 9.1%while the total amount of waste reduced by 1.5%.Thepercentage of waste sent to landfill reduced from 21% in 2001to 19% in 2002.


Objective: In 2000 we recycled or recovered 60% ofthe total amount of waste generated by the Group inthe UK.We aim to increase this amount substantially toreduce the cost of waste disposal and optimise our useof raw materials.

Target: To recycle or recover 68% of our total amountof waste generated by the end of 2003.

Objective: To identify alternative waste disposal routesfor the wastes presently sent to landfill. In 2000 welandfilled 26% of all wastes generated by ouroperations in the UK.

Target: To reduce the amount of waste sent to landfillby 5% per year until 2004.


A I R E M I S S I O N S

Emissions of VOCs in the UK are reported annually to theEnvironment Agency and these figures are published on theEnvironment Agency website. In 2002 we released 6% lessVOCs than in 2001.

It is our intention to continue with the objective of a 5%reduction in VOC releases in 2003.

WA S T E WAT E R D I S C H A R G E S

The Group has measured compliance with its effluentdischarge consent to sewer and to controlled waters for manyyears.The record shows a steady improvement from 49% in1991 to 90% in 2001.

Full compliance figures are not yet available for the last sixmonths of 2002 because of the extended delay in receivingthe results of effluent tests from some water authorities.

For the first six months of 2002 the Group achieved acompliance rate of 97%.

S H E I N I T I AT I V E S 2 0 0 2Accidents and Enforcement ActionThe accident rate in the Group continued to decline again in2002, this time by 15%.

The withdrawal from the manufacture of gelatin caused severeproblems for the control of the effluent treatment plant atone site. As a result of odours emitted from the effluent plantan odour abatement notice was issued to the site in May2002 by the Local Authority. In July 2002 the site wasprosecuted and fined £5,000 in the magistrates court forthese emissions.

Soil and Groundwater InvestigationsThe Group believes it has already identified its major liabilitieswith regard to historical contamination of the ground andgroundwater.We are more than three quarters of the waythrough a programme of detailed intrusive surveys at all ofour remaining sites to ascertain whether any of those willrequire any immediate remediation.To date, although someminor contamination has been identified, detailed riskassessments of the threat to human health and controlledwaters by our environmental consultants have not resulted inany immediate action being required.

Objective: To continue with our programme to reducethe release of VOCs to atmosphere.

Target: To reduce our release of VOCs to atmosphereby a further 5% in 2002.

Target: To strive for 100% compliance against alllicence conditions on every sample taken but to aim tobe above 95% compliance by the end of 2001.

Objective: To reduce the impact the Group has oncontrolled waters.

18 Croda Annual Report & Accounts 2002 Board of directors

* Member of audit, remuneration and appointments committees and independent Non-executive Director

Board of directors

A N TO N Y B E E VO R * B ANon-executive ChairmanAged 62

A solicitor with Ashurst Morris Crisp from 1962-1972. JoinedHambros Bank Ltd in 1972, head of corporate finance division1990-1995. Director-General of Takeover Panel 1987-1989 (onsecondment). He is currently Non-executive Chairman ofNestor Healthcare Group Plc, a Deputy-Chairman of theTakeover Panel and a Non-executive Director of Helical Bar Plc.He was appointed to the Croda Board in 1996 and becameSenior Independent Director and Chairman of Croda’sremuneration committee in 1999. Appointed Chairman of theCompany and Chairman of the appointments committee at thebeginning of 2002.

M I K E H U M P H R E YGroup Chief ExecutiveAged 51

Joined Croda in 1969 as a management trainee. ManagingDirector Croda Singapore 1988, Croda Application Chemicals1990 and Croda Chemicals 1991.Was appointed to theCroda Board in 1995 and became Group Chief Executive atthe beginning of 1999.

19 Croda Annual Report & Accounts 2002 Board of directors

B A R B A R A R I C H M O N D B S c , F C AGroup Finance DirectorPresident Active Ingredients and Industrial ChemicalsAged 42

Joined Croda as Group Finance Director in February 1997from Whessoe Plc, where she was Group Finance Director1994-1997 and Group Financial Controller from 1992-1994.Also appointed President Active Ingredients and IndustrialChemicals September 2002. A Non-executive Director ofCarclo Plc.

DAV I D D U N N * C ANon-executive DirectorAged 58

Has held a number of senior financial and generalmanagement positions with UK PLCs. Joined Scapa Group plcin 1987 where he served as Finance Director, Chief Executiveand Non-executive Chairman prior to his retirement in 2002.Non-executive Director of FirstGroup PLC and 4imprintGroup PLC and Non-executive Chairman of Brammer PLC.Joined the Croda Board in 2000. Appointed SeniorIndependent Director and Chairman of the remunerationcommittee at the beginning of 2002.

M I C H A E L WA R D * F C A , M B A , M C TNon-executive DirectorAged 46

Following an early career in senior financial roles, wasappointed Group Managing Director of Lloyds Chemists plc in1996. Upon the acquisition by Gehe AG in 1997 becameChief Executive Officer of the newly formed AAH/LloydsGroup – now re-named Gehe UK plc and was appointed tothe Gehe AG Management Board in 1998, as the Europeanretail director. Appointed to the Croda Board in 2001 andChairman of the audit committee at the beginning of 2002.

Directors’ repor t

20 Croda Annual Report & Accounts 2002 Directors’ report

The directors present their annual report and financial statements for the year ended 31 December 2002.The report should beread in conjunction with information recorded on pages 2 to 19 and pages 23 to 25.

AC T I V I T I E S O F T H E C O M PA N Y A N D S U B S I D I A R I E SCroda International Plc is a holding company operating from its headquarters at Cowick Hall, Snaith, Goole, East Yorkshire, andproviding central direction for a speciality chemical group with operations in the main market areas of the world.

R E V I E W O F B U S I N E S S AC T I V I T I E SA review of the activities of the two business sectors comprising the Group is given on pages 4 to 9. An analysis of turnover andprofits is shown in note 1 on page 39.This report should be read in conjunction with the Chairman’s statement and theoperating and financial reviews, which include information about Group businesses, the financial performance during the year andlikely developments.

P RO F I T A N D A P P RO P R I AT I O N SAs restated

2002 2001£m £m

Loss attributable to the ordinary shares of the Company after providing for taxation,the interests of minority shareholders and dividends on the preference shares (0.7) 21.2Dividends paid and proposed on the ordinary shares total (15.0) (14.7)

Amount transferred from reserves (15.7) 6.5

The directors recommend a final dividend of 7.59p per share. If approved by shareholders, dividends for the year will amount to11.5p per share (2001: 11.3p per share). Details of dividends are shown in note 9 on page 42.

AC Q U I S I T I O N S A N D D I S P O S A L SThe Group did not make any acquisitions during the year. On 28 March 2002 the petrocarbs business of Croda DistillatesLimited was sold to Koppers UK Limited. On 16 September 2002 the solvent recovery business of Croda Distillates Limited wassold to Solvent Resource Management Limited. Further details are shown in note 29 on page 56.

D I R E C TO R SThe present directors of the Company are shown on pages 18 and 19. A R Beevor retires by rotation but will be proposed forre-election at the Annual General Meeting. Details of the directors’ service contracts are given in the report on the directors’remuneration.

Apart from the share option schemes and service contracts no director had any beneficial interest, other than in the ordinarycourse of business, in any contract to which the Company or a subsidiary was a party during the period.

A statement indicating the beneficial interests of the directors in the share capital of the Company is shown in the report on thedirectors’ remuneration on page 30.

During the year the Company maintained insurance providing liability cover for directors and officers of the Company.

C O M M U N I T Y A F FA I R SWe have continued to support community projects, both with donations and with practical help and advice. Many of ouremployees also devote much of their own time to working with local community groups and to fundraising projects fordeserving causes.


Our work with schools, colleges and other educational establishments is ongoing. Students learn how our products are used andgain direct experience of product formulation and plant processes.The Group provides placements for university students andpost-graduates.Work experience opportunities are provided regularly for students from local schools.

A new initiative on community involvement will be implemented in 2003 which in broad terms will allow paid time off forvolunteers for local community involvement.

E M P L OY M E N T P O L I C I E SIn all Croda’s operations around the world, relations with employees are based on respect for the dignity and rights of theindividual.The Company upholds the principles of socially responsible business practices. In particular, in all countries in which theCompany operates, the ILO Declaration on Fundamental Principles and Rights at Work 1998 is met. Namely the Company doesnot participate in any form of child labour or forced compulsory labour, it maintains freedom of association and the right tocollective bargaining and promotes policies and practices designed to eliminate discrimination in respect of employment andoccupation. During the year, new policies on corporate ethics and whistleblowing were approved for introduction throughoutthe Group.

Throughout the Group, employment policies embrace local, national and international best practice. In this way we ensure thatall employees work in an environment which encourages fairness of treatment, respect for the individual and flexibility ofapproach.The Group welcomes all employees solely on the basis of job suitability so that recruitment and career managementare free from discrimination. Diversity is encouraged and the benefits of different perspectives enhance working life.

Employees receive training and development to ensure that personal growth and business objectives are achieved successfully.We aim to nurture and challenge so that the talents, skills and knowledge of our employees are used positively to mutualbenefit.This relies on open and comprehensive communication activities. All divisions provide appropriate forums for two-waycommunication to keep everyone informed, to consult and to seek contribution. A corporate intranet has been established andis available to approximately 60% of employees worldwide.The company magazine, Croda Way, distributed worldwide, bringstogether news of the Croda family - both personal and corporate. It provides an insight into the lives of the people working forthe Group as well as reporting on Company activities around the world and commenting on full and half year results.

Our reward and benefit packages are designed to recognise the contribution of employees, whilst fitting local market conditionsand complying with our fair treatment policies.The Company operates a Save As You Earn linked share scheme in the UK and asimilar scheme is available overseas.The Company has introduced a Share Incentive Plan in the UK. All employees who havecompleted 12 months’ service are eligible to join the plan.

S U P P L I E R PAY M E N T P O L I C YGroup policy concerning the payment of suppliers is that each operating unit agrees terms of payment at the beginning ofbusiness or makes the supplier aware of the standard payment terms, and pays in accordance with those terms or other legalobligations. At 31 December 2002 the Group had an average of 38 days (2001: 41 days) purchases outstanding in tradecreditors.The Company’s trade creditors are not material.

C H A R I TA B L E A N D P O L I T I C A L D O N AT I O N SCharitable donations made by the Group in the year amounted to £40,000 (2001: £44,000). No donation was made for politicalpurposes.

A N N UA L G E N E R A L M E E T I N GThe Annual General Meeting (AGM) will be held at Carlton Towers, Carlton, Goole, East Yorkshire DN14 9LZ on Wednesday23 April 2003 at 12 noon.The notice of meeting and explanation of the special business to be considered at the AGM arecontained in a separate circular issued to shareholders with this Annual Report.


Directors’ repor t

AU D I TO R SFollowing the conversion of our auditors PricewaterhouseCoopers to a Limited Liability Partnership (LLP),PricewaterhouseCoopers resigned on 23 January 2003 and the directors appointed its successor, PricewaterhouseCoopers LLP,as auditors. A resolution to reappoint PricewaterhouseCoopers LLP as auditors to the Company will be proposed at the AnnualGeneral Meeting.

