e6vk
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 6, 2004
Commission File Number 0-10906
The BOC Group plc
(Translation of registrants 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.
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Form 20-F: þ |
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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.
Enclosure: The BOC Group plc Report and Accounts 2004.
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.
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The BOC Group plc
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Date: December 6, 2004 |
By: |
/s/ Anthony Eric Isaac |
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Name: Anthony Eric Isaac |
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Title: Chief Executive |
This report contains the Report and Accounts 2004 of The BOC Group plc (the Company) for the
financial year ended 30 September 2004. The Report and Accounts 2004 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 Companys annual report on Form 20-F for the
financial year ended 30 September 2004 (the Form 20-F) to the Securities and Exchange
Commission. This information in the Report and Accounts 2004 that is referenced in the Cross
reference to Form 20-F table on page 138 shall be deemed to be filed with the Securities and
Exchange Commission for all purposes, including incorporation by reference into the Companys
annual report on Form 20-F filed with the Securities and Exchange Commission on 6 December
2004.
The BOC Group plc Report and accounts 2004 |
Report of the directors
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Financial statements
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Shareholder information
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THE BOC GROUP plc IS A PUBLIC LIMITED COMPANY LISTED ON THE LONDON AND NEW YORK
STOCK EXCHANGES AND REGISTERED IN ENGLAND. THIS IS THE REPORT AND ACCOUNTS
FOR THE YEAR ENDED 30 SEPTEMBER 2004. IT COMPLIES WITH UK REGULATIONS AND
INCORPORATES THE ANNUAL REPORT ON FORM 20-F FOR THE SECURITIES AND EXCHANGE
COMMISSION TO MEET US REGULATIONS. AN ANNUAL REVIEW AND SUMMARY FINANCIAL
STATEMENTS FOR THE YEAR ENDED
30 SEPTEMBER 2004 HAS BEEN ISSUED TO ALL SHAREHOLDERS WHO HAVE
NOT ELECTED TO RECEIVE THIS REPORT AND ACCOUNTS. |
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 companys strategies, (ii) the
companys research and product development, and information technology, (iii)
the companys investments, (iv) commencement of operations of new plants and
other facilities, (v) efficiencies, including cost savings, for the company
resulting from business reviews and reorganisations, (vi) managements view of
the general development and competition in the economies and markets in which
it does, or plans to do, business, (vii) managements view of the
competitiveness of its products and services, and (viii) the companys
liquidity, capital resources and capital expenditure, contain certain
forward-looking statements concerning the companys 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, changes in the level of capital investment by 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. |
Throughout the report and accounts, reference to 2004 in the text means the
financial year ended 30 September 2004. Similarly, references to other years,
eg 2005,2003 and 2002, also mean the financial years to 30 September
unless stated otherwise. |
01 The BOC Group
plc Annual
report and
accounts 2004 |
FINANCIAL HIGHLIGHTS
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Turnover - subsidiary companies |
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Operating profit |
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Profit before tax |
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2004
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2004
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2004 |
£3,885.4m
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£559.5m
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£412.3m |
2003 £3,718.3m
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2003 £438.6m
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2003 £351.9m |
2002 £3,657.7m
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2002 £425.6m
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2002 £335.3m |
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Turnover - including share of joint |
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ventures and associates |
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Adjusted operating profit |
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Adjusted profit before tax |
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2004
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2004
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2004 |
£4,599.3m
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£576.9m
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£504.3m |
2003 £4,323.2m
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2003 £505.6m
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2003 £418.9m |
2002 £4,017.9m
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2002 £500.1m
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2002 £430.0m |
Figures shown as adjusted exclude exceptional items. Other figures shown are
prepared under UK Generally Accepted Accounting Principles (GAAP) and include
all exceptional items.
Adjusted figures are presented to provide a more meaningful indication of
underlying business performance and trends.These are the primary performance
figures used by Group management.
In accordance with guidance and regulations issued by UK and US regulatory
bodies, where adjusted (or non-GAAP) figures are shown, the comparable GAAP
figures are also shown.
Reconciliations between the GAAP figures and the adjusted figures are
shown in the operating review on pages 34 and 35, and in the Group profit and
loss account on page 78. Return on capital employed is defined on page 13.
2004 RESULTS
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Analysis by business |
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Turnover (including share of joint ventures and associates) |
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£ million
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% |
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1.
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Process Gas Solutions
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1,275.2 |
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28 |
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2.
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Industrial and Special Products
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1,782.3 |
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39 |
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3.
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BOC Edwards
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816.5 |
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18 |
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4.
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Afrox hospitals
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432.1 |
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9 |
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5.
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Gist
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293.2 |
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6 |
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Total |
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4,599.3 |
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100 |
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Adjusted operating profit |
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1.
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Process Gas Solutions
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190.3 |
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33 |
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2.
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Industrial and Special Products
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269.5 |
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47 |
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3.
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BOC Edwards
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47.8 |
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8 |
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4.
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Afrox hospitals
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59.8 |
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11 |
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5.
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Gist
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25.1 |
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4 |
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Corporate
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(15.6 |
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(3 |
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Total |
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576.9 |
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100 |
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02 The BOC Group plc Annual report and accounts 2004
Financial highlights
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Earnings per share |
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Dividends per share |
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Return on capital employed |
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2004
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2004
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2004 |
53.5p
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40.0p
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14.9% |
2003 44.5p
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2003 39.0p
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2003 10.9% |
2002 41.4p
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2002 38.0p
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2002 10.6% |
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Adjusted earnings per share |
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Adjusted return on capital employed |
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2004
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2004 |
63.2p
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15.4% |
2003 52.9p
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2003 12.6% |
2002 55.9p
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2002 12.5% |
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Analysis by region |
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Turnover (including share of joint ventures and associates) |
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£ million
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% |
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1.
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Europe
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1,224.6 |
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27 |
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2.
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Americas
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1,218.3 |
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26 |
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3.
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Africa
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699.0 |
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15 |
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4.
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Asia/Pacific
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1,457.4 |
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32 |
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Total |
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4,599.3 |
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100 |
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Adjusted operating profit |
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1.
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Europe
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155.4 |
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27 |
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2.
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Americas
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77.4 |
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13 |
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3.
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Africa
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108.9 |
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19 |
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4.
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Asia/Pacific
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235.2 |
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41 |
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Total |
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576.9 |
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100 |
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A reconciliation of adjusted operating profit to operating profit under UK GAAP
is shown in the operating review on pages 34 and 35.
03 The BOC Group plc Annual report and accounts 2004
CHAIRMANS
STATEMENT
BUILDING FOR
GROWTH AND
PROFITABILITY
2004 was a good year for your
company.BOC has a consistent strategy
that has been well implemented a
testament to all BOCs management and
staff.
Your board owns and reviews this strategy.We
follow a well-defined annual process that
allows all members of the board to examine
every aspect of the Groups progress and
opportunities. Much can be learnt by
questioning and testing in the formal
environment of the
boardroom, but there is no substitute for
seeing the strategy at work in the real
world, with customers, business partners and
staff. For that reason we hold two board
meetings each year outside our Windlesham
headquarters.We went to China in the autumn
of 2003 and saw the impressive work underway
in the Shanghai and Nanjing areas to develop
world-scale petrochemical complexes; these
are areas where BOC has established an
important presence.We also spent a day with
the management team of our logistics
business, Gist. For our first meeting of the
2005 financial year we visited South Africa
and saw the progressive economic and social
developments to which our Afrox subsidiary is
making a major contribution. Over the next 12
months we will also visit Poland and the US.
An important element of the strategy
over recent years has been to reshape our
portfolio of businesses to enhance future
growth and profitability.We will continue
to examine opportunities as and when they
arise.
Returns to our shareholders
In 2004 BOC paid a first interim dividend of
15.5p per share in February 2004 and a second
interim dividend of 24.5p per share in
August, making a total of 40p for the year as
a whole, an increase of 2.6 per cent on 2003.
Having held the first interim dividend at
15.5p for several years, while growing the
second interim dividend, we have reached our
aim of a 40:60 ratio between the two interim
dividends. As a result your board has decided
to raise the first interim dividend by 2.6
per cent to 15.9p to be paid on 1 February
2005. In 2004 our dividends were covered 1.58
times by adjusted earnings and we look to
build our dividend cover towards two-times
over the medium term.We therefore aim to grow
the dividend progressively, albeit at a lower
rate than earnings per share growth.
Again this year, as in the two
previous years, I include graphs comparing
BOCs total shareholder returns since 2000
with all FTSE100 companies and with its
main gases competitors.The message remains
the same.We have performed well compared
with other UK companies but a gap requires
to be bridged with our competitors.
Total shareholder return Total
shareholder return since 1 October 2000
October 2000 October 2004 BOC relative
to FTSE100 compared with major gases
companies relative to respective local
indices |
04 The BOC Group plc Annual report and accounts 2004
Chairmans statement
Corporate Governance
BOC complies with the existing Combined Code on Corporate
Governance and I reported last year that we
already substantially complied with the
revisions to the code announced in 2003, even
though we need not have done so until
2005.This is part of our continuing
commitment to the highest standards of
governance and integrity.Throughout BOC there
is a strong commitment to the principles of
ACTS accountability, collaboration,
transparency and stretch.These principles,
supported by a well established Code of
Conduct, provide strong safeguards at all
levels of the organisation.
Corporate responsibility
Your company is well aware that it is judged
not only by its financial success but also by
how this financial success is achieved. How
well we manage social, environmental and
ethical (SEE) risks is important to the
long-term health of our business. For the
first time this year BOC participated in the
independent survey of companies corporate
responsibility performance conducted by the
UKs Business in the Community. 500 companies
were invited to participate, 139 did so,
including 56 from the FTSE100. BOC was ranked
25th with an aggregate score of well over 90
per cent. This was a good result and
confirmed our belief that we are performing
well against these measures. More recently,
we have surveyed all our business units to
gain a thorough understanding of how they see
our SEE risks and how we are managing
them.This will form the basis of our next
series of initiatives.
A US subsidiary of The BOC Group, along
with other companies in the welding products
industry, has been the subject of injury
claims based on allegations that manganese
in welding fumes causes Parkinsons disease
or symptoms similar to Parkinsons
disease.We are not aware of any credible
scientific evidence linking manganese in
welding fumes to neurological damage under
typical welding conditions.
Board of directors
We welcomed three new non-executive
directors to our board this year. Guy Dawson
joined in March. He was until 2003 chairman
of European investment banking at Merrill
Lynch having previously been with Morgan
Grenfell and Deutsche Bank.Anne Quinn and
Iain Napier were appointed in May.Anne is
group vice president of BPs gas, power and
renewables business stream. Iain is chief
executive of Taylor Woodrow and brings
previous experience of the brewing industry.
Fabiola Arredondo and Roberto Mendoza
resigned from the board during the year,
each because of increasing demands on their
time from their other commitments. Both
Fabiola and Roberto have made valuable
contributions to BOC for which I thank them.
In May I announced that Tony Isaac had
accepted the boards invitation to
continue as your chief executive until the
Annual General Meeting in January 2007.We
are very pleased that he will continue to
provide leadership in the successful
execution of our strategy.
My thanks always go first to BOCs
employees around the world as they make
your company what it is. It is our
talented and dedicated people that make
the difference in a competitive market. I
thank our customers for choosing BOC. I
thank all those who partner, supply and
contribute to BOC wherever we do business.
Finally, I thank you our shareholders for
your continuing support.
Rob Margetts Chairman
05 The BOC Group plc Annual report and accounts 2004
CHIEF EXECUTIVES
REVIEW
BOC performed strongly in 2004 in a
generally favourable economic
environment.Each quarter we reported
adjusted operating profit and earnings
significantly ahead of the equivalent
period in 2003.Our two gases lines of
business, Process Gas Solutions and
Industrial and Special Products, saw
mostly buoyant trading conditions although
the strength of the rand restrained
industrial activity in South
Africa.Semiconductor manufacturers
increased their investment this year after
an extended period of reduced activity and
this benefited BOC Edwards.As a result we
reported adjusted operating profit for the
year of £576.9 million, up 15 per cent,on
turnover up nine per cent at £4,599.3
million.Adjusted profit before tax rose 20
per cent.
I explained last year that our adjusted
figures eliminate exceptional items that
would otherwise create distortions.Also our
year-on-year comparisons are at constant
currency, shorn of the effects of converting
local profits into sterling.This way we show
clearly how we performed in the competitive
markets of the 50 or so countries where we
operate.When I describe our business
performance below I will do so on this basis.
Our statutory results include exceptional
items and reflect currency movements when
comparing performance with last year. On this
basis turnover increased by six per cent,
operating profit by 28 per cent and profit
before tax by 17 per cent.
Successful businesses
Process Gas Solutions delivered a nine per
cent increase in turnover and raised adjusted
operating profit by ten per cent.At the start
of the year in China we and our joint venture
partners announced that we would invest over
US$100 million in three schemes at Taiyuan,
Suzhou and in the Pearl River region. In June
2004 we announced the setting up of a joint
venture with Sinopec Shanghai Petrochemical
Company Ltd (SPC).This is the second joint
venture with a subsidiary of Sinopec, Chinas
leading petrochemical company, following our
agreement in 2002 with Sinopec Yangzi
Petrochemical Corporation.This second joint
venture intends to invest in some 3,000
tonnes a day of industrial gas production
assets currently owned by SPC before
embarking on building a new world-scale air
separation unit.This flow of new orders means
that we will double our production capacity
in China by the end of 2005, with a
corresponding increase in turnover. Elsewhere
we were successful in winning key hydrogen
orders for BP and Sunoco refineries in the
US,
in acquiring Duke Energys 30 per cent
ownership interest in Compañía de Nitrógeno
de Cantarell, the joint venture company that
owns the worlds largest nitrogen complex in
Mexico, and in winning the order with our
joint venture partners for the largest air
separation unit in Thailand.As well as
supplying hydrogen for todays applications
we continue to invest for the opportunities
predicted for hydrogen energy in the decades
to come.
Industrial and Special Products grew
both turnover and adjusted operating
profit by three per cent and ten per cent
respectively. 2004 was the first full year
of contributions from two recent
acquisitions, namely Praxairs Polish
gases business and Air Products packaged
gas business in Canada.
SIGNIFICANTLY
IMPROVED
PERFORMANCE
OVER 2003
06 The BOC Group plc Annual report and accounts 2004
Chief executives review
BOC Edwards saw the long-awaited upturn in
investment by the semiconductor industry as
well as increased demand from growing
markets, notably flat panel displays in
Asia.The result was a 27 per cent rise in
turnover and a 181 per cent increase in
adjusted operating profit.
Gist, our logistics business, did well
to maintain turnover following the loss
last year of Marks & Spencers general
merchandise business. Adjusted operating
profit fell by 14 per cent, but in 2003 we
included a £4.1 million gain resulting from
the M&S contract termination; without this
one-off payment adjusted operating profit
would have been flat year on year.
Afrox hospitals continued to grow and
perform well, turnover rising by nine per
cent and adjusted operating profit by 16 per
cent.
In November 2003 we announced that
African Oxygen Limited had agreed to sell its
majority shareholding in Afrox Healthcare
Limited to a consortium led by two major
black economic empowerment investors.We then
announced in January 2004 our intention to
sell our US packaged gas business, part of
our north American Industrial and Special
Products unit, to Airgas for up to US$200
million.We completed the US disposal
successfully in July this year while the
Afrox Healthcare sale remains subject to
final clearance by the competition
authorities in South Africa. The motives for
these two disposals were very different. In
Afrox Healthcare we have a business in which
we have invested successfully over recent
years.The medium to long-term future for
private healthcare is uncertain in South
Africa and we had the opportunity to sell a
highly successful business and let it develop
further under new black economic empowerment
ownership. Our US packaged gas business
also received much attention and
investment over the years, but it never
fulfilled its promise. Its sale and the
successful transfer of over 1,000 of our
employees to the new owner is a good
outcome.We retain a large presence in the US,
with substantial and successful businesses
that will benefit from increased management
focus and a reduced overhead cost base.
The two significant joint ventures we
have established in the last two years
Linde BOC Process Plants and Japan Air
Gases continue to perform well.
Cash
Operating cash flow was £758.5 million, up
some eight per cent on last year, due to
improved operating profit and better
management of working capital. In addition,
proceeds from disposals and lower levels of
capital expenditure resulted in a decline in
our net borrowings for the sixth successive
quarter, ending the year down £405.7 million
at £962.4 million. This was after paying a
further £64 million into the main UK
pensions scheme, an increase of £28 million
over last year.
Managing to the highest standards
We continue to use our global structure to
transfer best operating and commercial
practice, to offer the highest standards of
service to all our customers, and to meet
the needs of our key customers wherever
they do business in the world. Our
operating procedures are supported by
global programmes such as our Code of
Conduct and we work hard to tap the full
potential of our diverse and talented
workforce.
It is important that we manage all
our business risks, not just the financial
ones. Operating as we do in a hazardous
industry, everyone must pay the greatest
attention to safety, whether it be the
safety of fellow employees, of our
customers and suppliers or indeed of those
in the communities where we live and
work.We concentrate on making safety
second nature for all our employees. By
managing these non-financial risks we
protect our business and the reputation of
BOC.
There has been one change this year to
the executive management team. Greg
Sedgwick returned to his native Australia
to take up an appointment as chief
executive of a listed building products
company; I wish him well in his future
career. Mark Nichols, who had been based in
Singapore, has succeeded Greg as Group
director for business development. BOC is
fortunate in having good people at all
levels of the organisation and we place
great emphasis on recruiting, developing
and retaining the best people wherever we
find them in the world.We have a diverse
workforce and I take a personal interest in
ensuring that this diversity is reflected
increasingly at all levels.
I thank all employees of BOC for their
hard work and for the contribution they
have made to a successful year. Keeping our
customers satisfied is more important than
ever and we strive to deliver the same high
standard of service wherever our customers
choose to do business with us.We work hard
to deliver the financial returns our
shareholders expect.We are also well aware
of the wider responsibilities we have to
the economic and social life of the
countries where we operate.All of this
depends on the people of BOC and they
respond by delivering high performance day
by day.
Tony Isaac Chief executive
07 The BOC Group plc Annual report and accounts 2004
BOARD OF DIRECTORS
Rob Margetts CBE np(01)
58, chairman.
Appointed chairman in January 2002. He is
chairman of Legal & General Group plc, a
non-executive director of Anglo American plc
and chairman of the Natural Environment
Research Council. 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 Isaacnp4ê(02)
62, 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 demerger 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.
Julie Baddeleylmnp(03)
53, 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 director of four 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 Bevan4ê(04)
47, 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. He was
formerly chief executive Asia. He has a
degree in commerce (marketing) from the
University of New South Wales.
Andrew Bonfieldlmn(05)
42, 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.
Guy Dawsonlmnp(06)
51, non-executive director.
Appointed in March 2004. He was chairman of
European investment banking at Merrill
Lynch until 2003. Before joining Merrill
Lynch in 1995 he held senior positions in
Morgan Grenfell and Deutsche Bank. He is a
partner in Tricorn, an independent
corporate advisory business that he
co-founded in 2003, and he is also a
non-executive director of Boots Group PLC.
René Médorip4ê(07)
47, 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 BOCs
gases business in the Americas in 1997.
Before joining BOC, he worked for Accenture
and Schlumberger Ltd. He is a non-executive
director of Scottish & Southern Energy plc.
He is a finance graduate of the Université de
Paris-Dauphine and has a doctorate degree in
economics.
08 The BOC Group plc Annual report and accounts 2004
Board of directors
Matthew Miaulmn(08)
58, non-executive director.
Appointed in January 2002. He is chairman of
MiTAC-Synnex Group, one of Taiwans leading
high-tech industrial groups. He is also a
Convenor of Civil Advisory Committee of
National Information and Communications
Initiatives (NICI) and on 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 from Santa Clara
University and holds an honorary doctorate
degree from the National Chiao Tung
University,Taiwan.
Iain Napierlmn(09)
55, non-executive director.
Appointed in May 2004. He is chief executive
of Taylor Woodrow
plc and a non-executive director of Imperial
Tobacco Group PLC. Previously, he was chief
executive of Bass Brewers, a director of Bass
plc and a member of the executive management
committee of Interbrew SA.
Sir Christopher ODonnelllmn(10)
58, 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.
Anne Quinn CBElmn(11)
53, non-executive director.
Appointed in May 2004. She is group vice
president of BPs gas, power and renewables
business. Previously she was managing
director of BP Gas Marketing Ltd, managing
director of Alliance Gas Ltd and an executive
with Standard Oil of Ohio. She serves on the
Presidents Advisory Committee to the Sloan
School, Massachusetts Institute of
Technology.
Dr Raj Rajagopal4ê(12)
51, chief executive, BOC Edwards.
Appointed an executive director in July 2000.
He joined BOC in 1981 and has held several
positions in BOC Edwards including
manufacturing systems manager, director of
manufacturing and managing director, being
appointed chief executive in 1998. He was
appointed a non-executive director of FSI
International Inc in January 2001 and in June
2004 he joined the board of the business
support organisation, Sussex Enterprise. He
was appointed to The Council of Science and
Technology in March 2004. He is a Fellow of
the Royal Academy of Engineers as well as the
Institution of Mechanical Engineers, the
Institution of Electrical Engineers and the
Chartered Management Institute. He has an MSc
in manufacturing technology and a PhD in
mechanical engineering both from
Manchester University and an honorary degree
from Cranfield University received in May
2004. He was awarded the Sir Eric Mensforth
Manufacturing Gold Medal in March 2003.
John Walsh4ê(13)
49, 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
from Harvard College and an MBA from Harvard
Business School.
|
|
|
Board committees
l Audit committee
m Remuneration committee
n Nomination committee
p Pensions committee
4 Executive management board
ê Investment committee
|
|
|
09 The BOC Group plc Annual report and accounts 2004
EXECUTIVE
MANAGEMENT BOARD
John Bevan (01)
47, 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)
50, group legal director and company secretary since May 2001.
Appointed to the executive management board
in May 2001. He has over 17 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)
53, 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)
44, 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
Groups businesses in South Africa, the UK
and most recently as information management
director for the Groups businesses in
Asia/Pacific.
Tony Isaac (05)
62, chief executive since May 2000.
Appointed to the executive management board
in July 1996. See page 08 for biographical
details.
Rob Lourey (06)
47, 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. Since October 2003 he has
been a non-executive director of Michael
Page International PLC. He has a bachelor
of business degree in personnel
management.
10 The BOC Group plc Annual report and accounts 2004
Executive management board
Kent Masters (07)
43, 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)
47, group finance director since June 2000.
Appointed to the executive management board
in June 2000. See page 08 for biographical
details.
Mark Nichols (09)
47, group director, business development since January 2004.
Appointed to the executive management
board in January 2004. He joined BOC in
February 1988 and held senior financial
roles in the UK and US before moving into
general management, most recently as
managing director, Industrial and Special
Products, East Asia. Before joining BOC he
worked for Total Oil and Merck. He is a
Fellow of the Association of Chartered
Certified Accountants.
Dr Raj Rajagopal (10)
51, chief executive, BOC Edwards since June 1998.
Appointed to the executive management board
in July 1996. See page 09 for biographical
details.
John Walsh (11)
49, 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 2004
GROUP FIVE YEAR RECORD
Turnover
Profit before tax
Adjusted profit before tax4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 |
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
Profit and loss |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
Turnover1 |
|
|
|
3,579.7 |
|
|
|
3,772.9 |
|
|
|
3,657.7 |
|
|
|
3,718.3 |
|
|
|
3,885.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit before
exceptional
items2 |
|
|
|
496.4 |
|
|
|
530.6 |
|
|
|
500.1 |
|
|
|
505.6 |
|
|
|
576.9 |
|
|
Exceptional items |
|
|
|
(4.4 |
) |
|
|
(108.3 |
) |
|
|
(74.5 |
) |
|
|
(67.0 |
) |
|
|
(17.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating profit2 |
|
|
|
492.0 |
|
|
|
422.3 |
|
|
|
425.6 |
|
|
|
438.6 |
|
|
|
559.5 |
|
|
Profit/(loss) on termination/disposal
of businesses |
|
|
|
12.5 |
|
|
|
|
|
|
|
(20.2 |
) |
|
|
|
|
|
|
(79.5 |
) |
|
Profit on disposal of fixed assets |
|
|
|
|
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
4.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before interest |
|
|
|
504.5 |
|
|
|
425.9 |
|
|
|
405.4 |
|
|
|
438.6 |
|
|
|
484.9 |
|
|
Interest on net debt |
|
|
|
(111.5 |
) |
|
|
(123.4 |
) |
|
|
(103.1 |
) |
|
|
(96.1 |
) |
|
|
(88.4 |
) |
|
|
|
|
|
|
Interest on pension scheme liabilities |
|
|
|
(100.7 |
) |
|
|
(107.2 |
) |
|
|
(106.1 |
) |
|
|
(110.2 |
) |
|
|
(117.4 |
) |
|
Expected return on pension scheme assets |
|
|
|
149.5 |
|
|
|
166.9 |
|
|
|
139.1 |
|
|
|
119.6 |
|
|
|
133.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net financing income |
|
|
|
48.8 |
|
|
|
59.7 |
|
|
|
33.0 |
|
|
|
9.4 |
|
|
|
15.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
|
|
|
441.8 |
|
|
|
362.2 |
|
|
|
335.3 |
|
|
|
351.9 |
|
|
|
412.3 |
|
|
Tax on profit on ordinary activities |
|
|
|
(135.2 |
) |
|
|
(104.6 |
) |
|
|
(106.2 |
) |
|
|
(96.4 |
) |
|
|
(101.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit after tax |
|
|
|
306.6 |
|
|
|
257.6 |
|
|
|
229.1 |
|
|
|
255.5 |
|
|
|
310.6 |
|
|
Minority interests |
|
|
|
(28.0 |
) |
|
|
(33.5 |
) |
|
|
(26.2 |
) |
|
|
(36.4 |
) |
|
|
(46.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the financial year |
|
|
|
278.6 |
|
|
|
224.1 |
|
|
|
202.9 |
|
|
|
219.1 |
|
|
|
264.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per 25p Ordinary share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on profit for the financial year |
|
|
|
57.2 |
p |
|
|
46.0 |
p |
|
|
41.4 |
p |
|
|
44.5 |
p |
|
|
53.5 |
p |
|
before exceptional items |
|
|
|
53.5 |
p |
|
|
57.5 |
p |
|
|
55.9 |
p |
|
|
52.9 |
p |
|
|
63.2 |
p |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on profit for the financial year |
|
|
|
56.9 |
p |
|
|
45.9 |
p |
|
|
41.2 |
p |
|
|
44.5 |
p |
|
|
53.5 |
p |
|
before exceptional items |
|
|
|
53.3 |
p |
|
|
57.3 |
p |
|
|
55.7 |
p |
|
|
52.9 |
p |
|
|
63.1 |
p |
|
Ordinary
dividends per
share3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual |
|
|
|
35.0 |
p |
|
|
37.0 |
p |
|
|
38.0 |
p |
|
|
39.0 |
p |
|
|
40.0 |
p |
|
Number of fully paid Ordinary shares
in issue at the year end (million) |
|
|
|
492.2 |
|
|
|
494.4 |
|
|
|
497.3 |
|
|
|
497.7 |
|
|
|
498.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 pages 34 and 35. A
reconciliation of adjusted profit before tax to profit before
tax is given in the profit and loss account on page 78. A
reconciliation of adjusted return on capital employed to return
on capital employed is given in the operating review on page 35. |
All turnover and operating profit arose from continuing operations.
