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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a -16 or 15d -16 of
the Securities Exchange Act of 1934
Report on Form 6-K dated
December 10, 2003
Commission File Number 0-10906
The BOC Group plc
(Translation of registrant’s name into English)
Chertsey Road, Windlesham,
Surrey GU20 6HJ
England
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F o
Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes: o No: x
Enclosure: The BOC Group plc Report and accounts 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| The BOC Group plc |
Date: December 10, 2003
| By: | /s/ Anthony Eric Isaac | |||
| Name: Anthony Eric
Isaac Title: Chief Executive |
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This report contains the Report and accounts 2003 of The BOC Group plc (the “Company”) for the financial year ended 30 September 2003. The Report and accounts 2003 comprises the annual report and accounts of the Company in accordance with United Kingdom requirements and the information required to be set out in the Company’s annual report on Form 20-F for the financial year ended 30 September 2003 (the “Form 20-F”) to the Securities and Exchange Commission. This information in the Report and accounts 2003 that is referenced in the “Cross-reference to Form 20-F” table on page 130 shall be deemed to be filed with the Securities and Exchange Commission for all purposes, including incorporation by reference into the Company’s annual report on Form 20-F filed with the Securities and Exchange Commission on 10 December 2003.
Table of Contents
Table of Contents
| Report of the directors | ||
02 |
Financial highlights |
|
04 |
Chairman’s statement |
|
06 |
Chief
executive’s review |
|
08 |
Board of directors |
|
10 |
Executive management board |
|
12 |
Group five year record |
|
14 |
Group profile |
|
23 |
Employees |
|
25 |
Safety, health and the environment |
|
28 |
Research, development and information technology |
|
29 |
Risk factors |
|
31 |
Operating review |
|
46 |
Financial review |
|
53 |
Corporate governance |
|
60 |
Report on remuneration |
|
| Financial statements | ||
70 |
Responsibility of the directors |
|
71 |
Report by the independent auditors |
|
72 |
Group profit and loss account |
|
73 |
Group balance sheet |
|
74 |
Group cash flow statement |
|
75 |
Total recognised gains and losses |
|
75 |
Movement
in shareholders’ funds |
|
76 |
Balance sheet of The BOC Group plc |
|
77 |
Accounting policies |
|
79 |
Notes to the financial statements |
|
122 |
Group undertakings |
|
| Shareholder information | ||
124 |
Dividends |
|
124 |
Nature of trading market |
|
125 |
Analysis of shareholdings |
|
126 |
Taxation |
|
128 |
Financial calendar |
|
128 |
Key contacts information |
|
130 |
Cross reference to Form 20-F |
|
131 |
Glossary of terms |
|
132 |
Index |
|
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Cautionary statement
The report and accounts includes ‘forward-looking information’ within the
meaning of section 27A of the US Securities Act of 1933 (the ‘Securities Act’),
as amended, and section 21E of the US Securities Exchange Act of 1934 (the
‘Exchange Act’), as amended. Certain sections of this annual report including,
without limitation, those concerning (i) the company’s strategies, (ii) the
company’s research and product development, and information technology, (iii)
the company’s investments, (iv) commencement of operations of new plants and
other facilities, (v) the company’s restructuring plan, (vi) efficiencies,
including cost savings, for the company resulting from business reviews and
reorganisations, (vii) management’s view of the general development and
competition in the economies and markets in which it does, or plans to do,
business, (viii) management’s view of the competitiveness of its products and
services, and (ix) the company’s liquidity, capital resources and capital
expenditure, contain certain forward-looking statements concerning the
company’s operation, economic performance and financial condition. Although the
company believes that the expectations reflected in such forward-looking
statements are reasonable, no assurance can be given that such expectations
will prove to have been correct. Accordingly, results could differ materially
from those set out in the forward-looking statements as a result of, among
other factors, changes in economic conditions, continued downturn in the
semiconductor industry, success of business and operating initiatives and
restructuring objectives, changes in the regulatory environment, outcome of
litigation, other government actions, natural phenomena such as floods and
earthquakes, customer strategies and stability, and fluctuations in interest
and exchange rates.
Financial year
Throughout the report and accounts, reference to ‘2003’ in the text means the
financial year ended 30 September 2003. Similarly, references to other years,
eg ‘2004’,’2002’ and ‘2001’, also mean the financial years to 30 September.
01 The BOC Group plc Annual report and accounts 2003
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02 The BOC Group plc Annual report and accounts 2003
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2003 results
| Analysis by business | |||||||||||||
| Turnover (including share of joint ventures and associates) | £ million | % |  |
||||||||||
1. Process Gas Solutions |
1,242.7 | 29 | |||||||||||
2. Industrial and Special Products |
1,751.2 | 40 | |||||||||||
3. BOC Edwards |
684.1 | 16 | |||||||||||
4. Afrox hospitals |
353.4 | 8 | |||||||||||
5. Gist |
291.8 | 7 | |||||||||||
Total |
4,323.2 | 100 | |||||||||||
Adjusted operating profit |
 |
||||||||||||
1. Process Gas Solutions |
184.0 | 36 | |||||||||||
2. Industrial and Special Products |
242.7 | 48 | |||||||||||
3. BOC Edwards |
18.5 | 4 | |||||||||||
4. Afrox hospitals |
46.1 | 9 | |||||||||||
5. Gist |
29.2 | 6 | |||||||||||
Corporate |
(14.9 | ) | (3 | ) | |||||||||
Total |
505.6 | 100 | |||||||||||
| Analysis by region | |||||||||||||
| Turnover (including share of joint ventures and associates) | £ million | % |  |
||||||||||
1. Europe |
1,154.4 | 27 | |||||||||||
2. Americas |
1,238.8 | 29 | |||||||||||
3. Africa |
585.5 | 13 | |||||||||||
4. Asia/Pacific |
1,344.5 | 31 | |||||||||||
Total |
4,323.2 | 100 | |||||||||||
Adjusted operating profit |
 |
||||||||||||
1. Europe |
144.3 | 29 | |||||||||||
2. Americas |
91.8 | 18 | |||||||||||
3. Africa |
85.0 | 17 | |||||||||||
4. Asia/Pacific |
184.5 | 36 | |||||||||||
Total |
505.6 | 100 | |||||||||||
A reconciliation of adjusted operating profit to operating profit under UK GAAP
is shown in the operating review on page 32.
03 The BOC Group plc Annual report and accounts 2003
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Last year I stated your board’s commitment to a strategy of delivering superior
returns for shareholders based on sustained growth in earnings and improvements
in capital efficiency. This requires increasing the scale and scope of BOC
while continuously improving the efficiency and productivity of capital and
other resources.
Consistent strategy
Your company reviews and tests its strategy thoroughly each year. The
requirements and expectations of shareholders are compared with objective
analysis of what the business can and should deliver. This combination of
top-down expectations with bottom-up capabilities gives a rigorous framework
for debate. When Tony Isaac and his management team have completed their work,
the board reviews and tests it in detail. Last year I described the forward
programme for BOC’s management and staff as ambitious and the board is pleased
with the progress being made.
Within the corporate strategy each line of business and the specialist
businesses have their own strategies. The clarity of direction this gives is of
great assistance to your board in overseeing proposed acquisitions, strategic
moves and the general progress of efficiency initiatives.
Last year I included two graphs looking at BOC’s financial performance over the
two-year period since the bid lapsed. The same graphs are reproduced here,
updated with this year’s data. The first shows total shareholder returns
relative to all FTSE100 companies to 30 September this year. The second
compares BOC’s performance with its main global gases competitors. They again
show your company’s strong performance compared with other UK companies and the
competitive challenge presented by its global peers.
Dividends
In 2003 BOC paid a first interim dividend of 15.5p per share in February and a
second interim dividend of 23.5p per share in August. The total of 39p was an
increase of 2.6 per cent on the year before. This year, in line with its
established policy, the board again proposes a first interim dividend for 2004
of 15.5p. Any increase will be reflected in the second interim dividend
announced with our half year results.
Corporate governance
Your company has been at the forefront when it comes to implementing best
practice in corporate governance and financial matters. Its implementation last
year of the new accounting standard FRS19 and the full implementation of FRS17
well in advance of this being required, is an indication of an open and
transparent culture. This year in the UK we had the recommendations from the
Higgs and Smith reviews that were subsequently incorporated in a modified form
into a new Combined Code. BOC contributed fully to the consultation phase of
the Higgs review and I believe the end result strengthens corporate governance
in an effective way. Your company is substantially complying with the revised
Combined Code this year, ahead of it being required.
Corporate social responsibility
BOC consistently takes an ethical view of its responsibilities in pursuing
profitable business. Leadership comes from Tony Isaac and the senior management
team. BOC is also a very practical organisation, preferring to implement, test
and refine what it does before making claims in the wider world. This year BOC
developed and launched its Code of Conduct. There were many existing policies,
but the Code of Conduct process brought these into one programme together with
new and amended policies. The code energised the whole of the company during
its development and roll out.
04 The BOC Group plc Annual report and accounts 2003
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It is more important to be socially responsible than to seek out awards for
social responsibility. It happens that others have given recognition to BOC’s
achievements in this area. For instance, in the UK last year BOC’s
environmental performance was ranked by Business in the Environment in the top
25 per cent of FTSE companies participating in its survey; the investment
community voting in Investor Relations magazine ranked BOC in the top five of
FTSE100 companies for the best practice of corporate responsibility; and Gist,
our logistics business, won the Motor Transport magazine’s environmental award.
In South Africa, Afrox’s community involvement programme is used by the United
Nations as a global case study of how an employee-driven, sustainable social
development programme should work.
Board of directors
This year I was delighted to welcome John Bevan and Andrew Bonfield to your
board. John is chief executive of Process Gas Solutions and, being an
Australian, adds yet another nationality to what is an already very diverse
board. Andrew brings his financial experience and knowledge of international
business to our discussions. I would also like to congratulate two of my board
colleagues who have been honoured this year: Sir Christopher O’Donnell received
his knighthood in the Queen’s birthday honours list while Dr ‘Raj’ Rajagopal
was awarded the Sir Eric Mensforth International Manufacturing Gold Medal by
the Institution of Electrical Engineers and subsequently was elected a Fellow
of the Royal Academy of Engineering.
During the year Göran Lundberg and Dick Grant stepped down from the board. We
wish them both well for the future. Göran was replaced by Sir Christopher as
senior independent director and by Julie Baddeley as chairman of the
remuneration committee.
Thank you
The board would like to thank all BOC’s people around the world for their
efforts in what have been testing economic conditions. We would also like to
thank all BOC’s customers, with whom we seek a mutually prosperous future. By
recruiting, training and retaining the best employees we will continue to
deliver high standards of service to our customers. This is the basis of BOC’s
strength and will be the means by which we will deliver the returns expected by
you, our shareholders. I thank you for your continued support.
Rob Margetts Chairman
05 The BOC Group plc Annual report and accounts 2003
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Chief executive’s review
BOC performed well in 2003, although many of the world’s leading industrial
countries remained in the economic doldrums. The semiconductor industry, the
key to BOC Edwards’ profitability, showed only limited signs of recovery
following a prolonged downturn.
Financial overview
In managing our business we use financial results excluding exceptional items,
referred to as ‘adjusted’, and at constant currencies as the best way to report
results and to reflect the nature of our business. Exceptional items are
exactly that, one-off events that would distort the figures if not reported
separately, while constant currencies show best how we are doing in our local
markets. The products and services we sell and their associated costs are
largely contained in the 50 or so countries where we operate; we export
relatively little. Currencies have an effect when we translate our turnover and
profit into pounds sterling. We could have a bumper year, improving our
business and market position around the world, yet we could report reduced
turnover and profit if the pound was strong. Conversely, a weak pound could at
face value disguise poor performance.
On this basis, we increased turnover this year by nine per cent, the result of
actions over recent years to grow in existing markets and enter new ones.
Adjusted operating profit rose by one per cent. This improved performance was
not reflected in adjusted profit before tax, which declined by four per cent
because of a lower net pension credit largely resulting from lower equity
valuations. Comments below on business performance are also given on this
basis.
Since announcing our preliminary results on 13 November 2003 The BOC Group Cash
Balance Retirement Plan in the US has reached agreement in principle to settle
an action against it for US$69 million. This was shown as a contingent
liability in the preliminary results when we stated that the potential
liability could reach US$116 million. The award will be paid out of the assets
of the Plan but under UK accounting principles the payment has been recognised
as a charge in the profit and loss account. Our statutory results include
exceptional items and comparisons with the previous year reflect changes in the
relative value of currencies. On this basis, we increased turnover by eight per
cent and operating profit by three per cent. Profit before tax increased by
five per cent.
Operating cash flow was eight per cent lower than last year. There were a
number of reasons for this: BOC Edwards contributed less cash; currency changes
had a negative impact; and, having merged our gases business in Japan with part
of Air Liquide Japan, BOC no longer consolidates the cash flow from the
combined operation, receiving a dividend instead. We also resumed cash
contributions to the UK pensions scheme.
This year
We entered the year having just merged our plant building business with Linde
Engineering in the US to form Linde BOC Process Plants LLC. This combination
guarantees us access to world-class technology and it is working well,
delivering the capability and the cost savings we had predicted. We were also
at various stages of finalising four more strategic ventures. Three were
acquisitions: Praxair’s Polish industrial gases business, Air Products’
Canadian packaged gas business and Environmental Management Corporation, a
privately held US water services company. The fourth was the merger I referred
to above, the combination of our OSK business in Japan with part of Air Liquide
Japan to create Japan Air Gases.
The Polish and Canadian acquisitions are in important markets for us and they
strengthen our positions there. In both cases they give us better national
coverage and add to the range of products and services we can offer our
customers. Environmental Management Corporation manages water and wastewater
treatment facilities for industrial and municipal customers around the US; BOC
has a strong industrial customer base and it is a natural extension to manage
the water cycle for such customers. The emphasis now, as it is with all our
recent acquisitions, is to achieve the growth and profit forecasts that were
the reasons for making the acquisitions in the first place. All three are well
on the way to doing that.
The reasons for forming Japan Air Gases were different. Japanese growth has
been disappointingly low in recent years and the combined business promised to
be more efficient with a lower cost base. Cost savings at the rate of Japanese
Yen 5 billion a year are confidently predicted by the end of next year and a
revitalised business is showing signs of growth.
06 The BOC Group plc Annual report and accounts 2003
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In recent years we have reviewed all our investments, seeking to add to our
capability where we could grow profitably and finding other solutions for
assets that either fit less well strategically or have not delivered the
returns we expect.
Our businesses are performing well
Our three lines of business – Process Gas Solutions, Industrial and Special
Products and BOC Edwards – produce 85 per cent of BOC’s turnover and 88 per
cent of its adjusted operating profit. The rest comes from our two specialist
businesses, Afrox hospitals and Gist. The line of business structure remains
unique in the industrial gases industry and is a major competitive advantage
for us. We continue to work hard at delivering exemplary customer service and
this has enabled us to grow our top line sales, to obtain order renewals and to
gain acceptance for price increases.
Process Gas Solutions (PGS) serves our larger customers. Many of them operate
on a global scale and we invest wherever they require industrial gases. PGS did
well last year, growing turnover by eight per cent and adjusted operating
profit by three per cent. Most of the growth came from acquisitions and new
liquefied gases business. Shortly after the year ended we announced further
investments in China totalling over US$100 million.
Industrial and Special Products, centred on our cylinder business, increased
its turnover by nine per cent, but good profit performance in most countries
was undermined by a weak result in the US, leading to a decline in adjusted
operating profit of three per cent.
BOC Edwards has performed well considering the prolonged downturn of the
semiconductor industry. It has paid close attention to its cost base, matching
it closely to demand. Turnover was £684.1 million with adjusted operating
profit £18.5 million.
Afrox hospitals and Gist delivered particularly good results. Afrox hospitals
grew turnover by 16 per cent and adjusted operating profit by 31 per cent. Gist
delivered increases of ten per cent and 13 per cent respectively. African
Oxygen Limited, the majority shareholder in Afrox Healthcare Limited, announced in July 2003 that it was conducting a
strategic review of the hospitals business. On 17 November it announced that,
subject to conditions, it had agreed to sell its entire holding in Afrox
Healthcare Limited to a consortium of Black Economic Empowerment investors.
Each year I make the point that while financial performance is important, it is
not our only measure of success. I make no apologies for stating that safety
remains our highest priority. No manager can be content if anyone is hurt in
the process of doing business, but I also believe that safe operations reduce
business risk and contribute eventually to improved profits. We are
concentrating on changing the behaviour of everyone in BOC to make sure that
safety really does come first.
This year we developed our Code of Conduct, based on important social,
environmental and good governance business principles. People throughout BOC
helped prepare it and we are in the process of communicating it to everyone in
BOC. It states clearly what we expect to ensure we meet our legal and ethical
obligations; to make sure we always do the right thing. You will find a copy on
our website, www.boc.com. I think you will agree it is something we can be
proud of and I can assure you we are implementing it in an effective and
practical way.
I thank all the employees of BOC for their efforts this year. I thank our
customers for doing business with us and our suppliers for their contribution.
I thank you, our shareholders, for your support through difficult economic
times. We will continue to strive to deliver attractive returns on your
investment.
Tony Isaac Chief Executive
07 The BOC Group plc Annual report and accounts 2003
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Board of directors
Rob Margetts CBE no (01)
57, chairman.
Appointed chairman in January 2002. He is chairman of Legal & General Group
plc, a non-executive director of Anglo American plc, chairman of the Natural
Environment Research Council and a governor of Imperial College, London.
Previously he was with ICI PLC for 31 years, becoming a main board director in
1992 and vice chairman in 1998. He is a fellow of both the Royal Academy of
Engineering and the Institution of Chemical Engineers.
Tony Isaac no4Δ (02)
61, chief executive.
Appointed an executive director in October 1994 and became chief executive in
May 2000. He was previously finance director of Arjo Wiggins Appleton plc,
which he joined shortly before the de-merger from BAT Industries p.l.c. in
1990. Prior to that he had been finance director of GEC Plessey
Telecommunications Ltd since its formation in 1988. He is a non-executive
director of International Power plc and Schlumberger Ltd.
Fabiola Arredondo lOn (03)
36, non-executive director.
Appointed in November 2001. She is the managing partner of FRA Holdings LLC, a
private investment firm, and was previously the managing director of Yahoo!
Europe, a director of BBC Worldwide and held senior executive positions at BMG
Entertainment. She is a non-executive director of Intelsat Corporation,
Bankinter SA and the World Wildlife Fund UK and is also a member of the US
Council on Foreign Relations and the World Economic Forum. She has a BA in
political science from Stanford University and an MBA from the Harvard Business
School.
Julie Baddeley lOno (04)
52, non-executive director.
Appointed in May 2001. She was an executive director of Woolwich plc until
October 2000, responsible for e-commerce, information technology and human
resources, and was previously head of change management for Maritime Region,
Accenture. She is a non-executive director of the Yorkshire Building Society,
the Government Pensions Group, and chairman of three venture capital trusts.
She is also an Associate Fellow of Templeton College, Oxford and a Companion of
the Institute of Management. She has an MA honours degree in zoology from
Oxford University.
John Bevan4Δ (05)
46, chief executive, Process Gas Solutions.
Appointed an executive director in December 2002. He joined BOC in 1978 as a
graduate in the Australian gases business and has held various positions in
general management in Australia, Korea, Thailand and the UK and was formerly
chief executive Asia, based in Singapore. He has a degree in commerce
(marketing) from the University of New South Wales.
Andrew Bonfield lOn (06)
41, non-executive director.
Appointed in July 2003. He is senior vice-president and chief financial officer
of Bristol-Myers Squibb Company. He qualified as a chartered accountant in
South Africa, working for Price Waterhouse, before joining SmithKline Beecham
in 1990 and rising to become chief financial officer in 1999. He joined BG
Group plc in 2001 as executive director – finance before assuming his current
role at Bristol-Myers Squibb Company in September 2002.
08 The BOC Group plc Annual report and accounts 2003
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René Médori o4Δ (07)
46, group finance director.
Appointed an executive director in July 2000. He joined BOC in 1987 and has
held several finance appointments in the Group. He was appointed finance
director of BOC’s gases business in the Americas in 1997. Before joining BOC,
he worked for Accenture and Schlumberger Ltd. He is a finance graduate of the
Université de Paris-Dauphine and has a doctorate degree in economics. He is a
non-executive director of Scottish & Southern Energy plc.
Roberto G Mendoza l Ono (08)
58, non-executive director.
Appointed in October 2002. He is a founding partner of Integrated Finance Ltd,
the non-executive chairman of Egg Plc, and a board member of Prudential Plc,
Reuters Plc and Vitro S.A. He joined J.P. Morgan in 1967 and served as vice
chairman of the board from 1990 to 2000. He was a managing director of Goldman
Sachs & Co from 2000 until he resigned to co-found Integrated Finance Ltd in
2001. He was born in Cuba, obtained a BA in history from Yale and an MBA with
high distinction from the Harvard Business School.
Matthew Miau lOn (09)
57, non-executive director.
Appointed in January 2002. He is chairman of MiTAC-Synnex Group, one of
Taiwan’s leading high-tech industrial groups. He is also a Convenor of Civil
Advisory Committee of National Information and Communications Initiatives
(NICI) and a member of the Board of Supervisors of the Industrial Technology
Research Institute (ITRI) and the Board of Directors of the Institute for
Information Industry (III),Taiwan. He obtained a BS in electronic engineering
and computer science from U.C. Berkeley, an MBA degree from Santa Clara
University and holds an honorary doctorate degree from the National Chiao Tung
University, Taiwan.
Sir Christopher O’Donnell lOn (10)
57, non-executive director.
Appointed in March 2001. He is chief executive of Smith & Nephew plc.
Previously he held senior positions with Davy Ashmore, Vickers Limited and C R
Bard Inc. He has an honours degree in mechanical engineering from Imperial
College, London and an MBA from the London Business School. He is a chartered
engineer and a member of the Institution of Mechanical Engineers.
Dr ‘Raj’ Rajagopal4Δ (11)
50, chief executive, BOC Edwards.
Appointed an executive director in July 2000. He joined BOC in 1981 and has
held several positions in BOC Edwards. He was appointed managing director,
Edwards Vacuum Products in 1993 and managing director, vacuum technology
division in 1996. He was appointed a non-executive director of FSI
International Inc in January 2001. He has a PhD in mechanical engineering from
the University of Manchester. He is a Fellow of the Royal Academy of Engineers
as well as the Institution of Electrical Engineers, Mechanical Engineers and
the Chartered Institute of Management. Dr Rajagopal was awarded the Sir Eric
Mensforth International Manufacturing Gold Medal in March 2003.
John Walsh4Δ (12)
48, chief executive, Industrial and Special Products.
Appointed an executive director in July 2001. He was previously president,
Process Gas Solutions, north America. He joined BOC in 1986 as vice president,
special gases and has held various senior management positions in the Group,
including president, BOC Process Plants. He has a BA in economics and an MBA,
both from Harvard Business School.
| Board committees | ||
| l | Audit committee | |
| O | Remuneration committee | |
| n | Nomination committee | |
| o | Pensions committee | |
| 4 | Executive management board | |
| Δ | Investment committee | |
09 The BOC Group plc Annual report and accounts 2003
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Executive management board
John Bevan (01)
46, chief executive, Process Gas Solutions since January 2003.
Appointed to the executive management board in June 2000. See page 08 for
biographical details.
Nick Deeming (02)
49, group legal director and company secretary since May 2001.
Appointed to the executive management board in May 2001. He has over 16 years
in-house counsel experience, including Schlumberger, SEMA and Axa PPP
Healthcare, specialising in corporate and commercial law. He has a degree in
law from Guildhall University, an MBA from Cranfield University and qualified
as a solicitor in 1980.
Stephen Dempsey (03)
52, group director, corporate relations since February 1999.
Appointed to the executive management board in October 1999. He joined BOC in
1990 as director of marketing services for the UK gases business and has held
various communications roles in the Group. He has an MA in geography from
Oxford University and an MBA from Cranfield University.
Peter Dew (04)
43, group director, information management since February 1998.
Appointed to the executive management board in October 1999. He joined BOC in
1986. He has held information technology roles in the Group’s businesses in
South Africa, the UK and most recently as information management director for
the Group’s businesses in Asia/Pacific.
Tony Isaac (05)
61, chief executive since May 2000.
Appointed to the executive management board in July 1996. See page 08 for
biographical details.
Rob Lourey (06)
46, group human resources director since June 2000.
Appointed to the executive management board in June 2000. He joined BOC in
Australia in 1996 and most recently was human resources director for
Asia/Pacific. He has a bachelor of business degree in personnel management.
10 The BOC Group plc Annual report and accounts 2003
Table of Contents
Kent Masters (07)
42, president, Process Gas Solutions, north America since July 2001.
Appointed to the executive management board in December 2002. He joined BOC in
1985 and has held positions of increasing responsibility in engineering,
marketing and general management, most recently, president, BOC Process Plants.
He holds an engineering degree from Georgia Institute of Technology and an MBA
from New York University.
René Médori (08)
46, group finance director since June 2000.
Appointed to the executive management board in June 2000. See page 09 for
biographical details.
Dr ‘Raj’ Rajagopal (09)
50, chief executive, BOC Edwards since June 1998.
Appointed to the executive management board in July 1996. See page 09 for
biographical details.
Greg Sedgwick (10)
42, group director, business development since June 2000.
Appointed to the executive management board in June 2000. He also has
responsibility for Afrox Healthcare Ltd. He joined BOC in 1984 and has held a
variety of senior management roles in the south Pacific region, most recently
managing director, Industrial and Special Products. He was previously market
sector director, minerals and a director of BOC India. He has a degree in
marketing and a masters degree in business planning from the University of New
South Wales.
John Walsh (11)
48, chief executive, Industrial and Special Products since June 2001.
Appointed to the executive management board in June 2000. See page 09 for
biographical details.
11 The BOC Group plc Annual report and accounts 2003
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Group five year record
| 1999 | 2000 | 2001 | 2002 | 2003 | ||||||||||||||||
| Profit and loss | £ million | £ million | £ million | £ million | £ million | |||||||||||||||
Turnover1 |
3,052.7 | 3,579.7 | 3,772.9 | 3,657.7 | 3,718.3 | |||||||||||||||
| Total operating profit before exceptional items2 | 479.9 | 496.4 | 530.6 | 500.1 | 505.6 | |||||||||||||||
Exceptional items |
(69.4 | ) | (4.4 | ) | (108.3 | ) | (74.5 | ) | (67.0 | ) | ||||||||||
Total operating profit2 |
410.5 | 492.0 | 422.3 | 425.6 | 438.6 | |||||||||||||||
| Profit/(loss) on termination/disposal of businesses | 32.5 | 12.5 | – | (20.2 | ) | – | ||||||||||||||
Profit on disposal of fixed assets |
– | – | 3.6 | – | – | |||||||||||||||
Profit before interest |
443.0 | 504.5 | 425.9 | 405.4 | 438.6 | |||||||||||||||
Interest on net debt |
(80.2 | ) | (111.5 | ) | (123.4 | ) | (103.1 | ) | (96.1 | ) | ||||||||||
| Interest on pension scheme liabilities | – | (100.7 | ) | (107.2 | ) | (106.1 | ) | (110.2 | ) | |||||||||||
| Expected return on pension scheme assets | – | 149.5 | 166.9 | 139.1 | 119.6 | |||||||||||||||
Other net financing income |
– | 48.8 | 59.7 | 33.0 | 9.4 | |||||||||||||||
Profit before tax |
362.8 | 441.8 | 362.2 | 335.3 | 351.9 | |||||||||||||||
Tax on profit on ordinary activities |
(85.3 | ) | (135.2 | ) | (104.6 | ) | (106.2 | ) | (96.4 | ) | ||||||||||
Profit after tax |
277.5 | 306.6 | 257.6 | 229.1 | 255.5 | |||||||||||||||
Minority interests |
(27.4 | ) | (28.0 | ) | (33.5 | ) | (26.2 | ) | (36.4 | ) | ||||||||||
Profit for the financial year |
250.1 | 278.6 | 224.1 | 202.9 | 219.1 | |||||||||||||||
Earnings per 25p Ordinary share |
||||||||||||||||||||
Basic: |
||||||||||||||||||||
— on profit for the financial year |
51.4 | p | 57.2 | p | 46.0 | p | 41.4 | p | 44.5 | p | ||||||||||
— before exceptional items |
56.6 | p | 53.5 | p | 57.5 | p | 55.9 | p | 52.9 | p | ||||||||||
Diluted: |
||||||||||||||||||||
— on profit for the financial year |
51.2 | p | 56.9 | p | 45.9 | p | 41.2 | p | 44.5 | p | ||||||||||
— before exceptional items |
56.4 | p | 53.3 | p | 57.3 | p | 55.7 | p | 52.9 | p | ||||||||||
Ordinary dividends per share3 |
||||||||||||||||||||
Actual |
32.7 | p | 35.0 | p | 37.0 | p | 38.0 | p | 39.0 | p | ||||||||||
| Number of fully paid Ordinary shares in issue at the year end (million) | 491.0 | 492.2 | 494.4 | 497.3 | 497.7 | |||||||||||||||
| 1. | Subsidiary undertakings only. | |
| 2. | Including share of operating profit of joint ventures and associates. | |
| 3. | Dividends paid in the calendar year. | |
| 4. | Excludes exceptional items. A fuller explanation of the term ‘adjusted’, and the reasons for presenting such a measure, is given in the operating review on page 31. A reconciliation of adjusted profit before tax to profit before tax is given in the profit and loss account on page 72. A reconciliation of adjusted return on capital employed to return on capital employed is given in the operating review on page 32. |
Information for 2001 and 2000 was restated in 2002 to be on a comparable basis
with 2002 following the adoption of FRS17 and FRS19 in 2002. Information for
1999 has not been restated.
All turnover and operating profit arose from continuing operations.
12 The BOC Group plc Annual report and accounts 2003
Table of Contents
| 1999 | 2000 | 2001 | 2002 | 2003 | |||||||||||||||||
| Balance sheet | £ million | £ million | £ million | £ million | £ million | ||||||||||||||||
Fixed assets |
|||||||||||||||||||||
– |
intangible assets |
36.5 | 49.2 | 48.1 | 150.7 | 206.1 | |||||||||||||||
– |
tangible assets |
3,043.9 | 3,294.0 | 3,168.6 | 3,027.4 | 2,913.4 | |||||||||||||||
| – | joint ventures, associates and other investments | 365.9 | 456.3 | 449.8 | 468.6 | 656.7 | |||||||||||||||
| Working capital (excluding bank balances and short-term loans) | 275.5 | 282.8 | 257.0 | 203.1 | 220.1 | ||||||||||||||||
Deferred tax provisions |
(36.4 | ) | (295.8 | ) | (294.3 | ) | (291.8 | ) | (279.2 | ) | |||||||||||
| Other non current liabilities and provisions | (262.9 | ) | (181.4 | ) | (184.3 | ) | (173.7 | ) | (145.8 | ) | |||||||||||
| Net borrowings and finance leases | (1,138.5 | ) | (1,308.4 | ) | (1,272.1 | ) | (1,325.6 | ) | (1,368.1 | ) | |||||||||||
| Net assets excluding pension assets and liabilities | 2,284.0 | 2,296.7 | 2,172.8 | 2,058.7 | 2,203.2 | ||||||||||||||||
| Pension assets5 | – | 402.0 | 107.0 | 54.3 | 50.7 | ||||||||||||||||
Pension liabilities5 |
– | (31.1 | ) | (56.0 | ) | (311.0 | ) | (341.8 | ) | ||||||||||||
| Net assets including pension assets and liabilities | 2,284.0 | 2,667.6 | 2,223.8 | 1,802.0 | 1,912.1 | ||||||||||||||||
| Shareholders’ capital and reserves | 2,013.1 | 2,394.0 | 2,086.2 | 1,684.1 | 1,734.8 | ||||||||||||||||
Minority shareholders’ interests |
270.9 | 273.6 | 137.6 | 117.9 | 177.3 | ||||||||||||||||
Total capital and reserves |
2,284.0 | 2,667.6 | 2,223.8 | 1,802.0 | 1,912.1 | ||||||||||||||||
| Other selected financial information Capital employed6 |
|||||||||||||||||||||
Total capital and reserves |
2,284.0 | 2,667.6 | 2,223.8 | 1,802.0 | 1,912.1 | ||||||||||||||||
| Non current liabilities and provisions | 299.3 | 477.2 | 478.6 | 465.5 | 425.0 | ||||||||||||||||
| Net borrowings and finance leases7 | 1,138.5 | 1,308.4 | 1,272.1 | 1,325.6 | 1,368.1 | ||||||||||||||||
| 3,721.8 | 4,453.2 | 3,974.5 | 3,593.1 | 3,705.2 | |||||||||||||||||
Total assets |
4,814.0 | 5,618.3 | 5,060.0 | 4,947.4 | 4,931.8 | ||||||||||||||||
| Long-term liabilities and provisions | 1,278.7 | 1,399.0 | 1,554.5 | 1,897.5 | 1,851.5 | ||||||||||||||||
Capital expenditure1 |
505.4 | 413.7 | 352.6 | 354.3 | 281.2 | ||||||||||||||||
Depreciation and amortisation1 |
270.8 | 313.3 | 329.5 | 330.9 | 333.4 | ||||||||||||||||
Employees |
|||||||||||||||||||||
UK |
10,067 | 9,929 | 10,597 | 11,266 | 10,414 | ||||||||||||||||
Overseas |
32,057 | 32,780 | 32,574 | 35,014 | 34,093 | ||||||||||||||||
Continuing operations |
42,124 | 42,709 | 43,171 | 46,280 | 44,507 | ||||||||||||||||
Ratios |
|||||||||||||||||||||
Return on capital employed8 |
11.2% | 12.4% | 10.3% | 10.5% | 10.8% | ||||||||||||||||
| Adjusted return on capital employed4, 9 | 13.1% | 12.5% | 12.9% | 12.3% | 12.5% | ||||||||||||||||
Net debt/capital employed |
30.6% | 29.4% | 32.0% | 36.9% | 36.9% | ||||||||||||||||
Net debt/equity |
49.8% | 49.0% | 57.2% | 73.6% | 71.5% | ||||||||||||||||
| 5. | Pension assets represents the excess of pension assets over pension liabilities in countries where pension assets exceed pension liabilities. Pension liabilities represents the excess of pension liabilities over pension assets in countries where pension liabilities exceed pension assets. | |
| 6. | As defined in note 1 b) to the financial statements. | |
| 7. | Analysed for 2003 and 2002 in note 20 to the financial statements. | |
| 8. | Operating profit as a percentage of the average capital employed excluding net pension liabilities. The average is calculated on a monthly basis. | |
| 9. | Operating profit before exceptional items as a percentage of the average capital employed excluding net pension liabilities. The average is calculated on a monthly basis. |
Information for 2001 and 2000 was restated in 2002 to be on a comparable basis
with 2002 following the adoption of FRS17 and FRS19 in 2002. Information for
1999 has not been restated.
