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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a -16 or 15d -16 of
the Securities Exchange Act of 1934
Report on Form 6-K dated
December 10, 2003
Commission File Number 0-10906
The BOC Group plc
(Translation of registrant’s name into English)
Chertsey Road, Windlesham,
Surrey GU20 6HJ
England
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F x Form 40-F o
Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes: o No: x
Enclosure: The BOC Group plc Annual review 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| The BOC Group plc |
Date: December 10, 2003
| By: | /s/ Anthony Eric Isaac | |||
| Name: Anthony Eric
Isaac Title: Chief Executive |
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Table of Contents
| Contents | ||||
| 02 | Financial highlights | |||
| 03 | 2003 results | |||
| 04 | Chairman’s statement | |||
| 06 | Chief executive’s review | |||
| 08 | Our business | |||
| 10 | - our customers | |||
| 13 | - our opportunities | |||
| 16 | - our insights | |||
| 18 | - our innovations | |||
| 19 | - our culture | |||
| 20 | - our responsibilities | |||
| 22 | Operating review | |||
| 26 | Board of directors | |||
| 28 | Executive management board | |||
| 30 | Summary financial statements | |||
| 31 | Report of the directors | |||
| 32 | Independent auditors’ statement | |||
| 33 | Directors’ remuneration | |||
| 35 | Group profit and loss account | |||
| 36 | Group balance sheet | |||
| 37 | Group cash flow statement | |||
| 37 | Reconciliation of net cash flow to movement in net debt | |||
| 38 | Notes to the financial statements | |||
| 40 | Shareholder information | |||
Highlights of the year
Successful acquisition and integration of
industrial gases businesses in Poland and
Canada strengthens position in key countries.
Major integrated industrial gases supply position established on the US Gulf coast following contract award from Celanese.
Entry into water services market in the US through the purchase of Environmental Management Corporation.
OSK is combined with part of Air Liquide Japan to form Japan Air Gases.
Gist wins major logistics contracts awarded by Carlsberg-Tetley, New Look and a number of Geest companies.
BOC Edwards establishes strong position as supplier for the new generation of 300mm semiconductor fabs.
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01 The BOC Group plc Annual review 2003
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2003 results
| Analysis by business | ||||||||||||
| Turnover (including share of joint ventures and associates) | £ million | % |  |
|||||||||
| 1. Process Gas Solutions | 1,242.7 | 29 | ||||||||||
| 2. Industrial and Special Products | 1,751.2 | 40 | ||||||||||
| 3. BOC Edwards | 684.1 | 16 | ||||||||||
| 4. Afrox hospitals | 353.4 | 8 | ||||||||||
| 5. Gist | 291.8 | 7 | ||||||||||
| Total | 4,323.2 | 100 | ||||||||||
| Adjusted operating profit | |||||||||||||
 |
|||||||||||||
| 1. Process Gas Solutions | 184.0 | 36 | |||||||||||
| 2. Industrial and Special Products | 242.7 | 48 | |||||||||||
| 3. BOC Edwards | 18.5 | 4 | |||||||||||
| 4. Afrox hospitals | 46.1 | 9 | |||||||||||
| 5. Gist | 29.2 | 6 | |||||||||||
| Corporate | (14.9 | ) | (3 | ) | |||||||||
| Total | 505.6 | 100 | |||||||||||
| Analysis by region | ||||||||||||
| Turnover (including share of joint ventures and associates) | £ million | % |  |
|||||||||
| 1. Europe | 1,154.4 | 27 | ||||||||||
| 2. Americas | 1,238.8 | 29 | ||||||||||
| 3. Africa | 585.5 | 13 | ||||||||||
| 4. Asia/Pacific | 1,344.5 | 31 | ||||||||||
| Total | 4,323.2 | 100 | ||||||||||
| Adjusted operating profit |  |
|||||||||||
| 1. Europe | 144.3 | 29 | ||||||||||
| 2. Americas | 91.8 | 18 | ||||||||||
| 3. Africa | 85.0 | 17 | ||||||||||
| 4. Asia/Pacific | 184.5 | 36 | ||||||||||
| Total | 505.6 | 100 | ||||||||||
03 The BOC Group plc Annual review 2003
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Last year I stated your board’s
commitment to a strategy of delivering
superior returns for shareholders based on
sustained growth in earnings and
improvements in capital efficiency. This
requires increasing the scale and scope of
BOC while continuously improving the
efficiency and productivity of capital and
other resources.
Consistent strategy
Your company reviews and tests its
strategy thoroughly each year. The
requirements and expectations of shareholders
are compared with objective analysis of what
the business can and should deliver. This
combination of top-down expectations with
bottom-up capabilities gives a rigorous
framework for debate. When Tony Isaac and his
management team have completed their work,
the board reviews and tests it in detail.
Last year I described the forward programme
for BOC’s management and staff as ambitious
and the board is pleased with the progress
being made.
Within the corporate strategy each line
of business and the specialist businesses
have their own strategies. The clarity of
direction this gives is of great assistance
to your board in overseeing proposed
acquisitions, strategic moves and the
general progress of efficiency initiatives.
Last year I included two graphs looking
at BOC’s financial performance over the
two-year period since the bid lapsed. The
same graphs are reproduced here, updated with
this year’s data. The first shows total
shareholder returns relative to all FTSE 100
companies to 30 September this year. The
second compares BOC’s performance with its
main global gases competitors. They again
show your company’s strong performance
compared with other UK companies and the
competitive challenge presented by its global
peers.
Dividends
In 2003 BOC paid a first interim
dividend of 15.5p per share in February and
a second interim dividend of 23.5p per
share in August. The total of 39p was an
increase of 2.6 per cent on the year
before. This year, in line with its
established policy, the board again
proposes a first interim dividend for 2004
of 15.5p. Any increase will be reflected in
the second interim dividend announced with
our half year results.
Corporate governance
Your company has been at the forefront
when it comes to implementing best practice
in corporate governance and financial
matters. Its implementation last year of
the new accounting standard FRS 19, and the
full implementation of FRS 17 well in
advance of this being required, is an
indication of an open and transparent
culture. This year in the UK we had the
recommendations from the Higgs and Smith
reviews that were subsequently incorporated in
a modified form into a new Combined Code.
BOC contributed fully to the consultation
phase of the Higgs review and I believe the
end result strengthens corporate governance
in an effective way. Your company is
substantially complying with the revised
Combined Code this year, ahead of it being
required.
Corporate social responsibility
BOC consistently takes an ethical view of
its responsibilities in pursuing profitable
business. Leadership comes from Tony Isaac and
the senior management team. BOC is also a very
practical organisation, preferring to
implement, test and refine what it does before
making claims in the wider world. This year
BOC developed and launched its Code of
Conduct. There were many existing policies,
but the Code of Conduct process brought these
into one programme together with new and
amended policies. The code energised the whole
of the company during its development and roll
out.
04 The BOC Group plc Annual review 2003
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It is more important to be socially
responsible than to seek out awards for
social responsibility. It happens that others
have given recognition to BOC’s achievements
in this area. For instance, in the UK last
year BOC’s environmental performance was
ranked by Business in the Environment in the
top 25 per cent of FTSE companies
participating in its survey; the investment
community voting in Investor Relations
magazine ranked BOC in the top five of
FTSE 100 companies for the best practice of
corporate responsibility; and Gist, our
logistics business, won the Motor Transport
magazine’s environmental award. In South
Africa, Afrox’s community involvement
programme is used by the United Nations as a
global case study of how an employee-driven,
sustainable social development programme
should work.
Board of directors
This year I was delighted to welcome
John Bevan and Andrew Bonfield to your
board. John is chief executive of Process
Gas Solutions and, being an Australian,
adds yet another nationality to what is an
already very diverse board. Andrew brings
his financial experience and knowledge of
international business to our discussions.
I would also like to congratulate two of my
board colleagues who have been honoured
this year: Sir Christopher O’Donnell
received his knighthood in the Queen’s
birthday honours list while Dr ‘Raj’
Rajagopal was awarded the Sir Eric
Mensforth International Manufacturing Gold
Medal by the Institution of Electrical
Engineers and subsequently was elected a
Fellow of the Royal Academy of Engineering.
During the year Göran Lundberg and Dick
Grant stepped down from the board. We wish
them both well for the future. Göran was
replaced by Sir Christopher as senior
independent director and by Julie Baddeley
as chairman of the remuneration committee.
Thank you
The board would like to thank all BOC’s
people around the world for their efforts in
what have been testing economic conditions.
We would also like to thank all BOC’s
customers, with whom we seek a mutually
prosperous future. By recruiting, training
and retaining the best employees we will
continue to deliver high standards of service
to our customers. This is the basis of BOC’s
strength and will be the means by which we
will deliver the returns expected by you, our
shareholders. I thank you for your continued
support.
Rob Margetts Chairman
05 The BOC Group plc Annual review 2003
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BOC performed well in 2003, although
many of the world’s leading industrial
countries remained in the economic
doldrums. The semiconductor industry, the
key to BOC Edwards’ profitability, showed
only limited signs of recovery following a
prolonged downturn.
Financial overview
In managing our business we use
financial results excluding exceptional
items, referred to as ‘adjusted’, and at
constant currencies as the best way to
report results and to reflect the nature of
our business. Exceptional items are exactly
that, one-off events that would distort the
figures if not reported separately, while
constant currencies show best how we are
doing in our local markets. The products and
services we sell and their associated costs
are largely contained in the 50 or so
countries where we operate; we export
relatively little. Currencies have an effect
when we translate our turnover and profit
into pounds sterling. We could have a bumper
year, improving our business and market
position around the world, yet we could
report reduced turnover and profit if the
pound was strong. Conversely, a weak pound
could at face value disguise poor
performance.
On this basis, we increased turnover
this year by nine per cent, the result of
actions over recent years to grow in
existing markets and enter new ones.
Adjusted operating profit rose by one per
cent. This improved performance was not
reflected in adjusted profit before tax,
which declined by four per cent because of
a lower net pension credit largely
resulting from lower equity valuations.
Comments below on business performance are
also given on this basis.
Since announcing our preliminary results
on 13 November 2003 The BOC Group Cash
Balance Retirement Plan in the US has reached
agreement in principle to settle an action
against it for US$69 million. This was shown
as a contingent liability in the preliminary
results when we stated that the potential
liability could reach US$116 million. The
award will be paid out of the assets of the
Plan but under UK accounting principles the
payment has been recognised as a charge in
the profit and loss account. Our statutory
results include exceptional items and
comparisons with the previous year reflect
changes in the relative value of currencies.
On this basis, we increased turnover by eight
per cent and operating profit by three per
cent. Profit before tax increased by five per
cent.
Operating cash flow was eight per cent
lower than last year. There were a number of
reasons for this: BOC Edwards contributed
less cash; currency changes had a negative
impact; and, having merged our gases
business in Japan with part of Air Liquide
Japan, BOC no longer consolidates the cash
flow from the combined operation, receiving
a dividend instead. We also resumed contributions to the UK
pensions scheme.
This year
We entered the year having just merged
our plant building business with Linde
Engineering in the US to form Linde BOC
Process Plants LLC. This combination
guarantees us access to world-class
technology and it is working well, delivering
the capability and the cost savings we had
predicted. We were also at various stages of
finalising four more strategic ventures.
Three were acquisitions: Praxair’s Polish
industrial gases business, Air Products’
Canadian packaged gas business and
Environmental Management Corporation, a
privately held US water services company. The
fourth was the merger I referred to above,
the combination of our OSK business in Japan
with part of Air Liquide Japan to create
Japan Air Gases.
The Polish and Canadian acquisitions are
in important markets for us and they
strengthen our positions there. In both cases
they give us better national coverage and add
to the range of products and services we can
offer our customers. Environmental Management
Corporation manages water and wastewater
treatment facilities for industrial and
municipal customers around the US; BOC has a
strong industrial customer base and it is a
natural extension to manage the water cycle
for such customers. The emphasis now, as it
is with
06 The BOC Group plc Annual review 2003
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all our recent acquisitions, is to achieve
the growth and profit forecasts that were
the reasons for making the acquisitions in
the first place. All three are well on the
way to doing that.