12 The BOC Group plc Annual report and accounts 2004
Group five year record
Capital employed
Capital expenditure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 |
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
|
|
|
|
(restated) |
|
|
(restated) |
|
|
(restated) |
|
|
(restated) |
|
|
2004 |
|
Balance sheet |
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
Fixed assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
intangible assets |
|
|
49.2 |
|
|
|
48.1 |
|
|
|
150.7 |
|
|
|
206.1 |
|
|
|
174.9 |
|
tangible assets |
|
|
3,294.0 |
|
|
|
3,168.6 |
|
|
|
3,027.4 |
|
|
|
2,913.4 |
|
|
|
2,618.4 |
|
joint ventures, associates and other
investments |
|
|
395.8 |
|
|
|
390.3 |
|
|
|
426.1 |
|
|
|
608.6 |
|
|
|
548.2 |
|
Working capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(excluding bank balances and short-term loans) |
|
|
282.8 |
|
|
|
257.0 |
|
|
|
203.1 |
|
|
|
220.1 |
|
|
|
154.5 |
|
Deferred tax provisions |
|
|
(295.8 |
) |
|
|
(294.3 |
) |
|
|
(291.8 |
) |
|
|
(279.2 |
) |
|
|
(253.0 |
) |
Other non current liabilities and provisions |
|
|
(181.4 |
) |
|
|
(184.3 |
) |
|
|
(173.7 |
) |
|
|
(145.8 |
) |
|
|
(126.9 |
) |
Net borrowings and finance leases |
|
|
(1,308.4 |
) |
|
|
(1,272.1 |
) |
|
|
(1,325.6 |
) |
|
|
(1,368.1 |
) |
|
|
(962.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets excluding pension assets
and liabilities |
|
|
2,236.2 |
|
|
|
2,113.3 |
|
|
|
2,016.2 |
|
|
|
2,155.1 |
|
|
|
2,153.7 |
|
Pension assets5 |
|
|
402.0 |
|
|
|
107.0 |
|
|
|
54.3 |
|
|
|
50.7 |
|
|
|
68.9 |
|
Pension liabilities5 |
|
|
(31.1 |
) |
|
|
(56.0 |
) |
|
|
(311.0 |
) |
|
|
(341.8 |
) |
|
|
(344.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets including pension assets
and liabilities |
|
|
2,607.1 |
|
|
|
2,164.3 |
|
|
|
1,759.5 |
|
|
|
1,864.0 |
|
|
|
1,878.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders capital and reserves |
|
|
2,333.5 |
|
|
|
2,026.7 |
|
|
|
1,641.6 |
|
|
|
1,686.7 |
|
|
|
1,675.3 |
|
Minority shareholders interests |
|
|
273.6 |
|
|
|
137.6 |
|
|
|
117.9 |
|
|
|
177.3 |
|
|
|
202.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital and reserves |
|
|
2,607.1 |
|
|
|
2,164.3 |
|
|
|
1,759.5 |
|
|
|
1,864.0 |
|
|
|
1,878.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other selected financial information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital employed6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital and reserves |
|
|
2,607.1 |
|
|
|
2,164.3 |
|
|
|
1,759.5 |
|
|
|
1,864.0 |
|
|
|
1,878.1 |
|
Non current liabilities and provisions |
|
|
477.2 |
|
|
|
478.6 |
|
|
|
465.5 |
|
|
|
425.0 |
|
|
|
379.9 |
|
Net borrowings and finance leases7 |
|
|
1,308.4 |
|
|
|
1,272.1 |
|
|
|
1,325.6 |
|
|
|
1,368.1 |
|
|
|
962.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,392.7 |
|
|
|
3,915.0 |
|
|
|
3,550.6 |
|
|
|
3,657.1 |
|
|
|
3,220.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,557.8 |
|
|
|
5,000.5 |
|
|
|
4,904.9 |
|
|
|
4,883.7 |
|
|
|
4,665.7 |
|
Long-term liabilities and provisions |
|
|
1,399.0 |
|
|
|
1,554.5 |
|
|
|
1,897.5 |
|
|
|
1,851.5 |
|
|
|
1,652.9 |
|
Capital expenditure1 |
|
|
413.7 |
|
|
|
352.6 |
|
|
|
354.3 |
|
|
|
281.2 |
|
|
|
256.1 |
|
Depreciation and amortisation1 |
|
|
313.3 |
|
|
|
329.5 |
|
|
|
330.9 |
|
|
|
333.4 |
|
|
|
324.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK |
|
|
9,929 |
|
|
|
10,597 |
|
|
|
11,266 |
|
|
|
10,414 |
|
|
|
10,682 |
|
Overseas |
|
|
32,780 |
|
|
|
32,574 |
|
|
|
35,014 |
|
|
|
34,093 |
|
|
|
32,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
42,709 |
|
|
|
43,171 |
|
|
|
46,280 |
|
|
|
44,507 |
|
|
|
43,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on capital employed8 |
|
|
12.6 |
% |
|
|
10.4 |
% |
|
|
10.6 |
% |
|
|
10.9 |
% |
|
|
14.9 |
% |
Adjusted return on capital employed4,9 |
|
|
12.7 |
% |
|
|
13.1 |
% |
|
|
12.5 |
% |
|
|
12.6 |
% |
|
|
15.4 |
% |
Net debt/capital employed |
|
|
29.8 |
% |
|
|
32.5 |
% |
|
|
37.3 |
% |
|
|
37.4 |
% |
|
|
29.9 |
% |
Net debt/equity |
|
|
50.2 |
% |
|
|
58.8 |
% |
|
|
75.3 |
% |
|
|
73.4 |
% |
|
|
51.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2004 and 2003 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 years 2000 to 2003 has been restated to be on a
comparable basis with 2004 following the application of UITF37
and UITF38 in 2004, as explained on page 83.
13 The BOC Group plc Annual report and accounts 2004
GROUP PROFILE
Introduction
The BOC Group began its business life over 100 years ago as the
Brins 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 BOCs 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, BOCs 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 BOCs involvement in gases.
In 1978, BOC completed the acquisition of Airco Inc in America,
a predominantly gases business that doubled the Groups 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 BOCs 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
BOCs subsidiary in Japan has retained a 45 per cent interest in the
joint venture company called Japan Air Gases Ltd. 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 2004 were special products from
the UK, helium from the US 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. In recent 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 |
|
|
1,275.2 |
|
|
|
28 |
|
|
|
189.5 |
|
|
|
34 |
|
|
|
190.3 |
|
|
|
33 |
|
Industrial and Special Products |
|
|
1,782.3 |
|
|
|
39 |
|
|
|
253.9 |
|
|
|
45 |
|
|
|
269.5 |
|
|
|
47 |
|
BOC Edwards |
|
|
816.5 |
|
|
|
18 |
|
|
|
46.8 |
|
|
|
8 |
|
|
|
47.8 |
|
|
|
8 |
|
Afrox hospitals |
|
|
432.1 |
|
|
|
9 |
|
|
|
59.8 |
|
|
|
11 |
|
|
|
59.8 |
|
|
|
11 |
|
Gist |
|
|
293.2 |
|
|
|
6 |
|
|
|
25.1 |
|
|
|
5 |
|
|
|
25.1 |
|
|
|
4 |
|
Corporate |
|
|
|
|
|
|
|
|
|
|
(15.6 |
) |
|
|
(3 |
) |
|
|
(15.6 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,599.3 |
|
|
|
100 |
|
|
|
559.5 |
|
|
|
100 |
|
|
|
576.9 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit excludes exceptional items. See also pages 34 and 35 of the operating review.
The BOC Group contributes to the economies of some 50 countries
throughout the world. The UK is the largest single source of sales
revenue for the Groups products and services, followed by the US.
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 2004
Group profile
Analysis of results by region
(including share of joint ventures and associates)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnover |
|
|
Operating profit |
|
|
Adjusted operating profit |
|
|
|
£ million |
|
|
% |
|
|
£ million |
|
|
% |
|
|
£ million |
|
|
% |
|
Europe |
|
|
1,224.6 |
|
|
|
27 |
|
|
|
155.4 |
|
|
|
28 |
|
|
|
155.4 |
|
|
|
27 |
|
Americas |
|
|
1,218.3 |
|
|
|
26 |
|
|
|
62.6 |
|
|
|
11 |
|
|
|
77.4 |
|
|
|
13 |
|
Africa |
|
|
699.0 |
|
|
|
15 |
|
|
|
108.9 |
|
|
|
19 |
|
|
|
108.9 |
|
|
|
19 |
|
Asia/Pacific |
|
|
1,457.4 |
|
|
|
32 |
|
|
|
232.6 |
|
|
|
42 |
|
|
|
235.2 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,599.3 |
|
|
|
100 |
|
|
|
559.5 |
|
|
|
100 |
|
|
|
576.9 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit excludes exceptional items. See also pages 34 and 35 of the operating review.
The UK accounts for the largest part of the Groups 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, BOCs supply chain solutions business, operates
principally in the UK but also has operations in other countries.
Subsidiaries in the US are engaged in the Groups three lines of
business. The Groups 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 Groups 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
BOCs 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 BOCs 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 BOCs
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 BOCs business
with customers in the fabrication, medical and leisure sectors as
well as the special products and liquefied petroleum gases
businesses.
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 world and manufactures
pharmaceutical freeze-drying and packaging machinery.
15 The BOC Group plc Annual report and accounts 2004
Group profile
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. BOCs
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 led by two major black economic
empowerment investors. The sale remains subject to approval by the
South African Competition Tribunal, at which closing hearings are
currently scheduled for March 2005. In addition an application has
been brought in the South African High Court by two shareholders in
Afrox Healthcare Limited to have the Scheme of Arrangement, by which
the disposal would be implemented, declared to have lapsed. This
application, which is being opposed, is currently due to be heard in
the week commencing 29 November 2004.
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 and end-to-end
supply chain solutions.
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.
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 BOCs
subsidiary in Japan has retained a 45 per cent interest in the
combined company called Japan Air Gases Ltd. 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 BOCs
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.
BOCs 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 BOCs three lines of business has absorbed a
part of NIOI.
At the end of August 2002, BOC announced an agreement to
purchase Praxairs 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 2004
Group profile
In June 2003, BOC announced an agreement to obtain half the output
of a new helium extraction facility to be constructed in Qatar.
Deliveries from the new source are scheduled to commence in July
2005.
Following a strategic review of its investment, African Oxygen
Limited (Afrox) announced on 17 November 2003 that it had agreed to
sell its majority shareholding in Afrox Healthcare Limited to a
consortium led by two major black economic empowerment investors in
South Africa. The sale remains subject to approval by the South
African Competition Tribunal, at which closing hearings are currently
scheduled for March 2005. In addition an application has been brought
in the South African High Court by two shareholders in Afrox
Healthcare Limited to have the Scheme of Arrangement, by which the
disposal would be implemented, declared to have lapsed. This
application, which is being opposed, is currently due to be heard in
the week commencing 29 November 2004.
On 27 January 2004, BOC announced that it intended to dispose of
part of its US Industrial and Special Products business to Airgas
Inc. The transaction was completed on 30 July 2004. The initial
consideration was US$175 million in cash with up to a further US$25
million to be paid on or about 15 November 2005 subject to certain
conditions.
In May 2004 BOC agreed to buy Duke Energys 30 per cent
ownership interest in the Cantarell joint venture company for US$59.7
million in cash. This increased BOCs overall stake to 65 per cent on
completion in September 2004. This company supplies Pemex with
nitrogen for the pressurisation of its oilfields in the Gulf of
Mexico.
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, 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 worlds 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 Groups 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 in the production of optical fibres. Helium
gas mixtures are used in balloons.
17 The BOC Group plc Annual report and accounts 2004
Group profile
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.
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 BOCs 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 customers
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 BOCs 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
customers 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 2004
Group profile
Business development 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, Chinas leading petrochemical company. BOC purchased
existing air separation assets with effect from May 2002 and
construction of new air separation capacity is almost complete. BOCs
joint venture will be a supplier to a new BASF and YPC joint venture
plant also under construction and scheduled to begin production in
2005. 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.
The merger of BOC Process Plants operations with Linde
Engineering in the US to form a new company, Linde BOC Process
Plants LLC 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.
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. EMCs management services extend to 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 sector. EMC forms part of the PGS line of
business and BOCs 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 worlds 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.
In October 2003, BOC commissioned a new hydrogen plant supplying
Citgos oil refinery at Lemont, Illinois. The hydrogen is used in the
removal of sulphur to produce clean fuels.
In the same month BOC, and its joint venture partners,
announced plans to invest over US$100 million in developing three
schemes in China, at Taiyuan, Suzhou and in the Pearl River region.
BOC-TISCO, the joint venture between BOC Gases and Taiyuan Iron
and Steel Corporation (TISCO), will build two new air separation
units (ASUs) with each to supply 1,400 tonnes a day of oxygen to
TISCOs plant in Shanxi province in north-central China. The new
ASUs represent an investment of US$82 million and they are scheduled
to begin coming on stream after the end of 2005. This investment is
in response to strong demand for stainless steel in China and will
support TISCOs vigorous expansion plans.
Through Hong Kong Oxygen, its joint venture company in southern
China, BOC has reached an agreement with Guangzhou Iron & Steel (GIS)
for their joint venture company Pearl River Gases (PRG) to build a
further two ASUs, adding around 400 tonnes of production to its
current operations. This new investment is scheduled to come on
stream early in 2005, supporting the expansion of steel manufacturing
in southern China.
BOCs wholly owned subsidiaries in Suzhou have begun
construction of new on-site supply scheme pipelines to meet
increasing demand for industrial gases from key customers in Suzhou
Industrial Park and the Suzhou New District Industrial Park.
A new hydrogen plant to supply both a Sunoco refinery, and a
nearby BP refinery is to be built at Toledo, Ohio. The hydrogen will
be used by both BP and Sunoco in the production of ultra-low sulphur
gasoline and diesel fuels. The complex will be capable of supplying
over 120 million standard cubic feet a day of hydrogen. BOCs partner
for engineering and construction is Linde BOC Process Plants of
Tulsa, Oklahoma. BOC is investing more than US$100 million in the
facility, which is scheduled to be completed in the fourth quarter of
2005.
In May 2004 BOC agreed to buy Duke Energys 30 per cent
ownership interest in the Cantarell joint venture company for US$59.7
million in cash. This increased BOCs overall stake to 65 per cent on
completion in September 2004. This company supplies Pemex with
nitrogen for the pressurisation of its oilfields in the Gulf of
Mexico.
In China, significant new business was won in the chemical
sector with the Sinopec Shanghai Petrochemical Company. BOC will
form a joint venture to invest in existing assets and then add
further air separation capacity.
BOCs subsidiary in Thailand is to invest in a venture
establishing a 1,300 tonnes-a-day plant to supply TOC Glycol Co. Ltd.
(TOCGC) in Map Ta Phut and to increase merchant capacity in the area.
When completed early in 2006, this will be the largest air separation
unit in Thailand. It will be owned and operated by a joint venture
between BOCs Thai subsidiary (TIG) and Bangkok Industrial Gas
Company.
19 The BOC Group plc Annual report and accounts 2004
Group profile
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.
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 BOCs 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 48 helium transfills in its global network, management
believes that this is the largest of its kind. Helium has a broad
range of applications, including welding and the refrigeration of
medical scanner magnets, 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 Canadas 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. BOCs 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 Praxairs 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 ISP sales.
Since 2002, BOC has 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 BOCs 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 KRIOs helium that is not sold to its
domestic customers in Poland. BOC has been KRIOs 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 BOCs 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.
BOC completed the disposal of the packaged gas part of its US
ISP business to Airgas Inc on 30 July 2004. The initial consideration
was US$175 million in cash with up to a further US$25 million to be
paid on or about 15 November 2005 subject to certain conditions. All
packaged gases and associated hardgoods were included in the sale.
This comprised compressed industrial, speciality (excluding
electronic) and medical gases in the US, sold through BOC retail and
distributor channels. The sale did not include BOCs bulk liquid
helium, bulk medical gases and distributor businesses.
20 The BOC Group plc Annual report and accounts 2004
Group profile
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 are managed separately.
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.
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. The major research
centres are in the UK, north America and Japan.
The Groups 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 Throughout the period 2002 to 2004, 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 300mm wafer and flat panel
manufacturing facilities.
In 2004 a new range of high-speed iGX pumps were
introduced, offering attractive features for semiconductor
applications such as small size, reduced power consumption
and lower lifetime costs.
The range of exhaust management products was also expanded
with new burners, wet scrubbers and an advanced plasma-based system
for the destruction of reaction products without the use of methane
fuel.
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.
Production of nitrogen trifluoride (NF3) gas 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. On-site fluorine
generators were installed at a number of semiconductor and flat
panel display manufacturing facilities during 2004.
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.
21 The BOC Group plc Annual report and accounts 2004
Group profile
BOC Edwards range of electronic materials in Asia was expanded in
2004 with the addition of ultra-pure wet chemicals through a
partnership with Asia Union Electronic Chemical Corporation (AUECC)
and through that company with Huayi, a chemical manufacturer in
China.
In 2002 BOC Edwards acquired the vacuum and pressure business of
the Smiths Group. The operations 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 60 hospitals and clinics and has a
minority interest in a further seven hospitals managed by others. 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 led by two major black economic empowerment
investors. In April 2004 the South African Competition Commission
advised that the transaction should be approved subject to certain
conditions, which were acceptable to both the buyers and the seller.
The sale remains subject to approval by the South African Competition
Tribunal, at which closing hearings are currently scheduled for March
2005. In addition an application has been brought in the South
African High Court by two shareholders in Afrox Healthcare Limited to
have the Scheme of Arrangement, by which the disposal would be
implemented, declared to have lapsed. This application, which is
being opposed, is currently due to be heard in the week commencing 29
November 2004.
Gist
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, end-to-end supply chain 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 Gists
skills offered externally.
22 The BOC Group plc Annual report and accounts 2004
EMPLOYEES
At 30 September 2004 the Group had 43,383 employees (2003: 44,507
employees, 2002: 46,280 employees). During the year the disposal of
the US packaged gas business resulted in the successful transfer of
over 1,000 employees to the new owner. Employees of the company and
its subsidiaries were located as follows:
|
|
|
|
|
|
|
|
|
Europe |
|
|
12,712 |
|
Americas |
|
|
6,283 |
|
Africa |
|
|
16,790 |
|
Asia/Pacific |
|
|
7,598 |
|
|
|
|
|
Unplanned employee turnover remains low and as a result the employee
base remains stable. BOC invests time and energy in developing the
potential of its people. Opportunities are reviewed and discussed
with identified individuals to provide cross-line of business
experience or to set up a range of functional and geographical
assignments. This contributes to BOCs success in retaining and
developing the core skills and capabilities it needs to meet its
business, customer service and health and safety targets. BOC
regularly reviews its succession planning processes and the
availability of essential capabilities. Results show it has solid
capability in most areas and adequate succession depth to meet both
its technical and leadership requirements.
Employee satisfaction and commitment
Employee satisfaction is measured and managed both centrally and in the
business units.
Levels of employee satisfaction and commitment are generally
high. A culture of accountability, collaboration, transparency and
stretch, known as ACTS, has been developed throughout BOC. The ACTS
principles provide a framework that employees can use in their
dealings with each other and with customers, suppliers and other
stakeholders. The GROW programme introduced this year helps employees
maximise their performance and unlock their potential. It provides
on-line facilities for employees to develop their individual
development plans and to have access to all their career development
information in one place.
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.
BOC is a signatory of the UN Global Compact. It subscribed to its
nine original principles and supported the addition of a tenth
principle this year on bribery and corruption. These principles
represent minimum standards for BOC and in many areas existing
standards exceed those set out in the Global Compact.
BOC launched a global Code of Conduct in 2003. An extensive
programme of communications has seen over 99 per cent of the target
population of BOC trained in the substance of the code, which is a
framework of legal and ethical standards for all BOC people to work
and live by. The code is supported by a number of processes. BOC has
a confidential helpline to deal with questions that is available in
every country where it operates. It has translated the standards
into key languages.
In addition to the Code of Conduct, BOC provides guidance and
human resources policies to support BOC people in their day-to-day
activities and long-term career planning. These are aligned to the
corporate values and principles. At the heart of this approach is the
recognition that the energy and application of individuals and teams
throughout the organisation will determine which companies have
competitive advantage in todays complex global market.
BOCs employment policies are designed to underpin the
Groups operating requirements and growth strategies. The human
resources units implementing these policies are aligned 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 surveyed nearly 4,000 of its employees this year to
understand the issues that employees saw as being important and their
satisfaction with how these issues were communicated to them. It
confirmed that the most important as viewed by employees was safety,
followed by the performance and goals of their own business unit and
information about customers. This survey will be used to improve
communications further over the coming year.
The Group actively searches for ways to involve employees in
shaping the future. Teams meet 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 in place to supplement other recruitment channels.
23 The BOC Group plc Annual report and accounts 2004
Employees
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. The GROW process not only aids
the development of individual development plans but also performance
management. Action plans can be developed and monitored incorporating
input from 360 degree appraisals. 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 130 senior managers have had
the opportunity to participate in Lead programmes.
A parallel leadership development programme, iLead, has been
developed for high potential middle managers and is run regionally
around the world. Lead and iLead augment many other management
development initiatives, which are provided to all BOCs supervisors
and managers.
International assignments are used to develop high potential
executives and to create opportunities within local management teams.
The success of such programmes are reviewed regularly with business
unit heads as part of their performance contracts.
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 64.
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
importantly, the boards 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.
BOC closed its UK defined benefit pension schemes to new
members in 2003 and replaced them with a defined contribution plan.
The financial position of the Groups main pension funds is detailed in note
8 to the financial statements.
Diversity
BOC believes that diversity is a key driver of future organisational
and operating effectiveness. As one of the UKs 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. The success of its diversity programme is monitored
and reported regularly.
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 Groups 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 2004
SOCIAL, ENVIRONMENTAL AND ETHICAL PERFORMANCE
Exercising sound corporate responsibility is fundamental to the way
BOC operates. The Group aims always to behave ethically and to manage
risk strategically. It has a process for identifying, evaluating and
managing all risks in accordance with best practice.
This section outlines the Groups systems for managing its
social, environmental and ethical (SEE) risks and opportunities in
line with guidelines set out by the Global Reporting Initiative, the
Association of British Insurers, the UKs Combined Code on Corporate
Governance and the provisions of the US Sarbanes-Oxley Act 2002 as it
applies to foreign private issuers. More details about BOCs risks
and corporate responsibility performance can be found in the sections
on risk factors on pages 32 and 33 and corporate governance on pages
56 to 63 and on the companys website, boc.com.
The Group works actively with its stakeholders shareholders,
customers, suppliers, employees, local communities and governments.
Underlining the Groups adherence to best practice, BOC engages
with a wide variety of employee, safety, environmental and
community bodies.
BOC is a signatory to the UN Global Compact. This year BOC
participated in the Global Compacts review and implementation of a
tenth principle against corruption. All Global Compact principles are
integrated into BOCs Code of Conduct. BOC continues to review and
adapt its business practices to achieve the Groups SEE objectives
and activities.
Executive responsibility
BOC has an integrated approach to SEE risks, managing them in the
same way as all other business considerations through business unit
and Group risk management programmes. These processes are applied to
major business decisions such as acquisitions, disposals, new
ventures and major supplier contracts. BOC business dealings are
guided by a global Code of Conduct. The code sets out the safety,
environmental, social, legal and ethical parameters that Group
businesses and employees are expected to follow. The code is the
responsibility of the executive management board (EMB), whilst BOCs
businesses are responsible for day-to-day implementation.
EMB members are responsible for each of the codes standards,
supported by the appropriate business and functional structures. The
Group chief executive has ultimate responsibility for the code
programme. He delegates oversight to an EMB sponsor board and
day-to-day management to a code advisory group. The code advisory
group is chaired by the general counsel, global compliance.
Safety, health and environmental management systems are the
responsibility of the Group chief executive and implemented by the
Group director for safety, health, environment and quality (SHEQ).
Workplace issues, including labour relations, diversity, equal
opportunities and human rights, are
managed by the Group director, human resources (HR). Marketplace
issues, including customer relations and ethical trading practices,
are managed by the line of business chief executives. The director of
supply management oversees BOCs supply chain and ethical purchasing
policy and reports to the Group chief executive. The Group director,
corporate relations, manages community relations, including
sponsorships and charitable support.
The EMB regularly reviews Group systems for managing risks and
opportunities, including business assurance audits, legal, SHEQ and HR
reviews, appropriate training and communications, and performance
management and remuneration incentives through the Groups performance
contract process. Directors are provided with appropriate SEE training
and communications. For example, they are given regular safety
briefings and Code of Conduct progress reviews. Training on defensive
driving and other SHEQ priorities is provided. The EMB sets a
strategic direction with regards to all business issues including SEE
matters. Business units implement and develop the EMBs strategy
through their own management teams.
The Code of Conduct
BOC has spent two years developing and rolling out a global
Code of Conduct. It covers SEE risks and expectations. This
year the code programme consisted of:
|
|
setting minimum and consistent standards around the world; |
|
|
communicating Group priorities, principles and
standards to all employees; |
|
|
stakeholder
engagement to identify, prioritise and respond
to key issues; |
|
|
training for employees; |
|
|
setting standards for agents, consultants, distributors and
suppliers through the Groups ethical purchasing policy; |
|
|
managing Group performance in line with the code; |
|
|
assurance, using the Groups business assurance audit/risk management, SHEQ and HR
functions as well as external auditors where appropriate. |
This year the Group moved from the codes implementation phase into
its sustainability phase. This is aimed at further embedding the code
and so far as possible measuring the Groups performance against
standards laid down by the code.
A global network of implementation managers drove the codes
roll out in workshops across more than one thousand locations
worldwide and has been superseded by a network of implementation
managers. A code sustainability strategy ensures the programme
remains visible, accessible and relevant to all BOC employees.
The code is available on boc.com and available to employees via
intranet, CD or paper copy. The code is linked to a number of other
BOC systems, notably the Groups integrated management systems and
standards (IMSS).
BOC operates a confidential 24 hours a day/seven days a week
helpline to receive and answer questions and concerns about legal
compliance, ethical conduct and adherence to the Code of Conduct. It
is managed by the global compliance department. Investigations are
overseen by global compliance and managed by appropriate functions,
notably HR, SHEQ and business assurance audit/risk management. Code
sustainability issues are reported to the EMB and appropriate
managers on a monthly basis. In its inaugural year, the helpline
received 103 allegation cases from around the world. Of these 21 per
cent resulted in disciplinary action, and 50 per cent were found to
be unsubstantiated or non-violations. The remaining cases are still
being investigated.
25 The BOC Group plc Annual report and accounts 2004
Social, environmental and ethical performance
BOCs global management system (IMSS)
IMSS (integrated management systems and standards) is a system
developed by BOC. It has three distinct parts: the IMSS Library,
Traccess and Audit Manager. The IMSS Library houses electronic
copies of BOCs reference material, instructions, procedures and
standards. Traccess is BOCs online training and testing system
storing individual learning profiles and employee training
histories. Audit Manager reviews all stages of the audit cycle and
tests site performance and compliance against best practice and
minimum standards defined in the IMSS Library. IMSS documents Group
knowledge from high level policies to detailed work instructions,
enabling employees to be trained and assessed in the skills required
by their roles. IMSS outlines the correct protocols and minimum
standards and tracks the performance of actions needed to ensure the
safe, environmentally sound and efficient management of BOC
businesses worldwide. IMSS and the Code of Conduct are mutually
supportive.
Stakeholders
BOCs code is segmented into key stakeholder groups, each of which is
addressed by specific code standards and management structures and
procedures. Details are posted under the corporate responsibility
section of boc.com. For example, BOC works with its suppliers through
its ethical purchasing policy, which is managed by the Group supply
management function, underpinned by the Code of Conduct and supported
by IMSS and a number of other web-based platforms. A supplier
evaluation, selection and performance appraisal (SESPA) system
assures minimum standards of supplier performance, quality assurance
and legal, ethical, social and environmental compliance.
Identifying and prioritising SEE risks
BOC introduced a formal process to identify and manage its SEE risks
and to identify potential opportunities. EMB directors, business unit
heads and other key managers around the world submitted potential SEE
risks which were consolidated by the Group risk management function
and rated using predetermined scoring criteria. Each risk was rated
according to its potential impact, the adequacy of plans to mitigate
the risk, and its urgency.
The broad areas identified by the SEE risk and mitigation process
are: managing the safety of people associated with BOC; managing major
operational hazards; minimisation of greenhouse gases emissions;
energy efficiency; water conservation; global adherence to and the
effective working of the Code of Conduct; managing an ethical supply
chain; and continuing enhancement of product stewardship procedures.
The Groups SEE review found that management systems and
mitigations already exist for identified risks, but in some minor
instances enhanced measures may be required.
Managing corporate responsibility performance
This year the Group participated in the UKs Business in the
Community (BiTC) corporate responsibility index for the first time.
The index assesses companies performance against a wide range of
environmental, social and ethical measures. BOC has participated in
the indexs sister survey, the Business in the Environment (BiE)
index since 1995. BOC scored 91.69 per cent in BiTCs index, ranking
it 25th out of 139 participating companies, including 56 from the
FTSE100. Completing the index demonstrates the Groups commitment to
managing, measuring and reporting its corporate responsibility
performance in an open and transparent way. BOCs completed survey
and BiTCs independent assessment of the Groups performance is
published on boc.com. The BiTC index is the Groups common measure
and standard response to corporate responsibility and SEE enquiries.
Safety, health and the environment
There are no greater priorities for BOC than the health and safety of
colleagues, contractors, suppliers, customers and local communities,
and the protection of the environment. BOC is committed to excellence
in managing these areas through normal business practice assisted by
its safety, health, environment and quality (SHEQ) function.
SHEQ policies and procedures are the responsibility of the Group
chief executive and implemented
by BOCs businesses with the support of the SHEQ function. The
SHEQ department works within the businesses to ensure that the Group
has a deliverable policy, is active in its risk assessment and
professional in its mitigation.
BOC has well-established programmes to drive improvement in SHEQ
performance. Employees are required to comply with all external
regulations and the Groups policy and Code of Conduct. Suppliers are
expected to meet minimum standards set by BOCs ethical purchasing
policy.
Standards, procedures and tools are embedded in Group practice
by the organisations integrated management systems and standards
(see IMSS section above). IMSS outlines the minimum standards and
actions needed to align with or conform to management systems such
as ISO 9000 (quality assurance), ISO 14001 (environment) and ISO
18001 (health and safety).