13 The BOC Group plc Annual report and accounts 2003
Table of Contents
Group profile
Introduction
The BOC Group began its business life over 100 years ago as the Brin’s Oxygen
Company. The company was incorporated in England in 1886 and adopted its
present name on 1 March 1982.
A technology to extract oxygen from the air in commercial quantities had just
been developed and in 1886 the Brin brothers started production at a factory in
Westminster, London. Two uses had already been found for oxygen. One was to
intensify limelight, which was then used in theatres. The other was to assist
patients’ breathing during and after surgery. New technology was soon developed
that allowed air to be separated into all its major components – nitrogen,
oxygen and argon. By 1960, industrial gases were in widespread use and BOC’s
business was firmly established. Tonnage plants were supplying steelworks with
oxygen and the customer base had been broadened to extend from metal cutting
and welding to food and medicine. The business had also spread overseas with
subsidiaries or associated companies as far away as Australia and South Africa.
During the 1980s, BOC’s South African subsidiary began to invest in private
hospitals. This diversification was the basis of the current Afrox hospitals
segment.
BOC acquired the vacuum equipment company Edwards High Vacuum International
Limited in 1968 and this formed the basis of what was to become the BOC Edwards
line of business today.
The BOC Distribution Services business (now called Gist) was first established
in 1970, initially providing a chilled food distribution service for Marks &
Spencer and relying upon distribution skills and liquid nitrogen chilling
technology, acquired as a result of BOC’s involvement in gases.
In 1978, BOC completed the acquisition of Airco Inc in America, a predominantly
gases business that doubled the Group’s size and brought BOC for the first time
into the US gases market. In the period from 1970 to 1990 The BOC Group
significantly increased its presence in the Asia/Pacific region through
participation in several joint ventures or associated companies. BOC
established strong market positions in Thailand, Indonesia, Taiwan, the
Philippines, China and Korea.
An investment in 1982 gave BOC effective management control of the Japanese
gases company Osaka Sanso Kogyo KK (OSK). Conversion of loan stock and
subsequent purchases of shares raised BOC’s holding in OSK to 97 per cent. In
September 2002 BOC and Air Liquide announced a conditional agreement to merge
their industrial and medical gases businesses in Japan. The merger became
effective in January 2003 and BOC’s subsidiary in Japan has retained a 45 per
cent interest in the combined company called Japan Air Gases Limited. In the
period from 1998 to 2001, BOC increased investments in its gases companies in
Thailand, Indonesia and the Philippines by acquiring the interests of joint
venture partners or minority shareholders.
The BOC Group has an international portfolio of companies operating as three
lines of business. These are Process Gas Solutions (PGS), Industrial and
Special Products (ISP) and BOC Edwards. In addition there are two separately
managed specialist businesses, Afrox hospitals and Gist. Operating results are
reported separately for these five segments.
The main exports of the Group in 2003 were special products from the UK and
vacuum equipment and semiconductor manufacturing equipment from the UK, the US
and Japan. Trade between Group undertakings is conducted at fair market prices.
Although BOC Process Plants was combined with Linde Engineering in the US with
effect from September 2002, BOC retains an interest in the manufacture of
industrial gas equipment though its Cryostar business based in France. Cryostar
makes specialist cryogenic pumps and expansion turbines that are used by most
manufacturers of industrial gas plant. Over the last two years Cryostar has
also developed a strong position in the market for shipboard compressors and
heat exchangers used aboard liquefied natural gas (LNG) tankers. Management
believes that Cryostar is the leading manufacturer of its product range
worldwide.
Analysis of results by business
(including share of joint ventures and associates)
| Turnover | Operating profit | Adjusted operating profit | ||||||||||||||||||||||
| £ million | % | £ million | % | £ million | % | |||||||||||||||||||
Process Gas Solutions |
1,242.7 | 29 | 177.1 | 40 | 184.0 | 36 | ||||||||||||||||||
Industrial and Special Products |
1,751.2 | 40 | 238.2 | 54 | 242.7 | 48 | ||||||||||||||||||
BOC Edwards |
684.1 | 16 | 7.9 | 2 | 18.5 | 4 | ||||||||||||||||||
Afrox hospitals |
353.4 | 8 | 46.1 | 11 | 46.1 | 9 | ||||||||||||||||||
Gist |
291.8 | 7 | 29.2 | 7 | 29.2 | 6 | ||||||||||||||||||
Corporate |
– | – | (59.9 | ) | (14 | ) | (14.9 | ) | (3 | ) | ||||||||||||||
| 4,323.2 | 100 | 438.6 | 100 | 505.6 | 100 | |||||||||||||||||||
Adjusted operating profit excludes exceptional items. See also pages 31 and 32
of the operating review.
The BOC Group contributes to the economies of some 50 countries
throughout the world. The US is the largest single source of sales
revenue for the Group’s products and services, followed by the UK.
Other major geographic areas for the Group are Australia, South
Africa, Japan and other markets in the Asia/Pacific region. The
business therefore operates from a broad geographical base with
local manufacturing in most of the key overseas markets.
14 The BOC Group plc Annual report and accounts 2003
Table of Contents
| Analysis of results by region (including share of joint ventures and associates) |
||||||||||||||||||||||||
| Turnover | Operating profit | Adjusted operating profit | ||||||||||||||||||||||
| £ million | % | £ million | % | £ million | % | |||||||||||||||||||
Europe |
1,154.4 | 27 | 137.0 | 31 | 144.3 | 29 | ||||||||||||||||||
Americas |
1,238.8 | 29 | 42.7 | 10 | 91.8 | 18 | ||||||||||||||||||
Africa |
585.5 | 13 | 85.0 | 19 | 85.0 | 17 | ||||||||||||||||||
Asia/Pacific |
1,344.5 | 31 | 173.9 | 40 | 184.5 | 36 | ||||||||||||||||||
| 4,323.2 | 100 | 438.6 | 100 | 505.6 | 100 | |||||||||||||||||||
Adjusted operating profit excludes exceptional items. See also pages 31 and 32
of the operating review.
The UK accounts for the largest part of the Group’s activities in Europe but
BOC has significant gases subsidiaries in Ireland and Poland, vacuum products
manufacturing in France and a pharmaceutical packaging machinery operation in
the Netherlands.
Gist, BOC’s supply chain solutions business, operates principally in the UK but
also has operations in other countries.
Subsidiaries in the US are engaged in the Group’s three lines of business. The
Group’s other principal subsidiaries, joint ventures and associates in the
Americas are located in Canada, Venezuela, Colombia, Chile and Mexico.
The largest Group subsidiary in Africa is African Oxygen Limited (Afrox), a
South African public company in which the Group owns 56 per cent of the equity.
The largest shareholder, other than BOC, holds less than 15 per cent of the
equity. Afrox, primarily through wholly-owned subsidiaries, is engaged in the
manufacture and sale of products within the PGS and ISP lines of business.
Afrox also has interests in private hospitals, clinics and other health care
services in southern Africa, primarily through its 69 per cent holding in Afrox
Healthcare Limited.
There are other Group or Afrox subsidiary companies in Africa located in
Botswana, Kenya, Malawi, Mozambique, Namibia, Nigeria, Swaziland, Zambia and
Zimbabwe. These companies are engaged primarily in the manufacture and/or sale
of products in the ISP line of business.
BOC has businesses in most of the Asia/Pacific markets, including Japan, Korea,
Thailand, Taiwan, Indonesia, Malaysia, Singapore, China, the Philippines,
India, Pakistan, Bangladesh, Australia and New Zealand. In Australia, the
Group’s business is conducted by BOC Limited. This company, as well as its
subsidiaries, joint ventures or associates, is engaged in the manufacture and
sale of products in the PGS and ISP lines of business. BOC participates in the
liquefied petroleum gas market in Australia through a 50 per cent shareholding
in Elgas Limited. Elsewhere in the Pacific region, the Group conducts its
business through subsidiaries, joint ventures and associated companies.
Management organisation
BOC’s management structure is based on three global lines of business and two
specialist businesses. Each line of business serves a clearly defined type of
customer and each pursues its own strategy for growth and performance at a
local level. The organisation is designed to maximise BOC’s global as well as
local strengths. The lines of business have global responsibility to set
strategy and prioritise investment. They include operational business units and
these local units are responsible to the Group chief executive for delivering
financial, safety and operational performance. The business units contribute to
the development of the strategies of the lines of business and customise and
implement them in local markets. The business unit heads collaborate in order
to share best practice and to maximise growth and profit opportunities wherever
they may appear.
Process Gas Solutions (PGS) manages all aspects of BOC’s business with
customers requiring bulk supplies of industrial gases from on-site plants or by
pipeline as well as deliveries of liquefied gases. Typical customers are found
in the oil and chemicals, food and beverage, metals, and glass sectors all
round the world. Marketing, business development and the execution of
investments to provide customer specific solutions for the supply of industrial
gases are handled by Process Systems, which forms part of PGS. Until 2002,
Process Plants, another unit forming part of PGS, was responsible for supplying
air separation technology within the Group with plants of its own design or
acquired from alliance partners and others. In March 2002 BOC announced plans
to merge its Process Plants operations with Linde Engineering in the US to form
a new company, Linde BOC Process Plants LLC.
The transaction was completed just before the end of 2002. BOC owns 30 per cent
of the combined company and Linde Engineering has become the principal supplier of industrial gases plant to BOC
worldwide.
Industrial and Special Products (ISP) covers BOC’s business with customers in
the fabrication, medical and leisure sectors as well as the special products
and liquefied petroleum gases businesses.
15 The BOC Group plc Annual report and accounts 2003
Table of Contents
Group profile continued
BOC Edwards embraces all aspects of business with semiconductor industry
customers worldwide including the supply of bulk gases and electronic
materials, vacuum and abatement technology, chemical management systems and
semiconductor-related services. BOC Edwards also serves general vacuum markets
around the globe and manufactures pharmaceutical freeze-drying and packaging
machinery.
The segment reporting as Afrox hospitals operates through Afrox Healthcare
Limited, which is quoted on the Johannesburg Stock Exchange. It owns and
manages private hospitals and clinics in southern Africa. Additional services
include a direct medicines service for chronic medication, occupational health
services, nursing training, pharmacy management and laboratory services. BOC’s
majority-owned subsidiary, African Oxygen Limited (Afrox), holds 69 per cent of
Afrox Healthcare Limited (AHealth). In July 2003 Afrox announced that it was in
the process of considering its strategic options with regard to its
shareholding in AHealth. On 17 November 2003, Afrox announced that it had
agreed to sell its entire holding in AHealth to a consortium of Black Economic
Empowerment investors. The sale remains subject to certain conditions including
clearance from the relevant competition and other regulatory authorities.
During 2001, BOC Distribution Services was re-named Gist to reflect the
changing nature of its business. Gist operates as a separate business unit
outside the lines of business structure. It remains focused on developing
business with major customers, including Marks & Spencer, and has developed
capability in supply chain consultancy, managed solutions, and electronic
commerce fulfilment services.
Corporate development
Over the last three years BOC has continued to invest in its core businesses at
the same time as divesting assets and businesses that were no longer consistent
with its strategy.
In 2001 BOC assumed full ownership of two south American hydrogen plants. BOC
purchased the interests from Foster Wheeler Power Systems in joint ventures
already operating in Chile and Venezuela.
As a result of a successful tender offer, BOC increased its shareholding in
Osaka Sanso Kogyo KK (OSK) in Japan from approximately 55 per cent to over 93
per cent with effect from 8 May 2001. The holding was further increased during
2002 to 97 per cent. In September 2002 BOC and Air Liquide announced a
conditional agreement to merge their industrial and medical gases businesses in
Japan. The merger became effective in January 2003 and BOC’s subsidiary in
Japan has retained a 45 per cent interest in the combined company called Japan
Air Gases Limited. In June 2001, BOC increased its holding in Thai Industrial
Gases Public Company Limited (TIG) from approximately 60 per cent to over 90
per cent and launched a tender offer for the outstanding shares leading to 99
per cent ownership.
In October 2001 BOC Edwards agreed terms for the acquisition of the vacuum and
pressure business of the Smiths Group. These businesses are located in the UK,
north America and continental Europe and typically serve customers in the
metallurgy, water treatment, food, power and chemical industries.
Hydromatix and Semco were also acquired during 2002 with the intention of
positioning BOC Edwards in those market segments expected to deliver the
fastest growth. These two companies, based in the US, are involved principally
in semiconductor wet processing technology including chemical blending delivery
and collection systems as well as liquid waste abatement systems.
BOC Edwards sold its glass coating business, based in the US, in April 2002 but
retained its Temescal business that supplies technology for compound
semiconductor manufacturing.
The acquisition of the turbomolecular pumps business from Seiko Instruments Inc
in Japan was announced in February 2002 and completed in March 2002 with the
principal objective of enhancing the ability of BOC Edwards to develop vacuum
sub-systems to satisfy the growing trend to on-tool pumping in the
semiconductor industry.
In April 2002 BOC purchased Matheson Gas Products Canada Inc, thereby adding an
important special products capability to BOC’s Industrial and Special Products
range in Canada.
In May 2002 BOC acquired Unique Gas and Petrochemicals Public Company Limited
(UGP), in Thailand. UGP is a leading supplier of liquefied petroleum gas (LPG)
and packaged ammonia in the industrial and special products markets.
In March 2002 BOC announced plans to merge its Process Plants operations with
Linde Engineering in the US to form a new company, Linde BOC Process Plants
LLC. The transaction was completed at the end of September 2002. BOC owns 30
per cent of the combined company and Linde Engineering has become the principal
supplier of industrial gases plant to BOC worldwide.
BOC’s associated company in Malaysia acquired 35.6 per cent of the gases
company Nissan Industrial Oxygen Inc (NIOI) in March 2002 and increased its
holding to 100 per cent in September 2002 following a tender offer. Each of
BOC’s three lines of business has absorbed a part of NIOI.
At the end of August 2002, BOC announced an agreement to purchase Praxair’s
Polish gases business. The transaction was completed at the end of January 2003
following approval by the Polish competition authority. The business acquired
includes a high proportion of industrial and special products sales.
In October 2002, BOC acquired Environmental Management Corporation (EMC), a
privately owned water services company based in St Louis, Missouri. EMC manages
water and wastewater treatment facilities for both industrial and local
municipal customers around the US. EMC forms part of the PGS line of business,
which intends to expand the range of solutions offered to its industrial
customer base.
At the end of January 2003, BOC acquired the partial oxidation syngas plant at
Clear Lake, Texas, from Celanese. Under the agreement BOC fulfils a significant
proportion of the industrial gas requirements for the Celanese chemical
facility at Clear Lake.
In March 2003 BOC announced an agreement to purchase the Canadian packaged gas
and related welding equipment business of Air Products. The acquisition was
completed in April 2003 following approval from the Canadian regulatory
authority.
16 The BOC Group plc Annual report and accounts 2003
Table of Contents
Industrial gases
The BOC Group is one of the major producers of industrial gases in the world.
Its products include the atmospheric gases (nitrogen, oxygen and argon)
produced by air separation plants as well as hydrogen, carbon monoxide and
syngas (a mixture of hydrogen and carbon monoxide) made by technologies
including steam-reforming or partial oxidation of hydrocarbons. The Group also
markets carbon dioxide, helium and liquefied petroleum gas. These are generally
derived as by-products from chemical processes or from natural sources and are
also purchased from other producers. In addition, the Group markets dissolved
acetylene and a wide range of special gases, medical gases, gas mixtures and
gaseous chemicals.
Industry structure and consolidation The industrial gases business is
capital-intensive, with increasing demand, together with economies of scale,
leading to the need for large production units and distribution networks. The
need for fixed asset investments, the trend towards global customers and the
benefits from the transfer of applications technology worldwide have resulted
in the business being handled by a relatively small number of companies
internationally.
One or more other major international producers compete in each of the
industrial gases markets served by the Group, and in many of the markets there
are smaller local producers as well. International competitors include Air
Liquide, Praxair, Air Products and Chemicals, Linde, Messer, Airgas and Nippon
Sanso. The world market for gases and related products is estimated to be over
£20 billion a year.
On 13 July 1999 the board of The BOC Group agreed the terms of a
pre-conditional cash offer at £14.60 per share to be made jointly by Air
Liquide and Air Products. Making the offer was conditional upon those companies
obtaining satisfactory regulatory clearances in Europe, Canada and the US by 13
March 2000. Following an extension to the pre-conditional offer period to
conclude discussions with the Federal Trade Commission (FTC) in the US, the
bidders allowed the offer to lapse on 10 May 2000.
Principal industrial gas products Nitrogen possesses two key characteristics
that make it the world’s most widely used and versatile industrial gas.
Nitrogen is almost inert and when liquefied it is intensely cold. This makes
liquid nitrogen a highly effective, versatile and non-polluting agent for
freezing and chilling.
Under normal conditions nitrogen is chemically inactive. This makes it an
important purging and blanketing gas in the chemical and refining industry as
well as in the electronics industry.
Oxygen, in contrast to nitrogen, is useful for its reactivity. It supports
combustion and it supports life. Oxygen has been used in welding and medicine
for over 100 years and in steel production since the 1950s.
Iron and steel producers use oxygen to accelerate melting and to improve metal
quality during the refining process. It is also used by the oil and chemicals
industries and many others for a variety of oxidation processes. Mixed with
fuel gases, oxygen provides a heat source for many welding, cutting and metal
fabrication processes.
Argon makes up less than one per cent of the atmosphere but it is the most
abundant truly inert gas. It is used to provide a shielding atmosphere in
welding, metal fabrication, aluminium processing, microelectronics, glass
coating, advanced ceramics and other industrial processes. It is also used in
the steel industry, principally in the production of stainless steel.
Hydrogen is typically produced by steam reforming or partial oxidation of
natural gas, petroleum gas, or liquid or solid hydrocarbon feedstocks. Hydrogen
may also be recovered from by-products purchased by BOC from external
suppliers. Hydrogen is used primarily in the oil and chemicals industries for
applications aimed at upgrading crude oil through hydrocracking to form lighter
fractions and to remove sulphur in the production of cleaner fuels. The
chemicals industry also uses hydrogen where it is required as an active
ingredient in many large-scale processes.
Helium is extracted from natural gas deposits. Only a few sources in the world
contain a sufficient proportion of helium to justify its separation. The
Group’s supplies now come from the US, Poland and Russia and are secured by
long-term contracts. In June 2003, BOC announced an agreement to obtain half
the output from a new helium extraction facility to be constructed in Qatar.
Deliveries from this new source are expected to begin in July 2005. Because of
its high value, helium is the only major industrial gas to be extensively
traded internationally. Helium is used in welding, leak detection, hospital MRI
scanners and increasingly in the production of optical fibres. Helium gas
mixtures are used in balloons.
Carbon dioxide supplied by BOC is obtained as a by-product from other
companies’ manufacturing processes, from natural sources or recovered in the
generation process for hydrogen or syngas and put to constructive use. Solid
carbon dioxide is, like liquid nitrogen, used for chilling and freezing in the food
industry. As a gas it is used to carbonate and dispense beverages of all kinds.
Acetylene is normally supplied in cylinders and used together with oxygen in
metal cutting and welding applications. BOC is a major manufacturer of
dissolved acetylene.
Liquefied petroleum gas (LPG) is a fuel gas with a wide variety of domestic,
industrial and transport applications. BOC is a major distributor of LPG in
South Africa and Thailand, and its joint venture company Elgas Limited is a
major distributor in Australia. BOC has smaller market positions in several
other countries.
17 The BOC Group plc Annual report and accounts 2003
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Group profile continued
Production of industrial gases Oxygen was first extracted from the atmosphere
by a chemical process. This was superseded over 80 years ago by the cryogenic
(low temperature) process involving the liquefaction and distillation of air.
The cryogenic process is still by far the most widely used, but non-cryogenic
techniques (pressure swing adsorption and membrane diffusion), which were first
developed during the 1970s, are becoming increasingly significant for smaller
or less demanding on-site applications.
Cryogenic air separation is a mature and stable technology, although
incremental technical advances are still yielding improvements in capital cost,
operating cost, ease of operation and reliability. The only significant ‘raw
material’, apart from the air itself, is electricity, which is used in large
quantities to drive compressors, pumps and other equipment. The production
process in modern air separation plants is highly automated, and remote
operation of BOC’s plants from control centres is becoming increasingly common.
The production of hydrogen and syngas uses steam reforming or partial oxidation
of hydrocarbon feedstocks such as natural gas, petroleum or coal to separate
the hydrogen and carbon compounds. The choice of feedstock is related to their
prices in local markets.
Distribution of industrial gases Industrial gases may be supplied to customers
in a variety of ways; through pipelines from on-site or nearby cryogenic or
non-cryogenic plants, by deliveries of liquefied gases in road or rail tankers,
in portable cryogenic containers or in cylinders (also called compressed or
packaged gases).
Distribution is an important competitive factor in the industrial gases
business and the methods of distribution vary according to the nature of the
products themselves and the customer’s volume requirements. Most gases have to
be stored and distributed either under great pressure, which requires them to
be carried in heavy and bulky cylinders, or at extremely low temperatures in
specially insulated tankers, which limits how far they can be transported
before carriage costs become unacceptable. Pipeline delivery involves high
capital costs and the routing is inflexible. As a result, there is little
international trade in industrial gases. Production has to occur in or near the
market being served and there is a trend towards production at customers’ own
sites.
Business segments
The BOC Group reports financial results for the three lines of business and for
Afrox hospitals and Gist separately.
Process Gas Solutions (PGS)
This line of business covers BOC’s business with larger-scale industrial
customers worldwide, typically in the oil and chemicals, food and beverage,
metals, and glass sectors. Gases and services are supplied as part of
customer-specific solutions that create the most value for customers at the
lowest cost to BOC. These range from supply by pipeline or from dedicated
on-site plants to the largest users, to supply by road tanker in liquefied form
to others.
Tonnage (pipeline) customers are usually supplied on the basis of long-term
contracts, typically containing a fixed facility charge together with a
variable charge for product supplied in excess of a set minimum quantity.
Revenues from these contracts thus have a measure of stability with respect to
changes in demand for product. Tonnage plants are often built to produce
merchant gases in addition to those required by the tonnage customer and these
gases can be sold to other customers. The BOC Group has substantial positions
in the tonnage markets of the UK, the US, Australia, South Africa and Asia as
well as in some smaller markets. The products supplied to tonnage customers
have traditionally been the atmospheric gases oxygen, nitrogen and argon. More
recently, hydrogen and syngas are becoming significant tonnage products as are
associated utilities including steam and power.
The delivery of liquefied gases by road or rail to the customer’s site is
normally limited by transport costs to a radius of about 200 miles. Product for
this market is supplied either from merchant plants or from tonnage plants
incorporating liquefiers. Larger users are typically supplied with product in
liquid form delivered in cryogenic tankers into special storage vessels
installed at customer premises. Tankers and vessels are often BOC Group owned.
Liquefied gases are usually supplied on the basis of contracts with terms of
one to five years. Revenues are generally based upon the actual quantity of gas
consumed, with an additional fixed charge for the use of storage equipment.
The growth of sales and profit in this line of business is driven by investment
in new production facilities. Such investment is predominantly the result of
opportunities to satisfy long-term supply contracts with one or more heavy
industrial customers for each plant.
Marketing, business development and the execution of investments to provide
customer-specific solutions for the supply of industrial gases are handled by
Process Systems, which forms part of PGS.
18 The BOC Group plc Annual report and accounts 2003
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Business development During the early part of 2001, BOC reached full commercial
operation of an integrated refinery and merchant gases facility in Brisbane,
Australia, significantly ahead of schedule. The facility supplies hydrogen,
using partial oxidation technology, for BP’s mild hydrocracker and has an air
separation complex supplying oxygen to help upgrade the capacity of the
refinery’s catalytic cracker unit. In addition the facility produces oxygen,
nitrogen, argon, hydrogen and carbon dioxide for BOC’s merchant market,
replacing and increasing capacity over previous and less-efficient production
facilities.
In 2001, BOC took full ownership of two hydrogen joint ventures already
operating at refineries in Chile and Venezuela. This was done by purchasing the
interests of the other partner, Foster Wheeler Power Systems.
BOC started the supply of up to 800 tonnes per day of oxygen to Mitsubishi
Materials’ copper and electrical component recycling facility at Onahama, Japan
in 2001.
A number of hydrogen supply plants were completed during 2001, including those
supplying Dow Corning and Roche in the UK.
A plant to supply OneSteel at Whyalla in South Australia was commissioned in
November 2001 also replacing and increasing capacity over previous and less
efficient merchant plants in Adelaide. Shortly afterwards in January 2002 a new
plant began supplying Huntsman on Teesside in the UK with hydrogen to be used
for the production of aniline.
In April 2002, BOC established a joint venture in Nanjing with Yangtze
Petrochemical Corporation (YPC), which is a subsidiary of Sinopec, China’s
leading petrochemical company. BOC purchased existing air separation assets
with effect from May 2002 and construction of new air separation capacity is
underway. BOC’s joint venture will be a supplier to a new BASF and YPC joint
venture plant also under construction and scheduled to begin production in
2004. Additional liquefaction capacity was added to the existing air separation
facility during 2003. These investments give BOC a strategic position as a key
supplier in the Nanjing area, which is being developed through foreign
investment as a leading centre for chemical production in China.
In the US a new plant began to supply WCI Steel in Ohio in May 2002 and a plant
at Midland, North Carolina, began production in June 2002.
In October 2002, BOC acquired Environmental Management Corporation (EMC), a
privately owned water services company based in St Louis, Missouri. EMC manages
water and wastewater treatment facilities for both industrial and local
municipal customers around the US. EMC’s management services extend to steam
systems, cold and chilled water systems and wastewater treatment. Customers
include small to medium municipalities and industrial customers, many of which
are in the food sector. EMC forms part of the PGS line of business and BOC’s
strategy is to expand the range of solutions offered to its industrial customer
base.
At the end of January 2003, BOC acquired the partial oxidation syngas plant at
Clear Lake, Texas, from Celanese. Under the agreement BOC fulfils a significant
proportion of the industrial gas requirements for the Celanese chemical
facility at Clear Lake. The Celanese facility is located on the Houston ship
canal, and includes a world scale vinyl acetate monomer plant and the world’s
largest acetic acid plant. These require large quantities of oxygen and
nitrogen as well as carbon monoxide.
A new hydrogen and carbon monoxide (HyCO) plant supplying the Thai
Polycarbonate Company for the manufacture of plastic resins began production in
2003 and in August 2003, BOC announced that a new plant at Rayong would double
its carbon dioxide capacity in Thailand before the end of calendar 2003. The
plant will supply the local poultry and prawn industries as well as providing
carbonation gas to the beverage industry.
In October 2003, BOC commissioned a new hydrogen plant supplying Citgo’s oil
refinery at Lemont, Illinois. The hydrogen will be used in the removal of
sulphur to produce clean fuels.
Industrial and Special Products (ISP)
Gases for cutting and welding, hospitality, laboratory applications and a
variety of medical purposes are mainly distributed under pressure in cylinders.
The ISP line of business covers products and services provided to this section
of the market together with sales of packaged chemicals and liquefied petroleum
gas (LPG). Customers are typically in the fabrication, engineering, automotive,
refrigeration, hospitality or medical sectors. The customer base is therefore
broad and varied. The number of separate customers served by ISP is much
greater than the other two lines of business and the quality of service is
often the key factor in securing existing or obtaining new customers. In order
to raise service standards at the same time as reducing costs, national
customer service centres have been successfully established in all the major markets.
In addition to supplying gases, BOC also supplies a range of associated
equipment in many of its major markets. This includes cutting and welding
products and, in some markets, associated safety equipment.
19 The BOC Group plc Annual report and accounts 2003
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Group profile continued
BOC has devoted considerable attention over the last three years to understand
the requirements of different types of customer in its major markets and to
provide the required service at an appropriate price. Such customer
segmentation programmes have been implemented in the UK, South Africa,
Australia, Asia, Latin America and are in progress elsewhere.
The cutting and welding applications are a relatively mature part of the
industrial gases business and growth opportunities are principally in other
segments of the market such as medical applications, packaged chemicals,
hospitality and services. BOC is pursuing these opportunities by the
development of new products, packages and services as well as by marketing
initiatives to take advantage of BOC’s global capabilities by introducing
existing products to new regions. Electronic commerce has also become an
important tool for sustaining and growing sales by making it easier for
customers to manage their business with BOC as a supplier.
BOC is a leading supplier of helium and has liquid helium distribution centres,
or transfills, in many markets around the world. With 42 helium transfills
worldwide, management believes that this is the largest global network of its
kind. Helium has a broad range of applications, including medical imaging and
welding, and is vital to the production of optical fibres, semiconductors and
special alloys. It is also used for leak detection, underwater breathing
mixtures and lifting.
Business development In April 2002, BOC acquired Matheson Gas Products Canada
Inc, one of Canada’s leading providers of special gases and equipment. Unique
Gas and Petrochemicals Public Company Limited (UGP), a leading distributor of
liquefied petroleum gas (LPG) and ammonia in Thailand, was acquired in May
2002. BOC’s associated company in Malaysia acquired 35.6 per cent of the gases
company Nissan Industrial Oxygen Inc (NIOI) in March 2002 and, following a
tender offer, increased its holding to 100 per cent in September 2002. At the
end of August 2002, BOC announced an agreement to purchase Praxair’s Polish
gases business. The transaction was completed in January 2003 following
approval by the Polish competition authority. The business acquired includes a
high proportion of industrial and special products sales.
During 2002, BOC continued its global roll-out of a light-weight medical
cylinder with an integrated valve and regulator for homecare patients and
emergency services. Heliox, a helium and oxygen mixture formulated to ease the
respiratory effort associated with airway obstruction, was launched in the UK.
Capacity at BOC’s Otis, Kansas, helium plant was expanded in 2002 to match
market demands. In addition, BOC has access to helium produced by other US
plants, as well as to product from Poland and Russia. In 2003 BOC and KRIO, a
division of the Polish Oil and Gas Company, entered into a new helium supply
agreement. BOC will purchase for export all of KRIO’s helium that is not sold
to its domestic customers in Poland. BOC has been KRIO’s sole customer for bulk
liquid helium since the original agreement was signed in 1972. In June 2003,
BOC announced an agreement to obtain half the output from a new helium
extraction facility to be constructed in Qatar. Deliveries from this new source
are expected to begin in July 2005.
Magnetic resonance imaging (MRI) systems use liquid helium to cool
superconducting magnets. BOC provides helium as well as a liquid nitrogen
filling service to meet MRI operators’ total requirements. In 2002, ISP signed
a major helium supply scheme with Oxford Magnet Technology in the UK.
BOC continued to invest in refrigerant filling facilities during 2002 and in
2003 new filling facilities were installed in Hong Kong, Malaysia and the
Philippines. Each of these was built to a standardised global design. BOC now
supplies refrigerants in 19 countries compared with six countries in 1999. In
June 2003, BOC announced a global alliance with Hudson Technologies to promote
technology for cleaning and recycling used refrigerants.
Significant progress in developing web-based customer portals was made in 2002.
Amongst others, ISP launched customer portals in the UK, Australia and New
Zealand. Thousands of customers are now able to access detailed material on
BOC’s product service offers, manage and settle their accounts and place orders
on-line.
BOC acquired the Canadian packaged gas and related welding equipment business
of Air Products in April 2003.
20 The BOC Group plc Annual report and accounts 2003
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BOC Edwards
This line of business specialises in gases, services and equipment for the
semiconductor industry as well as vacuum products for a range of other
industries. It is organised into four customer-facing divisions for sales and
marketing and into four manufacturing divisions. The customer-facing divisions
are Asia/Pacific, Japan, the US and Europe and the manufacturing divisions are
Vacuum and Exhaust Management, Chemical Management, Bulk Gases and Electronic
Materials. Kachina (semiconductor process tool component management service),
Coating Technology and Pharmaceutical Systems were managed separately in the
period 2001 to 2003. The major markets for BOC Edwards’ products are in Asia,
north America and Europe.
Management believes that BOC Edwards has a unique position as a fully
integrated supplier of gases, vacuum, chemical, slurry and exhaust management
products, as well as services to the global semiconductor industry and is a
leader in the design and manufacture of vacuum pumps, instrumentation and
systems for both general vacuum and semiconductor applications.
The vacuum and exhaust product ranges are manufactured or assembled primarily
in the UK, with additional manufacturing and assembly in the US, Japan and
Korea. They include vacuum pumps, coating systems, exhaust management systems,
temperature control systems and heat exchangers, instrumentation and controls,
vacuum accessories and leak-detection equipment. The range also includes
specially designed systems for specific applications, depending on customer
requirements.
In addition to the semiconductor industry, the leading customers are in the
chemicals, scientific instruments and other industries, as well as in
educational and research establishments. General vacuum products are sold to
such customers by a separate sales force.
Chemical Management Division specialises in the design, manufacture and
installation of the systems used to deliver liquid process chemicals, including
planarisation slurries to the point of use within semiconductor fabrication
facilities. BOC Edwards’ chemical management products are manufactured mainly
in the US, while electronic materials plants are located in the US and in Asia.
BOC Edwards’ service facilities, including plants for cleaning semiconductor
process tool parts, are located near concentrations of semiconductor
fabrication facilities around the world.
