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Connecting to faster
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Annual Report and Accounts 2017
We are the name behind the high performance ingredients and
technologies in some of the biggest, most successful brands
in the world; creating, making and selling speciality chemicals
that are relied on by industries and consumers everywhere.
In this year’s report
Where we operate
Global market sectors
2017
37
Countries across the world
4,309
Employees
4
Personal Care
Personal Care focuses on
ingredients for skin, hair, sun
protection and colour
cosmetic products
Life Sciences
Life Sciences comprises three
complementary businesses,
Health Care, Crop Protection
and Seed Enhancement
p14
p16
Adjusted operating profit
£155.5m
Adjusted operating profit
£97.0m
Performance Technologies
Performance Technologies targets
faster growth technologies in Smart
Materials and Energy Technologies and
continues to develop its presence in
Home Care and Water Treatment
Industrial Chemicals
Industrial Chemicals is a small, diverse
sector based on selling co-streams,
developing novel niche applications
and undertaking toll processing
p18
p20
Adjusted operating profit
£75.4m
Adjusted operating profit
£4.3m
Every day our global team works together, inspiring and influencing each other
and our customers
North
America
8
Operations
597
Employees
Latin
America
9
Operations
288
Employees
Western
Europe
22
Operations
2,274
Employees
EEMEA
7
Operations
93
Employees
Asia
Pacific
22
Operations
1,057
Employees
Strategic Report
Strategy and Operations
Chairman’s Statement ...................................................02
Market Drivers ........................................................................04
Business Model ....................................................................06
Key Relationships ...............................................................08
Our Investment Case .......................................................09
Chief Executive’s Review .............................................10
Sector Review ........................................................................14
Sustainability: Product, Planet
and People ............................................................................... 21
Performance and Financials
Key Performance Indicators .................................... 24
Finance Review.....................................................................26
Our Risks ....................................................................................30
Directors’ Report
Our Board ..................................................................................36
Corporate Governance .................................................38
Remuneration Report .....................................................61
Other Disclosures ...............................................................78
Financial Statements
Group Independent Auditors’ Report ..............82
Group Consolidated Statements .........................88
Group Accounting Policies ........................................93
Notes to the Group Accounts .............................. 100
Company Independent Auditors’ Report ..127
Company Financial Statements .........................131
Notes to the Company Financial
Statements ........................................................................... 133
Other Information
Related Undertakings ................................................. 138
Shareholder Information............................................141
Five Year Record ...............................................................143
Glossary of Terms ............................................................144
Our strategy
Sales by region
Sales by sector
Sustainability
p12
p12
p13
Delivering
Growth
Delivering consistent top
and bottom line growth
Driving
Innovation
Increasing the proportion
of protected innovation
Sustainable
Solutions
Accelerating the capture
of new sustainable
technologies
£1,373.1m
Total sales
£1,373.1m
Total sales
Embedded in our strategic thinking,
sustainability adds value to our Business
Sustainable
Product Innovation
60% increase in sales of
p21
products made with RSPO
certified palm oil derivatives
compared to 2016
Planet and Process
14.9% reduction in scope 1 and 2
greenhouse gas emissions
intensity since 2015
p22
Adjusted profit is stated before exceptional items,
acquisition costs and amortisation of intangible
assets arising on acquisition and the tax thereon
where applicable. Non-statutory terms are defined
in alternative performance measures on p29
Read more in the Chief Executive’s
Review on page 12
Europe, Middle East & Africa
£555.2m
North America
Asia Pacific
Latin America
£385.5m
£297.6m
£134.8m
Personal Care
Life Sciences
Performance Technologies
Industrial Chemicals
£466.6m
£322.6m
£456.9m
£127.0m
People and
Community
82.7% of employees
received training
p23
0.42
2016: 0.34
Croda International Plc
Annual Report and Accounts 2017
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Our Profit Growth
+11.1%
Adjusted profit before tax up
11.1% to £320.3m
Sales
£1,373.1m
2016: £1,243.6m
Adjusted operating profit
£332.2m
2016: £298.2m
Adjusted earnings per share
179.0p
2016: 155.8p
Proposed dividend per share
81.0p
2016: 74.0p
+10.4%
+11.4%
+14.9%
+9.5%
Underlying sales growth in constant currency
4.6%
2016: 3.1%
NPP sales as % of Group sales
27.6%
2016: 27.4%
Energy from non-fossil fuel sources
24.1%
Rebased 2016: 21.3%
Lost time injury rate per 200,000 hours worked
Strategic Report
Chairman’s Statement
A year of significant progress
Another year of significant
progress for Croda, with
strong sales growth and
a record profit.”
Anita Frew
Chairman
Overview
I am pleased to report another year
of significant progress for Croda, strong
sales growth and a record profit, good
cash generation and excellent returns
to shareholders.
This performance was driven by
investment in faster growth markets,
new technologies, enhanced Research
& Development (R&D) capabilities and
a significant capital spend programme.
We continued to focus on delivering the
highest standards of health and safety,
and in driving sustainability.
Our people contributed significantly
to Croda’s success in 2017 with their
dedication and creativity. I had the privilege
of meeting many of them during site visits
I made in the last twelve months. I am
impressed by Croda’s very special culture,
where great emphasis is placed on ‘doing
the right thing’ at all times. On behalf of the
Board, I would like to take this opportunity
to thank all our employees for their hard
work and commitment.
Strong sales and a record profit
Sales for the year increased by 10.4% to
£1,373.1m (2016: £1,243.6m), with growth
in all of our sectors. Adjusted profit before
tax grew by 11.1% to £320.3m (2016:
£288.3m). On a statutory basis, profit
before tax rose to £314.1m, up 13.9%.
The Board was particularly pleased by
the performance in Personal Care, where
sales are now growing in addition to profit,
reflecting a successful improvement
programme implemented under the new
sector management team. A richer product
mix and successful Incotec integration
delivered a stronger operating margin
in Life Sciences, whilst Performance
Technologies increased profit and
moved towards more technology-driven
markets and applications.
Our strategy is delivering
We have a clear strategy that is focused
on providing unique performing ingredients
satisfying the unmet needs of our
customers, driving increased value for
our shareholders. Alongside sales growth
across all types of customer, large and
small, we delivered a total shareholder
return of over 40% in 2017 through share
price growth and an increased dividend.
Our model is to generate strong profit
margins through innovation and focused
capital investment, which drives a superior
return on capital and generates cash.
We reinvest this cash to develop new
technologies, create greater R&D, increase
our manufacturing capability and develop
our people. In 2017, we invested over
£30m in acquiring new capabilities in faster
growth niches, adding three new exciting
technologies in skin care, novel surfactants
and static electricity protective polymers.
We invested nearly £40m in R&D,
increasing the proportion of sales that
come from patented and protected
products, and expanding our Open
Innovation programme to almost 400
partners in universities and technology
enterprises across Europe and Asia. We
invested over £150m in new capacity,
notably our first to market bio-surfactant
plant in North America, which we expect
to commission early in 2018.