The reasons for forming Japan Air
Gases were different. Japanese growth has
been disappointingly low in recent years
and the combined business promised to be
more efficient with a lower cost base. Cost
savings at the rate of Japanese Yen 5
billion a year are confidently predicted by
the end of next year and a revitalised
business is showing signs of growth.
In recent years we have reviewed all
our investments, seeking to add to our
capability where we could grow profitably
and finding other solutions for assets
that either fit less well strategically
or have not delivered the returns we
expect.
Our businesses are performing well
Our
three lines of business – Process
Gas Solutions, Industrial and Special
Products and BOC Edwards – produce 85 per
cent of BOC’s turnover and 88 per cent of its
adjusted operating profit. The rest comes
from our two specialist businesses, Afrox
hospitals and Gist. The line of business
structure remains unique in the industrial
gases industry and is a major competitive
advantage for us. We continue to work hard at
delivering exemplary customer service and
this has enabled us to grow our top line
sales, to obtain order renewals and to gain
acceptance for price increases.
Process Gas Solutions (PGS) serves our
larger customers. Many of them operate on a
global scale and we invest wherever they
require industrial gases. PGS did well last
year, growing turnover by eight per cent and
adjusted operating profit by three per cent.
Most of the growth came from acquisitions
and new liquefied gases business. Shortly
after the year ended we announced further
investments in China totalling over US$100
million.
Industrial and Special Products,
centred on our cylinder business,
increased its turnover by nine per cent,
but good profit performance in most
countries was undermined by a weak result
in the US, leading to a decline in
adjusted operating profit of three per
cent.
BOC Edwards has performed well
considering the prolonged downturn of the
semiconductor industry. It has paid close
attention to its cost base, matching it
closely to demand. Turnover was £684.1
million with adjusted operating profit £18.5
million.
Afrox hospitals and Gist delivered
particularly good results. Afrox hospitals
grew turnover by 16 per cent and adjusted
operating profit by 31 per cent. Gist
delivered increases of ten per cent and 13
per cent respectively. African Oxygen
Limited, the majority shareholder in
Afrox Healthcare Limited, announced in
July 2003 that it was conducting a strategic
review of the hospitals business. On 17
November it announced that, subject to
conditions, it had agreed to sell its entire
holding in Afrox Healthcare Limited to a
consortium of Black Economic Empowerment
investors.
Each year I make the point that while
financial performance is important, it is not
our only measure of success. I make no
apologies for stating that safety remains our
highest priority. No manager can be content
if anyone is hurt in the process of doing
business, but I also believe that safe
operations reduce business risk and
contribute eventually to improved profits. We
are concentrating on changing the behaviour
of everyone in BOC to make sure that safety
really does come first.
This year we developed our Code of
Conduct, based on important social,
environmental and good governance business
principles. People throughout BOC helped
prepare it and we are in the process of
communicating it to everyone in BOC. It
states clearly what we expect to ensure we
meet our legal and ethical obligations; to
make sure we always do the right thing. You
will find a copy on our website, www.boc.com.
I think you will agree it is something we can
be proud of and I can assure you we are
implementing it in an effective and practical
way.
I thank all the employees of BOC for
their efforts this year. I thank our
customers for doing business with us and
our suppliers for their contribution. I
thank you, our shareholders, for your
support through difficult economic times.
We will continue to strive to deliver
attractive returns on your investment.
Tony Isaac Chief executive
07 The BOC Group plc Annual review 2003
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our customers
Customers have a choice and we want to make
sure they choose us. We also know that our products
and services are essential for many businesses.
We must perform to enable our customers to work.
Sometimes it is a matter of doing the basics well.
Other times it’s using our knowledge to come up
with the ideal solution.
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A long hot summer
In Britain, along with most of Europe, 2003 was one of the hottest
summers for decades and for Carlsberg-Tetley, one of Britain’s
biggest brewers, summer heat means bigger sales. On a typical
summer weekend beer sales in Britain can reach some 50 million
pints. This year those figures soared, with Carlsberg-Tetley seeing
its on-trade business for the Carlsberg brand increase 40 per cent
and its off-trade business increase 46 per cent.
Gist, BOC’s specialist logistics business, used to be responsible
only for storing the beer at the national distribution centre in
Northampton, where it arrives from the breweries in Northampton
and Leeds. Earlier this year Gist expanded its contract to move the
bottles, kegs and cans from Northampton out to Carlsberg-Tetley’s
local depots from where the beer is delivered to pubs.
To meet the record summer demand, Carlsberg-Tetley’s canning and
bottling plants worked at full capacity and Gist responded to the
increased volume. It collected and delivered increased imports of beer
arriving from Denmark and even helped move empty cans and bottles
to the filling sites. Businesses want flexibility and the ability to meet
rapid changes in demand. Gist is able to deliver. As Colin Povey,
chief executive of Carlsberg-Tetley in the UK, says: “We’ve worked
with Gist for seven years. They understand our needs and adapt to
meet our changing demands. We look forward to continuing our
partnership with Gist.”
our customers continued
12 The BOC Group plc Annual review 2003
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Managing the supply chain
Only some of the gases sold by BOC come from
separating air into its constituent parts.
Helium may be the second lightest of all the
gases, but on our planet economic quantities
are only found under the earth. It is
brought to the surface from natural gas
wells where it is extracted and refined. But
only some natural gas deposits are
sufficiently rich in helium to make this
worthwhile. Sales of helium grow steadily
while new sources of supply become available
only occasionally.
We have access to, and sell, more
helium than anyone else. Even so we have
to work hard to keep supply ahead of
demand. That is why we enter into
long-term contracts with key supplying
countries. This year we have renewed our
agreement to take all Poland’s exportable
helium and signed up for a new source in
Qatar that will be available later this
decade.
Like helium, liquefied petroleum gas (LPG)
also comes from beneath the earth. LPG is
traded internationally and the price of the
raw material, which is tied closely to that
of crude oil, fluctuates widely driven by
supply and demand. The challenge for us is
to adapt to these price fluctuations,
particularly in BOC’s largest LPG markets in
South Africa, Australia and Thailand. Being
able to respond quickly to such changes in
price directly affects the profitability of
the business – and by sharing skills and
understanding across the world we have been
able to maintain a growing and profitable
LPG business.
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our innovations
Each year teams of innovators from throughout BOC develop fresh
ideas, new solutions and better ways of doing things. And each year
BOC recognises many of them through local innovation awards.
Not everyone winning an award sees him or herself as an innovator,
many are just tackling the regular problems presented by a complex
business but succeeding in exceptionally creative ways.
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our culture
BOC is growing both organically and by acquisition. Growth produces change
and BOC handles change well, an important skill when integrating new acquisitions
quickly and effectively. There have been many acquisitions in recent years and many
lessons learnt and subsequently applied. This year BOC acquired Air Products’
packaged gas business in Canada and Praxair’s Polish gases business. It immediately
set about integrating them with BOC’s existing business. In China, on the other hand,
we are growing a successful business with talented local managers.
Growing in Poland
BOC entered the Polish market in 1993 when the state-run industrial
gases business was privatised. In January 2003 BOC completed the
acquisition of Praxair Polska and two businesses that had been
competitors found themselves on the same side. On the same side,
maybe, but not yet part of the same family.
Some of the areas to address became clear during the
negotiation process. Others were identified quickly when the new
members of BOC’s Polish team undertook the same ‘Voice of BOC’
survey that the existing workforce had completed a few months
earlier. Differences in the results were then discussed in groups drawn
from all employees.
Half a dozen main themes emerged. High on the list were
concerns about job security and how fair the selection process would
be for jobs in the new organisation. A message from everyone was
that uncertainty was the worst thing.
BOC gave an early commitment that the best person would
be selected for each job, however long they had been with either
company, and that the process would be fair and open.
Less than a year has passed and the signs are promising.
The difficult decisions that come with bringing two businesses
together have been made, explained and mostly implemented.
The new BOC Polish business is well established and concentrating
on serving its customers.
Winning with people
Good people make a difference. Finding good people and making
them better makes an even bigger difference. BOC works in some
of the most competitive job markets of the world and does a good
job of recruiting, training and retaining some of the best people in
our industry. The challenge in a fast growing market such as China
is even greater.
We knew early on that parachuting in teams of western technical
experts was not the way to win business in China in the long term.
Talented local managers would be the key. China produces well
qualified technical people but the demand for them has risen as
China’s economy has grown.
Over the years we have run MBA-type training courses for
our Chinese managers. We have funded PhD courses in the UK for
exceptional chemical engineers graduating from Chinese universities.
Now, as our business expands, we have a concentrated development
programme recruiting and developing our management team for
the future and identifying those with leadership potential. It is the
way we will keep our leading position in the world’s fastest
developing market.
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Doing the right thing
Early in 2002 a working group drawn from all parts of BOC started
work on the Group’s Code of Conduct. We already had a variety
of policies and standards, but the task was to produce a common
set that every employee should follow, wherever BOC does business.
The code, published this summer, is based on important social,
environmental and good governance principles. We are training all
45,000 BOC employees on what the code means for them and we
have translated it into many of the languages used in the countries
where we do business.
Because we involved people from throughout BOC in
developing the code we identified early any issues and worries.
If employees have concerns, they are encouraged to raise them with
their supervisors. We have a strict non-retaliation policy, protecting
any employee who raises issues in good faith, and this is supported
by a free confidential helpline run by an independent company.
Doing the right thing is important in BOC. The code has been
developed in line with BOC’s guiding principles of accountability,
collaboration, transparency and stretch, ACTS. Our employees
now know exactly what is expected of them and what BOC stands
for – high legal and ethical standards in business.
The BOC Foundation for the Environment
The BOC Foundation was established in 1990 and, with its partners,
has funded nearly 120 environmental projects since then to the tune
of more than £12 million. The environment is a big subject and the
Foundation concentrates its funds on projects that improve air and
water quality. Air is important to BOC as it is the source of important
gases, such as oxygen, nitrogen and argon, and water is both an
essential part of many of our production processes and a growing
market for us.
The Foundation wants to make a practical contribution.
It encourages those with good scientific ideas who need financial
help to turn academic or early results into workable environmental
solutions. It expects the projects it supports to make a measurable
difference within a few years and to benefit the community as a
whole, not just the recipient of the grant. The Foundation has worked
in partnership with government departments, local authorities,
environmental charities and commercial organisations.
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| 2003 | Change on | Change on | |||||||||||
| Process Gas Solutions | £ million | previous year | previous year | 1 | |||||||||
| Turnover | 1,242.7 | +4 | % | +8 | % | ||||||||
| Operating profit | 177.1 | +10 | % | +15 | % | ||||||||
| Adjusted operating profit2 | 184.0 | –1 | % | +3 | % | ||||||||
1. At constant currency.
2. Adjusted operating profit excludes exceptional items.
As well as reporting results on a statutory basis, we believe that shareholders 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.
Where the latter adjustment is made, results are referred to
as ‘adjusted’.
Turnover and operating profit details for each line of
business and specialist business on each basis will be found
near the start of each section. The discussion of business
performance that follows is based on figures adjusted for
exceptional items and constant currency.
Process Gas Solutions
Process Gas Solutions raised turnover by eight per cent
this year and adjusted operating profit by three per cent.
Because we serve many of the world’s largest industrial
companies we anticipate and respond to the main themes of
the global economy. Traditional industries continue to move
from the industrialised West to growing economies in the East
and we are able to welcome them, having established a leading
position in Asia many years ago. Companies seeking innovative
supply solutions to their industrial gases needs find our
engineering creativity and access to world-class technology
deliver the best answers. Linked to everything is the continuing
drive to do things more efficiently and at lower cost.
The greatest opportunities are to be found in Asia and
the headquarters of Process Gas Solutions moved to Singapore
to be close to where much of the business is being done.
While Asia as a whole promises growth, China offers some of
the greatest opportunities. Our joint venture in Nanjing with
YPC, a subsidiary of Sinopec, China’s leading petrochemical
company, continues to perform well and we added extra
capacity for liquid production onto the existing plant. The steel
industry is also showing strong underlying growth, as in other
parts of Asia. To meet our growth targets in China we are
investing heavily in recruiting and developing local management talent and giving them the opportunity for international development through postings to BOC businesses around the world.