S U B S TA N T I A L S H A R E H O L D E R SAt 26 February 2003 the Company had been notified of the following substantial interests in its ordinary share capital

Shares %

Fidelity International Ltd 4,365,156 3.20Legal & General Investment Management 4,690,571 3.44

By order of the Board

J R AingerSecretary26 February 2003

23 Croda Annual Report & Accounts 2002 Corporate governance

The Board is committed to high standards of corporate governance as outlined in the Combined Code (“the Code”) oncorporate governance appended to the UK Listing Authority Listing Rules.The Company has complied throughout the year withthe Code provisions set out in Section 1 except where noted on page 31.This statement describes how the relevant principlesof governance are applied to the Company.

The Board, which meets at least eight times a year, has a formal schedule of matters specifically reserved to it for decision. It isprimarily responsible for the strategy needed for the successful direction of an international company and currently comprisesthe Chairman, the Group Chief Executive, the Group Finance Director and two independent non-executive directors.TheChairman is an independent non-executive director. All members of the Board have full access to the advice and services of theCompany Secretary.Where necessary the directors may take independent professional advice at the Company’s expense.During the year, attendance by directors at meetings of the Board and the committees on which they sit was one hundredpercent. Under the Company’s Articles of Association all directors must offer themselves for re-election at least once everythree years. A R Beevor was re-elected at the 2000 AGM and is consequently retiring at the AGM but is offering himself forre-election.

Biographical notes appear on pages 18 and 19.These demonstrate a range of business, financial and international experiencewhich provides an appropriate balance of authority and experience throughout the Board.

The Board recognises the importance of line management taking ownership, and thereby responsibility, for managing andcontrolling the risks which may be inherent in their particular area of responsibility.

In furtherance of the principles of good corporate governance, the Board has appointed the following committees. Otherexecutives attend the meetings of these committees when requested to do so by the committee chairman.

E X E C U T I V E C O M M I T T E EMike Humphrey (Chairman)David BarracloughGeoff BullKeith GregersenBarbara Richmond

The executive committee meets every month to deal with all executive business of the Group not specifically reserved to theBoard, or to any of the committees mentioned below. Among other matters, it reviews investment proposals below the levelswhich are reserved for Board approval.

AU D I T C O M M I T T E EMichael Ward (Chairman)Antony BeevorDavid Dunn

The audit committee, which consists of the non-executive directors, meets at least twice a year. It assists the Board in observingits responsibility for ensuring that the Group’s financial systems provide accurate and up to date information on its financialposition and that the Group’s published financial statements represent a true and fair reflection of this position. It also assists theBoard in ensuring that appropriate accounting policies, internal financial controls and compliance procedures are in place. Duringthe year the committee has continued to monitor the independence, objectivity and effectiveness of the auditors,PricewaterhouseCoopers LLP. The auditors attend these meetings.

Corporate governance


Corporate governance

R E M U N E R AT I O N C O M M I T T E EDavid Dunn (Chairman)Antony BeevorMichael Ward

The remuneration committee, which consists of the non-executive directors, meets on average three times a year and isresponsible for advising on remuneration policy for senior executives and for determining the remuneration packages of theexecutive directors.The Group Chief Executive normally attends its meetings.The report on the directors’ remuneration is setout on pages 26 to 31. A resolution will be proposed at the AGM to approve the report on the directors’ remuneration.

A P P O I N T M E N T S C O M M I T T E EAntony Beevor (Chairman)David DunnMichael Ward

The appointments committee is responsible for nominating, for the approval of the Board, candidates for appointment to theBoard. It meets on an ad hoc basis and did not meet in 2002.

R I S K M A N AG E M E N T C O M M I T T E EBarbara Richmond (Chairman)Roy AingerGeoff BullKeith Gregersen

The risk management committee evaluates, proposes policies on and monitors processes to control the business, operationaland compliance risks faced by the Group. It normally meets four times a year.

RO U T I N E B U S I N E S S C O M M I T T E EThe routine business committee comprises the two executive directors with the Company Secretary and Group FinancialController acting as alternates.The committee may make decisions with one executive director and the alternate for the otherexecutive director being present. It attends to business of a routine nature and to the administration of matters, the principles ofwhich have been agreed previously by the Board or the executive committee.

N O N - E X E C U T I V E D I R E C TO R SCroda complies with the Code in having experienced non-executive directors who represent a source of strong independentadvice and judgement. At present there are three such directors, including the Chairman, each of whom has significantcommercial experience.Their understanding of the Group’s operations is enhanced by regular divisional presentations and by sitevisits.

I N V E S TO R R E L AT I O N SThe Company recognises the importance of communicating with its shareholders.The Board uses the AGM to communicatewith private investors. It is normal practice for all members of the Board to attend the AGM and be available to answerquestions raised by shareholders.The annual report and accounts including notice of AGM are sent to shareholders at leasttwenty working days before the meeting. Separate resolutions are proposed at the AGM on each substantially separate issue.The level of proxies lodged on each AGM resolution and the balance for and against each resolution is declared by theChairman after the resolution has been dealt with on a show of hands providing no poll has been called for.When appropriate,meetings are held between the executive directors and institutional investors.There is a separate investor relations section onthe Company’s website (www.croda.com) which includes, amongst other items, presentations made to analysts.


I N T E R N A L C O N T RO LThe Code principle D.2.1 on internal control requires the directors to conduct, at least annually, a review of the effectiveness ofthe Group’s system of internal control, including financial, operational, compliance and risk management controls, and report tothe shareholders that they have done so.

In order to discharge this responsibility, the directors have utilised an organisational structure with clear operating procedures,lines of responsibility, and delegated authority.

In particular there are clear procedures for

■ capital investment, with detailed appraisal, authorisation and post-investment review

■ financial reporting, within a comprehensive financial planning and accounting framework

■ monitoring of business risks. During the year the Company has continued its formal procedures for the assessment andreview of all business risks under the direction of the risk management committee which reports regularly to the Board.Such procedures have been embedded into the system of internal control.

There are also clear procedures for monitoring the system of internal financial control.This is a process which involves

■ reports from relevant senior executives and divisional directors concerning the operation of those elements of the systemfor which they are responsible, and a report from the Group Financial Controller concerning the operation of the system asa whole

■ reports from the Group Financial Controller on the work carried out under the annual internal audit plan.The internal auditwork is carried out by both our own employees and personnel seconded from PricewaterhouseCoopers LLP who reportthrough the Group Financial Controller to the audit committee

■ reports from the external auditors.

The Board has reviewed the effectiveness of the system of internal control in operation during the financial year. It must berecognised that such a system can provide only reasonable and not absolute assurance.

G O I N G C O N C E R NThe financial statements, which appear on pages 32 to 56, have been prepared on a going concern basis as, after makingappropriate enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resourcesto continue in operational existence for the foreseeable future.

S TAT E M E N T O F D I R E C TO R S ’ R E S P O N S I B I L I T I E SThe following statement, which should be read in conjunction with the report of the auditors set out on page 57, is made with aview to distinguishing for shareholders the respective responsibilities of the directors and of the auditors in relation to thefinancial statements.

The directors are required by the Companies Act 1985 to prepare financial statements for each financial year which give a trueand fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or lossfor the financial year.

The directors consider that, in preparing the financial statements on pages 32 to 56 inclusive, the Company has used appropriateaccounting policies, applied in a consistent manner and supported by reasonable and prudent judgements and estimates, and thatall applicable accounting standards have been followed.

The directors have responsibility for ensuring that the Company keeps accounting records which disclose with reasonableaccuracy the financial position of the Company and the Group and which enable them to ensure that the financial statementscomply with the Companies Act 1985.

The directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of theCompany and to prevent and detect fraud and other irregularities.

26 Croda Annual Report & Accounts 2002 Report on the directors’ remuneration

Repor t on the directors’ remuneration

The directors’ remuneration is determined by the remuneration committee. Its members are given on page 24.The parts of thisreport which are subject to audit are indicated with an asterisk.

D I R E C TO R S ’ R E M U N E R AT I O N P O L I C YThe remuneration of executive directors and senior executives is determined by the committee.The key objectives of Croda’sexecutive remuneration policy are

■ to ensure that individual rewards and incentives are comparable with those provided by similar companies having regard tothe Group’s turnover, business sector and market worth and the need for skills to manage international businesses

■ to enable the Group to attract and retain high calibre people

■ to give full consideration to the relevant principles on directors’ remuneration set out in the Combined Code (“the Code”)

■ to ensure a balance between fixed and performance related remuneration, the latter being related to objectivemeasurement of the financial performance of the Company

■ the committee believes that the interests of shareholders and directors are more closely aligned with bonuses related tocash profitability and the control of working capital of the Group, rather than being based on performance related to peergroups, where external factors beyond the control of the directors can have a disproportionate influence on bonuspayment, both favourable and adverse.

B A S I C S A L A RY A N D B E N E F I T SThe basic salaries and benefits for the executive directors for 2002 were established on the basis of a report commissioned bythe committee from New Bridge Street Consultants (“NBSC”) against a group of comparator companies chosen by NBSC.NBSC do not provide any other services to the company. In view of the difficulty in establishing a list of companies who are truecomparators with the Company’s operations, the committee has decided that it would be more appropriate to set salaries inrelation to those paid by companies comprising the FTSE mid 250. For 2003 we have used salary information as published byIncome Data Services.

P E R F O R M A N C E - R E L AT E D B O N U S S C H E M E SThe Company operates bonus schemes for its directors and senior executives. Bonus payments are not pensionable. In respectof 2002 the bonus scheme for executive directors was established on the basis that bonuses would be payable at 0.5% of salaryfor each 1% by which the Group’s profitability from continuing operations exceeded 90% of target income rising to 2% of salaryfor each 1% that the performance percentage exceeded 100% of target, target income being strategic plan Group EBITDAadjusted for exceptional items but after deduction of a notional interest charge on working capital employed. Bonuses earned inrespect of 2002 are shown on page 28.

In respect of 2003, the bonus scheme for executive directors is again related to target income incorporating an element for thecontrol of working capital and with bonuses payable on a graduated scale from 0.5% of salary for each 1% that performancepercentage exceeds 90% of target income rising to 3% of salary for each 1% of performance percentage above 112.5% of targetincome.The maximum amount of bonus payable is 100% of salary with the element of any bonus in excess of 50% of salarybeing deferred until 31 December 2004 and bonus up to 50% of salary paid by 31 March 2004.

S H A R E O P T I O N SSenior Executive Share Option Schemes are in place. Options which may be exercised between three and ten years from thedate of issue are granted to executive directors and senior executives both in the UK and overseas.The share options are basedon market prices of the Company’s ordinary shares at the time of grant.The aim of the option schemes is to identify closely theinterests of the executive directors and senior executives of the Company with those of its shareholders.To this end the optionsgranted under the option schemes which were extended by a resolution passed at the Company’s 1995 AGM are subject tosatisfaction of performance conditions before they can be exercised. Options granted between 1995 and 1999 cannot be


exercised for a minimum period of three years after the date of grant, but are then exercisable at any time during the followingseven years provided the Company’s earnings per share have increased by more than 2% plus the rate of UK inflation perannum in any period of three consecutive years following the date of grant.

The rules of the Senior Executive Share Option Schemes adopted with effect from 1 January 2000 enable options to beawarded annually (in the absence of special circumstances) on a graduated scale awarding the Group Chief Executive options toa value of one year’s salary, 80% of salary for other executive directors and decreasing percentages for other senior employees.Earnings per share must grow at RPI plus 7% per annum for 100% of the options allocated to be exercisable.With earnings pershare growth at RPI plus 5% per annum 75% of the options are exercisable and at RPI plus 3% per annum 50% of the optionsare exercisable.The performance period commences at the date of grant and lasts for a minimum of three years and amaximum of ten years until an average growth rate of at least RPI plus 3% per annum over the whole period has been achieved.Details of options granted to directors are shown in the table on page 30.