Croda has a long held commitment to
sustainability and we are accelerating the
capture of new sustainable technologies.
These technologies are increasingly
important to our customers, who are
excited by our new ECO range of bio-
based ingredients from our new bio-
surfactant plant in North America, which
will replace petrochemical products
without loss of performance. As well as
helping customers meet their consumers’
needs, Croda is also committed to
reducing its own environmental impact.
Our Sustainability Report has exciting
news on our progress.
Governance, culture and values
With the Board, I lead our programme to
ensure the highest standards of corporate
governance and integrity right across Croda,
which is critical to our continued success
and viability. Our work in 2017 included
ensuring that we maintain strong risk
management, health and safety, and ethical
supply chain compliance programmes.
We also continue to recognise the
importance and value of Croda’s unique
culture to its continued success. In 2017
the Board spent time visiting our overseas
operations and meeting our employees,
engendering a common understanding
of the business goals and identifying
opportunities for future growth and
development. We conducted a Global
Employee Culture Survey, to examine our
culture, ensure that it is aligned with our
core values and understand how we can
protect this critical competitive advantage
as Croda continues to grow and acquire.
We were pleased with the overall positive
results, with the majority of employees
understanding the main goals of the
Company. In 2018, we will implement
the resultant Culture Plan in each global
sector and region.
We believe that diversity across Croda
drives better performance and a stronger
company. Our leadership development
programmes comprise employees from
different cultures, backgrounds and
nationalities. We have adopted a Diversity
and Inclusion programme across our
workforce and are taking action to
encourage more women into leadership
roles. As a Board we have 25% female
representation, with a policy to achieve
33% in the medium term.
We completed our latest externally
facilitated Board evaluation. The overall
result was very positive, in particular on
how we encourage a culture and
environment that enables candid debate.
Effectively managed succession is critical to
delivering successful leadership and, after
serving nine years on Croda’s Board, Nigel
Turner will retire at this year’s AGM. I would
like to thank Nigel for his dedication and
outstanding contribution. Alan Ferguson will
take over from Nigel as Senior Independent
Non-Executive Director. Alan has been on
the Board since 2011 and acts as Chairman
of the Audit Committee, bringing a wealth
of relevant experience, having served as
Senior Independent Director with other
listed companies.
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Dividend
We have a clear capital allocation policy
with profits reinvested for growth; a
regular dividend paid to shareholders;
organic growth supplemented by
selected acquisitions; and an appropriate
balance sheet maintained, with excess
capital returned to shareholders.
Following the strong performance in
2017, the Board is recommending an
9.5% increase in the full year dividend to
81.0p, covered 2.2 times (2016: 2.1x) by
adjusted earnings per share. Following
the payment of an interim dividend of
35p in October 2017, shareholders will
receive a final dividend of 46p, subject
to approval at the AGM.
The Board has reviewed the leverage of
the business, which is at the lower end
of its target range. It will consider further
returns to shareholders in the event that
leverage falls below this range.
Outlook
We have entered 2018 with good
momentum and a strong platform on
which to deliver long term growth. In the
year ahead, we will continue to invest in
fast growth technologies, R&D, improved
operating capabilities and our people.
We are confident of delivering continued
progress in 2018.
Anita Frew
Chairman
Case study
Global Employee Culture Survey
Since it was introduced, the ‘Croda Vision’
has become an important part of
describing our company, our people
and the values, behaviours and attitudes
we expect of ourselves. These values,
behaviours and attitudes are often referred
to as our culture.
To understand if the Croda Vision
was experienced across our global
organisation, we launched a Global
Employee Culture Survey, the first for
over ten years. The survey was designed
internally to test the elements of our culture
that are important to us and that we believe
set us apart from our peers. Three sections
directly related to our culture; ‘Who we are’,
‘How we work together’ and ‘How we
manage our work’.
The survey was translated into 15
languages and we were delighted with
an overall response rate of 80%. The
results of the survey have been pleasing;
employees rated their relationship with
their immediate supervisor positively and
presented a good picture of team work
across departments. Employees
also shared that they have a good
understanding of the purpose and
goals of the organisation.
A great deal of work is now being
undertaken to review the results of the
survey at every location and business unit.
80%
response rate to the employee survey
Action plans are being developed including
to improve knowledge sharing around the
Group and flexible working practices.
These are regularly shared with the
Executive Committee and Board, who have
appointed Keith Layden as the Board
member with primary responsibility for
ensuring that the survey results are
considered and followed through.
To read our full Global Employee
Culture Survey feature go to our 2017
Sustainability Report
Summary of results by survey section
Who we are
How we work
together
How we manage
our work
General
engagement
23%
32%
29%
Positive
Neutral & negative
77%
68%
71%
57%
43%
02 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
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Strategic Report
Market Drivers
Maximising opportunities
for growth and innovation
To maximise opportunities for growth, we use the global mega trends to shape our strategy
and business model, which ensures we can deliver innovations that satisfy the unmet needs
of our customers.
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Global mega trend
Global mega trend
Changing demographics
Fragile world
Demand for transparency and trust
Digitalisation and interconnectedness
Consequences
Consequences
Consequences
Consequences
There is unprecedented change in world demographics. People in
developed economies are living longer and have more income and
better access to buy a wider range of products.
In the developing world, a population increase of two to three billion
is forecast between now and 2050, driven by lower mortality rates.
In addition, an expanding middle class is expected to attain Western
levels of consumerism, generating new markets for products that
make a difference to living standards.
The continuing accumulation of greenhouse gases in the
atmosphere is the main cause of global warming, the consequences
of which are rising sea levels and an increase in the frequency of
extreme weather. Both impair the productivity of the land to supply
food and water for the growing global population and bring an
increased focus from international organisations on restricting global
warming and climate change.
Consumers, empowered by digitalisation, have changing
expectations. They want greater choice and control, demanding
more transparency in the products and services they use and
anywhere, anytime access to information.
They increasingly expect businesses to operate in a transparent
and accountable way, and take greater responsibility for their supply
chains and the impact of their products, with increasing calls for
improved performance, purity and cost-effective solutions.
Technology advances are reshaping the world we live in, with
digitalisation transforming consumer behaviour. Digital technologies
make it easier for their voices to be heard and increase the speed
at which new trends are adopted.
The evolution of the internet has also enabled a significant advance
in our ability to gather, analyse and distribute data and turn it into
information and knowledge.
What this means for our industry
What this means for our industry
What this means for our industry
What this means for our industry
→ Growing need for consumer products that use our ingredients
→ A demand for increased product performance from lower levels
→ Increasing demand for anti-ageing, beauty and health products
of active ingredients
as incomes rise and consumers’ expectations change
→ Need to minimise environmental and social impact along the
→ Demand for increased crop yields to support the growing
population
→ Demand for energy saving materials and increased bio-based
content to mitigate against carbon emissions in supply chains.
entire customer supply chain
→ Emergence of taxes and incentives for businesses to reduce
the net environmental burden
→ A move away from petrochemicals towards renewables and
industrial biotechnology.