BOC met its objectives in 2004 when the Group:
|
|
updated its safety, health and environment policy; |
|
|
launched Safety in BOC focusing on key safety behaviours across the
organisation; |
|
|
continued to conduct its audit programme of safety standards and
assessment of the organisations safety culture. Annual safety action
plans are derived from these processes, and integrated into
individual and business performance contracts; |
|
|
continued to conduct
its annual environment survey. Annual environmental action plans are
derived from the surveys results, which are integrated into
individual and business performance contracts; |
|
|
commenced the
sustainability phase of its Code of Conduct programme, ensuring that
SHEQ considerations continue to be reinforced and integrated into the
organisations legal and ethical framework. |
Along with the Code of Conduct and the Groups ACTS operating
principles, Safety in BOC ensures that SHEQ issues are managed
consistently across all countries and businesses.
26 The BOC Group plc Annual report and accounts 2004
Social,
environmental and ethical performance
Overall safety performance
|
|
|
|
|
|
|
|
|
|
|
20031 |
|
|
20041 |
|
|
Lost workday case rate |
|
|
0.45 |
|
|
|
0.41 |
|
|
Total recordable case rate |
|
|
1.18 |
|
|
|
1.18 |
|
|
Passenger car avoidable
accident rate |
|
|
1.99 |
|
|
|
2.12 |
|
|
Truck avoidable accident rate |
|
|
2.75 |
|
|
|
2.38 |
|
|
Lost workday case rate
Total recordable case rate
Passenger car avoidable accidents per million miles
Truck avoidable accidents per million miles
1. |
|
2003 and 2004
safety statistics
include mergers,
acquisitions and all
joint ventures.
Previous years have
not been restated. |
Safety
Safety is BOCs highest priority. Safety is the first agenda item at
every EMB and business executive meeting. Great emphasis is put on
providing employees with all the necessary training, equipment and
safeguards. Business managers around the world, with SHEQ support,
continually strive to improve safety performance concentrating on
individuals behaviour and the effect safe behaviour has on the
organisation.
Each business unit has a safety function, reporting to the
business units executive and the Group SHEQ function through a
global peer group. This ensures that global best practice and the
functional requirements of the business and Group are always at the
forefront of management thinking.
BOC manufactures and distributes products that are potentially
hazardous, some being stored at very low temperature or under
pressure, and some having toxic or flammable properties. BOC is
committed to operating safely and communicating safe working practices
as an integral part of its safety and product stewardship processes.
It is important for the Group to disseminate these safe working
practices to customers and suppliers and to have clear and measurable
performance standards practised by all BOC plants, depots and
distributors.
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.
This year the Group implemented Safety in BOC. It complements and
strengthens the organisations existing safety systems and standards.
An independent safety audit in 2002 showed that safety performance
could be improved by emphasising the behaviour of all employees.
Business unit leadership teams have conducted education, leadership
and planning workshops around Safety in BOC. These are being followed
up with a focus on leadership skills to influence peoples behaviours.
A new technique, LeadSafe, is being introduced to help drive change.
These elements will continue to be important features
of BOCs overall safety strategy.
Safety in BOC aims to prevent people getting hurt by guiding
managers to effect lasting behavioural change. Independent studies
suggest that more than 90 per cent of all incidents in the workplace
are the result of unsafe acts, so changing behaviour has a
significant impact.
Safety in BOC draws together and strengthens the Groups safety
policies, principles, standards, procedures and tools. It underpins
the principle that safety is 100 per cent of our behaviour, 100 per
cent of the time. A safety roadmap charts how the businesses and
sites will continue to develop globally consistent strategies to move
the Group towards world class safety performance.
This year BOC further developed its approach to tracking key
performance indicators for safety. The Group traditionally tracks
reactive or lagging indicators, for example: lost workday cases,
medical treatment cases, passenger car and truck incidents. Lagging
indicators measure past events and measure business unit safety
performance. The organisation has also introduced a set of proactive
or leading indicators, for example: safety meetings held, the close
out of corrective actions from audits, investigation reports
completed on time, and training. Leading indicators have been
integrated into individual and business performance contracts and
business unit reviews. Site managers compile leading indicator
statistics and report these to their business unit heads.
Over half of BOCs major incidents involved vehicles and the
Group is focusing attention here. Safety-related driving initiatives
and programmes are in place around the world for both commercial and
passenger car drivers. These include defensive driving training,
observation and feedback, vehicle design, use of on-board monitoring
technology, and anti-rollover and jack-knife training. Other areas
being addressed include the embedding of safety criteria as part of
employee recruitment, induction and ongoing training.
Developing and sharing best practice across the world helps
reduce risk and the number of driving-related incidents. The Group
strengthened its major vehicle incident investigation procedures to
improve consistency of approach, understanding and analysis of
contributing causes, assessing the trends and implementing remedial
strategies to prevent recurrence. This process has been
successfully piloted and is being further integrated into Group
reporting systems and standards.
Every year, BOC takes steps to prevent and address the underlying
causes of incidents as well as to ensure employee security in the
workplace. It is a matter of great regret that four Group employees
died in work-related activities in 2004. Two employees died in road
incidents, one in the Czech Republic and one in South Africa. One
employee in South Africa was electrocuted at a BOC site and a driver
in the US died whilst delivering product to a customer. The Group
chief executive, SHEQ director and business unit managers review every
fatality and major incident personally. Investigations are only closed
when the chief executive is fully satisfied that the root causes of
the incident are understood and action has been taken to prevent
future occurrences.
The Group has four principal reactive 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. |
Occupational health and hygiene
BOC requires its businesses to manage employee health activities in
accordance with local laws and regulations and according to BOCs
codes of practice, standards and procedures. The Groups occupational
health and hygiene (OH) function provides a global service, striving
to eradicate work-related health hazards.
27 The BOC Group plc Annual report and accounts 2004
Social,
environmental and ethical performance
Non-compliances
(violation of laws,
complaints and
spillages)
No. sites
reporting incidents
Hazardous waste
(variability in
national legal
classification)
Tonnes x 1,000
Ozone depleting
potential substance
release (solvents
and refrigerants)
Tonnes (ODP) released
General waste disposal 2004
Total 26,675 tonnes
Types of general waste
Total 26,675 tonnes
Employees have access to guidance on OH from qualified SHEQ
managers. This is supported by a range of training programmes,
manuals, videos and safety data sheets, which are available through
local and global SHEQ functions and on dedicated SHEQ intranet
sites.
The OH function carries out reviews in all business units 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
these standards and policies as necessary. Adverse employee health
effects are monitored through local occupational health checks around
the world. These vary according to risk and requirement. Some are
internal and others are out-sourced to professional OH providers.
Voluntary and routine Well-person medical checks for employees
engaged in hazardous activities or facing other risk factors are
conducted throughout the year.
The main potential health issues that exist in BOC operations
differ across business units. When dealing with gases, 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; |
|
|
painting
operations; |
|
|
ergonomic and manual handling risks. |
OH programmes have been developed to deal with these issues and are
applied across the Group. BOC programmes include: a new OH service
with a global provider to enhance the emergency care given to BOC
business travellers taken ill away from home; an AIDS/HIV prevention,
treatment and care programme for employees in southern Africa; 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 present on sites; a programme for
the assessment of manual handling and display screen equipment to
minimise ergonomic health risks; a chemical assessment and management
programme; and specific work to reduce the use of solvents. The last
includes a new training video addressing the specific hazards of using
chemicals to clean plant and equipment for use with oxygen.
OH programmes strive to reduce employee exposure to present and
potential hazards, drive best practice across the businesses and are
part of the Groups commitment to continuous improvement. OH
programmes are being piloted in response to occupational stress,
drugs testing, and to provide fast-track physiotherapy to aid
employees recovery from injury.
One of the most visible OH programmes is the Afrox AIDS/HIV
programme in southern Africa. The objectives of the programme are:
to encourage prevention of HIV and AIDS infection through education
and awareness training; to provide treatment to prolong life
expectancy to employees living with HIV through the provision of
anti-retroviral therapy and a disease management programme; and to
provide pastoral care, which includes counselling and other types
of support for HIV-positive employees.
The environment
BOC is committed to sound environmental practices, implemented
through a worldwide environmental management system which includes
operating instructions, training, performance tracking and auditing,
and the sharing of best practice through the Groups integrated
management systems and standards (IMSS) together with an annual
global environment survey managed by the SHEQ department. The results
of the environment survey are reviewed by the EMB, business unit
management teams and the Group SHEQ director. Annual environment
action plans are integrated into business unit management processes
together with business and individual performance contracts.
BOC is classified as part of the chemicals sector, but does
not have the same direct or significant environmental issues to
deal with as traditional chemicals manufacturers. The nature of
BOCs 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
Groups businesses is overseen by the SHEQ department. Many BOC
business units have programmes to achieve ISO 14001 environmental
certification. The Indura business in Chile obtained ISO 14001 in
August 2004 at its Solcon plant that manufactures MIG wire. The St
Helens site in the UK renewed its ISO 14001 certificate this year.
In 1995 St Helens was one of the first sites in the UK to receive
ISO 14001. In addition, BOCs hydrogen plant on Teesside in the UK
obtained its certificate this year. All BOC sites operate in
accordance with ISO standards even if not specifically accredited,
because IMSS, containing the Groups global operating systems and
standards, is aligned to ISO 14001.
This year BOCs global environment working group teamed up with
occupational hygiene professionals to develop best practice
strategies. The Groups web-based environmental survey, which covers
approximately 550 industrial sites around the world continues to be
used to develop action plans and report performance on-line. This
system reveals opportunities for the development and sharing of best
environmental practice across sites and businesses. For example,
Afrox hospitals at Kingsbury and Claremont installed a water
recycling system for their autoclave sterilisers in response to
survey findings. The water saving at one hospital on average equates
to 3.5 million litres a year.
BOC has operated a comprehensive environmental survey programme
of its sites for more than ten years. The annual survey highlights
issues relevant to the businesses and assesses how well they are
being managed. Objectives for improved performance remain an
integral part of business performance contracts.
Disappointingly ozone depleting potential (ODP) substance
releases have increased this year. 60 per cent of the total
released was from two plants. Plans are in place to improve
performance by modifying both plants and developing action plans to
improve other plants.
28 The BOC Group plc Annual report and accounts 2004
Social,
environmental and ethical performance
Climate change is now recognised as a significant environmental
issue. This presents BOC with challenges and opportunities. The most
significant challenge is the fact that BOC is a major energy user and
a partner and supplier of products to energy intensive industries
such as iron and steel. Opportunities lie in the development of
products and services that help customers manage their own climate
change issues, for example, energy efficiency improvements or cleaner
production that reduces greenhouse gas emissions.
BOCs electricity consumption was approximately 11.8 Terawatts
and emissions for this financial year are estimated to be 7.5 million
tonnes carbon dioxide equivalents of which the two gases businesses,
Process Gas Solutions and Industrial and Special Products, account for
98 per cent. They produce approximately 2,420 tonnes of carbon dioxide
equivalents for each £1 million of turnover. These emissions are from
major combustion sources and emissions associated with electricity
used by all BOCs major facilities1. Whilst emissions associated with
Group processes are significant they should be viewed in the context
of the nature and scope of BOCs businesses. As a matter of business
and environmental necessity, the Group will continue to manage climate
change issues effectively and responsibly.
BOCs methodology for emission estimation and addressing emission
factors has been independently assessed and confirmed to be
appropriate. The Group uses energy data to help improve its energy
efficiency with resultant improvements in carbon dioxide emissions.
Over the last four years, for example, Process Gas Solutions
operations have continued to focus on plant and distribution
efficiency improvements, resulting in more than one thousand projects
that will deliver significant annual savings. One project was
successful in winning an application for New South Wales Greenhouse
Gas Abatement Certificates as a result of the installation of a Linear
Model Predictive Control (LMPC) system at the Port Kembla site in
Australia. This project is one of the largest to qualify under the
scheme rules and demonstrates BOCs commitment to improving the energy
efficiency of its production processes. LMPC has helped the business
to reduce gaseous oxygen losses at the site, which in turn means that
the business consumes less electricity.
BOCs commitment to environmental stewardship and partnership
is shown in its approach to new plants, facilities and services. BOC
and the Australian CSIRO entered into an agreement to commercialise
fumigation technology to replace methyl bromide, a widely used
fumigant that is being phased out under the International Montreal
Protocol. The fumigant ethanedinitrile (EDN) is considered better
environmentally and more effective than methyl bromide to sterilise
soils from insect pests, weeds and diseases before planting high
value crops such as strawberries and carrots. Also in 2004, BOC
formed a major alliance with leading refrigerants reclaim firm
Hudson Technologies. A seven-year agreement covering 20 countries
provides BOC with exclusive access to Hudsons recovery, reclaim,
diagnostic, analytical and gas cleaning equipment and software
technology. The technology will improve plant efficiency, leading to energy
savings 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 SESPA process for supplier
evaluation, selection and performance appraisal, together with
an ethical purchasing policy implemented by the supply
management function.
BOC aims to comply fully with all material environmental
laws and regulations. Four prosecutions for breaches of
environmental regulations were incurred in 2004 resulting in
fines totalling £3,670. BOC has responded with measures to abate
and prevent future occurrences as part of the Groups 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 on the information available management
believes that it is unlikely that any costs incurred will have a
material impact on the financial position of the Group.
BOC continues to assist customers to improve their own
environmental performance. Environmental legislation also presents BOC
with a number of potential business opportunities. BOC and the Cardiff
Harbour Authority in the UK won the ABB-sponsored IChemE Environment
Award 2004 for the Harbour Four oxygenation vessel that replenishes
oxygen into Cardiff Bay. This is a good example of BOC technology
benefiting the general public as well as industry. 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 BOCs oxy-fuel burners to increase the efficiency of
combustion, using less fuel and reducing polluting emissions.
The Group continues to develop technology that is more
energy efficient, which helps customers and partners meet their
carbon dioxide reduction commitments under the Kyoto protocol on
climate change. As part of this commitment, BOCs Torrance and
City of Industry air separation plants in the US received
substantial funding from the energy efficiency programmes run by
Southern California Edison.
The Group continues to work actively with its stakeholders to
ensure environmental issues are approached responsibly and supported
actively. BOC is a signatory to the UNs Global Compact and in the US
and Australia supports the chemical industrys Responsible Care
programme. BOC continues to participate in the UKs Business in the
Environment (BiE) survey. This year the Group improved its overall
survey score achieving 88.59 per cent, placing BOC in the top 25 per
cent of FTSE and other companies participating in the survey.
Details about the BOC Foundation for the Environment can be found on page
62.
1. |
|
BOCs methodology is consistent with all major point sources of
carbon dioxide emissions within Scope 1 of the World Business
Council for Sustainable Development and the World Resources
Institute (March 2004) and all major sources of carbon dioxide
emissions under Scope 2 of the protocol. The figure does not
include non-carbon dioxide global warming gases (N2O, SF6, CH4,
PFCs and HFCs), freight and logistics and minor sources such as
business travel, office electricity at small sites and
decomposition of wastes and carbon dioxide emissions associated
with heat and steam imported to BOC plants. |
29 The BOC Group plc Annual report and accounts 2004
RESEARCH, DEVELOPMENT AND INFORMATION TECHNOLOGY
Research and development (R&D)
Process Gas Solutions undertakes internal development at sites around
the world with the primary location being the Group Technical Center
in New Jersey. It enters alliances and partnerships with universities
and customers, licenses or acquires technologies from third parties,
and participates in technology-based ventures. Funding from
governments has also been used to progress key developments.
Working with its partners Sumitomo Electric Corporation and IGC
Superpower, BOC is installing high temperature superconducting (HTS)
cables to provide electricity in Albany, New York. These transmit
electricity with significantly lower losses than conventional cables
and provide five-times the current carrying capacity when cooled to
-196°C.
Work continues with European Union funding on novel ceramic materials that
have the potential substantially
to improve oxygen generation and the sequestration of carbon dioxide (CO2).
Funding from the US Department
of Energy to generate hydrogen at high pressure through a combination
of membrane reactor and a hydride compression system is aimed at the
future needs of the hydrogen economy. Novel LPG-based fuel cell
technology research is also being undertaken with St Andrews
University in the UK.
While world-class hydrogen/synthesis gas technology is available through
Linde BOC Process Plants, the
development and commercialisation of ceramic-based technologies for the
production of H2 and syngas continues.
Technology developments for the pulp and paper and food
industries using BOC expertise in heat and mass transfer are focused
on reducing operational costs while improving environmental
performance. BOCs impingement freezer, for example, uses highly
directed jets to provide rapid heat transfer. BOC has also
successfully developed a crusting tunnel that can achieve a uniform
crust freeze on meat logs for slicing in high speed slicing machines.
Industrial and Special Products has introduced several new
manufacturing techniques, three of which are specific to filling
hydrocarbon mixtures: the continuous sequential filling of
components that increases plant throughput; the costing and accurate
filling of components at low concentrations; and improved data
acquisition techniques to meet the requirements of ISO 6142. An
automated system has also been introduced for manufacturing
scientific gas mixtures using a thermodynamics data package to
determine precise target pressures during filling.
In the medical field new clinical applications are being
explored for oxygen and helium mixtures and the use of gases to
deliver drugs effectively.
Industrial developments include the use of cryogenic coolants
to minimise distortion during welding and the use of cold gas
dynamic spraying in a number of industrial processes.
Research and development for BOC Edwards is conducted around
the world, with key sites located in the UK, north America and
Japan.
BOC Edwards introduced the new iGX range of compact, high-speed
pumps with reduced power consumption and lower cost of ownership.
These new pumps have remote monitoring and diagnostics. Developments
in split-flow turbomolecular pumps combined with dry backing pumps
have opened new opportunities in the scientific instruments sector.
The combination of high-speed turbomolecular pumps and control
technology to provide chamber pressure control enhances the
performance of critical etch process tools for semiconductor
manufacturing.
Wet scrubbers, burners and other exhaust management units have
been developed to help manufacturers in key market sectors abate
liquid and gaseous by-products and thus meet strict environmental
regulations. An advanced plasma-based system destroys reaction
by-products for customers unable to use methane fuel.
A new range of fluorine generators was introduced that reduces
the cost of cleaning process tools, without using high global-warming
impact gases. On-site fluorine generators have been installed with a
number of LCD and semiconductor manufacturers. R&D in low K materials
has resulted in an investment in trimethyl silane production, an
important chemical precursor for microprocessor production. The newly
introduced liquid flow control product LiquiSys provides more precise
delivery of chemicals for semiconductor fabs. A non-contact weighing
system using technology derived from magnetic resonance imaging speeds
up vial filling and has been supplied to pharmaceutical customers.
Nitrogen trifluoride production increased in South Africa and
ultra-pure chemicals were added to the electronic materials range in
Asia through a partnership with AUECC, and through AUECC with Huayi
in China. The Spectra range of gas generators is being enhanced to
deliver larger gas flows, meeting all demands up to the requirements
of the largest flat panel factories.
30 The BOC Group plc Annual report and accounts 2004
Research, development and information technology
BOC Edwards, assisted by Gist technology, has developed supply chain
management for gases and chemicals and won a major contract from a
leading microprocessor manufacturer. Total materials management and
total gas and chemical management capability are part of an
innovative and broad
service offering. The use of enhanced metal and dielectric coatings
on process tool parts has helped reduce customer cost of ownership.
Subsystem developments continue, combining many of our
technologies for advanced customer processes. In collaboration with
a lithography customer, BOC Edwards has created a subsystem which
conditions the ultra-pure water used in immersion lithography tools.
Development is already underway on systems for the next generation
extreme ultraviolet vacuum-based lithography tools. A supercritical
CO2 tool has been released, and is being used to develop critical
cleaning processes for future generations of chip making at a key
industry development facility.
Total R&D expenditure in 2004 was £41.6 million compared to
£39.9 million in 2003 and £47.0 million in 2002.
Information technology
Standardisation on a common SAP computing system continued with
successful deployments in Korea, Malaysia, Colombia and Venezuela.
Our newly acquired businesses in Canada and Poland were fully
integrated and, following a successful initial implementation in
Europe, SAP was subsequently extended to BOC Edwards operations in
the US. Improved devices for electronically capturing data at the
point of delivery have been deployed in the Australian and UK
Industrial and Special Products businesses. Partnernet, an e-commerce
system for BOC agents, was implemented in a number of countries.
The south Pacific data centre was closed and data processing
from Australia is now done in the global data centre in the UK. In
South Africa a new centre has been set up to develop applications and
provide support for systems that are specific to BOC. For other
systems, development and support capabilities have been established
with third party suppliers in India.
31 The BOC Group plc Annual report and accounts 2004
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 page 50 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. Recent improvements in
the level of demand for BOC Edwards services may not be sustained
due to reduced demand from end users of technology products and/or
excess supply of semiconductors. The competitive nature of the
semiconductor industry can reduce profit margins for suppliers of
products and services to semiconductor manufacturers. Either of these
factors or a combination could adversely impact BOCs 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 and may make acquisitions in the future. While
BOC identifies expected synergies, cost savings and growth
opportunities prior to completing any acquisition, 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 BOCs management; |
|
|
inability to retain
key employees in acquired companies; |
|
|
inability to retain key
customers; |
|
|
assumption of liabilities
unrecognised in due diligence. |
The growth of BOCs gases business will depend on the ability to win and execute large projects profitably
BOC, through its Process Gas Solutions (PGS) 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 PGSs ability
to win new projects from these customers, and therefore may impact
BOCs 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); |
|
|
inability to operate the plant at costs
assumed in BOCs financial evaluation of the project. |
The safety of BOCs 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:
|
|
fines and penalties for breaches of safety laws; |
|
|
liability payments and costs to employees or third parties arising from
injury or damage; |
|
|
exclusion from certain market sectors deemed important for future
development of the business (such as medical gases); |
|
|
damage to
reputation. |
BOC operates in over 50 different countries and is therefore exposed to economic, political and business risks associated with international operations
BOCs 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 BOCs long-term
success. In addition, BOCs 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
BOCs 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 will
have a material impact on BOCs 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.
32 The BOC Group plc Annual report and accounts 2004
Risk factors
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 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 BOCs success
BOCs 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 (ISP) line of business which provides products and services
to customers involved in the welding and cutting of metal, a major
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 BOCs 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.
BOCs success depends to a significant extent on its key personnel and employees
BOCs 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 BOCs acquisitions
may depend, in part, on BOCs ability to retain management personnel
of acquired companies.
Litigation may have an adverse impact on financial results
The global nature of BOCs business exposes it to the potential for
litigation from third parties. From time to time BOC is involved in
lawsuits 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 BOCs profitability, its business
operations or financial condition. Examples of litigation in the US
for past products include allegations of injury arising from the use
of welding electrodes previously manufactured by a BOC subsidiary in
the US.
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 companys 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.
Implementation of computer software systems is a key success factor for BOC
The introduction of software to improve efficiency and effectiveness
of various business processes is an important contributor to BOCs
growth strategy. Failure to design, select appropriate suppliers or
implement such systems effectively could result in reduced levels of
customer satisfaction or profitability.
Further consolidation between major competitors may impact BOCs competitive position
A merger between any of the major competitors to BOC within the
principal geographies subject to competition authority consent, could
result in a longer-term deterioration of BOCs competitive position
and reduced levels of growth. Possible consequences could include:
|
|
an uncompetitive cost base for large projects; |
|
|
an inability to participate in further
consolidation due to competition concerns; |
|
|
retention and/or recruitment of key personnel; |
|
|
weakened geographical positions. |
Managing joint venture relationships is a key success factor for BOC
BOC needs to ensure that the selection of joint venture partners in
new ventures and the relationships with partners in existing
relationships is managed effectively to ensure the full potential for
the joint venture is achieved. Failure to achieve alignment of
objectives and manage relationships effectively may negatively impact
future growth and profit levels.
33 The BOC Group plc Annual report and accounts 2004
OPERATING REVIEW
Introduction
The Groups 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.
This is consistent with the basis used by management to measure
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 Groups 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 ten per
cent in 2004 compared with 2003. When looking at the financial
performance of the Afrox hospitals business segment in 2004, 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 |
|
|
2002 results |
|
|
|
|
|
|
Impact of |
|
|
2003 results |
|
|
|
2002 results |
|
|
movements |
|
|
(at 2003 rates |
|
|
2003 results |
|
|
movements |
|
|
(at 2004 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 |
|
|
1,200.6 |
|
|
|
(50.5 |
) |
|
|
1,150.1 |
|
|
|
1,242.7 |
|
|
|
(71.1 |
) |
|
|
1,171.6 |
|
Industrial and Special Products |
|
|
1,605.3 |
|
|
|
(5.0 |
) |
|
|
1,600.3 |
|
|
|
1,751.2 |
|
|
|
(19.6 |
) |
|
|
1,731.6 |
|
BOC Edwards |
|
|
688.2 |
|
|
|
(30.3 |
) |
|
|
657.9 |
|
|
|
684.1 |
|
|
|
(39.4 |
) |
|
|
644.7 |
|
Afrox hospitals |
|
|
259.0 |
|
|
|
46.9 |
|
|
|
305.9 |
|
|
|
353.4 |
|
|
|
41.4 |
|
|
|
394.8 |
|
Gist |
|
|
264.8 |
|
|
|
(0.1 |
) |
|
|
264.7 |
|
|
|
291.8 |
|
|
|
(0.1 |
) |
|
|
291.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
4,017.9 |
|
|
|
(39.0 |
) |
|
|
3,978.9 |
|
|
|
4,323.2 |
|
|
|
(88.8 |
) |
|
|
4,234.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process Gas Solutions |
|
|
161.2 |
|
|
|
(6.6 |
) |
|
|
154.6 |
|
|
|
177.1 |
|
|
|
(10.3 |
) |
|
|
166.8 |
|
Industrial and Special Products |
|
|
229.3 |
|
|
|
2.1 |
|
|
|
231.4 |
|
|
|
238.2 |
|
|
|
3.1 |
|
|
|
241.3 |
|
BOC Edwards |
|
|
(1.4 |
) |
|
|
(0.8 |
) |
|
|
(2.2 |
) |
|
|
7.9 |
|
|
|
(1.1 |
) |
|
|
6.8 |
|
Afrox hospitals |
|
|
29.7 |
|
|
|
5.4 |
|
|
|
35.1 |
|
|
|
46.1 |
|
|
|
5.4 |
|
|
|
51.5 |
|
Gist |
|
|
25.5 |
|
|
|
0.3 |
|
|
|
25.8 |
|
|
|
29.2 |
|
|
|
0.1 |
|
|
|
29.3 |
|
Corporate |
|
|
(18.7 |
) |
|
|
0.4 |
|
|
|
(18.3 |
) |
|
|
(59.9 |
) |
|
|
6.1 |
|
|
|
(53.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
425.6 |
|
|
|
0.8 |
|
|
|
426.4 |
|
|
|
438.6 |
|
|
|
3.3 |
|
|
|
441.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Process Gas Solutions |
|
|
185.2 |
|
|
|
(7.1 |
) |
|
|
178.1 |
|
|
|
184.0 |
|
|
|
(10.5 |
) |
|
|
173.5 |
|
Industrial and Special Products |
|
|
248.0 |
|
|
|
2.0 |
|
|
|
250.0 |
|
|
|
242.7 |
|
|
|
2.8 |
|
|
|
245.5 |
|
BOC Edwards |
|
|
26.1 |
|
|
|
(1.0 |
) |
|
|
25.1 |
|
|
|
18.5 |
|
|
|
(1.5 |
) |
|
|
17.0 |
|
Afrox hospitals |
|
|
29.7 |
|
|
|
5.4 |
|
|
|
35.1 |
|
|
|
46.1 |
|
|
|
5.4 |
|
|
|
51.5 |
|
Gist |
|
|
25.5 |
|
|
|
0.3 |
|
|
|
25.8 |
|
|
|
29.2 |
|
|
|
0.1 |
|
|
|
29.3 |
|
Corporate |
|
|
(14.4 |
) |
|
|
0.4 |
|
|
|
(14.0 |
) |
|
|
(14.9 |
) |
|
|
1.5 |
|
|
|
(13.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
500.1 |
|
|
|
|
|
|
|
500.1 |
|
|
|
505.6 |
|
|
|
(2.2 |
) |
|
|
503.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2004 include the loss on
disposal of the packaged gas business in the US, costs relating to
the subsequent restructuring of the remaining US business and charges
relating to the integration process in Japan that began in 2003
following the merger of the industrial and medical gases businesses
there of BOC and Air Liquide to form Japan Air Gases. Included in
2003 was a litigation settlement expense, the costs of the business
initiative programme announced in August 2001, other restructuring
programmes and charges relating to the integration in Japan.
34 The BOC Group plc Annual report and accounts 2004
Operating review
Exceptional items include those items classified as both operating and
non-operating under UK GAAP.
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 exceptional items is given in
the financial review on page 49. An analysis of all operating and
non-operating exceptional items is given in note 2 b) to the
financial statements on page 89.