Technology is important to maintain a competitive edge in this business, and
considerable resources are committed to enable the business to address new
applications and markets. A new exhaust management laboratory was opened in
Japan during 2001. Over 250 staff are employed in development project teams
worldwide.
The Group’s vacuum products are sold directly by Group companies to end users
and also through distributors and agents. Management believes that the Group is
a leading manufacturer of the types of vacuum products that it makes and
provides. The business is highly competitive, with product design and quality,
leading to the lowest cost of ownership, being very significant factors.
Sales opportunities for much of BOC Edwards’ semiconductor equipment business
are dependent upon capital investment by the semiconductor industry. Management
believes that semiconductor production remains on a long-term growth trend but
capital investment by semiconductor manufacturers has been subject to sharp
variations for a number of reasons, some of which arise from advances in
technology.
The products of BOC Edwards Pharmaceutical Systems are tailored specifically to
individual customer requirements in the pharmaceutical industry and are used
mainly for injectable products. Freeze-drying systems are made in Tonawanda,
New York, US. Filling, sterilising and packaging lines for the pharmaceutical
industry are made at Dongen in the Netherlands.
Business development In the period 2001 to 2003, new ranges of dry pumps for
the semiconductor industry were introduced as well as a comprehensive new range
of exhaust management products. These new products meet the needs of new 300mm
wafer and flat panel manufacturing facilities.
A new range of turbomolecular pumps and an innovative dry pump were introduced
for scientific customers as well as new dry pumps for industrial customers over
the same period. New single axis on-tool pumps for semiconductor manufacturing
and a range of liquid ring pumps for industrial applications were introduced in
2003.
During 2003, an enhanced range of gases and vacuum products for lithography was
offered to semiconductor manufacturers. Narrower line widths are requiring new technology including a
supercritical carbon dioxide process for wafer cleaning.
In July 2000, BOC Edwards acquired Kachina Semiconductor Services, a US company
specialising in the cleaning of process tool chamber parts. In the same year a
new facility and divisional headquarters was established in Phoenix, Arizona,
followed by a new facility in Portland, Oregon. Additional facilities were
opened in France and China during 2002.
21 The BOC Group plc Annual report and accounts 2003
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Group profile continued
Production of nitrogen trifluoride gas (NF3) for the semiconductor industry was
started at a plant in South Africa during 2000 and production capacity was
further increased during 2003. This product is an important etchant that is
also used for in-position cleaning of semiconductor process equipment.
In September 2001, BOC acquired Fluorogas Limited, a UK based company with
expertise in the development and operation of low pressure on-site fluorine
generators. The acquisition was made to assist in BOC Edwards’ development of
alternative cleaning systems for semiconductor process tool chambers. As a
result of a jury verdict against Fluorogas Limited in a US litigation action,
Fluorogas Limited was placed in administration. Further details of the
litigation are given in the financial review on page 50.
During 2001, a decision was taken to concentrate electronic materials
production into fewer locations and to close some existing facilities in the UK
and the US to increase efficiency and reduce costs. These closures were
completed in 2002.
In October 2001 BOC Edwards agreed terms for the acquisition of the vacuum and
pressure business of the Smiths Group. These businesses are located in the UK,
north America and continental Europe and typically serve customers in the
metallurgy, water treatment, food, power and chemicals industries rather than
semiconductor manufacturing.
The acquisition of the turbomolecular pumps business from Seiko Instruments Inc
in Japan was completed in March 2002 with the principal objective of enhancing
the ability of BOC Edwards to develop vacuum sub-systems to satisfy the growing
trend to on-tool pumping in the semiconductor industry.
Hydromatix and Semco were also acquired during 2002 with the intention of
positioning BOC Edwards in those market segments expected to deliver the
fastest growth. These two companies, based in the US, are involved principally
in semiconductor wet processing technology including chemical blending delivery
and collection systems as well as liquid waste abatement systems.
BOC Edwards sold its glass coating business, based in the US, in April 2002 but
retained its Temescal business that supplies technology for compound
semiconductor manufacturing.
Afrox hospitals
Afrox Healthcare Limited owns 63 hospitals and clinics and has a minority
interest in a further seven hospitals managed by others. In addition it also
manages the Lifecare group of chronic-care hospitals. In addition to hospitals
and clinics, which are the core business, Afrox Healthcare Limited also
includes Afrox Healthcare Services, which facilitates a direct medicines
service for chronic medication, and provides occupational health services,
nursing training and laboratory services. Management believes that Afrox
Healthcare Limited is the leading provider of private health care in southern
Africa.
During 2000, African Oxygen Limited (Afrox) increased its holding of Afrox
Healthcare Limited to 82 per cent. During 2001, the 55 per cent interest in
Lifecare Special Health previously held by Afrox was bought by Afrox Healthcare
Limited.
In January and July 2002, Afrox sold parts of its holding in Afrox Healthcare
Limited but retains a 69 per cent interest. This disposal was in accordance
with the terms of the transaction between Afrox and PresMed that took place in
1999.
In July 2003 Afrox announced that it was in the process of considering its
strategic options with regard to its shareholding in Afrox Healthcare Limited.
On 17 November 2003, Afrox announced that it had agreed to sell its entire
holding in Afrox Healthcare Limited to a consortium of Black Economic
Empowerment investors. The sale remains subject to certain conditions including
clearance from the relevant competition and other regulatory authorities.
Gist (formerly BOC Distribution Services)
Gist is a provider of specialist supply chain solutions. The name Gist was
adopted during 2001 to reflect both the continuing focus on supply chain
operations and an increased emphasis on supply chain consulting, managed
solutions and logistics support to e-fulfilment opportunities. This realignment
of the business followed a planned withdrawal from most non-Marks & Spencer
primary temperature controlled operations in the period 1999 to 2000.
High quality supply chain operations remain at the core of the business. Gist
manages a range of supply chains on behalf of retailers, mainly in the UK, as well as some overseas. For over 30
years Gist has been the largest supply chain provider for Marks & Spencer. Gist
currently handles all of its UK food distribution and the consolidation and
dispatch of all overseas shipments to subsidiaries and franchised operations.
During 2003, Gist ceased to operate general merchandise logistics and garment
stockholding operations on behalf of Marks & Spencer.
Gist has provided supply chain consultancy services to major supermarket and
catalogue retailers in the UK and demonstrated its capabilities in managing
international supply chains. In addition an on-line wholesaling operation has
extended the range of Gist’s skills offered externally.
22 The BOC Group plc Annual report and accounts 2003
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Employees
At 30 September 2003 the Group had 44,507 employees (2002: 46,280 employees,
2001: 43,171 employees). Employees of the company and its subsidiaries were
located as follows:
Europe |
12,353 | |||
Americas |
7,451 | |||
Africa |
17,138 | |||
Asia/Pacific |
7,565 | |||
The employee base was very stable and unplanned turnover was low during the
year. BOC was successful at retaining the organisation’s core skills and
capabilities and, as a result, continues to be able to meet its business,
customer service and health and safety targets. BOC’s capability review and
succession planning processes highlight that it has solid capability in most
areas and adequate succession depth to meet both its technical and leadership
requirements. Plans to strengthen this capability further are progressing well.
Employee satisfaction and commitment
Levels of employee satisfaction and commitment are generally high. Progress
continues to be made in achieving a culture of accountability, collaboration,
transparency and stretch, known as ACTS in BOC. The ACTS principles provide a
framework that enables employees to evaluate and critique how they deal with
each other as well as how they work with customers, suppliers and the
community. Business units continue to work on improvement areas identified as a
result of the 2002 Employee Survey. Progress will be measured through a
follow-up survey.
Employment policies and Code of Conduct
The BOC Group takes its responsibilities as a global organisation seriously. It
is committed to fostering a workplace that is safe and environmentally sound.
It will always act in line with all applicable laws, regulations and industry
standards. It expects people to respect confidential information and company
time and assets. It believes in open and honest communication, fair treatment
and equal opportunities. It opposes public corruption, anti-competitive
behaviour and insider trading, and it supports the fundamental principles of
good governance and human rights.
The company is a signatory of the UN Global Compact and subscribes to its nine
principles of human rights. These principles represent minimum standards for
BOC and in many of the areas covered, existing standards exceed those set out
in the Global Compact.
During the year, BOC launched a global Code of Conduct, a framework of legal
and ethical standards for all BOC people to work and live by. This is an
important programme that draws together and builds on many existing standards
and processes in BOC.
The code is supported by a number of processes. BOC has introduced a
confidential helpline to deal with questions in every country where it
operates. It has translated the standards into key languages. It is also making
sure everyone has access to appropriate training and guidance.
In addition to the Code of Conduct, BOC provides guidance and leading-edge
human resources policies to support BOC people in their day-to-day activities
and long-term career planning. These are aligned to a set of corporate values
and principles. The heart of this approach is the recognition that the energy
and application of individuals and teams throughout the organisation will
determine competitive advantage in today’s complex global market.
BOC’s employment policies are designed to underpin the Group’s operating
requirements and growth strategies. The human resources units implementing
these policies are close to the business units in each geography and, as far as
practicable, Group policies are adapted to meet local requirements.
Communication and involvement
BOC places a high priority on two-way communications with its people. The
primary communication channels are within the business units, where local
managers work with their people and two-way communication is most achievable.
The Group also uses a number of formal and informal communication channels to
share information and to shape behaviour. In addition to traditional media such as videos, magazines,
newsletters and briefing packs, BOC has continued to invest in e-mail and
web-based communications technologies to ensure that consistent and coherent
messages are conveyed speedily to its people around the world.
The Group actively searches for ways to involve employees in shaping the
future. It is common to find teams of people meeting to review or jointly
create processes, systems or strategies. A variety of employee structures exist
for these purposes, including peer groups, special interest groups, teams of
excellence and quality teams. Multi-disciplinary and cross-geographic groups of
employees regularly meet, either face-to-face, or by using tele-, video- and
web-based meeting technologies which have been installed for these purposes.
Resourcing, training and development
Resourcing, training and development programmes are designed to ensure that the
Group has a pool of well-qualified, gifted individuals able to meet day-to-day
operational needs and plans for the future.
BOC conducts a robust annual process to assess the strengths and weaknesses of
its units.
It is committed to providing its people with opportunities to develop and grow,
but also to bring new blood into the organisation through targeted external
recruitment. A global, web-based recruiting platform is being rolled out
globally to supplement other recruitment channels.
BOC continued to place great emphasis on personal and career development over
the past year. Employees are encouraged to be proactive about their future
careers and development opportunities. The aim is for all employees to have
regular discussions with their managers regarding their aspirations, prospects
and development needs. These result in the formulation of an individual
development plan, which is an agreed course of action to meet employees’ needs
as well as the needs of the organisation.
23 The BOC Group plc Annual report and accounts 2003
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Employees continued
BOC offers many opportunities for career and personal development. Employee
development takes the form of on-the-job coaching and training, development
projects, secondments, e-learning, as well as more traditional classroom-based
training.
In addition to the development that takes place to achieve current job
effectiveness of all employees, high potential employees are identified and
developed with future roles in mind. Lead is an ambitious executive development
programme for high potential senior managers, facilitated by world class
external providers as well as senior BOC executives. It is customised for BOC
and is comprehensive in its scope. The programme offers a tailored curriculum
and is designed to equip the participants with the broad range of skills and
experiences they will need to be successful leaders within the Group. To date,
over 100 senior leaders have had the opportunity to participate in Lead
programmes.
During the past year, a new leadership development programme, iLead, has been
designed and developed for high potential middle managers. It is the intention
to run iLead programmes in each BOC region, each year. Lead and iLead augment
many other management development initiatives, which are provided to
supervisors and managers around the world.
BOC believes that how its employees work is as important as what they produce,
which is why it has concentrated on the behaviours associated with
accountability, collaboration, transparency and stretch – the ACTS cultural
principles. Accountability comes through people knowing what they are
accountable for and being empowered to deliver. Collaboration is about drawing
on the rich diversity of styles, talents and skills across the Group to
maximise achievements. BOC values transparency because of the belief that
visible problems can be solved and that informed people make better decisions.
Finally, stretch advocates continually pushing the boundaries of performance.
BOC has created a set of leadership competency models, which are aligned to
ACTS. All recruitment, development, recognition and enhancement processes are
being aligned to this comprehensive and unified BOC view of leadership and
management.
Reward and recognition
An organisation that aspires to excellence must recognise and reward the
achievement of excellence. The Group continues to refine the key value drivers
of its business units and to ensure it can reward and recognise outstanding
individual and team performance in the fulfilment of business goals. Programmes
to achieve this are cascaded throughout the organisation to heighten focus on
effective performance at all levels.
The Group continues to move towards a total reward system that allows people to
structure their remuneration and benefits to suit their individual needs.
Senior executives’ remuneration is linked to a Group-wide variable compensation
plan, which is described in the report on remuneration on page 60.
Retirement benefit plans
BOC considers it important that its people provide for their retirement, and
fully supports their efforts in this regard. Around the world, the Group
provides opportunities for people to participate in retirement programmes
tailored to suit local conditions. Just as important, the board’s pensions
committee takes prudent steps to monitor and control Group-wide retirement
benefit plans with local managers being responsible for safeguarding the
security of each retirement plan that they sponsor.
During the year, BOC closed its UK defined benefit pension schemes to new
members and replaced them with a new defined contribution plan.
The financial position of the Group’s main pension funds is detailed in note 8
to the financial statements.
Diversity
As one of the UK’s few truly global companies, BOC highly values the rich
diversity of its people. While the Group consistently champions a set of
unifying values and principles, they are not imposed regardless of local
sensibilities. Rather, the Group strives to build on the qualities inherent in
its global environment by encouraging people with different views, styles and
approaches. Wherever in the world it operates, BOC is committed to maintaining
a workplace free from discrimination for reasons of race, creed, culture,
nationality, religion, gender, sexual orientation, age or marital status.
Disability is not considered a barrier to employment and, as far as local
conditions allow, employees are selected on the basis of their ability to
perform the job. Further necessary training is arranged, taking account of
their particular needs and the resources required to meet them.
Employee share schemes
Many BOC employees in the UK and some other countries have built up an equity
interest in the Group’s business through employee share schemes. Options may be
granted at a discount to the market price at the date of grant. The term of
options granted could be from three to seven years and any option is
conditional on a commitment by the individual to make regular savings from pay
that are then held by an independent organisation to purchase shares at the end
of the option period. The exercise of options under these schemes can be
satisfied by the issue of new shares or the transfer of existing shares.
24 The BOC Group plc Annual report and accounts 2003
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Safety, health and the environment
Overall safety performance
| 2002 | 20031 | |||||||
| Lost workday case rate | 0.37 | 0.45 | ||||||
| Total recordable case rate | 0.76 | 1.18 | ||||||
| Passenger car avoidable accident rate | 1.72 | 1.99 | ||||||
| Truck avoidable accident rate | 2.13 | 2.75 | ||||||
BOC is committed to excellence in safety, health and environmental management.
Each employee is expected to comply with all external regulations and the
Group’s global Code of Conduct. BOC’s commitment is best illustrated by the
breadth of measures taken to equip employees with the appropriate safeguards,
tools and training.
This year, BOC launched and implemented its Code of Conduct. The code sets out
the values and standards which guide the way BOC businesses around the world
conduct themselves. The legal, ethical and corporate responsibility dimensions
of safety, health, environment and quality (SHEQ) management are key features
of the code’s programme of communication, training, adherence, checks and
audits. The code also ensures that SHEQ issues are managed consistently across
all countries and businesses.
A dedicated SHEQ department ensures that the Group has a deliverable policy, is
proactive in its risk assessment and professional in its remediation.
BOC has well-established programmes governing SHEQ performance. These
standards, procedures and tools are firmly embedded by the Group’s global
integrated management systems and standards (IMSS) database. IMSS disseminates
the Group’s SHEQ policies through the BOC intranet, outlining the minimum
standards and actions needed to align with or conform to ISO 9000 (quality
assurance), ISO 14001 (environment) and ISO 18001 (health and safety)
management systems as well as the international safety rating systems (ISRS).
The management of safety and environmental performance is measured in the same
way as are other key business indicators. BOC has improved efficiency with more
recycling, better energy conservation and less raw materials waste from the
Group’s production and distribution processes.
Safety
BOC manufactures and distributes some products that are potentially hazardous,
being stored at very low temperature or under pressure, with some exhibiting
toxic or flammable properties. BOC is committed to practising and communicating
safe operations around the world as part of its product stewardship process. It
is as important for the Group to transmit safe working methodologies to
customers and suppliers as it is to have clear, entrenched and measurable
performance standards practised by all BOC plants, depots and distributors.
Each business unit has a safety function, reporting to the business unit’s
executive and to the Group SHEQ function through a peer group network. This
ensures that global best practice and the functional requirements of the
business are always at the forefront of management thinking.
Controlling process-related risks is of the utmost importance. Any incidents
that do occur are thoroughly investigated and the lessons learned are applied
throughout the organisation to minimise the likelihood of recurrence. Safety
lessons are shared throughout the gases industry and BOC continues to
participate fully in the development and application of industry-wide codes.
In 2001, BOC instigated a five-year plan to halve the Group’s accident rate.
Five-year strategies were developed across all business units to enable safety
objectives to be achieved. The main items underpinning the strategy are
implementing, communicating, measuring and reporting best practice as well as
standardising worldwide competency levels, training and increasing focus on
safety behaviours.
The competence and training of BOC employees is continually improving as the
Group’s IMSS package is rolled out globally. BOC’s senior executives have
committed to achieve agreed safety training competencies. This process is being
cascaded throughout the organisation.
As part of its five-year strategy, BOC has started to implement a process
focusing on safety behaviours to improve and sustain performance across the
organisation. This process combines visible leadership, a binding safety
policy, an integrated organisation for managing safety across the Group, a
system of behavioural safety assessments and the use of positive leading
indicators such as training and the clearance of corrective action to ensure
the achievement of safety goals.
This year, the Group safety function changed the basis of its incident
reporting. Incident reports have been extended to include recent mergers and
acquisitions and all joint ventures. The graph figures detailing BOC’s safety
performance for 2003 are on this basis but it is not possible to rebase the
preceding years.
It is with great sadness that the Group reported four employee fatalities this
year. This is a matter of intense regret. None of the fatalities was process
related. One employee died in Thailand after a roadside incident. One died in
Chile when he fell from a warehouse roof. One died in South Africa when his
tanker hit some debris on the road. One died in the UK in a road traffic
accident.
A great deal of effort has been made to improve safety performance with
increased scrutiny and implementation of rigorous procedures, including new
Group and business unit safety processes. As in every year, BOC takes steps to
prevent and address the underlying causes of serious incidents as well as to
ensure employee security in the workplace. The Group uses four principal
indicators to provide a consistent measure of its workplace and vehicle safety
performance. These are:
| • | Lost workday case rate (LWCR) per 200,000 hours. This includes all accidents resulting in the loss of one complete day of work, according to best international practice. Many companies only report cases resulting in three or more lost workdays as deemed reportable under RIDDOR regulations. |
| • | Total recordable case rate (TRCR) per 200,000 hours. This includes all LWCRs and medical treatment cases. |
| • | Passenger car avoidable accident rate (PCAAR) per million miles. |
| • | Truck avoidable accident rate (TAAR) per million miles. |
25 The BOC Group plc Annual report and accounts 2003
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Safety, health and the environment continued
Occupational health and hygiene
BOC requires its businesses around the world to manage employee health
activities in accordance with local laws and regulations and according to BOC’s
own codes of practice. The Group’s occupational health and hygiene (OHH)
function continues to provide a global service, striving to eradicate the
organisation’s work-related health hazards. It also ensures that those who
travel internationally on Group business are properly protected against disease
and that the medical requirements of visas and work permits are met.
Access to global guidance on OHH, together with manuals, training videos and
safety data sheets, is available through local and global SHEQ functions and on
a dedicated intranet site.
The OHH function carries out reviews in all business units and regions to
provide information and guidance on the main health issues that exist in BOC
operations globally and how best these potential hazards may be minimised or
eliminated. This is achieved by providing best practice standards and guidance
to local SHEQ personnel who then implement policies as necessary. Adverse
employee health effects are monitored through occupational health checks around
the world. Some checks are managed internally and others are out-sourced to
professional occupational health providers. Voluntary well-person and routine
yearly medical examinations are conducted to monitor the health of employees.
The main potential health issues that exist in BOC operations differ across
business units. In the gases businesses, the main potential health issues are:
exposure to noise from gas compression activities and from cylinder handling;
potential exposure to some gases filled into cylinders; potential exposure to
chemicals used in metal cleaning; vehicle maintenance and painting operations;
and ergonomic and manual handling risks, particularly associated with
cylinders.
OHH programmes have been developed to deal with these issues and are applied
across the Group through local initiatives and the SHEQ integrated management
system. BOC programmes include: an education programme to raise awareness of the
effects of noise; a manual handling training video; a legionella control
programme for water systems such as cooling towers on sites; a programme for
the assessment of display screen equipment to minimise ergonomic health risks; a
chemical assessment and management programme and specific work to reduce the
use of chemical solvents.
The environment
Although classified in the chemicals sector, BOC does not have the same direct
or significant environmental issues to deal with as traditional chemicals
manufacturers. The nature of BOC’s activities and the type of chemicals handled
are quite different. However, in line with other industries, BOC is committed
to the conscientious stewardship of its products and services.
Management of environmental issues that are relevant to the Group’s businesses
are overseen by the SHEQ department operating at a global and local business
unit level. Group environmental strategies continue to help to improve business
performance in sites across the world. Many BOC business units have programmes
to achieve ISO 14001 environmental certification.
In 2003, KPMG (a professional services firm) reviewed BOC’s integrated
management system and standards (IMSS) to assess whether IMSS environmental
documentation conforms to the requirements of ISO 14001 for environmental
management systems. KPMG concluded that IMSS documentation complies in all
material respects with the standard. As a result, KPMG provided BOC with an
assurance statement which can be seen on www.boc.com Assurance by an
independent auditor is an important indicator, showing that BOC takes
environmental management seriously and has robust sustainability systems. If a
BOC business can demonstrate that it has implemented the requirements of IMSS
it can also show that it adheres to ISO 14001 without having to undergo ISO
certification for all sites.
The SHEQ department continues to pursue a programme to integrate environmental
goals into the organisation’s management performance contracts and develop
global best operating practices. BOC’s global environment working group this
year developed an improved annual environmental survey. This new web-based
platform will be used to develop action plans and report performance on-line.
Web-based management systems will contribute to significant efficiency
enhancements in the future. For example, introduction of a new control system
that enables a nitrogen liquefaction unit to be started remotely at BOC’s
Midland site in the US will lead to energy savings of some US$1 million per
annum.
BOC has operated a comprehensive environmental survey programme of its sites
for more than ten years. The annual survey highlights issues relevant to the
business and assesses how well they are being managed. Objectives for improved
performance remain an integral part of business performance contracts.
The transport of product by road has a potentially significant environmental
impact. BOC operates its vehicle fleet to the highest environmental standards.
Gist, the Group’s distribution and supply chain business, won the environment
award at the 2003 Motor Transport Awards in London. Environmentally focused
initiatives ranged from development of innovative vehicle design and use, such
as noise minimisation equipment and new exhaust treatments, pallet recycling,
waste reduction and various site-specific initiatives. For example, Gist and
Marks & Spencer are co-operating to recycle 3.5 million food distribution
trays.
The use of energy in BOC operations is an area of constant focus. Over the last
three years, Process Gas Solutions operations have focused on plant and
distribution efficiency improvements, resulting in more than one thousand
projects that will deliver significant annual savings.
BOC’s commitment to environmental stewardship and partnership is shown in its
approach to new plants, facilities and services. For example, BOC and Hudson
Technologies signed a global alliance to promote technology that cleans and
reclaims refrigerants. The technology will improve plant efficiency leading to
greater energy savings for customers and environmental benefits from reduced
carbon dioxide emissions.
Selecting the right supplier for BOC is fundamental to conducting business
effectively and ethically. Throughout its businesses, BOC has adopted
the SESPATM process for supplier
evaluation, selection and performance appraisal, together with a new ethical
purchasing policy implemented by the supply management function.
26 The BOC Group plc Annual report and accounts 2003
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Environmental,
safety and social considerations are key SESPATM and
supply management standards. BOC also uses a best practice guide to
define supplier safety, health and environmental requirements. This
looks for positive environmental attributes such as ongoing
environmental performance, awards, legal action and proactivity.
BOC aims to comply fully with all material environmental laws
and regulations. BOC received one administrative fine in the US of
US$1,500 in 2003. This related to the late submission of paperwork
to a local regulatory authority. No prosecutions for breach of any
environmental regulation were incurred and BOC was compliant with
external standards, but not all businesses complied fully with all
internal codes or practices. Where this is the case, it has
responded with measures to abate and prevent future occurances as
part of the Group’s programme of continuous improvement.
The US Environmental Protection Agency has named The BOC Group
Inc as a potentially responsible party for clean-up costs at a number
of hazardous waste sites. Although liability for the remediation of
such sites may be legally imposed without regard to the quantity of
waste contributed, based upon the information available management
believes that it is unlikely that any costs incurred will have a
significant impact on the financial position of the Group.
BOC continues to contribute technology and processes to meet the
environmental needs of customers who are striving to improve their
own environmental performance. The increase in the demands set by
environmental legislation also presents BOC with a number of
potential business opportunities. BOC’s eco-efficiency technologies
include the Vitox oxygen injection system, which improves water
quality and can, for instance, help fish farmers improve production
rates. BOC has also patented systems to recover carbon dioxide from
other companies’ productive processes and put it to constructive
use. For example, reclaimed carbon dioxide is infused in
drip-irrigation water or used to enrich atmospheres to enhance crop
growth. The glass and metals industries use BOC’s oxy-fuel burners to
increase the efficiency of combustion, using less fuel and reducing
polluting emissions.
BOC installed some of its new BOC low emission swirl (LES)
oxy-fuel burner systems at a Johnson Matthey precious metals
refinery in the UK this year. The oxy-fuel burners improve emission
performance and operational efficiency.
BOC and Maxon Corporation jointly developed a new combustion
technology, known as the oxy-therm low emission flat flame (LEFF)
burner, that helps glass manufacturers to reduce energy costs and
increase yield.
BOC put itself at the forefront of the UK double glazing
industry’s drive to combat global warming with a scheme to reduce
heat loss through windows and cut carbon dioxide emissions. BOC
also launched safety workshops for UK refrigerant gas users.
The Group continues to develop technology that is more energy
efficient, which helps to support customers and partners meet their
carbon dioxide emission reduction commitments under the Kyoto
protocol on climate change. BOC’s Hartford air separation plant in
Illinois received the Compressed Gas Association’s 2003 award for
environmental excellence. This was the result of the plant’s efforts
to reduce power consumption by 320 kilowatts per hour while avoiding
the use of ozone depleting substances.
The Group continues to work actively with its stakeholders –
customers, suppliers, employees, local communities and governments – to
ensure environmental issues are approached responsibly and supported
actively. BOC sponsored the third BOC environment award at the UK’s
Institute of Chemical Engineers’ annual award ceremony in July. The
award was given to Dow Corning for an environmental management system
that saved the company £8 million in the last two years. BOC was also
awarded a special Green Ribbon award in recognition of its
outstanding contribution to sustaining, protecting and enhancing the
environment in New Zealand.
Underlining the Group’s adherence to sound,internationally
attested environmental practices, BOC is a signatory to the UN’s
Global Compact in support of human rights, labour and environmental
principles. The continuing importance of global compliance, corporate
social responsibility and sustainability amongst the Group’s wider
stakeholders means that BOC has continued to review and adapt its
business practices appropriately by strengthening policies, training
and implementation programmes and processes. This has been further
enhanced by including environmental concerns in the Group’s Code of
Conduct. In the Americas, BOC supports the chemical industry’s
Responsible Care programme. BOC’s Colombian business reached its third
year of active support for cleaner production with 22 other companies
in the north Aburra valley. BOC continues to participate in the
Business in the Environment survey for the UK. This year the Group
improved its overall survey score achieving 88 per cent against 76 per cent in 2002, taking BOC into the top 25 per cent of FTSE
companies participating in its survey.
BOC Edwards also became a signatory to Global Care, a
semiconductor industry initiative designed to establish a framework
where members can strengthen their commitments to the
environment, health and safety.
The BOC Foundation for the Environment
The UK-based BOC Foundation for the Environment, which was established
with an initial injection of £1 million in 1990, has so far supported
nearly 120 projects. This year the company contributed £180,000 to
Foundation projects. Since the Foundation’s inception BOC has donated
£3.7 million. The Foundation concentrates its funds on projects that
improve air and water quality. Air is important to BOC because it is
the source of BOC’s raw materials: oxygen, nitrogen and argon. Water is
both an essential part of many of BOC’s production processes and a
growing market opportunity.
The Foundation wants to make a practical contribution. It
encourages those with good scientific ideas who need financial help
to turn academic or early results into workable environmental
solutions. It expects the projects it supports to make a measurable
difference within a few years and to benefit the community as a
whole, not just the recipient of the grant. The Foundation has worked
in partnership with government departments, local authorities,
environmental charities and commercial organisations.
27 The BOC Group plc Annual report and accounts 2003
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Research, development and information technology
Research and development
Research and development (R&D) is conducted around the world with key sites
located in north America, the UK and Japan. The Group Technical Center (GTC) in
Murray Hill, New Jersey, is a primary R&D location for market applications for
Process Gas Solutions and for electronic materials for BOC Edwards.
Process Gas Solutions delivers technology through internal development, the
formation of alliances and partnerships with universities and customers,
licensing or acquisition of technologies from third parties and by
participating in technology-based ventures. BOC now has access through Linde
BOC Process Plants to much broader technology and product offerings, especially
in hydrogen and syngas. The development of ceramic-based technologies for the
production of hydrogen and syngas continues.
BOC has acquired proven technology from Eco-Snow for precision cleaning using
carbon dioxide (CO2) snow. It also recently acquired ultra violet/ozone-based technology from RGF
Environmental to provide additional food safety solutions by preventing the
growth of listeria and extending product shelf life.
BOC joined Sumitomo Electric Industries and Intermagnetics General Corporation
to demonstrate high temperature superconducting cable technology in Albany, New
York with substantial government and state funding. The European Union is
funding further development, with other companies and universities, into
ceramic-based oxygen separation to enhance CO2 sequestration.
BOC’s investments in hydrogen energy include vehicle fuelling demonstrations,
very high pressure gaseous hydrogen fuelling stations and participation in
Chrysalix, a hydrogen energy venture capital fund.
Industrial and Special Products has developed the LASOX laser cutting
technology jointly with partners. Through internal developments and
participation in ventures it has invested in new opportunities in the medical
sector. It has also used advanced techniques to drive operational and
distribution efficiencies.
BOC Edwards uses joint development agreements with original equipment
manufacturers and end users, along with guidance from the International
Technology Roadmap for Semiconductors (SIA), to prioritise its investments in
semiconductor technology. Programmes draw on a combination of BOC technologies
in gases, vacuum, purification, delivery and systemisation. An example is
supercritical CO2 technology for cleaning wafers with small features.
A new reconfigurable control system for chemical dispense equipment
dramatically reduces set-up time, and allows for easy and flexible process
changes. Enhancements have also been made to slurry delivery, including point
of use delivery.
An important development area is high capacity abatement technology for flat
panel applications. The Zenith line of integrated pumping and abatement systems
are smaller and give reduced cost of ownership for customers in both silicon
and compound semiconductor facilities.
BOC Edwards continues to focus on products for sub-90 nanometre integrated
circuit fabrication. Pumping systems designed for 300mm fabs form the basis for
a range of solutions for flat panel manufacturers, including the latest
generation 7 factories in Asia and Japan.
BOC Edwards’ advanced systems for copper technology include flexible, high
accuracy blending technology for chemicals and chemical mechanical
planarization (CMP) slurries, along with novel technology to address the waste
generated by these advanced processes. Load cell technology increases blend
accuracy, improves control over slurry distribution to the CMP tools and
enhances equipment stability.
Patented metal removal technologies are being applied to the treatment of
electro-less plating bath waste streams. Similarly, copper CMP slurry waste
streams can now be abated using a process which removes copper from a stream of
suspended solids without removing the solids.
Development programmes continue on materials designed to meet increasing purity
requirements for the storage and delivery of gases and liquids. In situ sensors
have been introduced for enhancing manufacturing productivity in semiconductor
fabs.
Continuing work with a leading manufacturer of lithography tools aims to solve
vacuum problems for extreme ultraviolet lithography tools, projected to be
needed for sub-45 nanometre integrated circuit technology. Development
continues on ultra-pure gas systems for 157 nanometre lithography tools.
Pumps have been developed with improved hydrogen performance for key
applications in the dielectric deposition market. Development continues on low
noise and vibration pumps, and to improve motors and drive mechanisms. For the
scientific sector, the range of pumps has been expanded to bring dry pumping
technology to the life sciences, primarily users of mass spectrometry.
Kachina’s technology has developed from high purity cleaning of semiconductor
chamber parts to the broader requirement of providing technology-based
solutions that reduce the cost of ownership of the customer’s operations.
BOC Edwards Pharmaceutical Systems continues to focus on developments in
automated handling systems for aseptic packaging, driven by the industry’s
increasing requirement to separate potent drugs from human operators; and
in-line product inspection, which is now receiving the support of the US Food
and Drug Administration’s Process Analytical Technology initiative. Its most
recent inspection product uses nuclear magnetic resonance to weigh the contents
of vials in high-speed motion down a packaging line.
Total R&D expenditure in 2003 was £39.9 million, compared with £47.0 million in
2002 and £59.7 million in 2001.
Information technology
The number of countries running the SAP business computing system grew again
this year when the system was further extended to the Process Gas Solutions and
Industrial and Special Products business units in the US, Canada and Poland.
Deployment throughout BOC Edwards worldwide also began. The global data centre,
which provides a central facility for managing all SAP transactions from around
the world, continued to function well. A fully-equipped back-up centre was
established capable of instantaneous operation in the event of a failure.
The Webcentric project in the south Pacific demonstrated the feasibility of
running all office-based software on remote computers, accessed by users as and
when needed from simple terminals on their desktops. A number of new
technologies were also deployed to support improved business processes and to
offer competitive advantage in some key markets.