Our opportunities
Our opportunities
More growth in developing regions, and demand for new products
that contain our innovative ingredients.
From our unique position in the use of renewable raw materials,
we can reduce the net impact of our Business by facilitating our
customers’ transition to more sustainable ingredients, and through
our applications science, create ingredients that have a positive
benefit in use.
→ Clear demonstration of transparent ethical and social
→ Consumer demand for niche products
accountability globally
→ Increase in small independent (‘indie’) customers and virtual
→ Need for collaboration through the whole supply chain to trace
communities demanding a different level of service
material provenance.
→ Need for agile operations
→ Increased use of data science and robotics to shorten product
development life cycles.
Our opportunities
Our opportunities
Our extensive product claims substantiation capabilities are
supported by a wealth of technical information that assists our
customers in making the right choices for their consumers.
Opportunity to connect more dynamically with both our current
and future customers, and to use data and robotics to improve
efficiency and effectiveness from new ingredient development
to site operations.
Our response
Our response
Our response
Our response
→ Close working partnership with our customers, smart partners
→ In house regulatory experts sitting on industry wide committees
and suppliers to develop innovative ingredients with intrinsic and
extrinsic sustainability benefits across all our market sectors
→ Local market teams who are close to our customers, with the
right global market sector insight and expertise to meet rapidly
changing market demands
→ Investment in local research and development laboratories in
growing regions (p13)
→ Capital investment in manufacturing assets in Asia and Latin
America to reduce supply chain length and bring supply closer
to our customers (p13).
to inform and shape future policy
→ New product developments assessed against the globally
recognised 12 Principles of Green Chemistry framework,
to ensure that they are as sustainable as they can be (p21)
→ Investment in our North American bio-surfactant plant to
produce the bio-based ECO range of ingredients, both
reducing reliance on fossil fuels and eliminating the need
for rail transportation of ethylene oxide (p10)
→ Cradle-to-gate life cycle assessment to assess the impact of our
ingredients and identify where we can make further reductions
in our carbon footprint (p21)
→ Report to CDP climate change, forest and water disclosures.
→ Maintain and enhance our reputation as a high quality ingredient
supplier by meeting and surpassing regulatory requirements
→ Local sales and research and development teams work closely
with small start-ups on niche ingredient development
→ A corporate Ethics Committee which ensures that supply chain
→ Flexible operating assets and supply chains enable the
risks are identified, prioritised and controlled
→ Work with specialists to characterise the physical palm oil
production and delivery of small batch sizes to meet changing
customer demands
derivative supply chains, leading to transparency of provenance
→ Our acquisition of Cutitronics, which enables us to utilise the
→ Actively manage all risks that could affect the reliability of our
service to customers: ethics, human rights, process safety,
product safety, quality assurance and business continuity
latest digital technology in premium skincare (p14)
→ Appointment of a Chief Digital Officer to grow our digital
strategy (p13)
→ Ensure that all manufacturing sites are certified against
→ Creation of a process informatics group to analyse and optimise
appropriate Safety, Environment, Quality and GMP standards.
plant performance
→ Investment in our Centre of Innovation for Formulation Science
at the Materials Innovation Factory at the University of Liverpool,
to build a data centric approach to innovation (p13).
04 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
05
Strategic Report
Business Model
Creating value
We create, make and sell innovative speciality chemical ingredients, generating long term value
through collaborative relationships and our commitment to sustainable innovation.
Croda
Delivering value across our market sectors
We serve our customers across four global market sectors:
Sector sales
Personal Care
Life Sciences
Performance Technologies
Industrial Chemicals
p14
p16
p18
p20
£466.6m
£322.6m
£456.9m
£127.0m
Total
£1,373.1m
Engage
Working closely with our
customers and supply chain
we identify unmet consumer
needs around the world
Create
We create innovative and
sustainable ingredients
and technologies that
meet consumer needs
Make
Our manufacturing sites
run flexible operations to
consistently high standards
across the world
Sell
We generate revenue through
our direct selling model, with
sales, technical and warehousing
support local to our customers
Sustainability connects every aspect of our Business
Supported by our culture
Sustainability is an increasing requirement and a differentiating factor
for our customers and their consumers. Our sustainability programme
is enhancing our reputation for producing the best sustainable
ingredients whilst reducing our environmental burden on the planet
and our local communities, helping our customers to manage their risk
and achieve their own sustainability objectives.
Our ‘One Croda’ culture exemplifies the values, behaviours and
attitudes we expect of ourselves. We want our people to feel
empowered and recognised for their commitment, creativity
and innovation. Each individual should be treated fairly and
equally, with openness and transparency.
Input
Consumer need
Influenced by global mega trends,
consumers dictate their needs
Customer need
Our customers seek innovative and
sustainable ingredients that address
consumer needs
Our relationships
and assets
Relationships
Customers
Our people
Open innovation partnerships
Smart partnerships
Supply chain partnerships
Investor base
Read more about our relationships
on page 08
Assets
Our culture
Protected intellectual property
Local innovation centres
Valuable green chemistries
Agile regional manufacturing base
Strong cash generation for reinvestment
06 Croda International Plc
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Output
Customer product
Using our innovative and sustainable
ingredients, our customers increase the
benefits of the products they manufacture
Consumer benefit
Consumers all over the world benefit
from the performance of our ingredients
that address their unmet needs
The value we add
High performance, high quality
innovative products with the
sustainable benefits and claims
validation our customers want
Read more about sustainable
product innovation on page 21
Minimising our impacts within our
customers’ supply chains
Read more about planet and
process on page 22
Ensuring the success and safety
of our people and supporting the
communities in which we operate
Read more about people and
community on page 23
Superior financial performance
Read more on page 09
Strong returns to shareholders
Read more on page 09
See page 24 for our Key
Performance Indicators
Croda International Plc
Annual Report and Accounts 2017
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Strategic Report
Key Relationships
Collaboration and partnership
Our Investment Case
Strength and delivery
Our success is driven by a focus on collaboration, which we achieve by encouraging
our people to think differently as they build intimate relationships throughout our Business,
and work with our customers and peers.
We are a speciality chemical company that creates high performance ingredients
and technologies relied upon by industries and consumers globally.
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Customers
Our business model, directly delivering
thousands of products to thousands of
customers without third party distribution,
requires an unrivalled level of customer
engagement and intimacy on a global
scale. Each of our market sectors has
a dedicated research, sales and
marketing team who are constantly
in close collaboration with a number
of departments within customers’
organisations. These touch points include:
research and development, marketing,
production, purchasing, quality, regulatory
and sustainability. This level of engagement
and intimacy creates true partnerships
based on trust and reliability.