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 78. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
2003 |
|
2002 |
|
|
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 |
|
|
190.3 |
|
|
|
(0.8 |
) |
|
|
189.5 |
|
|
|
184.0 |
|
|
|
(6.9 |
) |
|
|
177.1 |
|
|
|
185.2 |
|
|
|
(24.0 |
) |
|
|
161.2 |
|
Industrial and
Special Products |
|
|
269.5 |
|
|
|
(15.6 |
) |
|
|
253.9 |
|
|
|
242.7 |
|
|
|
(4.5 |
) |
|
|
238.2 |
|
|
|
248.0 |
|
|
|
(18.7 |
) |
|
|
229.3 |
|
BOC Edwards |
|
|
47.8 |
|
|
|
(1.0 |
) |
|
|
46.8 |
|
|
|
18.5 |
|
|
|
(10.6 |
) |
|
|
7.9 |
|
|
|
26.1 |
|
|
|
(27.5 |
) |
|
|
(1.4 |
) |
Afrox hospitals |
|
|
59.8 |
|
|
|
|
|
|
|
59.8 |
|
|
|
46.1 |
|
|
|
|
|
|
|
46.1 |
|
|
|
29.7 |
|
|
|
|
|
|
|
29.7 |
|
Gist |
|
|
25.1 |
|
|
|
|
|
|
|
25.1 |
|
|
|
29.2 |
|
|
|
|
|
|
|
29.2 |
|
|
|
25.5 |
|
|
|
|
|
|
|
25.5 |
|
Corporate |
|
|
(15.6 |
) |
|
|
|
|
|
|
(15.6 |
) |
|
|
(14.9 |
) |
|
|
(45.0 |
) |
|
|
(59.9 |
) |
|
|
(14.4 |
) |
|
|
(4.3 |
) |
|
|
(18.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Group |
|
|
576.9 |
|
|
|
(17.4 |
) |
|
|
559.5 |
|
|
|
505.6 |
|
|
|
(67.0 |
) |
|
|
438.6 |
|
|
|
500.1 |
|
|
|
(74.5 |
) |
|
|
425.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
2004 |
|
(restated) |
|
(restated) |
|
|
|
|
|
|
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 |
|
|
576.9 |
|
|
|
3,752.4 |
|
|
|
15.4 |
|
|
|
505.6 |
|
|
|
4,010.5 |
|
|
|
12.6 |
|
|
|
500.1 |
|
|
|
4,002.9 |
|
|
|
12.5 |
|
Operating
exceptional items |
|
|
(17.4 |
) |
|
|
|
|
|
|
|
|
|
|
(67.0 |
) |
|
|
|
|
|
|
|
|
|
|
(74.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROCE |
|
|
559.5 |
|
|
|
3,752.4 |
|
|
|
14.9 |
|
|
|
438.6 |
|
|
|
4,010.5 |
|
|
|
10.9 |
|
|
|
425.6 |
|
|
|
4,002.9 |
|
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. |
|
ROCE is operating profit as a percentage of the average capital employed
excluding net pension liabilities. |
2. |
|
Average capital employed and ROCE for 2003 and 2002 have been
restated following the application of UK GAAP UITF37 and UITF38
in 2004 (see note 31 to the financial statements). |
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 |
|
|
|
2004 |
|
|
(restated) |
|
|
(restated) |
|
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
Free cash flow |
|
|
257.9 |
|
|
|
141.8 |
|
|
|
166.5 |
|
Exceptional cash items |
|
|
(11.9 |
) |
|
|
(28.3 |
) |
|
|
(67.3 |
) |
Acquisitions and disposals |
|
|
92.5 |
|
|
|
(118.3 |
) |
|
|
(215.5 |
) |
Other items within capital expenditure and financial investment: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of intangible fixed assets |
|
|
(0.2 |
) |
|
|
(1.2 |
) |
|
|
(0.1 |
) |
Net (purchases)/sales of current asset investments |
|
|
(0.9 |
) |
|
|
16.6 |
|
|
|
4.3 |
|
Purchases of trade and other investments |
|
|
(3.8 |
) |
|
|
(3.3 |
) |
|
|
(19.7 |
) |
Sales of trade and other investments |
|
|
5.6 |
|
|
|
5.3 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow/(outflow) before use of liquid resources and financing |
|
|
339.2 |
|
|
|
12.6 |
|
|
|
(130.9 |
) |
|
|
|
|
|
|
|
|
|
|
35 The BOC Group plc Annual report and accounts 2004
OPERATING REVIEW (COMPARING 2004 WITH 2003)
Turnover, including
share of joint
ventures and
associates
Profit before tax
Group
Turnover including the Group share of joint ventures and associates was £4,599.3 million in 2004, up six per cent
compared with £4,323.2 million in 2003. Operating profit was £559.5 million, up 28 per cent compared with
£438.6 million in 2003. After charging operating and non-operating exceptional items totalling £92.0 million and
net interest and other financing items of £72.6 million, profit before tax was £412.3 million, up 17 per cent
compared with £351.9 million in 2003. Earnings per share were 53.5p, up 20 per cent compared with 44.5p in
2003. Excluding the exceptional items, adjusted operating profit for the year was £576.9 million, adjusted profit
before tax was £504.3 million and adjusted earnings per share were 63.2p.
Comparisons with 2003 are affected by exchange rate movements. For the currencies that principally affect
the Groups 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 £88.8 million. There would have been an increase
in operating profit of £3.3 million and a decrease in adjusted operating profit of £2.2 million. Adjusted profit before
tax would have been £2.9 million higher and adjusted earnings per share would have been 0.2p lower.
The table set out below summarises results reported both under UK GAAP and as adjusted. Results for
2003 are shown both as reported in that year and on a constant currency basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 (at 2004 |
|
|
|
2004 |
|
|
2003 |
|
|
exchange rates)1 |
|
Turnover including share of joint ventures and associates (£ million) |
|
|
4,599.3 |
|
|
|
4,323.2 |
|
|
|
4,234.4 |
|
Operating profit (£ million) |
|
|
559.5 |
|
|
|
438.6 |
|
|
|
441.9 |
|
Adjusted operating profit (£ million)2 |
|
|
576.9 |
|
|
|
505.6 |
|
|
|
503.4 |
|
Profit before tax (£ million) |
|
|
412.3 |
|
|
|
351.9 |
|
|
|
360.3 |
|
Adjusted profit before tax (£ million)2 |
|
|
504.3 |
|
|
|
418.9 |
|
|
|
421.8 |
|
Earnings per share |
|
|
53.5 |
p |
|
|
44.5 |
p |
|
|
44.9 |
p |
Adjusted earnings per share2 |
|
|
63.2 |
p |
|
|
52.9 |
p |
|
|
52.7 |
p |
|
|
|
|
|
|
|
|
|
|
1. |
|
A reconciliation of turnover, operating profit and adjusted operating
profit for 2003 at 2003 and at 2004 rates of exchange is shown on page 34. |
2. |
|
A reconciliation of adjusted results with UK GAAP results is shown on
page 35 and in the profit and loss account on page 78. |
Exceptional items in 2004 amounted to a charge of £92.0 million. This
comprised a loss of £79.5 million on disposal of the US packaged gas
business, a charge of £14.8 million for restructuring the remaining
business in the US following the disposal, a charge of £2.6 million
relating to the integration of the industrial and medical gases
businesses of BOC and Air Liquide in Japan, and a profit of £4.9
million on the disposal of fixed assets.
Exceptional items in 2003 comprised £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.
Adjusted return on capital employed for the year to 30 September
2004 was 15.4 per cent. Return on capital employed for the year to 30
September 2004 was 14.9 per cent. Free cash flow (as defined on page
35) was £257.9 million in 2004. Net cash flow, after acquisitions,
disposals and other investing activities, and including exceptional
cash items, was £339.2 million in 2004. A reconciliation of these
measures is shown on page 35.
A first interim dividend for 2004 of 15.5p per share was paid in
February 2004 and a second interim dividend of 24.5p per share was
paid in August 2004. In aggregate this was a 2.6 per cent increase
over the annual dividend of the previous year. A first interim
dividend for 2005 of 15.9p per share has been declared for payment in
February 2005.
Capital expenditure by subsidiaries (including interest
capitalised) was £256.1 million in 2004, compared with £281.2 million
in 2003. This was covered by cash inflow from operating activities.
Capital expenditure by joint ventures and associates was £109.0
million in 2004, of which the BOC share was £49.2 million. Equivalent
expenditure in 2003 was £81.4 million, of which the BOC share was
£36.1 million. The Group also made acquisitions of businesses of
£50.9 million in 2004 and proceeds from disposals were £98.3 million.
Equivalent items in 2003 were £135.5 million and £3.9 million
respectively.
Process Gas Solutions (PGS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
on 20031 |
|
|
|
2004 |
|
|
Change |
|
|
(constant |
|
|
|
£ million |
|
|
on 2003 |
|
|
currency) |
|
Turnover |
|
|
1,275.2 |
|
|
+3% |
|
+9% |
Operating profit |
|
|
189.5 |
|
|
+7% |
|
+14% |
Adjusted operating
profit2 |
|
|
190.3 |
|
|
+3% |
|
+10% |
|
|
|
|
|
|
|
|
|
|
1. |
|
A reconciliation of results for 2003 at 2003 and at 2004 rates of
exchange is shown on page 34. |
2. |
|
A reconciliation of adjusted operating profit with operating profit is
shown on page 35. |
3. |
|
All comments below are on a constant currency basis. |
Increased turnover reflected strong demand worldwide for both steel
and non-ferrous metals. In addition, sales from new production
facilities accounted for approximately £14 million of the increase
in turnover between 2003 and 2004. The principal facilities coming
into production in 2003 and 2004 were hydrogen and carbon monoxide
plants supplying TPCC at Map Ta Phut, Thailand, and Citgos
refinery at Lemont, Illinois.
Metal production increased in 2004 and world metal prices firmed
as a result of strong demand from China. This benefited BOCs steel
and non-ferrous metal customers in all the key markets throughout the
year.
For 2004 as a whole, the food sector was buoyant outside the US
despite the temporary consequences of avian flu in Asia and the
imposition of US import tariffs on prawns. In October 2004, a new
plant to produce beverage grade carbon dioxide was commissioned in
Pakistan to satisfy growing demand for carbonated drinks.
36 The BOC Group plc Annual report and accounts 2004
Operating review (comparing 2004 with 2003)
The recovery in the electronics packaging industry created
exceptionally strong demand for industrial gases in the electronics
packaging sector. BOC was a leading beneficiary of this because of
its strong position in Asian markets. The EcoSnow business that was
acquired in 2003 performed strongly in 2004 and contributed to the
growth of the PGS business in the electronics packaging sector.
Several significant new supply scheme contracts were won in
2004. BOCs hydrogen business with refiners will be substantially
increased with a new plant to supply both a Sunoco refinery at
Toledo, Ohio, and a nearby BP refinery. The hydrogen will be used by
both BP and Sunoco in the production of ultra-low sulphur gasoline
and diesel fuels. The complex will be capable of supplying over 120
million standard cubic feet a day of hydrogen. BOCs partner for
engineering and construction is Linde BOC Process Plants of Tulsa,
Oklahoma. BOC is investing more than US$100 million in the facility,
which is currently scheduled to be completed early in 2006.
Outside the US, significant new business in the chemical
sector was won with the Sinopec Shanghai Petrochemical Company. BOC
will form a joint venture to invest in existing assets and then add
further air separation capacity. BOCs subsidiary in Thailand is to
invest in a venture establishing a 1,300 tonnes-a-day plant to
supply TOC Glycol Co. Ltd. (TOCGC) in Map Ta Phut and to increase
merchant capacity in the area. When completed early in 2006, this
will be the largest air separation unit in Thailand. It will be
owned and operated by a joint venture between BOCs Thai subsidiary
(TIG) and Bangkok Industrial Gas Company.
New business with steel customers was mainly concentrated in
Asia. In January 2004, BOC announced that its joint venture with the
Taiyuan Iron and Steel Company (TISCO) would expand its existing
1,500 tonnes-a-day capacity with the construction of two new 1,400
tonnes-a-day air separation units. TISCO is already the largest
stainless steel producer in China and its expansion to a capacity of
900,000 tonnes a year will make it one of the biggest in the world.
In Chinas Pearl River delta, BOCs associated company is to expand
capacity to supply the Guangzhou Iron and Steel Company and is also
adding new air separation capacity to supply the Zhujiang Iron &
Steel Corporation.
In the UK, BOC supplies Corus at its Port Talbot, Scunthorpe,
Rotherham and Redcar plants. BOC is to increase its industrial
gases supply to the Port Talbot strip products plant by 30 per
cent to increase steel production locally.
Selling prices were generally firm during 2004 and sufficient to
offset input cost inflation except in parts of north Asia. Increases
in fuel and power costs taking effect at the end of 2004 will require
further selling price increases to maintain margins. The expiry of a
fixed term contract in the UK will cause a particularly sharp
increase in UK power costs in 2005.
Operating exceptional items in 2004 were for the integration of
the industrial and medical gases businesses of BOC and Air Liquide in
Japan that began in 2003.
Europe Turnover increased in all parts of Europe except for
Ireland. Adjusted operating profit increased significantly,
mainly as a result of more efficient plant operation and
careful control of costs.
In the UK, manufacturing activity remained generally weak but
customer closures and relocations that had affected business in 2003
were less evident in 2004. Rising steel production led to increased
demands for oxygen. The reorganisation of steel processing at Corus
will lead to a 30 per cent increase in gases supply for steel
production at Port Talbot from the end of 2005.
A new operations centre was established in Poland during 2004
and adjusted operating profit increased through efficiency savings
derived from better operational control. Cost savings following
the outsourcing of carbon dioxide distribution also led to
increased adjusted operating profit in Ireland.
Price increases were generally sufficient to cover higher
input costs in 2004. Further increases are being implemented in
2005 to cover sharply higher electricity prices in the UK
following the expiry of a fixed price supply contract.
Cryostar manufactures cryogenic pumps, expansion turbines and
compressors for a variety of industrial gas applications and for
marine liquefied natural gas (LNG) tankers. As in 2003, turnover and
adjusted operating profit increased in 2004 principally as a result
of demand for shipboard compression units on LNG tankers and
following continued investments for gases plants in Asia.
North America Turnover increased as a result of including a full
year of syngas production for Celanese at Clear Lake, Texas and
the start-up of a new plant supplying hydrogen to Citgos refinery
at Lemont, Illinois, in October 2003.
Adjusted operating profit was lower as a result of reduced
carbon dioxide volumes to our food and dry ice customers, and
reduced argon demand from the stainless steel and wholesale sectors.
In general, demand for industrial gases from steel customers was
strong in 2004. Liquid nitrogen volumes for food freezing
applications strengthened during the year, mitigating the reduced
carbon dioxide volumes into this sector. BOCs carbon dioxide
business with beverage customers continued to make good progress in
2004 and new business was won.
Selling prices remained generally firm and significant increases
in fuel and energy costs were largely recovered with surcharges or
general price rises.
Latin America Revenues increased across the region during 2004,
although business in Venezuela continued to be affected by political
uncertainty. In Brazil, BOCs new 400 tonnes-a-day plant entered
production serving CST, the worlds biggest producer of slab steel.
The benefits of re-pressurising the Pemex Cantarell oilfield in
the Gulf of Mexico with nitrogen from BOCs joint venture company
continued to be realised during the year. Pemex attributes an increase
of some 600 thousand barrels a day in oil production to the nitrogen
injection. Plant reliability was further improved during 2004 leading
to some increase in supply. In May 2004 BOC agreed to buy Duke
Energys 30 per cent ownership interest in the joint venture company
for US$59.7 million in cash. This increased BOCs overall stake to 65
per cent on completion in September 2004.
37 The BOC Group plc Annual report and accounts 2004
Operating review (comparing 2004 with 2003)
Africa Turnover increased and adjusted operating profit was further
improved by cost savings and firm pricing trends leading to better
margins. Although the stronger rand adversely affected platinum and
gold mining in 2004, strong demand and firmer prices led to increased
activity in the steel industry. New business was obtained for carbon
dioxide in the beverage sector and for the use of oxygen in the
de-lignification of wood pulp.
Japan The combination of BOCs and Air Liquides industrial and
medical gases businesses in Japan took effect from January 2003. This
distorts the comparison of turnover and profit for BOCs three lines
of business between 2004 and 2003 and with earlier years. The results
of Japan Air Gases were consolidated on an equity basis throughout
2004 and for the last three quarters of 2003. In 2004 turnover
increased
mainly as a result of equipment sales and adjusted operating profit
increased faster as a result of achieving integration cost savings as
planned.
North Asia Turnover and adjusted operating profit increased in 2004
but at a more modest pace than in 2003. Production plants across
the region were almost fully utilized and little new capacity came
on stream in 2004. However a number of new plants will add
significantly to production within the next 12 months.
In China, turnover and adjusted operating profit increased in
line with economic trends but further growth was constrained by
available production capacity and by some unplanned shutdowns,
mainly at customers plants. Management expects that new production
capacity to be added over the next 12 months will more than double
BOCs capacity in China. Four large air separation plants are under
construction to supply petrochemical and steel customers and a
further five nitrogen generators will supply a variety of customers
in the electronics and metals markets.
In addition to the expansions at Taiyuan and Nanjing covered in
the operating review last year, BOC has more recently announced a new
joint venture with Sinopec Shanghai Petrochemical Company Limited
(SPC), a subsidiary of Sinopec Corporation, to meet the industrial
gases needs of SPC in the Jinshan District of Shanghai. The joint
venture expects to invest in the production of nearly 3,000 tonnes a
day of air separation capacity initially through the acquisition of
SPCs existing industrial gases assets followed by the construction of
a new world-scale air separation unit (ASU). This will support SPCs
fast growing petrochemical business and those of additional customers
in the area. The Jinshan District is one of the major areas of
petrochemical investment in China and, aside from the SPC complex,
includes the nearby Shanghai Industrial Chemical Park, where a number
of global and local chemical companies are located.
Economic conditions were stable in Korea but increased turnover
and adjusted operating profit came from some additional argon and
hydrogen capacity to supply customers near Pohang.
The relocation of labour-intensive manufacturing from Taiwan to
mainland China that had provided a difficult economic background in
2003 slowed in 2004. Turnover increased as a result of full capacity
utilization but adjusted operating profit increased significantly as a
result of improved efficiency in plant operations.
Hong Kong also enjoyed a better economic climate in 2004 for
the same reasons and adjusted operating profit was sharply better.
South and South East Asia These regions came under the same
business unit management during 2004. The economies continued to
be buoyant across both regions during the year, helped by
generally strong steel demand and a more active electronics
industry in Singapore, Malaysia and the Philippines. The major
market sectors for PGS across the region are steel, petrochemicals
and the food industry.
The SARS infection that had adversely affected 2003 was no
longer an issue in 2004 but in Thailand and Malaysia the food sector
was hit by an outbreak of avian flu. The Thai shrimp industry was
further affected by the imposition of US tariffs on imports but some
recent relaxation of these should lead to better conditions in 2005.
During 2004, BOC began to manufacture food-freezing equipment in
Thailand.
Turnover increased in 2004 and adjusted operating profit was
significantly better with improved margins arising from business
efficiency and productivity gains. Additional carbon dioxide
capacity was added to serve beverage industry customers in
Pakistan in October 2004.
Although there were few new petrochemical projects started in
2004, demand for industrial gases increased as a result of
de-bottlenecking existing facilities. In September 2004, BOCs
subsidiary in Thailand announced a major investment in new joint
venture air separation capacity to supply oxygen for ethylene glycol
production and to increase the availability of products for sale in
the expanding merchant market around Map Ta Phut. During 2005
additional air separation capacity will be added at Hyderabad by
BOCs Indian subsidiary to support growing demand for merchant
products in the area.
South Pacific Turnover and adjusted operating profit were higher
than a year ago. The Australian and New Zealand economies
remained generally strong in 2004. The strength of local
currencies led to some further customer plant closures but firm
commodity prices for minerals and particularly for steel enabled
leading customers to prosper. There was some increase in tonnage
volumes but volumes overall were similar to a year ago.
Electricity prices increased in eastern Australia and more so
in New Zealand. Increased costs were passed through to tonnage
customers and progressively recovered in the merchant markets. At
the same time, BOCs major plants in Australia achieved significant
cost savings as a result of implementing a global plant
optimisation programme.
During 2004 BOC outsourced the transport of its bulk products
to Australias leading transport company, while retaining control of
distribution and scheduling. This change was made only after
ensuring that there would be no diminution of safety standards or
the quality of service to customers.
A hydrogen purification plant and bus re-fuelling facility to
support BP in the Government of Western Australias environmentally
friendly fuel cell bus trial came into operation during September
2004. Three hydrogen-fuelled buses will be operating in the city of
Perth. The trial is to continue for at least the next two years.
38 The BOC Group plc Annual report and accounts 2004
Operating review (comparing 2004 with 2003)
Water services BOC acquired Environmental Management Corporation
(EMC), a US water services company in October 2002. Turnover
increased modestly in 2004 but the business remained close to
break-even after the amortisation of goodwill as a result of planned
costs to increase business development resources.
BOCs strategy for water services is to focus on its
industrial customers. Significant new business was won during 2004,
including a multi-year contract for process and waste water
services to a major US beef producer. Tightening regulations for
proteins in effluent seem likely to create fresh demands for water
treatment in the food industry.
Industrial and Special Products (ISP)
|
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Change |
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|
|
|
|
|
|
|
on 20031 |
|
|
|
2004 |
|
|
Change |
|
|
(constant |
|
|
|
£ million |
|
|
on 2003 |
|
|
currency) |
|
Turnover |
|
|
1,782.3 |
|
|
+2% |
|
|
+3% |
|
Operating profit |
|
|
253.9 |
|
|
+7% |
|
|
+5% |
|
Adjusted
operating profit2 |
|
|
269.5 |
|
|
+11% |
|
|
+10% |
|
|
|
|
|
|
|
|
|
|
|
1. |
|
A reconciliation of results for 2003 at 2003 and at 2004 rates of
exchange is shown on page 34. |
2. |
|
A reconciliation of adjusted operating profit with operating profit is
shown on page 35. |
3. |
|
All comments below are on a constant currency basis. |
Nearly all regions delivered better results in 2004 with increased
turnover in most countries and an overall improvement in operating
margin. Robust economic conditions supported a further improvement
in the south Pacific region and Africa delivered better results
despite the handicap of the stronger currency on manufacturing and
mining. There was also some improvement in the US manufacturing
economy.
At the same time further progress was made in successfully
integrating the businesses recently
acquired in Canada and Poland.
Sales to the medical sector grew further in 2004 as a result of
both gases and liquid helium sales. Heliox, a new low-density
breathing mixture was introduced in the UK and in Australia. This
product enables patients with obstructed airways to breathe more
easily and thereby provides time to treat the underlying problems.
Helium is also used to cool the coils of superconducting magnets in
MRI scanners. BOC not only sells the liquid nitrogen and helium
cryogens but offers a related CryoFill service, taking responsibility
for filling customers magnets. Helium sales also increased in Taiwan,
Thailand and China, where significant growth potential has been
identified and where an important distributor agreement was signed
with Meike. The cost of producing and purchasing helium continued to
increase rapidly during 2004 but BOC was largely successful in
recovering higher costs in selling prices to customers. BOC installed
helium recovery systems at the University of Liverpool in the UK and
at Trane in the US during 2004.
Consistent progress was made in growing refrigerant sales. The
alliance with Hudson Technologies for the reclaim of contaminated
refrigerants began operation in the UK during 2004 and will be
applied in South Africa in 2005.
BOCs major liquefied petroleum gas (LPG) businesses in
Australia and South Africa were notably successful in managing
volatile input costs and sustaining margins during 2004 as LPG prices
increased sharply.
Sales of industrial products increased in aggregate although
some developed markets continued to reflect weak manufacturing
activity. Business development was helped by upgrading the retail
environment of outlets in some major markets and by the continued
introduction of safety products to the markets in the UK, Australia
and South Africa.
Operating exceptional items in 2004 were for the integration of
the industrial and medical gases businesses of BOC and Air Liquide in
Japan that began in 2003, as well as for the restructuring of the ISP
business in the US following the disposal of the packaged gas
business.
Europe Turnover and adjusted operating profit increased further in
2004. Manufacturing activity continued to decline in the UK but
BOC maintained a strong position in the market. Improved service
levels enabled selling price increases to be implemented. At the
same time costs were reduced through improved productivity.
Modest increases in industrial product sales were helped by
rejuvenation of retail outlets in the UK. Medical product sales
increased as a result of gaining additional National Health Service
business and continued demand for lightweight oxygen cylinders. The
range of lightweight cylinders will be expanded by introducing
additional sizes during 2005.
Changes in the provision of domiciliary oxygen in England and
Wales are to be implemented by the National Health Service during
2005. A single contractor will be chosen in each one of 11 regions to
supply all forms of domiciliary oxygen to patients. BOC currently has
a leading share of the cylinder oxygen business but is a minor
supplier of oxygen concentrators.
The new business supplying helium to Oxford Magnet Technology
for medical imaging devices began in 2003 and performed well
throughout 2004. It was also the first full year of the refrigerant
reclaim service in the UK, based on an exclusive global licence with
Hudson Technologies. A range of gases for scientific applications was
introduced during the year and some additional sales were generated
following the launch of a mail order catalogue for gases and related
products. BOCs Sureflow beverage dispense gas operation was expanded
by new business for Heineken outlets in Ireland during 2004.
BOCs business in Poland was enlarged from February 2003 with
the acquisition of Praxairs Polish business. 2004 was therefore the
first full year of the expanded business and there were further
integration benefits.
North America The BOC Group announced on 27 January 2004 that it had
signed a letter of intent to sell
its US packaged gas business to Airgas. This business had turnover of
approximately US$240 million in 2003. The disposal was completed on 30
July 2004 upon receipt of initial cash proceeds of US$175 million.
39 The BOC Group plc Annual report and accounts 2004
Operating review (comparing 2004 with 2003)
Following this transaction, the ISP business in north America consists
of bulk medical gases, bulk supplies to distributors, tube trailer and
liquefied helium in the US as well as the Canadian packaged gas
business. In total these elements currently generate turnover of some
US$450 million a year.
The impending disposal of the US packaged gas business created
a challenging business environment for a significant part of the
year. US sales volumes and adjusted operating profit were lower in
the period prior to the disposal.
Turnover increased in Canada principally as a result of the
acquisition of Air Products Canadian gases and related products
business with effect from April 2003. Cost synergies arising from the
integration further boosted adjusted operating profit in 2004.
Latin America Turnover increased significantly and margins improved.
Growth across the region was driven principally by sales of medical
products supplemented by sales of BOC-branded cutting and welding
equipment. Sales of packaged chemicals increased in Colombia and
Venezuela.
Results improved strongly in Venezuela, despite a continuation
of political unrest. BOCs associated company achieved better results
in Chile but there was a sharper improvement in Argentina.
Selling price increases offset inflation in Venezuela and Chile
but the trends were less favourable in Colombia during 2004. A new
customer service centre was opened in Venezuela and new business
systems were successfully implemented in Venezuela and Colombia
during the year.
Africa Important sections of South African industry were depressed
during 2004 because of the stronger currency. Rand exchange rates
reduced the profitability of gold mining and manufacturing for export
in particular. At the same time the cost of imported goods was lowered
making them more competitive with those manufactured locally. However
lower interest rates began to stimulate domestic consumption towards
the end of the year.
Despite the more difficult market conditions, adjusted operating
profit improved significantly on the basis of a modest improvement in
turnover. Margins improved as a result of better productivity and
operating efficiency, partly offset by increased transport costs
arising from the temporary shutdown of some key supplier facilities.
Sales of cutting and welding products increased in South Africa and
so did both the sales volume and the turnover of liquefied petroleum
gas (LPG). Turnover of special products, including refrigerants, grew
particularly rapidly.
Export sales of welding products manufactured by Afrox, BOCs
South African subsidiary, also increased significantly. There was a
modest improvement in adjusted operating profit despite the
currency disadvantage. Sales of the AfroxPac emergency oxygen kit
for underground miners were substantially lower in 2004 as order
intake reflected weak activity in the gold mining sector.
During 2005 the Afrox refrigerants business is projected to
expand by offering a service to recover and reclaim the contents of
customers refrigeration plant. This service will be provided
on-site if required and will be based on technology that is the
subject of BOCs global alliance with Hudson Technologies.
A programme to renovate the Afrox retail network in South
Africa with the development of a number of Gas & Gear outlets and
a range of safety products is under way. In addition a range of
diving gases and a fire suppression product have been launched in
South Africa.
Good progress was made in growing both turnover and adjusted
operating profit in the other southern African countries during
2004. A new carbon dioxide plant supported growth in Nigeria.
Japan The basis of accounting for BOCs business in Japan changed
during 2003 as a result of a merger. Full details can be seen in the
PGS section on page 38. In 2004 ISPs turnover in Japan was slightly
less than the previous year but adjusted operating profit was higher
through cost savings following the merger
and from some asset disposals.