28 The BOC Group plc Annual report and accounts 2003
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Risk factors
This document contains certain forward-looking statements which involve risk
and uncertainty as they relate to future events and circumstances. The
following risk factors, as well as those discussed on pages 47 and 48 of the
financial review, could cause actual results to differ materially from those
expressed or implied by these forward-looking statements:
BOC is affected by the semiconductor business cycle
Manufacturers of semiconductors represent BOC Edwards’ major customer base, and
BOC Edwards’ profitability is directly linked to the demand of these
manufacturers for vacuum equipment, services and industrial gases. The
semiconductor industry has experienced significant growth over the long term,
but is cyclical in nature. Owing to reduced demand from end users of technology
products and excess supply of semiconductors, the semiconductor industry
continues to experience a severe downturn, which negatively impacts the demand
for BOC Edwards’ products and services. A delay in the recovery of the
semiconductor industry, or a further downturn in that industry, could continue
to adversely impact BOC’s financial results.
Acquisitions may not be successful in achieving intended benefits and synergies
BOC has completed a number of acquisitions in recent years as part of its
growth strategy. While BOC will have identified expected synergies, cost
savings and growth opportunities prior to acquisition and integration of
acquired entities, these benefits may not be achieved owing to, among other
things:
| • | delays or difficulties in completing the integration of acquired companies or assets; |
| • | higher than expected costs or a need to allocate resources to manage unexpected operating difficulties; |
| • | diversion of the attention and resources of BOC’s management; |
| • | inability to retain key employees in acquired companies; |
| • | inability to retain key customers; and |
| • | assumption of liabilities unrecognised in due diligence. |
The growth of BOC’s gases business will depend on the ability to win and execute large projects profitably
BOC, through its Process Gas Solutions line of business, has a strategy for
growth that requires significant investment each year to serve key customers in
different geographies. Failure to execute projects successfully for these
customers will impact PGS’s ability to win new projects from these customers,
and therefore may impact BOC’s future financial results. The specific risks
associated with major projects include:
| • | failure to complete the project on time owing to unforeseen construction problems (which may require BOC to pay penalties under the terms of the customer contract); |
| • | failure of the plant to deliver the contracted volumes and quantities of product required by the customer because of design errors or errors in manufacturing or construction (which may require BOC to pay penalties under the terms of the customer contract); and |
| • | inability to operate the plant at costs assumed in BOC’s financial evaluation of the project. |
The safety of BOC’s operations is critical to success
Industrial gases are hazardous substances and BOC recognises that managing
safety in operations, transportation and products is critical to achieve growth
and financial results. Failure to maintain high levels of safety can result in
a number of negative outcomes, including:
| • | exclusion from certain market sectors deemed important for future development of the business (such as medical gases); |
| • | damage to reputation; |
| • | fines and penalties for breaches of safety laws; and |
| • | liability payments and costs to employees or third parties arising from injury or damage. |
BOC operates in over 50 different countries and is therefore exposed to economic, political and business risks associated with international operations
BOC’s overall success as a business with global operations depends, in part,
upon its ability to succeed in differing economic, political and business
conditions. BOC encounters different legal and regulatory requirements in
numerous jurisdictions. These include taxation laws, environmental regulations,
regulations concerning operational standards and competition laws. BOC is also
confronted by political risks such as the expropriation of assets and the
inability to export currency. The business risks and challenges faced in each
geography include the need to manage credit risks of local customers,
appointing and retaining key staff, general economic conditions locally and
currency fluctuation. Recognition of changing market conditions in local
geographies is critical to BOC’s long-term success. In addition, BOC’s
operations are exposed to varying degrees of natural catastrophe risk, such as
earthquake and flood, as well as security risk, in the different countries in
which BOC operates.
BOC relies on development of, or access to, technology to support business growth
BOC’s success is dependent in part on its continued investment in technology to
develop new products and services across all businesses, new applications for
existing products or to design effective means for producing industrial gases.
Failure to access or develop technology or anticipate, manage or adopt
technological changes in operations or product applications on a timely basis
could have a material impact on BOC’s future results. For example, the rapid
development of technology in the semiconductor sector requires BOC Edwards to
be aware of changes in customer technology requirements and to introduce new
products to meet those requirements in a timely manner. Failure to do so could
result in reduced market share and profitability.
29 The BOC Group plc Annual report and accounts 2003
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Risk factors continued
BOC operates in a highly competitive environment
The industrial gases market is very competitive, with several large competitors
and a significant number of smaller local competitors in different territories.
Although the current trend in the industry is to seek price increases for
industrial gases, the industry has experienced falling prices in some previous
years. There is no guarantee that the current trend will continue and there is
a risk that competitors will seek to maintain or increase market shares by
reducing prices. These price reductions would result in lower revenues, profits
and cash flows.
Recognising and anticipating changes in the manufacturing economy is key to BOC’s success
BOC’s industrial gas businesses serve a wide range of manufacturing customers
in major geographies such as the US, UK, Japan and Australia. This is
particularly true of the Industrial and Special Products line of business which
provides products and services to customers involved in the welding and cutting
of metal, the largest source of revenue for this division. As customers in
these traditional manufacturing-based economies seek to move their
manufacturing operations to lower cost territories in, for example, Asia and
Latin America, the risk arises that BOC’s operations in the major geographies
will have lower growth opportunities. Failure to recognise these trends and
manage the consequences, through the development of alternative markets and/or
meeting demand in higher growth territories, could have a negative impact on
future Group results.
BOC’s success depends to a significant extent on its key personnel and employees
BOC’s performance depends on the skills and efforts of its employees and
management team across all of its businesses. BOC recognises that failure to
attract new talent and retain existing expertise, knowledge and skills in
operations, products and infrastructure areas such as information technology
could have a negative impact on revenues and profits. In addition, the success
of BOC’s acquisitions may depend, in part, on BOC’s ability to retain
management personnel of acquired companies.
Litigation may have an adverse impact on financial results
The global nature of BOC’s business exposes it to the potential for litigation
from third parties. From time to time BOC is involved in lawsuits in the US, as
well as other geographies, resulting from current and past operations or
products. The outcome of these lawsuits may result in damages and awards which
could have a material impact on BOC’s profitability, its business operations or
financial condition. Details of current litigation where claims for damages in
large amounts have been asserted are provided in the financial review on pages
49 and 50.
Increased energy costs could reduce profitability
The production of industrial gases requires significant amounts of electrical
energy. Energy costs are a key component of the cost of manufacturing
industrial gases, and increases in these costs can impact profitability if they
cannot be passed on to customers. Accurately predicting trends in energy costs
is difficult to achieve as energy costs are to a large extent subject to
factors beyond the company’s control – for example, political conditions in
oil producing regions. BOC also operates large fleets of commercial vehicles in
certain major geographies. An increase in energy costs associated with the use
of these commercial vehicles may negatively impact profit levels.
Ineffective implementation of computer software systems
The introduction of software to improve efficiency and effectiveness of various
business processes is an important contributor to BOC’s growth strategy.
Failure to design, select appropriate suppliers or implement such systems
effectively could result in unplanned costs or reduced levels of customer
satisfaction which could adversely affect Group results.
30 The BOC Group plc Annual report and accounts 2003
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Operating review
Introduction
The Group’s results are prepared under UK Generally Accepted Accounting
Principles (GAAP) and comply with UK Companies Act requirements. While the UK
GAAP reporting basis provides the core information for users of this report and
accounts to understand the financial performance of the Group, management
believes that users will be assisted in understanding the performance relative
to previous periods by presenting the results in an alternative manner. This
presentation isolates the impact of currency movements from year to year and
eliminates the impact of exceptional or non-recurring items. It is also the
basis used by management to review performance of the business and is a
component of variable compensation plans. The elements of this alternative
presentation are described in more detail below.
Impact of currency movements
The Group has operations in some 50 countries around the world and the majority
of its profit is generated outside the UK. Results of overseas operations are
translated at the average rates of exchange against sterling for the year.
Changes in such rates from year to year can significantly affect the Group’s
results when these are presented in pounds sterling. In some cases, such
changes may make it difficult to understand underlying business performance
trends without providing additional information. For example, the average value
of the South African rand to pounds sterling changed by 15 per cent in 2003
compared with 2002. When looking at the financial performance of the Afrox
hospitals business segment in 2003, it is therefore important to highlight this
currency impact to users of the information.
Consequently, management has for many years monitored business performance on a
‘constant currency’ basis. This basis eliminates the impact of changes in the
rates of exchange used to translate the results of overseas businesses into
sterling by retranslating the results of the comparative year at the rates of
exchange used in the current year. This is the basis for all internal
management reporting throughout the year.
In this operating review, the comparison of financial performance between years
may in places be referred to as on this ‘constant currency’ basis. Comments on
all segmental performance are on a constant currency basis.
The impact of changes in the rates of exchange used to translate the results of
overseas businesses into sterling is shown in the table below.
| Impact of | 2001 results | Impact of | 2002 results | |||||||||||||||||||||
| 2001 results | movements | (at 2002 rates | 2002 results | movements | (at 2003 rates | |||||||||||||||||||
| (as reported) | in currency | of exchange) | (as reported) | in currency | of exchange) | |||||||||||||||||||
| £ million | £ million | £ million | £ million | £ million | £ million | |||||||||||||||||||
| Turnover (including share of joint ventures and associates) | ||||||||||||||||||||||||
Process Gas Solutions |
1,193.0 | (35.4 | ) | 1,157.6 | 1,200.6 | (50.5 | ) | 1,150.1 | ||||||||||||||||
Industrial and Special Products |
1,573.9 | (75.4 | ) | 1,498.5 | 1,605.3 | (5.0 | ) | 1,600.3 | ||||||||||||||||
BOC Edwards |
873.1 | (26.7 | ) | 846.4 | 688.2 | (30.3 | ) | 657.9 | ||||||||||||||||
Afrox hospitals |
287.8 | (76.8 | ) | 211.0 | 259.0 | 46.9 | 305.9 | |||||||||||||||||
Gist |
231.4 | 0.2 | 231.6 | 264.8 | (0.1 | ) | 264.7 | |||||||||||||||||
Total |
4,159.2 | (214.1 | ) | 3,945.1 | 4,017.9 | (39.0 | ) | 3,978.9 | ||||||||||||||||
Operating profit |
||||||||||||||||||||||||
Process Gas Solutions |
103.7 | (3.3 | ) | 100.4 | 161.2 | (6.6 | ) | 154.6 | ||||||||||||||||
Industrial and Special Products |
227.0 | (11.6 | ) | 215.4 | 229.3 | 2.1 | 231.4 | |||||||||||||||||
BOC Edwards |
62.7 | (1.7 | ) | 61.0 | (1.4 | ) | (0.8 | ) | (2.2 | ) | ||||||||||||||
Afrox hospitals |
32.3 | (8.6 | ) | 23.7 | 29.7 | 5.4 | 35.1 | |||||||||||||||||
Gist |
20.6 | – | 20.6 | 25.5 | 0.3 | 25.8 | ||||||||||||||||||
Corporate |
(24.0 | ) | 0.1 | (23.9 | ) | (18.7 | ) | 0.4 | (18.3 | ) | ||||||||||||||
Total |
422.3 | (25.1 | ) | 397.2 | 425.6 | 0.8 | 426.4 | |||||||||||||||||
Adjusted operating profit |
||||||||||||||||||||||||
Process Gas Solutions |
156.5 | (4.4 | ) | 152.1 | 185.2 | (7.1 | ) | 178.1 | ||||||||||||||||
Industrial and Special Products |
248.8 | (12.5 | ) | 236.3 | 248.0 | 2.0 | 250.0 | |||||||||||||||||
BOC Edwards |
78.8 | (2.2 | ) | 76.6 | 26.1 | (1.0 | ) | 25.1 | ||||||||||||||||
Afrox hospitals |
32.3 | (8.6 | ) | 23.7 | 29.7 | 5.4 | 35.1 | |||||||||||||||||
Gist |
21.3 | – | 21.3 | 25.5 | 0.3 | 25.8 | ||||||||||||||||||
Corporate |
(7.1 | ) | 0.1 | (7.0 | ) | (14.4 | ) | 0.4 | (14.0 | ) | ||||||||||||||
Total |
530.6 | (27.6 | ) | 503.0 | 500.1 | – | 500.1 | |||||||||||||||||
Exceptional or non-recurring items
Management believes that to present the results of the Group in the most
meaningful way, items of an exceptional nature should be separately identified
and disclosed. This enables users of the information to have a better
understanding of underlying business performance. Examples of such items in
2003 include a litigation settlement expense, the costs of the business
initiative programme announced in August 2001, other restructuring programmes
and charges relating to the integration of OSK (BOC’s gases business in Japan)
and part of the Air Liquide business in Japan to form Japan Air Gases.
Additionally in 2002 there were charges in connection with the formation of the
Linde BOC Process Plants business and a write-down in the value of the net
assets of OSK ahead of the merger with part of Air Liquide Japan.
Exceptional items include those items classified as both operating and
non-operating under UK GAAP.
31 The BOC Group plc Annual report and accounts 2003
Table of Contents
Operating review continued
The review of results excluding exceptional items is part of the normal
internal management reporting process. The growth in operating profit excluding
exceptional items is also one of the measures used in the variable element of
the senior management compensation scheme.
Further information regarding the business initiative programme, which is now
largely complete, as well as the other exceptional items is given in the
financial review on page 46. An analysis of all operating and non-operating
exceptional items is given in note 2 b) to the financial statements on page 83.
In this review, the adjustments to eliminate exceptional items have been made
to operating profit (both Group and by segment), profit before tax and earnings
per share. Exceptional items are commented on in the Group results section as
well as in the individual business segments to which they relate. A
reconciliation of these adjusted items to the equivalent UK GAAP measure is
shown in the profit and loss account on page 72. When any results or measures
used in this review have been adjusted to exclude exceptional items, they are
referred to as ‘adjusted’.
Within the individual business segments of the operating review, operating
exceptional items are commented on separately. Comments on other aspects of
financial trends and performance are based on adjusted operating profit. This
provides more meaningful comment on underlying business performance.
A reconciliation of adjusted operating profit to operating profit is given in
the table below.
| 2003 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||
| Adjusted | Operating | Adjusted | Operating | Adjusted | Operating | |||||||||||||||||||||||||||||||
| operating | exceptional | Operating | operating | exceptional | Operating | operating | exceptional | Operating | ||||||||||||||||||||||||||||
| profit | items | profit | profit | items | profit | profit | items | profit | ||||||||||||||||||||||||||||
| £ million | £ million | £ million | £ million | £ million | £ million | £ million | £ million | £ million | ||||||||||||||||||||||||||||
Process Gas Solutions |
184.0 | (6.9 | ) | 177.1 | 185.2 | (24.0 | ) | 161.2 | 156.5 | (52.8 | ) | 103.7 | ||||||||||||||||||||||||
Industrial and
Special Products |
242.7 | (4.5 | ) | 238.2 | 248.0 | (18.7 | ) | 229.3 | 248.8 | (21.8 | ) | 227.0 | ||||||||||||||||||||||||
BOC Edwards |
18.5 | (10.6 | ) | 7.9 | 26.1 | (27.5 | ) | (1.4 | ) | 78.8 | (16.1 | ) | 62.7 | |||||||||||||||||||||||
Afrox hospitals |
46.1 | – | 46.1 | 29.7 | – | 29.7 | 32.3 | – | 32.3 | |||||||||||||||||||||||||||
Gist |
29.2 | – | 29.2 | 25.5 | – | 25.5 | 21.3 | (0.7 | ) | 20.6 | ||||||||||||||||||||||||||
Corporate |
(14.9 | ) | (45.0 | ) | (59.9 | ) | (14.4 | ) | (4.3 | ) | (18.7 | ) | (7.1 | ) | (16.9 | ) | (24.0 | ) | ||||||||||||||||||
Total Group |
505.6 | (67.0 | ) | 438.6 | 500.1 | (74.5 | ) | 425.6 | 530.6 | (108.3 | ) | 422.3 | ||||||||||||||||||||||||
Other non GAAP measures
This review also presents return on capital employed (ROCE) and adjusted return
on capital employed. Adjusted return on capital employed removes exceptional
items from the measure of operating profit used in the calculation. Adjusted
return on capital employed is used by management for reasons similar to those
described above.
A reconciliation of these two measures is shown below.
| 2003 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||||||||||||||
| Operating | capital | Operating | capital | Operating | capital | |||||||||||||||||||||||||||||||
| profit | employed | ROCE | profit | employed | ROCE | profit | employed | ROCE | ||||||||||||||||||||||||||||
| £ million | £ million | % | £ million | £ million | % | £ million | £ million | % | ||||||||||||||||||||||||||||
Adjusted ROCE |
505.6 | 4,053.4 | 12.5 | 500.1 | 4,053.8 | 12.3 | 530.6 | 4,108.2 | 12.9 | |||||||||||||||||||||||||||
Operating
exceptional items |
(67.0 | ) | – | (74.5 | ) | – | (108.3 | ) | – | |||||||||||||||||||||||||||
ROCE |
438.6 | 4,053.4 | 10.8 | 425.6 | 4,053.8 | 10.5 | 422.3 | 4,108.2 | 10.3 | |||||||||||||||||||||||||||
| 1. | ROCE is operating profit as a percentage of the average capital employed excluding net pension liabilities. |
The Group commentary in this review also comments on free cash flow. Free cash
flow is a measure often referred to by BOC management and other users of
financial information to highlight the cash flow available from underlying
ongoing business operations before acquisition and disposal activity. Whether
or not this remains positive over time is an indicator that dividends to
shareholders are being paid out of cash generated by existing Group businesses.
As such it is a useful additional measure of financial performance.
A reconciliation of this measure to the nearest equivalent UK GAAP measure, net
cash flow, is shown below.
| 2003 | 2002 | 2001 | ||||||||||
| £ million | £ million | £ million | ||||||||||
Free cash flow |
141.8 | 166.5 | 192.3 | |||||||||
Exceptional cash items |
(28.3 | ) | (67.3 | ) | (51.8 | ) | ||||||
Acquisitions and disposals |
(118.3 | ) | (215.5 | ) | (133.6 | ) | ||||||
Other items within capital expenditure and financial investment: |
||||||||||||
Purchases of intangible fixed assets |
(1.2 | ) | (0.1 | ) | (0.3 | ) | ||||||
Net sales/(purchases) of current asset investments |
16.6 | 4.3 | (6.5 | ) | ||||||||
Purchases of trade and other investments |
(10.8 | ) | (19.7 | ) | (10.2 | ) | ||||||
Sales of trade and other investments |
6.5 | 11.5 | 7.8 | |||||||||
Net cash inflow/(outflow) before use of liquid resources and financing |
6.3 | (120.3 | ) | (2.3 | ) | |||||||
32 The BOC Group plc Annual report and accounts 2003
Table of Contents
Operating review (comparing 2003 with 2002)
Group
Turnover including the Group share of joint ventures and associates was
£4,323.2 million in 2003, up eight per cent compared with £4,017.9 million in
2002. Operating profit was £438.6 million, up three per cent compared with
£425.6 million in 2002. After charging operating and non-operating exceptional
items totalling £67.0 million and net interest and other financing items of
£86.7 million, profit before tax was £351.9 million, up five per cent compared
with £335.3 million in 2002. Earnings per share were 44.5p, up seven per cent
compared with 41.4p in 2002. Excluding the exceptional items, adjusted
operating profit for the year was £505.6 million, adjusted profit before tax
was £418.9 million and adjusted earnings per share were 52.9p.
Comparisons with 2002 are affected by exchange rate movements. For the
currencies that principally affect the Group’s results, movements in the
Australian dollar and the South African rand were favourable and movements in
the US dollar and Japanese yen were adverse. If the results of a year ago had
been translated at the rates applied to this year, turnover would have been
reduced by £39.0 million. There would have been an increase in operating profit
of £0.8 million and adjusted operating profit would have been unchanged.
Adjusted profit before tax would have been £5.3 million higher and adjusted
earnings per share would have been increased by 0.3p.
The table set out below summarises results reported both under UK GAAP and as
adjusted. Results for 2002 are shown both as reported in that year and on a
constant currency basis.
| 2002 (at 2003 | ||||||||||||
| 2003 | 2002 | exchange rates)1 | ||||||||||
Turnover including share of joint ventures and associates (£ million) |
4,323.2 | 4,017.9 | 3,978.9 | |||||||||
Operating profit (£ million) |
438.6 | 425.6 | 426.4 | |||||||||
Adjusted operating profit (£ million)2 |
505.6 | 500.1 | 500.1 | |||||||||
Profit before tax (£ million) |
351.9 | 335.3 | 342.8 | |||||||||
Adjusted profit before tax (£ million)2 |
418.9 | 430.0 | 435.3 | |||||||||
Earnings per share |
44.5p | 41.4p | 41.9p | |||||||||
Adjusted earnings per share2 |
52.9p | 55.9p | 56.2p | |||||||||
| 1. | A reconciliation of turnover, operating profit and adjusted operating profit for 2002 at 2002 and at 2003 rates of exchange is shown on page 31. |
| 2. | A reconciliation of adjusted results with UK GAAP results is shown on page 32 and in the profit and loss account on page 72. |
Exceptional items in 2003 amounted to a charge of £67.0 million. The charge
comprises £43.2 million for a litigation settlement, costs of £15.5 million for
completion of restructuring programmes and £8.3 million relating to the
integration of the BOC and Air Liquide businesses in Japan.
Exceptional items in 2002 included restructuring charges of £47.2 million and a
£21.3 million charge relating to the closure of facilities in connection with
the combination of BOC Process Plants with Linde Engineering in the US. An
exceptional charge of £21.2 million was made to write down the value of OSK,
BOC’s gases business in Japan, in advance of the then proposed merger of OSK
with part of Air Liquide Japan.
Adjusted return on capital employed for the year to 30 September 2003 was 12.5
per cent. Return on capital employed for the year to 30 September 2003 was 10.8
per cent. Free cash flow (as defined on page 32) remained positive and was
£141.8 million in 2003. Net cash flow, after acquisitions, disposals and other
investing activities, and including exceptional cash items, was £6.3 million in
2003. A reconciliation of these measures is shown on page 32.
A first interim dividend for 2003 of 15.5p per share was paid in February 2003
and a second interim dividend of 23.5p per share was paid in August 2003. In
aggregate this was a 2.6 per cent increase over the annual dividend of the
previous year. A first interim dividend for 2004 of 15.5 p per share has been
declared for payment in February 2004.
Capital expenditure by subsidiaries (including interest capitalised) was £281.2
million in 2003, compared with £354.3 million in 2002. Capital expenditure by
joint ventures and associates was £81.4 million in 2003, of which the BOC
share was £36.1 million. Equivalent expenditure in 2002 was £74.2 million, of
which the BOC share was £34.5 million. The Group also made acquisitions of
businesses of £135.5 million in 2003 and proceeds from disposals were £3.9
million. Equivalent items in 2002 were £207.3 million and £10.6 million
respectively.
| Process Gas Solutions (PGS) | ||||||||||||
| Change | ||||||||||||
| on 20021 | ||||||||||||
| 2003 | Change | (constant | ||||||||||
| £ million | on 2002 | currency) | ||||||||||
Turnover |
1,242.7 | +4% | +8% | |||||||||
Operating profit |
177.1 | +10% | +15% | |||||||||
Adjusted operating profit2 |
184.0 | -1% | +3% | |||||||||
| 1. | A reconciliation of results for 2002 at 2002 and at 2003 rates of exchange is shown on page 31. |
| 2. | A reconciliation of adjusted operating profit with operating profit is shown on page 32. |
| 3. | All comments below are on a constant currency basis. |
Increased turnover resulted from generally firm price trends as well as
revenues from acquisitions and new plants serving chemical industry customers.
The additional revenues came principally from BOC’s joint venture with Yangtze
Petrochemical Corporation (YPC) at Nanjing, China, from a new hydrogen and
carbon monoxide (HyCO) plant at Map Ta Phut, Thailand and from the acquisitions
of a partial oxydation syngas plant at Clear Lake, Texas, and the US water
services company, Environmental Management Corporation.
Improved adjusted operating profit was also a result of operational efficiency
gains. The closure of facilities in connection with the combination of BOC’s
Process Plants business with Linde Engineering in the US led to lower costs
towards the end of 2002 and there was a full year of savings in 2003. There
were also further cost reductions arising from continued progress in delivery
scheduling and remote plant operation.
33 The BOC Group plc Annual report and accounts 2003
Table of Contents
Operating review (comparing 2003 with 2002) continued
As in 2002, economic uncertainties constrained the authorisation of investment
projects by customers during the year. A new hydrogen and carbon monoxide
(HyCO) plant serving Citgo’s oil refinery at Lemont in Illinois came into
production in October 2003 and a new air separation plant is under construction
in Nanjing. When completed in 2004 this will supply industrial gases to nearby
chemical facilities being completed by a joint venture company established
between BASF of Germany and the Chinese chemical company YPC.
Operating exceptional items in 2003 were for the completion of restructuring
programmes, including those that were part of the programme announced in August
2001. Additionally, there were charges relating to the integration of the BOC
and Air Liquide businesses in Japan to form Japan Air Gases.
Europe Turnover and adjusted operating profit increased in the UK and in Poland
but declined slightly in Ireland. A full year of revenues from the plant
commissioned in January 2002 to supply hydrogen to Huntsman on Teesside and
from the Teesside pipeline system acquired in July 2002 were contributors to
increased turnover in the UK. Despite continued weakness in UK manufacturing,
sales volumes increased in the merchant market for liquefied gases and prices
were also slightly firmer. The key factors behind the increase in adjusted
operating profit were lower costs in 2003 as a result of restructuring and a
charge of £3.6 million in 2002 for an asset write down and debt provision after
a steel customer went into receivership.
The relocation of some customers and a general decline in manufacturing
activity led to lower sales volumes and adjusted operating profit in Ireland.
As in the UK, the trend of selling prices remained positive and marginally
ahead of inflation.
Business in Poland benefited from stable economic conditions in anticipation of
joining the European Union in 2004. The acquisition of the business of Praxair
Polska took effect in February 2003 and added additional air separation
capacity as well as BOC’s first source of carbon dioxide in the region.
Cryostar is BOC’s engineering company based in France, manufacturing cryogenic
pumps, expansion turbines and compressors for a variety of industrial gas
applications and for marine liquefied natural gas (LNG) tankers. Turnover and
adjusted operating profit increased in 2003 as a result of strong demand for
industrial gas applications in China and for shipboard expansion units on LNG
tankers.
North America Despite a small increase in turnover, adjusted operating profit
in 2003 was at a similar level to 2002. Selling price trends were favourable –
particularly in the second half of the year – and were sufficient to offset
cost inflation. Sales volumes were lower as a result of general weakness in
manufacturing industries and some business was lost early in 2003 as customers
changed to alternative supplies. At the same time, a significant volume of new
liquefied gas business was obtained, mainly in the closing months of the year.
Steel industry customers that had benefited from US tariff protection in the
previous year faced renewed competitive pressure in 2003. Some customers are
operating under chapter 11 creditor protection.
Carbon dioxide for beverage applications continued to be in strong demand.
During 2003 BOC improved analytical capabilities to upgrade product quality
assurance for its Premier Beverage carbon dioxide service to the soft drinks
industry.
At the end of January 2003, BOC acquired the partial oxidation syngas plant at
Clear Lake, Texas, from Celanese. Under the agreement BOC fulfils a significant
proportion of the industrial gas requirements for the Celanese chemical
facility at Clear Lake. The Celanese facility is located on the Houston ship
canal, and includes a world scale vinyl acetate monomer plant and the world’s
largest acetic acid plant. These require large quantities of oxygen and
nitrogen as well as carbon monoxide.
A new HyCO plant serving Citgo’s oil refinery at Lemont in Illinois began
production in October 2003. This further expands BOC’s hydrogen business with a
variety of petroleum and chemical industry customers around the world.
Latin America Turnover increased significantly, although growth was held back
by a general strike in Venezuela in the period December 2002 to February 2003.
This inevitably affected customers’ requirements for industrial gases. Adjusted
operating profit also increased because of better sales volumes especially in
Chile and Brazil and because of selling price increases that generally exceeded
local rates of inflation.
BOC’s joint venture company in Mexico supplying high-pressure pure nitrogen to
Pemex for pressurising its Cantarell oilfield in the Gulf of Mexico performed steadily throughout the year.
In September 2003, a new 200 tonnes-a-day air separation unit was commissioned
in Santiago to supply oxygen for leaching copper ores. Another plant is due to
begin production in 2004 and will supply oxygen for CST, a steel producer in
Brazil.
Africa Both turnover and adjusted operating profit increased in 2003. Sales
volumes were broadly similar but selling prices were higher and cost controls
also contributed to better margins. The focus of business development was on
the use of gases in mineral processes in the extraction of precious metals.
Japan The combination of BOC’s and Air Liquide’s industrial and medical gases
businesses in Japan took effect from January 2003. Until then the results of
OSK, BOC’s gases business in Japan, were consolidated as a subsidiary.
Subsequently BOC has accounted for its share of turnover and profit of the
merged company, Japan Air Gases, on an equity basis. This distorts the
comparison of turnover and profit between 2003 and earlier years for BOC’s
three lines of business. On the respective bases used in each year, there was
an increase in both turnover and adjusted operating profit for PGS in Japan for
2003.
The integration process that began in 2003 made good progress. The two
organisations have been successfully integrated in the key areas and the number
of branch offices has been reduced. Cryogenic equipment manufacturing has also
been integrated into a single location. As a result of the merger, management
remains confident of achieving cost savings at the annual rate of some Japanese
yen 5 billion by the end of 2004.
34 The BOC Group plc Annual report and accounts 2003
Table of Contents
North Asia Turnover and adjusted operating profit were up significantly in
2003. Margins improved as a result of better operational efficiency coupled
with some price increases.
Turnover gains were largely as a result of growth in north China but there was
also growth in mainland south China, Korea and Taiwan. Turnover was down in
Hong Kong as some customers relocated production to mainland China. Underlying
growth of adjusted operating profit in south China was further boosted by
additional profit arising from the renegotiation of a power supply contract.
Results in north China benefited from the addition for a full year of the joint
venture begun in May 2002 serving the petrochemical industry in Nanjing.
Further liquefaction capacity was added to its existing air separation plant
during 2003 to serve the local merchant market. Results also benefited from
strong growth in the steel industry as a result of increasing local demand.
In October 2003 BOC announced that its joint venture with the Taiyuan Iron and
Steel Corporation (TISCO), was to build two new air separation units (ASUs) to
supply a total of 2,700 tonnes a day of oxygen to TISCO’s plant in Shanxi
province in north-central China. The new ASUs are expected to come on stream at
the end of 2005. TISCO is the largest stainless steel producer in China and has
been selected by the central government as one of two stainless steel
development centres. Further investments at BOC’s subsidiaries at Suzhou near
Shanghai and plans to add some 400 tonnes a day of capacity at its associated
company Pearl River Gases in southern China were also announced.
A new air separation plant is already under construction for BOC’s joint
venture in Nanjing. When completed in 2004 this plant will supply gases to the
BASF and Yangtze Petrochemical Company (YPC) joint venture chemical facility
under construction nearby.
South East Asia Economic growth was generally buoyant across the region but
Singapore continued to be affected by the migration of electronics and other
industries to lower cost countries in Asia. The outbreak of the SARS infection
also curtailed travel and affected business activity. Economic trends in
Thailand, Malaysia and Indonesia were favourable.
In aggregate, both turnover and adjusted operating profit increased across the
region. Margins improved as a result of operational efficiency gains. Prices
were held down by competitive pressures in Malaysia and Thailand but improved
in Indonesia and the Philippines. Tonnage volumes increased in Malaysia as a
result of sales to the steel industry and growing demand from the electronics
assembly and food-freezing industries. Turnover was also boosted by a full year
contribution from Nissan Industrial Oxygen Inc (NIOI) which became fully owned
by BOC’s associated company in Malaysia during September 2002.
Increased turnover in Thailand was based on better underlying demand as well as
increased production. A new hydrogen and carbon monoxide (HyCO) plant began
production at Map Ta Phut during 2003 and carbon dioxide capacity was doubled
with the addition of a new 300 tonnes-a-day plant at Rayong to serve food and
beverage customers.
Underlying trends were favourable in both Indonesia and the Philippines but
results in the Philippines were adversely affected by the closure of a
customer’s plant.
South Asia Economic growth in India led to better sales of liquefied gases in
the merchant market and sustained demand from the steel industry. A new 225
tonnes-a-day oxygen plant was commissioned in the last quarter of the year for
the Tata Iron and Steel Company, BOC’s principal tonnage customer in the
region.
During the early part of 2004, a new plant should begin to supply beverage
industry customers in Pakistan with carbon dioxide.
South Pacific Turnover and adjusted operating profit were slightly higher than
a year ago despite adverse business trends in some Australian industries. The
strengthening of the Australian dollar in 2003 had a negative impact on the
important minerals sector, which responded by restructuring. There was also an
adverse effect on the food industry. Volumes of liquefied gas sales in the
merchant market were therefore lower.
The Australian steel industry was somewhat less affected and a low cost base
enabled it to remain globally competitive. Tonnage volumes increased in 2003.
New business has been obtained with BHP in New South Wales. In January 2003 BOC
commenced supplying additional oxygen and nitrogen, following a process upgrade
to BOC’s Port Kembla facility.
Improved operational efficiencies helped to improve margins in the merchant
market. Centralised plant operation was further extended during 2003 to the
control of plants in New Zealand from an operations centre in Australia. Prices
were raised in the merchant market and further increases will be required in
2004 to offset increased electricity costs that have resulted from the further
rationalisation of generating capacity ownership.
Process systems During 2003 BOC continued to benefit from lower costs arising
from the combination of its Process Plants business with Linde Engineering in
the US to form the new company, Linde BOC Process Plants LLC, based in Tulsa,
Oklahoma. This transaction was completed at the end of September 2002, making
Linde Engineering the principal supplier of BOC’s industrial gas plants
worldwide with access to Linde’s global technical capabilities in air
separation, hydrogen production and other gas technologies.