It is the Company’s current intention to satisfy the exercise of share options primarily from shares purchased in the market andnot by the issue of new shares. Details of shares held for this purpose are given in note 18 on page 49.

P E N S I O N A N D OT H E R B E N E F I T SPensions, company cars, medical insurance, annual leave and other benefits are in line with those provided to executive directorsin similar businesses. Benefits in kind are not pensionable.

Croda has a number of different pension plans in countries in which it operates. Pension entitlements for Croda’s executives aretailored to local market practice, the length of service and age of the participants.The principal pension plans in the UK aredefined benefit schemes which provide a pension based on a proportion of final salary.

S E RV I C E C O N T R AC T S A N D E X T E R N A L A P P O I N T M E N T SM Humphrey and B M Richmond have service agreements with the Company which are terminable on either side on sixmonths’ notice. In addition, if the service agreements are terminated by the Company without just cause, a termination paymentequivalent to eighteen months’ remuneration is payable by the Company.The Chairman and non-executive directors do nothave service contracts but each is appointed for a fixed term.

Details of the appointments of the Chairman and non-executive directors are shown below

ContractualAppointment Unexpired Notice termination

date term period payments

A R Beevor 20.12.01 2 years 2 months 12 months NilD M Dunn 26.04.00† 3 years 2 months N/A NilM A Ward 24.04.01 1 year 2 months N/A Nil† Appointment extended for a further three year period on 24 February 2003.

Executive directors are permitted to accept non-executive appointments by prior agreement. It is normal practice for executivedirectors to retain fees provided for non-executive appointments.Throughout 2002 B M Richmond was a non-executive directorof Carclo Plc.



R E L AT I V E P E R F O R M A N C E G R A P H

Over the last five years our total shareholder return has been -28% compared to the FTSE 250 return of +3%. However,following a period of takeover speculation the Croda International Plc share price at 1 January 1998 had risen to 420.5p, almostan all time high, after which the price fell significantly during 1998 with this one year’s poor performance more than accountingfor the five year underperformance. Indeed over four year and one year time frames we have outperformed the index by 39%and 31% respectively.In the opinion of the directors the FTSE 250 is the most appropriate index against which the total shareholder return of CrodaInternational Plc should be measured because it is an index of similar sized companies to Croda International Plc.

T H E C H A I R M A N ’ S A N D N O N - E X E C U T I V E D I R E C TO R S ’ F E E S *These fees are determined on the basis of current fee levels in similar businesses. Fees are reviewed every two years.The fee forthe Chairman of £90,000 per annum has not changed since January 1997. Basic Fees for the non-executive directors wereincreased to £29,000 with effect from 1 January 2003 following a review of current practice. Supplementary fees are paid forcommittee chairmanship and for special duties beyond the norm expected of a non-executive director, to give total fees of£35,000 for D M Dunn and £32,000 for M A Ward with effect from 1 January 2003.

Non-executive directors are not eligible for pensions, incentives or any similar payments other than out-of-pocket travel andaccommodation costs in connection with the performance of their duties.

D I R E C TO R S ’ R E M U N E R AT I O N *Basic 2002 2001

salary Bonus† Benefits Fees Total Total£ £ £ £ £ £

M Humphrey 309,030 84,604 24,030 – 417,664 319,220B M Richmond 218,430 59,798 24,172 – 302,400 230,338A R Beevor* – – – 90,000 90,000 30,000D M Dunn* – – – 30,000 30,000 27,500M A Ward* – – – 28,008 28,008 16,667G D Bull (resigned 30.03.01) – – – – – 46,270A R Fenney (retired 30.03.01) – – – – – 49,831J T Harrison* (retired 24.04.01) – – – – – 10,000K G G Hopkins (retired 31.12.01) – – – – – 90,453

527,460 144,402 48,202 148,008 868,072 820,279

* Independent non-executive director† Bonuses relate to the year ended 31 December 2002 and will be paid on 28 March 2003.

Benefits incorporate all assessable tax benefits arising from employment by the Company and relate in the main to the provisionof a company car.

Total shareholder return monitoring: Croda vs FTSE 250

1998 1999 2000 2001 200240

60

80

100

120

140

160

CRODA INTERNATIONALFTSE MID 250


P E N S I O N R I G H T S *Pension benefits of M Humphrey are funded under the Croda International Supplemental Scheme (“CISS”). He will be entitledon retirement at age 60 to a pension equal to two-thirds of his final annual pensionable remuneration. Because of his length ofservice with the Group he is not subject to limitation on the level of final remuneration (known as the “earnings cap”). Ifdirectors retire before age 60 a reduced pension is payable unless retiring at the Company’s request. In the event of death apension equal to two-thirds of the director’s pension would become payable to the surviving spouse. Pensions in payment areguaranteed to increase in line with the rate of inflation up to a maximum of 10% per annum. B M Richmond was paid anadditional salary during the year of £43,125 (2001: £37,100) to enable her to make independent retirement provision.B M Richmond is also entitled to death in service benefits from the CISS up to the Inland Revenue earnings cap with thebalance being administered by the Company, but receives no other benefits from that fund.

D E F I N E D B E N E F I T S C H E M E S *Increase in Increase in Transfer Transfer

accrued accrued value of value of Movement in Transfer valueAccrued pension pension during accrued accrued transfer of the increase

pension at during the the year pension at pension at value over in the accrued31.12.021 year2 (after inflation)3 31.12.014 31.12.024 the year5 pension6

£000 £000 £000 £000 £000 £000 £000

M Humphrey 171 22 17 2,025 1,844 (193) 200

Notes

1 The figure shown represents the amount of annual pension benefits based on service and pensionable earnings which wouldhave been preserved for M Humphrey had he left service on 31 December 2002.

2 The figure represents the difference between the total accrued pension at 31 December 2002 and the correspondingpension one year earlier.

3 The figure represents the difference between the total accrued pension at 31 December 2002 and the corresponding pensionone year earlier after an adjustment for inflation was provided for under paragraph 12.43A(c)(ix)(a) of the Listing Rules.

4 Transfer values are quoted on the basis recommended by the Scheme Actuary for valuation of accrued benefits if themember had transferred benefits to another approved scheme on the relevant date.The reduction in transfer valuebetween 31 December 2001 and 31 December 2002 is due to fall in equity markets over the period.This fall has morethan offset the increase in accrued pension over the year.

5 The figure represents the difference between transfer values of the accrued benefits at 31 December 2002 and 31December 2001, less contributions paid by M Humphrey.

6 This figure represents the transfer value of the increase in accrued benefits over the period, adjusted for inflation, lesscontributions paid by M Humphrey.

The Company made no contributions to the CISS during the year ended 31 December 2002 but has recommencedcontributions at the rate certified by the Actuary with effect from 1 January 2003.

Members of the CISS have the option to pay voluntary contributions. Neither the contributions nor the resulting benefits areincluded in this table.



D I R E C TO R S ’ I N T E R E S T S *The directors of the Company and their families had the following beneficial interests in the Company’s securities and rightsunder the Senior Executive and SAYE share option schemes.

At 31 December 2002 At 1 January 2002Ordinary Executive SAYE Ordinary Executive SAYE

shares options options shares options options

M Humphrey 45,419 553,800 8,488 23,710 485,500 10,952B M Richmond 3,053 345,100 8,543 3,053 278,200 5,984A R Beevor 9,008 – – 9,008 – –D M Dunn 4,000 – – 4,000 – –M A Ward – – – – – –

No director has any interest in the 5.9%, 6.6% or 7.5% preference shares of the Company.

S H A R E O P T I O N S *Options are granted over ordinary shares of 10p each under the Senior Executive Share Option Schemes and the Savings-Related Share Option Scheme.

E X E C U T I V E S H A R E O P T I O N S *Grantedin 2002

A B C D E F G

M Humphrey 20,000 30,000 60,000 100,000 109,300 116,200 118,300B M Richmond – – 50,000 100,000 62,500 65,700 66,900

A Options exercisable at 367p per share during the period 18 October 1997 to 17 October 2004.B Options exercisable at 337p per share during the period 3 April 1999 to 2 April 2006.C Options exercisable at 307p per share during the period 4 April 2000 to 3 April 2007.D Options exercisable at 228p per share during the period 30 March 2002 to 29 March 2009.E Options exercisable at 256p per share during the period 22 March 2003 to 21 March 2010.F Options exercisable at 258p per share during the period 7 March 2004 to 6 March 2011.G Options exercisable at 261p per share during the period 13 March 2005 to 12 March 2012.

Options B, C and D may only be exercised if the earnings per share has increased by more than 2% plus the rate of UK inflationper annum over any three year period since allocation. Options E, F and G may only be exercised if the performance conditionsdescribed on page 26 are met.The performance conditions applicable to options B, C and D have not been met.

S AY E S H A R E O P T I O N S *Grantedin 2002

A B C D

M Humphrey 2,319 2,540 3,629 –B M Richmond 1,449 2,721 1,814 2,559

A Options exercisable at 238p per share during the period 1 November 2003 to 30 April 2004.B Options exercisable at 186p per share during the period 1 November 2005 to 30 April 2006.C Options exercisable at 186p per share during the period 1 November 2006 to 30 April 2007.D Options exercisable at 194p per share during the period 1 November 2007 to 30 April 2008.


G A I N S M A D E O N E X E R C I S E O F S H A R E O P T I O N S *

Exercise Shares Exercise Market Gain date exercised price (p) price (p) £

Executive share option schemeM Humphrey 26.04.02 50,000 184 285.5 50,750

SAYE share optionM Humphrey 26.04.02 2,464 280 285.5 136

Total gains on share options 50,886

The gains are calculated according to the market price of Croda International Plc ordinary shares of 10p each on the date ofexercise although some of the shares were retained.

Apart from the above and service agreements, no director has had any material interest in any contract with the Company or itssubsidiaries requiring disclosure under the Companies Act 1985.

The market price of the Company’s shares at 31 December 2002 was 243p and the range of market prices during the year wasbetween 224p and 309p.

There has been no change in the directors’ interests in shares or options granted by the Company between the end of thefinancial year and one month prior to the notice of the Annual General Meeting.

The Company’s register of directors’ interests, which is open to inspection at the registered office, contains full details ofdirectors’ shareholdings and share options.

C O M P L I A N C EThe information contained in this report demonstrates how the Company has complied with the Code.The one exception isthat the service contracts of the executive directors provide for pre-determined compensation equivalent to eighteen months’remuneration on termination without just cause.The notice period under the service contracts is six months and the level ofcompensation on termination was determined when the notice period for directors’ service contracts was reduced from threeyears to six months without any payment.The directors will give consideration to one year’s compensation on termination fornew appointees to the Board (Code of Best Practice, Schedule B, Item 7).