South and South East Asia These regions came under the same business
unit management during 2004. In aggregate there were modest
improvements in both turnover and adjusted operating profit. In
Taiwan, buoyant activity in manufacturing and infrastructure
development was reflected in higher turnover and adjusted operating
profit. There were also sharply better results from the industrial
products business in Thailand but ammonia margins were under strong
competitive pressure and liquefied petroleum gas (LPG) selling prices
remained subject to restrictive regulation. Hong Kong continued to be
affected by the migration of manufacturing to mainland China and in
Singapore shipbuilding and construction activity failed to improve in
2004. Competition intensified in the Malaysian market for industrial
gases. Demand for helium was strong throughout Asia.
In south Asia, turnover increased and adjusted operating
profit was further boosted by an asset disposal. Trading
conditions in Bangladesh were adversely affected by a combination
of political uncertainty, strikes and floods.
South Pacific Turnover and adjusted operating profit increased in
2004 and margins were improved by holding down costs. The economic
environment remained favourable across the region. Manufacturing
activity was buoyant in Australia despite a challenging environment
for export-oriented manufacturers created by the stronger currency.
New projects in the oil and gas sector and in mining generated
increased demand for welding and safety products. During 2004 BOC
secured major contracts with Western Mining to meet its requirements
for safety products across Australia.
The economy also continued to grow in New Zealand but somewhat
less rapidly than in Australia. There was also an improvement in the
Pacific Islands, while gold mining activity and oil refining
investment led to increased business in Papua New Guinea.
Major initiatives in 2004 included an agreement with the
Australian CSIRO to commercialise ethanedinitrile, a gas that can be
used to sterilize soil and timber, and which management believes has
significant potential. The acquisition of OccCorp, an injury
management provider, gives BOC entry to a largely untapped market by
combining BOCs safety services and products.
40 The BOC Group plc Annual report and accounts 2004
Operating review (comparing 2004 with 2003)
A dedicated refrigerant reclaim fleet was established to help
customers comply with new refrigeration regulations that make it
mandatory to recover, return and safely dispose of
hydrofluorocarbons. BOCs new Heliox gas mixture, which helps the
treatment of patients with airway obstructions, and Inhalo, the new
lightweight cylinder, were both successfully launched into the
medical market.
BOC commenced an extensive redevelopment program of its Gas &
Gear stores, supporting traditional industrial customers and new
customers alike, giving a stronger retail position, providing
better visibility, higher traffic flow, attractive merchandising
and design.
The price of liquefied petroleum gas (LPG) was particularly
volatile during 2004. BOCs associated company in Australia, Elgas,
was notably successful in preserving sales margins in these difficult
circumstances and adjusted operating profit was increased. Elgas
expanded through the acquisition of a leisure gas business during the
year. The potential impact of Government plans to remove an excise
tax exemption for automobile gas in the period from 2008 to 2012 was
softened by a subsequent decision to delay the introduction by three
years and by an agreement to provide capital allowances to encourage
car owners to convert their vehicles to use LPG fuel. Automobile gas
is a minor part of Elgas turnover.
|
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BOC Edwards |
|
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|
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|
Change |
|
|
|
|
|
|
|
|
|
|
|
on 2003 1 |
|
|
|
2004 |
|
|
Change |
|
|
(constant |
|
|
|
£ million |
|
|
on 2003 |
|
|
currency) |
|
Turnover |
|
|
816.5 |
|
|
|
+19% |
|
|
|
+27% |
|
Operating profit |
|
|
46.8 |
|
|
|
+492% |
|
|
|
+588% |
|
Adjusted operating profit 2 |
|
|
47.8 |
|
|
|
+158% |
|
|
|
+181% |
|
|
|
|
|
|
|
|
|
|
|
1. |
|
A reconciliation of results for 2003 at 2003 and at 2004 rates of
exchange is shown on page 34. |
2. |
|
A reconciliation of adjusted operating profit with operating profit is
shown on page 35. |
3. |
|
All comments below are on a constant currency basis. |
Operating exceptional items in 2004 were for the integration of
the industrial and medical gases businesses of BOC and Air Liquide
in Japan that began in 2003.
Conditions improved in most of BOC Edwards key markets during
2004. Orders for semiconductor equipment began to pick up in the
first quarter leading to increased sales in subsequent quarters. At
the same time a major expansion of liquid crystal display (flat
panel) manufacturing facilities got under way. This provided fresh
business opportunities for both gases and equipment. Sales of
chemical management equipment for new semiconductor fabrication
plants improved only slightly and profitability continued to be
affected by competitive market conditions. Demand for scientific
equipment vacuum systems and for pharmaceutical packaging machines
was better in 2004 but sales of vacuum systems for aerospace
metallurgy applications remained at a low level.
At the beginning of 2004, high levels of capacity
utilization encouraged a number of semiconductor manufacturers
to add fresh capacity or upgrade existing facilities. This led
to increased orders, which were reflected in higher turnover and
adjusted operating profit from the second quarter onwards.
BOC Edwards was successful in winning new equipment business
with the majority of semiconductor fabrication facilities for which
construction began in 2004. These included several investments in
Taiwan, Korea, Japan, China, Europe and the US.
New pumping and exhaust systems were introduced for
semiconductor, flat panel display and other vacuum applications. A new
range of iGX pumps for the semiconductor industry provides better
control
and monitoring capabilities and use less power than before. BOC
Edwards also launched high capacity pumps of its own design and
manufacture for flat panel applications. New turbomolecular and scroll
pumps were designed for scientific instrumentation. Wet chemical
abatement systems were introduced to expand and complement the
capabilities of BOC Edwards exhaust abatement systems.
Increased production of semiconductors was reflected in better demand for
electronic materials.
Production of nitrogen trifluoride was expanded further in 2004 to
over 100 tonnes a year. New investments in semiconductor facilities
also provided opportunities for nitrogen supply contracts. BOC
Edwards has become one of the leading suppliers of bulk gas to the
growing semiconductor industry in China and continued to benefit from
the expansion of semiconductor manufacturing in Taiwan, Japan and
Singapore. New nitrogen generators were installed at several customer
sites and further capacity was added to satisfy growing demand from
customers within the Hsinchu science park in Taiwan.
Accelerated investment in new flat panel display production
facilities led to significant orders for large capacity pumping
systems in both Taiwan and Korea. Gas supply contracts were also
signed with a number of display manufacturers in Taiwan and Japan.
Liquid crystal display production leads to substantial demand for
chamber cleaning chemicals. On-site fluorine generation equipment is
now installed at a number of semiconductor and flat panel
manufacturers. A full commercial-scale generator is functioning at LG
Philips new sixth generation plant in Korea.
Demand for pharmaceutical freeze-drying and packaging equipment
picked up in 2004 leading to better sales and adjusted operating
profit. A new non-contact check-weighing machine was introduced.
Nuclear magnetic resonance technology allows every package to be
checked, enables packing lines to operate at higher speeds and
facilitates immediate correction of any deviation from specification.
The basis of accounting for BOCs gases business in Japan
changed during 2003 as a result of a merger. Full details can be seen
in the PGS section on page 38. Electronic gases turnover increased
significantly in 2004 as a result of the pick up in the semiconductor
industry. The benefit of increased turnover on gases adjusted
operating profit was amplified by synergy benefits arising from the
merger.
41 The BOC Group plc Annual report and accounts 2004
Operating review (comparing 2004 with 2003)
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.
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Afrox hospitals |
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Change |
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|
|
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|
|
|
|
on 2003 1 |
|
|
|
2004 |
|
|
Change |
|
|
(constant |
|
|
|
£ million |
|
|
on 2003 |
|
|
currency) |
|
Turnover |
|
|
432.1 |
|
|
|
+22% |
|
|
|
+9% |
|
Operating profit |
|
|
59.8 |
|
|
|
+30% |
|
|
|
+16% |
|
Adjusted operating profit 2 |
|
|
59.8 |
|
|
|
+30% |
|
|
|
+16% |
|
|
|
|
|
|
|
|
|
|
|
1. |
|
A reconciliation of results for 2003 at 2003 and at 2004 rates of
exchange is shown on page 34. |
2. |
|
A reconciliation of adjusted operating profit with operating profit is
shown on page 35. |
3. |
|
All comments below are on a constant currency basis. |
Adjusted operating profit increased faster than turnover as a result
of careful control of overhead costs and positive pricing trends.
Hospital occupancy rates remained similar to a year ago. Acquisitions
were a minor factor in the turnover increase but 2004 was the first
full year of ownership for Joint Medical Holdings and the Little
Company of Mary hospitals. During the year Afrox Healthcare increased
its holding in the Wilgeheuwel hospital from 28 per cent to 80 per
cent and closed down the Cape Anaesthetic and Brackenfield surgery
centres in Cape Town. It also sold its interest in the 123 bed Jan
Marais hospital in Cape Town. The Lifecare chronic care facilities and
Afrox occupational health services both delivered a good performance
in 2004.
The change to a new reimbursement system that began during 2003
was completed in 2004. The previous system of paying health care
providers a fee for their services changed to a fixed payment for
each kind of procedure as well as a per-day tariff structure.
Legislative changes in South Africa may have a limited and as yet
uncertain impact on the Afrox hospitals segment. A certificate of need
will be required to licence health care facilities in the future to
prevent oversupply in particular areas but Afrox hospitals have been
exempted for at least 20 years on the basis of current utilisation.
Corporate ownership of hospital and retail pharmacies is now allowed
and the vast majority of Afrox facilities have now been registered
accordingly. On the other hand, corporate control of pathology
services may be prohibited in the future. Afrox Healthcare has
minority interests in a number of pathology facilities.
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 led by two major black
economic empowerment investors. In April 2004, the South African
Competition Commission advised that the transaction should be
approved subject to certain conditions, which were acceptable to both
the buyers and the seller. The sale remains subject to approval by
the South African Competition Tribunal, at which closing hearings are
currently scheduled for March 2005. In addition an application has
been brought in the South African High Court by two shareholders in
Afrox Healthcare Limited to have the Scheme of Arrangement, by which
the disposal would be implemented, declared to have lapsed. This
application, which is being opposed, is currently due to be heard in
the week commencing 29 November 2004.
|
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Gist |
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|
|
Change |
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|
|
|
|
|
|
|
|
on 2003 1 |
|
|
|
2004 |
|
|
Change |
|
|
(constant |
|
|
|
£ million |
|
|
on 2003 |
|
|
currency) |
|
Turnover |
|
|
293.2 |
|
|
no change |
|
|
+1% |
|
Operating profit |
|
|
25.1 |
|
|
|
14% |
|
|
|
14% |
|
Adjusted operating profit 2 |
|
|
25.1 |
|
|
|
14% |
|
|
|
14% |
|
|
|
|
|
|
|
|
|
|
|
1. |
|
A reconciliation of results for 2003 at 2003 and at 2004 rates of
exchange is shown on page 34. |
2. |
|
A reconciliation of adjusted operating profit with operating profit is
shown on page 35. |
3. |
|
All comments below are on a constant currency basis. |
The comparison of turnover and adjusted operating profit between 2003
and 2004 is distorted by a non-recurrent item during 2003. In 2003 a
gain of some £4.1 million arising principally from the termination of
operations for the Marks & Spencer General Merchandise business was
credited to adjusted operating profit. The termination of this
business also eliminated some £26 million of turnover in 2004
compared with 2003. After adjusting for this item, underlying
turnover grew principally as a result of increased food business for
Marks & Spencer, as well as new contracts and the expansion of
activity with Ocado and Carlsberg UK. On the same basis, adjusted
operating profit in 2004 was at a similar level to 2003. A slowdown
in the previous trend towards outsourcing logistics operations was a
factor in pricing pressures in UK distribution and so were
dislocations arising from recent consolidation in the industry.
During 2004 Gist became the logistics partner for
Intergreen, the Dutch flower producer, transporting horticultural
products between the Netherlands and the UK. This, and new
business with regional produce suppliers, led to a doubling of
activity at Gists Lincolnshire depot.
Primary food distribution operations were also expanded in
2004 when Gist took on the transport operations of John Rannoch
foods, one of the leading suppliers of poultry products to Marks &
Spencer. Gist manages the complex supply chain for all of Marks &
Spencers chilled and ambient foods. During 2004, a major
investment was made to expand a chilled food facility in Kent to
meet the demands of the growing network of M&S Simply Food stores.
42 The BOC Group plc Annual report and accounts 2004
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 were affected by exchange rate movements.
For the currencies that principally affect the Groups 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 2002 had been translated at the rates
applied to 2003, 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 0.3p higher.
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 |
|
|
44.5 |
p |
|
|
41.4 |
p |
|
|
41.9 |
p |
Adjusted earnings per share 2 |
|
|
52.9 |
p |
|
|
55.9 |
p |
|
|
56.2 |
p |
|
|
|
|
|
|
|
|
|
|
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 34. |
2. |
|
A reconciliation of adjusted results with UK GAAP results is shown on
page 35 and in the profit and loss account on page 78. |
Exceptional items in 2003 amounted to a charge of £67.0 million.
This comprised £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, BOCs 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 12.6 per cent. Return on capital employed for the year to 30
September 2003 was 10.9 per cent. Free cash flow (as defined on page
35) was £141.8 million in 2003. Net cash flow, after acquisitions,
disposals and other investing activities, and including exceptional
cash items, was £12.6 million in 2003. A reconciliation of these
measures is shown on page 35.
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.
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 2002 1 |
|
|
|
2003 |
|
|
Change |
|
|
(constant |
|
|
|
£ million |
|
|
on 2002 |
|
|
currency) |
|
Turnover |
|
|
1,242.7 |
|
|
|
+4% |
|
|
|
+8% |
|
Operating profit |
|
|
177.1 |
|
|
|
+10% |
|
|
|
+15% |
|
Adjusted operating profit 2 |
|
|
184.0 |
|
|
|
1% |
|
|
|
+3% |
|
|
|
|
|
|
|
|
|
|
|
1. |
|
A reconciliation of results for 2002 at 2002 and at 2003 rates of
exchange is shown on page 34. |
2. |
|
A reconciliation of adjusted operating profit with operating profit is
shown on page 35. |
3. |
|
All comments below are on a constant currency basis. |
Increased turnover in 2003 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
BOCs 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
oxidation syngas plant at Clear Lake, Texas, and the US water services
company, Environmental Management Corporation.
43 The BOC Group plc Annual report and accounts 2004
Operating review (comparing 2003 with 2002)
Improved adjusted operating profit was also a result of operational
efficiency gains. The closure of facilities in connection with the
combination of BOCs 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.
As in 2002, economic uncertainties constrained the authorisation
of investment projects by customers during 2003. A new hydrogen and
carbon monoxide (HyCO) plant serving Citgos oil refinery at Lemont
in Illinois came into production in October 2003 and a new air
separation plant was then under construction in Nanjing. 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 in 2003 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 during 2003. 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 BOCs first
source of carbon dioxide in the region.
Cryostar is BOCs 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 were 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 worlds
largest acetic acid plant. These require large quantities of oxygen
and nitrogen as well as carbon monoxide.
A new HyCO plant serving Citgos oil refinery at Lemont in
Illinois began production in October 2003, further expanding BOCs
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.
BOCs 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 was under construction in Brazil to supply
oxygen for CST, a steel producer.
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 BOCs and Air Liquides industrial and
medical gases businesses in Japan took effect from January 2003.
Until then the results of OSK, BOCs gases business in Japan, were
consolidated as a subsidiary. Subsequently BOC 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 BOCs 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.
44 The BOC Group plc Annual report and accounts 2004
Operating review (comparing 2003 with 2002)
The integration process that began in 2003 made good progress. The
two organisations were successfully integrated in the key areas and
the number of branch offices was reduced. Cryogenic equipment
manufacturing was integrated into a single location.
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 2003 construction of a new air separation plant for BOCs
joint venture in Nanjing began. When completed 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 BOCs 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 customers 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 2003 for the Tata Iron and Steel Company, BOCs
principal tonnage customer in the region.
South Pacific Turnover and adjusted operating profit were slightly
higher in 2003 than in 2002 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 was obtained with BHP in
New South Wales. In January 2003 BOC commenced supplying additional
oxygen and nitrogen, following a process upgrade to BOCs 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.
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 BOCs industrial gas plants worldwide with
access to Lindes 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.
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 2003.
45 The BOC Group plc Annual report and accounts 2004
Operating review (comparing 2003 with 2002)
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial and Special Products (ISP) |
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
on 2002 |
1 |
|
|
2003 |
|
|
Change |
|
|
(constant |
|
|
|
£ million |
|
|
on 2002 |
|
|
currency) |
|
Turnover |
|
|
1,751.2 |
|
|
|
+9% |
|
|
|
+9% |
|
Operating profit |
|
|
238.2 |
|
|
|
+4% |
|
|
|
+3% |
|
Adjusted operating profit 2 |
|
|
242.7 |
|
|
|
2% |
|
|
|
3% |
|
|
|
|
|
|
|
|
|
|
|
1. |
|
A reconciliation of results for 2002 at 2002 and at 2003 rates of
exchange is shown on page 34. |
2. |
|
A reconciliation of adjusted operating profit with operating profit is
shown on page 35. |
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.
BOCs 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 achieved turnover growth in the mature UK manufacturing
sector 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 BOCs
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 those
of 2002 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 uncertainty, there was a
particularly strong performance in Venezuela. BOCs 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 AfroxPac was further
increased in 2003 as demand for the product continued to accelerate.
Several of the major mining companies were 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.
46 The BOC Group plc Annual report and accounts 2004
Operating review (comparing 2003 with 2002)
Japan The basis of accounting for BOCs business in Japan changed
during 2003 as a result of a merger. Full details can be seen in the
PGS section on page 44. 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 BOCs subsidiary in Thailand in May 2002 and BOCs
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 better than those of 2002, 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 had
already been installed in Hong Kong, the Philippines and Malaysia
and a further facility was scheduled to 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.
BOCs 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.
After difficult conditions in 2002, better results were
obtained from Papua New Guinea and the other Pacific islands during
2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
BOC Edwards |
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
on 2002 1 |
|
|
|
2003 |
|
|
Change |
|
|
(constant |
|
|
|
£ million |
|
|
on 2002 |
|
|
currency) |
|
Turnover |
|
|
684.1 |
|
|
|
1% |
|
|
|
+4% |
|
Operating profit |
|
|
7.9 |
|
|
note 4a |
|
|
note 4b |
|
Adjusted operating profit 2 |
|
|
18.5 |
|
|
|
29% |
|
|
|
26% |
|
|
|
|
|
|
|
|
|
|
|
1. |
|
A reconciliation of results for 2002 at 2002 and at 2003 rates of
exchange is shown on page 34. |
2. |
|
A reconciliation of adjusted operating profit with operating profit is
shown on page 35. |
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.
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. Production of nitrogen
trifluoride was increased and fluorine generators were under
evaluation by leading semiconductor manufacturers.
The basis of accounting for BOCs business in Japan changed
during 2003 as a result of a merger. Full details can be seen in the
PGS section on page 44. On the respective bases used in each year,
turnover and adjusted operating profit for BOC Edwards in Japan
increased in 2003.
47 The BOC Group plc Annual report and accounts 2004
Operating review (comparing 2003 with 2002)
Vacuum equipment volumes worldwide were slightly better in 2003 and
much of the increase was derived from pumping products for flat
panel display manufacture. 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 2002 1 |
|
|
|
2003 |
|
|
Change |
|
|
(constant |
|
|
|
£ million |
|
|
on 2002 |
|
|
currency) |
|
Turnover |
|
|
353.4 |
|
|
|
+36% |
|
|
|
+16% |
|
Operating profit |
|
|
46.1 |
|
|
|
+55% |
|
|
|
+31% |
|
Adjusted operating profit 2 |
|
|
46.1 |
|
|
|
+55% |
|
|
|
+31% |
|
|
|
|
|
|
|
|
|
|
|
1. |
|
A reconciliation of results for 2002 at 2002 and at 2003 rates of
exchange is shown on page 34. |
2. |
|
A reconciliation of adjusted operating profit with operating profit is
shown on page 35. |
3. |
|
All comments below are on a constant currency basis. |
Although hospital occupancy rates increased only marginally in
2003, 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. Insurance companies had previously paid private health care
providers such as Afrox hospitals a fee for their services but this
was then changing to a risk reimbursement system. This involves a
fixed payment to be 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
Gist |
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
on 2002 1 |
|
|
|
2003 |
|
|
Change |
|
|
(constant |
|
|
|
£ million |
|
|
on 2002 |
|
|
currency) |
|
Turnover |
|
|
291.8 |
|
|
|
+10% |
|
|
|
+10% |
|
Operating profit |
|
|
29.2 |
|
|
|
+15% |
|
|
|
+13% |
|
Adjusted operating profit 2 |
|
|
29.2 |
|
|
|
+15% |
|
|
|
+13% |
|
|
|
|
|
|
|
|
|
|
|
1. |
|
A reconciliation of results for 2002 at 2002 and at 2003 rates of
exchange is shown on page 34. |
2. |
|
A reconciliation of adjusted operating profit with operating profit is
shown on page 35. |
3. |
|
All comments below are on a constant currency basis. |
Improved turnover reflected both new contracts and increased volumes
with existing customers. The increase in adjusted operating profit
was 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 continued to operate all of Marks & Spencers chilled and
ambient food distribution and services and remained 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.
48 The BOC Group plc Annual report and accounts 2004
FINANCIAL REVIEW
Net debt/equity
Net debt/capital employed
Corporate transactions and restructuring
The sale of BOCs packaged gas business in the US to Airgas Inc was
completed on 30 July 2004. This resulted in a loss of £79.5 million
on disposal of the business. In addition, £14.8 million has been
charged for the cost of restructuring the footprint of the remaining
business in the US. The consideration received in 2004 was
£97.8 million (US$175 million). Cash outflows related to the
disposal and restructuring are expected to be approximately £38
million, of which £16.5 million was paid in 2004. Net cash proceeds
are therefore expected to be approximately £60 million. In addition,
Airgas Inc is to pay further consideration of up to £14 million
(US$25 million) on or about 15 November 2005 subject to certain
conditions.
On 17 November 2003 the Groups 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
approval by the South African Competition Tribunal, at which closing
hearings are currently scheduled for March 2005. In addition an
application has been brought in the South African High Court by two
shareholders in Afrox Healthcare Limited to have the Scheme of
Arrangement, by which the disposal would be implemented, declared to
have lapsed. This application, which is being opposed, is currently
due to be heard in the week commencing 29 November 2004.
Group expenditure on acquisitions of businesses was £50.9
million (2003: £135.5 million). The main acquisition during 2004 was
to increase BOCs holding in the Cantarell joint venture in Mexico.
During 2003 the main acquisitions were Environmental Management
Corporation, a privately held US water services company, Praxairs
Polish gases business and the Canadian packaged gas and related
welding equipment business of Air Products.
In 2003 there was an exceptional charge of £67.0 million. This
included £23.8 million for various restructuring programmes which
have been completed. It also included £43.2 million for the
settlement of litigation in the US against The BOC Group Cash Balance
Retirement Plan (the Plan). The settlement is being paid out of Plan
assets. Further information is given in note 2b) on page 89.
Financial indicators
The trends of financial indicators which, taken together, are a
measure of the performance and efficiency of the Groups finance
and tax structures, are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2002 |
|
|
|
2004 |
|
|
(restated) |
|
|
(restated) |
|
Interest cover (times) 1 |
|
|
6.3 |
|
|
|
4.6 |
|
|
|
4.1 |
|
Adjusted interest cover (times) 2 |
|
|
6.5 |
|
|
|
5.3 |
|
|
|
4.9 |
|
Net debt/equity (%) |
|
|
51.2 |
|
|
|
73.4 |
|
|
|
75.3 |
|
Net debt/capital employed (%) |
|
|
29.9 |
|
|
|
37.4 |
|
|
|
37.3 |
|
Average cost of net borrowings (%) |
|
|
6.2 |
|
|
|
5.6 |
|
|
|
6.2 |
|
Group tax rate (%) |
|
|
24.7 |
|
|
|
27.4 |
|
|
|
31.7 |
|
Adjusted Group tax rate (%) 3 |
|
|
29.0 |
|
|
|
29.0 |
|
|
|
30.0 |
|
|
|
|
|
|
|
|
|
|
|
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.
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 (£249 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 decreased by £405.7 million as a result of a
net cash inflow of £339.2 million, a £12.4 million inflow from the
issue of shares, an outflow of £4.7 million for the impact of
business acquisitions and disposals and £58.8 million for the effect
of exchange rate and other movements. In 2003, net debt increased by
£42.5 million as a result of a net cash inflow of £12.6 million, a
net £2.6 million outflow from the issue and purchase 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. The increase in net cash flow in 2004 was driven
predominantly by lower acquisition activity, higher distributions
from joint ventures and associates, and an improvement in general
business cash flows.
49 The BOC Group plc Annual report and accounts 2004
Financial review
The gearing ratio (net debt including finance leases as a percentage
of capital employed) was 29.9 per cent in 2004 compared with 37.4
per cent in 2003 and 37.3 per cent in 2002. The 2004 year end net
debt/equity ratio was
51.2 per cent, compared with 73.4 per cent in 2003 and 75.3 per cent in 2002.
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
2005 will be at a higher level than in 2004 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
Groups 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, 82 per
cent of net debt (2003: 81 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 £593.1 million (2003:
£474.7 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 83. 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 Groups 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 Groups companies in the US
and certain other countries. The aggregate principal amount of
forward cover outstanding at 30 September 2004 amounted to £224.4
million (2003: £173.8 million).
Interest rate risk At 30 September 2004, the Groups net debt
position after interest rate hedging activity included a net exposure
of £74.6 million (2003: £436.3 million) to floating interest rates.
Based on the Groups 2004 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 £0.7 million
per annum (2003: £4.4 million).
In order to manage interest rate risk the Group maintains
both floating rate and fixed rate debt. At 30 September 2004,
there was a 8:92 ratio (2003: 32:68) 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 Groups interest rate exposure.
At 30 September 2004, the aggregate of the notional principal
values of swap agreements which affect the floating rate/fixed rate
mix was £285.3 million (2003: £417.6 million). The fair value of
such swaps is included in note 21 b) i) to the financial statements.
Foreign exchange risk At 30 September 2004, the Group had
outstanding forward exchange contracts totalling £224.4 million
(2003: £173.8 million) in respect of its actual and forecast
transaction exposures. The fair value of these contracts at 30
September 2004 amounted to a gain of £7.5 million (2003: a gain of
£5.8 million). A ten per cent appreciation of sterling would
increase the fair value of these contracts by £11.0 million (2003:
£13.7 million).
In addition to these forward contracts, the Group is exposed to
foreign exchange movements on its net debt position. At 30 September
2004 net debt, after currency swaps, comprised net sterling
liabilities of £104.6 million (2003: £285.3 million) and net currency
liabilities of £857.8 million (2003: £1,082.8 million). Based on the
Groups 2004 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 £78.0 million (2003: £90.5 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 Groups
borrowings at 30 September 2004 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.
50 The BOC Group plc Annual report and accounts 2004
Financial review
Average cost of net borrowings1
1. Before capitalised interest
Interest on net debt
The net charge before the Groups share of interest of joint
ventures and associates was £70.5 million in 2004 (2003: £75.8
million, 2002: £78.6 million), which, after excluding interest
income from loans to joint ventures and associates, represented 6.2
per cent of average net borrowings during the year. After taking
into account interest capitalised and the Groups share of the net
interest of joint ventures and associates, the net charge was £88.4
million. Adjusted interest cover (the number of times that the
interest charge on net debt is covered by adjusted operating profit)
increased to 6.5 times (2003: 5.3 times, 2002: 4.9 times).
Net interest on pension financing items
The interest on pension scheme liabilities was £117.4 million in
2004 (2003: £110.2 million, 2002: £106.1 million). The expected
return on pension scheme assets was £133.2 million in 2004 (2003:
£119.6 million, 2002: £139.1 million). The increase in the expected
return on pension scheme assets reflects the recovery in the value
of world equity markets and the impact of the additional cash
contributions made by the Group to the UK pension scheme.
Debt maturity profile
The maturity profile of the Groups gross borrowings is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
£ million |
|
|
% |
|
|
£ million |
|
|
% |
|
More than five years |
|
|
320.5 |
|
|
|
26.9 |
|
|
|
521.8 |
|
|
|
36.1 |
|
Three to five years |
|
|
260.9 |
|
|
|
21.9 |
|
|
|
214.4 |
|
|
|
14.8 |
|
One to three years |
|
|
347.1 |
|
|
|
29.2 |
|
|
|
348.5 |
|
|
|
24.1 |
|
Within one year |
|
|
262.1 |
|
|
|
22.0 |
|
|
|
360.9 |
|
|
|
25.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,190.6 |
|
|
|
100.0 |
|
|
|
1,445.6 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Group maintains US$450 million (£249 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 Groups gross borrowings can be
found in note 20. Details of the Groups share of net debt of joint
ventures and associates, the majority of which is non-recourse, are
given in note 13 a).