2003 was another year of low demand for new industrial gas facilities. This was
particularly so in the developed western economies and business opportunities
were principally in the developing economies of the Far East. The rapid pace of
expansion in the Chinese steel and chemical industries is expected to offer
further opportunities to BOC next year.
Water services In October 2002, BOC acquired Environmental Management
Corporation (EMC), a US water services company with the intention of using a
similar business model to that of PGS in developing additional business with
industrial customers.
EMC is a management company providing services for steam systems, cold and
chilled water systems and wastewater treatment. Customers include small to
medium sized municipalities and industrial customers, many of which are in the
food manufacturing sector.
Turnover was on an increasing trend in 2003. Integration of the business was
achieved smoothly but initial integration costs made the business unprofitable
in this first period under BOC ownership.
35 The BOC Group plc Annual report and accounts 2003
Table of Contents
Operating review (comparing 2003 with 2002) continued
| Industrial and Special Products (ISP) | ||||||||||||
| Change | ||||||||||||
| on 20021 | ||||||||||||
| 2003 | Change | (constant | ||||||||||
| £ million | on 2002 | currency) | ||||||||||
Turnover |
1,751.2 | +9% | +9% | |||||||||
Operating profit |
238.2 | +4% | +3% | |||||||||
Adjusted operating profit2 |
242.7 | -2% | -3% | |||||||||
| 1. | A reconciliation of results for 2002 at 2002 and at 2003 rates of exchange is shown on page 31. |
| 2. | A reconciliation of adjusted operating profit with operating profit is shown on page 32. |
| 3. | All comments below are on a constant currency basis. |
Good business performances in most markets were offset by a disappointing
result in the US. Market conditions remained depressed in the US and in the UK
but there was an overall improvement elsewhere. Trends were particularly
favourable in South Africa and in the south Pacific region during the first
half of 2003 but the pace of growth slowed later in the year as a result of
exchange rate movements, which affected exporting industries.
BOC’s helium business continued to grow globally and so did the packaged
chemicals business and the sales of medical gases. Margins improved in the
liquefied petroleum gas (LPG) markets as a result of more rapid selling price
adjustments to reflect changing input costs. In June 2003, BOC announced an
agreement to obtain half the output from a new helium extraction facility to be
constructed in Qatar. Deliveries from this new source are expected to begin in
July 2005 and the location will assist in satisfying fast-growing demand in
Asian markets.
Operating exceptional items in 2003 were for the completion of restructuring
programmes, including those that were part of the programme announced in August
2001. Additionally, there were charges relating to the integration of the BOC
and Air Liquide businesses in Japan to form Japan Air Gases.
Europe Turnover and adjusted operating profit increased in 2003 despite weak
manufacturing activity in the key markets.
BOC has a strong market position in the mature UK manufacturing sector and
achieved turnover growth by extending the range of products and services
offered to its customers. Growth of adjusted operating profit was also assisted
by productivity improvements, control of costs and favourable price trends.
Sales to the medical sector increased because of service improvements and the
introduction of new products – notably lightweight portable cylinders for
emergency applications. Sales of special gases including helium also increased
and a new contract to supply the needs of Oxford Magnet Technology for medical
imaging devices was announced during 2003. Sales of Sureflow hospitality gases
and equipment improved, as did sales of refrigerant gases.
Economic growth in Ireland slowed during 2003. Despite improved hospitality
product sales, turnover was almost unchanged and adjusted operating profit was
marginally lower.
Increased turnover and adjusted operating profit in Poland were principally
because of the addition of the business of Praxair Polska that took effect from
February 2003. The integration with BOC’s existing business in Poland and the
introduction of common business systems has proceeded smoothly. Price increases
in Poland were adequate to recover cost inflation during 2003.
North America In total, sales of gases in 2003 were similar to the previous
year but sales of welding products were depressed. Weak conditions in the
manufacturing economy across north America coupled with costs related to the
implementation of a new business system in the US led to a sharp decline in
adjusted operating profit.
Increased volumes of LPG and of special gases, including helium, together with
modest price increases for most products were sufficient to offset lower
volumes of industrial gases leading to a marginal improvement in gases turnover
in the US.
Market conditions were also difficult in Canada but the acquisition of business
from Air Products in Canada led to a higher turnover and adjusted operating
profit.
Latin America There was an improvement in both turnover and adjusted operating
profit across the region. This was generally based on trends that were
favourable in terms of both volumes and selling prices.
Despite extended unrest and political uncertainly, there was a particularly
strong performance in Venezuela. BOC’s associated company based in Chile also
achieved good growth. Business in Colombia was expanded during 2003 with the
acquisition of an LPG business. Turnover from respiratory homecare products
grew in Colombia, where a local homecare company was acquired during the year,
as well as in Chile, where an acquisition was made in the previous year.
Africa Turnover and adjusted operating profit again increased significantly in
2003, as manufacturing activity was strong in South Africa. Although economic
growth moderated later in the year as the rand strengthened, the increased
international investment in manufacturing in South Africa continued to provide
a firm base for sales of gases and welding products.
The mining industry also provided good business opportunities. There was a
significant expansion of platinum mining and ferro-chrome was also in strong
demand. Production of the Afrox Res-Q-Pak was further increased in 2003 as
demand for the product continued to accelerate. Several of the major mining
companies are issuing this device to their workforce to provide an emergency
oxygen supply for those working underground.
Exports of Afrox welding products started the year well but growth was later
curtailed by the strengthening of the rand, which began to reduce the
competitive advantage. LPG sales increased and margins improved as a result of
lower input costs.
Results from other countries in Africa were somewhat mixed with good
performances in Namibia and Kenya offset by weakness in the Zambian copper
industry. Overall, results were not significantly different in 2003.
36 The BOC Group plc Annual report and accounts 2003
Table of Contents
Japan The basis of accounting for BOC’s business in Japan changed during 2003
as a result of a merger. Full details can be seen in the PGS section on page
34. On the respective bases used in each year, turnover and adjusted operating
profit for ISP in Japan were lower in 2003.
East Asia Turnover increased but adjusted operating profit was marginally lower
in 2003, with the full year benefit of acquisitions being reduced by the effect
of industrial decline in the key market of Hong Kong and also by the increase
in business overheads to support the future development of business in the
region.
Two acquisitions affected business performance comparisons in 2003. Unique Gas
and Petrochemicals Public Company Limited (UGP) was acquired by BOC’s
subsidiary in Thailand in May 2002 and BOC’s associated company in Malaysia
took full control of Nissan Industrial Oxygen Inc (NIOI) in September 2002. The
integration of NIOI proceeded smoothly during 2003 and the business performed
well. Although up on the previous year, results from UGP were adversely
affected by sharply competitive conditions in the ammonia business but LPG,
which is the other main product line for UGP, improved due to partial
deregulation of end consumer prices.
While competition remained strong in industrial products, especially in
Thailand and Malaysia, investments in special products facilities enabled this
more profitable business to be expanded. Facilities for breaking bulk and
repackaging refrigerant gases have already been installed in Hong Kong, the
Philippines and Malaysia and a further facility will be built in Thailand
during 2004.
South Pacific Although economic growth was less rapid in 2003 than it was in
2002, both turnover and adjusted operating profit improved. Increased turnover
was largely a result of better prices rather than increased sales volume and
firm prices were coupled with effective cost controls.
Good progress was made in developing the safety products business in 2003 with
significant new business from major customers. The medical gas business also
benefited from the introduction of new products. A web-based customer portal
was launched enabling customers to carry out transactions as well as to track
and pay their accounts over the Internet.
BOC’s joint venture company, Elgas, a leading supplier of LPG in the eastern
part of Australia, enjoyed a record year. Sharp increases in costs before the
Iraq war were successfully recovered by rapid adjustments to selling prices.
Although automobile gas is a minor part of the company’s turnover, sales may be
affected in the longer term by the Australian government’s decision to remove
the excise tax exemption for this application in the period 2008 to 2012.
After difficult conditions in 2002, better results were obtained from Papua New
Guinea and the other Pacific islands during 2003.
| BOC Edwards | ||||||||||||
| Change | ||||||||||||
| on 20021 | ||||||||||||
| 2003 | Change | (constant | ||||||||||
| £ million | on 2002 | currency) | ||||||||||
Turnover |
684.1 | -1 | % | +4 | % | |||||||
| Operating profit | 7.9 | note 4a | note 4b | |||||||||
Adjusted operating profit2 |
18.5 | -29 | % | -26 | % | |||||||
| 1. | A reconciliation of results for 2002 at 2002 and at 2003 rates of exchange is shown on page 31. |
| 2. | A reconciliation of adjusted operating profit with operating profit is shown on page 32. |
| 3. | All comments below are on a constant currency basis. |
| 4a. | Compares with a loss of £1.4 million in 2002 |
| 4b. | Compares with a loss of £2.2 million in 2002 |
Operating exceptional items in 2003 were for the completion of restructuring
programmes, including those that were part of the programme announced in August
2001. Additionally, there were charges relating to the integration of the BOC
and Air Liquide businesses in Japan to form Japan Air Gases.
The semiconductor equipment downturn that affected most of 2002 continued
throughout 2003. The second half of 2002 had benefited from some improvement in
activity but this proved transient and no such upturn was repeated in 2003.
Business was concentrated with those manufacturers with a specific investment
strategy. This was predominantly for upgrades and expansions of existing
facilities rather than new plants. Demand for general vacuum products from
key customers in the chemicals, aerospace and automotive industries was also
weaker in 2003. Turnover and adjusted operating profit were therefore lower.
The impact of these adverse business conditions was lessened by rationalising
manufacturing facilities and by careful control of costs. Industrial vacuum and
pressure products manufacturing in Philadelphia, Bolton and the Czech Republic
was rationalised. Also in 2003, the size of a facility in Massachusetts was
reduced to suit the lower volume of business available.
The pharmaceutical freeze-drying and packaging business suffered from delayed
investment by pharmaceutical manufacturers during 2003 but order intake has
since improved.
Semiconductor gases turnover was essentially unchanged in 2003 as a whole,
despite an improving trend in the second half. Additional volumes from new
business were offset by pressure on prices as competition became more severe
during the second year of the downturn. The focus was therefore on retaining
market share, winning new business in Asia and on product development.
Management believes that a major share of the bulk gas business has been
secured for the new semiconductor fabrication plants being built in China.
Production of nitrogen trifluoride has been increased and fluorine generators
remain under evaluation by leading semiconductor manufacturers.
The basis of accounting for BOC’s business in Japan changed during 2003 as a
result of a merger. Full details can be seen in the PGS section on page 34. On
the respective bases used in each year, turnover and adjusted operating profit
for BOC Edwards in Japan increased in 2003.
37 The BOC Group plc Annual report and accounts 2003
Table of Contents
Operating review (comparing 2003 with 2002) continued
Vacuum equipment volumes worldwide were slightly better in 2003 and much of the
increase was derived from products for flat panel display manufacture.
Management believes that BOC Edwards has achieved a leading share of this
fast-growing market – particularly in Taiwan and Korea. However, these pumps
currently earn lower margins than semiconductor pumping systems. Although
semiconductor equipment demand was weak in 2003, improved products were
developed to strengthen BOC Edwards’ position in vacuum technology. These
included single axis on-tool semiconductor pumps and a range of small dry pumps
for the growing scientific equipment market.
The Kachina process tool component cleaning service grew in 2003 but the
chemical management business suffered from the small number of new
semiconductor plants being built. Cost levels were reduced to improve financial
performance.
Contracts were won in Asia and Europe furthering a strategy to expand the range
of value-added services to electronic manufacturers. These include gases
management, chemicals supply, support services and materials logistics. Other
developments included an improved offering of gases and vacuum systems for
lithography and supercritical carbon dioxide cleaning technology.
| Afrox hospitals | ||||||||||||
| Change | ||||||||||||
| on 20021 | ||||||||||||
| 2003 | Change | (constant | ||||||||||
| £ million | on 2002 | currency) | ||||||||||
Turnover |
353.4 | +36% | +16% | |||||||||
Operating profit |
46.1 | +55% | +31% | |||||||||
Adjusted operating profit2 |
46.1 | +55% | +31% | |||||||||
| 1. | A reconciliation of results for 2002 at 2002 and at 2003 rates of exchange is shown on page 31. |
| 2. | A reconciliation of adjusted operating profit with operating profit is shown on page 32. |
| 3. | All comments below are on a constant currency basis. |
Although hospital occupancy rates increased only marginally, turnover and
adjusted operating profit both increased significantly. This resulted from some
minor acquisitions, positive price trends and a reduction in overhead costs.
New facilities continued to be added to existing hospitals in order to widen
the range of available services.
There was a significant change in the reimbursement system during 2003 and the
trend is expected to continue in 2004. Insurance companies had previously paid
private health care providers such as Afrox hospitals a fee for their services
but this is changing to a risk reimbursement system. A fixed payment is made
for each kind of procedure thus transferring some financial risk to the
provider if complications arise.
Although acute care hospitals continued to make up the great majority of both
turnover and adjusted operating profit, there were better results from the
Lifecare chronic care business, from occupational health services and from the
Direct Medicines pharmacy services business following restructuring to address
more competitive market conditions.
In July 2003 African Oxygen Limited (Afrox) announced that it was in the
process of considering its strategic options with regard to its shareholding in
Afrox Healthcare Limited. On 17 November 2003, Afrox announced that it had
agreed to sell its entire holding in Afrox Healthcare Limited to a consortium
of Black Economic Empowerment investors. The sale remains subject to certain
conditions including clearance from the relevant competition and other
regulatory authorities.
| Gist | ||||||||||||
| Change | ||||||||||||
| on 20021 | ||||||||||||
| 2003 | Change | (constant | ||||||||||
| £ million | on 2002 | currency) | ||||||||||
Turnover |
291.8 | +10% | +10% | |||||||||
Operating profit |
29.2 | +15% | +13% | |||||||||
Adjusted operating profit2 |
29.2 | +15% | +13% | |||||||||
| 1. | A reconciliation of results for 2002 at 2002 and at 2003 rates of exchange is shown on page 31. |
| 2. | A reconciliation of adjusted operating profit with operating profit is shown on page 32. |
| 3. | All comments below are on a constant currency basis. |
Improved turnover reflects both new contracts and increased volumes with
existing customers. The increase in adjusted operating profit is not only as a
result of higher turnover but also because of a gain of some £4.1 million
arising principally from the termination of operations for the Marks & Spencer
General Merchandise business.
Gist continues to operate all of Marks & Spencer’s chilled and ambient food
distribution and services and remains its largest supply chain provider.
In 2003, a contract with Carlsberg-Tetley, a leading brewer, was expanded to
manage the entire primary transport distribution business. A contract to manage
the international inbound supply chain was also secured with New Look, the UK
high street fashion retailer.
38 The BOC Group plc Annual report and accounts 2003
Table of Contents
Operating review (comparing 2002 with 2001)
Group
Turnover including the Group share of joint ventures and associates was
£4,017.9 million in 2002, down three per cent compared with £4,159.2 million in
2001. Operating profit was £425.6 million, up one per cent compared with £422.3
million in 2001. After charging operating and non-operating exceptional items
totalling £94.7 million and net interest and other financing items of £70.1
million, profit before tax was £335.3 million, down seven per cent compared
with £362.2 million in 2001. Earnings per share were 41.4p, down ten per cent
compared with 46.0p in 2001. Excluding the exceptional items, adjusted
operating profit for the year was £500.1 million, adjusted profit before tax
was £430.0 million and adjusted earnings per share were 55.9p.
Year ago comparisons are adversely affected by exchange rate movements, mainly
for the South African rand and, in the closing months of the year, for the US
dollar. If the results of a year ago had been translated at the rates applied
to this year, turnover would have been reduced by £214.1 million. The
corresponding reductions in operating profit and adjusted operating profit
would have been £25.1 million and £27.6 million respectively. Adjusted profit
before tax would have been £22.7 million less and adjusted earnings per share
would have been reduced by 1.7p.
The table set out below summarises results reported both under UK GAAP and as
adjusted. Comparisons with the previous year are shown both as reported in that
year and on a constant currency basis.
| 2001 (at 2002 | ||||||||||||
| 2002 | 2001 | exchange rates)1 | ||||||||||
Turnover
including share of joint ventures and associates (£ million) |
4,017.9 | 4,159.2 | 3,945.1 | |||||||||
Operating profit (£ million) |
425.6 | 422.3 | 397.2 | |||||||||
Adjusted operating profit (£ million)2 |
500.1 | 530.6 | 503.0 | |||||||||
Profit before tax (£ million) |
335.3 | 362.2 | 340.7 | |||||||||
Adjusted profit before tax (£ million)2 |
430.0 | 466.9 | 444.2 | |||||||||
Earnings per share |
41.4 | p | 46.0 | p | 44.4 | p | ||||||
Adjusted earnings per share2 |
55.9 | p | 57.5 | p | 55.8 | p | ||||||
| 1. | A reconciliation of turnover, operating profit and adjusted operating profit for 2001 at 2001 and at 2002 rates of exchange is shown on page 31. |
| 2. | A reconciliation of adjusted results with UK GAAP results is shown on page 32 and in the profit and loss account on page 72. |
Exceptional items in 2002 included restructuring charges of £47.2 million and a
£21.3 million charge relating to the closure of facilities in connection with
the combination of BOC Process Plants with Linde Engineering in the US. An
exceptional charge of £21.2 million was made to write down the value of OSK,
BOC’s gases business in Japan, in advance of the then proposed merger of OSK
with part of Air Liquide Japan.
Exceptional items in 2001 included restructuring charges of £35.8 million, a
charge of £24.5 million for the write-down and impairment of assets, a charge
of £21.0 million for the write-down of unproductive assets identified for
disposal and a charge of £16.7 million for a prior period amendment to pension
plan benefits.
Adjusted return on capital employed for the year to 30 September 2002 was 12.3
per cent, after six successive quarters of improvement. Return on capital
employed for the year to 30 September 2002 was 10.5 per cent. Free cash flow
(after interest, tax, dividends and capital spending but before acquisitions)
remained positive and was £166.5 million in 2002. Net cash outflow, after
acquisitions, disposals and other investing activities, and including
exceptional cash items, was £120.3 million in 2002. A reconciliation of these
measures is shown on page 32.
A first interim dividend for 2002 of 15.5p per share was paid in February 2002
and a second interim dividend of 22.5p per share was paid in August 2002. In
aggregate this was a 2.7 per cent increase over the annual dividend of the
previous year.
Capital expenditure by subsidiaries (including interest capitalised) was £354.3
million in 2002, compared with £352.6 million in 2001. Capital expenditure by
joint ventures and associates was £74.2 million in 2002, of which the BOC share
was £34.5 million. Equivalent expenditure in 2001 was £109.7 million, of which
the BOC share was £53.3 million. The Group also made acquisitions of businesses
of £207.3 million in 2002 and proceeds from disposals were £10.6 million.
Equivalent items in 2001 were £145.9 million and £2.7 million respectively.
| Process Gas Solutions (PGS) | ||||||||||||
| Change | ||||||||||||
| on 20011 | ||||||||||||
| 2002 | Change | (constant | ||||||||||
| £ million | on 2001 | currency) | ||||||||||
Turnover |
1,200.6 | +1% | +4% | |||||||||
Operating profit |
161.2 | +55% | +61% | |||||||||
Adjusted operating profit2 |
185.2 | +18% | +22% | |||||||||
| 1. | A reconciliation of results for 2001 at 2001 and at 2002 rates of exchange is shown on page 31. |
| 2. | A reconciliation of adjusted operating profit with operating profit is shown on page 32. |
| 3. | All comments below are on a constant currency basis. |
In addition to the revenues added by new plants coming into production and firm
pricing trends, operational efficiency gains were a key factor behind the
adjusted operating profit increase. Towards the end of 2002, cost savings were
realised from the closure of facilities in connection with the combination of
BOC’s Process Plants business with Linde Engineering in the US. Costs were also
reduced as a result of better delivery scheduling and remote plant operation.
Operational service centres were already established in the UK, the US and
Australia. Management then believed that a further 70 plants could benefit from
remote operation during the next 18 months and new links were being established
to bring Asian plants into the network.
39 The BOC Group plc Annual report and accounts 2003
Table of Contents
Operating review (comparing 2002 with 2001) continued
New plants were commissioned for OneSteel at Whyalla in South Australia in
November 2001, a hydrogen plant for Huntsman on Teesside in the UK during
January 2002, an air separation unit for WCI Steel in Ohio in May 2002 and
another at Midland, North Carolina in June 2002. These further strengthened
BOC’s established base in the metals sector and highlighted a growing
commitment to the chemicals and oil sectors.
Economic uncertainties reduced the number of investment projects receiving
authorisation from customers in 2002. However, despite the somewhat dull market
conditions BOC Process Systems was able to win new business by offering
integrated solutions that added value for process industry customers.
Operating exceptional items in 2002 were mainly for the write-down of assets in
the OSK business in Japan based on valuations ahead of the merger with Air
Liquide and further restructuring costs as part of the programme announced in
August 2001. Operating exceptional items in 2001 related to the business
initiative programme announced in August 2001 with the objective of releasing
cash tied up in unproductive assets and improving cash generation.
Europe Turnover increased in the UK but adjusted operating profit was
marginally lower despite success in reducing overhead costs. The increase in
turnover was due to additional sales from the plant commissioned in January
2002 to supply hydrogen to Huntsman’s chemical plant on Teesside but this was
offset by the effect of weak manufacturing output in the UK. This affected
sales volumes and prices in most sectors as some customers closed plants in the
UK and moved production to lower cost areas. Adjusted operating profit was also
depressed by a temporary shutdown of a customer’s steel furnace, leading to
less efficient operation of BOC’s air separation plant in south Wales. Another
steel customer went into receivership towards the end of 2002 and a provision
of £3.6 million was made for a bad debt and to write down the value of BOC’s
plant supplying a facility that has closed.
In July BOC acquired pipeline assets serving customers on the Teesside chemical
complex. This gave BOC more direct contact with its customers in this important
area.
Although turnover in Ireland was similar to the previous year, adjusted
operating profit increased as a result of success in reducing costs. Adjusted
operating profit also increased in Poland for the same reason and because a bad
debt provision depressed adjusted operating profit in 2001.
North America Overall turnover increased slightly but growth was restrained by
generally weak economic conditions in the US and by lower power and fuel costs
leading to the reduction or elimination of surcharges. Some increases in
tonnage volumes arising from the recovery of steel output in the US and
increased sales of carbon dioxide to the food and beverage sector were offset
by generally lower demand for liquefied gases in the merchant market.
Adjusted operating profit grew faster than sales as a result of firmer prices
and cost savings, which more than made up for some bad debt provisions for
customers in liquidation.
New plant and acquisitions that affected the comparison with a year ago
included a replacement plant commissioned in May 2002 to supply WCI Steel in
Ohio, a plant commissioned in September 2002 at Midland, North Carolina, and a
plant supplying Vitrotex in Texas that started up in July 2002. Assets
purchased from Messer increased BOC’s capacity to supply the growing market for
carbon dioxide in the US.
Latin America Despite continuing political uncertainty, BOC’s business in
Venezuela achieved significantly better adjusted operating profit in 2002.
Demand from the glass industry was strong and sales of both nitrogen and carbon
dioxide to the food and beverage sector also increased. More efficient plant
operation coupled with control of overhead costs made an important contribution
to adjusted operating profit growth in 2002.
Adjusted operating profit in Colombia was also better as a result of improved
operating efficiency coupled with better activity in the steel industry.
Indura, BOC’s associate based in Chile, also achieved a better adjusted
operating profit as a result of new business in both Chile and in Argentina.
Selling price increases that exceeded inflation also made an important
contribution to adjusted operating profit growth in Chile.
BOC’s associated company in Mexico supplying a Pemex company with high-pressure
nitrogen continued to demonstrate the value of re-pressurisation to enhance oil
recovery. A number of equipment problems that emerged after commissioning were
investigated and corrective action was taken in 2002. This had no significant
impact on the adjusted operating profit for the year. BOC increased its share
of the company from 30 per cent to 35 per cent in early 2002.
Africa Buoyant conditions in the South African manufacturing economy made it
possible to achieve a significant increase in turnover. Together with strict
cost controls, this drove a still greater increase in adjusted operating
profit. Demand from steel industry customers was high and sales to other
sectors were expanded. New business was obtained in the pulp and paper sector
and an oxygen plant was commissioned to satisfy a supply scheme contract. Price
increases were sufficient to offset inflation in 2002.
Japan Turnover and adjusted operating profit were lower in 2002, reflecting
continued weakness in the Japanese economy, which affected both gas equipment
sales and demand for liquefied gases. The impact on adjusted operating profit
was limited by operational cost savings. During 2002 BOC’s under-utilised air
separation unit at Himeji was closed and BOC began to supply its customers by
purchasing products from another gas producer. Despite the weak economic
conditions, three new on-site generators were commissioned in 2002 and a
further one is due to be completed in 2003.
40 The BOC Group plc Annual report and accounts 2003
Table of Contents
North Asia Growth of sales revenues in Korea was limited by weak economic
conditions but adjusted operating profit was significantly better as a result
of operational and overhead cost savings and improved plant efficiency.
Rapid economic growth attracted exceptionally high levels of foreign direct
investment into China during 2002. A number of manufacturers began to expand in
China at the expense of existing production in other parts of the world. This
was accompanied by heavy expenditure on local infrastructure and these factors
combined to create a particularly favourable environment for BOC’s business in
China. Turnover increased significantly and adjusted operating profit nearly
doubled. Existing joint ventures performed strongly – partly in response to
rising steel production, which boosted the performance of BOC’s venture
supplying the Taiyuan Iron and Steel Company in north China. At the same time
BOC took the opportunity to withdraw from underperforming joint ventures and
succeeded in improving the performance of others. New liquefaction capacity was
added to supply the growing merchant market in south China.
In April 2002, BOC established a joint venture in Nanjing with Yangtze
Petrochemical Corporation (YPC), which is a subsidiary of Sinopec, China’s
leading petrochemical company. BOC purchased existing air separation assets
with effect from May 2002 and committed to installing a new air separation
plant. This gave BOC a strategic position as a key supplier in the Nanjing
area, which is being developed through foreign investment as a leading centre
for chemical production in China. BOC’s joint venture is to supply industrial
gases to a new BASF and YPC joint venture plant now under construction and
scheduled to begin production in 2004. In order to take advantage of the new
business opportunities presented by the rapid growth of investment in China,
BOC Process Systems designated China as a new and separate marketing zone
during 2002.
Taiwan was one of the main regions to be affected by the diversion of
investment into mainland China during 2002. Manufacturing growth was weak,
leading to a more competitive environment in the gases business and some
pressure on prices. In response to these structural changes in the Taiwanese
economy, a cost reduction programme was initiated during 2002. Activity related
to the electronics industry increased somewhat during the second half of 2002.
Business conditions in Hong Kong remained weak in 2002 as some customers also
prepared to relocate production to lower cost areas.
South East Asia Economic growth in the region was led by Thailand, supported by
somewhat slower growth in Malaysia. Singapore suffered from the slowdown in the
electronics sector during 2002. Economic conditions in the Philippines and
Indonesia remained difficult.
There was some improvement in demand from the steel sector and petrochemical
activity remained stable. Direct foreign investment, which had supported growth
previously, was diminished as more new investment was directed towards north
Asia.
Improved turnover and adjusted operating profit were driven mainly by increased
merchant sales in Thailand – particularly in the food sector. During 2002 BOC
was able to supply its customers with food freezing equipment constructed to
BOC standards by a manufacturer in Thailand.
A new hydrogen and carbon monoxide (HyCO) plant was under construction at Map
Ta Phut in Thailand.
BOC’s associated company in Malaysia acquired Nissan
Industrial Oxygen Inc (NIOI) during 2002.
The acquisition began with the purchase of 35.6 per cent of the company in
March 2002. Following a tender offer, 100 per cent ownership was achieved in
September 2002. NIOI has significant business in the glass sector. BOC’s
associated company in Singapore acquired part of Messer’s merchant industrial
gases business there in late September 2002.
South Asia BOC’s line of business structure was not then fully implemented in
this region. The following commentary therefore applies to both the Process Gas
Solutions business and to the smaller element of Industrial and Special
Products business in the region.
During 2002, concerns about security and political stability continued to limit
foreign direct investment. Business opportunities were therefore limited to
those generated by the local economies.
In India, asset disposals contributed towards a sharp increase in adjusted
operating profit but there was also a significant improvement in underlying
sales and adjusted operating profit. A new supply scheme to provide industrial
gases to Tata Iron and Steel was won and the new plant was constructed in 2003.
Sales and adjusted operating profits also increased in Bangladesh and Pakistan.
New carbon dioxide capacity was added in 2003 to satisfy growing demand from the beverage industry in Pakistan.
South Pacific Recent investments in new plants were reflected in higher sales.
The plant commissioned to supply BP at Brisbane came into production during
2001 and contributed for a full year in 2002. A plant to supply OneSteel at
Whyalla in South Australia began production early in 2002. Increased customer
demand following a process change resulted in increased sales from the plant at
Port Kembla that came into production during 1999. Demand for carbon dioxide
used in the food and beverage industries grew and increased awareness of food
safety issues placed additional emphasis on product quality. Plant investments
made during 2001 provided additional product supply security in 2002.
Adjusted operating profit increased significantly faster than sales as a result
of improved operating efficiency and control of overhead costs. Plant
reliability was increased and 12 of the key production plants in Australia
became controlled from a central operations centre. In South Australia,
production from the new plant at Whyalla commissioned in November 2001 allowed
savings to be achieved through the closure of an older and less efficient plant
at Adelaide. Price increases in the merchant markets for liquefied gases were
generally slightly below inflation but the shortfall was more than offset by
operational efficiencies and overhead cost reductions.
41 The BOC Group plc Annual report and accounts 2003
Table of Contents
Operating review (comparing 2002 with 2001) continued
Process Plants In March 2002, BOC reached a master agreement to combine its
Process Plants business with Linde Engineering in the US to form a new company,
Linde BOC Process Plants LLC, based in Tulsa, Oklahoma. The transaction was
completed at the end of September 2002 and makes Linde Engineering the
principal supplier of BOC’s industrial gas plants worldwide with access to
Linde’s global technical capabilities in air separation, hydrogen production
and other gas technologies.
Spending on new air separation plants remained generally depressed in 2002 but
the new arrangement with Linde allowed a significant reduction of unrecovered
costs in the second half of the year as the agreement was implemented. Costs
were also reduced by the closure of BOC Process Plants’ UK manufacturing
facility at Edmonton in north London.
BOC’s Cryostar turbine and compressor business based in France produced
significantly better adjusted operating profit in 2002 following
diversification to reduce its former dependence on investments in new air
separation projects. Sales of equipment to process liquefied natural gas (LNG)
on board tankers were significantly increased.
| Industrial and Special Products (ISP) | ||||||||||||
| Change | ||||||||||||
| on 20011 | ||||||||||||
| 2002 | Change | (constant | ||||||||||
| £ million | on 2001 | currency) | ||||||||||
Turnover |
1,605.3 | +2% | +7% | |||||||||
Operating profit |
229.3 | +1% | +6% | |||||||||
| Adjusted operating profit2 | 248.0 | Nil | +5% | |||||||||
| 1. | A reconciliation of results for 2001 at 2001 and at 2002 rates of exchange is shown on page 31. |
| 2. | A reconciliation of adjusted operating profit with operating profit is shown on page 32. |
| 3. | All comments below are on a constant currency basis. |
Weak manufacturing activity in the key markets of the US and the UK affected
sales of industrial products but there was growth in both South Africa and in
the south Pacific region. Sales of special products, medical gases as well as
hospitality products and services increased in all markets. Margins improved
mainly as a result of increased productivity following restructuring.
Operating exceptional items in 2002 were mainly for the write-down of assets in
the OSK business in Japan based on valuations ahead of the merger with Air
Liquide and further restructuring costs as part of the programme announced in
August 2001. Operating exceptional items in 2001 related to the business
initiative programme announced in August 2001 with the objective of releasing
cash tied up in unproductive assets and improving cash generation.
Europe A modest improvement in UK turnover was matched by a similar increase in
adjusted operating profit. Sales of industrial products declined in line with
falling manufacturing output but this was offset by increased sales of special
and medical gases and the growth of BOC’s Sureflow hospitality gases and cellar
service business. A lightweight medical oxygen cylinder with integral regulator
has proved popular for portable applications such as in the emergency services.
A new arrangement has been made with an equipment wholesaler to improve sales
of refrigerant gases to the contractor market and a refrigerant filling plant
in the UK is being extended to include additional production and storage
capacity.
Sales and adjusted operating profit also increased in Ireland and BOC’s
commercial systems accommodated the change to the new euro currency without
problems.
Although ISP was a minor part of BOC’s business in Poland during 2002, there
was a significant improvement in sales and adjusted operating profit. In
September BOC announced that it had agreed to acquire Praxair’s industrial
gases business in Poland. This transaction then remained subject to approval by
the competition authority in Poland. This approval was subsequently granted in
2003.
North America Turnover increased only slightly as the trend in overall sales
volumes was essentially flat and price increases for most products were modest.
Weakness in the manufacturing sector was reflected in lower sales of welding
and cutting equipment and consumable products in particular. In such conditions
and with the initial financial impact of installing a new enterprise resource and planning system during the year,
adjusted operating profit in north America decreased despite successful cost
reduction programmes.
Helium prices were an exception to the generally slow trend and continued to
rise more rapidly as higher input costs were recovered in selling prices. BOC
invested in new purification and liquefaction capacity in the US during 2002 to
support its worldwide helium business.
During the year a new plant was opened to supply special gases to customers on
the Gulf coast and a range of gas apparatus was launched under the Airco brand
name. These products were sold through distributors during 2003. During 2002,
BOC continued its roll-out of a medical gas cylinder with an integrated
regulator.
Although economic conditions in Canada were similar to those in the US, there
was a greater increase in sales. Two acquisitions, Technogas and Matheson Gas
Products Canada Inc, were successfully integrated with the existing business in
Canada in 2002. The Matheson acquisition added important special products
capability to BOC’s product range in Canada.