On behalf of the Board

D M DunnChairman of the remuneration committee26 February 2003

32 Croda Annual Report & Accounts 2002 Group profit and loss account

Group profit and loss account F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 2

As restated

Continuing Discontinued 2002 Continuing Discontinued 2001Notes operations operations Total operations operations Total

£m £m £m £m £m £m

Turnover 1 295.0 18.6 313.6 285.6 26.8 312.4

Cost of sales (218.2) (18.5) (236.7) (216.0) (23.3) (239.3)

Gross profit 76.8 0.1 76.9 69.6 3.5 73.1

Net operating expenses 2 (36.9) (2.1) (39.0) (35.4) (3.1) (38.5)

Group operating profit 3 39.9 (2.0) 37.9 34.2 0.4 34.6

Share of associates’ operating profit 2.4 – 2.4 2.3 0.1 2.4

Total operating profit 42.3 (2.0) 40.3 36.5 0.5 37.0

Exceptional items 4 – (28.9) (28.9) – 2.5 2.5

Net interest payable 5 (4.0) – (4.0) (5.3) – (5.3)

Profit on ordinary activities before taxation 38.3 (30.9) 7.4 31.2 3.0 34.2

Tax on profit on ordinary activities 6 (8.0) (12.8)

Loss on ordinary activities after taxation (0.6) 21.4

Minority interests – (0.1)

Loss attributable to Croda International Plc 8 (0.6) 21.3

Preference dividend 9 (0.1) (0.1)

Ordinary dividend 9 (15.0) (14.7)

Reserves transfer 27 (15.7) 6.5

Basic earnings per share 10 (0.5)p 16.2p

Basic earnings per share before exceptional items 10 17.7p 14.4p

Diluted earnings per share 10 (0.5)p 16.1p

Diluted earnings per share beforeexceptional items 10 17.7p 14.3p

33 Croda Annual Report & Accounts 2002 Group and Company balance sheets

Group and Company balance sheets AT 3 1 D E C E M B E R 2 0 0 2

Group As restated CompanyNotes 2002 2001 2002 2001

£m £m £m £m

Fixed assetsIntangible assets 14 7.0 7.4 – –Tangible assets 15 141.3 162.2 1.7 1.9Investments

Subsidiary undertakings 17 – – 140.0 132.2Other 18 25.0 24.7 17.0 16.4

173.3 194.3 158.7 150.5

Current assetsStock 19 51.5 60.5 – –Debtors 20 57.5 56.2 1.1 1.6Pension fund prepayment 20 32.2 28.7 – –Cash at bank and in hand 24.2 17.3 54.9 58.4

165.4 162.7 56.0 60.0

CreditorsFalling due within one year 21 (83.1) (82.8) (17.4) (17.2)

Net current assets 82.3 79.9 38.6 42.8

Total assets less current liabilities 255.6 274.2 197.3 193.3

CreditorsFalling due after one year 22 (61.6) (64.8) (53.7) (50.5)

Provisions for liabilities and charges 24 (31.2) (34.4) – –

162.8 175.0 143.6 142.8

Capital and reserves

Preference share capital 26 1.1 1.1 1.1 1.1Ordinary share capital 25 13.6 13.6 13.6 13.6

Called up share capital 14.7 14.7 14.7 14.7Share premium account 27 34.0 34.0 34.0 34.0Revaluation reserve 27 8.8 9.0 2.1 2.1Profit and loss account 27 104.2 116.1 92.8 92.0

Shareholders’ funds 161.7 173.8 143.6 142.8Minority interests (equity) 28 1.1 1.2 – –

162.8 175.0 143.6 142.8

Shareholders’ funds include non-equity interests of £1.1m (2001 : £1.1m).

Signed on behalf of the Board who approved the accounts on 26 February 2003

Antony Beevor Chairman Barbara Richmond Group Finance Director

34 Croda Annual Report & Accounts 2002 Group cash flow statement

Notes 2002 2001£m £m £m £m

Net cash flow from operating activities B 51.6 58.0

Dividends received from associated undertakings 1.9 1.2

Returns on investments and servicing of finance Interest received 1.0 1.2Interest paid (4.9) (6.6)Dividends paid on non-equity shares (0.1) (0.1)Dividends paid to minority shareholders (0.1) –

(4.1) (5.5)

Taxation (10.7) (3.7)

Capital expenditurePurchase of tangible fixed assets (13.9) (23.6)Sale of tangible fixed assets 0.5 0.5Net purchase of own shares 18 (0.8) (1.3)

(14.2) (24.4)

Acquisitions and disposalsAcquisition – (1.1)Disposals 29 0.7 31.1Exceptional costs (2.5) (3.4)

(1.8) 26.6

Equity dividends paid (14.7) (14.5)

FinancingLoans in disposals – (0.2)Addition to medium term unsecured loans overseas 0.8 1.2Repayment of amounts borrowed (1.9) (24.2)Capital element of finance lease rental payments (0.2) (0.1)

(1.3) (23.3)

Increase in cash 6.7 14.4

Group cash flow statement F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 2

35 Croda Annual Report & Accounts 2002 Group cash flow statement

A. Reconciliation to net debtNotes 2002 2001

£m £m

Increase in cash C 6.7 14.4Decrease in debt and lease financing C 1.3 23.3

Change in net debt from cash flows 8.0 37.7New finance lease contracts (0.2) (0.1)Exchange differences 3.7 (1.4)

11.5 36.2Net debt at 1 January (63.6) (99.8)

Net debt at 31 December C (52.1) (63.6)

B. Net cash inflow from operating activities2002 2001

£m £m

Group operating profit 37.9 34.6Depreciation 15.7 15.2Goodwill amortisation 0.4 0.5Loss on disposal of fixed assets 0.3 –Amortisation of own shares 0.2 –Pension fund prepayment (3.5) (1.1)Cash paid in respect of operating exceptional items (0.8) (1.7)Movement in stock 4.8 3.6Movement in debtors (3.7) 6.2Movement in creditors 0.3 0.7

Net cash inflow from operating activities 51.6 58.0

C. Analysis of net debtCash Exchange Other

2002 flow movements non-cash 2001£m £m £m £m £m

Cash at bank and in hand 24.2 7.0 (0.1) – 17.3Bank loans and overdrafts (15.2) (0.3) (0.1) – (14.8)

Increase in cash 6.7

Loans repayable within one year (0.2) 1.9 – (0.2) (1.9)Loans repayable after one year (60.6) (0.8) 3.9 0.2 (63.9)Finance leases (0.3) 0.2 – (0.2) (0.3)

Decrease in debt and lease financing 1.3

Total net debt (52.1) 8.0 3.7 (0.2) (63.6)

36 Croda Annual Report & Accounts 2002 Other primary financial statements

Other primary financial statements F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 0 2

Statement of total recognised gains and losses

As restated

2002 2001£m £m

Loss attributable to shareholders (0.6) 21.3Currency translation differences (1.6) (5.0)

Total losses recognised in the financial year (2.2) 16.3

Prior period adjustment (9.9)

Total losses recognised since last annual report (12.1)

Note of historical cost profit and lossThere is no material difference between the result as disclosed in the profit and loss account and the result on a historical cost basis.

Movement in shareholders’ fundsAs restated

2002 2001£m £m

Loss attributable to shareholders (0.6) 21.3Dividends (15.1) (14.8)Other recognised losses as above (1.6) (5.0)Goodwill written back on disposal of operations 5.2 4.3

Net movement in shareholders’ funds (12.1) 5.8Shareholders’ funds at 1 January 173.8 178.6Prior period adjustment – (10.6)

Shareholders’ funds at 31 December 161.7 173.8

AC C O U N T I N G B A S I SThe Group accounts are prepared under the historical cost convention, as modified by the previous revaluation of properties, incompliance with the provisions of the Companies Act 1985, the requirements of the Listing Rules of the Financial ServicesAuthority and applicable United Kingdom Accounting Standards.

The disclosures required under the transitional arrangements of Financial Reporting Standard 17 in respect of pensions can befound in note 13.

Following the implementation of FRS 19 prior years have been restated to include full provision for deferred tax.This change inaccounting policy results in a prior year adjustment, reducing shareholders’ funds at 1 January 2001 by £10.6m, increasing thepre-exceptional tax charge for the year ended 31 December 2001 by £1.7m and reducing the exceptional tax charge by £2.4m.For the year ended 31 December 2002 the pre-exceptional tax charge has increased by £0.1m and the tax credit onexceptional items has increased by £3.9m due to the change in accounting policy.

G RO U P AC C O U N T SThe Group profit and loss account consolidates the results of Croda International Plc and its subsidiary undertakings andincludes the Group’s share of the results of associated undertakings.

On the acquisition of a business, fair values are attributed to the net assets acquired. Goodwill arises where the fair value of theconsideration given for businesses exceeds such net assets. For goodwill arising on acquisitions made after 31 December 1997goodwill is capitalised and amortised through the profit and loss account over a period of 20 years unless the directors considerit has a materially different useful economic life. Goodwill arising on acquisitions made prior to 31 December 1997 was writtenoff directly to reserves in the year of acquisition, and on subsequent disposal or termination is included in the calculation ofprofit or loss on disposal.

Associated undertakings are those companies in which the Group has a beneficial interest of between 20% and 50% in theequity capital and where the Group exercises significant influence over commercial and financial policy decisions.Theconsolidated balance sheet includes the Group’s share of the underlying net tangible assets of associated undertakings.

R E V E N U E R E C O G N I T I O N Group sales are recognised as turnover in the period in which goods are despatched.

L A N D A N D B U I L D I N G S In the past the Group’s principal properties have been valued periodically by professional valuers on an open market, existinguse basis. Following the Group’s adoption of Financial Reporting Standard 15, no further revaluations will be carried out andprevious surpluses will be retained. Notwithstanding the requirements of FRS 15 all fixed assets are written down to theirrecoverable amount in the event that any impairment review carried out in accordance with FRS 11 indicates that therecoverable amount is less than the carrying value.The profit or loss on the disposal of land and buildings included in the profitand loss account represents the difference between the net proceeds of sale and the net book amount.

D E P R E C I AT I O N Tangible fixed assets are stated at cost or valuation less depreciation.

Depreciation is provided at rates calculated to write down the cost of all tangible fixed assets, except freehold land, over theirestimated useful lives on a straight line basis.The estimated average life for each major asset category is

Freehold buildings 15 to 40 years Computers and office equipment 3 to 5 years Leasehold land and buildings lesser of term of lease and 40 years Cars 3 years Plant and machinery 10 to 15 years Lorries and other vehicles 5 years

L E A S E D A S S E T S Assets acquired under finance leases are included in the balance sheet under tangible fixed assets at an amount reflecting the fairvalue of the asset. Depreciation is provided in accordance with the Group’s accounting policy for the class of asset concerned.The capital element of future lease rentals is included in creditors.

Finance charges are allocated to the profit and loss account each year in proportion to the capital element outstanding.

The cost of operating leases is charged to the profit and loss account as incurred.

37 Croda Annual Report & Accounts 2002 Accounting policies

Accounting policies

P E N S I O N S The pension obligations of the Company and its major subsidiaries are financed by contributions to separate funds.The cost ofaccrual of benefits, which is determined on the basis of actuarial advice, together with the surpluses or deficits quantified inactuarial valuations, are taken to the profit and loss account so as to spread the cost of pensions over the expected remainingservice lives of current employees.

S TO C K S Stocks are stated at the lower of cost and net realisable amount on a first in first out basis. Cost comprises all expenditure,including related production overheads, incurred in the normal course of business in bringing the stock to its location andcondition at the balance sheet date. Profits arising on inter Group sales are eliminated in so far as the product remains in Groupstock at the year end.

E N V I RO N M E N TA L P ROV I S I O N S The Group is exposed to environmental liabilities relating to its operations. Provisions are made immediately where aconstructive or legal obligation is identified and can be quantified.