Read more on pages 10 to 20
Our people
Our extensive product portfolio is
supplied to many diverse markets,
creating a high degree of complexity, but
also competitive advantage and great
opportunities. Our people’s intuitive ability
to manage this complexity comes from a
culture that promotes continuous internal
communication and sharing of information
and best practice across all disciplines.
This internal communication is both
structured and informal, which creates
opportunities for cross fertilisation of ideas
and innovation.
Read more on page 23
Open innovation partnerships
Innovation plays a critical role in the delivery
of our strategy. Our global research and
development teams across all our market
sectors build collaborative partnerships
with world leading academics and
universities to innovate and develop
unique ingredients that add value to our
customers’ products and address their
consumers’ unmet needs.
Smart partnerships
Through collaborative partnerships
with university start-ups and technology
specialists, we identify opportunities
to create next generation solutions. By
combining and investing in technologies
from external sources, together with our
in-house expertise, they identify solutions
which match our customers’ future needs
across all our market sectors. In 2017 we
acquired Enza Biotech in Sweden and
IonPhaseE in Finland, and we invested in
Cutitronics, based in the UK, all of which
have novel patented technology.
Read more on pages 14 to 20
Supply chain partnerships
Managing our global customer product
matrix requires strong partnerships
with suppliers and a high degree of
transparency, operating on a global,
regional and local level. Raw material
quality and supply, together with assured
supply chain integrity, are pre-requisites
to operating responsibly. Connections in
supply chains are now stronger than ever
before, and product integrity relies on
upstream transparency in supply chains
to ensure that we source from suppliers
with shared values and standards equal
to our own.
Read more on page 22
Investor base
We communicate regularly with our existing
and potential shareholders to ensure that
our strategy and trading trends are clearly
and consistently understood. Recognising
the importance of direct communication,
in 2017 we attended numerous investor
conferences and roadshows in the UK,
USA, Europe and Asia and regularly
co-ordinated investor site visits, capturing
and discussing shareholders’ opinions
and key issues.
Read more on page 13
Read more on page 49
Our collaboration
in 2017 included:
33,986
meetings with our customers
39
managers completing our annual 2020
Network development programme
100+
projects working with 393 partners
3
smart partnership investments
2,000+
face-to-face meetings with
raw material suppliers
38
investor conferences and
roadshows attended
Our investment case
Global product
innovation in
collaboration
with customers…
…with local sales
and technical
delivery…
→ Differentiated market leading technologies
NPP sales as % of Group sales
→ Innovation embedded in the business
→ Technical teams focused on bigger and
better innovation
→ Investment in research and development
delivering fast growth
→ Local innovation centres driving increased
customer collaboration
→ Products increasingly delivering
sustainable solutions.
→ Operating in fast growing sectors
→ Customer intimacy and collaboration
→ Committed to sustainable local
manufacturing globally
→ Global marketing expertise and sales
reach delivered locally
→ Operating in fragmented markets.
27.6%
2016: 27.4%
Core Business sales growth %
in constant currency
5.6%
2016: 4.6%
…that drives
superior financial
performance…
→ Excellent profit margin
→ Capital light model
→ Continued focus on top line growth
whilst protecting margin
→ Strong cost control
→ Strong free cash flow.
Adjusted earnings per share
179.0p
2016: 155.8p
…and generates
strong returns to
shareholders
→ Excellent return on capital
→ Supporting investment to grow
→ Consistent regular dividend payments
→ Disciplined approach to acquisitions that
are technology driven
Return on Invested Capital
19.2%
→ Excess capital returned to shareholders.
2016: 19.3%
08 Croda International Plc
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Croda International Plc
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Strategic Report
Chief Executive’s Review
We are continuing to deliver
Record profit and strong
sales growth
2017 was a year of significant progress
for Croda; a year of record profits and
strong organic sales growth; and a year
when all core sectors and major regions
contributed to growth. Our strategy
continues to deliver. We are achieving
consistent top and bottom line growth.
It is pleasing to see this growth balanced
across each of our core sectors, reinforcing
that Croda has three strong legs of growth.
We have continued our relentless focus
on innovation, growing strongly in premium
niches, across all customers – big
and small.
In constant currency, adjusted profit before
tax increased 6.5% on sales 4.6% higher.
With around 95% of our sales outside the
UK, the weakness of Sterling in the first
half year benefited our reported currency
results, with sales increasing by 10.4% to
£1,373.1m and adjusted profit before tax
up 11.1% to a record £320.3m.
With our strategy broadly unchanged over
many years, we take a long term view of
investing and developing our business
and our people. We keep things simple.
Our job is to provide unique performing
ingredients, satisfying the unmet needs of
our customers whilst delivering significant
value for both them and Croda. Through
2017 we have continued to invest: in
Research & Development (R&D), through
our local laboratory expansion programme;
in Open Innovation, collaborating with many
universities; and in Smart Partnering, with a
number of new commercial partnerships
established. We have continued to invest in
faster growth technologies, both organically
and by acquisition; in manufacturing, in
our operating capabilities; and in building
further knowledge in our people.
At the heart of our business is a creative
and customer focused innovation
programme. This is harnessed within
a powerful culture; a culture where the
‘can do’ attitude, free thinking and deep
understanding of our customers’ needs
set us apart from our competition, which
delivers great value for all our stakeholders.
Our culture is the raw material that drives
our innovation spirit. In 2017, this helped
New and Protected Product (NPP) sales
grow for the fifth consecutive year to a
record 27.6% of total sales. We have more
intellectual property (IP) in the business
today than five years ago.
Over the last 12 months, we have
acquired or invested in four fast growth
disruptive technology companies, including
Nautilus, a source of new marine biotech
active ingredients. We invested over
£150 million in capacity, three times
depreciation, including in Beauty Actives,
a bio-surfactant plant in North America to
supply sustainable ingredients to consumer
and industrial markets, and in high purity
Health Care and Smart Materials
technologies. We created a new digital
team to unlock new ways to better reach
and serve our customers.
Accelerating top line growth –
constant currency sales up 4.6%
Sales increased by 10.4% to £1,373.1m.
This included a 5.8% benefit from currency
translation due to weaker Sterling in the
first half of the year. Sales in constant
currency increased by 4.6% and there was
no material impact from acquisitions.
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Personal Care growth was a particular
highlight, with constant currency sales up
over 5%, successfully reversing a decline in
the more mature Specialities market whilst
continuing to deliver faster growth in the
premium Actives market. Life Sciences
achieved a strong second half year, with
high purity drug excipients and crop
delivery systems performing well. Following
exceptionally strong demand at the start of
the year, Performance Technologies
streamlined sales to target value over
volume growth and drive significant margin
improvement in the second half year.