42 The BOC Group plc Annual report and accounts 2003
Table of Contents
Latin America Turnover and adjusted operating profit increased significantly in
each of the key markets. While export-related heavy industry prospered, general
manufacturing remained weak in Venezuela but growth was driven by increased
sales of special products and carbon dioxide. While sales of special products,
including refrigerants and ammonia, also increased in Colombia, the main source
of growth was the medical gas and home health care markets in an otherwise
difficult industrial economy.
Indura, BOC’s associated company based in Chile, benefited from a stable
political environment that served to insulate the Chilean economy from heavy
devaluations in neighbouring Argentina and Brazil. This led to a firm pricing
environment that allowed the benefits of cost controls to be realised.
Africa Turnover and adjusted operating profit increased significantly in 2002
as a result of a sustained resurgence in South African manufacturing. This was
reflected in the growth of sales volumes in the core cutting and welding
business for the first time in five years. New business in packaged chemicals
and other special gases further increased the growth of turnover as new
propellants and refrigerants were added to the product range. Adjusted
operating profit also increased significantly despite making additional
provisions for bad debts.
Sales volumes of liquefied petroleum gas grew slowly but higher input costs
were successfully recovered in selling prices. Hospitality products and
services, and medical gases were also less important sources of sales growth in
2002. However, a recently introduced rescue pack providing a portable oxygen
supply for mineworkers continued to generate strong demand, which exceeded
production capacity.
Exports of cutting and welding equipment from South Africa principally to other
African countries increased strongly in 2002.
Japan During 2002 difficult economic conditions were reflected in essentially
unchanged turnover and a decline in adjusted operating profit. This was despite
good growth in gases for applications in lasers, medical gases and measurement
equipment.
East Asia Turnover and adjusted operating profit both increased but mainly as a
result of acquisitions. Economic growth in Taiwan and Singapore was curtailed
by their dependence on various aspects of electronics manufacturing, which
remained depressed in 2002, particularly during the first half. Weak demand
also restrained price increases, which were generally below the level of
inflation.
The chief source of turnover and adjusted operating profit growth in the region
during 2002 was the acquisition of Unique Gas and Petrochemicals Public Company
Limited (UGP) in Thailand in May. UGP is a leading supplier of liquefied
petroleum gas and packaged ammonia.
BOC’s associated company in Malaysia acquired 35.6 per cent of the gases
company Nissan Industrial Oxygen Inc in March 2002 and, following a tender
offer, the holding was increased to 100 per cent in September 2002 providing a
wider platform for growth in 2003.
South Pacific Strong economic and manufacturing growth supported increased
sales and adjusted operating profit in the key markets of Australia and New
Zealand. The underlying growth of adjusted operating profit was ahead of the
sales increase. Civil turmoil and political uncertainty curtailed growth in the
Pacific islands.
Increased manufacturing activity particularly in Australia but also in New
Zealand supported growth in every part of BOC’s business. Mining, manufacturing
for export and infrastructure projects were particularly strong sectors. Prices
remained firm and overhead cost reduction, coupled with rationalisation of the
supply chain for welding and safety products, helped to widen margins.
The sales and adjusted operating profit of BOC’s associated company, Elgas,
which supplies liquefied petroleum gas (LPG) in south-eastern Australia,
increased sharply. Imported LPG prices remained stable and a relatively cold
winter encouraged sales in the home energy sector. The use of LPG as a vehicle
fuel declined.
| BOC Edwards | ||||||||||||
| Change | ||||||||||||
| on 20011 | ||||||||||||
| 2002 | Change | (constant | ||||||||||
| £ million | on 2001 | currency) | ||||||||||
Turnover |
688.2 | -21% | -19% | |||||||||
Operating profit |
(1.4 | ) | -102% | -102% | ||||||||
Adjusted operating profit2 |
26.1 | -67% | -66% | |||||||||
| 1. | A reconciliation of results for 2001 at 2001 and at 2002 rates of exchange is shown on page 31. |
| 2. | A reconciliation of adjusted operating profit with operating profit is shown on page 32. |
| 3. | All comments below are on a constant currency basis. |
Despite the reduction in adjusted operating profit for the year, BOC Edwards
remained profitable in each quarter and was strongly cash generative during
2002.
Operating exceptional items in 2002 were mainly for the write-down of assets in
the OSK business in Japan based on valuations ahead of the merger with Air
Liquide and further restructuring costs as part of the programme announced in
August 2001. Operating exceptional items in 2001 related to the business
initiative programme announced in August 2001 with the objective of releasing
cash tied up in unproductive assets and improving cash generation.
The severe reduction in capital expenditure by semiconductor manufacturers that
began in the second half of 2001 continued into 2002. Although there was some
revival of demand for semiconductor equipment in the second half of 2002, the
rate of order intake declined at the end of the year.
43 The BOC Group plc Annual report and accounts 2003
Table of Contents
Operating review (comparing 2002 with 2001) continued
Those Asian markets that were the basis of the mid-year revival did not sustain
the earlier investment trends but opportunities were presented by a number of
customers investing in China. In August 2002 BOC formed a joint venture with
Lienhwa Corporation of Taiwan to help to take advantage of new business
opportunities presented by Taiwanese electronics companies investing in China.
The venture combined the marketing capabilities of Lienhwa with BOC’s existing
resources in China. It delivered three new gas supply contracts to supply
semiconductor fabrication plants, including those under construction by Belling
and HJT in the Shanghai area. BOC Edwards also won an order to supply a new
plant in Singapore.
Apart from the semiconductor industry, some other vacuum equipment markets such
as aerospace and chemicals also became more difficult in 2002. The
pharmaceutical and biotechnology markets remained buoyant and BOC Edwards was
notably successful in increasing sales of pharmaceutical drying and packaging
systems.
Gases sales were also affected by weak conditions in the semiconductor industry
worldwide, which led to reduced plant utilisation and closures by some
customers. The overall profit impact of lost revenue on adjusted operating
profit was offset by increased productivity. In 2002 a programme to rationalise
production facilities for electronic materials was completed. This involved the
closure of electronic gases facilities at some sites, including Immingham in
the UK and part of the facility at Research Triangle Park in North Carolina, in
order to concentrate global production into fewer locations.
The capacity to produce nitrogen trifluoride at BOC’s plant in South Africa was
increased during 2002 to reach 50 tonnes a year. This product, which is used
for cleaning semiconductor process tool chambers, is undergoing qualification
trials with major customers. It will be possible to raise output further if it
is justified by demand.
The pause in semiconductor capacity expansion did not prevent a drive by
manufacturers to invest in projects designed to reduce unit costs. Typically
this included outsourcing of major sub-systems, materials and services. BOC
Edwards participated in this movement through the development of several
important new products, through its close relationships with original equipment
manufacturers and by acquisitions in new business areas. During 2002 the
Kachina process tool component cleaning business was expanded by opening new
facilities to service customers in the US (Oregon), France and China.
In 2002 BOC Edwards acquired the industrial vacuum and pressure businesses of
the Smiths Group.
This acquisition expanded BOC Edwards’ existing general vacuum product range
into new markets and added new high volume pumping technology to the portfolio.
Typical customers are in the metallurgy, water treatment, food, power and
chemical industries. The integration of the business was completed smoothly and
it was operating profitably by the end of the year.
The most significant acquisition was of Seiko Instruments’ turbomolecular pumps
business based in Japan, which was completed in March 2002. Management believes
that the addition of Seiko turbomolecular pumps to the BOC Edwards range of
products should enhance the opportunity to develop vacuum sub-systems to
satisfy the growing trend towards on-tool pumping.
The acquisitions of Hydromatix and Semco were also completed in January and
April 2002 respectively with the intention of positioning BOC Edwards in those
market segments that are expected to grow most rapidly. These companies now
form part of BOC Edwards’ Chemical Management Division.
Hydromatix is based in the US and helps companies in the surface finishing
industry to recycle rinse waters with a minimum amount of waste, allowing them
to cut discharges. Customers are involved in plating, printed circuit boards
and galvanising, as well as higher-technology fields such as disc and
semiconductor production.
Semco designs and manufactures high efficiency, process-critical, liquid
chemical blend, delivery and collection systems used in rapidly growing wet
deposition processes, such as copper plating, a common application in the
semiconductor manufacturing industry.
44 The BOC Group plc Annual report and accounts 2003
Table of Contents
| Afrox hospitals | ||||||||||||
| Change | ||||||||||||
| on 20011 | ||||||||||||
| 2002 | Change | (constant | ||||||||||
| £ million | on 2001 | currency) | ||||||||||
Turnover |
259.0 | -10% | +23% | |||||||||
Operating profit |
29.7 | -8% | +25% | |||||||||
Adjusted operating profit2 |
29.7 | -8% | +25% | |||||||||
| 1. | A reconciliation of results for 2001 at 2001 and at 2002 rates of exchange is shown on page 31. |
| 2. | A reconciliation of adjusted operating profit with operating profit is shown on page 32. |
| 3. | All comments below are on a constant currency basis. |
The acquisitions of the Amahosp and Wilgers hospital groups in the first half
of 2002 added to turnover and more significantly to adjusted operating profit
as integration benefits were realised. The acquisitions added approximately
1,000 acute care beds to Afrox hospitals’ existing capacity. Existing hospital
facilities were also enhanced during 2002 through investment in new services
such as renal dialysis, physical and mental rehabilitation, pathology and
radiography.
Acute care hospitals accounted for the majority of both turnover and adjusted
operating profit. The remainder was made up of health care services including
chronic care, occupational health and pharmacy services. During 2002 there was
a downturn in the Afrox direct medicines business that facilitates the supply
of chronic medication to patients by post. This followed increased competition
as health care funding organisations set up their own supply mechanisms at the
same time as limiting reimbursement for patients.
Turnover of nursing staff continued to be a problem in South Africa as trained
nurses were lured overseas by higher pay. Afrox responded by increasing
spending on training activities to ensure that sufficient well-qualified staff
were available.
| Gist | ||||||||
| 2002 | Change | |||||||
| £ million | on 20011 | |||||||
Turnover |
264.8 | +14% | ||||||
Operating profit |
25.5 | +24% | ||||||
Adjusted operating profit2 |
25.5 | +20% | ||||||
| 1. | A reconciliation of results for 2001 at 2001 and at 2002 rates of exchange is shown on page 31. |
| 2. | A reconciliation of adjusted operating profit with operating profit is shown on page 32. |
| 3. | All comments below are on a constant currency basis. |
Despite competitive conditions in the logistics market, Gist achieved strong
results with improved margins and some notable business wins. Turnover
increased by 14 per cent to £264.8 million and adjusted operating profit rose
20 per cent to £25.5 million.
Operating supply chains for customers remained at the core of the business and
improved adjusted operating profit reflects both new contracts and increased
volume with existing customers. Gist now handles all of Marks & Spencer’s
chilled and ambient food distribution and services as well as the entire
warehouse and distribution operations for Budgens, another major UK retailer.
E-business continued to grow steadily and offered a number of opportunities
with commercial promise to order on-line products and services. Gist provided
e-fulfilment warehousing operations for Ocado, an on-line grocery shopping and
home delivery company established in partnership with the Waitrose supermarket
chain, for Marks & Spencer’s ‘Lunch to Go’ operation and for Blueheath, the
on-line wholesaler.
With increasing emphasis on global supply chains, Gist’s experience, skills and
systems capabilities were already being used to manage complex international
supply chains, such as managing supplies for BOC Edwards’ global manufacturing
operations. Gist also provided stand-alone consulting services to a range of
customers.
45 The BOC Group plc Annual report and accounts 2003
Table of Contents
Financial review
Post balance sheet events
An action was filed against The BOC Group Cash Balance Retirement Plan
(the Plan) in the US. At the time of the preliminary announcement of
the Group’s results on 13 November 2003, no provision was made in
respect of this case, as at that time the outcome of the litigation
was uncertain and the amount of any loss could not be reliably
estimated. Subsequently the parties have reached an agreement in
principle to settle at US$69 million, subject to approval by the court
at a fairness hearing. Under UK accounting principles (FRS17) this
amount has been recognised as a charge in the profit and loss account
of the Group. It has been shown as an exceptional item. The
settlement will be paid out of Plan assets. Further information is
given on page 50.
On 17 November 2003, the Group’s South African subsidiary company
African Oxygen Limited announced that it had agreed to sell its entire
holding in Afrox Healthcare Limited. The sale remains subject to
certain conditions, including clearance from the relevant competition
and other regulatory authorities.
Corporate transactions
Group expenditure on acquisitions of businesses was £135.5 million
(2002: £207.3 million). The main acquisitions during 2003 were
Environmental Management Corporation, a privately held US water
services company, Praxair’s Polish gases business and the Canadian
packaged gas and related welding equipment business of Air Products.
During 2002 the main acquisitions were the turbomolecular pumps
business of Seiko Instruments Inc, the vacuum and pressure business of
the Smiths Group and Unique Gas and Petrochemicals Public Company
Limited in Thailand.
In September 2002 BOC completed the merger of its Process Plants
operations with Linde Engineering in the US to form a new company,
Linde BOC Process Plants LLC. The costs of £21.3 million for closing
BOC’s Process Plants business were charged as an exceptional item in
2002. In September 2002 BOC and Air Liquide announced a conditional
agreement to merge their industrial and medical gases businesses in
Japan to form Japan Air Gases Limited. Valuations undertaken as part
of the business combination resulted in an exceptional write down of
£21.2 million in 2002. The combination took effect in January 2003 and
BOC has accounted for its 45 per cent share of Japan Air Gases Limited
as a joint venture from that date.
Restructuring
Costs of restructuring programmes amounting to £23.8 million have been
charged in 2003. This includes £5.0 million related to the business
initiative announced in August 2001 to divest some assets and to
restructure and improve returns in the businesses being retained.
These programmes are now completed and have resulted in some 1,600 job
losses. Further restructuring opportunities identified resulted in an
additional cost of £10.5 million charged this year and these
programmes are also completed. Management expects that savings from
restructuring programmes will amount to over £50 million a year. Costs
of £8.3 million were also incurred relating to the integration of the
BOC gases business and part of the Air Liquide business in Japan to
form Japan Air Gases Limited.
In 2002 £47.2 million was charged for restructuring of which
£34.4 million related to the business initiative announced in
August 2001 and £12.8 million related to further restructuring
opportunities. Both of these programmes continued into 2003 and
were completed in 2003.
Financial indicators
The trends of financial indicators which, taken together, are a
measure of the performance and efficiency of the Group’s finance and
tax structures, are:
| 2003 | 2002 | 2001 | ||||||||||
Interest cover (times)1 |
4.6 | 4.1 | 3.4 | |||||||||
Adjusted interest cover (times)2 |
5.3 | 4.9 | 4.3 | |||||||||
Net debt/equity (%) |
71.5 | 73.6 | 57.2 | |||||||||
Net debt/capital employed (%) |
36.9 | 36.9 | 32.0 | |||||||||
Average cost of net borrowings (%) |
5.6 | 6.2 | 7.2 | |||||||||
Group tax rate (%) |
27.4 | 31.7 | 28.9 | |||||||||
Adjusted Group tax rate (%)3 |
29.0 | 30.0 | 32.5 | |||||||||
Adjusted means excluding exceptional items.
| 1. | Interest on net debt covered by operating profit. |
| 2. | Interest on net debt covered by adjusted operating profit. |
| 3. | The adjusted tax charge expressed as a percentage of adjusted profit before tax. |
The ratios are commented on below in the appropriate section.
46 The BOC Group plc Annual report and accounts 2003
Table of Contents
Financing
The Group has access to a range of funding. Debt finance is raised
by issuing bonds, commercial paper, other obligations to investors
and through borrowings from banks.
As well as medium and long-term borrowings, the Group maintains
short-term borrowings, principally in the form of commercial paper and
bank borrowings. The Group maintains US$450 million (£271 million) of
committed multi-currency facilities with a group of relationship banks.
These facilities mature in 2008 and provide back-up for the issue of
commercial paper as well as general liquidity for the Group.
Additional committed facilities are maintained by the principal
operating units in the Group.
Overall, net debt increased by £42.5 million as a result of a net
cash inflow of £6.3 million, a £3.7 million inflow from the issue of
shares, an outflow of £31.8 million for the impact of business
acquisitions and disposals and £20.7 million for the effect of exchange
rate movements. In 2002, net debt increased by £53.5 million as a
result of a net cash outflow of £120.3 million offset by £25.0 million
inflow from the issue of shares and £41.8 million for the effect of
exchange rate and other movements. During the year, borrowings by the
parent company increased reflecting the company’s effort to centralise
its longer term funding needs.
The gearing ratio (net debt including finance leases as a
percentage of capital employed) was 36.9 per cent in 2003 compared
with 36.9 per cent in 2002 and 32.0 per cent in 2001. The decline in
the value of pension fund assets following the fall in world equity
markets accounted for some three per cent of the increase in 2002. The
2003 year end net debt/equity ratio was 71.5 per cent, compared with
73.6 per cent in 2002 and 57.2 per cent in 2001.
The Group has access to a diverse range of debt finance including
commercial paper, public bonds and bank borrowings which, it believes,
will be available to meet long-term financing needs. The Group has
sufficient facilities to cover likely borrowing needs. Management
anticipates that capital expenditure in 2004 will be at a slightly
higher level than in 2003 and will be covered by cash inflow from
operating activities.
Management of financial risks
The board of directors sets the treasury policies and objectives of the
Group which include controls over the procedures used to manage
currency, interest rate and credit risk. The approach to managing risk
is set out below. This approach is expected to continue during the
next financial year. On a day-to-day basis, Group treasury carries out
these policies, with regular review meetings with the Group finance
director. Specific and significant activities need approval from the
finance committee, which includes any two directors of the company.
The Group does not undertake any trading activity in financial
instruments nor does it enter into any leveraged derivative
transactions.
Currency risk The Group faces currency risk principally on its net assets, most of which are in currencies other than sterling. Currency movements can therefore have a significant effect on the Group’s balance sheet when translating these foreign currency assets into sterling. In order to reduce this effect the Group manages its borrowings, where practicable and cost effective, to hedge its foreign currency assets.
Where possible, hedging is done using direct borrowings in the
same currency as the assets being hedged or through the use of other
hedging methods such as currency swaps. Group borrowings are
currently held in a wide range of currencies and, after swaps,
81 per
cent of net debt (2002: 86 per cent) is denominated in the principal
currencies affecting the Group: US dollars, Australian dollars,
Japanese yen, South African rand and sterling. The aggregate of the
notional principal values of currency swaps was £474.7 million
(2002: £360.7 million) spread over a range of currencies. The fair
value of such swaps is included in note 21 b) i) to the financial
statements.
The balance sheets of overseas operations are translated into
sterling at the closing rates of exchange for the year and any exchange
difference is dealt with as a movement in reserves. This is explained
more fully in the accounting policy note on page 77. The profit and
loss accounts of overseas businesses are translated at average rates of
exchange and this translation impact directly affects the profit and
loss account of the Group.
The Group manages its currency flows to minimise currency
transaction exchange risk and forward contracts are used as appropriate
to hedge net currency flows and selected individual transactions. The
Group’s foreign exchange cover is mainly managed in the UK, Australia,
Japan and South Africa. The UK manages the cover for exposures on net
trade flows of the Group’s companies in the US and certain other
countries. The aggregate principal amount of forward cover outstanding
at 30 September 2003 amounted to £173.8 million
(2002: £133.9 million).
47 The BOC Group plc Annual report and accounts 2003
Table of Contents
Financial review continued
Interest rate risk At 30 September 2003, the Group’s net debt position
after interest rate hedging activity included a net exposure of
£436.3 million (2002: £497.3 million) to floating interest rates. Based on
the Group’s 2003 year end level and composition of net debt, an
increase in average interest rates of one per cent per annum would
result in a decrease in future earnings, before tax, of £4.4 million
per annum (2002: £5.0 million).
In order to manage interest rate risk the Group maintains both
floating rate and fixed rate debt. At 30 September 2003, there was a
32:68 ratio (2002: 38:62) between floating and fixed rate net debt.
Underlying borrowings are arranged on both a fixed rate and a floating
rate basis and, where appropriate, the Group uses interest rate swaps
to vary this mix and to manage the Group’s interest rate exposure.
At 30 September 2003,the aggregate of the notional principal
values of swap agreements which affect the floating rate/fixed rate
mix was £417.6 million (2002: £420.0 million). The fair value of
such swaps is included in note 21 b) i) to the financial statements.
Foreign exchange risk At 30 September 2003, the Group had outstanding forward exchange contracts totalling £173.8 million (2002: £133.9 million) in respect of its actual and forecast transaction exposures. The fair value of these contracts at 30 September 2003 amounted to a gain of £5.8 million (2002: a gain of £4.9 million). A ten per cent appreciation of sterling would increase the fair value of these contracts by £13.7 million (2002: £7.4 million).
In addition to these forward contracts, the Group is exposed to
foreign exchange movements on its net debt position. At 30 September
2003 net debt, after currency swaps, comprised net sterling liabilities
of £285.3 million (2002: £345.2 million) and net currency liabilities
of £1,082.8 million (2002: £980.4 million). Based on the Group’s 2003
year end level and composition of net debt, a ten per cent appreciation
of sterling would result in a reduction in the value of net currency
liabilities of £90.5 million (2002: £89.1 million).
Counterparty risk Cash deposits and other financial instruments give rise to credit risk on the amounts due from counterparties. Credit risk is managed by limiting the aggregate amount and duration of exposure to any one counterparty depending upon its credit rating and by regular reviews of these ratings. The possibility of material loss arising in the event of non-performance by a counterparty is considered unlikely by management.
The currency and interest rate hedging profile of the Group’s
borrowings at 30 September 2003 is shown in note 21 to the financial
statements. Further information on financial risk management is also
given in note 21 to the financial statements.
Interest on net debt
The net charge before the Group’s share of interest of joint ventures
and associates was £75.8 million in 2003
(2002: £78.6 million, 2001: £98.5 million), which, after excluding interest income
from loans to joint ventures and associates, represented 5.6 per cent
of average net borrowings during the year. After taking into account
capitalised interest and the Group’s share of joint ventures and
associates the net charge was £96.1 million. Adjusted interest cover
(the number of times that the interest charge on net debt is covered by
adjusted operating profit) increased to 5.3 times
(2002: 4.9 times, 2001: 4.3 times).
Net interest on pension financing items
The interest on pension scheme liabilities was £110.2 million in
2003 (2002: £106.1 million, 2001: £107.2 million). The expected
return on pension scheme assets was £119.6 million in 2003
(2002: £139.1 million, 2001: £166.9 million). The decline in the
expected return on pension scheme assets reflects the fall in the
value of world equity markets.
| Debt maturity profile | ||||||||||||||||
| The maturity profile of the Group’s gross borrowings is as follows: | ||||||||||||||||
| 2003 | 2002 | |||||||||||||||
| £ million | % | £ million | % | |||||||||||||
More than five years |
521.8 | 36.1 | 549.5 | 36.4 | ||||||||||||
Two to five years |
416.4 | 28.8 | 390.6 | 25.8 | ||||||||||||
One to two years |
146.5 | 10.1 | 180.9 | 12.0 | ||||||||||||
Within one year |
360.9 | 25.0 | 390.1 | 25.8 | ||||||||||||
Total |
1,445.6 | 100.0 | 1,511.1 | 100.0 | ||||||||||||
A portion of the debt which matures within one year is commercial
paper issued by various Group companies. The Group maintains
US$450 million (£271 million) of committed multi-currency facilities
with a group of relationship banks. These facilities mature in 2008
and provide back-up for the issue of commercial paper as well as
general liquidity for the Group. Additional committed facilities are
maintained by the principal operating units in the Group.
Additional information on the Group’s gross borrowings can be
found in note 20. Details of the Group’s share of net debt of joint
ventures and associates, the majority of which is non-recourse, are
given in note 13a).
48 The BOC Group plc Annual report and accounts 2003
Table of Contents
Other contractual obligations
The maturity of other contractual obligations of the Group is as follows:
| Total | ||||||||||||
| Unconditional | contractual | |||||||||||
| Operating | purchase | cash | ||||||||||
| leases | obligations | obligations | ||||||||||
| £ million | £ million | £ million | ||||||||||
Due after more than five years |
120.7 | 575.7 | 696.4 | |||||||||
Due within two to five years |
93.3 | 247.4 | 340.7 | |||||||||
Due within one to two years |
46.6 | 69.3 | 115.9 | |||||||||
Due within one year |
55.4 | 70.1 | 125.5 | |||||||||
Total |
316.0 | 962.5 | 1,278.5 | |||||||||
See also note 25 to the financial statements.
Off-balance sheet arrangements
The Group has provided guarantees of £26.8 million to third parties at
30 September 2003. For further information on guarantees see note 26 a). Other than disclosed, there are no off-balance sheet arrangements
that have or are reasonably likely to have a current or future material
effect on the Group’s financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
Inflation
Over the last three years, inflation has not had a material impact on the
revenue or profit of the Group.
Taxation
The tax charge for 2003 of £96.4 million is calculated in accordance
with UK accounting standards, including FRS19 (deferred tax), under
which full provision is made for deferred taxes.
The effective tax rate on adjusted profit in 2003 was 29 per cent
(2002: 30 per cent, 2001: 32.5 per cent). The total tax rate was 27.4 per cent (2002: 31.7 per cent, 2001: 28.9 per cent). The Group pays
corporation tax in the UK at a rate of 30 per cent.
The Group is currently liable to pay federal tax at the rate of
35 per cent in the US. This is reduced by the existence of tax
credits. In the other principal subsidiaries, the tax rate is
typically between 30 per cent and 42 per cent.
Contingencies
The Group monitors all contingent liabilities including matters
relating to litigation and the environment via a process of
consultation and evaluation which includes senior management, internal
and external legal advisers and internal and external technical
advisers. This process results in conclusions with respect to
potential exposure and provisions are made or adjusted accordingly.
Management believes that the Group has adequately provided for
contingencies which are likely to become payable in the future.
Legal proceedings
Group companies are parties to various legal proceedings, including
some in which claims for damages in large amounts have been
asserted.
The outcome of litigation to which Group companies are party
cannot be readily foreseen, but the directors believe that such
litigation should be disposed of without material adverse effect on
the Group’s financial condition or profitability.
Welding fumes litigation BOC has been named in numerous lawsuits in the US alleging injury from exposure to welding fumes. Many of these cases were filed during 2003. Certain of these cases have been either filed in, or transferred for pre-trial purposes to, the federal district court in the Northern District of Ohio, where a multi-district litigation (MDL) proceeding has been commenced. The MDL proceeding is still at an early stage. The MDL proceeding is a vehicle for coordinating pre-trial proceedings in cases pending in different federal district courts in the US. In addition to the cases in federal court, BOC is a defendant in a number of similar cases pending in state courts. These cases are in different stages of procedural development, and certain cases are scheduled for trial from time to time.
From the time it purchased Airco in 1978 until this year BOC had
never had an adverse jury verdict returned against it in a case
alleging injury from exposure to welding fumes. On 28 October 2003, a
jury in Madison County, Illinois, rendered a verdict against BOC and
two co-defendants. The jury awarded US$1 million to Mr Elam, a former
labourer who asserted that his idiopathic Parkinson’s disease was
attributable to his exposure to welding fumes over a period of years.
BOC believes that the verdict is inconsistent with the decisions
rendered by juries in previous cases, is not supported by the existing
scientific evidence and intends to pursue vigorously its post-trial and
appeal rights.
BOC believes that it has strong defences to the claims asserted in
these various proceedings related to alleged injury from exposure to
welding fumes and intends to defend vigorously such claims. Based on
BOC’s experience to date, together with BOC’s current assessment of the
merits of the claims being asserted, and applicable insurance, BOC
believes that continued defence and resolution of these proceedings
will not have a material adverse effect on its financial condition or
profitability and no provision has been made.
49 The BOC Group plc Annual report and accounts 2003
Table of Contents
Financial review continued
Fluorogas litigation In February 2003, the company was notified that a
jury verdict in the US District Court for the Western District of Texas
was obtained for US$132 million against Fluorogas Limited, The BOC
Group Inc and The BOC Group plc. The verdict arises primarily out of
an alleged breach of a memorandum of understanding by Fluorogas Limited
before it was acquired by The BOC Group plc in September 2001. In
March 2003, the court also awarded interest and costs against the
defendants, making them jointly and severally liable for a total of
US$174 million. A bond for the full amount has been posted with the
Court as part of the normal appeals process.
The company believes that the jury’s verdict reflects a
misunderstanding of the law and does not reflect the facts of any loss
that may have been suffered by the plaintiff. The company is
challenging the verdict through the appropriate appeals process in the
US and hence no provision has been made. In addition, Fluorogas
Limited was placed in administration under the Insolvency Act of 1986
pursuant to an order of the English Courts. In a related proceeding in
a US Bankruptcy Court, the UK administrators have obtained injunctive
relief preventing the plaintiff in the Fluorogas litigation from
commencing or continuing any action or proceeding enforcing any
judgement against Fluorogas Limited in the US.
ERISA litigation An action was filed in the US District Court for the Southern District of Illinois against The BOC Group Cash Balance Retirement Plan (the Plan). The plaintiffs brought this action on behalf of themselves and all others similarly affected, alleging that the Plan improperly calculated lump sum distributions from the Plan in violation of the Employee Retirement Income Security Act. The maximum potential liability could have reached US$116 million and any award would be paid out of Plan assets.
The parties have reached an agreement in principle to settle at
US$69 million. The settlement documents are being prepared. The
settlement is subject to approval by the court at a fairness hearing.
A provision of US$69 million has been made in the financial statements.
Under UK accounting principles (FRS17), this has been recognised as a
charge in the profit and loss account of the Group. It has been shown
as an exceptional item.
Insurance
Operational management is responsible for managing business risks.
Several Group departments advise management on different aspects of
risk and monitor results. Insurance cover is held against major
catastrophes. For any such event, the Group will bear an initial
cost before external cover begins.
Critical accounting policies
The principal accounting policies affecting the results of operations
and financial condition are set out on pages 77 and 78 of the financial
statements. The application of certain of these policies requires
assumptions or subjective judgements by management. Management bases
these on a combination of past experience and any other evidence that
is relevant to the particular circumstances.
The application of these assumptions and judgements affects the
reported amounts of profit during the year and the assets and
liabilities at the balance sheet date. Actual results may differ from
the estimates calculated using these assumptions and judgements.
Management believes that the following are the critical policies where
the assumptions and judgements made could have a significant impact on
the consolidated financial statements.
Tangible fixed assets A significant part of the capital employed of the Group, particularly in the Process Gas Solutions and Industrial and Special Products lines of business, is invested in tangible fixed assets. The nature of the business demands significant capital investment to renew or increase production capacity or to enable the business to achieve greater productivity and efficiency.
It is the Group’s policy to depreciate tangible fixed assets,
except land, on a straight line basis over the effective lives of the
assets. This ensures that there is an appropriate matching of the
revenue earned with the capital costs of production and delivery of
goods and services. A key element of this policy is the estimate of
the effective life applied to each category of fixed assets which, in
turn, determines the annual depreciation charge. In deciding the
appropriate lives to be applied, management takes into account various
factors including, among other things, the accumulated experience of
the effective asset lives from historic business operations and an
assessment of the likely impact of any changes in technology.
While Group earnings in any period would fluctuate if different
asset lives were applied, in some cases the original estimated life of
an asset is closely related to contractual arrangements with large
customers. Some of the earnings impact of choosing a different asset
life would be mitigated, as the different life may reflect different
contractual arrangements with such customers. Nevertheless,
variations in the effective lives could impact the earnings of the
business through an increase or decrease in the depreciation charge.
It is estimated that a change of one year in the effective life of all
plant, machinery, vehicles and cylinders would have an impact of
between £15 million and £20 million on annual Group operating profit.
A change in the effective life of buildings would have only a
negligible impact.
Intangible fixed assets In a similar manner to tangible fixed assets, management uses its judgement to determine the extent to which goodwill arising from the acquisition of a business has a value that will benefit the performance of the Group over future periods. It is the Group’s policy to amortise goodwill on a straight line basis over its useful economic life. This takes into account, among other things, the maturity of the business acquired and its product and customer base. Any change in these assumptions would have an impact on the earnings of the Group.
It is estimated that a change of one year in the useful
economic life of all goodwill would have an impact of approximately
£1 million on annual Group operating profit.
50 The BOC Group plc Annual report and accounts 2003
Table of Contents
Retirement benefits Results of the Group include costs relating to the
provision of retirement benefits for employees It is the directors’
responsibility to set the assumptions used in determining the key
elements of the costs of meeting such future obligations. The
assumptions are based on actual historical experience and are set after
consultation with the Group’s actuaries. They include the assumptions
used for regular service costs and for the financing elements related
to the pension schemes’ assets and liabilities. Whilst management
believes that the assumptions used are appropriate, a change in the
assumptions used would affect both the operating profit and net
interest cost of the Group.
There are a number of elements used in the assumptions. These
vary for the different countries in which the Group operates, and there
may also be an inter-dependency between some of the assumptions. As a
result, it would be impractical and potentially misleading to give any
approximate impact on annual Group operating profit of a change in any
one assumption in isolation.
Environmental provisions In certain parts of the business, mainly in the US, the Group has obligations to carry out environmental clean-ups at former and current production sites. Many of these obligations will not arise for a number of years, and the costs are difficult to predict accurately. Management uses its judgement and experience to provide an appropriate amount for the likely cost of such clean-ups, and the amounts, if material, are discounted to present values. Both the amount of anticipated costs, and the interest rates used to discount such costs, are subjective. The use of different assumptions would impact the earnings of the Group.
It is estimated that a change of one per cent in the interest
rate used to discount such costs would have an impact of
approximately £1 million on annual Group profit before tax.
Current asset provisions In the course of normal trading activities, management uses its judgement in establishing the net realisable value of various elements of working capital – principally stocks, work-in-progress and accounts receivable. Provisions are established for obsolete or slow moving stocks, bad or doubtful debts and product warranties. Actual costs in future periods may be different from the provisions established and any such differences would affect future earnings of the Group.