Other contractual obligations
The maturity of other contractual obligations of the Group is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other creditors |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
(excluding |
|
|
|
|
|
|
Unconditional |
|
|
contractual |
|
|
|
deferred |
|
|
Operating |
|
|
purchase |
|
|
cash |
|
|
|
income) |
|
|
leases |
|
|
obligations |
|
|
obligations |
|
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
More than five years |
|
|
22.2 |
|
|
|
115.3 |
|
|
|
418.8 |
|
|
|
556.3 |
|
Three to five years |
|
|
0.8 |
|
|
|
49.2 |
|
|
|
126.3 |
|
|
|
176.3 |
|
One to three years |
|
|
8.5 |
|
|
|
71.0 |
|
|
|
131.3 |
|
|
|
210.8 |
|
Within one year |
|
|
819.7 |
|
|
|
46.5 |
|
|
|
57.9 |
|
|
|
924.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
851.2 |
|
|
|
282.0 |
|
|
|
734.3 |
|
|
|
1,867.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See also note 25 to the financial statements for further
information on operating leases and unconditional purchase
obligations.
Off-balance sheet arrangements
The Group has provided guarantees of £41.8 million to third parties at
30 September 2004 as shown in note 26 a). The guarantees include an
operational performance bond in the Cantarell joint venture, a
guarantee of the borrowings of a joint venture in China and other
guarantees provided in the ordinary course of business. 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 Groups financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Total group tax rate
Taxation
The tax charge for 2004 of £101.7 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 2004 was 29 per cent
(2003: 29 per cent, 2002: 30 per cent). The total tax rate in 2004 was
24.7 per cent (2003: 27.4 per cent, 2002: 31.7 per cent). The Group
pays corporation tax in the UK at a rate of 30 per cent. Additional
information on tax rates is shown in note 4 to the financial
statements.
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.
51 The BOC Group plc Annual report and accounts 2004
Financial review
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 Groups financial condition or profitability.
Welding fumes litigation A US subsidiary of the Group, The BOC Group,
Inc., has been named in US lawsuits alleging injury from exposure to
welding fumes. 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 a vehicle
for coordinating pre-trial proceedings in cases pending in different
federal district courts in the US. It is currently contemplated that
the MDL court will try three cases during the MDL proceeding. The
first such case is currently scheduled for mid 2005. In addition to
the cases in federal court, The BOC Group, Inc. 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 Airco was purchased in 1978 until 2003 The BOC
Group, Inc. 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 The BOC Group, Inc. and two co-defendants. The jury awarded
US$1 million to Mr Elam, a former labourer who asserted that his
idiopathic Parkinsons 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 is pursuing
an appeal in the Illinois court system. On 12 May 2004 a jury in
Philadelphia County, Pennsylvania, returned a verdict against The BOC
Group, Inc. and one co-defendant. The jury awarded Mr Yencho, who
alleged that his injury was caused by exposure to asbestos in welding
rods, US$525,000, to be divided between the defendants. BOC believes
that the jury verdict is inconsistent with the evidence introduced at
trial and believes that there are strong grounds for a successful
post-trial motion and, if necessary, an appeal.
The BOC Group, Inc. 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 its experience to date, together
with its 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.
The welding electrodes business was sold in 1986 and the sale of
the US packaged gas business, including the operations involved in
distributing packaged gases and welding equipment, was completed in
July 2004.
Fluorogas litigation In February 2003, the company was notified that a
jury verdict in the US District Court for the Western District of
Texas (the District Court) was obtained for US$132 million against
Fluorogas Limited, The BOC Group, Inc. and The BOC Group plc. The
verdict arose 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 was posted with the District Court as part of the normal
appeals process.
In August 2004, the appellate court reversed the entire
judgement against the BOC entities and all but US$170,000 in
reliance damages against Fluorogas Limited. In addition, the
appellate court remanded for reconsideration by the District
Court an award of attorneys fees on the US$170,000 recovery.
Fluorogas Limited was placed in administration under the
Insolvency Act of 1986 pursuant to an order of an English Court. It
is expected to remain in administration until the conclusion of the
remand proceedings in the District Court.
ERISA litigation An action was filed in the US District Court for
the Southern District of Illinois (the
District Court) 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.
In November 2003, the parties reached an agreement to
settle at US$69 million (£43.2 million). The settlement was
approved by the District Court at a fairness hearing on 12
March 2004.
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.
Inflation
Over the last three years, inflation has not had a material impact on the
revenue or profit of the Group.
52 The BOC Group plc Annual report and accounts 2004
Financial review
Critical accounting policies
The principal accounting policies affecting the results of operations
and financial condition are set out on pages 83 and 84 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 Groups 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 Groups 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.
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 Groups 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 2004 would have an impact of approximately £3 million on
annual Group operating profit.
The areas covered by 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.
53 The BOC Group plc Annual report and accounts 2004
Financial review
Accounting
The Groups accounting policies are based on accounting policies
generally accepted in the UK (UK GAAP). Two new accounting
standards were issued during the year FRS20: Share-based payment,
and FRS21: Events after the balance sheet date. Both of these
standards are effective for financial periods beginning on or after
1 January 2005 and therefore have not been adopted by the Group for
the financial year ended 30 September 2004.
In 2004, the Group applied UITF 37: Purchases and sales of own
shares, and UITF 38: Accounting for ESOP trusts. These deal mainly
with the balance sheet accounting treatment for own shares and do not
have any impact on Group earnings. Comparative figures have been
restated accordingly (see note 31 to the financial statements). The
codification on revenue recognition, issued as an application note to
FRS5: Reporting the substance of transactions, had no impact on the
Groups turnover.
International Financial Reporting Standards
Under European Union legislation, all listed companies will be
required to report under International Financial Reporting Standards
(IFRS) for accounting periods commencing on or after 1 January 2005.
The first annual report and accounts for The BOC Group prepared under
IFRS will be for the year ended 30 September 2006. At that time
comparative information will be restated on the same basis. Interim
results for the year to 30 September 2006 will also be prepared on an
IFRS basis.
In early 2004 the International Accounting Standards Board
completed its work on developing and improving those standards which
would be mandatory for the first year of adoption of IFRS by listed
companies.
For The BOC Group, the size and scope of this project is
significant and work on it began in 2003. It is overseen by a formal
steering committee containing, amongst other members, the Group
finance director, senior members of the finance function and
representatives from all relevant parts of the Groups finance
community.
The restatement of the opening balance sheet will be completed
in 2005. While the exact financial impact of the changes in Group
accounting policies as a result of IFRS is still being assessed and
has not yet been finalised, the following key areas of difference
have been identified:
a) |
|
accounting for options and other share-based payments. This will
require a charge against profit; |
b) |
|
the treatment of goodwill.
Existing goodwill, and goodwill on future acquisitions, will no longer be amortised.
However, amortisation will continue to be charged on other
intangibles, more of which are expected to be identified in future
business acquisitions. Also, future annual impairment reviews of
goodwill could result in periodic charges against profit; |
c) |
|
financial instruments. Accounting for derivative financial
instruments may cause some volatility of earnings, although this is
not expected to be significant as the Group has few financial
instruments and they are restricted to managing currency and
interest rate risk. |
Other areas impacted to a lesser extent include the treatment of
deferred tax and intangible assets. The presentation and layout of
the financial statements will also be affected. As the Group already
reports its obligations for post retirement benefits under UK GAAP
FRS17, there is not expected to be any significant impact as a result
of adopting the equivalent international standard, IAS19 (subject to
ratification of the proposed revision to IAS19).
As the impact of IFRS is finalised, issues may arise in other
areas. However, from the initial assessment of IFRS as it currently
stands, management believes that Group earnings and shareholders
funds are unlikely to be materially different from those reported
under existing UK GAAP.
The steering committee is also managing the other change aspects
of this project for example, business systems changes, training
programmes for all personnel concerned and other communication issues.
Work on these aspects is proceeding according to plan. The Groups
auditors have been kept informed of, and consulted on, the development
of the IFRS project and the preparation of the new Group accounting
policies.
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 Groups 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 and a
movement in shareholders funds on a US GAAP basis.
The net income for the year ended 30 September 2004 under US GAAP was £297.7
million (2003:
£264.3 million, 2002: £255.4 million), compared with the net profit of
£264.0 million in 2004 (2003: £219.1 million, 2002: £202.9 million)
under UK GAAP. Shareholders funds at 30 September 2004 under US GAAP
were £1,920.1 million (2003: £1,872.5 million), compared with £1,675.3
million (2003: £1,686.7 million) under UK GAAP. The difference
primarily results from the differing accounting treatment of pensions,
goodwill, financial instruments, investments, fixed asset revaluations
and variable interest entities.
Related party transactions
During the year, interest income of £7.3 million (2003: £7.6
million, 2002: £8.3 million) was received from the Cantarell joint
venture in Mexico. The Group had no other material related party
transactions.
54 The BOC Group plc Annual report and accounts 2004
Financial review
Average exchange rates:
Exchange rates
The majority of the Groups 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 2004, sterling
strengthened against two of the four principal currencies affecting
the Group: by 12 per cent against the US dollar and by two per cent
against the Japanese yen. Sterling weakened by six per cent against
the Australian dollar and by ten per cent against the South African
rand.
In 2003, sterling strengthened against the US dollar and the
Japanese yen. Sterling weakened against the Australian dollar and
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.
The rates of exchange to sterling for the currencies which have
principally affected the Groups results over the last five years
were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
2002 |
|
|
2001 |
|
|
2000 |
|
US dollar |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 30 September |
|
|
1.81 |
|
|
|
1.66 |
|
|
|
1.57 |
|
|
|
1.47 |
|
|
|
1.48 |
|
Average for the year |
|
|
1.79 |
|
|
|
1.60 |
|
|
|
1.47 |
|
|
|
1.44 |
|
|
|
1.56 |
|
Highest rate during year |
|
|
1.90 |
|
|
|
1.69 |
|
|
|
1.58 |
|
|
|
1.50 |
|
|
|
1.67 |
|
Lowest rate during year |
|
|
1.66 |
|
|
|
1.54 |
|
|
|
1.41 |
|
|
|
1.37 |
|
|
|
1.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australian dollar |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 30 September |
|
|
2.50 |
|
|
|
2.45 |
|
|
|
2.89 |
|
|
|
2.98 |
|
|
|
2.73 |
|
Average for the year |
|
|
2.47 |
|
|
|
2.62 |
|
|
|
2.77 |
|
|
|
2.76 |
|
|
|
2.56 |
|
Highest rate during year |
|
|
2.68 |
|
|
|
2.89 |
|
|
|
3.00 |
|
|
|
3.03 |
|
|
|
2.85 |
|
Lowest rate during year |
|
|
2.33 |
|
|
|
2.40 |
|
|
|
2.54 |
|
|
|
2.62 |
|
|
|
2.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japanese yen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 30 September |
|
|
199.44 |
|
|
|
185.60 |
|
|
|
191.45 |
|
|
|
175.09 |
|
|
|
159.77 |
|
Average for the year |
|
|
195.17 |
|
|
|
191.01 |
|
|
|
184.34 |
|
|
|
170.04 |
|
|
|
166.03 |
|
Highest rate during year |
|
|
206.90 |
|
|
|
199.49 |
|
|
|
193.05 |
|
|
|
181.26 |
|
|
|
178.67 |
|
Lowest rate during year |
|
|
180.80 |
|
|
|
182.17 |
|
|
|
173.82 |
|
|
|
153.13 |
|
|
|
149.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African rand |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 30 September |
|
|
11.72 |
|
|
|
11.57 |
|
|
|
16.58 |
|
|
|
13.24 |
|
|
|
10.68 |
|
Average for the year |
|
|
11.85 |
|
|
|
13.24 |
|
|
|
15.64 |
|
|
|
11.47 |
|
|
|
10.24 |
|
Highest rate during year |
|
|
13.33 |
|
|
|
16.41 |
|
|
|
19.49 |
|
|
|
13.26 |
|
|
|
11.18 |
|
Lowest rate during year |
|
|
10.75 |
|
|
|
11.40 |
|
|
|
13.00 |
|
|
|
10.54 |
|
|
|
9.92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average for the year is an average of daily rates. On 18 November 2004, 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
1.85; Australian dollar 2.38; Japanese yen 192.90; South African rand
11.18.
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 |
|
|
1.84 |
|
|
|
1.84 |
|
|
|
1.87 |
|
|
|
1.84 |
|
|
|
1.81 |
|
|
|
1.84 |
|
Low |
|
|
1.76 |
|
|
|
1.81 |
|
|
|
1.82 |
|
|
|
1.79 |
|
|
|
1.77 |
|
|
|
1.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Ltd, a Japanese company, in which the Groups
Japanese 98 per cent owned subsidiary holds 45 per cent; |
|
|
African Oxygen Limited, a South African company, in which the Groups
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
55 days at 30 September 2004.
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 Groups activities.
Substantial holdings
Details of substantial holdings of Ordinary shares at 18 November 2004 are
shown on page 133.
55 The BOC Group plc Annual report and accounts 2004
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
of corporate governance.
Combined Code on Corporate Governance
BOC 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 provisions set out therein as they applied to the company.
In 2003 the Combined Code on Corporate Governance was revised
with the new code taking effect for reporting years beginning on or
after 1 November 2003. Although BOC is not required to report on how
it has applied the principles of the revised code until 2005, the
company has a strict policy of reviewing its corporate governance
procedures and has implemented changes as considered appropriate such
that at this time BOC is substantially in compliance with the
provisions of the new code. The report below incorporates narrative
covering those areas of the new code on which the company can report
at this time.
US Sarbanes-Oxley Act 2002
BOC has securities registered in the US and, as a result, is required
to comply with those provisions of the Sarbanes-Oxley Act 2002
(Sarbanes-Oxley) that apply to foreign private issuers. Whilst the
company already had a robust corporate governance framework in line
with best practice under UK standards, the requirements of
Sarbanes-Oxley were considered and adjustments made to enhance
further compliance with Sarbanes-Oxley as far as it applies to BOC.
The board continues to monitor the implementation of the rules to
ensure continued compliance.
As recommended by the US Securities and Exchange Commission
(SEC), BOC has established a disclosure committee. The committee
comprises 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. It is responsible for overseeing and
advising on the disclosure process for the quarterly results
announcements and on the content and form of the annual report and
Form 20-F. To permit the signing of the certifications required by
Sarbanes-Oxley the committee makes recommendations to the chief
executive, Group finance director and executive management board on
the adequacy of Group disclosure controls and procedures.
New York Stock Exchange Corporate Governance Listing Standards
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. BOC, as a foreign private issuer with American Depositary
Shares listed on the NYSE, is required to comply with certain of these
rules and must disclose any significant ways in which its corporate
governance practices differ from those followed by US domestic
companies under the NYSE listing standards. At this time, BOC does not
believe that there are any significant differences in the corporate
governance practices followed by the company, as compared to those
followed by US domestic companies except that the membership of the
nomination committee is not composed entirely of independent
non-executive directors. The membership of the nomination committee is
however in line with the Combined Code on Corporate Governance, which
permits membership of this committee to be composed of a majority of
independent non-executive directors.
The board
There are 13 members of the board namely the chairman, five executive
directors and seven non-executive directors who collectively have
responsibility for leadership of the company. The directors holding
office at the date of this report and their biographical details are
given on pages 8 and 9. The executive directors are the chief
executive, Group finance director and the three chief executives of
the lines of business.
The roles of chairman and chief executive have been separate
since 1994. Rob Margetts as 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. He meets
twice a year with the non-executive directors without the executive
management present. Tony Isaac as chief executive maintains
day-to-day executive management responsibility for the companys
operations, implementing Group strategies and policies agreed by the
board. The division of responsibilities between the chairman and
chief executive has been agreed with the board as a whole.
During the year Rob Margetts has ceased to be governor of
Imperial College, London and has also ceased to be chairman of the
Government Industry Forum for the Non-Food Uses of Crops. He has
recently become a member of the International Advisory Board of
Teijin Ltd, a time commitment of approximately six days a year. He
remains chairman of Legal & General Group plc and is also a
non-executive director of Anglo American plc. During 2004, as part of
a comprehensive board evaluation, the non-executive directors
undertook a thorough review of the chairmans performance and
considered this against the background of his other commitments. In
their view the chairman has performed extremely well against all the
measured criteria. He has consistently demonstrated full commitment
to his responsibilities at BOC and he has always made himself
available when circumstances require additional time commitment. Rob
Margetts appointment as chairman anticipates approximately one and a
half days a week activities at BOC and the board is satisfied that he
has both the personal commitment and available time to fulfil his
responsibilities as chairman of the company. Furthermore, the board
is of the view that Rob Margetts expertise and the continuity that
he brings to the post of chairman is of great benefit to BOC.
56 The BOC Group plc Annual report and accounts 2004
Corporate governance
The senior independent director is Sir Christopher ODonnell. He has
responsibility for chairing meetings of the non-executive directors
at which the chairmans performance is appraised. He is also
available to shareholders should they have any concerns which
contact through other channels has failed to resolve or for which
such contact may be inappropriate.
During the year Fabiola Arredondo and Roberto Mendoza resigned
as non-executive directors on 28 February 2004 and 12 May 2004
respectively. Guy Dawson was appointed as a non-executive director
on 1 March 2004, with both Anne Quinn and Iain Napier appointed
non-executive directors on 1 May 2004. Non-executive directors are
initially appointed for a three year term after which, whilst not
automatic, their appointment may be extended for a second term
subject to mutual agreement and shareholder approval.
The Group has long recognised the vital role that non-executive
directors play in ensuring high governance standards. BOC has for
many years had a significant presence of high calibre non-executive
directors bringing a wide range of experience and expertise to
the BOC board. The board has determined that all the non-executive
directors are independent in accordance with the definition of that
term pursuant to the Combined Code on Corporate Governance and the
New York Stock Exchange listing standards, including Matthew Miau who
is also a non-executive director of BOC Lienhwa Industrial Gases
Company Limited, a BOC joint venture in Taiwan. He is a
representative of BOCs joint venture partner, Lien Hwa Industrial
Corporation. Matthew Miau is the chairman of MiTAC-Synnex Group, a
major electronics organisation with a turnover greater than that of
BOC, and he brings considerable expertise in the electronics and
semiconductor markets and an Asian business perspective to the board
of BOC. The turnover of the joint venture attributable to BOC
represents approximately one per cent of the Groups total turnover.
The board do not consider this association or the time period with
which he has been connected with the company to be of sufficient
significance to BOC or Matthew Miau to compromise his independence.
The board has a formal schedule of matters reserved to it. In
particular the boards main focus is on strategic and policy issues
and reviewing objectives and performance. The board also has
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. On an annual basis the board reviews the senior managers and
their succession and development plans. The board has to approve all
Group commitments in excess of £25 million. Presentations are made to
the board on major projects and periodic reviews are given by
management from each of the lines of business. The board delegates
certain functions to committees. There are six board committees,
details of which are given below.
The board meets six times a year, with two meetings held at
major operating subsidiaries. One of the meetings is a combined
board and strategy meeting lasting over a period of two days. The
meetings held at operating sites provide the opportunity for the
board to meet with the local management teams and presentations
about the local business operations are made to the board. During
2004 the board visited the companys operations in Shanghai and
also the UK headquarters of Gist.
The attendance of directors at board and principal board
committee meetings during the year are detailed in the chart below:
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit |
|
|
Nomination |
|
|
Remuneration |
|
|
|
Board |
|
|
committee |
|
|
committee |
|
|
committee |
|
|
|
(six meetings) |
|
|
(four meetings) |
|
|
(six meetings) |
|
|
(six meetings) |
|
Rob Margetts |
|
|
6 |
|
|
|
n/a |
|
|
|
6 |
|
|
|
n/a |
|
Tony Isaac |
|
|
6 |
|
|
|
n/a |
|
|
|
6 |
|
|
|
n/a |
|
Fabiola Arredondo1 |
|
|
3 |
|
|
|
1 |
|
|
|
3 |
|
|
|
3 |
|
Julie Baddeley |
|
|
6 |
|
|
|
4 |
|
|
|
6 |
|
|
|
6 |
|
John Bevan |
|
|
6 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Andrew Bonfield |
|
|
6 |
|
|
|
4 |
|
|
|
6 |
|
|
|
6 |
|
Guy Dawson2 |
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
|
|
3 |
|
René Médori |
|
|
6 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Roberto Mendoza3 |
|
|
4 |
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
Matthew Miau |
|
|
5 |
|
|
|
2 |
|
|
|
5 |
|
|
|
4 |
|
Iain Napier4 |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
Sir Christopher ODonnell |
|
|
5 |
|
|
|
4 |
|
|
|
5 |
|
|
|
5 |
|
Anne Quinn4 |
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
|
|
2 |
|
Raj Rajagopal |
|
|
6 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
John Walsh |
|
|
6 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. |
|
resigned on 28 February 2004. |
2. |
|
appointed on 1 March 2004. |
3. |
|
resigned on 12 May 2004. |
4. |
|
appointed on 1 May 2004. |
Throughout 2004 the company has continued to maintain directors and officers
liability insurance.
There is a well established procedure enabling any director, in
the furtherance of his or her duties as a BOC director, to seek
independent professional advice at the companys expense.
All directors have access to the advice and services of the
company secretary. The company secretary has responsibility for
ensuring that the correct board procedures are followed and advises
the board on all corporate governance matters. In addition the
company secretary ensures that information and documentation required
by the board, in particular meeting papers, are provided to the board
promptly with sufficient time to enable them to prepare fully for any
meeting.
57 The BOC Group plc Annual report and accounts 2004
Corporate governance
Induction and professional development
Upon joining the board, new directors are required to undertake a
full induction comprising site visits, meetings with the lines of
business chief executives, each member of the executive management
board and also key external advisers. This is supplemented by a
reference binder, which is regularly updated, including information
about the board, the committees, directors duties, procedures for
dealing in the companys shares and other regulatory and governance
matters.
Appropriate training and briefings are available to all directors
on appointment and subsequently, as necessary, taking into account
their individual qualifications and experience and any training
requirements that may be identified during the annual performance
review process. The company secretary monitors the availability and
suitability of external courses, details of which are circulated to
the board. During the year certain of the non-executive directors have
attended seminars relating to their areas of responsibility. The board
receives regular briefings on governance and regulatory matters
affecting the Group and its market sector activity and also on
litigation relating to the Group.
The non-executive directors have full access to management and
both internal and external auditors, and are encouraged to stay fully
abreast of the Groups business aided by site visits and meetings
with senior management.
Performance evaluation
BOC commenced formal review of the board, the principal board
committees and the individual directors in 2002 using an internal
process conducted by the chairman. In 2003 a more comprehensive review
was undertaken using an external facilitator. When the results of the
2003 review were considered by the board it was decided that the
process would alternate each year between internal and external
reviews.
Therefore, during 2004 the chairman conducted an internal review
comprising a questionnaire covering, inter alia, the role and
organisation of the board, meeting arrangements, information
provision and committee effectiveness. Following completion of the
questionnaires the chairman met with each director to discuss their
views and to give feedback on individual performance. The results of
the evaluation were reported to the board and where areas for
improvement have been identified, actions have been agreed.
Sir Christopher ODonnell, as the senior independent director,
led a meeting of the non-executive directors to appraise the
performance of the chairman.
Board committees
There are six board committees to which the board delegates specific
areas of responsibility as described below. The terms of reference
of each of the audit, nomination and remuneration committees are
available on the companys website (www.boc.com) or upon request to
the company secretary.
Audit committee
Members: Julie Baddeley, Andrew Bonfield, Guy Dawson, Matthew Miau,
Iain Napier, Sir Christopher ODonnell (chairman) and Anne Quinn.
Secretary: Nick Deeming.
The audit committee meets four times a year, the agendas being
organised around the companys financial reporting cycle. Members
attendance at meetings is detailed on page 57 and their qualifications
are on pages 8 and
9. Time is set aside at one of these meetings for the committee to
meet with the internal and the external auditors separately without
the 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, as well as the
arrangements by which staff of the Group may, in confidence, raise
concerns. The committee also ensures that an appropriate relationship
between BOC and the external auditors is maintained and reviews the
policies and procedures in place to ensure the independence and
objectivity of the audit. The work undertaken by the committee during
2004 is described in more detail in its report below.
Andrew Bonfield is considered by the board to be the audit
committee financial expert. He is a non-executive director and is
considered to be independent in accordance with the definition of
that term pursuant to the Combined Code on Corporate Governance and
the New York Stock Exchange listing standards. All other members of
the committee are financially literate.
Audit committee report
In 2004 the audit committee discharged its responsibilities as set
out in the terms of reference and the specific matters reviewed by
the committee included:
a) |
|
interim and full year financial results and announcement
statements; |
b) |
|
interim and full year report from the internal audit
function of progress against the 2004 audit plan and effectiveness
of internal controls; |
c) |
|
the Groups project to comply with the
requirements of Section 404 of the US Sarbanes-Oxley Act. This
review included the project plan, progress against the plan and
matters arising in the implementation of the plan; |
d) |
|
details of the Groups project to transition to International Financial Reporting
Standards from 2006; |
e) |
|
the external audit plan for 2004 performed
by the Groups 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; |
58 The BOC Group plc Annual report and accounts 2004
Corporate governance
f) |
|
the annual report disclosure items relevant to the audit committee.
Included in this review were the Groups critical accounting policies,
the going concern statement, the report on risk and internal controls
and the risk factors statement. The audit committee also reviewed the
disclosure control review procedures employed by the Group which
enabled the chief executive and Group finance director to sign the
Section 302 and 906 certificates pursuant to the US Sarbanes-Oxley
Act; |
g) |
|
the external auditor report for 2004; |
h) |
|
the independence and
objectivity of the external auditors, including a review of non-audit
fees. The audit committee has reviewed and approved a policy for the
provision of non-audit services by the external auditor.
This policy has been in place since 2002 and defines services
which can be provided by the auditor. The policy also specifies which
services 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 auditor is
permitted to perform non-audit services only if the scope of work is
within the terms of the policy and there is a business benefit to the
Group in these services being performed by the external auditors
rather than an alternative supplier. The level of the fee spend is
closely monitored to ensure independence and objectivity of the audit
is maintained. Further details of actual fees paid to external
auditors are given in note 2c) on page 90; |
i) |
|
the procedures by
which staff can report, in confidence, any matters of a financial or
non-financial nature alleging breaches of the Groups Code of Conduct.
The audit committee also reviewed the procedures by which allegations
are reported to senior management and the audit committee. |
During this period the audit committee met with the Groups external
auditors without the presence of management. The audit committee
also met with the Groups head of internal audit without the
presence of management. The head of internal audit has access to the
chairman of the audit committee, if necessary, outside of meetings.
Regular attendees to audit committee meetings, at the
invitation of the chairman of the committee, include: the chairman,
chief executive, Group finance director, director of risk
management, head of business assurance audit, director financial
planning and control, and the external auditors.
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.
Nomination committee
Members: Julie Baddeley, Andrew Bonfield, Guy Dawson, Tony Isaac,
Rob Margetts (chairman), Matthew Miau, Iain Napier, Sir Christopher
ODonnell and Anne Quinn. Secretary: Nick Deeming.
The nomination committee meets periodically as required but at
least annually. During 2004 the committee met six times. Members
attendance at meetings is detailed on page 57. 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. The committee also keeps under review the board committee
structure and composition and makes recommendations to the board of
any changes considered necessary. Whilst the chairman of the board
chairs this committee he is not permitted to chair meetings when the
appointment of his successor is being considered or during discussion
regarding his performance.
On an annual basis the committee carries out a review of the
succession plans for the executive directors and the executive
management board, the reappointment of non-executive directors upon
expiry of their term of office and the proposals for re-election of
directors retiring by rotation at the Annual General Meeting.
Directors submit themselves for re-election at regular intervals and
at least every three years in accordance with the companys Articles
of Association and the Combined Code on Corporate Governance. During
these deliberations consideration is given to the results of the
annual board evaluation. The evaluation process is explained in more
detail above.
During the year three new non-executive directors were appointed
to the board. When considering the appointment of new directors the
committee reviews the current balance of skills and experience on the
board. A detailed specification is drawn up to include any specific
knowledge or expertise that is considered of future benefit to the
board and having regard to the business throughout the Group and the
overall business strategy. External search agents are then used to
identify suitable candidates who are short listed and then evaluated
by the committee before it submits its recommendation to the board as
a whole.
Remuneration committee
Members: Julie Baddeley (chairman), Andrew Bonfield, Guy Dawson,
Matthew Miau, Iain Napier, Sir Christopher ODonnell and Anne Quinn.
Secretary: Rob Lourey.
The remuneration committee meets six times a year. Members
attendance at meetings is detailed on page 57. 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 committees full report
on directors remuneration is set out on pages 64 to 75.
Pensions committee
Members: Julie Baddeley (chairman), Guy Dawson, Rob
Margetts, Tony Isaac and René Médori Secretary: Stephen
Pegg, Corporate pensions director.