In Thailand we commissioned a hydrogen and carbon
monoxide, or HyCO, plant at Map Ta Phut and are building a
new 300 tonnes-a-day carbon dioxide plant to meet increased
demand for food freezing. Taiwan, Korea and Malaysia all saw
good growth as did India, where the economy improved and
we achieved sales success in the merchant market and brought
on stream a new 225 tonnes-a-day plant to supply Tata Steel.
The difficulties experienced by industry in the UK have
been well documented, yet despite seeing some customer
closures and the transfer of other businesses overseas, we still
increased both turnover and adjusted operating profit in the
UK. The full-year effect of investments made last year helped,
while detailed attention to cost and high levels of customer
service were equally important. Ireland, by comparison, saw
declines in turnover and adjusted operating profit for the first
time in many years as growth reined back, particularly in the
electronics sector. As Poland prepares for EU membership
next year, the acquisition of Praxair Polska gave us for the
first time a source of carbon dioxide in the country and a
complementary fit with our existing business. Our specialist
engineering business Cryostar had strong demand for its
turbines and compressors, particularly from China and for
ships being built to carry liquefied natural gas.
The messages from the US economy remained mixed
throughout the year, although both turnover and adjusted
operating profit rose. Volumes from existing customers
remained flat and a number of companies, notably in the steel
industry, sought Chapter 11 bankruptcy protection. In contrast,
new business wins for liquefied gases were at a record high and
we won a significant contract from Celanese for their Clear
Lake plant in Texas. We are supplying Clear Lake with carbon
monoxide and steam as well as feeding hydrogen into the
important chemical complex on the Gulf coast.
22 The BOC Group plc Annual review 2003
Table of Contents
| 2003 | Change on | Change on | ||||||||||
| Industrial and Special Products | £ million | previous year | previous year1 | |||||||||
| Turnover | 1,751.2 | +9 | % | +9 | % | |||||||
| Operating profit | 238.2 | +4 | % | +3 | % | |||||||
| Adjusted operating profit2 | 242.7 | –2 | % | –3 | % | |||||||
1. At constant currency.
2. Adjusted operating profit excludes exceptional items.
Our ‘premier beverage service’ for
carbon dioxide continues to develop, with
deliveries to the world’s leading
carbonated drinks suppliers analysed and
certified to their exacting
specifications.
The steel industry in both Australia and
New Zealand continued to perform well despite
the strength of the Australian dollar that
affected all exporters, especially mineral
producers. Oxygen and nitrogen demand
increased at BHP’s plant at Port Kembla as
pulverised coal replaced coke as the primary
fuel. Many of BOC’s major plants around the
world are now controlled remotely from
centralised operations centres and this year
control of all our production plants in New
Zealand was transferred to the Australian
centre based near Sydney.
South Africa saw strong growth in
the first six months slow in the second
half as a strengthening rand hindered
exports from major gas-using industries,
such as mineral and precious metal
producers.
Industrial and Special Products
Industrial and Special Products (ISP)
produced good growth in turnover and adjusted
operating profit from most of its key
markets. The US was the exception, as slower
growth combined with residual issues from
installing a new computer system to have an
adverse impact on adjusted operating profit.
Overall, ISP’s turnover was up by nine per
cent and adjusted operating profit down by
three per cent.
ISP’s four business sectors established
last year – industrial, medical, hospitality
and special gases – set the global
strategies. These strategies are then
implemented through geographically-based
business units. While some markets retain
strong local characteristics, all benefit
from increased global leadership and common
best operating practice programmes to grow
the business and to improve service, safety
and operational and commercial efficiency.
BOC acquired Praxair Polska in January
2003 and the packaged gas business of Air
Products in Canada in April 2003,
strengthening ISP’s position in these two
important markets.
In Europe, all countries increased
turnover and overall adjusted operating
profit was up. The continuing decline of the
UK manufacturing sector was more than offset
by the development of service-related
sectors. Increasingly our business is about
more than just delivering cylinders of gas to
customers and collecting them when they are
empty. Hospitals, for instance, value our
ability to replenish their gas supplies at
night without disrupting their busy routine
and our willingness to manage all aspects of
their medical gases if that is what they
want. BOC Sureflow, which sells mainly to
pubs and clubs, was founded on its service
promise and continues to win new business as
a result. Our national network and technical
expertise in special gases delivered strong
growth in refrigerants and helium.
Refrigerants benefited from a major
distribution contract signed last year and
helium from a long-term supply contract
signed this year.
Ireland’s economy slowed after many
years of high growth while in Poland the
major impact came from the acquisition and
successful integration of Praxair Polska.
South Africa had a very good year with
significantly increased turnover and
adjusted operating profit, although the
economic conditions that boosted exports and
industrial production in the first six
months were less favourable later in the
year. Manufacturing, and in particular the
motor industry, is of increasing importance
alongside the traditional markets in
fabrication and mining.
The increased strength of the
Australian dollar and continuing drought
produced slower growth this year in
Australia, but both turnover and adjusted
operating profit increased, as they did in
New Zealand. The distances covered to serve
customers in Australia can be vast and much
effort has gone into developing a fairer and
more transparent pricing structure to
reflect the costs involved. Elgas, our
liquefied petroleum gas business in
Australia, performed very well, largely
through its improved ability to respond to
rapid changes in raw material cost, such as
those this year linked to the Iraq war.
23 The BOC Group plc Annual review 2003
Table of Contents
| 2003 | Change on | Change on | ||||||||||
| BOC Edwards | £ million | previous year | previous year1 | |||||||||
| Turnover | 684.1 | –1 | % | +4 | % | |||||||
| Operating profit | 7.9 | Note 3a | Note 3b | |||||||||
| Adjusted operating profit2 | 18.5 | –29 | % | –26 | % | |||||||
1. At constant currency.
2. Adjusted operating profit excludes exceptional items.
3a. Loss of £1.4 million in previous year.
3b. Loss of £2.2 million in previous year.
Manufacturing continues to move to Asia from higher-cost regions and our industrial volumes in south-east Asia have benefited accordingly. Our investments in special products have generated good growth, notably in refrigerants where we opened new facilities in Hong Kong, Malaysia and the Philippines. We have successfully integrated NIOI, a company we acquired last year, into our business in Malaysia and BOC management is now fully in place in Unique, the Thai ammonia and liquefied petroleum gas business also purchased in 2002.
In north America, Canada grew both turnover and
adjusted operating profit. Some of this came from the first full
year of the special gases business we acquired in April 2002,
but more significant was the contribution from Air Products’
packaged gas business acquired in 2003. In the US gas revenues
increased but adjusted operating profit was down significantly.
Partly this reflected the sluggish economy but it was also due
to costs associated with the extended introduction of a major
computer system. Good progress was made in south America,
notably in Venezuela, despite difficult economic conditions,
and Chile. We also entered the liquefied petroleum gas
market in Colombia when we acquired a local distributor.
BOC Edwards
BOC Edwards experienced a second year during which its
most important market, the semiconductor industry, has been
in a downturn. Turnover increased by four per cent and
adjusted operating profit declined by 26 per cent. Increased
demand for devices saw existing semiconductor fabs operating
at higher utilisation levels later in the year. Electronic gases
and our Kachina parts cleaning business, which are involved in
the production processes at these fabs, saw some volume
increases although pressure on prices remained strong.
New investment by the semiconductor industry was aimed
at expanding or upgrading existing fabs rather than building
new ones, so orders for vacuum equipment and chemical
management systems remained at a low level.
Where new fabs were built, BOC Edwards improved its position. It is present in all the latest generation 300mm fabs in the US and Europe, a better position than it had when the earlier generation 200mm fabs were first being introduced. In Asia strong demand came from manufacturers of flat panel displays, especially in Taiwan and Korea. We won orders for gas supply to three out of the four fabs built in China last year, which complements our already strong position in vacuum and exhaust management elsewhere in Asia.
The broadening of BOC Edwards’ range of products and
services continues. In the silicon and compound semiconductor
market our Zenith combined pump and exhaust treatment
products are proving very successful with device and
equipment manufacturers. We won contracts in Europe and
Asia to manage rather than just supply a range of gases,
chemicals and other material required by semiconductor
manufacturers. We improved our position in vacuum
lithography and can now offer a full service for cleaning wafers
using supercritical carbon dioxide. We increased production
of nitrogen trifluoride, NF3, at our plant in South Africa and
placed fluorine generators on trial to enable customers to
evaluate the technology. The turbomolecular pump business
we bought from Seiko Instruments is now fully integrated into
BOC Edwards and is operating profitably.
The scientific market for vacuum pumps continued
to grow while other industrial markets were less buoyant.
In response we cut costs and rationalised production.
We are increasingly making pumps for the general vacuum
market in the Czech Republic, taking advantage of lower
manufacturing costs.
BOC Edwards’ pharmaceutical packaging business started
the year more slowly as a number of projects were delayed.
Demand for its complex loading systems and freeze dryers
improved later in the year and the underlying trend is positive.
24 The BOC Group plc Annual review 2003
Table of Contents
| 2003 | Change on | Change on | ||||||||||
| Afrox hospitals | £ million | previous year | previous year1 | |||||||||
| Turnover | 353.4 | +36 | % | +16 | % | |||||||
| Operating profit | 46.1 | +55 | % | +31 | % | |||||||
| Adjusted operating profit2 | 46.1 | +55 | % | +31 | % | |||||||
1. At constant currency.
2. Adjusted operating profit excludes exceptional items.
| 2003 | Change on | Change on | ||||||||||
| Gist | £ million | previous year | previous year1 | |||||||||
| Turnover | 291.8 | +10 | % | +10 | % | |||||||
| Operating profit | 29.2 | +15 | % | +13 | % | |||||||
| Adjusted operating profit2 | 29.2 | +15 | % | +13 | % | |||||||
1. At constant currency.
2. Adjusted operating profit excludes exceptional items.
Afrox hospitals
Both turnover and adjusted operating
profit rose significantly as Afrox hospitals
continued to prosper in a market showing
little underlying growth. It made some small
acquisitions and built a new 140-bed clinic
on the East Rand, but this compares with
over 1,000 acute beds added through
acquisition in the previous year. Progress
came mainly from providing higher value
services to patients.
An increasing percentage of revenue came
from a new risk-sharing fee structure
introduced this year. Up until now we have
been paid for services used by patients:
there was a tariff for every bed day, for
each minute in the operating theatre and for
every item used. There was therefore no
incentive to limit the length of stay or to
control input costs. Under the new tariff
structure the cost for an agreed medical
intervention is fixed, so there is one cost
for an operation such as a hip replacement,
whether there are complications or not.
Already over a third of our tariffs are on
this risk-sharing basis and we expect that
figure to rise to two-thirds or more.
The direct medicines dispensing business
was restructured during the year to adapt to
changed medical insurance and reimbursement
procedures. As a result, profit increased.
Afrox hospitals is also exploring
opportunities to extend its operating and
management processes to other markets. In a joint
bid with Care UK it was chosen by the UK
national health service as preferred bidder
for three day treatment centres in England.
It will be paid a management fee for its
services.
On 17 November 2003 African Oxygen
Limited announced that, subject to
conditions, it had agreed to sell its entire
holding in Afrox Healthcare Limited to a
consortium of Black Economic Empowerment
investors.
Gist
Gist improved both turnover, up ten
per cent, and adjusted operating profit, up
13 per cent. 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 has the skills and knowledge to
meet the needs of modern retailers. As
supply chains become more complex and
consumers require increasing levels of
service and availability, products on sale
in the high street are brought from
wherever the best value can be obtained.
This year Gist won new contracts from,
among others, New Look, a fashion chain, and
Carlsberg-Tetley, one of the UK’s largest
brewers. Gist’s flexibility and ability to
manage supply chains of varying complexity
are at the heart of these successes. New Look
brings its products to the UK from around 20
countries. Gist manages the whole process
through a network of partners, solving any
problems of quality long before the goods
arrive in the high street. At
Carlsberg-Tetley, Gist had to meet the
demands of one of Britain’s hottest, and
thirstiest, summers. Beer sales hit
exceptional peaks and Gist showed the
flexibility and dedication needed to meet
demands.