Continued profit growth – adjusted
EPS up 10.5% in constant currency
Adjusted profit before tax increased by
11.1% to £320.3m. Profit before tax on an
IFRS basis rose strongly to £314.1m. The
increase in top line sales was supported
by an improved margin, reflecting higher
NPP sales and an improved product mix.
Return on sales increased by 20 basis
points to 24.2%. Adjusted EPS rose 10.5%
in constant currency and 14.9% in reported
currency to 179.0p. The proposed final
dividend has been increased by 11.5%
to 46.0p.
Personal Care: strong sales
improvement with stable margin
The return to robust growth in Personal
Care reflected ‘self-help’ measures to
improve sales performance whilst
protecting margin. This saw the creation
of three businesses to reflect the differing
characteristics of each end market, where
our investment in R&D is bearing fruit.
Strong innovation-led growth in Beauty
Actives helped sector NPP exceed 40%
of sales, a record. Our Beauty Effects
business saw improving demand for
solar protection, hair and colour cosmetics
ingredients. The Beauty Formulations
business increased differentiation and
competitiveness in our heritage ingredients
portfolio and returned to healthy sales
growth. Sales to multinational customers
also returned to growth, after several difficult
years, alongside continued fast growth with
regional and local customers through our
distributed model which puts us closer to
customers. This was enhanced by new
digital capabilities to support the growing
demand from newer ‘Indie’ customers.
Sales grew 5.3% in constant currency and
adjusted operating profit increased 3.3%
on the same basis to £155.5m, reflecting a
modest decline in return on sales due to the
broader product mix.
Life Sciences: innovation and
Incotec integration delivering faster
profit growth
Life Sciences delivered its target of faster
profit growth through new innovative
technologies and Incotec margin
improvement, in line with our strategic
objective of creating a business to match
Personal Care. Sales of IP-rich delivery
systems were supported by a resurgence
in Crop Protection demand in the second
half year, reflecting investment in faster
innovation through collaboration with our
agrochemical customers. The integration of
our Seed Enhancement business, Incotec,
continued to progress successfully, with
rationalisation of the geographic footprint
completed and new R&D investments
bearing fruit. In Health Care we exited
our North American generic Active
Pharmaceutical Ingredients (API) contract
following a successful four year period
of manufacture. Sector sales grew by
4.6% in constant currency and adjusted
operating profit increased to £97.0m with
return on sales of 30.1% (2016: 28.1%).
Performance Technologies:
transitioning to more focused
innovation
Performance Technologies continued
its journey to ‘value over volume’. We
focused on developing faster growth
technologies in the premium Smart
Materials and Energy Technologies
markets. 2017 saw strong structural
growth in the first half of the year,
particularly in lubricants and oil and gas
markets, with growth in the second half
year moderating as the sector focused
on increasing value and more selectively
targeting volume. Sales grew by 6.6%
in constant currency, whilst adjusted
operating profit increased to £75.4m, the
second year of double digit percentage
constant currency profit growth. After
some margin compression in the first half
year from raw material price increases,
return on sales increased by 120 basis
points in the second half year, and is
progressing towards our 20% medium
term target.
Continued growth in Asia and Europe;
return to growth in North America
Sales grew organically in our three largest
regions. Asia and Europe continued to
drive growth, with Core Business sales
in constant currency in Asia up 6%,
leveraging recent investment to increase
proximity to local customers. In Europe,
improved market confidence saw sales
on the same basis increase by 5%, with
excellent progress in new geographies in
It is pleasing to see growth
balanced across each of
our sectors, with three
strong legs of growth.”
Steve Foots
Group Chief Executive
Sales growth
+10.4%
2016: +15.0%
NPP sales as % of Group sales
27.6%
2016: 27.4%
Return on sales
24.2%
2016: 24.0%
Case studies
Making ethylene oxide sustainable
We have been manufacturing ethoxylates at our
Atlas Point facility since the 1940s and produce
many globally recognised surfactants and
emulsifiers.
Our ingredients have provided solutions to our
customers’ application problems that had
previously been very difficult to solve.
There is growing demand to increase the
proportion of bio-based, renewable ingredients
in consumer products. Our new bio-based
ethylene oxide is now a recognised replacement
for petrochemical based ethylene oxide.
Our new range of ECO surfactants is 100%
renewable with performance matching that
of petrochemical based options.
Community benefit
Our facility has always been a supportive and
active member of the local community. During
construction, this project has created over 250
local construction jobs and we have recruited
30 new, local, full-time employees to operate
the ECO plant.
Safety at ECO
Process safety principles have been applied at
all stages of construction. We partnered with a
specialist EO process design company which
10 Croda International Plc
Annual Report and Accounts 2017
has registered millions of hours of incident-free
operating time.
The detailed process design was subjected to
rigorous hazard studies to identify and eliminate
problems. Our contractors worked a combined
800,000 hours without injury, something of
which we are very proud.
Renewable energy at Atlas Point
In 2012, we invested US$8m in a renewable
energy project, using gas from a local landfill site
to generate electricity and steam. In 2013, we
invested an additional US$2.3m in solar panels
to further reduce annual CO2 emissions.
Avoidance of greenhouse gas emissions
Our use of landfill gas, combined with lower
consumption of natural gas, has led to a
reduction in greenhouse gas emissions of close
to 1 million tonnes.
Carbon footprint of ECO range
We have modelled the Life Cycle Analysis of our
ECO products, focusing on the climate change
impact category, in alignment with ISO 14067.
If a typical ECO product family was made using
100% renewable energy, we would see a further
reduction in the carbon footprint.
100%
renewable surfactants
Carbon footprint of ECO products
compared with traditional ethoxylates
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k
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2
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3
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1
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Traditional
ethoxylate
ECO range
with current site
energy mix
ECO range,
100% renewable
energy
Croda International Plc
Annual Report and Accounts 2017
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Strategic Report | Chief Executive’s Review
Eastern Europe, Middle East and Africa.
Actions taken in North America restored
growth to 8% on the same basis,
supported by strong market conditions.
Whilst full year constant currency sales in
Latin America were slightly below 2016,
growth turned positive in the second
half year, helped by macroeconomic
stabilisation and our investment in capacity.
Robust financial platform funding
investment
Croda continues to deliver good cash
generation and maintain a strong balance
sheet with flexibility for organic investment,
acquisition and returns to shareholders.
This cash is used to invest in R&D, faster
growth technologies and manufacturing
capacity. In 2017, Croda’s capital
investment peaked, with over £150m of
capital expenditure to support future
growth. This included completion of the
installation phase of our industry leading
bio-surfactant plant in North America, with
commissioning expected around the end of
the first quarter 2018. We made three
technology acquisitions and investments
during 2017. ROIC remained a multiple of
our cost of capital at 19.2% (2016: 19.3%),
ahead of realising the benefits of recent
investments and acquisitions. Despite the
significant level of investment, leverage
reduced to the lower end of our target
range at 1.0x net debt to EBITDA.