R E S E A R C H A N D D E V E L O P M E N T Expenditure on R&D, other than on tangible fixed assets, is written off against profits as incurred.

C U R R E N C Y T R A N S L AT I O N S Profit and loss accounts in foreign currencies are translated into sterling at the average rates for the period unless localeconomic conditions make the closing rate more appropriate. Assets and liabilities are translated at the exchange rates ruling atthe end of the financial period. Exchange profits or losses on trading transactions are included in the Group profit and lossaccount. Other exchange differences arising from non-trading items and from the translation of the opening net investment insubsidiaries are dealt with through reserves.

F I N A N C I A L I N S T RU M E N T S The Group uses derivative financial instruments to hedge its exposure to interest rates and short-term currency ratefluctuations. Receipts and payments on interest rate instruments are recognised on an accruals basis in the profit and lossaccount over the life of the instrument. Instruments accounted for as hedges are designated as a hedge at the inception of thecontract. Gains or losses are recognised on maturity of the underlying transaction.

E M P L OY E E S H A R E OW N E R S H I P T RU S T SShares acquired by the trustees, funded by the Company and held for the continuing benefit of the Company, are classified asfixed asset investments until such time as employees exercise their options over the shares. If the cost of the shares held in thetrusts is greater than the option price the excess is charged to the profit and loss account over the period of the option. Anypermanent diminution in value of shares held in the trusts is immediately charged to the profit and loss account. Administrationexpenses of the trusts are charged to the Company’s profit and loss account as incurred.

D E F E R R E D TA X AT I O NDeferred tax is provided in respect of all timing differences that have originated but not reversed at the balance sheet date.Timing differences arise from the inclusion of profits and losses in the accounts in different periods from which they arerecognised in tax assessments and primarily arise as a result of the difference between tax allowances on tangible fixed assetsand the corresponding depreciation charge, and upon the pension fund prepayment. Deferred tax assets are only recognisedwhen it is regarded as more likely than not that there will be future taxable profits from which the deduction of the reversal ofthe underlying timing difference can be made.The deferred tax balance is not discounted.

38 Croda Annual Report & Accounts 2002 Accounting policies

Accounting policies

39 Croda Annual Report & Accounts 2002 Notes to the accounts

Notes to the accounts1 . S E G M E N TA L A N A LYS I S

Net As

Turnover Profit assets restated

2002 2001 2002 2001 2002 2001£m £m £m £m £m £m

Analysis by business sectorOleochemicals 260.1 247.4 43.4 37.0 198.2 205.5Other 34.9 38.2 3.4 3.5 21.3 21.8

Continuing operations 295.0 285.6 46.8 40.5 219.5 227.3Discontinued operations 18.6 26.8 (2.0) 0.5 1.7 23.6

Group turnover 313.6 312.4

Trading profit 44.8 41.0Central costs (4.5) (4.0)

Pre exceptional operating profit 40.3 37.0Exceptional items (28.9) 2.5Net interest payable (4.0) (5.3)

Group profit before taxation 7.4 34.2

Sector net assets 221.2 250.9Central net assets 13.5 13.4

Capital employed 234.7 264.3Net debt (52.1) (63.6)Dividends, taxation and provisions (52.0) (54.4)Pension fund prepayment 32.2 28.7

Group net assets 162.8 175.0

Analysis by geographical originUnited Kingdom 106.2 118.0 8.4 13.0 131.3 160.3Rest of Europe 64.8 59.8 10.8 8.3 16.4 12.4Americas 91.5 86.2 20.7 15.6 35.5 39.6Asia 32.8 30.0 3.7 2.7 31.0 31.9Rest of World 18.3 18.4 1.2 1.4 7.0 6.7

313.6 312.4 44.8 41.0 221.2 250.9

Exports from the United Kingdom were £110m (2001 : £112m), including £63m (2001 : £55m) exported to Croda’s overseas operations.

Analysis by geographical destinationUnited Kingdom 59.3 63.5Rest of Europe 84.5 82.3Americas 100.1 96.6Asia 42.7 40.0Rest of World 27.0 30.0

313.6 312.4

Analysis by market sectorPersonal and Health Care 167.5 155.4Home Care and Plastics Additives 43.7 43.4Industrial Specialities 60.8 62.4Other 41.6 51.2

313.6 312.4


Notes to the accounts2 . N E T O P E R AT I N G E X P E N S E S

2002 2001£m £m

Distribution costs 14.0 15.3Administrative expenses 25.1 23.3Other operating income

Income from investments and properties (0.1) (0.1)

39.0 38.5

3 . G RO U P O P E R AT I N G P RO F I T2002 2001

£m £mThe Group operating profit is stated after chargingDepreciation (note 15) 15.7 15.2Goodwill amortisation (note 14) 0.4 0.5Own shares amortisation (note 18) 0.2 –Staff costs (note 11) 59.6 60.5Redundancy 0.9 0.8Research and development 6.1 6.1Hire of plant and machinery 1.1 1.3Other operating lease rentals 1.4 1.5Auditors – audit fee 0.3 0.3

– other services 0.3 0.4

Included in the Group audit fee disclosed above is £0.1m (2001 : £0.1m) in respect of the Company. Fees payable to the Group’s Auditors forother services principally relate to taxation (£0.2m) and accountancy and internal audit services (£0.1m).

4 . E X C E P T I O N A L I T E M S2002 2001

£m £mLoss on disposal and closure of discontinued operationsLoss on disposal (23.7) 3.7Goodwill written back (5.2) (4.3)

(28.9) (0.6)Profit on disposal of fixed assets in discontinued operations – 3.1

(28.9) 2.5

Further details are contained in note 29.

5 . N E T I N T E R E S T PAYA B L E2002 2001

£m £m

Bank loans and overdrafts 2.4 3.67.37% guaranteed senior loan notes due 2008 2.7 2.8

Group interest payable 5.1 6.4Interest receivable and similar income (1.1) (1.1)

Net Group interest 4.0 5.3


6 . TA X O N P RO F I T O N O R D I N A RY AC T I V I T I E S(a) Analysis of charge for the year

As

restated

2002 2001£m £m

United Kingdom current taxationCorporation tax 3.2 15.0Relief for overseas taxes on dividends remitted to UK (2.7) (11.1)

0.5 3.9Overseas current corporate taxes 11.3 9.3

Current taxation 11.8 13.2Deferred taxation (3.8) (0.4)

8.0 12.8

Included above is a tax credit in respect of exceptional items of £5.0m (2001 : charge £0.1m).

United Kingdom corporation tax has been provided at the rate of 30% (2001 : 30%).The total tax charge includes £0.8m (2001 : £0.7m) inrespect of associated undertakings. No provision has been made for any additional tax which may arise on the distribution of the retainedprofits of overseas subsidiary undertakings.

(b) Factors affecting the current tax charge for the yearProfit on ordinary activities before taxation 7.4 34.2

Tax at the standard rate of corporation tax in the UK 2.2 10.3Effect of :Non-deductible goodwill written back 1.6 1.3Expenses and write offs not deductible for tax purposes 2.1 1.2Capital gains covered by losses brought forward – (3.0)Effect of higher overseas tax rates 2.1 2.5Unrelievable tax losses – 0.5Timing differences arising in the year 3.8 0.4

11.8 13.2

(c) Factors that may affect future tax chargesThe mix of profits between the UK and overseas will be the principal driver behind future tax charges with overseas rates generally beingsignificantly higher than those in the UK.

7 . D E F E R R E D TA X AT I O NAs

restated

2002 2001£m £m

The deferred tax balance provided in these accounts comprisesExcess of capital allowances over depreciation 10.3 13.8On pension fund prepayment 9.7 8.6Other (3.3) (1.8)

16.7 20.6

United Kingdom deferred taxation is based on a rate of corporation tax of 30% (2001 : 30%). Overseas deferred taxation is based on taxrates appropriate to each overseas subsidiary.


Notes to the accounts8 . L O S S AT T R I B U TA B L E TO C RO DA I N T E R N AT I O N A L P L COf the loss attributable to Croda International Plc a profit of £16.0m (2001 : £32.5m) is dealt with in the profit and loss account of theholding company which was approved by the Board on 26 February 2003 but which is not presented as permitted by s.230(3) Companies Act1985.

9 . D I V I D E N D S2002 2001

pence per £m pence per £mshare share

OrdinaryInterim 3.91 5.1 3.85 4.9Proposed final 7.59 9.9 7.45 9.8

11.50 15.0 11.30 14.7

Preference (paid June and December) 0.1 0.1

1 0 . E A R N I N G S P E R S H A R EAs restated

Before Beforeexceptional exceptional

items items2002 2002 2001 2001

£m £m £m £m

Profit on ordinary activities before taxation 7.4 7.4 34.2 34.2Exceptional items – 28.9 – (2.5)Taxation (8.0) (13.0) (12.8) (12.7)Minority interests and preference dividend (0.1) (0.1) (0.2) (0.2)

(0.7) 23.2 21.2 18.8

number number number numberm m m m

Weighted average number of 10p ordinary shares in issuefor basic calculation 130.8 130.8 131.0 131.0Deemed issue of potentially dilutive shares – 0.5 0.3 0.3

Average number of 10p ordinary shares for diluted calculation 130.8 131.3 131.3 131.3

pence pence pence pence

Basic earnings per share (0.5) 16.2Basic earnings per share before exceptional items 17.7 14.4

Diluted earnings per share (0.5) 16.1Diluted earnings per share before exceptional items 17.7 14.3


1 1 . E M P L OY E E S 2002 2001

£m £mGroup employment costs including directorsWages and salaries 48.7 50.5Social security costs 5.5 5.7Other pension costs 5.4 4.3

59.6 60.5

number numberAverage employee numbersOleochemicals 1,427 1,441Other 180 184Discontinued operations 225 331Central 51 54

1,883 2,010

1 2 . D I R E C TO R S ’ R E M U N E R AT I O NDetailed information concerning directors’ remuneration, interests and options is shown in the report on the directors’ remuneration on pages26 to 31.

1 3 . P E N S I O N O B L I G AT I O N SThe Group has continued to account for pensions in accordance with SSAP 24. FRS 17 accounting will become mandatory for the Group andCompany for the year ended 31 December 2005 until which time phased transitional disclosures are required which are detailed in note 13(b) to the extent not already made in note 13(a).

(a) SSAP 24 pension costsThe Group operates a number of pension schemes throughout the world.The principal schemes are in the UK and cover 97% of the Group’sUK employees.These schemes are of the defined benefit type with assets held in separate trustee administered funds and are funded. In othercountries benefits are determined in accordance with local practice and regulations and funding is provided on several bases. As the overseasarrangements are relatively small when compared to the UK schemes a more limited disclosure has been included.

The charge to the profit and loss account for the year in respect of pensions was £5.4m (2001 : £4.3m). Contributions to the schemes were£8.9m for the year (2001 : £5.4m).

The latest actuarial valuation of the principal UK schemes was carried out by Watson Wyatt LLP, independent consulting actuaries, as at 5 October 1999 using the projected unit method.

For the purposes of assessing the pension costs under SSAP 24 the most significant long-term assumptions relating to the valuation of theschemes are that the annual rate of return on investments will be 5.9%, the annual increase in general salaries will be 4.5%, and that annualpension increases and the underlying rate of inflation will be 3%.