This was the first full year when Gist
handled all of Marks & Spencer’s chilled and
ambient foods. Based on a relationship that
stretches over 30 years, Gist is M&S’s
largest supply chain provider, although this
year it stopped handling any of the
retailer’s general merchandise business in
the UK. It provides similar services for
Budgens, the UK convenience store group,
managing all its warehouse and distribution
operations, and e-fulfilment for Ocado, the
on-line grocery shopping company.
25 The BOC Group plc Annual review 2003
Table of Contents
Board of directors
Rob Margetts CBE no (01)
57, chairman.
Appointed chairman in January 2002. He is chairman of Legal
& General Group plc, a non-executive director of Anglo
American plc, chairman of the Natural Environment Research
Council and a governor of Imperial College, London. Previously
he was with ICI PLC for 31 years, becoming a main board
director in 1992 and vice chairman in 1998. He is a fellow
of both the Royal Academy of Engineering and the Institution
of Chemical Engineers.
Tony Isaac no4Δ (02)
61, chief executive.
Appointed an executive director in October 1994 and became
chief executive in May 2000. He was previously finance
director of Arjo Wiggins Appleton plc, which he joined shortly
before the de-merger from BAT Industries p.l.c. in 1990.
Prior to that he had been finance director of GEC Plessey
Telecommunications Ltd since its formation in 1988.
He is a non-executive director of International Power plc
and Schlumberger Ltd.
Fabiola Arredondo lOn (03)
36, non-executive director.
Appointed in November 2001. She is the managing partner
of FRA Holdings LLC, a private investment firm, and was
previously the managing director of Yahoo! Europe, a director
of BBC Worldwide and held senior executive positions at
BMG Entertainment. She is a non-executive director of Intelsat
Corporation, Bankinter SA and the World Wildlife Fund UK
and is also a member of the US Council on Foreign Relations
and the World Economic Forum. She has a BA in political
science from Stanford University and an MBA from the
Harvard Business School.
Julie Baddeley lOno (04)
52, non-executive director.
Appointed in May 2001. She was an executive director
of Woolwich plc until October 2000, responsible for
e-commerce, information technology and human resources,
and was previously head of change management for Maritime
Region, Accenture. She is a non-executive director of the
Yorkshire Building Society, the Government Pensions Group,
and chairman of three venture capital trusts. She is also an
Associate Fellow of Templeton College, Oxford and a
Companion of the Institute of Management. She has an
MA honours degree in zoology from Oxford University.
John Bevan 4Δ (05)
46, chief executive, Process Gas Solutions.
Appointed an executive director in December 2002.
He joined BOC in 1978 as a graduate in the Australian
gases business and has held various positions in general
management in Australia, Korea, Thailand and the UK and
was formerly chief executive Asia, based in Singapore. He has
a degree in commerce (marketing) from the University of
New South Wales.
Andrew Bonfield lO n (06)
41, non-executive director.
Appointed in July 2003. He is senior vice-president and chief
financial officer of Bristol-Myers Squibb Company. He qualified
as a chartered accountant in South Africa, working for Price
Waterhouse, before joining SmithKline Beecham in 1990 and
rising to become chief financial officer in 1999. He joined BG
Group plc in 2001 as executive director – finance before
assuming his current role at Bristol-Myers Squibb Company
in September 2002.
26 The BOC Group plc Annual review 2003
Table of Contents
René Médori o4Δ (07)
46, group finance director.
Appointed an executive director in July 2000. He joined BOC
in 1987 and has held several finance appointments in the
Group. He was appointed finance director of BOC’s gases
business in the Americas in 1997. Before joining BOC, he
worked for Accenture and Schlumberger Ltd. He is a finance
graduate of the Université de Paris-Dauphine and has a
doctorate degree in economics. He is a non-executive director
of Scottish & Southern Energy plc.
Roberto G Mendoza l Ono (08)
58, non-executive director.
Appointed in October 2002. He is a founding partner of
Integrated Finance Ltd, the non-executive chairman of Egg Plc,
and a board member of Prudential Plc, Reuters Plc and Vitro
S.A. He joined J.P. Morgan in 1967 and served as vice chairman
of the board from 1990 to 2000. He was a managing director
of Goldman Sachs & Co from 2000 until he resigned to
co-found Integrated Finance Ltd in 2001. He was born in Cuba,
obtained a BA in history from Yale and an MBA with high
distinction from the Harvard Business School.
Matthew Miau lOn (09)
57, non-executive director.
Appointed in January 2002. He is chairman of MiTAC-Synnex
Group, one of Taiwan’s leading high-tech industrial groups.
He is also a Convenor of Civil Advisory Committee of
National Information and Communications Initiatives (NICI)
and a member of the Board of Supervisors of the Industrial
Technology Research Institute (ITRI) and the Board of
Directors of the Institute for Information Industry (III), Taiwan.
He obtained a BS in electronic engineering and computer
science from U.C. Berkeley, an MBA degree from Santa Clara
University and holds an honorary doctorate degree from the
National Chiao Tung University, Taiwan.
Sir Christopher O’Donnell lOn (10)
57, non-executive director.
Appointed in March 2001. He is chief executive of Smith &
Nephew plc. Previously he held senior positions with Davy
Ashmore, Vickers Limited and C R Bard Inc. He has an
honours degree in mechanical engineering from Imperial
College, London and an MBA from the London Business
School. He is a chartered engineer and a member of the
Institution of Mechanical Engineers.
Dr ‘Raj’ Rajagopal4Δ (11)
50, chief executive, BOC Edwards.
Appointed an executive director in July 2000. He joined BOC
in 1981 and has held several positions in BOC Edwards.
He was appointed managing director, Edwards Vacuum
Products in 1993 and managing director, vacuum technology
division in 1996. He was appointed a non-executive director
of FSI International Inc in January 2001. He has a PhD in
mechanical engineering from the University of Manchester.
He is a Fellow of the Royal Academy of Engineers as well as
the Institution of Electrical Engineers, Mechanical Engineers
and the Chartered Institute of Management. Dr Rajagopal was
awarded the Sir Eric Mensforth International Manufacturing
Gold Medal in March 2003.
John Walsh 4Δ (12)
48, chief executive, Industrial and Special Products.
Appointed an executive director in July 2001. He was
previously president, Process Gas Solutions, north America.
He joined BOC in 1986 as vice president, special gases and
has held various senior management positions in the Group,
including president, BOC Process Plants. He has a BA in
economics and an MBA, both from Harvard Business School.
| Board committees | ||
| l | Audit committee | |
| O | Remuneration committee | |
| n | Nomination committee | |
| o | Pensions committee | |
| 4 | Executive management board | |
| Δ | Investment committee | |
27 The BOC Group plc Annual review 2003
Table of Contents
Executive management board
John Bevan (01)
46, chief executive, Process Gas Solutions since January 2003.
Appointed to the executive management board in June 2000.
See page 26 for biographical details.
Nick Deeming (02)
49, group legal director and company secretary since May 2001.
Appointed to the executive management board in May 2001.
He has over 16 years in-house counsel experience, including
Schlumberger, SEMA and Axa PPP Healthcare, specialising in
corporate and commercial law. He has a degree in law from
Guildhall University, an MBA from Cranfield University and
qualified as a solicitor in 1980.
Stephen Dempsey (03)
52, group director, corporate relations since February 1999.
Appointed to the executive management board in October
1999. He joined BOC in 1990 as director of marketing
services for the UK gases business and has held various
communications roles in the Group. He has an MA in
geography from Oxford University and an MBA from
Cranfield University.
Peter Dew (04)
43, group director, information management since February 1998.
Appointed to the executive management board in October
1999. He joined BOC in 1986. He has held information
technology roles in the Group’s businesses in South Africa,
the UK and most recently as information management director
for the Group’s businesses in Asia/Pacific.
Tony Isaac (05)
61, chief executive since May 2000.
Appointed to the executive management board in July 1996.
See page 26 for biographical details.
Rob Lourey (06)
46, group human resources director since June 2000.
Appointed to the executive management board in June 2000.
He joined BOC in Australia in 1996 and most recently was
human resources director for Asia/Pacific. He has a bachelor
of business degree in personnel management.
28 The BOC Group plc Annual review 2003
Table of Contents
Kent Masters (07)
42, president, Process Gas Solutions, north America since July 2001.
Appointed to the executive management board in December
2002. He joined BOC in 1985 and has held positions of
increasing responsibility in engineering, marketing and general
management, most recently, president, BOC Process Plants.
He holds an engineering degree from Georgia Institute of
Technology and an MBA from New York University.
René Médori (08)
46, group finance director since June 2000.
Appointed to the executive management board in June 2000.
See page 27 for biographical details.
Dr ‘Raj’ Rajagopal (09)
50, chief executive, BOC Edwards since June 1998.
Appointed to the executive management board in July 1996.
See page 27 for biographical details.
Greg Sedgwick (10)
42, group director, business development since June 2000.
Appointed to the executive management board in June 2000.
He also has responsibility for Afrox Healthcare Ltd. He joined
BOC in 1984 and has held a variety of senior management
roles in the south Pacific region, most recently managing
director, Industrial and Special Products. He was previously
market sector director, minerals and a director of BOC India.
He has a degree in marketing and a masters degree in business
planning from the University of New South Wales.
John Walsh (11)
48, chief executive, Industrial and Special Products since June 2001.
Appointed to the executive management board in June 2000.
See page 27 for biographical details.
29 The BOC Group plc Annual review 2003
Table of Contents
Summary financial statements
The following pages contain summary financial statements for the
year. All of the information has been extracted from the full report
and accounts. These summary financial statements by definition
do not present the detail that is included in the full report and
accounts and which would permit a comprehensive analysis of the
Group’s performance. Registered shareholders can obtain a copy of
the full report and accounts free of charge or choose to receive it
in future years by writing to Lloyds TSB Registrars at the address
on page 40.
| Contents | ||
| 31 | Report of the directors | |
| 32 | Independent auditors’ statement | |
| 33 | Directors’ remuneration | |
| 35 | Group profit and loss account | |
| 36 | Group balance sheet | |
| 37 | Group cash flow statement | |
| 37 | Reconciliation of net cash flow to movement in net debt | |
| 38 | Notes to the financial statements | |
| 40 | Shareholder information | |
30 The BOC Group plc Annual review 2003
Table of Contents
Report of the directors
The summary financial statements comprise the profit and
loss account, balance sheet, cash flow statement and notes
to the financial statements. Together they show the financial
performance of the Group in 2003 and trends over a
three-year period. A report on directors’ remuneration is
also included.
Business review
A review of the Group’s business activities and their
performance can be found on pages 22 to 25. See also
note 6 on post balance sheet events. The report of the
directors deals with other issues that the board and
management regard as important to the conduct of the
company’s affairs.
Employment policies
BOC’s employment policies are designed to underpin the
Group’s operating requirements and growth strategies. Where
practicable, policies are adapted to meet local requirements.
Communication and involvement BOC places a high priority on communicating with its people and has invested in web-based communications technology to convey consistent and coherent messages to employees around the world.
Resourcing, training and development Programmes are designed to ensure that the Group has a pool of well-qualified, gifted individuals able to meet both its day-to-day operational needs and its plans for the future.
Reward and recognition Reward and recognition programmes are designed to endorse outstanding individual and team performance.
Retirement benefit plans BOC fully supports its people’s efforts to provide for their retirement and provides a range of opportunities for them to participate in programmes tailored to suit local conditions.
Employee share schemes Employees are encouraged to share the financial benefits of the Group’s success through a number of option and incentive schemes.
Diversity BOC values the diversity of its workforce and is committed to maintaining a workplace free from discrimination for reasons of race, creed, culture, nationality, gender, sexual orientation or marital status.
Safety and environment
The Group continues to place the highest priority on issues
of safety. The nature of our business activities means that
our employees encounter many hazards in the workplace.
These include flammable and toxic gases and operations that
often involve high pressures and extreme temperatures.
Common to all our businesses is the movement of products
and the various hazards associated with driving, distribution and
service operations. Significant efforts are made to improve
safety performance. This year safety statistics incorporated
recent mergers, acquisitions and all joint ventures for the
first time.