The provisions are established at levels appropriate to the
circumstances within individual Group business units, and not on a
Group-wide systematic basis. It is therefore considered that any
estimate of the impact on annual Group operating profit of any change
in such provisions may not be meaningful. Nevertheless, a change of
ten per cent in the level of provision for bad and doubtful debts at 30 September 2003 would have an impact of approximately £3 million on
annual Group operating profit.
The critical accounting policies under UK GAAP do not materially differ from those under US GAAP. Further details of the differences between UK and US GAAP are given in note 30 to the financial statements.
Accounting
The Group’s accounting policies are based on accounting policies
generally accepted in the UK (UK GAAP). No new UK GAAP accounting
standards have been issued or have come into force since 30 September
2002. The accounts for the year to 30 September 2003 have therefore
been prepared on an accounting basis consistent with that applied in
the financial year ended 30 September 2002.
The report and accounts also continues to include US reporting
requirements. This enables the Group to meet the reporting obligations
for a foreign private issuer as required by the US Securities and
Exchange Commission.
The report on remuneration follows the disclosure requirements of
the UK Listing Authority Listing Rules and the UK Companies Act 1985.
Where appropriate, in order to improve clarity, voluntary disclosures
are also given.
As a global business the Group supports initiatives to harmonise
accounting standards. The Group is preparing for the move to report
under International Financial Reporting Standards in line with the
timetable set out in European Union legislation. The first annual
report and accounts to which this will apply will be for the year
ended 30 September 2006.
The Group plays an active part in accounting developments by
responding to new proposals and by appropriate representation.
US GAAP
The financial statements of the Group have been prepared in
accordance with UK GAAP, which differs in certain respects from US GAAP.
The US accounting information in note 30 to the financial
statements gives a summary of the principal differences between the
amounts determined in accordance with the Group’s accounting policies
(based on UK GAAP) and amounts determined in accordance with US GAAP
together with the reconciliation of net profit and shareholders’
funds from a UK GAAP basis to a US GAAP basis, presentation of the
US GAAP measure of comprehensive income and a movement in
shareholders’ funds on a US GAAP basis.
The
net income for the year ended 30 September 2003 under US GAAP was £264.3 million (2002: £255.4 million, 2001: £234.2 million), compared with the net profit
of £219.1 million in 2003 (2002: £202.9 million, 2001: £224.1 million) under UK GAAP. Shareholders’ funds at 30 September 2003
under US GAAP were £1,872.5 million (2002: £2,061.0 million),
compared with £1,734.8 million (2002: £1,684.1 million) under UK GAAP. The difference primarily results from the differing accounting
treatment of pensions, goodwill, financial instruments, investments
and fixed asset revaluations.
51 The BOC Group plc Annual report and accounts 2003
Table of Contents
Financial review continued
Exchange rates
The majority of the Group’s operations are located outside the UK and operate
in currencies other than sterling.
The effects of fluctuations in the relationship between the
various currencies are extremely complex and variations in any
particular direction may not have a consistent impact on the reported
results. In 2003, sterling strengthened against two of the four
principal currencies affecting the Group: by nine per cent against the
US dollar and by four per cent against the Japanese yen. Sterling
weakened by five per cent against the Australian dollar and by 15 per
cent against the South African rand.
In 2002, sterling strengthened against the US dollar, the Japanese
yen and the South African rand. It was almost unchanged against the
Australian dollar.
In 2001, sterling weakened against the US dollar, but strengthened
against the Australian dollar, the Japanese yen and the South African
rand.
The rates of exchange to sterling for the currencies which have
principally affected the Group’s results over the last five years were:
| 2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
US dollar |
||||||||||||||||||||
At 30 September |
1.66 | 1.57 | 1.47 | 1.48 | 1.65 | |||||||||||||||
Average for the year |
1.60 | 1.47 | 1.44 | 1.56 | 1.63 | |||||||||||||||
Highest rate during year |
1.69 | 1.58 | 1.50 | 1.67 | 1.72 | |||||||||||||||
Lowest rate during year |
1.54 | 1.41 | 1.37 | 1.40 | 1.55 | |||||||||||||||
Australian dollar |
||||||||||||||||||||
At 30 September |
2.45 | 2.89 | 2.98 | 2.73 | 2.52 | |||||||||||||||
Average for the year |
2.62 | 2.77 | 2.76 | 2.56 | 2.55 | |||||||||||||||
Highest rate during year |
2.89 | 3.00 | 3.03 | 2.85 | 2.87 | |||||||||||||||
Lowest rate during year |
2.40 | 2.54 | 2.62 | 2.45 | 2.33 | |||||||||||||||
Japanese yen |
||||||||||||||||||||
At 30 September |
185.60 | 191.45 | 175.09 | 159.77 | 175.34 | |||||||||||||||
Average for the year |
191.01 | 184.34 | 170.04 | 166.03 | 191.43 | |||||||||||||||
Highest rate during year |
199.49 | 193.05 | 181.26 | 178.67 | 230.73 | |||||||||||||||
Lowest rate during year |
182.17 | 173.82 | 153.13 | 149.77 | 168.23 | |||||||||||||||
South African rand |
||||||||||||||||||||
At 30 September |
11.57 | 16.58 | 13.24 | 10.68 | 9.88 | |||||||||||||||
Average for the year |
13.24 | 15.64 | 11.47 | 10.24 | 9.82 | |||||||||||||||
Highest rate during year |
16.41 | 19.49 | 13.26 | 11.18 | 10.43 | |||||||||||||||
Lowest rate during year |
11.40 | 13.00 | 10.54 | 9.92 | 9.12 | |||||||||||||||
On 13 November 2003, the latest practicable date for inclusion in this
report and accounts, the rates of exchange to sterling for the
principal currencies were as follows: US dollar 1.69; Australian
dollar 2.34; Japanese yen 182.44; South African rand 11.39.
The highest and lowest rates of exchange for sterling against the US dollar for
the last six months were:
| May | June | July | August | September | October | |||||||||||||||||||
High |
1.65 | 1.69 | 1.67 | 1.62 | 1.66 | 1.70 | ||||||||||||||||||
Low |
1.59 | 1.63 | 1.58 | 1.57 | 1.57 | 1.66 | ||||||||||||||||||
Principal operating companies
The following operating companies principally affect the amount of profit or
assets of the Group:
| • | The BOC Group Inc, a wholly-owned Delaware corporation and a subsidiary of The BOC Group Inc, a wholly-owned Nevada corporation. |
| • | BOC Limited, a wholly-owned English company. |
| • | BOC Limited, a wholly-owned Australian company. |
| • | Gist Limited, a wholly-owned English company. |
| • | Japan Air Gases Limited, a Japanese company, in which the Group’s Japanese 98 per cent owned subsidiary holds 45 per cent. |
| • | African Oxygen Limited, a South African company, in which the Group’s shareholding is 56 per cent. |
Supplier payment policy
The Group applies a policy of agreeing and clearly communicating the
terms of payment as part of the commercial arrangements negotiated
with suppliers and then paying according to those terms. In addition
the UK-based businesses have committed to the ‘Better Payment Practice
Code’. A copy of the code can be obtained from the Department of
Trade and Industry, DTI Publications Orderline, Admail 528, London SW1W
8YT.
For UK businesses, of amounts owing to suppliers, trade creditors represents
54 days at 30 September 2003.
Going concern
The directors are confident, after having made appropriate enquiries,
that both the company and the Group have adequate resources to continue
in operation for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the accounts.
Management believes that its current credit facilities provide
sufficient working capital to meet the present requirements of its
existing businesses and that the gearing ratio is appropriate given the
nature of the Group’s activities.
Substantial holdings
Details of substantial holdings of Ordinary shares at 13 November 2003 are shown on page 125.
52 The BOC Group plc Annual report and accounts 2003
Table of Contents
Corporate governance
The BOC Group is committed to business integrity, high ethical
values and professionalism in all its activities. As an essential
part of this commitment, the board supports the highest standards
in corporate governance.
The board
At 30 September 2003 the board comprised the chairman, five executive
directors and six non-executive directors. Biographies of each of the
directors can be found on pages 8 and 9. BOC has operated with a board
comprised of 12 members for some time and considers this to be an
effective size and balance for the company. The executive directors
are the chief executive, Group finance director and the three chief
executives of the lines of business. The non-executive directors bring
a wide range of experience and expertise to the board and all are
considered by the board to be independent. Sir Christopher O’Donnell
is the senior independent director, having been appointed to this role
in March 2003 following the retirement of Göran Lundberg. The board
composition allows for changes to be made with minimum disruption. The
board reviews annually the senior managers and their succession and
development plans.
The roles of chairman and chief executive are separate. This has
been so since 1994. The chairman leads the board, ensuring that each
director, particularly the non-executive directors, are able to make an
effective contribution. He monitors, with assistance from the company
secretary, the information distributed to the board to ensure that it
is sufficient, accurate, timely and clear. The chief executive
maintains day-to-day management responsibility for the company’s
operations, implementing Group strategies and policies agreed by the
board. This division of responsibilities between the chairman and the
chief executive has been agreed with the board as a whole.
During the year the chairman’s other commitments have changed.
Whilst remaining a non-executive director of Anglo American plc he has
stepped down from the chairmanship of its audit committee and has
assumed the role of senior independent director. The board has
reviewed the chairman’s current obligations and is satisfied that he
has sufficient time available to meet all his commitments.
The board has a formal schedule of matters reserved to it. In
particular the board’s main focus is on strategic and policy issues and
reviewing performance. These matters are reviewed annually at a
combined board and strategy meeting, lasting over a period of two days,
with updates provided to the board on a regular basis.
The board delegates certain functions to committees. There are
six board committees, details of which are given below. The board,
however, takes direct responsibility for the review and monitoring of
key company policies in such areas as risk management, treasury matters
and corporate social responsibility including safety, environment and
the Code of Conduct. The board currently approves all Group
commitments in excess of £25 million.
Decisions relating to commitments below this level are delegated by
the board to the business unit heads, line of business chief
executives, investment committee and the executive management board
in accordance with specified financial levels agreed by the board.
The board monitors the financial performance of the company. It is
given presentations on major projects and receives reviews from each
of the individual businesses.
The board meets six times a year, with two meetings held at major
operating subsidiaries and one of those two meetings at a location
outside the UK. The attendance of directors at the board and principal
board committee meetings during the year are detailed in the chart
below.
| Audit | Nomination | Remuneration | ||||||||||||||
| Board | committee | committee | committee | |||||||||||||
| (six meetings) | (four meetings) | (six meetings) | (six meetings) | |||||||||||||
R J Margetts |
6 | – | 6 | – | ||||||||||||
A E Isaac |
6 | – | 6 | – | ||||||||||||
F R Arredondo |
5 | 4 | 5 | 4 | ||||||||||||
J M Baddeley |
6 | 4 | 6 | 6 | ||||||||||||
J A Bevan1 |
4 | – | – | – | ||||||||||||
A R J Bonfield2 |
1 | 1 | 1 | 1 | ||||||||||||
R S Grant3 |
2 | – | – | – | ||||||||||||
G U U Lundberg4 |
2 | 1 | 2 | 3 | ||||||||||||
R Médori |
6 | – | – | – | ||||||||||||
R G Mendoza5 |
5 | 4 | 4 | 4 | ||||||||||||
M F C Miau |
6 | – | 5 | 4 | ||||||||||||
Sir Christopher O’Donnell |
5 | 4 | 5 | 4 | ||||||||||||
Dr K Rajagopal |
6 | – | – | – | ||||||||||||
J L Walsh |
6 | – | – | – | ||||||||||||
| 1. | appointed on 5 December 2002. |
| 2. | appointed on 29 July 2003. |
| 3. | resigned on 31 December 2002. |
| 4. | resigned on 4 March 2003. |
| 5. | appointed on 9 October 2002. |
The chairman meets twice a year with the non-executive directors without the executive management present and at each meeting there is a session without the chairman present, chaired by Sir Christopher O’Donnell as the senior independent director, during which they review the chairman’s performance.
The company maintains directors’ and officers’ liability
insurance with a limit of cover of £100 million for each and every
claim or series of claims arising from the same set of circumstances.
The board reviews board meeting papers, regular reports on the
company and market sector activity together with updates on governance
and regulatory matters and litigation affecting the Group.
All directors have access to the advice and services of the
company secretary and there is a well established procedure enabling
any director, in the furtherance of his or her duties, to seek
independent professional advice at the company’s expense.
53 The BOC Group plc Annual report and accounts 2003
Table of Contents
Corporate governance continued
Directors and officers
The directors holding office at the date of this report are named on
pages 8 and 9. John Bevan joined the board as an executive director on
5 December 2002 and Dick Grant resigned as an executive director on 31
December 2002. Roberto Mendoza was appointed a non-executive director
on 9 October 2002 and, following the resignation of Göran Lundberg on 4
March 2003, Andrew Bonfield was appointed a non-executive director on
29 July 2003.
The officers of the company are the executive directors and other
members of the executive management board as named on pages 10 and 11.
All held office throughout the year ended 30 September 2003 except Dick
Grant who resigned on 31 December 2002 and Kent Masters who became a
member of the executive management board on 11 December 2002. There
have been no further changes up to the date of this report.
Non-executive directors
The Group has long recognised the vital role that non-executive
directors play in ensuring high governance standards. The BOC board
has for many years had a significant presence of high calibre
non-executive directors. The nomination committee identifies and
evaluates candidates to fill vacancies and these are nominated for
approval by the board as a whole. Non-executive directors are
initially appointed for a three year term after which, whilst not
automatic, their appointment may be extended subject to mutual
agreement and shareholder approval.
The non-executive directors have full access to management and
both internal and external auditors, and are encouraged to stay fully
abreast of the Group’s business through site visits and meetings with
senior management. Appropriate training and briefings are available to
all directors on appointment and subsequently, as necessary, taking
into account their qualifications and experience. During 2003 a
non-executive director attended two relevant external training courses.
For all new non-executive directors a full induction programme is
provided including site visits and meetings with each of the line of
business chief executives, each member of the executive management
board and also the company’s key external advisers.
Board committees
There are six board committees to which the board delegates specific areas of
responsibility as described below.
Audit committee
Members: Fabiola Arredondo, Julie Baddeley, Andrew Bonfield,
Roberto Mendoza, Matthew Miau and Sir Christopher O’Donnell
(chairman).
The audit committee meets four times a year. Time is set aside at
two of these meetings for the committee to meet with the internal and
external auditors without executive management present. The committee
reviews the effectiveness of internal controls, matters raised by the
internal and external auditors in their regular reports to the
committee and the quarterly financial statements prior to their
release. The committee reviews the programme and effectiveness of risk
management within the Group as well as ensuring that an appropriate
relationship between BOC and the external auditors is maintained. The
audit committee terms of reference are available on the company’s
website (www. boc. com).
Andrew Bonfield, an independent non-executive director, is
considered by the board to be the audit committee financial expert. He
is considered to be independent in accordance with a definition of that
term by the New York Stock Exchange. The qualifications of all members
of the committee are given on pages 8 and 9.
A report from the audit committee on its activities during 2003 is given on
page 55.
Nomination committee
Members: Fabiola Arredondo, Julie Baddeley, Andrew Bonfield,
Tony Isaac, Rob Margetts (chairman), Roberto Mendoza, Matthew
Miau and Sir Christopher O’Donnell.
The nomination committee meets periodically as required, and in
the year ended 30 September 2003 met six times. The committee
primarily monitors the composition and balance of the board and its
committees and identifies and recommends to the board the appointment
of new directors. Whilst the chairman of the board chairs this
committee he is not permitted to chair meetings when the appointment of
his successor is being reviewed. The nomination committee terms of
reference are available on the company’s website (www. boc. com).
Following developments in corporate governance during the year,
the committee reviewed the terms of reference of each of the
principal board committees. It recommended changes which were
approved and implemented by the board.
The committee carries out, on an annual basis, a review of the
board and executive management board, monitoring the succession plans
for the board. This is complemented by an annual board evaluation
which in 2002 was an internal review and in 2003 has been a more
comprehensive review conducted by an external facilitator. The
results of the evaluation assist the committee in its consideration of
the opportunities for improvement in the performance of directors
generally and in the reappointment of non-executive directors upon
expiry of their term of office and also on their proposed re-election
as directors retiring by rotation at the Annual General Meeting.
The results of the 2003 evaluation were very positive. In
particular, the evaluation confirmed that the board and each of the
principal board committees worked effectively. The contributions by
individual directors to board and committee discussions were also
considered to be high. The review did highlight the need for
continuing improvement in the overall efficiency of board and committee
meetings in order to maintain the focus of discussions on key strategic
and policy matters.
In the appointment of new directors the committee reviews the
current balance of skills on the board. It draws up a specification
to include any specific knowledge or expertise it considers of future
benefit to the board having regard to the
business throughout the Group and the overall strategy. It
recruits using external search agents who would put forward a short
list of candidates for the committee to review before submitting its
recommendation to the board as a whole.
54 The BOC Group plc Annual report and accounts 2003
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During the year the committee assessed the time commitment it
considers appropriate for each non-executive director to devote to
BOC to ensure that they have enough time in addition to their
existing commitments. This agreed time commitment is taken into
account when considering new appointees to the board.
Remuneration committee
Members: Fabiola Arredondo, Julie Baddeley (chairman), Andrew Bonfield,
Roberto Mendoza, Matthew Miau and Sir Christopher O’Donnell.
The remuneration committee meets six times a year. The committee
recommends to the board the policy on executive directors’ remuneration
and the specific remuneration, benefits and terms of employment of each
executive director. The remuneration committee terms of reference are
available on the company’s website (www. boc. com).
The committee’s report on directors’ remuneration is set out on pages 60 to
69.
Pensions committee
Members: Julie Baddeley (chairman), Tony Isaac, Rob Margetts, René Médori,
Roberto Mendoza.
The pensions committee meets twice a year and oversees the review
of governance and control procedures applying to all employee
retirement benefit plans and reviews and makes recommendations on the
investment policies and strategies applied to the Group’s retirement
benefit plans.
Executive management board
The members of the executive management board are detailed on pages
10 and 11. The executive management board is chaired by Tony Isaac.
The executive management board meets regularly having primary
authority for the day-to-day management of the Group’s operations and
policy implementation pursuant to the Group’s strategy agreed by the
board.
Investment committee
Members: John Bevan, Tony Isaac (chairman), René Médori, ‘Raj’
Rajagopal, Greg Sedgwick, John Walsh and representatives from the
finance function.
The investment committee meets regularly and reviews and approves
Group commitments up to certain levels set by the board.
Accountability and audit
Statements of the respective responsibilities of the directors and
auditors for these accounts are set out on pages 70 and 71.
To enhance further the confidence of investors in the
independence of the independent auditors and their report, the board
of BOC has introduced a policy that defines which other services
PricewaterhouseCoopers LLP may or may not provide to BOC. The policy
requires the provision of these services to be approved in advance by
the audit committee of the board. A full statement of the fees paid
for audit and non-audit services is provided in note 2 c) to the
financial statements.
Audit committee report
The audit committee meetings in 2003 reviewed the following issues:
| i) | interim financial results. |
| ii) | interim report from the internal audit function of progress against the 2003 audit plan. |
| iii) | corporate governance issues arising in the US under the Sarbanes-Oxley Act and in the UK in the revised Combined Code. The audit committee reviewed the Group’s actions and disclosure items in response to these matters designed to enhance the Group’s corporate governance practices. |
| iv) | the external 2003 audit plan for the Group’s auditors, PricewaterhouseCoopers LLP (PwC). This review included the audit objectives, auditor independence and objectivity policies managed by PwC, partner rotation, audit scope, team, timetable, deliverables and fee proposal. |
| v) | the Group’s risk management process, including progress on the management of key risks identified by the Group, and within the Group’s lines of business. |
| vi) | the 2003 full year results. |
| vii) | the annual report disclosure items relevant to the audit committee. |
| viii) | full year report on internal audit and effectiveness of internal control. |
| ix) | the external auditors’ year end report. |
| x) | the independence and objectivity of the external auditors, including a review of non-audit fees. |
During this period the audit committee met with the Group’s external auditors
without the presence of management.
Regular attendees to audit committee meetings, at the invitation
of the chairman of the committee, include: the chairman, chief
executive, Group finance director, company secretary (or his
designate), director of risk management and head of business assurance
audit.
During 2003 the audit committee has reviewed the arrangements for
staff to report, in confidence, financial reporting, financial control
issues or other matters. The committee has also reviewed the Group’s
policy on the hiring of former external auditor personnel and has
received reports from management on changes in accounting requirements
and accounting policies relevant to the Group.
The audit committee has reviewed its terms of reference and
amended them in accordance with the policies and procedures introduced
by BOC to enhance corporate governance practices.
55 The BOC Group plc Annual report and accounts 2003
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Corporate governance continued
The audit committee has reviewed and approved a policy for the
provision of non-audit services by the auditor. This policy defines
services which can be provided by the auditor and specifies services
which cannot be provided. The policy requires all non-audit services
to be approved in advance by the audit committee, which has delegated
this task to the chairman of the audit committee. The approval process
requires full disclosure of the objectives and scope of the services to
be performed and fee structure. The audit committee reviews all
approved services at subsequent meetings.
The audit committee has reviewed and approved a policy to safeguard
auditor objectivity and independence. This policy requires annual
review of:
| i) | policies and procedures adopted by the auditor. |
| ii) | policies implemented by the Group to manage non-audit services, employment of former auditor employees, audit partner rotation and influence on the conduct or objectivity of the audit. |
The audit committee concludes that, based on the foregoing, it has discharged its responsibilities as set out in the terms of reference and is satisfied that auditor independence and objectivity have been maintained.
Risk management and internal controls
This statement of compliance with the Combined Code on Corporate
Governance in respect of risk management and internal controls is in
line with the arrangements set out by the UK Listing Authority.
The board has overall responsibility for the Group’s system of risk
management and internal controls.
The schedule of matters reserved to the board ensures that the
directors maintain full and effective control over all significant
strategic, financial, organisational and compliance issues.
Risk management in BOC The BOC risk management programme assists management throughout the Group to identify, assess and manage business risk.
The risk management programme is supported by a dedicated central
team of risk specialists. To ensure all parts of the Group have a firm
understanding of risk, the central team has led over 170 risk workshops
and reviews around the world in the past three years. These risk
assessments have been broad, covering: risks in strategy; risks to
achieving commitments contained in performance contracts; risks in
organisational change; risks associated with major projects and risks
involving acquisitions. The risk management process operates
throughout BOC and is applied equally to the global lines of business,
the business units and corporate functions.
The output from each assessment is a list of prioritised risks
with associated action plans to mitigate them. Line managers are
responsible for these action plans and their progress is reported,
as required, as part of their performance contract reviews.
A report is made to the board twice a year. The relevant
business executives presented to the board in May and November 2003,
covering actions which had been completed and the status of
continuing action plans to manage the Group’s key risks.
BOC views risk management as integral to good business practice.
The programme is designed to support management’s decision making and
to improve the reliability of business performance. BOC will continue
to embed the management of risk into all its management processes.
Internal controls in BOC The directors have delegated to executive management the establishment and implementation of a system of internal controls appropriate to the various business environments in which it operates. The Group operates under a system of controls that has been developed and refined over time to meet its current and future needs and the risks and opportunities to which it is exposed. These controls, which are communicated through various operating and procedural manuals and processes, include but are not limited to:
| • | the definition of the organisational structure and the appropriate delegation of authorities to operational management. |
| • | procedures for the review and authorisation of capital investments through the investment committee including post-acquisition reviews and appraisals. |
| • | strategic planning and the related annual planning process including the ongoing review by the board of the Group’s strategies. |
| • | the establishment of individual business unit annual performance targets and the quarterly business review of actual performance. |
| • | the monthly financial reporting and review of financial results and other operating statistics such as the health and safety reports as well as the Group’s published quarterly financial statements, which are based on a standardised reporting process. |
| • | accounting and financial reporting policies to ensure the consistency, integrity and accuracy of the Group’s accounting records. |
| • | specific treasury policies and objectives and the ongoing reporting and review of all significant transactions and financing operations. |
The internal control system is monitored and supported by an internal audit function that operates on a global basis and reports its results to management and the audit committee on the Group’s operations. The work of the internal auditors is focused on the areas of greatest risk to the Group determined on the basis of a risk management approach to audit.
There have been regular reviews by the audit committee of the
board of the effectiveness of the Group’s overall internal control
processes throughout the year.
The directors therefore believe that the Group’s system of risk
management and internal controls provides reasonable but not absolute
assurance that assets are safeguarded, transactions are authorised and
recorded properly and that material errors and irregularities are
either prevented or would be detected within a timely period.
56 The BOC Group plc Annual report and accounts 2003
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Having reviewed its effectiveness, the directors are not aware of any
significant weakness or deficiency in the Group’s system of internal
controls during the period covered by this report and accounts. There
were no changes in the Group’s internal control over financial
reporting that occurred during the year ended 30 September 2003 that
have materially affected, or are reasonably likely to materially
affect, the Group’s internal control over financial reporting.
Disclosure controls and procedures
The chief executive and Group finance director, after evaluating the
effectiveness of the Group’s disclosure controls and procedures as at
the end of the period covered by this annual report and accounts, have
concluded that, as at such date, the Group’s disclosure controls and
procedures were effective.
Going concern
The directors’ report on going concern is included in the financial review on
page 52.
Communications with shareholders
The board considers communications with shareholders, whether
institutional investors, private or employee shareholders, to be
extremely important. Results are published quarterly, and half year
and annual reviews are sent to all shareholders. A copy of the full
report and accounts is available by election or on request. The Annual
General Meeting provides an opportunity for shareholders to question
directors about the company’s activities and prospects. The chairmen
of each of the principal board committees are normally present. During
the year responses are given to letters received from shareholders on a
variety of subjects. There is a programme of regular dialogue with
major institutional shareholders and fund managers and summaries of
these discussions and meetings are provided to the board. In addition
the board receives copies of most analyst and broker reports issued on
the company. These summaries and reports enable the directors to gain
an understanding of the views and opinions of those with an interest in
the company.
The company’s website (www. boc. com) provides financial and
other business information about The BOC Group. It contains an
archive of past announcements and annual reports, share price
information and a calendar of events as well as BOC’s social
responsibility policies, including the company’s Code of Conduct.
Compliance
The board has applied the principles contained in Section 1 of the
Combined Code on Corporate Governance appended to the UK Listing
Authority Listing Rules and has complied throughout the year, with the
exception that Dick Grant, a director who resigned with effect from 31
December 2002, had a service contract that could be terminated by the
company on two years’ notice.
Directors submit themselves for re-election at regular intervals
and at least every three years in accordance with the company’s
Articles of Association and the Combined Code.
Although the new Combined Code is only effective for reporting
years beginning on or after 1 November 2003, BOC has already made
changes to its corporate governance procedures such that at this time
the company is significantly advanced towards compliance with the new
code.
US corporate governance compliance
BOC has securities registered in the US and, as a result, is required
to comply with those provisions of the Sarbanes-Oxley Act 2002 (the
Act) as it applies to foreign issuers. Whilst the company believes
its corporate governance structure to be robust and in line with best
practice, changes have been made in order to ensure compliance with
the Act as far as it applies to BOC. The board continues to monitor
the new rules being issued pursuant to the Act and will comply with
any new legal and regulatory requirements as they are introduced.
As recommended by the US Securities and Exchange Commission (SEC)
BOC has established a disclosure committee comprising the Group finance
director, Group legal director and representatives from the finance,
company secretarial, treasury, investor relations, risk management and
human resources functions. The committee meets regularly and is
responsible for performing an oversight and advisory role in the
disclosure process for the quarterly announcements and the content and
form of the annual report and Form 20-F. The committee makes
recommendations to the chief executive, Group finance director and
executive management board on the adequacy of processes to permit
signing of the certifications required by the Act.
In November 2003, the SEC approved changes to the listing
standards of the New York Stock Exchange (NYSE) related to the
corporate governance practices of listed companies. Under these rules,
listed foreign private issuers, like BOC, must disclose any significant
ways in which their corporate governance practices differ from those
followed by US domestic companies under the NYSE listing standards.
There are no significant differences in the corporate governance
practices followed by BOC, as compared to those followed by US domestic
companies under the NYSE listing standards, except that BOC follows the
recommendations contained in the Combined Code with respect to the
membership of its nomination committee which permits membership of this
committee to be composed of a majority of independent non-executive
directors. The NYSE listing standards require that the nomination
committee be composed entirely of independent directors.
Corporate social investment
BOC’s social investment programme has four key objectives:
| i) | to continue to focus on projects to improve environmental stewardship; |
| ii) | to strengthen BOC’s educational support in selected areas; |
| iii) | to continue to devolve the choices of charitable donations to employees through matched giving and volunteering schemes; and |
| iv) | to broaden the organisation’s involvement in social programmes around the world. |
57 The BOC Group plc Annual report and accounts 2003
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Corporate governance continued
These objectives were accompanied by the launch of BOC’s global Code of
Conduct, which underpins the Group’s commitment to high legal and ethical
standards in business. The code is being transmitted to the organisation
through an extensive communication, training and change management process. It
details and builds on many of the Group’s existing social, environmental, legal
and ethical standards as well as improving areas where there were perceived
gaps or deficiencies. The code includes many standards: safe working
practices; sound environmental management; fair competition and trade
practices; rejection of corrupt practices; respect for the principles of human
rights; and community engagement and support. The code can be accessed on the
company’s website at www.boc.com
The code is reinforced by a supporting programme, including clear channels
for employees to lodge questions, concerns or complaints. The BOC helpline
operates 24 hours a day, seven days a week. Translators are available to
handle concerns in every major business language. Using the helpline,
employees can post, e-mail, fax or telephone concerns to be handled
confidentially by an independent helpline administrator or by BOC’s global
compliance department.
BOC operates a wide-ranging social investment and charitable donations
programme, directing resources at areas where the organisation feels it can
make a difference or where employees have a direct involvement.
In 2003, BOC
made charitable donations totalling £1.12 million including £476,000 to
UK-registered charities through direct donations from the Group and matched
giving. As in previous years, no political donations were made in the European
Union.
Supporting the environment
The Group’s environmental flagship remains the UK-based BOC Foundation
for the Environment, which was established with an initial injection of
£1 million in 1990. The Foundation has supported over 120 projects.
This year, the Group contributed £180,000 to Foundation projects and
saw eight new initiatives come on stream. Since the Foundation’s
inception BOC has donated £3. 7 million. Combined funding from BOC and
its co-sponsoring partners now exceeds £12 million. This year the
Foundation was reorganised to concentrate on projects that improve air
and water quality and to increase the proportion of its environmental
spending that goes in direct support of selected projects.
BOC made a number of positive contributions to other
environmental projects including the BOC New Zealand community
environmental grants programme, which provides assistance to schools
and local community groups. Together with the New Zealand Water
Environment Research Foundation, BOC manages a scheme providing
funding to help communities maintain, protect and improve their water
resources.
Charitable programmes
At a local level, BOC employees have continued to involve themselves in
charitable fundraising and voluntary support. To this end, BOC’s
matched giving scheme again proved its worth as a way of aligning
corporate funding with the personal generosity of BOC employees.
Matched giving schemes have been operating in the UK, the Americas and
the south Pacific for some time. In the course of 2003, BOC in the UK
donated £201,000 (included in the UK total above) through the Charities
Aid Foundation to match employee beneficence.
In addition to the numerous causes supported through matched
giving, BOC also supported a number of Group causes, including the
Royal British Legion, Thrive, St John’s Ambulance, Macmillan Cancer
Relief and ProShare. BOC ran the second year of the BOC Emerging
Artist Award to encourage and support a committed UK-based artist for a
year. The 2003 award was won by Manchester Metropolitan University
graduate Tom Hackney who emerged as the overall winner of the £20,000
bursary from 200 applicants.
The Group’s logistics business, Gist, has formed a partnership
with FareShare, adopting the cause as its headline charity. FareShare
is a national network that redistributes surplus food to homeless and
vulnerable people around the UK. Food that is nearing its expiry date
is delivered to the FareShare depots from big retailers. Volunteers at
the depots then sort, grade, refrigerate and deliver the food to day
centres. Money saved on food is then used to provide other support
services such as training, medical services and counselling to help
people rebuild their lives.
Community involvement
Outside the UK, the development of community activities rests in the
hands of local BOC businesses, each one being responsible for its own
project selection and funding. This devolved approach has resulted in
the funding of a rich variety of programmes that are truly relevant to
the communities in which BOC companies operate.
In the US, through a combination of financial support and many
hours of volunteer involvement, BOC and its employees continued to
assist the United Way charitable appeal, helping to make a difference
in many deprived sectors of the community. BOC in the US also pursued
a number of other projects including support for local arts and
educational causes.
In the south Pacific, the company matches employees’fundraising
for three charities a year. In Australia, employees once again chose
the Salvation Army’s Red Shield Appeal, Daffodil Day, a fundraising
event for cancer research, education and patient support, and Jeans for
Genes, an international campaign that raises funds for research into
genetic disorders. In New Zealand, employees selected Daffodil Day,
the Westpac Rescue Helicopter and the Society for the Prevention of
Cruelty to Animals. BOC in Australia continues a long-established
relationship with the Malcolm Sargent Cancer Fund for Children. BOC
employees support this cause with financial contributions and employee
support through volunteering and fundraising activities.
In South Africa, BOC’s subsidiary Afrox and its staff continued to
support the company’s community involvement process (CIP), which
includes the management of 125 projects to improve the lives of
disadvantaged young people. Once more, the highlight of the year was
Bumbanani (meaning ‘let’s build together’) Day when 13,500 children
attended events hosted by BOC staff. This year, Afrox’s CIP was
identified by the United Nations as a model community programme and the
Springs Parkland clinic received the president’s merit award for
outstanding social commitment.
58 The
BOC Group plc Annual report and accounts 2003
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In addition, Afrox hospitals engage in a wide range of health care and
safety initiatives, including sponsorship of the South African Heart
Foundation. A Mended Hearts support group and cardiac rehabilitation
team, supporting people in their recuperation and rehabilitation after
heart surgery, continued to roll out their programmes on an
increasingly national basis. Some Afrox hospitals have a special
outreach service in the form of rape crisis centres. Medical
examinations are conducted in a non-threatening environment with the
emphasis placed on maintaining the dignity of the victim. Preventive
medication and antiretroviral drugs are given against sexually
transmitted diseases.