Delivering a sustainable strategy
Croda delivers shareholder value by
creating innovative ingredients for
niche markets, satisfying the unmet needs
of our customers, globally and locally.
Our strategy to achieve this comprises
three components:
Our Strategic Approach
1. Deliver consistent top and bottom
line growth
2. Increase the proportion of protected
innovation
3. Accelerate the capture of new
sustainable technologies.
Alongside the strong growth and increased
NPP, we continued to build our platform
of sustainable technologies. Sustainability
connects every aspect of Croda’s business
and is an increasing requirement and
differentiating factor for our customers
and their consumers. We have adopted
ISO 26000, the international sustainability
standard. Our bio-surfactant plant will see
the launch in 2018 of our ECO range of
products, enabling customers to build
sustainably focused consumer brands
without sacrificing performance. Our
environmental programme is enhancing
our reputation for producing the best
sustainable ingredients whilst reducing our
environmental burden on the planet and
our local communities, with a focus on
carbon neutrality and in helping our
customers manage risk through the
assurance provided by our responsible
sourcing programme. Highlights across our
manufacturing sites in 2017 included a
16% reduction in waste to landfill and 5%
reduction in water withdrawal since 2015.
To deliver our strategy we are investing in:
→ new technologies
→ greater R&D
→ new operational capability and
→ our people.
Investing in new technologies
We continue to identify new technologies
for Croda to deliver to its customers.
We seek to acquire new technologies
both organically, by creating our own
capability where none exists in the market,
and inorganically, by acquisition. Alongside
our new bio-surfactant plant, organic
investment included continued development
of our global market-leading Matrixyl®
Personal Care brand, with the launch
of the next generation in skin rejuvenation,
Matrixyl® Morphomics™, and new solar
protection products, such as Solaveil
CTP7, for use in silicone-based sun
care, especially popular in Asia. New
technologies developed for Life Sciences
included new high purity drug delivery
systems and advanced crop protection
and seed enhancement systems, including
seed encrustment, which enables
customers to add more active and
complex formulations, increasing crop
yields and reducing environmental impact.
We continued to build the technology
pipeline in Performance Technologies,
commercialising MyCroFenceTM, a
novel surface active antimicrobial
coatings technology.
Inorganic investment includes both
‘bolt-on’ acquisitions of established
businesses, such as our 2015 purchase
of Incotec, and technology acquisitions of
novel chemistries. We particularly target
opportunities where Croda’s existing R&D
and global sales and marketing network
allow for profitable scale up. We acquired
Enza Biotech, developing the next
generation of renewable surfactants;
IonPhasE, an innovative supplier of static
Delivering Growth
KPIs:
Driving Innovation
Through our direct selling business model,
our people build intimate relationships with our
customers large and small, working closely
with them to target niche, rapidly growing
markets where our innovative and sustainable
approach is valued. Our flexible and agile
structure enables our people to stay close to
our customers around the world, whilst working
together as one global team to respond
quickly to demands identified by changing
demographics in a fragile world (p04).
12 Croda International Plc
Annual Report and Accounts 2017
→ Return on sales p24
→ Core Business sales growth p24
Key risks:
→ Revenue generation in established and
emerging markets p32
→ Talent development and retention p32
Innovation plays a critical role across our
Business, with dedicated business sector
research and development teams creating new
ingredients in collaboration with our customers.
Working with our open innovation partners
and through smart partnering, we identify
unique opportunities that add value to our
customers’ products and satisfy the needs
of their consumers. It is a combination of
the ingredients we create and the way we
operate that enables our customers to build
on our innovations.
electricity protection, operating in faster
growth segments of the electronics and
automotive markets; and invested in
Cutitronics, a UK innovator of personalised,
adaptive skin care.
This focus on new technology also saw
Croda invest in digital. We continued to
digitalise Croda’s enterprise, introducing
high throughput robotic analytical testing
to accelerate R&D. We are introducing
new digitally enabled customer offerings,
building on our new web platform,
increasing the services we provide smaller
and Indie customers. We are collaborating
in new digital ecosystems, for example
through our investment in Cutitronics,
where digital skin devices will unlock
powerful consumer data for skin health.
Investing in greater R&D
Our lifeblood is innovation. We have
expanded and accelerated our innovation
programmes through internal and external
projects. NPP sales in 2017 were below our
target to grow at twice the rate of non-NPP
sales, reflecting the return to growth in the
underlying business. However, NPP sales
were 75% higher than in 2012, with the
proportion of NPP rising from 20.5% of total
sales to 27.6% over the same period.
We supported our experienced R&D team
through enhanced Open Innovation and
Smart Partnering programmes. With almost
400 partners and comprising over 100
completed and 75 ongoing projects, Open
Innovation gives Croda access to chemists,
biologists and agronomists in universities
and specialist research laboratories and
enterprises, adding over £12m of external
funding since the programme commenced.
We have expanded this European
programme to Asia.
Smart Partnering has seen Croda co-
invest with industry technology leaders.
We opened a state-of-the-art Centre of
Innovation for Formulation Science at
the Materials Innovation Factory at the
University of Liverpool. We are partnering
with a leader in innovative special effect
pigments, in the fast growing colour
cosmetics market. We have expanded
in-house innovation capability, increasing
R&D capacity at Sederma, our flagship
Beauty Actives business, where 80% of
sales come from NPP. The global market
leader, Sederma remains at the forefront of
disruptive technology, through the addition
of plant stem cell technology from IRB and,
in 2018, marine biotech actives from
Nautilus. We also expanded R&D facilities
in Brazil, Japan, Korea, South Africa and in
Seed Enhancement in the Netherlands, the
latter part of our investment to establish
new innovation-driven sales in Incotec.
Investing in new operational capability
2017 has seen the biggest organic
capacity investment in Croda’s recent
history. In addition to our bio-surfactant
plant, we have created a global centre of
excellence in solar protection, invested in
emerging geographies by expanding local
manufacture in Latin America and India,
and increased biotech production in the
UK. We have major investments underway
to expand capacity in high purity excipients
in Health Care and in our UK polymer
additives business, where we are a global
leader in slip, anti-static and anti-scratch
solutions to customers in the premium
packaging and automotive industries.
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Investing in our people
Our people and the culture that they
embody are at the centre of our success.
We continue to invest in our people, with a
focus on sales and technical skills to serve
our increasing number of customers. We
have added biotech scientists through our
acquisition of Enza; digital capability,
including the appointment of a Chief Digital
Officer; and agronomy specialists through
Incotec. Following a Global Employee
Culture Survey in 2017, a programme is
developing and reinforcing the values and
behaviours which make Croda’s culture
special. We are driving delivery of our
diversity plans.
Outlook
We have entered 2018 with momentum
and a platform on which to deliver long
term growth. In the year ahead, we will
continue to invest in:
→ Fast growth technologies, both
organically and by acquisition, to
support future profitable growth;
→ R&D, through successful Open
Innovation and Smart Partnering
programmes;
→ Manufacturing, through improved
operating capabilities; and
→ Our people, building creativity,
innovation and expertise.