BOC has a comprehensive environmental programme
and conducts an annual survey to highlight any potential
environmental impacts from our sites. It is believed that
the Group is in substantial compliance with all material
environmental laws and regulations. BOC also contributes
technology and processes to meet the environmental needs
of customers.
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’.
Corporate donations
The BOC Group and its businesses made donations of
£1.12 million, of which £476,000 went to UK-registered
charities. A further £180,000 was used to support projects
identified by The BOC Foundation for the Environment.
As in previous years, no political donations were made in
the European Union.
Dividends
Two dividends were paid in 2003. A first interim dividend of
15.5p per share was paid in February and a second interim
dividend of 23.5p per share was paid in August. A first interim
dividend of 15.5p per share has been declared for payment on
2 February 2004 and participation in the dividend reinvestment
plan will be available to shareholders whose applications have
been received by Lloyds TSB Registrars by 12 January 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 in corporate governance.
The board has applied the principles contained in Section 1
of the Combined Code on Corporate Governance appended
to the UK Listing Authority Listing Rules and has complied
throughout the year, with the exception that Dick Grant, a
director who resigned with effect from 31 December 2002,
had a service contract that could be terminated by the
company on two years’ notice.
Although the new Combined Code is only effective for
reporting years beginning on or after 1 November 2003,
BOC has already made changes to its corporate governance
procedures such that at this time the company is significantly
advanced towards compliance with the new code.
Risk management and internal control The board of directors has overall responsibility for the Group’s system of risk management and internal controls.
The BOC risk management programme assists
management throughout the Group to identify, assess and
mitigate business risk. Since its introduction in 2001, over
170 risk workshops and reviews have been conducted across
the Group. The output from each assessment is a list of
prioritised risks with associated action plans to manage them.
A report to the board is made twice a year of the key risks
facing the Group and actions to manage these key risks.
The directors have delegated to executive management
the establishment and implementation of a system of internal
controls. The internal control system is monitored and
supported by an internal audit function that operates on a
global basis and reports its results to management and the
audit committee of the board. The system is rigorous and
designed to ensure that directors maintain full and effective
control over all significant strategic, financial, organisational
and compliance issues.
Having reviewed its effectiveness, the directors are not
aware of any significant weakness or deficiency in the Group’s
system of internal controls.
31 The BOC Group plc Annual review 2003
Table of Contents
Report of the directors continued
The board and committees A complete list of the company’s
directors, with their biographies, photographs, and board
committee memberships can be found on pages 26 and 27.
A summary and explanation of their remuneration is given on
pages 33 and 34.
Board committees
Audit committee The audit committee meets four times a
year. Time is set aside at two of these meetings for the
committee to meet with the internal and external auditors
without executive management present. The committee
reviews the effectiveness of internal controls, matters raised by
the internal and external auditors in their regular reports to
the committee and the quarterly financial statements prior to
their release. The committee reviews the programme and
effectiveness of risk management within the Group as well as
ensuring that an appropriate relationship between BOC and
the external auditors is maintained. The committee comprises
only independent non-executive directors and is chaired by
Sir Christopher O’Donnell.
Nomination committee The nomination committee meets periodically as required, and in the year ended 30 September 2003 met six times. The committee primarily monitors the composition and balance of the board and its committees and identifies and recommends to the board the appointment of new directors. All independent non-executive directors, the chairman and the chief executive serve as members of this committee. The committee is chaired by Rob Margetts. Whilst the chairman of the board chairs this committee he is not permitted to chair meetings when the appointment of his successor is being reviewed.
Remuneration committee The remuneration committee meets six times a year. The committee recommends to the board the policy on executive directors’ remuneration and the specific
remuneration, benefits and terms of employment of each
executive director. The committee comprises only independent
non-executive directors and is chaired by Julie Baddeley.
Pensions committee The pensions committee meets twice a year and oversees the review of governance and control procedures applying to all employee retirement benefit plans and reviews and makes recommendations on the investment policies and strategies applied to the Group’s retirement benefit plans. The committee comprises two independent non-executive directors, the chairman, chief executive and Group finance director. The committee is chaired by Julie Baddeley.
Executive management board The executive management board meets regularly having primary authority for the day-to-day management of the Group’s operations and policy implementation pursuant to the Group’s strategy agreed by the board. The committee comprises the chief executive, the other executive directors and certain senior managers and is chaired by Tony Isaac. Further details are given on pages 28 and 29.
Investment committee The investment committee meets regularly and reviews and approves Group commitments up to certain levels set by the board. The committee comprises the chief executive, the other executive directors and certain senior managers and is chaired by Tony Isaac.
Auditors
The auditors’ report on the full financial statements was
unqualified and did not contain any statement concerning
accounting records or failure to obtain necessary information
or explanations.
By order of the board
Nick Deeming Secretary
21 November 2003
Independent auditors’ statement
To the members of The BOC Group plc
We have examined the summary financial statement of The BOC Group plc and the amounts disclosed relating to directors’ remuneration in the directors’ remuneration statement.
Respective responsibilities of directors and auditors
The directors are responsible for preparing
the annual review and summary financial
statements in accordance with applicable law.
Our responsibility is to report to you our
opinion on the consistency of the summary
financial statement within the annual review
and summary financial statements with the
annual financial statements, the directors’
report and the directors’ remuneration report
and its compliance with the relevant
requirements of Section 251 of the United
Kingdom Companies Act 1985 and the
regulations made thereunder. We also read the
other information contained in the annual
review and summary financial statements and
consider the implications for our report if
we become aware of any apparent misstatements
or material inconsistencies with the summary
financial statement.
This statement, including the opinion,
has been prepared for and only for the
company’s members as a body in accordance
with Section 251 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 statement is
shown or into whose hands it may come save
where expressly agreed by our prior consent
in writing.
32 The BOC Group plc Annual review 2003
Basis of opinion
We conducted our work in accordance with Bulletin 1999/6,
‘The auditors’ statement on the summary financial statement’
issued by the Auditing Practices Board for use in the
United Kingdom.
Opinion
In our opinion the summary financial statement is consistent
with the annual financial statements, the directors’ report and
the directors’ remuneration report of The BOC Group plc for
the year ended 30 September 2003 and complies with the
applicable requirements of Section 251 of the Companies Act
1985, and the regulations made thereunder.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
21 November 2003
London
21 November 2003
| Notes: | ||
| a. | The maintenance and integrity of the company’s website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. | |
| b. | Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. | |
Table of Contents
Directors’ remuneration
The report below is only a summary of the directors’
remuneration report as permitted by the Directors’
Remuneration Report Regulations 2002. The full report setting
out the composition of the remuneration committee, the
remuneration policy, together with full details of the directors’
emoluments, pensions, share options and shareholdings, is
contained within the report and accounts 2003 on pages 60
to 69. Copies of the full directors’ remuneration report can
be obtained, free of charge, from BOC or may be viewed
on, or downloaded from, BOC’s website, www.boc.com
The remuneration committee
The remuneration committee comprises, with the exception
of the Group chairman, Rob Margetts, all the independent
non-executive directors namely Julie Baddeley (chairman),
Fabiola Arredondo, Andrew Bonfield (appointed July 2003),
Roberto Mendoza (appointed October 2002), Matthew Miau
and Sir Christopher O’Donnell. Göran Lundberg had been the
chairman of the remuneration committee until his retirement
on 4 March 2003. Whilst neither the Group chairman nor the
chief executive are members of the remuneration committee
they both attend the meetings by invitation but are not present
when their personal remuneration is discussed and reviewed.
The human resources director acts as secretary to the
committee and provides it with information and data from
national and international surveys. In addition, during the year
the remuneration committee appointed Towers Perrin to
review the remuneration arrangements for senior executives.
No other services are provided by this adviser.
The remuneration committee sets the overall remuneration
policy of the Group and makes recommendations to the
board on the framework of executive remuneration. It meets
six times a year. 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.
Non-executive directors
Non-executive directors are generally appointed for an initial
period to the next Annual General Meeting and subject to
reappointment at the meeting, for a further three year term.
Subsequent reappointment is with the agreement of the board
and approval of shareholders. The fees are set at a level which
will attract individuals with the necessary experience and ability
to make a significant contribution to the Group’s affairs.
The responsibilities of, and the time commitment expected
from, non-executive directors have increased in recent times
and fees paid to non-executives are increasing to reflect this.
As a result, from 1 January 2004 the non-executive directors’
fees will increase from £37,000 to £40,000 per annum,
£10,000 of which, less tax, will be invested in BOC shares.
The fees for chairing a committee will increase from £8,000 to
£10,000 per annum, £5,000 of which, less tax, will be invested
in BOC shares. The fee for the chairman, Rob Margetts, is set
at £225,000.
The non-executive directors do not have contracts of service
nor do they participate in the Group’s variable compensation
arrangements, its long-term incentive arrangements or its pension
arrangements, nor do they receive any benefits in kind.
Remuneration policy
BOC’s remuneration policy for executive directors and other
executive management is designed to attract and retain executives
of the highest calibre so that the Group is managed successfully to
the benefit of its stakeholders. In setting remuneration levels the
remuneration committee takes into account the remuneration
practices found in other UK-listed companies of similar size,
internationality and complexity and seeks to benchmark executive
remuneration at about the median level for this group.
During 2002 the remuneration committee reviewed
the executive remuneration packages and decided that a
realignment was necessary to support the company’s business
strategy to improve both earnings growth and capital efficiency
and to ensure that the packages were market competitive.
To this end, a proposal to adopt new long-term incentive
arrangements was put to shareholders and approved at the
2003 Annual General Meeting. These arrangements comprise
a Long-Term Incentive Plan (LTIP) and an Executive Share
Option Scheme. They are intended to encourage innovation
and value-added growth and strengthen the link between
short-term performance and sustainable improvement in
shareholder value over the longer term. It is the view of
the remuneration committee that performance-related
remuneration should form a substantial element of total
remuneration. As such, these arrangements together with
the variable compensation plan, which is a performance
related cash plan, form the variable elements of executive
remuneration. It is expected that the achievement of ‘on target’
performance of these variable elements will amount to about
60 per cent of total executive remuneration.
No changes to the framework of executive remuneration
are proposed for 2004. The remuneration committee will,
however, review the policy on a regular basis and make any
amendments it deems appropriate to ensure that it meets the
objectives of recruiting, retaining and motivating high performing
individuals and ensuring that the Group is market competitive.
The graph above has been included to meet the requirement
set out in the Directors’ Remuneration Report Regulations
2002. It shows BOC’s total shareholder return (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
BOC’s TSR performance compared with the six major gases
companies relative to respective local indices, which is one
of the comparator groups chosen for the LTIP, is shown in
the chairman’s statement on page 5.
Long-term incentive arrangements The performance measures for the LTIP are based one third on earnings per share (EPS) before exceptional items, one third on return on capital employed (ROCE) before exceptional items and one third on the company’s TSR performance relative to 31 industrial and
33 The BOC Group plc Annual review 2003
Table of Contents
Directors’ remuneration continued
manufacturing companies and a global
industrial gases group of six leading
companies as follows:
| UK group | ||||
| Aggregate Industries | Hanson | Rolls-Royce | ||
| AMEC | IMI | Scottish & Southern | ||
| Anglo American | ICI | Energy | ||
| AWG | International Power | Scottish Power | ||
| BAE Systems | Invensys | Severn Trent | ||
| BG Group | Johnson Matthey | Shell Transport | ||
| BHP Billiton | Kelda Group | & Trading | ||
| BP | National Grid | Smiths Group | ||
| BPB | Transco | Tomkins | ||
| Centrica | Pilkington | United Utilities | ||
| Corus Group | Rio Tinto | |||
| FKI | RMC Group | |||
When determining BOC’s performance relative
to the global gases group, the TSR for BOC
and the comparator companies will be amended
(amended TSR) so that it reflects the excess
(or shortfall) in returns relative to the
local stock market index where each company
has its primary listing. The nationality and
the local stock market index that will be
used to calculate the amended TSR for each
company is shown in parentheses.
| Global gases group | ||||
| Airgas | (US – S&P 500 Index) | |||
| Air Liquide | (France – CAC 40 Index) | |||
| Air Products & Chemicals | (US – S&P 500 Index) | |||
| Linde | (Germany – DAX 30 Index) | |||
| Nippon Sanso | (Japan – NIKKEI 225 Index) | |||
| Praxair | (US – S&P 500 Index) | |||
| The BOC Group | (UK – FTSE100 Index) | |||
The performance measure for the Executive
Share Option Scheme 2003 is assessed on the
growth in basic EPS before exceptional items
as reported in the annual report and
accounts. The remuneration committee
considers these performance measures to be
important drivers of sustainable improvement
in shareholder value that focus executives’
attention and effort on profitable growth
and capital efficiency in both the short and
long term.