At 5 October 1999 the market value of the assets in the UK schemes was £287m and this was sufficient to cover 103% of the benefits thathad accrued to members, after allowing for expected future increases in earnings and equalisation of benefits for males and females.Theactuarial surplus in excess of the prepayment at 1 January 2000, which has been calculated by adjusting the surplus shown by the 5 October1999 valuation is being taken to the profit and loss account over the average remaining service lives of current employees.

Watson Wyatt LLP are currently undertaking the triennial actuarial valuation as at 5 October 2002.


Notes to the accounts1 3 . P E N S I O N O B L I G AT I O N S ( c o n t i n u e d )(b) FRS 17 retirement benefits The valuation used for FRS 17 disclosures is based on the most recent actuarial valuation as at 5 October 1999 as updated byWatson Wyatt LLP to assess the liabilities of the scheme as at 31 December 2002 per the FRS 17 requirements. Scheme assets are stated attheir market value as at 31 December 2002.

The financial assumptions used to assess the scheme liabilities under FRS 17 are

2002 2001

Valuation method Projected Projectedunit unit

Discount rate 5.6% 5.8%Inflation rate 2.3% 2.5%Rate of increase in salaries 3.8% 4.0%Rate of increase for pensions in payment 2.3% 2.5%

The assets in the UK schemes and their expected rates of return at 31 December 2002 and 31 December 2001 wereLong-term Long-term

rate of rate ofreturn Market return Market

expected value expected value% £m % £m

Equities 8.3 170.1 7.5 208.5Government bonds 4.5 26.2 5.0 29.0Other bonds 5.6 17.1 5.8 21.9Property 6.4 11.9 6.3 11.8Cash 4.0 8.7 4.0 10.4

7.4 234.0 6.9 281.6

Present value of UK scheme liabilities (323.7) (287.2)

Deficit in the UK scheme (89.7) (5.6)Related deferred tax asset 26.9 1.7

Net UK pension liability (62.8) (3.9)Net overseas schemes’ pension liability (after deducting deferred tax asset of £2.1m (2001: £1.4m)) (3.2) (2.0)

(66.0) (5.9)

As

restated

Group Group2002 2001

£m £mNet assetsNet assets excluding SSAP 24 pension asset 140.3 154.9FRS 17 pension liability (66.0) (5.9)

Net assets under FRS 17 74.3 149.0

ReservesProfit and loss account excluding SSAP 24 pension asset 81.7 96.0FRS 17 pension liability (66.0) (5.9)

Profit and loss account under FRS 17 15.7 90.1


1 3 . P E N S I O N O B L I G AT I O N S ( c o n t i n u e d )(b) FRS 17 retirement benefits (continued)The movements in the UK schemes’ deficit were

£m

Deficit in the UK schemes at 1 January 2002 (5.6)Current service cost (which would be charged against operating profit) (5.3)Contributions paid 7.1Other finance income 2.8Actuarial loss which would be recognised in statement of total recognised gains and losses (88.7)

Deficit in the UK schemes at 31 December 2002 (89.7)

Analysis of profit and loss account charge under FRS 17 for UK schemes

Charged to operating profitCurrent service cost 5.3

Credited to other finance incomeInterest on scheme liabilities 16.4Expected return on assets (19.2)

Net credit to other finance income (2.8)

Net profit and loss charge before tax 2.5Tax credit (0.7)

Net UK schemes’ profit and loss charge 1.8

Summary of amounts that would be recognised in the statement of total recognised gains and losses in respect of the UK schemes

Loss on assets 63.2Experience loss on liabilities 12.1Loss on change of financial and demographic assumptions 13.4

Actuarial loss before tax 88.7Tax on actuarial loss (including deferred tax of £25.2m) (26.6)

Actuarial loss after tax 62.1

History of experience gains and losses in respect of the UK schemes%

of scheme2002 assets/

£m liabilities

Loss on assets 63.2 27.0%Experience loss on liabilities 12.1 3.7%Total actuarial loss before tax 88.7 27.4%


Notes to the accounts1 4 . I N TA N G I B L E F I X E D A S S E T S – G O O DW I L L

Group Group2002 2001

£m £mCostAt 1 January and 31 December 9.0 9.0

AmortisationAt 1 January 1.6 1.1Charge for the year 0.4 0.5

At 31 December 2.0 1.6

Net book amount 7.0 7.4

1 5 . TA N G I B L E F I X E D A S S E T SGroup CompanyLand and Plant and Land and Plant andbuildings equipment Total buildings equipment Total

£m £m £m £m £m £mCost or valuationAt 1 January 2002 63.3 233.6 296.9 2.0 1.7 3.7Exchange differences (0.8) (4.3) (5.1) – – –Additions 2.5 11.6 14.1 – 0.1 0.1Exceptional disposals (note 29) (0.2) (11.9) (12.1) – – –Other disposals (1.5) (10.6) (12.1) – – –

At 31 December 2002 63.3 218.4 281.7 2.0 1.8 3.8

DepreciationAt 1 January 2002 17.7 117.0 134.7 0.4 1.4 1.8Exchange differences (0.3) (1.2) (1.5) – – –Charge for year 2.9 12.8 15.7 0.1 0.2 0.3Exceptional disposals (note 29) – (7.0) (7.0) – – –Other disposals (1.2) (10.1) (11.3) – – –Impairment (note 29) 1.2 8.6 9.8 – – –

At 31 December 2002 20.3 120.1 140.4 0.5 1.6 2.1

Net book amountAt 31 December 2002 43.0 98.3 141.3 1.5 0.2 1.7

At 31 December 2001 45.6 116.6 162.2 1.6 0.3 1.9

The net book value of leased plant and equipment held by the Group at 31 December 2002 was £0.3m (2001 : £0.3m).


1 5 . TA N G I B L E F I X E D A S S E T S ( c o n t i n u e d )Net book amount of land and buildings

Group Company£m £m

Freehold 38.7 1.5Long leasehold 4.2 –Short leasehold 0.1 –

43.0 1.5

Historical cost of land and buildingsCost 46.7 0.1Valuations 1989 2.1 –

1988 14.3 1.9earlier 0.2 –

At 31 December 2002 63.3 2.0Revaluation surpluses (2.9) (1.1)

Restated to historical cost 60.4 0.9Depreciation (22.7) (0.3)

Historical net book amountAt 31 December 2002 37.7 0.6

At 31 December 2001 40.4 0.6

1 6 . F U T U R E C O M M I T M E N T S2002 2001

£m £mGroup capital projectsAt 31 December 2002 the directors had authorised thefollowing expenditure on capital projectsContracted but not provided for 1.8 8.5Authorised but not contracted for 4.9 8.8

6.7 17.3

Land andbuildings Other

£m £mOperating leasesAt 31 December 2002 the Group’s annual commitments wereOperating leases which expire

Within one year – 0.4From one to five years 0.8 0.4After five years 0.4 –

1.2 0.8


Notes to the accounts1 7 . S U B S I D I A RY U N D E RTA K I N G S

Shares Loans Total£m £m £m

CompanyCost less amounts written offAt 1 January 2002 103.6 28.6 132.2Amounts repaid – (0.2) (0.2)Additional investment in existing operations 0.2 7.8 8.0

At 31 December 2002 103.8 36.2 140.0

The principal subsidiary undertakings are listed on page 60.

1 8 . I N V E S T M E N T SAssociated Other Own

undertakings investments shares Total£m £m £m £m

GroupCost or valuation of net equityAt 1 January 2002 9.6 1.4 13.7 24.7Reserves transfer (0.3) – – (0.3)Additions – – 1.3 1.3Disposals – – (0.5) (0.5)

At 31 December 2002 9.3 1.4 14.5 25.2

AmortisationAt 1 January 2002 – – – –Charge for year – – 0.2 0.2

At 31 December 2002 – – 0.2 0.2

Net book amountAt 31 December 2002 9.3 1.4 14.3 25.0

At 31 December 2001 9.6 1.4 13.7 24.7


1 8 . I N V E S T M E N T S ( c o n t i n u e d )Associated Other Own

undertakings investments shares Total£m £m £m £m

CompanyCost or valuation of net equityAt 1 January 2002 1.6 1.1 13.7 16.4Additions – – 1.3 1.3Disposals – – (0.5) (0.5)

At 31 December 2002 1.6 1.1 14.5 17.2

AmortisationAt 1 January 2002 – – – –Charge for year – – 0.2 0.2

At 31 December 2002 – – 0.2 0.2

Net book amountAt 31 December 2002 1.6 1.1 14.3 17.0

At 31 December 2001 1.6 1.1 13.7 16.4

Other investments are included at directors’ valuation based on appropriate attributable net assets.

Investments in own shares represent the Croda International Plc Qualifying Share Ownership Trust (QUEST) and the Croda International PlcEmployee Benefit Trust (CIPEBT) which both hold shares purchased on the open market to satisfy the future issue of shares under the Group’sshare option schemes. As at 31 December 2002 the QUEST was financed by a repayable on demand loan from the Company of £4.1m (2001 : £4.1m) and held 1.7m (2001 : 1.7m) shares at a cost of £4.1m (2001 : £4.1m) with a market value of £4.0m (2001 : £3.8m). As at 31 December 2002 the CIPEBT was financed by a repayable on demand loan from the Company of £9.6m (2001 : £9.6m) and held 4.0m (2001 : 3.7m) shares at a cost of £9.6m (2001 : £9.6m) with a market value of £9.6m (2001 : £8.3m). All of the shares held by the trusts wereunder option at 31 December 2002 and, except for a nominal amount, the right to receive dividends has been waived.

Associated undertaking and its issued share capital are Principal Sharecountry of capitaloperation held %

Baxenden Chemicals Ltd England1,800,000 ordinary shares of £1 each 46.5

Other than dividends received from associated undertakings there were no material transactions with associated undertakings or other relatedparties.

1 9 . S TO C K2002 2001

£m £mGroupRaw materials 13.0 13.9Work in progress 2.8 3.5Finished goods 35.7 43.1

51.5 60.5

The replacement cost of stock held at 31 December 2002 was not materially different from the amounts shown above.


Notes to the accounts2 0 . D E B TO R S

Group Company2002 2001 2002 2001

£m £m £m £m

Trade debtors 53.1 50.7 – –Amounts owed by Group undertakings – – 0.5 0.7Corporate taxation 0.4 0.3 0.3 0.3Other debtors 2.1 3.5 0.1 0.3Prepayments 1.9 1.7 0.2 0.3

57.5 56.2 1.1 1.6Pension fund prepayment 32.2 28.7 – –

Total debtors 89.7 84.9 1.1 1.6

Amounts falling due after one year included abovePension fund prepayment 32.2 28.7 – –

2 1 . C R E D I TO R SGroup Company

2002 2001 2002 2001£m £m £m £m

Amounts falling due within one yearBorrowings (note 23) 15.5 16.8 0.3 –Trade creditors 21.7 24.5 0.2 0.2Bills of exchange payable 1.5 2.1 – –Corporate taxation 6.2 5.6 0.5 0.6Other taxation and social security 1.8 1.6 0.6 0.6Other creditors 8.8 5.8 0.4 0.8Accruals and deferred income 12.6 11.7 0.4 0.3Dividends payable to ordinary shareholders 15.0 14.7 15.0 14.7

83.1 82.8 17.4 17.2

2 2 . C R E D I TO R SGroup Company

2002 2001 2002 2001£m £m £m £m

Amounts falling due after one yearBorrowings (note 23) 60.8 64.1 25.0 25.0Other creditors 0.8 0.7 – –Amounts owed to Group undertakings – – 28.7 25.5

61.6 64.8 53.7 50.5


2 3 . F I N A N C I A L I N S T RU M E N T SThe Group’s objectives, policies and strategies in respect of financial instruments are outlined in the financial review on pages 10 to 12.Short term debtors and creditors have been excluded from all of the following disclosures.