We are confident of delivering continued
progress in 2018.
Steve Foots
Group Chief Executive
KPIs:
→ NPP sales % p24
→ Relative NPP sales growth p24
Key risks:
→ Product and technology innovation p32
→ Protect new intellectual property p32
→ Talent development and retention p32
Sustainable Solutions
KPIs:
We continue to build on our renewable raw
material heritage to create, make and sell
sustainable solutions today, to positively
influence tomorrow. By investing in innovative
product design and flexible operations, we are
working with our supply chain to develop
ingredients that deliver more benefit, with less
impact. This, coupled with our participation
in regulatory debates, ensures that we are
providing solutions to the opportunities
presented by our global mega trends (p04).
→ Non-fossil fuel energy % p25
→ Lost time injury rate p25
Key risks:
→ Product liability claims p32
→ Major safety or environmental incident p33
→ Security of raw material supply p33
→ Major capital project management p33
→ Chemical regulatory compliance p33
Croda International Plc
Annual Report and Accounts 2017
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Strategic Report
Sector Review
Personal Care
Sandra Breene
President, Personal Care
In Personal Care we are targeting
consistent sales growth, whilst broadly
maintaining margin. We delivered this in
2017, with sales growth in all regions,
driven by stronger sales volume. Sales
increased 10.9% to £466.6m (2016:
£420.6m) and by 5.3% in constant
currency, the latter driven by a 5% increase
in volume. Adjusted operating profit
increased by 8.7% to £155.5m (2016:
£143.1m), 3.3% ahead in constant
currency. The sector’s strong margin
delivery continued, with return on sales
only marginally lower at 33.3% (2016:
34.0%); as expected, this reflected a
broadening in mix as sales growth returned
across the product portfolio.
During 2017 we successfully reversed a
decline in the more mature Specialities
market, whilst continuing to deliver fast
growth in our premium Actives business.
We created three businesses: Beauty
Actives, Beauty Effects and Beauty
Sales
£466.6m 2016: £420.6m
Adjusted operating profit
£155.5m 2016: £143.1m
Return on sales
33.3% 2016: 34.0%
14 Croda International Plc
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Alongside an improving trend with
multinationals, the fastest growth continues
to be with regional and local customers.
Our investment in locally based sales,
marketing and technical resource
continues to be a key differentiator in
accessing smaller customers and enabling
us to identify and leverage exciting new
trends. Enhanced digital capabilities and
targeted marketing are delivering a growing
pipeline of opportunities by connecting
faster with new ‘Indie’ customers as they
bring new products rapidly to market.
The breadth of our customer base drove
growth in all regions.
Innovation continues to drive the sector,
with NPP sales growing faster than the
average and now representing over 40%
of sales. The ability to innovate alongside
customers is being enhanced through
an expansion of research and development
at Sederma, a new centre of excellence for
hair in Japan and a new innovation centre
in Brazil. In addition to organic investment,
we continue to add to our range of market
leading technologies, including the
acquisition of a novel surfactant technology
spin-off and co-investment in Cutitronics
(see case study). Five years ago we added
plant stem cell technology to Sederma’s
anti-ageing portfolio through the acquisition
of IRB, which is now delivering meaningful
sales. We have recently added Nautilus,
a technology-rich marine biotechnology
company, which will further enhance this
unmatched range of skin active capabilities.
product usage, enabling us to utilise this latest
digital technology to gain greater insight into
personal care regimes and the factors that
influence these. This information will shape our
future product development and help us provide
better formulation support and consumer insight
to our customers.
Formulations, which have given greater
focus and dynamism. Our flagship Beauty
Actives business, where Croda is the
global market leader, had another excellent
year, delivering double digit percentage
sales growth in constant currency.
Innovation is the key to its continued
success and we launched the next
generation of the award winning Matrixyl®
range, Matrixyl® Morphomics™, combining
the latest scientific technologies with
Sederma’s expertise in anti-ageing
peptides and claim substantiation to offer
the best solutions in skin rejuvenation.
In Beauty Effects, the smallest of the three
businesses, our aim is to develop fast
growth niches in hair, solar protection and
colour cosmetics. We believe that these
technically demanding markets can drive
similar growth and profitability to Beauty
Actives. With a focus on new product
innovation, Beauty Effects delivered
sales growth in the second half year. It
successfully launched Volarest™, a novel
curl retention product, and Kereffect™,
an exciting semi-permanent hair
straightening and curl relaxant product
offering a milder alternative to traditional
straightening systems.
In Beauty Formulations we completed
our distributor exit programme, targeted
resource to innovation driven customers
and increased differentiation of our heritage
ingredients portfolio. As a result, we
returned this business to growth.
We also reversed a declining trend with
multinational customers, increasing the
intensity of product innovation with
a targeted group of customers and
delivering modest sales growth.
Case study
Investing in technology
In 2017 we became minority shareholders in
Cutitronics, a technology company that has
developed and patented devices for skin
care product selection and application.
Targeting the premium skin care market, their
strategy is to white label this technology, called
CutiTron™, which assesses and prepares the
skin for optimum delivery of the customised
formulation it dispatches, providing an ongoing,
adaptive personalised regime for the consumer.
CutiTron™ analyses skin needs while taking into
consideration other factors that might affect its
condition, such as local climate. It also captures
many data points on skin and consumer
Meeting the unmet
needs of African
Consumers
There is a growing consumer trend
towards a natural look within the
African hair care market
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Investing in...
People
We commissioned and supported a number
of focus groups with African women to
understand better their personal care
regimes, which included hearing about the
challenges they face in trying to maintain
healthy hair. This has given our research and
development team new insight into the
problems these consumers have, enabling
them to learn more about, and invest in, new
analytical and testing equipment to assess
our ingredients on African hair.
Niche
The hair of most Africans grows slowly and
tends to be difficult to manage due to its
brittle nature. The products currently available
in this market are generally not meeting
African consumer needs because they have
been developed for Afro-American hair,
which has different properties. This is why
some consumers resort to braiding that
damages the hair, which can lead to receding
hairlines and baldness in the long term.
Alternatively, they often apply relaxer
products to straighten the hair, which can
harm the hair and scalp and can also have
a negative impact on the environment during
disposal due to their chemical profile.
Technology
The Centre of Excellence we have opened in
South Africa uses bespoke and unique hair
testing methods for the African market.
Using this technology, we can analyse the
performance of our active ingredients to
meet consumer demands, knowing that
due to our high percentage of natural,
renewable raw materials and the sustainability
information we have, we can also minimise
any environmental impacts. Through our
‘Proudly Tested in Africa’ initiative, we will
continue to gain direct consumer feedback
in order to offer a more comprehensive and
targeted data package to our customers.