Service contracts
The company’s policy is for all executive
directors to have contracts of employment
that terminate on the attainment of
retirement age. In order to mitigate its
liability on early termination, the company’s
policy is that it should be able to terminate
such contracts on no more than 12 months’
notice, and that payments on termination are
restricted to the value of salary, car
benefit and bonus entitlement (calculated on
the basis of the average of actual payments
over the preceding two years) for the
unexpired portion of the notice period.
Shareholding guidelines
The remuneration committee encourages
executive management to grow a 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.
Pensions
During the year, five directors accrued
benefits under the defined benefit schemes
operated by the company. Contributions
amounting to £279,000 were paid by the
company to money purchase plans in respect of
three directors.
| Year ended | Year ended | Interests at | |||||||||||||||||||||||||||||||||||||||
| 30 September | 30 September | 30 September | |||||||||||||||||||||||||||||||||||||||
| 2003 | 2002 | 2003 | 2003 | ||||||||||||||||||||||||||||||||||||||
| Gains on | |||||||||||||||||||||||||||||||||||||||||
| share | |||||||||||||||||||||||||||||||||||||||||
| Basic | Allowances | Termination | options/ | Long-term | |||||||||||||||||||||||||||||||||||||
| salary | and benefits | 1 | Bonus | payments | Total | Total | incentives | Ordinary | Share | incentive | |||||||||||||||||||||||||||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | shares | options | plan awards | ||||||||||||||||||||||||||||||||
| Executive directors | |||||||||||||||||||||||||||||||||||||||||
| J A Bevan2 | 243 | 136 | 117 | – | 496 | – | – | 16,070 | 269,993 | 38,659 | |||||||||||||||||||||||||||||||
| A E Isaac | 654 | 122 | 367 | – | 1,143 | 1,806 | 63 | 5,700 | 1,096,535 | 127,867 | |||||||||||||||||||||||||||||||
| R Médori | 342 | 276 | 192 | – | 810 | 862 | 1 | 16,772 | 435,253 | 44,652 | |||||||||||||||||||||||||||||||
| Dr K Rajagopal | 327 | 15 | 184 | – | 526 | 590 | – | 14,416 | 526,589 | 42,622 | |||||||||||||||||||||||||||||||
| J L Walsh | 319 | 144 | 178 | – | 641 | 657 | 1 | 13,175 | 452,089 | 42,622 | |||||||||||||||||||||||||||||||
| Executive director retiring in 2003 | |||||||||||||||||||||||||||||||||||||||||
| R S Grant2 | 83 | 4 | 85 | 1,507 | 1,679 | 726 | – | 62,803 | 542,697 | – | |||||||||||||||||||||||||||||||
| Chairman retiring in 2002 Sir David John |
– | – | – | – | – | 76 | |||||||||||||||||||||||||||||||||||
| Total | 1,968 | 697 | 1,123 | 1,507 | 5,295 | 4,717 | 65 | ||||||||||||||||||||||||||||||||||
| 1. | Includes overseas and relocation expenses. | |
| 2. | Mr Bevan was appointed to the board on 5 December 2002. Mr Grant resigned from the board on 31 December 2002 and he left the company on 30 June 2003. Mr Grant’s termination entitlements were mitigated by an agreement that his contractual notice period would be treated as expiring on 30 September 2004. He accordingly received a payment of £448,000, representing salary and compensation for benefits in respect of the agreed 15-month notice period. Mr Grant was also entitled to purchase his company car for a nominal amount. In addition, Mr Grant’s benefit in the US top-hat pension plan was credited with 15 additional months of pensionable service in respect of his notional notice period. The top-hat pension plan was also adjusted to meet Mr Grant’s accrued entitlement. Additionally, he received the sum of £13,400 being the equivalent of the company’s contribution which would have been credited to Mr Grant’s US cash balance retirement plan during the period of his agreed notice period. These amounts are disclosed as ‘Termination payments’ and have been charged against profit in 2003. | |
| 3. | Total fees for non-executive directors’ services in the year were £443,000. Included in this amount were the chairman’s fees of £225,000. | |
| 4. | Total directors’ remuneration in 2003, including the charge to profit in respect of amounts paid to former directors was £7.1 million compared with £6.4 million in 2002. |
34 The BOC Group plc Annual review 2003
Table of Contents
Group profit and loss account
Years ended 30 September
| 2003 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||
| Before | After | Before | After | Before | After | |||||||||||||||||||||||||||||||
| exceptional | Exceptional | exceptional | exceptional | Exceptional | exceptional | exceptional | Exceptional | exceptional | ||||||||||||||||||||||||||||
| items | items | items | items | items | items | items | items | items | ||||||||||||||||||||||||||||
| £ million | £ million | £ million | £ million | £ million | £ million | £ million | £ million | £ million | ||||||||||||||||||||||||||||
| Turnover, including share of joint ventures and associates | 4,323.2 | – | 4,323.2 | 4,017.9 | – | 4,017.9 | 4,159.2 | – | 4,159.2 | |||||||||||||||||||||||||||
| Less: Share of turnover of joint ventures |
544.3 | – | 544.3 | 324.1 | – | 324.1 | 340.0 | – | 340.0 | |||||||||||||||||||||||||||
| Share of turnover of associates |
60.6 | – | 60.6 | 36.1 | – | 36.1 | 46.3 | – | 46.3 | |||||||||||||||||||||||||||
| Turnover of subsidiary undertakings | 3,718.3 | – | 3,718.3 | 3,657.7 | – | 3,657.7 | 3,772.9 | – | 3,772.9 | |||||||||||||||||||||||||||
| Operating profit of subsidiary undertakings | 407.4 | (60.2 | ) | 347.2 | 425.6 | (74.0 | ) | 351.6 | 458.4 | (105.7 | ) | 352.7 | ||||||||||||||||||||||||
| Share of operating profit of joint ventures | 86.8 | (6.8 | ) | 80.0 | 63.8 | (0.5 | ) | 63.3 | 59.0 | (2.2 | ) | 56.8 | ||||||||||||||||||||||||
| Share of operating profit of associates | 11.4 | – | 11.4 | 10.7 | – | 10.7 | 13.2 | (0.4 | ) | 12.8 | ||||||||||||||||||||||||||
| Total operating profit including share of joint ventures and associates | 505.6 | (67.0 | ) | 438.6 | 500.1 | (74.5 | ) | 425.6 | 530.6 | (108.3 | ) | 422.3 | ||||||||||||||||||||||||
| Loss on termination/disposal of businesses | – | – | – | – | (20.2 | ) | (20.2 | ) | – | – | – | |||||||||||||||||||||||||
| Profit on disposal of fixed assets | – | – | – | – | – | – | – | 3.6 | 3.6 | |||||||||||||||||||||||||||
| Profit on ordinary activities before interest | 505.6 | (67.0 | ) | 438.6 | 500.1 | (94.7 | ) | 405.4 | 530.6 | (104.7 | ) | 425.9 | ||||||||||||||||||||||||
| Interest on net debt | (96.1 | ) | – | (96.1 | ) | (103.1 | ) | – | (103.1 | ) | (123.4 | ) | – | (123.4 | ) | |||||||||||||||||||||
| Interest on pension scheme liabilities | (110.2 | ) | – | (110.2 | ) | (106.1 | ) | – | (106.1 | ) | (107.2 | ) | – | (107.2 | ) | |||||||||||||||||||||
| Expected return on pension scheme assets | 119.6 | – | 119.6 | 139.1 | – | 139.1 | 166.9 | – | 166.9 | |||||||||||||||||||||||||||
| Other net financing income | 9.4 | – | 9.4 | 33.0 | – | 33.0 | 59.7 | – | 59.7 | |||||||||||||||||||||||||||
| Profit on ordinary activities before tax | 418.9 | (67.0 | ) | 351.9 | 430.0 | (94.7 | ) | 335.3 | 466.9 | (104.7 | ) | 362.2 | ||||||||||||||||||||||||
| Tax on profit on ordinary activities | (121.4 | ) | 25.0 | (96.4 | ) | (129.0 | ) | 22.8 | (106.2 | ) | (151.5 | ) | 46.9 | (104.6 | ) | |||||||||||||||||||||
| Profit on ordinary activities after tax | 297.5 | (42.0 | ) | 255.5 | 301.0 | (71.9 | ) | 229.1 | 315.4 | (57.8 | ) | 257.6 | ||||||||||||||||||||||||
| Minority interests | (36.8 | ) | 0.4 | (36.4 | ) | (26.7 | ) | 0.5 | (26.2 | ) | (35.4 | ) | 1.9 | (33.5 | ) | |||||||||||||||||||||
| Profit for the financial year | 260.7 | (41.6 | ) | 219.1 | 274.3 | (71.4 | ) | 202.9 | 280.0 | (55.9 | ) | 224.1 | ||||||||||||||||||||||||
| Dividends | (192.1 | ) | – | (192.1 | ) | (186.6 | ) | – | (186.6 | ) | (180.3 | ) | – | (180.3 | ) | |||||||||||||||||||||
| Retained profit for the financial year | 68.6 | (41.6 | ) | 27.0 | 87.7 | (71.4 | ) | 16.3 | 99.7 | (55.9 | ) | 43.8 | ||||||||||||||||||||||||
| Earnings per 25p Ordinary share | ||||||||||||||||||||||||||||||||||||
| – basic | 52.9 | p | (8.4 | )p | 44.5 | p | 55.9 | p | (14.5 | )p | 41.4 | p | 57.5 | p | (11.5 | )p | 46.0 | p | ||||||||||||||||||
| – diluted | 52.9 | p | (8.4 | )p | 44.5 | p | 55.7 | p | (14.5 | )p | 41.2 | p | 57.3 | p | (11.4 | )p | 45.9 | p | ||||||||||||||||||
All turnover and operating profit arose from continuing operations.