(a) Maturity profile of financial liabilities

Group Company2002 2001 2002 2001

£m £m £m £m

Bank loans and overdrafts repayable on demand 15.2 14.8 0.3 –Other bank loans 26.6 28.1 25.0 25.0US$55m 7.37% guaranteed senior loan notes due 2008 34.2 37.7 – –Obligations under finance leases 0.3 0.3 – –

76.3 80.9 25.3 25.0Bills of exchange payable 1.5 2.1 – –Preference share capital 1.1 1.1 1.1 1.1

78.9 84.1 26.4 26.1

Amounts included above repayable by instalments 35.9 39.7 – –

Repayments fall due as followsWithin one year- Bank loans and overdrafts 15.4 16.7 0.3 –- Obligations under finance leases 0.1 0.1 – –- Bills of exchange payable 1.5 2.1 – –

17.0 18.9 0.3 –

After more than one yearLoans repayable- Within one to two years 2.7 0.2 2.5 –- Within two to five years 46.5 38.5 22.5 25.0- After five years repayable by instalments 11.4 25.2 – –Obligations under finance leases payable between years two and five 0.2 0.2 – –Preference share capital repayable after five years 1.1 1.1 1.1 1.1

61.9 65.2 26.1 26.1

(b) Group borrowing facilities

As at 31 December 2002 the Group had undrawn committed facilities of £15.0m (2001 : £50.0m) expiring in more than two years, £35.0m(2001 : £Nil) expiring in one to two years and £6.2m (2001 : £10.3m) expiring within one year. In addition the Group had other undrawnfacilities of £75.0m (2001 : £90.6m) available.


Notes to the accounts2 3 . F I N A N C I A L I N S T RU M E N T S ( c o n t i n u e d )(c) Interest rate and currency profile of Group financial liabilities

Fixed rateWeighted average

Interest FixedTotal Fixed Floating rate period

£m £m £m % years

Sterling 28.6 1.1 27.5 6.16 –US Dollar 40.2 15.5 24.7 7.37 4.5Euro 5.6 – 5.6 – –Other 4.5 – 4.5 – –

At 31 December 2002 78.9 16.6 62.3 7.33 4.5

Sterling 30.0 1.1 28.9 6.16 –US Dollar 43.8 37.7 6.1 7.37 5.5Euro 5.4 – 5.4 – –Other 4.9 – 4.9 – –

At 31 December 2001 84.1 38.8 45.3 7.33 5.5

The non-sterling floating rate liabilities include £10.3m (2001 : £8.9m) held as cover for matching non-sterling receipts due to the Group in theUK.The floating rate liabilities are predominantly based on LIBOR.The fixed rate sterling liabilities comprise the Group’s preference sharecapital which has no fixed repayment date. During the year the Group swapped $US30m of its fixed rate debt into a floating rate liability andthe above table is stated after taking into account this transaction.

(d) Interest rate and currency profile of Group financial assets

2002 2001£m £m

Sterling 4.0 3.6US Dollar 6.6 3.1Euro 8.3 6.1Other 5.3 4.5

24.2 17.3

All of the Group’s financial assets are at floating rates of interest and are predominantly based on LIBOR and its overseas equivalents.

(e) Hedging of currency exposures

The Group does not actively seek to hedge its currency net asset position, though in seeking to match interest costs with trading income tohedge currency cash flows, an effective asset hedge often results.

The Group has substantial cross-border transactions which are denominated in currency other than that of the division carrying out thetransaction. In these circumstances the Group policy is to hedge short term movements in exchange rates by selling or purchasing theappropriate currency to cover specific transactions.The principal exposures arise in the Group’s UK manufacturing divisions which utilise foreigncurrency bank accounts and forward foreign currency contracts to hedge their respective positions.

At 31 December 2002 and 31 December 2001 the Group had no significant unhedged currency exposures that would give rise to currencyprofits or losses in the profit and loss account.


2 3 . F I N A N C I A L I N S T RU M E N T S ( c o n t i n u e d )(f) Fair value of Group financial instruments

The table below details a comparison of the book and fair values, of the Group’s financial assets and liabilities.Where there are no readilyavailable market values to determine fair values, cash flows relating to the various instruments have been discounted at prevailing interest andexchange rates to give an estimate of fair value.

Book Fair Book Fairvalue value value value2002 2002 2001 2001

£m £m £m £mFinancial assets and liabilitiesCash deposits 24.2 24.2 17.3 17.3Borrowings repayable within one year (15.5) (15.5) (16.8) (16.8)Bills of exchange payable (1.5) (1.5) (2.1) (2.1)US$55m 7.37% guaranteed senior loan notes due 2008 (34.2) (38.5) (37.7) (41.0)Other long term borrowings (26.6) (26.6) (26.4) (26.4)Preference shares (1.1) (0.9) (1.1) (1.1)

Derivative financial instruments hedging foreign currency debtors and creditorsForward foreign currency contracts – 0.2 – –

Derivative financial instruments held to manage interest rate profileInterest rate swap – 1.6 – –

(g) Hedges of future transactions

The Group currently has no derivative financial instruments to manage currency profile or hedge any currency exposures on expected futuresales and purchases.The Group does hedge currency exposures on committed sales and purchases through a mix of short term currencyoverdrafts (note 23(c)) and forward foreign currency contracts.

2 4 . P ROV I S I O N S F O R L I A B I L I T I E S A N D C H A R G E S Deferred

Environmental Restructuring taxation Total£m £m £m £m

At 1 January 2002 as previously stated 13.0 0.8 10.7 24.5Prior period adjustment – – 9.9 9.9

At 1 January 2002 as restated 13.0 0.8 20.6 34.4Exchange differences (0.1) – (0.1) (0.2)Charged / (credited) to profit and loss account 1.8 – (3.8) (2.0)Cash paid against provisions (0.2) (0.8) – (1.0)

At 31 December 2002 14.5 – 16.7 31.2

The environmental provision relates to soil and potential ground water contamination on a number of sites, both currently in use andpreviously occupied, in Europe and the Americas.Whilst the timing of the transfer of economic benefits relating to the provision cannot beascertained with any degree of certainty the directors consider they will take place within 20 years.


Notes to the accounts2 5 . O R D I N A RY S H A R E C A P I TA L

Issued andAuthorised fully paid

2002 2001 2002 2001£m £m £m £m

Ordinary shares of 10p 17.3 17.3 13.6 13.6

There were no changes in the issued ordinary share capital during the year.

In 2002 options were granted to employees under the Croda Savings-Related Share Option Scheme 1983 to subscribe for 520,363 ordinaryshares at an option price of 194p per share, under the Senior Executive Share Option Schemes to subscribe for 973,200 ordinary shares at anoption price of 261p per share and under the International Sharesave Scheme to subscribe for 169,105 shares at an option price of 194p pershare.

During the year consideration of £0.5m was received on the exercise of options over 255,272 shares.The options were satisfied with sharestransferred from the Group’s employee share trusts. Since the year end a further 2,143 shares have been transferred under the schemes.

There are outstanding options to subscribe for ordinary shares as follows:

NumberYear option granted of shares Price Options exercisable from

Croda Savings-Related Share Option Scheme1997 201,563 288 p 1 November 2002 to 30 April 20031998 289,978 238 p 1 November 2003 to 30 April 20041999 370,226 242 p 1 November 2004 to 30 April 20052000 410,330 186 p 1 November 2005 to 30 April 20062001 470,262 186 p 1 November 2006 to 30 April 20072002 501,771 194 p 1 November 2007 to 30 April 2008

Croda International Overseas Sharesave Scheme1999 329,186 242 p 1 December 2004 to 31 December 20042000 239,500 186 p 1 November 2005 to 30 November 20052001 142,216 186 p 1 November 2006 to 30 November 20062002 167,878 194 p 1 November 2007 to 30 November 2007

Croda International Senior Executive Share Option Schemes1994 130,000 367 p 18 October 1997 to 17 October 20041996 225,000 337 p 3 April 1999 to 2 April 20061997 590,000 307 p 4 April 2000 to 3 April 20071999 765,000 228 p 30 March 2002 to 29 March 20092000 846,900 256 p 22 March 2003 to 21 March 20102001 890,200 258 p 7 March 2004 to 6 March 20112002 955,200 261 p 13 March 2005 to 12 March 2012


2 6 . P R E F E R E N C E S H A R E C A P I TA L2002 2001£000 £000

The authorised, issued and fully paid preference share capital comprises5.9% preference shares of £1 616 6166.6% preference shares of £1 499 4997.5% preference shares of £1 22 22

1,137 1,137

The preference shares carry no voting rights other than in certain circumstances affecting the rights of the preference shareholders, details ofwhich are set out in the Company’s articles of association.The three classes of preference shares rank pari passu with each other but ahead ofthe ordinary shares on winding up. Rights on a winding up are limited to repayment of capital and any arrears of dividends.

2 7 . R E S E RV E S Share Profit and

premium Revaluation lossaccount reserve account

£m £m £mGroupAt 1 January 2002 as previously stated 34.0 9.0 126.0Prior period adjustment – – (9.9)

At 1 January 2002 as restated 34.0 9.0 116.1Reserves transfer – – (15.7)Unrealised exchange differences – – (1.6)Goodwill written back on disposals – – 5.2Transfer of revaluation on disposals – (0.2) 0.2

At 31 December 2002 34.0 8.8 104.2

CompanyAt 1 January 2002 34.0 2.1 92.0Profit retained – – 0.9Unrealised exchange differences – – (0.1)

At 31 December 2002 34.0 2.1 92.8

2 8 . M I N O R I T Y I N T E R E S T S2002 2001

£m £m

At 1 January 1.2 1.7Exchange differences – (0.1)Profit for the year – 0.1Dividend paid to minority shareholders (0.1) –Minority interest in disposal – (0.5)

At 31 December 1.1 1.2


Notes to the accounts2 9 . D I S P O S A L SDuring the year the Group sold its petroleum pitch business to Koppers UK Limited and its solvent distillation and recovery business toSolvent Resource Management Limited.The Group also announced its withdrawal from the businesses of varnish media, textile chemicals andgelatin, the associated costs of which are also included in the table below.

£m £mAssets leaving the Group were as followsFixed assets 5.1Stock 2.4Other net current assets 0.4

7.9Loss on disposal and closure of discontinued operations (note 4) (28.9)Costs of disposal and closure 4.9Provision for impairment of retained fixed assets 9.8Environmental provision 1.8Goodwill written back on disposals 5.2 (7.2)

Cash received 0.7

The operation of the above businesses had no significant effect on Group cash flows.

Cumulative amount of goodwill written off in respect of the Group’s acquisitions since 1984At 1 January 2002 58.8Goodwill written back on disposals (5.2)

At 31 December 2002 53.6

3 0 . C O N T I N G E N T L I A B I L I T I E SThe Company has guaranteed loan capital and bank overdrafts of subsidiary undertakings amounting to £45.2m (2001 : £47.9m).