BOC and its employees have been active in many other markets.
BOC in China has embarked on a support programme to facilitate
screened blood donations to local hospitals. In Thailand, BOC
sponsored a sports programme helping to discourage drug use. BOC in
Pakistan, continued to provide support to community organisations
dealing with poverty alleviation, education and health care. This
year, support continued for: the Layton Rehmatulla Benevolent Trust,
an organisation dedicated to providing free eye care; the Marie
Adelaide Leprosy Centre; the Shaukat Khanum Memorial Cancer Hospital,
the first institution in Pakistan dedicated to cancer treatment; and
the Aga Khan Medical Hospital and Foundation. BOC was one of the
founding contributors to the Aga Khan Foundation which runs a world
class university hospital affiliated to the Harvard Medical School.
In Chile, BOC supported the Catholic University of Chile with
sponsorship of part of the expenses for a new engineering school and
the establishment of departments of mining investigations,
environmental management and teaching through the Internet. In
Venezuela, BOC donated funds and helium balloons to schools and
orphanages and breathing oxygen to local fire stations. In Curacao,
the organisation channels support through the local Rotary Club and
contributed to various youth education and care for the elderly
projects. In India, BOC made a number of contributions across a range
of poverty alleviation and community welfare initiatives.
Investing in education
Several BOC businesses initiated or strengthened their educational
contributions. For example, in southern Africa, BOC companies
supported education and training with external and employee bursaries,
grants, in-house vocational courses and incidental donations as well as
continued support for a welding school and the Afrox College of
Nursing. In Thailand, employees adopted a local primary school and
supported it with books and stationery. It also supported several
establishments with equipment and scholarships for employee dependants.
In the UK, BOC launched an education website entitled Inspiring Gases,
which is designed to help students and their teachers understand more
about gases and their uses. The website will be developed further as a
focal point for other educational activities.
Where appropriate, BOC continues to play an active part in local
communities by harnessing its educational capabilities through school
tours, lessons in the properties of gases, technical support and
academic research. It also funds programmes and events such as the BOC
Gases Challenge, which encourages UK secondary school students to
develop chemical engineering ideas based on the uses of helium and
carbon dioxide, sponsorship of the UK’s Council for Industry and Higher
Education, the annual Institute of Chemical Engineers’ environment
award, and the Salters’ Festivals of Chemistry for the propagation of
science amongst the young. BOC signed a five year deal in 2001 to
support the Salters’ festival season. Last year, 34 festivals of
chemistry involving 500 different schools took place at universities
across the UK and Ireland.
Annual General Meeting
The Annual General Meeting will be held at the Institution of
Electrical Engineers (Lecture Theatre), Savoy Place, London WC2R 0BL
on Friday 23 January 2004 commencing at 11.00 am. The Notice of the
Annual General Meeting, which includes explanations of all
resolutions, is contained in a separate circular which is being sent
to all shareholders more than 20 working days before the meeting.
Resolutions will seek approval to the following:
| a) | receipt of the report and accounts; |
| b) | approval of the directors’ remuneration report; |
| c) | reappointment of Andrew Bonfield, Sir Christopher O’Donnell, Julie Baddeley and John Walsh as directors; |
| d) | reappointment of PricewaterhouseCoopers LLP as auditors and granting authority to the directors to fix their remuneration. Following the change in legal status of the auditors PricewaterhouseCoopers to a Limited Liability Partnership (LLP) from 1 January 2003, PricewaterhouseCoopers resigned on 13 February 2003 and the directors appointed PricewaterhouseCoopers LLP to fill the casual vacancy until the next Annual General Meeting. Special notice of this resolution has been received; |
| e) | the dividend policy; |
| f) | political donations and expenditure pursuant to the Political Parties, Elections and Referendums Act 2000; |
| g) | renewal of the authority of the directors to allot shares; |
| h) | renewal of the authority for the directors to allot shares for cash other than to existing shareholders in proportion to their holdings; |
| i) | granting of general authority for the company to purchase its own shares up to a maximum of ten per cent of issued share capital. No purchases were made following last year’s authority; and |
| j) | amendments to the Articles of Association. |
The report of the directors has been approved by the board and signed on its behalf by:
Nick Deeming Secretary
21 November 2003
59 The BOC Group plc Annual report and accounts 2003
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Report on remuneration
The remuneration committee
The remuneration committee comprises, with the exception of the Group
chairman, Rob Margetts, all the independent non-executive directors
namely Julie Baddeley (chairman), Fabiola Arredondo, Andrew Bonfield
(appointed July 2003), Roberto Mendoza (appointed October 2002),
Matthew Miau and Sir Christopher O’Donnell. Göran Lundberg had been the
chairman of the remuneration committee until his retirement on 4 March
2003. Whilst neither the Group chairman nor the chief executive are
members of the remuneration committee they both attend the meetings by
invitation but are not present when their personal remuneration is
discussed and reviewed. The human resources director acts as secretary
to the committee and provides it with information and data from
national and international surveys. In addition, during the year the
remuneration committee appointed Towers Perrin to review the
remuneration arrangements for senior executives. No other services are
provided by this adviser.
The remuneration committee sets the overall remuneration policy of
the Group and makes recommendations to the board on the framework of
executive remuneration. It meets six times a year. Individual member
attendance at the meetings is shown on page 53. The terms of reference
are reviewed annually to ensure that they conform with best practice.
Specifically, the remuneration committee determines, on behalf of the
board, the detailed terms of service of the executive directors and
other members of the executive management team including basic salary,
performance related bonus arrangements, benefits in kind, long-term
incentives and pension benefits. The remuneration committee also
reviews the remuneration of the chairman, following a recommendation
from the chief executive and the senior independent director. The board
as a whole determines the non-executive directors’ fees.
Remuneration policy
BOC’s remuneration policy for executive directors and other executive
management is designed to attract and retain executives of the highest
calibre so that the Group is managed successfully to the benefit of its
stakeholders. In setting remuneration levels the remuneration committee
takes into account the remuneration practices found in other UK-listed
companies of similar size, internationality and complexity and seeks to
benchmark executive remuneration at about the median level for this
group.
During 2002 the remuneration committee reviewed the executive
remuneration packages and decided that a realignment was necessary to
support the company’s business strategy to improve both earnings growth
and capital efficiency and to ensure that the packages were market
competitive. To this end, a proposal to adopt new long-term incentive
arrangements was put to shareholders and approved at the 2003 Annual
General Meeting. These arrangements comprise a long-term incentive plan
and an executive share option scheme. They are intended to encourage
innovation and value-added growth and strengthen the link between
short-term performance and sustainable improvement in shareholder value
over the longer term. It is the view of the remuneration committee that
performance-related remuneration should form a substantial element of
total remuneration. As such, these arrangements together with the
variable compensation plan, which is a performance related cash plan,
form the variable elements of executive remuneration. It is expected
that the achievement of ‘on target’ performance of these variable
elements will amount to about 60 per cent of total executive
remuneration.
No changes to the framework of executive remuneration are
proposed for 2004. The remuneration committee will, however, review
the policy on a regular basis and make any amendments it deems
appropriate to ensure that it meets the objectives of recruiting,
retaining and motivating high performing individuals and ensuring that
the Group is market competitive.
Remuneration components
Basic salary Salaries for executive directors and executive
management board members are based on median market rates drawn from
two external market data sources and take account of an executive’s
experience, responsibilities and performance. Performance is
assessed both from an individual and business perspective. Executive
salaries are normally reviewed annually by the remuneration
committee. Remuneration for those executives of businesses outside
the UK is denominated in the local currency.
Benefits in kind Benefits in kind comprise company car benefits and
membership of BOC’s health care insurance scheme. Where appropriate,
directors on international assignment receive overseas allowances such
as housing and children’s education fees. These allowances are on
similar terms to those applying to other employees on the
international programme. Such benefits are in line with those offered
by peer group companies. Benefits in kind do not form part of
pensionable earnings.
Variable compensation plan The executive directors and senior
management participate in the variable compensation bonus plan. The
plan focuses on annual objectives and links individual performance with
business plans. The financial targets for the executive directors and
other executive management board members are set on an annual basis by
the remuneration committee and performance against these targets is
reviewed by the remuneration committee on a six-monthly basis. The
remuneration committee considers that a six-monthly review acts as a
significant incentive and is conducive to sustaining performance
throughout the year. The financial targets are based equally on
adjusted earnings per share (EPS) and adjusted return on capital
employed (ROCE) at Group level. Adjusted means excluding exceptional
items. Bonuses are assessed two-thirds on these financial targets with
the remaining third based on personal objectives derived from BOC’s
strategic priorities, including safety and growth initiatives. During
2002 the remuneration committee reviewed the plan and agreed the
maximum bonus payable for the achievement of financial and personal
objectives would be 80 per cent of salary. There is a threshold
performance level below which no bonus is paid.
The bonuses for the executive directors and other members of the
executive management board are paid half yearly following the
remuneration committee review. Details of the payments to directors
are included in the directors’ remuneration for the year on page 64.
60 The BOC Group plc Annual report and accounts 2003
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Current long-term incentive arrangements
| Long-Term Incentive Plan (LTIP) Executive directors, members of the executive management board and a number of other key executives selected from the company’s global operations participate in the LTIP. The remuneration committee has the discretion to grant awards up to a maximum of two times salary. The award made in February 2003 to the chief executive was based on 1.5 times salary and for other board directors one times salary. There are three performance conditions: total shareholder return (TSR), adjusted earning per share (EPS) and adjusted return on capital employed (ROCE). Up to one third of the award could vest in respect of each performance condition | ||||||
| The TSR performance condition compares BOC’s TSR performance with two separate comparator groups, a UK comparator group comprising 31 industrial and manufacturing companies and a global industrial gases group of six leading companies as follows: | ||||||
| UK group | ||||||
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|
||||||
| Aggregate Industries | BPB | Invensys | Scottish & Southern Energy | |||
| AMEC | Centrica | Johnson Matthey | Scottish Power | |||
| Anglo American | Corus Group | Kelda Group | Severn Trent | |||
| AWG | FKI | National Grid Transco | Shell Transport & Trading | |||
| BAE Systems | Hanson | Pilkington | Smiths Group | |||
| BG Group | IMI | Rio Tinto | Tomkins | |||
| BHP Billiton | ICI | RMC Group | United Utilities | |||
| BP | International Power | Rolls-Royce | ||||
|
|
||||||
| When determining BOC’s performance relative to the global gases group, the TSR for BOC and the comparator companies will be amended (amended TSR) so that it reflects the excess (or shortfall) in returns relative to the local stockmarket index where each company has its primary listing. The nationality and the local stockmarket index that will be used to calculate the amended TSR for each company is shown in parentheses below | ||||||
| Global gases group | ||||||
| Airgas | (US – S&P 500 Index) | |||||
| Air Liquide | (France – CAC 40 Index) | |||||
| Air Products & Chemicals | (US – S&P 500 Index) | |||||
| Linde | (Germany – DAX 30 Index) | |||||
| Nippon Sanso | (Japan – NIKKEI 225 Index) | |||||
| Praxair | (US – S&P 500 Index) | |||||
| The BOC Group | (UK – FTSE 100 Index) | |||||
For the awards made in 2003 the target set by the remuneration committee
is such that if the company’s TSR position measured over a three year
period is median in respect of both comparator groups, then 40 per cent
of the shares in respect of the TSR part of the award will vest. If the
company’s TSR position is upper quartile all of the shares in respect of
the TSR part of the award will vest. If the TSR performance is between
the median and upper quartile a proportion of between 40 per cent and
all of the shares in respect of the TSR part of the award will vest. If
the company’s TSR position is below the median for both comparator
groups the TSR part of the award will lapse.
The adjusted EPS performance condition is based on the company’s
EPS before exceptional items relative to three year targets on a
sliding performance scale. For the award made in 2003 the target set by
the remuneration committee requires a five per cent per annum growth
rate over three years for minimum vesting. If this is achieved, 40 per
cent of the shares in respect of the EPS part of the award will vest.
All of the shares in respect of the EPS part of the award will vest if
the company achieves a ten per cent per annum growth rate over three
years. If the growth rate is between five per cent and ten per cent a
proportion of between 40 per cent and all of the shares in respect of
the EPS part of the award will vest. If the growth rate is less than
five per cent per annum over the three year period the EPS part of the
award will lapse.
The adjusted ROCE performance condition is based on the company’s
ROCE before exceptional items relative to three year targets on a
sliding performance scale. The minimum target set by the remuneration
committee for awards in 2003 is 13 per cent at the end of the three
year performance period. If this is achieved 40 per cent of the shares
in respect of the ROCE part of the award will vest. All of the shares
in respect of the ROCE part of the award will vest if the company
achieves a ROCE of 14. 5 per cent. If the ROCE performance is between
13 per cent and 14. 5 per cent a proportion of between 40 per cent and
all of the shares in respect of the ROCE part of the award will vest.
If the ROCE is less than 13 per cent the ROCE part of the award will
lapse.
In setting three performance conditions for the LTIP award, the
remuneration committee took the view that these were the most important
measures that drive or measure sustainable improvements in shareholder
value – the TSR performance condition measures comparative performance
while EPS and ROCE reflect a core part of the company’s business
strategy, which is to improve both earnings growth and capital
efficiency.
Executive Share Option Scheme 2003 (ESOS 2003) Executive directors,
members of the executive management board and other selected middle and
senior management throughout the company’s global operations participate
in the ESOS 2003. The remuneration committee have the discretion to grant awards up
to a maximum of two times salary. The awards made in February 2003 to
the chief executive and other members of the board were based on 1.75
times salary. The performance condition set for the ESOS 2003 by the
remuneration committee is that the growth in the adjusted EPS over a
three year performance period must be equal to or greater than the
growth in the UK retail prices index (RPI) plus three per cent per annum
over the three year performance period. The performance is assessed on
the company’s published results. If the performance condition is
satisfied at the end of the performance period then the awards would be
exercisable in full. In the event that the performance condition is not
satisfied over
61 The BOC Group plc Annual report and accounts 2003
Table of Contents
Report on remuneration continued
the original three year period then the remuneration committee has the
discretion to re-test performance after five years, but only where the
remuneration committee believes the extension to be a fair and
reasonable basis for assessing the sustained underlying performance of
the company. In line with current corporate governance best practice
there is no rolling re-testing of performance. The remuneration
committee considers this performance condition to be a challenging
performance hurdle when compared to the company’s adjusted EPS compound
annual growth rate over the last ten years of around four per cent.
Awards under the LTIP and ESOS 2003 may be satisfied in cash or
other assets, for example, where it is necessary for legal or tax
reasons. The amount to be paid will, in the case of share options, be
equal to the participants gain on the exercise of the share option.
Also, the remuneration committee may decide, prior to grant, that an
award shall be expressed to be a right to acquire a cash sum rather
than shares. This type of award, known as a phantom award, will
normally only be granted to participants in jurisdictions where,
because of local security laws or exchange control provisions, it is
difficult to issue or transfer shares to employees. The LTIP and ESOS
2003 awards may be satisfied by using existing shares purchased in the
market through The BOC Group plc Employee Share Trust or by issuing new
shares.
Awards under the LTIP and ESOS 2003 are not pensionable.
Savings Related Share Option Scheme UK based directors are eligible
to participate in the BOC Savings Related Share Option Scheme. The
scheme is approved by the Inland Revenue and it is open to all UK
employees with one year’s service or more.
Former long-term incentive arrangements
Executive Share Option Scheme 1995 The last grant of options to the
executive directors and members of the executive management board took
place in February 2002 and the last award to other Group employees took
place in December 2002. No further awards will be made under this
scheme. The options vest when the company’s adjusted EPS growth is
equal to, or exceeds, the growth in the retail prices index (RPI) by
three per cent per annum over any three year performance period.
Senior Executive Share Option Scheme, 1994 Executive Share Option Scheme,
Executive Share Purchase Plan
The last grants under these schemes took place in November 1994,
February 1994 and August 1994 respectively. In line with market
practice at the time when these schemes were introduced the vesting of
these awards was not subject to performance conditions.
Share Incentive Unit Plan Between 1989 and 1995 awards were made to
executives under an incentive arrangement linked to the growth in
the company’s share price. No awards have been made under the plan
since 1995. The final payment was made in November 2002.
Retirement benefits
Pension arrangements for executive directors are in line with those
of comparable executives in the countries in which the directors are
located.
In the UK, the BOC Senior Executive Pension Scheme is a funded,
tax-approved, defined benefit pension arrangement. Where necessary, the
director’s pensionable pay is limited by the ‘earnings cap’ provisions
of the Finance Act 1989. In such cases, the company pays the director a
salary supplement on earnings above the earnings cap to reflect the
loss of pension coverage. This supplement is recorded in the director’s
emoluments and is not taken into account in calculating bonuses or any
other form of remuneration.
BOC closed its UK defined benefit pension arrangements to all
new employees on 30 June 2003. Pension arrangements for new employees
will be provided for under a defined contribution Retirement Savings
Plan. The company will make contributions to the plan equal to two
times the employee’s core contributions which can be three, four or
five per cent of salary.
In the US, the BOC Top-Hat Pension Plan is an unfunded,
non-tax-qualified, defined benefit pension arrangement.
In Australia,
the BOC Gases Superannuation Fund is a defined contribution arrangement
underpinned by a defined benefit guarantee for long-serving employees
who were members under a prior benefit structure.
Shareholding guidelines
The remuneration committee encourages executive management to grow
personal shareholding in the business over time. It is anticipated
that each executive would build towards a shareholding of one times
salary. The remuneration committee believes that the vehicle of the
long-term incentive arrangements will facilitate the building of such
a shareholding over a period of time.
Details of directors’ individual remuneration, share options, LTIP
awards, share incentive units and share holdings are given on pages 64
to 68. As set out in the remuneration policy statement performance
related remuneration is expected to amount to about 60 per cent for
each of the executive directors. The performance conditions for each
current and former share option and long-term incentive plan are set
out above.
Non-executive directors
Non-executive directors are generally appointed for an initial period
to the next Annual General Meeting and subject to reappointment at the
meeting, for a further three year term. Subsequent reappointment is
with the agreement of the board and approval of shareholders. The fees
are set at a level which will attract individuals with the necessary
experience and ability to make a significant contribution to the
Group’s affairs. The responsibilities of, and the time commitment
expected from, non-executive directors have increased in recent times
and fees paid to non-executives are increasing to reflect this. As a
result, from 1 January 2004 the non-executive directors’ fees will
increase from £37,000 to £40,000 per annum, £10,000 of which, less
tax, will be invested in BOC shares. The fees for chairing a
62 The BOC Group plc Annual report and accounts 2003
Table of Contents
committee will increase from £8,000 to £10,000 per annum, £5,000
of which, less tax, will be invested in BOC shares. The fee for the
chairman, Rob Margetts, is set at £225,000.
The non-executive directors do not have contracts of service nor
do they participate in the Group’s variable compensation arrangements,
its long-term incentive arrangements or its pension arrangements, nor
do they receive any benefits in kind.
The graph above has been included to meet the requirement set out in
the Directors’ Remuneration Report Regulations 2002. It shows BOC’s TSR
performance, assuming dividends are reinvested, compared with all FTSE
100 companies. This has been chosen because it provides a basis for
comparison against companies in a relevant, broad based equity index of
which BOC is a constituent member. The remuneration committee decided
that other comparator groups were more appropriate as performance
measurement for the LTIP. A graph showing BOC’s TSR performance
compared with the six major gases companies relative to respective
local indices, which is one of the comparator groups chosen for the
LTIP, is shown in the chairman’s statement on page 5.
Service contracts
The company’s policy is for all executive directors to have contracts
of employment that terminate on the attainment of retirement age. In
order to mitigate its liability on early termination, the company’s
policy is that it should be able to terminate such contracts on no more
than 12 months’ notice, and that payments on termination are restricted
to the value of salary, car benefit and bonus entitlement (calculated
on the basis of the average of actual payments over the preceding two
years) for the unexpired portion of the notice period. Pension
provisions on termination are detailed in the individual service
contracts below.
Individual service contracts Mr Bevan has a contract dated 5 December
2002 that can be terminated by the company on 12 months’ notice. In the
event of early termination, the contract provides for the payment of
compensation based on the value of salary, car benefit and bonus
entitlement (calculated on the basis of the average of actual payments
over the preceding two years) for the unexpired portion of the notice
period. Mr Bevan would also be entitled to his deferred pension, with
the unexpired portion of the notice period being added to his
pensionable service in the calculation of his pension entitlement.
Mr Isaac has a contract which expires on 30 June 2005 subject to
possible extension by mutual agreement. The contract can be terminated
by the company on 12 months’ notice. In the event of early termination,
the contract provides for the payment of compensation based on the
value of salary, car benefit and bonus entitlement (calculated on the
basis of the average of actual payments over the preceding two years)
for the unexpired portion of the notice period. Mr Isaac would also be
entitled to a special contribution to his funded unapproved retirement
benefit scheme amounting to the sum of 40 per cent of his pay above the
‘earnings cap’ imposed by the Finance Act 1989 and 50 per cent (58. 33
per cent from 6 April 2003) of his pay up to the cap for the unexpired
portion of his notice period.
Mr Médori has a contract dated 19 November 2002 that can be
terminated by the company on 12 months’ notice. In the event of early
termination, the contract provides for the payment of compensation
based on the value of salary, car benefit and bonus entitlement
(calculated on the basis of the average of actual payments over the
preceding two years) for the unexpired portion of the notice period. Mr
Médori would also be entitled (a) to have his deferred pension from the
UK senior executive pension scheme paid without actuarial reduction
from age 55; and (b) to an immediate payment representing the
discounted value of the difference in the capital values of a pension
calculated as in (a) and a pension calculated as in (a) but with the
addition of the unexpired portion of his notice period in the
calculation of pensionable service.
Dr Rajagopal has a contract dated 1 May 1999, amended 22 November
2002, that can be terminated by the company on 12 months’ notice. In
the event of early termination, the contract provides for the payment
of compensation based on the value of salary, car benefit and bonus
entitlement (calculated on the basis of the average of actual payments
over the preceding two years) for the unexpired portion of the notice
period. Dr Rajagopal would also be entitled to have his deferred
pension from the UK senior executive pension scheme (a) calculated with
the inclusion of the unexpired portion of his notice period in the
calculation of pensionable service; and (b) paid without actuarial
reduction from age 55.
Mr Walsh has a contract dated 21 November 2002 that can be
terminated by the company on 12 months’ notice. In the event of early
termination, the contract provides for the payment of compensation
based on the value of salary, car benefit and bonus entitlement
(calculated on the basis of the average of actual payments over the
preceding two years) for the unexpired portion of the notice period.
Additionally, the unexpired portion of Mr Walsh’s notice period would
be added to his pensionable service in the calculation of his pension
entitlement.
All the above contracts can be terminated by the individual director on six
months’ notice.
63 The BOC Group plc Annual report and accounts 2003
Table of Contents
Report on remuneration continued
| Directors' emoluments and compensation | ||||||||
| 2003 | 2002 | |||||||
| Charged against profit in the year | £’000 | £’000 | ||||||
Salaries and benefits |
2,665 | 2,586 | ||||||
Annual bonuses payable for the year |
1,123 | 1,631 | ||||||
Termination
payments6 |
1,507 | – | ||||||
Other emoluments |
– | 500 | ||||||
Fees to non-executive directors |
443 | 352 | ||||||
| 5,738 | 5,069 | |||||||
Company pension contributions to money purchase plans |
279 | 184 | ||||||
Company pension contributions to lump sum benefit plans |
196 | 927 | ||||||
Provision for share incentive schemes1 |
387 | 194 | ||||||
Payments to former directors and their dependants2 |
461 | 52 | ||||||
| 7,061 | 6,426 | |||||||
| Year ended 30 September 2003 | 2002 | |||||||||||||||||||||||
| Allowances | Total | |||||||||||||||||||||||
| Basic | and | Termination | Bonus | remunera- | Total | |||||||||||||||||||
| salary/fees | benefits3 | payments | payable | tion | remuneration | |||||||||||||||||||
| Individual remuneration | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | ||||||||||||||||||
Chairman |
||||||||||||||||||||||||
R J Margetts |
225 | – | – | – | 225 | 180 | ||||||||||||||||||
Executive directors |
||||||||||||||||||||||||
J A Bevan5 |
243 | 136 | – | 117 | 496 | – | ||||||||||||||||||
A E Isaac4 |
654 | 122 | – | 367 | 1,143 | 1,806 | ||||||||||||||||||
R Médori |
342 | 276 | – | 192 | 810 | 862 | ||||||||||||||||||
Dr K Rajagopal |
327 | 15 | – | 184 | 526 | 590 | ||||||||||||||||||
J L Walsh |
319 | 144 | – | 178 | 641 | 657 | ||||||||||||||||||
Non-executive directors |
||||||||||||||||||||||||
F R Arredondo |
35 | – | – | – | 35 | 27 | ||||||||||||||||||
J M Baddeley |
43 | – | – | – | 43 | 34 | ||||||||||||||||||
A R J Bonfield5 |
7 | – | – | – | 7 | – | ||||||||||||||||||
R G Mendoza5 |
35 | – | – | – | 35 | – | ||||||||||||||||||
M F C Miau |
35 | – | – | – | 35 | 21 | ||||||||||||||||||
Sir Christopher
O’Donnell7 |
43 | – | – | – | 43 | 34 | ||||||||||||||||||
Directors retiring in the year |
||||||||||||||||||||||||
R S Grant6 |
83 | 4 | 1,507 | 85 | 1,679 | 726 | ||||||||||||||||||
G U U Lundberg6 |
20 | – | – | – | 20 | 34 | ||||||||||||||||||
Directors retiring in 2002 |
||||||||||||||||||||||||
Sir David John |
– | – | – | – | – | 76 | ||||||||||||||||||
H C Groome |
– | – | – | – | – | 11 | ||||||||||||||||||
J H Macdonald |
– | – | – | – | – | 11 | ||||||||||||||||||
Total |
2,411 | 697 | 1, 507 | 1,123 | 5,738 | 5,069 | ||||||||||||||||||
| 1. | This represents the amount charged to operating profit during the year for those elements of the various share incentive schemes relating to directors. | |
| 2. | This represents payments to former directors and/or their dependants which were not provided for in previous years, as well as salary, benefits and pension costs, amounting to £410, 000, relating to Mr Grant from the date of his resignation from the board to 30 June 2003. | |
| 3. | Includes overseas and relocation expenses. | |
| 4. | Mr Isaac was the highest paid director in 2003. | |
| 5. | Mr Mendoza was appointed to the board on 9 October 2002, Mr Bevan was appointed to the board on 5 December 2002 and Mr Bonfield was appointed to the board on 29 July 2003. The remuneration above is the total remuneration earned since their appointment. | |
| 6. | Mr Grant resigned from the board on 31 December 2002, and Mr Lundberg resigned from the board on 4 March 2003. The remuneration above, excluding termination payments, is the total remuneration earned to their date of resignation. Details of Mr Grant’s termination payment are given on page 69. | |
| 7. | Fees in respect of Sir Christopher O’Donnell are paid to Smith & Nephew plc. | |
| 8. | The aggregate remuneration charged against profits for directors and members of the executive management board in the year was £9. 5 million. Remuneration of members of the executive management board other than directors is given on page 65. |
64 The BOC Group plc Annual report and accounts 2003
Table of Contents
| Executive officers The aggregate remuneration of members of the executive management board, other than directors, for services in all capacities during 2003 was as follows: | ||||
| 2003 | ||||
| Charged against profit in the year | £’000 | |||
Salaries and benefits |
1,593 | |||
Annual bonuses payable for the year |
638 | |||
Provision for share incentive schemes1 |
212 | |||
Company pension contributions |
39 | |||
| 2,482 | ||||
| 1. | This represents the amount charged to operating profit for those elements
of the various share incentive schemes relating to executive officers. |
| Directors' share interests at 30 September 2003 The directors of the company and their families had the following beneficial interests in the company's securities and rights under the share incentive schemes: | ||||||||||||||||||||||||||||||||
| At 30 September 2003 | At 1 October 2002 (or at date of appointment if later) | |||||||||||||||||||||||||||||||
| Long-term | Share | Long-term | Share | |||||||||||||||||||||||||||||
| Ordinary | Share | incentive | incentive | Ordinary | Share | incentive | incentive | |||||||||||||||||||||||||
| shares | options | plan awards | units | shares | options | plan awards | units | |||||||||||||||||||||||||
F R Arredondo |
991 | – | – | – | 500 | – | – | – | ||||||||||||||||||||||||
J M Baddeley |
1,254 | – | – | – | 500 | – | – | – | ||||||||||||||||||||||||
J A Bevan |
16,070 | 269,993 | 38,659 | – | 16,070 | 202,339 | – | – | ||||||||||||||||||||||||
A R J Bonfield |
500 | – | – | – | – | – | – | – | ||||||||||||||||||||||||
A E Isaac |
5,700 | 1,096,535 | 127,867 | – | 5,700 | 947,357 | – | 45,000 | ||||||||||||||||||||||||
R J Margetts |
17,000 | – | – | – | 6,000 | – | – | – | ||||||||||||||||||||||||
R Médori |
16,772 | 435,253 | 44,652 | – | 16,772 | 367,112 | – | – | ||||||||||||||||||||||||
R G Mendoza |
10,763 | – | – | – | – | – | – | – | ||||||||||||||||||||||||
M F C Miau |
2,772 | – | – | – | 2,281 | – | – | – | ||||||||||||||||||||||||
Sir Christopher
O’Donnell |
2,179 | – | – | – | 2,081 | – | – | – | ||||||||||||||||||||||||
Dr K Rajagopal |
14,416 | 526,589 | 42,622 | – | 14,416 | 460,009 | – | – | ||||||||||||||||||||||||
J L Walsh |
13,175 | 452,089 | 42,622 | – | 8,175 | 387,500 | – | – | ||||||||||||||||||||||||
Directors retiring in the year |
||||||||||||||||||||||||||||||||
R S Grant |
62,803 | 542,697 | – | – | 62,803 | 542,697 | – | – | ||||||||||||||||||||||||
G U U Lundberg |
5,000 | – | – | – | 5,000 | – | – | – | ||||||||||||||||||||||||
There has been no change in the interest of any of the directors
between 1 October 2003 and 13 November 2003, except for the following.
On 31 October 2003, Mr Isaac exercised an option over 2,357 shares
held in the Savings Related Share Option Scheme. On 13 November 2003,
Mr Isaac held 8,057 Ordinary shares and 1,094,178 share options in
the company. On 31 October 2003, Dr Rajagopal lapsed two options held
in the Savings Related Share Option Scheme over a total of 2,147
Ordinary shares. On 13 November 2003, Dr Rajagopal held 524,442 share
options in the company.
No director had a non-beneficial interest at 30 September 2003
or between 1 October 2003 and 13 November 2003. Options are granted
over Ordinary shares of 25p each under senior executive and general
employee share option schemes.
Apart from the above and service agreements, no director has had
any material interest in any contract with the company or its
subsidiaries requiring disclosure under the Companies Act 1985.
At 30 September 2003, members of the executive management board,
other than directors, had the following aggregate beneficial interests
in the company’s securities: 39,425 Ordinary shares; 1,266,397 share
options and 149,811 long-term incentive plan awards. The cumulative
shareholdings of the company’s directors and members of the executive
management board represent less than one per cent of the company’s
outstanding Ordinary shares.
65 The BOC Group plc Annual report and accounts 2003
Table of Contents
Report on remuneration continued
| Directors’ share interests – movements during the year | ||||||||||||||||||||||||||||||||||||||||
| Share options | ||||||||||||||||||||||||||||||||||||||||
| At | ||||||||||||||||||||||||||||||||||||||||
| 1 October | Market | |||||||||||||||||||||||||||||||||||||||
| 2002 | price | |||||||||||||||||||||||||||||||||||||||
| (or at date of | At | Exercise | at date | Earliest | Latest | |||||||||||||||||||||||||||||||||||
| appointment | 30 September | price | of exercise | exercise | exercise | |||||||||||||||||||||||||||||||||||
| if later) | Granted | Exercised | Lapsed | 2003 | pence | pence | date | date | Notes | |||||||||||||||||||||||||||||||
J A Bevan |
||||||||||||||||||||||||||||||||||||||||
| 6,000 | – | – | – | 6,000 | 722 | 10/02/98 | 10/02/05 | c. | ||||||||||||||||||||||||||||||||
| 10,000 | – | – | – | 10,000 | 919 | 14/02/99 | 14/02/06 | c. | ||||||||||||||||||||||||||||||||
| 10,000 | – | – | – | 10,000 | 980 | 21/02/00 | 21/02/07 | c. | ||||||||||||||||||||||||||||||||
| 10,000 | – | – | – | 10,000 | 914 | 11/02/01 | 11/02/08 | c. | ||||||||||||||||||||||||||||||||
| 30,000 | – | – | – | 30,000 | 894 | 18/11/01 | 18/11/08 | c. | ||||||||||||||||||||||||||||||||
| 45,000 | – | – | – | 45,000 | 937 | 26/05/03 | 26/05/10 | |||||||||||||||||||||||||||||||||
| 301 | – | – | – | 301 | 870 | 01/07/03 | 31/12/03 | a. b. | ||||||||||||||||||||||||||||||||
| 35,000 | – | – | – | 35,000 | 993 | 07/02/04 | 07/02/11 | |||||||||||||||||||||||||||||||||
| 619 | – | – | – | 619 | 766 | 01/04/04 | 30/09/04 | a. b. | ||||||||||||||||||||||||||||||||
| 419 | – | – | – | 419 | 894 | 01/04/04 | 30/09/04 | a. b. | ||||||||||||||||||||||||||||||||
| 55,000 | – | – | – | 55,000 | 1016 | 06/02/05 | 06/02/12 | |||||||||||||||||||||||||||||||||
| – | 67,654 | – | – | 67,654 | 776 | 06/02/06 | 06/02/13 | |||||||||||||||||||||||||||||||||
| 202,339 | 67,654 | – | – | 269,993 | ||||||||||||||||||||||||||||||||||||
A E Isaac |
||||||||||||||||||||||||||||||||||||||||