35 The BOC Group plc Annual review 2003
Table of Contents
Group balance sheet
At 30 September
| 2003 | 2002 | 2001 | ||||||||||
| £ million | £ million | £ million | ||||||||||
| Fixed assets | ||||||||||||
| Intangible assets | 206.1 | 150.7 | 48.1 | |||||||||
| Tangible assets | 2,913.4 | 3,027.4 | 3,168.6 | |||||||||
| Investment in joint ventures | 505.3 | 317.3 | 302.4 | |||||||||
| Investment in associates | 64.5 | 63.7 | 56.2 | |||||||||
| Investment in own shares | 48.1 | 42.5 | 59.5 | |||||||||
| Other investments | 38.8 | 45.1 | 31.7 | |||||||||
| 3,776.2 | 3,646.7 | 3,666.5 | ||||||||||
| Current assets | 1,104.9 | 1,246.4 | 1,286.5 | |||||||||
| Creditors: amounts falling due within one year | (1,168.2 | ) | (1,247.9 | ) | (1,281.7 | ) | ||||||
| Net current (liabilities)/assets | (63.3 | ) | (1.5 | ) | 4.8 | |||||||
| Total assets less current liabilities | 3,712.9 | 3,645.2 | 3,671.3 | |||||||||
| Creditors: amounts falling due after more than one year | (1,133.1 | ) | (1,179.0 | ) | (1,079.3 | ) | ||||||
| Provisions for liabilities and charges | (376.6 | ) | (407.5 | ) | (419.2 | ) | ||||||
| Total net assets excluding pension assets and liabilities | 2,203.2 | 2,058.7 | 2,172.8 | |||||||||
| Pension assets | 50.7 | 54.3 | 107.0 | |||||||||
| Pension liabilities | (341.8 | ) | (311.0 | ) | (56.0 | ) | ||||||
| Total net assets including pension assets and liabilities | 1,912.1 | 1,802.0 | 2,223.8 | |||||||||
| Shareholders’ funds | 1,734.8 | 1,684.1 | 2,086.2 | |||||||||
| Minority shareholders’ interests | 177.3 | 117.9 | 137.6 | |||||||||
| Total capital and reserves | 1,912.1 | 1,802.0 | 2,223.8 | |||||||||
| Significant accounting ratios | ||||||||||||
| 2003 | 2002 | 2001 | ||||||||||
| Return on capital employed (%)1 | 10.8 | 10.5 | 10.3 | |||||||||
| Adjusted return on capital employed (%)1, 2 | 12.5 | 12.3 | 12.9 | |||||||||
| Interest cover (times) | 4.6 | 4.1 | 3.4 | |||||||||
| Adjusted interest cover (times)2 | 5.3 | 4.9 | 4.3 | |||||||||
| Net debt/equity (%) | 71.5 | 73.6 | 57.2 | |||||||||
| Net debt/capital employed (%) | 36.9 | 36.9 | 32.0 | |||||||||
| 1. | Operating profit as a percentage of the average capital employed excluding net pension liabilities. Capital employed comprises total capital and reserves, long-term liabilities and all current borrowings, net of cash and deposits. The average is calculated on a monthly basis. |
| 2. | Excludes exceptional items. |
The summary financial statements on pages 35 to 39 were approved by the board of directors on 21 November 2003 and are signed on its behalf by:
| A E Isaac | R Médori | |
| Director | Director |
36 The BOC Group plc Annual review 2003
Table of Contents
Group cash flow statement
Years ended 30 September
| 2003 | 2002 | 2001 | ||||||||||
| £ million | £ million | £ million | ||||||||||
| Total operating profit before exceptional items | 505.6 | 500.1 | 530.6 | |||||||||
| Depreciation and amortisation | 333.4 | 330.9 | 329.5 | |||||||||
| Net retirement benefits charge less contributions | 5.6 | 49.9 | 53.0 | |||||||||
| Operating profit before exceptional items of joint ventures | (86.8 | ) | (63.8 | ) | (59.0 | ) | ||||||
| Operating profit before exceptional items of associates | (11.4 | ) | (10.7 | ) | (13.2 | ) | ||||||
| Changes in working capital and other items | (18.0 | ) | 20.2 | (1.3 | ) | |||||||
| Exceptional cash flows | (28.3 | ) | (67.3 | ) | (51.8 | ) | ||||||
| Net cash inflow from operating activities | 700.1 | 759.3 | 787.8 | |||||||||
| Dividends from joint ventures and associates | 35.0 | 33.9 | 23.5 | |||||||||
| Returns on investments and servicing of finance | (94.4 | ) | (90.7 | ) | (87.2 | ) | ||||||
| Tax paid | (90.7 | ) | (96.2 | ) | (100.6 | ) | ||||||
| Capital expenditure and financial investment | (233.3 | ) | (324.5 | ) | (311.9 | ) | ||||||
| Acquisitions and disposals | (118.3 | ) | (215.5 | ) | (133.6 | ) | ||||||
| Equity dividends paid | (192.1 | ) | (186.6 | ) | (180.3 | ) | ||||||
| Net cash inflow/(outflow) before use of liquid resources and financing | 6.3 | (120.3 | ) | (2.3 | ) | |||||||
| Management of liquid resources | 16.2 | 52.6 | 102.8 | |||||||||
| Net cash (outflow)/inflow from financing | (125.0 | ) | 89.1 | (34.4 | ) | |||||||
| (Decrease)/increase in cash | (102.5 | ) | 21.4 | 66.1 | ||||||||
Reconciliation of net cash flow to movement in net debt
| 2003 | 2002 | 2001 | ||||||||||
| £ million | £ million | £ million | ||||||||||
| Net debt – at 1 October | (1,325.6 | ) | (1,272.1 | ) | (1,308.4 | ) | ||||||
| Net cash inflow/(outflow) | 6.3 | (120.3 | ) | (2.3 | ) | |||||||
| Issue of shares | 3.7 | 25.0 | 16.9 | |||||||||
| Net borrowings assumed at acquisition | (0.8 | ) | (0.5 | ) | — | |||||||
| Net liquid resources eliminated on disposal | (31.0 | ) | — | — | ||||||||
| Inception of finance leases | — | (0.4 | ) | (0.5 | ) | |||||||
| Exchange adjustment | (20.7 | ) | 42.7 | 22.2 | ||||||||
| Net debt – at 30 September | (1,368.1 | ) | (1,325.6 | ) | (1,272.1 | ) | ||||||
37 The BOC Group plc Annual review 2003
Table of Contents
Notes to the financial statements
| 1. | Basis of preparation |
| • | These accounts are based on the historical cost accounting convention and comply with all applicable UK accounting standards. |
| • | The accounts are prepared on the going concern basis. This means that the Group has adequate resources to continue in operation for the foreseeable future. |
| • | The Group accounts include the accounts of the parent undertaking and of all subsidiaries, joint ventures and associates. Subsidiary undertakings are those businesses controlled by the Group and their results are fully included. Joint ventures are those businesses which the Group jointly controls with one or more other parties. Associates are those businesses in which the Group has a participating interest and exercises significant influence. |
| • | The results of businesses acquired are included from the effective date of acquisition. Goodwill on acquisitions during the year (the difference between the fair value of the purchase price of a business and the fair value of the net assets acquired) is capitalised and amortised over its useful economic life. |
| 2. | Exchange rates |
The majority of the Group’s operations are located outside the UK and operate in currencies other than sterling. Profit and loss
and other period statements of the Group’s overseas operations are translated at average rates of exchange for the financial year.
Assets and liabilities denominated in foreign currencies are translated at the rates of exchange at the end of the financial year.
The rates of exchange to sterling for the currencies which principally affected the Group’s results were as follows:
| 2003 | 2002 | 2001 | ||||||||||
| Average for the year: | ||||||||||||
| – US dollar | 1.60 | 1.47 | 1.44 | |||||||||
| – Australian dollar | 2.62 | 2.77 | 2.76 | |||||||||
| – Japanese yen | 191.01 | 184.34 | 170.04 | |||||||||
| – South African rand | 13.24 | 15.64 | 11.47 | |||||||||
| At 30 September: | ||||||||||||
| – US dollar | 1.66 | 1.57 | 1.47 | |||||||||
| – Australian dollar | 2.45 | 2.89 | 2.98 | |||||||||
| – Japanese yen | 185.60 | 191.45 | 175.09 | |||||||||
| – South African rand | 11.57 | 16.58 | 13.24 | |||||||||
| 3. Segmental information | ||||||||||||||||||||||||||||||||||||
| 2003 | 2002 | 2001 | ||||||||||||||||||||||||||||||||||
| Adjusted | Adjusted | Adjusted | ||||||||||||||||||||||||||||||||||
| operating | Operating | operating | Operating | operating | Operating | |||||||||||||||||||||||||||||||
| Turnover | profit | 1 | profit | Turnover | profit | 1 | profit | Turnover | profit | 1 | profit | |||||||||||||||||||||||||
| £ million | £ million | £ million | £ million | £ million | £ million | £ million | £ million | £ million | ||||||||||||||||||||||||||||
| a) Business analysis: | ||||||||||||||||||||||||||||||||||||
| Process Gas Solutions | 1,242.7 | 184.0 | 177.1 | 1,200.6 | 185.2 | 161.2 | 1,193.0 | 156.5 | 103.7 | |||||||||||||||||||||||||||
| Industrial and Special Products | 1,751.2 | 242.7 | 238.2 | 1,605.3 | 248.0 | 229.3 | 1,573.9 | 248.8 | 227.0 | |||||||||||||||||||||||||||
| BOC Edwards | 684.1 | 18.5 | 7.9 | 688.2 | 26.1 | (1.4 | ) | 873.1 | 78.8 | 62.7 | ||||||||||||||||||||||||||
| Afrox hospitals | 353.4 | 46.1 | 46.1 | 259.0 | 29.7 | 29.7 | 287.8 | 32.3 | 32.3 | |||||||||||||||||||||||||||
| Gist | 291.8 | 29.2 | 29.2 | 264.8 | 25.5 | 25.5 | 231.4 | 21.3 | 20.6 | |||||||||||||||||||||||||||
| Corporate | – | (14.9 | ) | (59.9 | ) | – | (14.4 | ) | (18.7 | ) | – | (7.1 | ) | (24.0 | ) | |||||||||||||||||||||
| Continuing operations | 4,323.2 | 505.6 | 438.6 | 4,017.9 | 500.1 | 425.6 | 4,159.2 | 530.6 | 422.3 | |||||||||||||||||||||||||||
| b) Regional analysis: | ||||||||||||||||||||||||||||||||||||
| Europe | 1,154.4 | 144.3 | 137.0 | 1,069.6 | 155.2 | 116.8 | 1,002.5 | 165.5 | 122.6 | |||||||||||||||||||||||||||
| Americas | 1,238.8 | 91.8 | 42.7 | 1,291.8 | 121.3 | 113.2 | 1,387.5 | 137.2 | 96.7 | |||||||||||||||||||||||||||
| Africa | 585.5 | 85.0 | 85.0 | 441.0 | 56.7 | 56.3 | 505.6 | 69.4 | 69.4 | |||||||||||||||||||||||||||
| Asia/Pacific | 1,344.5 | 184.5 | 173.9 | 1,215.5 | 166.9 | 139.3 | 1,263.6 | 158.5 | 133.6 | |||||||||||||||||||||||||||
| Continuing operations | 4,323.2 | 505.6 | 438.6 | 4,017.9 | 500.1 | 425.6 | 4,159.2 | 530.6 | 422.3 | |||||||||||||||||||||||||||
1. Adjusted operating profit excludes exceptional items.
| 4. | Contingent liabilities and legal proceedings |
Group companies are parties to various legal proceedings, including some in which claims for damages in large amounts have
been asserted. The outcome of litigation to which Group companies are party cannot be readily foreseen, but the directors
believe that such litigation should be disposed of without material adverse effect on the Group’s financial condition or profitability.
Welding fumes litigation BOC has been named in numerous lawsuits in the US alleging injury from exposure to welding fumes. Many of these cases were filed during 2003. Certain of these cases have been either filed in, or transferred for pre-trial purposes to, the federal district court in the Northern District of Ohio, where a multi-district litigation (MDL) proceeding has been commenced. The MDL proceeding is still at an early stage. The MDL proceeding is a vehicle for co-ordinating pre-trial proceedings in cases pending in different federal district courts in the US. In addition to the cases in federal court, BOC is a defendant in a number of similar cases pending in state courts. These cases are in different stages of procedural development, and certain cases are scheduled for trial from time to time.
From the time it purchased Airco in 1978 until this year, BOC had never had an adverse jury verdict returned against it in a
case alleging injury from exposure to welding fumes. On 28 October 2003, a jury in Madison County, Illinois, rendered a verdict
38 The BOC Group plc Annual review 2003
Table of Contents
| 4. | Contingent liabilities and legal proceedings continued |
against BOC and two co-defendants. The jury awarded US$1 million to Mr Elam, a former labourer who
asserted that his idiopathic Parkinson’s disease was attributable to his
exposure to welding fumes over a period of years. BOC believes that the verdict
is inconsistent with the decisions rendered by juries in previous cases, is not
supported by the existing scientific evidence and intends to pursue vigorously
its post-trial and appeal rights.
BOC believes that it has strong defences to the claims asserted in these
various proceedings related to alleged injury from exposure to welding fumes
and intends to defend vigorously such claims. Based on BOC’s experience to
date, together with BOC’s current assessment of the merits of the claims being
asserted, and applicable insurance, BOC believes that continued defence and
resolution of these proceedings will not have a material adverse effect on its
financial condition or profitability and no provision has been made.