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 Groups
retirement benefit plans.
59 The BOC Group plc Annual report and accounts 2004
Corporate governance
Executive management board
The members of the executive management board are detailed on pages
10 and 11 and are considered as the officers of the company. The
executive management board is chaired by Tony Isaac. All members
held office throughout the year ended 30 September 2004 except that
Greg Sedgwick resigned on 31 December 2003 and Mark Nichols became a
member of the executive management board on 1 January 2004. There
have been no further changes up to the date of this report.
The executive management board meets regularly having primary
authority for the day-to-day management of the Groups operations and
policy implementation pursuant to the Groups strategy agreed by the
board.
Investment committee
Members: John Bevan, Tony Isaac (chairman), René Médori, Mark
Nichols, Raj Rajagopal, John Walsh and representatives from
the finance function.
The investment committee meets regularly and reviews and approves
Group commitments up to £25 million as delegated by the board. Group
commitments over £25 million are presented to the board for approval
on recommendation from the committee.
Accountability and audit
Statements of the respective responsibilities of the directors and
auditors for these accounts are set out on pages 76 and 77.
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 Groups 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 mitigate
business risk.
The objective of risk management within BOC is to improve
performance and decision making through identification, assessment
and mitigation of key risks.
A dedicated central team of risk management specialists is
responsible for delivering the risk management programme. During
2004 approximately 100 risk workshops or reviews have been conducted
covering a broad range of matters. These include risks in strategy,
risks in meeting business unit targets, risks in acquisitions or
ventures and risks in major projects.
The risk management process operates on a global basis and
covers the Groups key risks, lines of business, business units and
corporate functions.
The output from each risk assessment is a set of prioritised
risks with associated action plans. Line management retains
responsibility for completion of action plans. Progress of action
plans is monitored and reported.
A report on the risk management process is provided to the
board twice a year. These reports include reviews of key strategic
risks to the Group as well as the individual lines of business and
identifies the status of action plans against key risks.
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 Groups
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 Groups 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 Groups accounting records; |
|
|
specific
treasury policies and objectives and the ongoing reporting and review
of all significant transactions and financing operations. |
60 The BOC Group plc Annual report and accounts 2004
Corporate governance
The internal control system is monitored and supported by an internal
audit function that operates on a global basis and reports its
results on the Groups operations to management and the audit
committee. 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 Groups overall internal control
processes throughout the year.
During 2004 the Group has developed and progressed its plan to
meet the requirements of Section 404 of the US Sarbanes-Oxley Act
which is a requirement for BOC with effect from 2005. The internal
audit function has played an important role in developing and
implementing the plan to identify, document and test key controls over
financial reporting.
The directors therefore believe that the Groups 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.
Having reviewed its effectiveness, the directors are not aware
of anything in the Groups system of internal controls during the
period covered by this report and accounts which could render them
ineffective.
There were no changes in the Groups internal controls over
financial reporting that occurred in the year ended 30 September
2004 that have materially affected, or are reasonably likely to
affect, the Groups internal control over financial reporting.
Disclosure controls and procedures
The chief executive officer and Group finance director, based on the
evaluation of the effectiveness of the Groups disclosure controls
and procedures as of the end of the period covered by this annual
report and accounts, have concluded that, as of such date, the
Groups disclosure controls and procedures were effective.
Going concern
The directors report on going concern is included in the financial review on
page 55.
Communications with shareholders
The board considers communications with shareholders, whether
institutional investors, private or employee shareholders, to be
extremely important. A variety of communication mechanisms are used by
the company. Financial results are published quarterly, and half year
and annual reviews are sent to all shareholders. Copies of the full
annual report are available by election or on request. The companys
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 BOCs social responsibility polices,
including the companys Code of Conduct. There are also facilities in
place to enable shareholders to receive communications from the
company in electronic form rather than by mail and for shareholders to
provide their proxy votes for the Annual General Meeting by electronic
means.
The Annual General Meeting provides an opportunity for
shareholders to question directors about the companys 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. Periodically the board receives
presentations from external advisers on investor perceptions. In
addition the board receives copies of most analysts and brokers
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.
61 The BOC Group plc Annual report and accounts 2004
Corporate governance
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 14 January 2005 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) |
|
the dividend policy; |
c) |
|
reappointment of Guy Dawson, Anne Quinn, Iain Napier, Tony Isaac, Rob
Margetts and Raj Rajagopal as directors; |
d) |
|
reappointment of
PricewaterhouseCoopers LLP as auditors and granting authority to the
directors to fix their remuneration; |
e) |
|
approval of the directors
remuneration report; |
f) |
|
the introduction of a new all employee Savings
Related Share Option Scheme; |
g) |
|
the establishment of a Share Matching
Plan; |
h) |
|
an amendment to The BOC Group Long-Term Incentive Plan; |
i) |
|
renewal of the authority for the directors to allot shares; |
j) |
|
renewal of the authority for the directors to allot shares for cash other than
to existing shareholders in proportion to their holdings; and |
k) |
|
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 years authority. |
Corporate social investment
BOC is committed to being a positive contributor to the communities
in which it operates. This includes: operating safely and
environmentally; enhancing the wellbeing of local economies by
providing employment on the bases of equal opportunities and merit;
and playing a part in supporting community activities.
BOCs social investment programme has five key themes:
a) |
|
to focus on projects to improve environmental stewardship; |
b) |
|
to
support educational programmes in selected areas; |
c) |
|
to devolve the
choices of charitable donations to the businesses and employees
through matched giving and local volunteering and donations schemes; |
d) |
|
to encourage the organisations involvement in selected social
programmes in local communities around the world; and |
e) |
|
to develop
further BOCs global diversity programmes. |
Investing in education
BOCs Inspiring Gases education programme made significant progress
with the development of a series of educational aids and
implementation of a UK-wide network of BOC employee science
ambassadors, who offer schools and colleges presentations on the
uses of industrial gases. There is also an Inspiring Gases website
at www.boc.com/education.
Several BOC businesses initiated or strengthened their
educational contributions. 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 Healthcare College of Learning. In Thailand, the business
supported several educational establishments with equipment and
bursaries for employee dependants.
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, sponsorship of the UKs 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. The Salters
festivals involved 500 schools and took place at universities across
the UK and Ireland.
Supporting the environment
The Groups 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 130 projects. This year, the Group contributed
£310,000 to the Foundation and saw eight new initiatives come on
stream. Since the Foundations inception BOC has donated £3.9
million. Combined funding from BOC and its co-sponsoring partners
now exceeds £12 million. The Foundation concentrates on projects
that improve air and water quality.
BOC made a number of other positive contributions to other
environmental projects including the BOC New Zealand community
environmental grants programme and a scheme, Where Theres Water,
which provides funding to help communities maintain, protect and
improve their water resources.
62 The BOC Group plc Annual report and accounts 2004
Corporate governance
Charitable donations and community involvement
BOC operates a wide-ranging programme of sponsorships and charitable
donations, directing resources at areas where the organisation feels
it can make a difference or where employees have a direct
involvement. In 2004, BOC made charitable donations totalling
£840,000 including £288,000 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.
BOC employees have continued to involve themselves in charitable
fundraising and voluntary support. Matched giving schemes have been
operating in the UK, the Americas and the south Pacific for some
time. For example, BOC has funded a matched giving scheme in the UK
since 1987, doubling the money donated by employees to registered
charities. To make it easier to give to charity a new internal
website enables UK employees to access the necessary matched giving
information and forms. The schemes again proved their worth as a way
of aligning corporate funding with the personal generosity of BOC
employees. In the course of 2004, BOC in the UK donated £160,000
(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
Multiple Sclerosis Society, Royal British Legion, St Johns
Ambulance and Macmillan Cancer Relief.
BOC ran the third year of its BOC Emerging Artist Award to
encourage and support a committed UK-based artist for a year. The 2004
award, worth £20,000, was won by Mauro Bonacina, a graduate of
Goldsmiths College, University of London. Six other artists were also
awarded £1,000 each as runners-up.
Outside the UK, local BOC businesses develop their own community
programmes, each business being responsible for its own project
selection and funding within broad guidelines set by the
organisation. 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 business matches employee fundraising
for charities selected by staff. In New Zealand, for example,
employees selected a range of charitable causes to support. In
Australia, employees chose to fundraise for cancer research, education
and patient support. 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
volunteering and fundraising activities.
In South Africa, BOCs subsidiary Afrox and its staff continued
to support the companys community involvement process (CIP), which
included the management of 122 projects to improve the lives of
disadvantaged young people. Once more, the highlight of the year was
Bumbanani (meaning lets build together) Day when 15,600 children
attended events hosted by BOC staff.
In addition, Afrox hospitals engage in a wide range of health
care and safety initiatives, including selected sponsorship,
supporting people in their recuperation and rehabilitation after
surgery and treatment. Some Afrox hospitals have a special outreach
service in the form of rape crisis centres and AIDS/HIV clinics.
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 Pakistan continued to provide support to community
organisations dealing with poverty alleviation, education and health
care. 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.
BOC in China continued a support programme to facilitate screened
blood donations to local hospitals. In Thailand, BOC sponsored a
sports programme helping to discourage drug use. In Malaysia, BOC
supported the National Cancer Society, culminating in a sponsored
balloon race to raise awareness in the country. The event in Kuala
Lumpur
was officiated by Her Royal Highness the Queen of Malaysia.
In Chile, BOC supported the Catholic University of Chile with
sponsorship of its engineering school and 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 Curaçao, 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.
The report of the directors has been approved by the board and signed on its
behalf by:
Nick Deeming Company Secretary
22 November 2004
63 The BOC Group plc Annual report and accounts 2004
REPORT ON REMUNERATION
The remuneration committee
The remuneration committee comprises all the independent
non-executive directors namely Julie Baddeley (chairman), Andrew
Bonfield, Guy Dawson (appointed 1 March 2004), Matthew Miau, Iain
Napier (appointed 1 May 2004), Sir Christopher ODonnell and Anne
Quinn (appointed 1 May 2004). 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. He is
assisted by the Group compensation and benefits director. In addition
the remuneration committee has appointed Towers Perrin to advise on
the remuneration arrangements for senior executives. Towers Perrin
also provided advice on the design of the proposed share matching
plan.
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 57. 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.
Current expected value (chart 1)
Remuneration policy
BOCs 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.
The policy is to pay salaries and total remuneration around mid-market
levels for on target performance and to provide the opportunity, via
annual and long-term incentives, for executives to be
rewarded at the 75th percentile if this is justified by the
achievement of top of the range performance goals. It is the view of
the remuneration committee that performance-related remuneration
should form a substantial element of total remuneration. Based on
assumptions about expected values for awards from the Long-Term
Incentive Plan (LTIP) and Executive Share Option Scheme (ESOS), the
proportion of performance-related remuneration to fixed remuneration
(excluding pensions and benefits in kind) for current arrangements is
approximately 60 per cent (see chart 1).
Remuneration components
Basic salary Salaries for executive directors and executive
management board members are based on median market rates drawn from
market data provided by Towers Perrin and take account of an
executives experience, responsibilities and performance.
Performance is assessed both from an individual and business
perspective. Executive salaries are 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 BOCs healthcare insurance scheme. Where appropriate
directors on international assignment receive overseas allowances such
as housing and childrens 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 (VCP) 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. These
are based on BOCs strategic priorities and include safety, growth,
people and change management and productivity. Performance is measured
against key performance indicators determined during formal
appraisals. There is a threshold performance level below which no
bonus is paid. For 2004 the financial targets set by the remuneration
committee were EPS 56.2p and ROCE 13.3 per cent and the achievement
against these targets was EPS 63.2p and ROCE 15.4 per cent. The
remuneration committee agreed that the maximum bonus payable would be
100 per cent of salary.
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 70.
64 The BOC Group plc Annual report and accounts 2004
Report on remuneration
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 companys 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 2004 to the
chief executive was based on 1.9 times salary and for other board
directors 1.5 times salary. There are three performance conditions:
total shareholder return (TSR), adjusted earnings 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 BOCs 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:
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UK group |
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Aggregate Industries
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BPB
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Invensys
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Scottish & Southern Energy |
AMEC
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Centrica
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Johnson Matthey
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Scottish Power |
Anglo American
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Corus Group
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Kelda Group
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Severn Trent |
AWG
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FKI
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National Grid Transco
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Shell Transport & Trading |
BAE Systems
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Hanson
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Pilkington
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Smiths Group |
BG Group
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IMI
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Rio Tinto
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Tomkins |
BHP Billiton
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ICI
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RMC Group
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United Utilities |
BP
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International Power
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Rolls-Royce |
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Global gases group |
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Airgas |
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(US S&P 500 Index) |
Air Liquide |
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(France CAC 40 Index) |
Air Products &
Chemicals |
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(US S&P 500 Index) |
Linde |
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(Germany DAX 30 Index) |
Nippon Sanso |
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(Japan NIKKEI 225 Index) |
Praxair |
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The BOC Group |
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When determining BOCs performance relative to the global gases group,
the TSR for BOC and the comparator companies will be adjusted (adjusted
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 adjusted TSR for each company is shown in the
parentheses.
For the awards made in February 2004 which will vest in February
2007 the target set by the remuneration committee is such that if the
companys 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 companys 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 companys TSR
position is below the median for both comparator groups the TSR part of
the award will lapse. The same TSR performance criteria was used for the
awards made in February 2003.
The adjusted EPS performance condition is based on the companys
EPS relative to three year targets on a sliding performance scale. For
the award made in February 2004 which will vest in February 2007 the
target set by the remuneration committee is 60.3p at the end of the
three year performance period 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 69.3p at the end of the three year
performance period. If the EPS performance is between 60.3p and 69.3p a
proportion of between 40 per cent and all of the shares in respect of
the EPS part of the award will vest. If EPS is less than 60.3p over the
three year period the EPS part of the award will lapse. The EPS targets
for the award made in February 2003 were 64.75p for minimum vesting and
74.45p for full vesting.
The adjusted ROCE performance condition is based on the companys
ROCE relative to three year targets on a sliding performance scale. The
minimum target set by the remuneration committee for the award made in
February 2004 which will vest in February 2007 is 13.5 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 15 per cent. If the ROCE performance is
between 13.5 per cent and 15 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 13.5 per cent the ROCE part of the award
will lapse. The ROCE targets for the award made in February 2003 were
13.0 per cent for minimum vesting and 14.5 per cent for full vesting.
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 companys business
strategy, which is to improve both earnings growth and capital
efficiency.
65 The BOC Group plc Annual report and accounts 2004
Report on remuneration
Current measures and their weights
for variable incentives using on
target VCP awards and the expected
values of long-term incentives
(chart 2)
1 Personal 15%
2 TSR 16%
3 EPS 30%
4 ROCE 39%
Executive Share Option Scheme 2003 (ESOS 2003) Executive directors,
members of the executive management board and other selected middle and
senior management throughout the companys global operations currently
participate in the ESOS 2003. The remuneration committee has the
discretion to grant awards up to a maximum of two times salary. The
awards made in November 2003 to the chief executive and other members of
the board were based on one 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 companys published results. If the
performance condition is satisfied at the end of the performance period
then the awards would be exercisable in full. In line with current
corporate governance best practice there is no rolling re-testing of
performance. In the event that the performance condition is not
satisfied over 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. The remuneration committee considers this
performance condition to be a challenging performance hurdle when
compared to the companys adjusted EPS compound annual growth rate
before exceptional items 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.
The current performance measures as a percentage of salary for on target
performance are shown in chart 2.
Savings Related Share Option Schemes These are operated in the UK,
Australia, New Zealand and Ireland and are open to all employees
including executive directors with one years service or more. The UK
scheme is approved by the Inland Revenue. The current schemes are due
to expire in 2005 and a proposal to adopt new schemes is to be put to
shareholders at the Annual General Meeting in January 2005.
TSR performance
The graph to the left has been included to meet the requirement set out
in the Directors Remuneration Report Regulations 2002. It shows BOCs
TSR performance, assuming dividends are reinvested, compared with all
FTSE100 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 BOCs 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 chairmans statement on page 4. The October 1999
position reflects the premium arising from the pre-conditional cash
offer of £14.60 per share made jointly by Air Liquide and Air Products.
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 companys 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 The last grant under this scheme
took place in November 1994. In line with market practice at the time
when this scheme was introduced the vesting of these awards was not
subject to performance conditions.
66 The BOC Group plc Annual report and accounts 2004
Report on remuneration
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
directors 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 directors
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 are
provided under a defined contribution Retirement Savings Plan. The
company makes contributions to the plan equal to two times the
employees core contributions which can be three, four or five per
cent of salary.
In the US, the Cash Balance Retirement Plan is a funded,
tax-qualified, defined benefit arrangement.
In the US, the BOC Top-Hat
Pension Plan is an un-funded, non-tax-qualified, defined benefit
arrangement which tops up the benefits provided under the Cash Balance
Retirement Plan.
In Australia, the BOC Gases Superannuation Fund is a funded,
defined contribution arrangement underpinned by a defined benefit
guarantee for long-serving employees who were members under a prior
benefit structure.
Details of directors individual remuneration, share options,
LTIP awards and share holdings are given on pages 70 to 75.
Outside appointments
The remuneration committees view is that non-executive directorships
are a significant benefit in broadening executives experience. Any
such appointments are subject to review by the nominations committee
and the approval of the board.
Remuneration proposals
During the year the remuneration committee reviewed the
performance-related elements of the executive remuneration package and
decided that it was necessary to make a number of changes. In
considering the current package and possible changes, the remuneration
committee was concerned more with the effectiveness of some of the
arrangements rather than their level. As stated the policy is to pay
salaries and total remuneration around mid-market levels for on target
performance and to provide the opportunity, via annual and long-term
incentives, to reward executives at the 75th percentile if this is
justified by the achievement of stretching performance goals. There is
no intention to change this policy. The proposed changes are intended to
make the reward package more effective. It will increase the expected
value of the total package for the achievement of stretching performance
goals. The proposed changes also enhance the retention value of our
remuneration arrangements. The remuneration committee believes that the
annual bonus plan (VCP) and the LTIP are effective and do focus
attention on the main drivers of BOCs performance, particularly ROCE
and earnings growth. There is also alignment with shareholder interests
via the TSR element of the LTIP and the fact that awards under the LTIP
are delivered in shares. However, the remuneration committee has become
concerned about the efficiency and effectiveness of the Executive Share
Option Scheme. Being totally dependent upon stockmarket movements, share
options can generate a range of rewards from large to zero with variable
motivational or retention value. The remuneration committee is also
concerned that the dilution impact of options is inefficient from a
shareholder standpoint.
For the reasons outlined above the remuneration committee proposes:
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to cease making option awards under the Executive Share Option Scheme
(ESOS) to the executive directors and other executives covered by the
VCP. However, the ESOS will be kept in place for the time being for
employees below this level until an alternative scheme can be developed
in the near future. The facility will also be kept to make option awards
to executives who are covered by VCP on an exceptional basis, for
example as part of a hiring package. There is however no intention to
make any further awards to existing executive directors; |
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to increase
the target and maximum value of the VCP to 110 per cent and 160 per cent
respectively of salary and at the same time introduce a deferred,
share-matching plan, compulsorily deferring one-third of the VCP bonus
(see details below). The current target value of the VCP is 73.4 per
cent and the plan is capped at 100 per cent; |
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to seek approval to
increase the maximum award levels to be made under the LTIP from 200 per
cent to 250 per cent of salary. The remuneration committees purpose in
seeking approval for a higher maximum is simply to give flexibility to
remain fully competitive in the event that a higher level of award is
required for an appointment to an executive role. In the immediate term,
however, this change would have little practical impact as the intention
next year is simply to increase the chief executives conditional share
award from 1.9 times salary to 2.0 times and to make no increase to the
1.5 times salary award received by other directors last year. |
67 The BOC Group plc Annual report and accounts 2004
Report on remuneration
Current expected value (chart 3)
1 Fixed 38% 2 Annual variable 27% 3 Long-term incentives 35%
Proposed expected value (chart 4)
1Fixed 33%
2Annual variable 24%
3Long-term incentives 43%
Current measures and their weights
for variable incentives using on
target VCP awards and the expected
values of long-term incentives
(chart 5)
1Personal 15%
2TSR 16%
3EPS 30%
4ROCE 39%
Proposed measures and their weights
for variable incentives using on
target VCP awards and the expected
values of long-term incentives
(chart 6)
1Personal 18%
2TSR 14%
3EPS 32%
4ROCE 36%
Share Matching Plan
The main features of the proposed Share Matching Plan are as follows:
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at the same time that the VCP opportunity is increased, one-third of
any VCP award (an amount equivalent to the increase) will be
compulsorily applied to the acquisition of BOC shares; |
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the executives
will become entitled to these shares only if they are still in service
with BOC three years after the award is made; |
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executives will then
receive an additional number of shares equal to the value of dividends
paid during the deferral period on these shares; |
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executives may also
receive a matching share award of up to 100 per cent of the number of
shares originally allotted. The percentage award will depend on BOCs
performance over the deferral period. Adjusted EPS will account for 75
per cent of the performance weighting with TSR accounting for the
remaining 25 per cent; |
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the adjusted EPS performance condition is based
upon the companys EPS relative to three year targets. These targets will be on a sliding scale, where a five per cent per
annum growth rate over three years is required for the minimum award of
25 per cent of that portion. The maximum award will be achieved if EPS
growth is 12 per cent per annum over the three year period; |
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the TSR
performance condition compares BOCs TSR performance against the same UK
comparator group as used for the LTIP. Awards will vest for this portion
where BOCs TSR position is at median, measured over three years. At
this point 25 per cent of this portion of the award will vest. A maximum
award of 25 per cent overall will vest if the company is ranked at or
above the upper quartile. |
As previously stated, it is the view of the remuneration committee that
performance-related remuneration should form a substantial element of
total remuneration. The effect of these proposals would lead to a shift
in the balance of variable performance-related remuneration to fixed
remuneration (see charts 3 and 4).
The weightings for the performance measures as a percentage of
salary for on target performance would also change (see charts 5 and 6).
Non-executive directors
Non-executive directors are initially appointed for a three year term
after which, whilst not automatic, their appointment may be extended
for a second term subject to mutual agreement and shareholder approval.
The fees are set at a level which will attract individuals with the
necessary experience and ability to make a significant contribution to
The BOC Groups affairs and are benchmarked with those fees paid by
other UK listed companies. The basic fees for the non-executive
directors are £40,000 per annum, £10,000 of which, less tax, is
invested in BOC shares. In addition, the fees for chairing a committee
are £10,000 per annum, £5,000 of which, less tax, is invested in BOC
shares. The fees were last reviewed in November 2003. The next review
will be in November 2005. The fee for Rob Margetts, company chairman,
which was set at £225,000 in 2001 will be increased to £260,000.
The non-executive directors do not have contracts of service nor
do they participate in the Groups variable compensation arrangements,
its long-term incentive arrangements or its pension arrangements, nor
do they receive any benefits in kind.
68 The BOC Group plc Annual report and accounts 2004
Report on remuneration
Service contracts
The companys 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 companys 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 dated 19 November 2002, varied by letter
dated 1 June 2004, which expires upon the conclusion of the Annual
General Meeting in 2007 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 contribution to his
funded unapproved retirement benefit scheme amounting to the sum of 40
per cent of his pay above the pension cap imposed by the Finance Act
1989 and 58.33 per cent (50 per cent prior to 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 Walshs notice period would
be added to his pensionable service in the calculation of his pension
entitlement from the US Top-Hat Pension Plan.
All the above contracts can be terminated by the individual director on six
months notice.
Shareholding guidelines
The remuneration committee encourages the executive management group 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.
69 The BOC Group plc Annual report and accounts 2004
Report on remuneration
|
|
|
|
|
|
|
|
|
Directors emoluments and compensation |
Charged against profit in the year |
|
2004 |
|
|
2003 |
|
|
£000 |
|
|
£000 |
|
Salaries and benefits |
|
|
2,853 |
|
|
|
2,578 |
|
Annual bonuses payable for the year |
|
|
2,055 |
|
|
|
1,038 |
|
Fees to non-executive directors |
|
|
499 |
|
|
|
423 |
|
|
|
|
|
|
|
|
|
|
|
5,407 |
|
|
|
4,039 |
|
Company pension contributions to money purchase plans |
|
|
283 |
|
|
|
279 |
|
Company pension contributions to lump sum benefit plans |
|
|
145 |
|
|
|
196 |
|
Provision for share incentive schemes1 |
|
|
1,011 |
|
|
|
387 |
|
Payments to former directors and their dependants2 |
|
|
31 |
|
|
|
2,160 |
|
|
|
|
|
|
|
|
|
|
|
6,877 |
|
|
|
7,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 30 September 2004 |
|
|
2003 |
|
|
|
|
|
|
|
Allowances |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Basic |
|
|
and |
|
|
Bonus |
|
|
remunera- |
|
|
Total |
|
Individual remuneration |
|
salary/fees |
|
|
benefits3 |
|
|
payable |
|
|
tion |
|
|
remuneration |
|
|
£000 |
|
|
£000 |
|
|
£000 |
|
|
£000 |
|
|
£000 |
|
Chairman |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R J Margetts |
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
225 |
|
|
|
225 |
|
Executive directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J A Bevan |
|
|
323 |
|
|
|
214 |
|
|
|
323 |
|
|
|
860 |
|
|
|
496 |
|
A E Isaac4 |
|
|
686 |
|
|
|
136 |
|
|
|
686 |
|
|
|
1,508 |
|
|
|
1,143 |
|
R Médori5 |
|
|
360 |
|
|
|
288 |
|
|
|
360 |
|
|
|
1,008 |
|
|
|
810 |
|
Dr K Rajagopal |
|
|
343 |
|
|
|
16 |
|
|
|
343 |
|
|
|
702 |
|
|
|
526 |
|
J L Walsh |
|
|
343 |
|
|
|
144 |
|
|
|
343 |
|
|
|
830 |
|
|
|
641 |
|
Non-executive directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J M Baddeley |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
43 |
|
A R J Bonfield |
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
7 |
|
G N Dawson6 |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
23 |
|
|
|
|
|
M F C Miau |
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
35 |
|
I J G Napier6 |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
Sir Christopher ODonnell7 |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
43 |
|
A C Quinn6 |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
Directors retiring in the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F R Arredondo8 |
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
35 |
|
R G Mendoza8 |
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
24 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,554 |
|
|
|
798 |
|
|
|
2,055 |
|
|
|
5,407 |
|
|
|
4,039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. |
|
This represents the amount charged to operating profit for those elements
of the various share incentive schemes relating to directors. |
2. |
|
Of the amount recognised in 2003, £2,089,000 relates to Mr Grant, who
resigned from the board on 31 December 2002. |
3. |
|
Includes overseas and relocation expenses. |
4. |
|
Mr Isaac was the highest paid director in 2004. |
5. |
|
The allowances and benefits of Mr Médori include a salary supplement of
£103,600 (2003: £97,700) in respect of the pensions earnings cap. |
6. |
|
Mr Dawson was appointed to the board on 1 March 2004 and Mr
Napier and Ms Quinn were both appointed to the board on 1 May
2004. The remuneration above is the total remuneration earned
since their appointment. |
7. |
|
Fees in respect of Sir Christopher ODonnell are paid to Smith & Nephew
plc. |
8. |
|
Mrs Arredondo resigned from the board on 28 February 2004 and Mr
Mendoza resigned from the board on 12 May 2004. The remuneration
above, is the total remuneration earned to their date of
resignation. |
9. |
|
The aggregate remuneration charged against profits for
directors and members of the executive management board in the
year was £10.0 million. Remuneration of members of the
executive management board other than directors is given on
page 71. |
70 The BOC Group plc Annual report and accounts 2004
Report on remuneration
Executive officers The aggregate remuneration of members of the
executive management board, other than directors, for services in all
capacities during 2004 was as follows:
|
|
|
|
|
|
|
|
2004 |
|
Charged against profit in the year |
|
£'000 |
|
Salaries, allowances and benefits |
|
|
1,508 |
|
Annual bonuses payable for the year |
|
|
1,126 |
|
Provision for share incentive schemes1 |
|
|
454 |
|
Company pension contributions |
|
|
58 |
|
|
|
|
|
|
|
|
3,146 |
|
|
|
|
|
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 2004 The directors of the
company and their families had the following beneficial interests in
the companys securities and rights under the share incentive
schemes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 October 2003 |
|
|
At 30 September 2004 |
|
|
(or at date of appointment if later) |
|
|
|
|
|
|
|
|
|
|
Long-term |
|
|
|
|
|
|
|
|
|
|
Long-term |
|
|
|
Ordinary |
|
|
Share |
|
|
incentive |
|
|
Ordinary |
|
|
Share |
|
|
incentive |
|
|
|
shares |
|
|
options |
|
|
plan awards |
|
|
shares |
|
|
options |
|
|
plan awards |
|
J M Baddeley |
|
|
2,268 |
|
|
|
|
|
|
|
|
|
|
|
1,254 |
|
|
|
|
|
|
|
|
|
J A Bevan |
|
|
17,108 |
|
|
|
307,107 |
|
|
|
95,490 |
|
|
|
16,070 |
|
|
|
269,993 |
|
|
|
38,659 |
|
A R J Bonfield |
|
|
1,175 |
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
|
|
|
|
|
|
G N Dawson |
|
|
892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A E Isaac |
|
|
8,057 |
|
|
|
1,129,824 |
|
|
|
279,387 |
|
|
|
5,700 |
|
|
|
1,096,535 |
|
|
|
127,867 |
|
R J Margetts |
|
|
34,000 |
|
|
|
|
|
|
|
|
|
|
|
17,000 |
|
|
|
|
|
|
|
|
|
R Médori |
|
|
16,772 |
|
|
|
442,496 |
|
|
|
107,312 |
|
|
|
16,772 |
|
|
|
435,253 |
|
|
|
44,652 |
|
M F C Miau |
|
|
3,447 |
|
|
|
|
|
|
|
|
|
|
|
2,772 |
|
|
|
|
|
|
|
|
|
I J G Napier |
|
|
779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sir Christopher ODonnell |
|
|
2,274 |
|
|
|
|
|
|
|
|
|
|
|
2,179 |
|
|
|
|
|
|
|
|
|
A C Quinn |
|
|
779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr K Rajagopal |
|
|
21,816 |
|
|
|
549,765 |
|
|
|
102,432 |
|
|
|
14,416 |
|
|
|
526,589 |
|
|
|
42,622 |
|
J L Walsh |
|
|
22,175 |
|
|
|
477,412 |
|
|
|
102,432 |
|
|
|
13,175 |
|
|
|
452,089 |
|
|
|
42,622 |
|
Directors retiring in the year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F R Arredondo |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
991 |
|
|
|
|
|
|
|
|
|
R G Mendoza |
|
|
11,232 |
|
|
|
|
|
|
|
|
|
|
|
10,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There has been no change in the interest of any of the
directors between 1 October 2004 and 18 November 2004.