57 Croda Annual Report & Accounts 2002 Independent auditors’ report

I N D E P E N D E N T AU D I TO R S ’ R E P O RT TO T H E M E M B E R S O F C RO DA I N T E R N AT I O N A L P L CWe have audited the financial statements which comprise the profit and loss account, the balance sheet, the cash flow statement,the statement of total recognised gains and losses, the related notes and the accounting policies set out in the statement ofaccounting policies.We have also audited the disclosures required by Part 3 of Schedule 7A to the Companies Act 1985contained in the directors’ remuneration report (‘the auditable part’).

R E S P E C T I V E R E S P O N S I B I L I T I E S O F D I R E C TO R S A N D AU D I TO R SThe directors’ responsibilities for preparing the annual report, the directors’ remuneration report and the financial statements inaccordance with applicable United Kingdom law and accounting standards are set out in the statement of directors’responsibilities on page 25.

Our responsibility is to audit the financial statements and the auditable part of the directors’ remuneration report in accordancewith relevant legal and regulatory requirements and United Kingdom auditing standards issued by the Auditing Practices Board.This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance withSection 235 of the Companies Act 1985 and for no other purpose.We do not, in giving this opinion, accept or assumeresponsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may comesave where expressly agreed by our prior consent in writing.

We report to you our opinion as to whether the financial statements give a true and fair view and whether the financialstatements and the auditable part of the directors’ remuneration report have been properly prepared in accordance with theCompanies Act 1985.We also report to you if, in our opinion, the directors’ report is not consistent with the financialstatements, if the Company has not kept proper accounting records, if we have not received all the information and explanationswe require for our audit, or if information specified by law regarding directors’ remuneration and transactions is not disclosed.

We read the other information contained in the annual report and consider the implications for our report if we become awareof any apparent misstatements or material inconsistencies with the financial statements.The other information comprises onlythe directors’ report, the unaudited part of the directors’ remuneration report, the Chairman’s statement, the operating andfinancial review and the corporate governance statement.

We review whether the corporate governance statement reflects the company’s compliance with the seven provisions of theCombined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not.We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or to form anopinion on the effectiveness of the Company’s or the Group’s corporate governance procedures or its risk and controlprocedures.

B A S I S O F AU D I T O P I N I O NWe conducted our audit in accordance with auditing standards issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the auditablepart of the directors’ remuneration report. It also includes an assessment of the significant estimates and judgements made bythe directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to theCompany’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary inorder to provide us with sufficient evidence to give reasonable assurance that the financial statements and the auditable part ofthe directors’ remuneration report are free from material misstatement, whether caused by fraud or other irregularity or error.In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

O P I N I O NIn our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group at31 December 2002 and of the loss and cash flows of the Group for the year then ended. The financial statements have beenproperly prepared in accordance with the Companies Act 1985.Those parts of the directors’ remuneration report required byPart 3 of Schedule 7A to the Companies Act 1985 have been properly prepared in accordance with the Companies Act 1985.

Chartered Accountants and Registered AuditorsBenson House33 Wellington StreetLeeds LS1 4JP

26 February 2003

Independent auditors’ repor t

58 Croda Annual Report & Accounts 2002 Shareholder information

Shareholder informationA N A LYS I S O F O R D I N A RY S H A R E H O L D E R S A S AT 1 8 F E B RUA RY 2 0 0 3

By size of holding Number of Number of % of issuedholders shares capital

1-1,000 2,355 980,961 0.721,001-5,000 1,802 4,137,353 3.04

5,001-10,000 243 1,726,254 1.2710,001-50,000 170 3,809,058 2.80

50,001-100,000 42 2,976,354 2.18100,001-500,000 86 21,113,499 15.49500,001-upwards 59 101,525,365 74.50

4,757 136,268,844 100.00

I N V E S TO R R E L AT I O N SShareholders can now get up to date information on

Stock Exchange announcementsCorporate calendarCroda share priceBrokers’ estimates

by visiting our corporate web site at www.croda.com and clicking on the investor relations button.

Shareholders can check their shareholdings on the registrar’s website, www.capitaregistrars.com. Please note to gain access tothis information shareholders will require their investor reference.This is an 11 digit number starting with either five or six zerosand is printed on each dividend warrant.

S H A R E P R I C E I N F O R M AT I O NAs well as being available on our website, for the latest ordinary share price, available on the Financial Times Cityline service,call 0906 003 2278 or access the BBC’s broadcast teletext service.

The middle market values of the listed share capital at 31 December 2002 were as follows

Ordinary shares 243p5.9% preference shares 82.5p6.6% preference shares 80.0p

C A P I TA L G A I N S TA XThe market values of the listed share capital at 31 March 1982 were as follows

Ordinary shares 77.5pDeferred ordinary shares 40.5p5.9% preference shares 42.5p6.6% preference shares 47.5p7.5% preference shares (estimated) 45.0p

59 Croda Annual Report & Accounts 2002 Shareholder information

C O R P O R AT E C A L E N DA R2003 Annual General Meeting 23 April 20032003 Half year results announcement 30 July 20032003 Full year results announcement March 20042002 Final ordinary dividend payment 4 July 20032003 Interim ordinary dividend payment January 20042003 Preference dividend payments 30 June 2003

31 December 2003S E C R E TA RY A N D R E G I S T E R E D O F F I C EJ R Ainger (Secretary)A M McIntyre (Assistant Secretary)Cowick Hall, Snaith, Goole DN14 9AA

Tel: 01405 860551Fax: 01405 861767Website: www.croda.com

Registered in England number 206132

S E C TO R H E A D SD E Barraclough Oleochemicals EuropeG D Bull Oleochemicals Asia PacificK R Gregersen Oleochemicals AmericasB M Richmond Active Ingredients & Industrial Chemicals

R E G I S T R A R SCapita RegistrarsThe Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU

Tel: 0870 162 3100 (from UK)00 44 208 639 2157 (from overseas)

Fax: 0208 639 2342 (from UK)00 44 208 639 2343 (from overseas)

Website: www.capitaregistrars.com

AU D I TO R SPricewaterhouseCoopers LLP

M E R C H A N T B A N K E R SUBS Warburg

S O L I C I TO R SSlaughter and MayHeptonstalls

S TO C K B RO K E R SDresdner Kleinwort Wasserstein Securities LtdUBS Warburg

P E N S I O N F U N D I N V E S T M E N T M A N AG E R SUBS Global Asset Management (UK) LimitedSchroder Investment Management (UK) Limited

C O N S U LT I N G AC T UA R I E SWatson Wyatt Partners LLP

60 Croda Annual Report & Accounts 2002 Subsidiary companies

Subsidiar y companies

Incorporated Managing Director/ Group beneficialand/or principally Executive in charge interest %

P R I N C I PA L O P E R AT I N G C O M PA N I E S operating in

Croda Application Chemicals Ltd UK P J Mullinger 100Croda Chemicals Europe Ltd UK D E Barraclough 100Home Care and Polymer Additives S E FootsPersonal Care and Health Care K LaydenOperations K M Nutbrown

Croda Fire Fighting Chemicals Ltd UK G S H Kitchen 100Croda Food Services Ltd* UK J Dryden 100John L Seaton & Co Ltd UK M Coverdale 100Baxenden Chemicals Ltd* UK N Gee 46Croda Argentina SA Argentina L Bartsch 100Croda Australia Australia D Dowdell 100Celtite Pty Ltd Australia D A Stell 60Croda de Brasil Ltda Brazil M de Bellis 100Croda Canada Ltd Canada F J Khory 100Croda Chile Chile L Dufflocq 100Croda Shanghai China J Wang 100Croda spol s.r.o. Czech Republic L Cvan 100Croda France SA France J L Pellé 100Crodarom SA France A Fournial 100Sederma SA France K Lintner 100Croda Uniser SA France A Viricel 100Croda GmbH Germany K L Helmdach 100Croda Hong Kong Hong Kong P Chan 100Croda Magyaroszäg Kft* Hungary R Vabrik 100Croda Chemicals (India) Pvt Ltd* India A Shinde 100Croda Italiana SpA Italy C V Aggio 100Croda Japan KK Japan Y Yamanaka 100Croda Mexico SA de CV Mexico R Yob 100Croda Poland Sp z o o* Poland P Huczkowski 100Croda Singapore Pte Ltd* Singapore C G Nottingham 100Croda Chemicals (SA) Pty Ltd South Africa J E Horne 100Croda Korea South Korea S Y So 100Croda Olechemicals Ibérica SA Spain J M Torres 100Croda Nordica AB Sweden S C Kennerley 100Croda Inc USA K F Gallagher 100Croda Universal Inc USA S D Tuchinsky 100Croda Zimbabwe (Pvt) Ltd Zimbabwe J E Horne 100

P R I N C I PA L H O L D I N G C O M PA N I E SCroda Chemicals International Ltd* UK 100Croda Overseas Holdings Ltd* UK 100Croda World Traders Ltd* UK 100Croda Investments BV Netherlands 100

*Companies owned directly by Croda International Plc.

Companies incorporated in the UK are registered in England.

Full details of investments in subsidiary and associated undertakings will be attached to the Company’s annual return made tothe Registrar of Companies.Those not listed above were either not trading or not material.

61 Croda Annual Report & Accounts 2002 Five year record

2002 2001 2000 1999 1998E A R N I N G S

£m £m £m £m £m

Turnover 313.6 312.4 365.9 371.8 375.3Operating profit 40.3 37.0 46.9 48.0 40.0Profit before tax 36.3 31.7 38.1 40.5 32.0Profit after tax 23.3 19.0 23.7 27.1 20.7Profit attributable to ordinary shareholders 23.2 18.9 23.6 26.7 20.3

% % % % %

Operating profit as a % of turnover 12.9 11.8 12.8 12.9 10.7Return on capital employed 17.2 14.0 16.3 17.2 15.1Effective tax rate 35.8 40.1 37.8 33.1 35.3

pence pence pence pence pence

Earnings per share 17.7 14.4 17.9 20.0 14.9Dividends per share 11.5 11.3 11.0 10.7 10.35

The above earnings exclude exceptional items in order to present a clearer year on year comparison.

S U M M A R I S E D B A L A N C E S H E E T

£m £m £m £m £m

Fixed assets 173.3 194.3 196.9 196.4 184.7Stock 51.5 60.5 68.7 64.1 62.5Debtors 57.1 55.9 71.2 77.4 72.9Creditors (47.2) (46.4) (48.6) (58.3) (55.5)

Capital employed 234.7 264.3 288.2 279.6 264.6Dividends, taxation and provisions (52.0) (54.4) (46.3) (48.8) (42.8)Pension fund prepayment 32.2 28.7 27.6 27.0 26.7

214.9 238.6 269.5 257.8 248.5

Shareholders’ funds 161.7 173.8 168.0 139.5 140.0Minority interests 1.1 1.2 1.7 1.4 1.1

162.8 175.0 169.7 140.9 141.1Net debt 52.1 63.6 99.8 116.9 107.4

214.9 238.6 269.5 257.8 248.5

Gearing (%) 32.0 36.3 58.8 83.0 76.1

Five year record

Annual Repor t & Accounts 2002

Natural personalities

C RO DA I N T E R N AT I O N A L P L CCowick Hall, Snaith, GooleEast Yorkshire DN14 9AA

Tel 01405 860551Fax 01405 861767www.croda.com

Croda International Plc A

nnual Report & A

ccounts 2002

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CRODA INTERNATIONAL PLC - Bourse · Croda International Plc Annual Report ... We have often said that product development in ... our Crodamazon range in Brazil.This bodes well