Fluorogas litigation In February 2003, the company was notified that a jury verdict in the US District Court for the Western District of Texas was obtained for US$132 million against Fluorogas Limited, The BOC Group Inc and The BOC Group plc. The verdict arises primarily out of an alleged breach of a memorandum of understanding by Fluorogas Limited before it was acquired by The BOC Group plc in September 2001. In March 2003, the court also awarded interest and costs against the defendants, making them jointly and severally liable for a total of US$174 million. A bond for the full amount has been posted with the Court as part of the normal appeals process.
The company believes that the jury’s verdict reflects a misunderstanding
of the law and does not reflect the facts of any loss that may have been
suffered by the plaintiff. The company is challenging the verdict through the
appropriate appeals process in the US and hence no provision has been made. In
addition, Fluorogas Limited was placed in administration under the Insolvency
Act of 1986 pursuant to an order of the English Courts. In a related proceeding
in a US Bankruptcy Court, the UK administrators have obtained injunctive relief
preventing the plaintiff in the Fluorogas litigation from commencing or
continuing any action or proceeding enforcing any judgement against Fluorogas
Limited in the US.
ERISA litigation An action was filed in the US District Court for the Southern District of Illinois against The BOC Group Cash Balance Retirement Plan (the Plan).The plaintiffs brought this action on behalf of themselves and all others similarly affected, alleging that the Plan improperly calculated lump sum distributions from the Plan in violation of the Employee Retirement Income Security Act. The maximum potential liability could have reached US$116 million and any award would be paid out of Plan assets.
The parties have reached an agreement in principle to settle at US$69
million. The settlement documents are being prepared. The settlement is subject
to approval by the court at a fairness hearing. A provision of US$69 million
has been made in the financial statements. Under UK accounting principles
(FRS17), this has been recognised as a charge in the profit and loss account of
the Group. It has been shown as an exceptional item.
Guarantees At 30 September 2002, BOC had guaranteed a portion of the borrowings of its joint venture company in Mexico. The amount of the guarantee was £116.7 million and it was shown as a contingent liability in the Group’s report and accounts at that date. In March 2003, as a result of certain conditions being met by the joint venture company, BOC’s guarantee has been released and no contingent liability remains at 30 September 2003.
| 5. | US accounting information |
The consolidated financial statements of the Group are prepared in accordance
with UK generally accepted accounting principles (UK GAAP). These differ in
certain respects from accounting principles accepted in the US (US GAAP).
The application of the different accounting principles results in
adjustments being needed to show what the Group’s profit would be under US
GAAP. The main adjustments are shown individually in the table below.
| 2003 | 2002 | 2001 | ||||||||||
| £ million | £ million | £ million | ||||||||||
| Net profit under UK GAAP | 219.1 | 202.9 | 224.1 | |||||||||
| Pensions | 62.5 | 35.4 | 24.9 | |||||||||
| Revaluations realised on asset disposals | 1.1 | 5.8 | 1.1 | |||||||||
| Amortisation of goodwill and other intangibles | 13.4 | (3.7 | ) | (7.9 | ) | |||||||
| Financial instruments | (2.8 | ) | 19.5 | 8.5 | ||||||||
| Share of results of joint ventures and associates | 0.6 | – | (4.8 | ) | ||||||||
| Restructuring costs | – | – | (6.5 | ) | ||||||||
| Write-down of previously revalued assets | – | 20.5 | – | |||||||||
| Unrealised profit on disposal of subsidiary | 8.2 | – | – | |||||||||
| Other adjustments on profit on disposal of subsidiary | (20.7 | ) | – | – | ||||||||
| Other | 3.6 | (0.3 | ) | 1.1 | ||||||||
| Taxation effect of above adjustments | (20.7 | ) | (24.7 | ) | (6.3 | ) | ||||||
| Net income under US GAAP | 264.3 | 255.4 | 234.2 | |||||||||
| Earnings per 25p Ordinary share | ||||||||||||
| Basic | ||||||||||||
| Profit from continuing operations and for the financial year | 53.7 | p | 52.1 | p | 48.1 | p | ||||||
| 6. | Post balance sheet events |
a) On 17 November 2003, the Group’s South African subsidiary company African Oxygen Limited announced that it had agreed
to sell its entire holding in Afrox Healthcare Limited. At that date, the estimated impact of the transaction was a reduction of a
maximum of 1.5p in Group earnings per share for the year to 30
September 2003. The sale remains subject to certain conditions,
including clearance from the relevant competition and other regulatory authorities.
b) ERISA litigation. See note 4 above.
39 The BOC Group plc Annual review 2003
Table of Contents
Shareholder information
| Ordinary shareholdings by investor type at 30 September 2003 | |||||||||||||||||
| % | Number of | % | |||||||||||||||
| Number of | of total number | 25p shares | of ordinary | ||||||||||||||
| accounts | of accounts | Type of investor | million | capital | |||||||||||||
| 32,828 | 73 | Individuals | 29.2 | 6 | |||||||||||||
| 11,412 | 25 | Institutional investors | 455.1 | 91 | |||||||||||||
| 949 | 2 | Other corporate investors | 13.4 | 3 | |||||||||||||
| 45,189 | 100 | 497.7 | 100 | ||||||||||||||
| Financial calendar | ||||||||||||||||
| Ordinary Shares/American Depositary Shares | 12¼% Unsecured Loan Stock 2012/2017 | |||||||||||||||
| First interim | Second interim | 1 | Half year | Half year | ||||||||||||
| Ex-dividend | 31 Dec 2003 | 30 Jun 2004 | 3 Mar 2004 | 1 Sep 2004 | ||||||||||||
| Record date | 5 Jan 2004 | 2 Jul 2004 | 5 Mar 2004 | 3 Sep 2004 | ||||||||||||
| DRIP notice date | 12 Jan 2004 | 12 Jul 2004 | – | – | ||||||||||||
| Payment date – UK | 2 Feb 2004 | 2 Aug 2004 | 2 Apr 2004 | 2 Oct 2004 | ||||||||||||
| – US | 9 Feb 2004 | 9 Aug 2004 | – | – | ||||||||||||
1. Proposed dates
| 3 months | Half year | 9 months | Preliminary | Report and accounts | ||||||||||||||||
| Group results | 3 Feb 2004 | 13 May 2004 | 3 Aug 2004 | 18 Nov 2004 | Dec 2004 | |||||||||||||||
Shareholder enquiries
Shareholders who have questions relating to the Group’s
business or wish to receive copies of the interim statements
should write to:
Director – Investor Relations
The BOC Group plc
Chertsey Road, Windlesham
Surrey GU20 6HJ, England
Telephone: 01276 477222
E-mail: ir@boc.com
Registrar
Administrative enquiries concerning shareholdings in the
company such as the loss of share certificates, change of
address, dividend payment arrangements, amalgamation of
multiple accounts, or requests for the full report and accounts
should be sent directly to:
Lloyds TSB Registrars
The Causeway, Worthing
West Sussex BN99 6DA, England
Telephone: 0870 600 3958
Fax: 0870 600 3980
Teltex for shareholders with hearing difficulties:
0870 600 3950
If telephoning from outside the UK: +44 121 415 7035 or
Fax: +44 1903 854031
Website: www.lloydstsb-registrars.co.uk
Correspondence should refer to The BOC Group plc, stating clearly the registered name and address and, if available, the full account number which starts with 0385.
Shareholding information
To view up-to-date information about your shareholding,
change your address details, set up a new, or change an
existing, dividend mandate, visit the Lloyds TSB Registrars
shareview website at www.shareview.co.uk
The portfolio service provides access to more information
on your investments including balance movements, indicative
share prices and details of recent dividend payments.
To register with Lloyds TSB Registrars as a user of the
portfolio service and for more information visit the website
at www.shareview.co.uk
Electronic shareholder communications
Shareholders can now elect to receive shareholder documents,
such as annual and interim reports and notices of general
meetings, electronically from the company’s website rather
than in hard copy through the mail. This has the advantage
of improving the speed of communications and reducing
administrative costs of printing and postage. The terms on
which this electronic facility is provided can be found on the
company’s website (www.boc.com) or on request from the
registered office. Any shareholder wishing to take advantage
of this free service may do so by registering their details on
the Lloyds TSB Registrars shareview website at
www.shareview.co.uk
40 The BOC Group plc Annual review 2003
Table of Contents
Dividend reinvestment plan
A dividend reinvestment plan (DRIP), through which Ordinary
shareholders may invest the whole of their cash dividends in
additional shares in the company, is available. Ordinary
shareholders on the register at the record date may participate
in the plan provided their application forms are received by
the DRIP notice date shown in the financial calendar on the
previous page. Copies of the explanatory brochure and
application form are available from Lloyds TSB Registrars
whose details appear on the previous page.
Payment of dividends
Ordinary shareholders and loan stock holders may arrange to
have their dividends or interest paid directly into a bank or
building society account through the Bankers Automated
Clearing System (BACS). Mandate forms are available from
Lloyds TSB Registrars whose details appear on the previous
page or alternatively you can set up a new, or change an
existing, dividend mandate via the Lloyds TSB Registrars
shareview website at www.shareview.co.uk Tax vouchers
relating to any dividend or interest payments made via
BACS will be mailed directly to the registered address of
the share or loan stock holder.
Share dealing services
For Internet and telephone share dealing services contact Lloyds
TSB Registrars by either logging on to www.shareview.co.uk/dealing
or by calling 0870 850 0852 between 8.30 am and 4.30 pm on any
business day (excluding bank holidays).
Details of a postal share dealing service can be obtained from:
Cazenove & Co. Ltd
20 Moorgate,
London EC2R 6DA, England
Telephone: 020 7155 5155
American Depositary Shares
The BOC Group plc American Depositary Shares (ADS) are
listed on the New York Stock Exchange and trade under the
symbol BOX. One ADS represents two The BOC Group plc
Ordinary shares. JPMorgan Chase Bank is the depositary and
their address for enquiries is:
JPMorgan Chase Bank
JPMorgan Service Center
PO Box 43013
Providence, RI 02940-3013, USA
Telephone: +1 781 575 4328
Website: www.adr.com/shareholder
A dividend reinvestment plan is available through JPMorgan Chase Bank as depositary for holders of ADSs. All enquiries regarding this plan should be addressed to:
Global Invest Direct
JPMorgan Chase Bank
PO Box 43013
Providence, RI 02940-3013, USA
Telephone, toll free: JPMorgan Service Center on
+1 800 749 1687 or +1 800 428 4237
ShareGift
Shareholders with a small number of shares, the value of
which makes it uneconomic to sell them, may wish to consider
donating them to charity through ShareGift, a registered
charity administered by The Orr Mackintosh Foundation.
A ShareGift donation form can be obtained from Lloyds TSB
Registrars whose details appear on the previous page. Further
information about ShareGift is available at www.sharegift.org
or by writing to:
ShareGift
The Orr Mackintosh Foundation
46 Grosvenor Street
London W1K 3HN, England
Telephone: 020 7337 0501
Unsolicited mail
The company is obliged by law to make its share register
publicly available and as a consequence some shareholders
may receive unsolicited mail. If you wish to limit the amount
of unsolicited mail you receive, contact:
The Mailing Preference Service
FREEPOST 29 (LON.20771)
London W1E OZT, England
Telephone: 020 7291 3310 or register on-line at
www.mpsonline.org.uk
The Mailing Preference Service is an independent organisation which offers a free service to the public. Registering with them will stop most unsolicited consumer advertising material.
Special needs
If you would like to receive this report in an appropriate
alternative format, such as large print, Braille, or audio cassette,
please contact Lloyds TSB Registrars on 0870 600 3958 or for
shareholders with hearing difficulties on Teltex 0870 600 3950.
Annual General Meeting 2004
The Annual General Meeting will be held on 23 January 2004
at the Institution of Electrical Engineers (Lecture Theatre),
Savoy Place, London WC2R 0BL, England commencing
at 11.00 am.
©The BOC Group plc 2003
Designed and produced by Radley Yeldar (London)
Principal photography by George Brooks
Printed by CTD Capita
Table of Contents
The BOC Group plc
Registered office:
Chertsey Road, Windlesham,
Surrey GU20 6HJ, England
Tel: 01276 477222
Fax: 01276 471333
English Register No. 22096
Website: www.boc.com