No director had a non-beneficial interest at 30 September 2004 or
between 1 October 2004 and 18 November 2004. 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 2004, members of the executive management board,
other than directors, had the following aggregate beneficial interests
in the companys securities: 28,881 Ordinary shares; 1,327,525 share
options and 315,899 long-term incentive plan awards. The cumulative
shareholdings of the companys directors and members of the executive
management board represent less than one per cent of the companys
outstanding Ordinary shares.
71 The BOC Group plc Annual report and accounts 2004
Report on remuneration
Directors share interests movements during the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
market price |
|
|
|
|
|
|
|
|
|
|
At |
|
|
|
|
|
|
|
|
|
|
|
|
|
At |
|
|
Exercise |
|
|
at date |
|
|
Earliest |
|
|
Latest |
|
|
|
|
1 October |
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September |
|
|
price |
|
|
of exercise |
|
|
exercise |
|
|
exercise |
|
|
|
|
2003 |
|
Granted |
|
|
Exercised |
|
|
Lapsed |
|
|
2004 |
|
|
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 |
|
|
|
921 |
|
|
|
01/04/04 |
|
|
|
30/09/04 |
|
|
|
a. b. |
|
419 |
|
|
|
|
|
|
419 |
|
|
|
|
|
|
|
|
|
|
|
894 |
|
|
|
921 |
|
|
|
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 |
|
|
|
|
|
|
|
|
36,574 |
|
|
|
|
|
|
|
|
|
|
|
36,574 |
|
|
|
820 |
|
|
|
|
|
|
|
14/11/06 |
|
|
|
14/11/13 |
|
|
|
|
|
|
|
|
1,879 |
|
|
|
|
|
|
|
|
|
|
|
1,879 |
|
|
|
795 |
|
|
|
|
|
|
|
01/04/09 |
|
|
|
30/09/09 |
|
|
|
a. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
269,993 |
|
|
38,453 |
|
|
|
1,038 |
|
|
|
301 |
|
|
|
307,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A E Isaac |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
|
|
|
|
|
45,000 |
|
|
|
|
|
|
|
|
|
|
|
716 |
|
|
|
923 |
|
|
|
16/11/98 |
|
|
|
16/11/04 |
|
|
|
b. |
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
722 |
|
|
|
|
|
|
|
10/02/98 |
|
|
|
10/02/05 |
|
|
|
c. |
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
919 |
|
|
|
|
|
|
|
14/02/99 |
|
|
|
14/02/06 |
|
|
|
c. |
|
2,357 |
|
|
|
|
|
|
2,357 |
|
|
|
|
|
|
|
|
|
|
|
827 |
|
|
|
827 |
|
|
|
01/05/03 |
|
|
|
31/10/03 |
|
|
|
a. b. |
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
980 |
|
|
|
|
|
|
|
21/02/00 |
|
|
|
21/02/07 |
|
|
|
c. |
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
914 |
|
|
|
|
|
|
|
11/02/01 |
|
|
|
11/02/08 |
|
|
|
c. |
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
851 |
|
|
|
|
|
|
|
10/02/02 |
|
|
|
10/02/09 |
|
|
|
c. |
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
937 |
|
|
|
|
|
|
|
26/05/03 |
|
|
|
26/05/10 |
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
993 |
|
|
|
|
|
|
|
07/02/04 |
|
|
|
07/02/11 |
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
1016 |
|
|
|
|
|
|
|
06/02/05 |
|
|
|
06/02/12 |
|
|
|
|
|
149,178 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,178 |
|
|
|
776 |
|
|
|
|
|
|
|
06/02/06 |
|
|
|
06/02/13 |
|
|
|
|
|
|
|
|
80,646 |
|
|
|
|
|
|
|
|
|
|
|
80,646 |
|
|
|
820 |
|
|
|
|
|
|
|
14/11/06 |
|
|
|
14/11/13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,096,535 |
|
|
80,646 |
|
|
|
47,357 |
|
|
|
|
|
|
|
1,129,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R Médori |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
677 |
|
|
|
827 |
|
|
|
11/02/98 |
|
|
|
11/02/04 |
|
|
|
b. |
|
15,000 |
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
722 |
|
|
|
927 |
|
|
|
10/02/98 |
|
|
|
10/02/05 |
|
|
|
c. |
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
919 |
|
|
|
|
|
|
|
14/02/99 |
|
|
|
14/02/06 |
|
|
|
c. |
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
980 |
|
|
|
|
|
|
|
21/02/00 |
|
|
|
21/02/07 |
|
|
|
c. |
|
30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
914 |
|
|
|
|
|
|
|
11/02/01 |
|
|
|
11/02/08 |
|
|
|
c. |
|
30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
851 |
|
|
|
|
|
|
|
10/02/02 |
|
|
|
10/02/09 |
|
|
|
c. |
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
937 |
|
|
|
|
|
|
|
26/05/03 |
|
|
|
26/05/10 |
|
|
|
|
|
2,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,112 |
|
|
|
870 |
|
|
|
|
|
|
|
01/08/07 |
|
|
|
31/01/08 |
|
|
|
a. b. |
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
993 |
|
|
|
|
|
|
|
07/02/04 |
|
|
|
07/02/11 |
|
|
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
1016 |
|
|
|
|
|
|
|
06/02/05 |
|
|
|
06/02/12 |
|
|
|
|
|
78,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,141 |
|
|
|
776 |
|
|
|
|
|
|
|
06/02/06 |
|
|
|
06/02/13 |
|
|
|
|
|
|
|
|
42,243 |
|
|
|
|
|
|
|
|
|
|
|
42,243 |
|
|
|
820 |
|
|
|
|
|
|
|
14/11/06 |
|
|
|
14/11/13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
435,253 |
|
|
42,243 |
|
|
|
35,000 |
|
|
|
|
|
|
|
442,496 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72 The BOC Group plc Annual report and accounts 2004
Report on remuneration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
market price |
|
|
|
|
|
|
|
|
|
|
At |
|
|
|
|
|
|
|
|
|
|
|
|
|
At |
|
|
Exercise |
|
|
at date |
|
|
Earliest |
|
|
Latest |
|
|
|
|
1 October |
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September |
|
|
price |
|
|
of exercise |
|
|
exercise |
|
|
exercise |
|
|
|
|
2003 |
|
Granted |
|
|
Exercised |
|
|
Lapsed |
|
|
2004 |
|
|
pence |
|
|
pence |
|
|
date |
|
|
date |
|
|
Notes |
|
Dr K Rajagopal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
677 |
|
|
|
871 |
|
|
|
11/02/98 |
|
|
|
11/02/04 |
|
|
|
b. |
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
722 |
|
|
|
|
|
|
|
10/02/98 |
|
|
|
10/02/05 |
|
|
|
c. |
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000 |
|
|
|
919 |
|
|
|
|
|
|
|
14/02/99 |
|
|
|
14/02/06 |
|
|
|
c. |
|
471 |
|
|
|
|
|
|
|
|
|
|
471 |
|
|
|
|
|
|
|
827 |
|
|
|
|
|
|
|
01/05/03 |
|
|
|
31/10/03 |
|
|
|
a. b. |
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
848 |
|
|
|
|
|
|
|
14/08/99 |
|
|
|
14/08/06 |
|
|
|
c. |
|
35,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,000 |
|
|
|
980 |
|
|
|
|
|
|
|
21/02/00 |
|
|
|
21/02/07 |
|
|
|
c. |
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
914 |
|
|
|
|
|
|
|
11/02/01 |
|
|
|
11/02/08 |
|
|
|
c. |
|
1,676 |
|
|
|
|
|
|
|
|
|
|
1,676 |
|
|
|
|
|
|
|
823 |
|
|
|
|
|
|
|
01/05/02 |
|
|
|
31/10/03 |
|
|
|
a. b. |
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
851 |
|
|
|
|
|
|
|
10/02/02 |
|
|
|
10/02/09 |
|
|
|
c. |
|
87,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87,500 |
|
|
|
937 |
|
|
|
|
|
|
|
26/05/03 |
|
|
|
26/05/10 |
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
993 |
|
|
|
|
|
|
|
07/02/04 |
|
|
|
07/02/11 |
|
|
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
1016 |
|
|
|
|
|
|
|
06/02/05 |
|
|
|
06/02/12 |
|
|
|
|
|
74,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,589 |
|
|
|
776 |
|
|
|
|
|
|
|
06/02/06 |
|
|
|
06/02/13 |
|
|
|
|
|
2,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,353 |
|
|
|
698 |
|
|
|
|
|
|
|
01/05/08 |
|
|
|
31/10/08 |
|
|
|
a. b. |
|
|
|
|
40,323 |
|
|
|
|
|
|
|
|
|
|
|
40,323 |
|
|
|
820 |
|
|
|
|
|
|
|
14/11/06 |
|
|
|
14/11/13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526,589 |
|
|
40,323 |
|
|
|
15,000 |
|
|
|
2,147 |
|
|
|
549,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J L Walsh |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
677 |
|
|
|
839 |
|
|
|
11/02/98 |
|
|
|
11/02/04 |
|
|
|
b. |
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
722 |
|
|
|
|
|
|
|
10/02/98 |
|
|
|
10/02/05 |
|
|
|
c. |
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
919 |
|
|
|
|
|
|
|
14/02/99 |
|
|
|
14/02/06 |
|
|
|
c. |
|
12,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500 |
|
|
|
980 |
|
|
|
|
|
|
|
21/02/00 |
|
|
|
21/02/07 |
|
|
|
c. |
|
30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
914 |
|
|
|
|
|
|
|
11/02/01 |
|
|
|
11/02/08 |
|
|
|
c. |
|
70,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,000 |
|
|
|
851 |
|
|
|
|
|
|
|
10/02/02 |
|
|
|
10/02/09 |
|
|
|
c. |
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
937 |
|
|
|
|
|
|
|
26/05/03 |
|
|
|
26/05/10 |
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
993 |
|
|
|
|
|
|
|
07/02/04 |
|
|
|
07/02/11 |
|
|
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
1016 |
|
|
|
|
|
|
|
06/02/05 |
|
|
|
06/02/12 |
|
|
|
|
|
74,589 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,589 |
|
|
|
776 |
|
|
|
|
|
|
|
06/02/06 |
|
|
|
06/02/13 |
|
|
|
|
|
|
|
|
40,323 |
|
|
|
|
|
|
|
|
|
|
|
40,323 |
|
|
|
820 |
|
|
|
|
|
|
|
14/11/06 |
|
|
|
14/11/13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
452,089 |
|
|
40,323 |
|
|
|
15,000 |
|
|
|
|
|
|
|
477,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a. |
|
Options granted under the Savings Related Share Option scheme. All
other options shown above are granted under the executive share option
schemes. |
b. |
|
Options with no performance conditions attached. All other
options shown above have performance related conditions attached to
them. These conditions are described on pages 65
and 66. |
c. |
|
The performance conditions attaching
to these options have been satisfied. |
The total gains made by directors on options exercised during the year were
£208,400 (2003: £1,500).
At 30 September 2004, there were 1,905,000 options outstanding
where the exercise price exceeded the market price of 884p. During the
year, the share price ranged from a high of 949p to a low of 791.5p.
73 The BOC Group plc Annual report and accounts 2004
Report on remuneration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive Plan - movements during the year |
|
|
At |
|
|
|
|
|
|
At |
|
|
|
|
|
|
|
|
|
|
|
|
|
1 October |
|
|
|
|
|
|
30 September |
|
|
|
|
|
|
Earliest |
|
|
Latest |
|
|
|
2003 |
|
|
Granted |
|
|
2004 |
|
|
Performance period |
|
|
exercise date |
|
|
exercise date |
|
J A Bevan |
|
|
38,659 |
|
|
|
|
|
|
|
38,659 |
|
|
|
01/10/02 30/09/05 |
|
|
|
06/02/06 |
|
|
|
06/02/13 |
|
|
|
|
|
|
|
|
56,831 |
|
|
|
56,831 |
|
|
|
01/10/03 30/09/06 |
|
|
|
04/02/07 |
|
|
|
04/02/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,659 |
|
|
|
56,831 |
|
|
|
95,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A E Isaac |
|
|
127,867 |
|
|
|
|
|
|
|
127,867 |
|
|
|
01/10/02 30/09/05 |
|
|
|
06/02/06 |
|
|
|
06/02/13 |
|
|
|
|
|
|
|
|
151,520 |
|
|
|
151,520 |
|
|
|
01/10/03 30/09/06 |
|
|
|
04/02/07 |
|
|
|
04/02/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,867 |
|
|
|
151,520 |
|
|
|
279,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R Médori |
|
|
44,652 |
|
|
|
|
|
|
|
44,652 |
|
|
|
01/10/02 30/09/05 |
|
|
|
06/02/06 |
|
|
|
06/02/13 |
|
|
|
|
|
|
|
|
62,660 |
|
|
|
62,660 |
|
|
|
01/10/03 30/09/06 |
|
|
|
04/02/07 |
|
|
|
04/02/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,652 |
|
|
|
62,660 |
|
|
|
107,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr K Rajagopal |
|
|
42,622 |
|
|
|
|
|
|
|
42,622 |
|
|
|
01/10/02 30/09/05 |
|
|
|
06/02/06 |
|
|
|
06/02/13 |
|
|
|
|
|
|
|
|
59,810 |
|
|
|
59,810 |
|
|
|
01/10/03 30/09/06 |
|
|
|
04/02/07 |
|
|
|
04/02/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,622 |
|
|
|
59,810 |
|
|
|
102,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J L Walsh |
|
|
42,622 |
|
|
|
|
|
|
|
42,622 |
|
|
|
01/10/02 30/09/05 |
|
|
|
06/02/06 |
|
|
|
06/02/13 |
|
|
|
|
|
|
|
|
59,810 |
|
|
|
59,810 |
|
|
|
01/10/03 30/09/06 |
|
|
|
04/02/07 |
|
|
|
04/02/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,622 |
|
|
|
59,810 |
|
|
|
102,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The performance conditions attaching to the above awards are shown on
page 65. Awards take the form of nil cost options.
Pensions
The pension arrangements for each individual director are as follows:
Mr Bevans pension is provided under the Australian superannuation
fund. On retirement at age 60 he will be entitled to the accumulated
value of his defined contribution fund subject to that not being less
than the guaranteed lump sum of approximately six times his final 12
months salary.
Mr Isaacs pension is being funded in the UK through a combination
of a tax-approved personal pension plan and a funded unapproved
retirement benefit scheme.
Mr Médoris pension benefits are funded under the UK senior
executive pension scheme on earnings up to the earnings cap imposed
by the Finance Act 1989. On retirement at age 60, he will be entitled
to a pension of 57.5 per cent of capped earnings. In addition, he has a
vested deferred benefit, under the US Cash Balance Retirement Plan,
which he will be entitled to take as a lump sum on retirement at age
60. Mr Médori also receives a salary supplement on earnings above the
earnings cap to reflect the loss of pension coverage.
Dr Rajagopals pension benefits are funded under the UK senior
executive pension scheme. On retirement at age 60, he will be entitled
to a pension of two-thirds of his final 12 months salary.
Mr Walshs pension is provided under the US Cash Balance
Retirement Plan and the US Top-Hat Pension Plan, which, in combination,
entitle Mr Walsh to a lump sum benefit on retirement at age 62
equivalent to a pension of approximately 66 per cent of final base
salary. In accordance with local competitive practices existing in his
country of operation prior to his appointment as a director, Mr Walshs
bonus is pensionable.
Further details of the pension plans for executive directors are given below.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined benefit plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
value of |
|
|
|
Deferred |
|
|
Increase in |
|
|
Transfer |
|
|
Transfer |
|
|
Change in |
|
|
Increase in |
|
|
increase in |
|
|
|
benefit at |
|
|
deferred |
|
|
value at |
|
|
value at |
|
|
transfer value |
|
|
deferred |
|
|
deferred |
|
|
|
30 September |
|
|
benefit in |
|
|
1 October |
|
|
30 September |
|
|
less member's |
|
|
benefit (net |
|
|
benefit (net |
|
|
|
2004 |
|
|
year |
|
|
2003 |
|
|
2004 |
|
|
contributions |
|
|
of inflation) |
|
|
of inflation) |
|
|
|
£'000 |
|
|
£'000 |
|
|
£'000 |
|
|
£'000 |
|
|
£'000 |
|
|
£'000 |
|
|
£'000 |
|
Annual pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
R Médori |
|
|
15 |
|
|
|
4 |
|
|
|
100 |
|
|
|
147 |
|
|
|
41 |
|
|
|
3 |
|
|
|
33 |
|
Dr K Rajagopal |
|
|
165 |
|
|
|
15 |
|
|
|
1,667 |
|
|
|
2,002 |
|
|
|
317 |
|
|
|
10 |
|
|
|
127 |
|
Lump sum benefit1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J A Bevan |
|
|
1,162 |
|
|
|
60 |
|
|
|
1,102 |
|
|
|
1,162 |
|
|
|
60 |
|
|
|
29 |
|
|
|
29 |
|
R Médori |
|
|
165 |
|
|
|
21 |
|
|
|
144 |
|
|
|
165 |
|
|
|
21 |
|
|
|
16 |
|
|
|
16 |
|
J L Walsh |
|
|
512 |
|
|
|
124 |
|
|
|
388 |
|
|
|
512 |
|
|
|
124 |
|
|
|
112 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1. |
|
All amounts have been retranslated at the exchange rate prevailing at 30
September 2004. |
All transfer values have been calculated in accordance with Actuarial Guidance
Note GN11.
74 The BOC Group plc Annual report and accounts 2004
Report on remuneration
Money purchase plans The company made contributions in the year to money purchase plans in respect of
the following directors:
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2003 |
|
|
|
£'000 |
|
|
£'000 |
|
A E Isaac |
|
|
270 |
|
|
|
252 |
|
J L Walsh |
|
|
13 |
|
|
|
13 |
|
Former director |
|
|
|
|
|
|
|
|
R S Grant |
|
|
|
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
283 |
|
|
|
279 |
|
|
|
|
|
|
|
|
Excess retirement benefits
No person who has served as a director at any time during the
financial year has received retirement benefits in excess of those to
which he or she was entitled on the date that the benefits first
became payable.
Sums paid to third parties
Except for fees paid to Smith & Nephew plc for the services of Sir
Christopher ODonnell as noted on page 70, no consideration was paid to
or receivable by any third party in respect of any person who served as
a director during the financial year.
Auditable part of the report on remuneration
The following sections and tables constitute the auditable part of the
report on remuneration, as defined in Part 3, Schedule 7A of the
Companies Act 1985:
a) |
|
sections relating to Long-Term Incentive Plan, Executive Share
Option Scheme 2003, Pensions, Excess retirement benefits and
Sums paid to third parties; |
b) |
|
tables headed Individual
remuneration, Directors share interests at 30 September 2004,
Directors share interests movements during the year, Long-Term
Incentive Plan movements during the year, Defined benefits plans
and Money purchase plans. |
The report on remuneration has been approved by the board and signed on its
behalf by:
Julie Baddeley
Remuneration committee chairman
22 November 2004
75 The BOC Group plc Annual report and accounts 2004
RESPONSIBILITY OF THE DIRECTORS
For preparation of the financial statements
Company law requires the directors to prepare financial statements
for each financial year which give a true and fair view of the state
of affairs of the company and of the Group at the end of the year and
of the profit or loss for the year. In preparing those financial
statements, the directors are required to:
|
|
select suitable accounting policies and
then apply them consistently; |
|
|
make
judgements and estimates that are
reasonable and prudent; |
|
|
state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; |
|
|
prepare the financial
statements on the going concern basis unless it is inappropriate
to presume that the company and the Group will continue in
business. |
The directors confirm that the financial statements comply with the above
requirements.
The directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the company and the Group and enable them to
ensure that the financial statements comply with the Companies Act
1985. The directors also have general responsibility for taking
reasonable steps to safeguard the assets of the company and the Group
and to prevent and detect fraud and other irregularities.
A copy of the financial statements of the company is placed
on the website of The BOC Group plc. The directors are
responsible for the maintenance and integrity of statutory and
audited information on the companys website. Information
published on the Internet is accessible in many countries with
different legal requirements. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
76 The BOC Group plc Annual report and accounts 2004
REPORT BY THE INDEPENDENT AUDITORS
To the members of The BOC Group plc
Independent auditors report to the members of The BOC Group plc
We have audited the financial statements which comprise the Group
profit and loss account, the Group balance sheet, the Group cash
flow statement, the total recognised gains and losses, the movement
in shareholders funds, the balance sheet of The BOC Group plc,
Group undertakings, accounting policies and the related notes. We
have also audited the disclosures required by Part 3 of Schedule 7A
to the Companies Act 1985 contained in the report on remuneration
(the auditable part).
Respective responsibilities of directors and auditors
The directors responsibilities for preparing the Annual Report and
the financial statements in accordance with applicable United Kingdom
law and accounting standards are set out in the statement of
directors responsibilities. The directors are also responsible for
preparing the report on remuneration.
Our responsibility is to audit the financial statements and the
auditable part of the report on remuneration in accordance with
relevant legal and regulatory requirements and United Kingdom Auditing
Standards issued by the Auditing Practices Board. This report,
including the opinion, has been prepared for and only for the
companys members as a body in accordance with Section 235 of the
Companies Act 1985 and for no other purpose. We do not, in giving this
opinion, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior
consent in writing.
We report to you our opinion as to whether the financial
statements give a true and fair view and whether the financial
statements and the auditable part of the report on remuneration have
been properly prepared in accordance with the Companies Act 1985. We
also report to you if, in our opinion, the report of the directors is
not consistent with the financial statements, if the company has not
kept proper accounting records, if we have not received all the
information and explanations we require for our audit, or if
information specified by law regarding directors remuneration and
transactions is not disclosed.
We read the other information contained in the Annual Report and
consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the financial
statements. The other information comprises only the financial
highlights, chairmans statement, chief executives review, board of
directors, executive management board, Group five year record, Group
profile, employees, social, environmental and ethical performance,
research and development and information technology, risk factors,
operating review, financial review, the unaudited part of the report
on remuneration, responsibility of the directors, dividends, nature of
trading market, analysis of shareholdings, taxation, financial
calendar, key contacts information, cross reference to Form 20-F and
glossary of terms.
We review whether the corporate governance statement reflects
the companys compliance with the seven provisions of the Combined
Code issued in June 1998 specified for our review by the Listing
Rules of the Financial Services Authority, and we report if it does
not. We are not required to consider whether the boards statements
on internal control cover all risks and controls, or to form an
opinion on the effectiveness of the companys or Groups corporate
governance procedures or its risk and control procedures.
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board.
An audit includes examination, on a test basis, of evidence relevant
to the amounts and disclosures in the financial statements and the
auditable part of the report on remuneration. It also includes an
assessment of the significant estimates and judgements made by the
directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the companys
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in order to
provide us with sufficient evidence to give reasonable assurance that
the financial statements and the auditable part of the report on
remuneration are free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in
the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of
the state of affairs of the company and the Group at 30 September
2004 and of the profit and cash flows of the Group for the year then
ended; the financial statements have been properly prepared in
accordance with the Companies Act 1985; and those parts of the report
on remuneration required by Part 3 of Schedule 7A to the Companies
Act 1985 have been properly prepared in accordance with the Companies
Act 1985.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London, England
22 November 2004
77 The BOC Group plc Annual report and accounts 2004
GROUP PROFIT AND LOSS ACCOUNT
Years ended 30 September
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2004 |
|
2003 |
|
2002 |
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Before |
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After |
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Before |
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After |
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Before |
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After |
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exceptional |
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|
Exceptional |
|
|
exceptional |
|
|
exceptional |
|
|
Exceptional |
|
|
exceptional |
|
|
exceptional |
|
|
Exceptional |
|
|
exceptional |
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|
|
|
|
items |
|
|
items |
|
|
items |
|
|
items |
|
|
items |
|
|
items |
|
|
items |
|
|
items |
|
|
items |
|
|
Notes |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
£ million |
|
|
Turnover, including share of
joint ventures and associates |
|
|
1 |
|
|
|
|
4,599.3 |
|
|
|
|
|
|
|
4,599.3 |
|
|
|
4,323.2 |
|
|
|
|
|
|
|
4,323.2 |
|
|
|
4,017.9 |
|
|
|
|
|
|
|
4,017.9 |
|
|
Less: Share of turnover of joint ventures |
|
|
|
|
|
|
|
647.0 |
|
|
|
|
|
|
|
647.0 |
|
|
|
544.3 |
|
|
|
|
|
|
|
544.3 |
|
|
|
324.1 |
|
|
|
|
|
|
|
324.1 |
|
|
Share of turnover of associates |
|
|
|
|
|
|
|
66.9 |
|
|
|
|
|
|
|
66.9 |
|
|
|
60.6 |
|
|
|
|
|
|
|
60.6 |
|
|
|
36.1 |
|
|
|
|
|
|
|
36.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnover of subsidiary undertakings |
|
|
|
|
|
|
|
3,885.4 |
|
|
|
|
|
|
|
3,885.4 |
|
|
|
3,718.3 |
|
|
|
|
|
|
|
3,718.3 |
|
|
|
3,657.7 |
|
|
|
|
|
|
|
3,657.7 |
|
|
Cost of sales |
|
|
2 |
(a) |
|
|
|
(2,181.7 |
) |
|
|
|
|
|
|
(2,181.7 |
) |
|
|
(2,136.2 |
) |
|
|
(1.7 |
) |
|
|
(2,137.9 |
) |
|
|
(2,089.7 |
) |
|
|
(15.1 |
) |
|
|
(2,104.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
1,703.7 |
|
|
|
|
|
|
|
1,703.7 |
|
|
|
1,582.1 |
|
|
|
(1.7 |
) |
|
|
1,580.4 |
|
|
|
1,568.0 |
|
|
|
(15.1 |
) |
|
|
1,552.9 |
|
|
Net operating expenses |
|
|
2 |
(a) |
|
|
|
(1,239.3 |
) |
|
|
(14.8 |
) |
|
|
(1,254.1 |
) |
|
|
(1,174.7 |
) |
|
|
(58.5 |
) |
|
|
(1,233.2 |
) |
|
|
(1,142.4 |
) |
|
|
(58.9 |
) |
|
|
(1,201.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit of subsidiary undertakings |
|
|
|
|
|
|
|
464.4 |
|
|
|
(14.8 |
) |
|
|
449.6 |
|
|
|
407.4 |
|
|
|
(60.2 |
) |
|
|
347.2 |
|
|
|
425.6 |
|
|
|
(74.0 |
) |
|
|
351.6 |
|
|
Share of operating profit of joint ventures |
|
|
|
|
|
|
|
99.4 |
|
|
|
(2.6 |
) |
|
|
96.8 |
|
|
|
86.8 |
|
|
|
(6.8 |
) |
|
|
80.0 |
|
|
|
63.8 |
|
|
|
(0.5 |
) |
|
|
63.3 |
|
|
Share of operating profit of
associates |
|
|
|
|
|
|
|
13.1 |
|
|
|
|
|
|
|
13.1 |
|
|
|
11.4 |
|
|
|
|
|
|
|