Smart Partnering
To focus on meeting the needs
of African consumers, we are working
extensively with industry experts, local
universities and our customers, both
multinationals and local manufacturers,
to ensure that we all have a greater
understanding of the African hair
physiology and current market landscape.
Croda International Plc
Annual Report and Accounts 2017
15
Strategic Report | Sector Review
Life Sciences
Nick Challoner
President, Life Sciences
In Life Sciences we are creating IP rich
delivery systems for complex health and
crop applications, delivering sales and
profit growth in line with our strategic
objective of creating a business to match
our Personal Care success. 2017 saw Life
Sciences deliver an excellent performance,
driven by strong sales growth in Crop
Protection and margin improvement in
Seed Enhancement. Sales increased by
10.4% to £322.6m (2016: £292.2m) and
were 4.6% higher in constant currency.
Adjusted operating profit rose 18.3% to
£97.0m (2016: £82.0m), 14.0% higher in
constant currency. Volume growth of
6.0%, together with an improving Incotec
contribution, increased return on sales by
2 percentage points to 30.1% (2016: 28.1%).
Our Crop Protection business continued to
outperform the wider agrochemical market.
After a challenging first half of 2017, which
saw sales unchanged year on year, the
Sales
£322.6m 2016: £292.2m
Adjusted operating profit
£97.0m 2016: £82.0m
Return on sales
30.1% 2016: 28.1%
16 Croda International Plc
Annual Report and Accounts 2017
ground Seed Enhancement in one location.
2017 saw exciting sales growth for Disco®
AG Clear L-650, representing the first
technical development by Croda/Incotec
and which provides a seed film coat
formulation that outperforms in seed flow,
drying time and dust control. The new
product pipeline is continuing to improve.
Health Care achieved modest sales
growth in 2017. Whilst growth in
mainstream excipients was slower, we
delivered a strong performance from our
investments in faster growth technologies,
particularly high purity excipients which
meet increasing demand for complex drug
delivery systems. The innovation pipeline
strengthened, with a record level of New
and Protected Product sales. We launched
Crodamol™ IPIS, an excipient with light
and easy spreading characteristics with
outstanding moisturisation and sensory
appeal. Innovation is also driving more
data generation, which supports wider
uses of existing excipients, whilst new
applications are helping to de-risk generic
drug formulation.
As expected, competition in the North
American generic Omega-3 Active
Pharmaceutical Ingredients (API) market
has continued, leading to lower prices
and, at the end of 2017, we exited our
exclusive supply contract without cost.
This completed a profitable four year
period of manufacture and we will
continue to build our range of other
Omega-3 API applications in selected
niches and countries.
We work alongside our customers to
demonstrate the outstanding benefits of our
Super Refined™ excipients, which contribute to
the stabilisation of these sensitive, nanoparticle
based injectable formulations, thereby helping to
maximise the performance and shelf life of APIs.
second half of the year saw a return to
strong growth. We have invested in faster
innovation through closer collaboration
with our agrochemical customers and are
targeting faster growing geographies. The
pipeline of new projects has continued to
develop, particularly leveraging our market
leading drift reduction technology. We
continued to grow with our multinational
customers but have also seen growth
amongst regional and smaller accounts.
This has been supported by investment
in additional capacity in Latin America,
where the medium term outlook for
crop production is strong, together with
encouraging growth in Asia, a relatively
new crop opportunity for Croda. Driving
greater innovation is key and we have
successfully launched the Tween™ L series
of advanced adjuvants and Atplus™ PFA,
an adjuvant developed to improve the
performance of fungicidal applications.
The integration of our Seed Enhancement
business, Incotec, following acquisition
at the end of 2015, continued to progress
successfully. Reorganisation of the
geographic footprint and cost base is
now complete, and the business is on
track to deliver our target to double
pre-acquisition profitability by the end
of 2018. It is focused on faster growth
territories in North America, Europe,
Brazil, China and India, getting closer to
customers by increasing customer-centric
innovation. We opened a new R&D facility
in the Netherlands and are creating new
centres in North America and China, the
latter combining above the ground Crop
Protection R&D capability with below the
Case study
Investing in injectables
As pharmaceutical companies look to
enhance drug effectiveness, nanoparticles are
becoming increasingly investigated as a drug
delivery system for injectable medications.
These microscopic particles help to protect
and stabilise sensitive active pharmaceutical
ingredients (APIs), allowing them to be used in
formulations effectively. These developments
improve the treatment that patients receive and
often make it more convenient as fewer doses
are needed. However, this type of injectable
product is complex, requiring specialist
formulators to ensure that they remain stable
over a long shelf life and that the APIs are
released at the right time.
Drift Reduction
Technology
Our unique wind tunnel facility in
North America enables us to work
with customers to develop new
‘low drift’ crop protection products
to control the spraying of crops
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Technology
Following three years of intensive
development, the measurement and
high speed imaging capabilities in our
bespoke wind tunnel allow us to characterise
spray patterns down to the movement of
individual droplets. This provides the tool
kit with which to conduct in-depth research
on spray droplet size control and drift
reduction mechanisms.
Niche
Our testing capability enables us to assess
agricultural spray quality and find control
solutions that better meet customer, market
and environmental needs. This improves
spray delivery to the target, which minimises
waste and reduces the impact on animals,
plants, water and land.
Smart Partnering
We developed the wind tunnel in
collaboration with academic and industry
partners around the world including,
agricultural, mechanical and aerodynamic
engineers. The facility offers a unique range
of support to our customers who engage us
on projects to improve spray performance.
People
Through relationships formed in the
design and delivery of this facility, our
people continue to expand their technical
knowledge, links to outside experts, depth
of understanding on market needs and
insight to the challenges in meeting them.
This enables us to help our customers focus
on developing technologies that solve the
right problems and better manage risks.
Croda International Plc
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a novel surface active antimicrobial
coatings technology with strong
environmental benefits, was commercially
launched. The Smart Materials business
is well positioned to meet increased
demand for products with high levels
of renewable carbon.
The Energy Technologies market is driven
by the search for new technologies that
can gain or retain energy. Sales in Energy
Technologies in the first half of the year
were particularly strong due to growth in
marine, wind turbine and environmentally
acceptable lubricants, together with an
upsurge in demand for oil and gas products,
benefitting our flow assurance business. In
the second half of the year, in line with our
strategy of driving value ahead of volume,
we selectively demarketed less differentiated
products to these markets. Our focus is on
creating greater innovation and higher value
products, including our Priolube™ range of
friction modifiers for the automotive market.
In addition, we continue selectively to
develop our presence in Home Care
and Water, by focusing on bio-based
surfactants in Home Care and by improving
the relatively low margin of the Water
business by upgrading product mix.
Sales growth in 2017 was good.
Strategic Report | Sector Review
Performance Technologies
progressively streamlined sales to improve
the quality of business, growing by 4.3% in
the second half of the year whilst increasing
return on sales by 120 basis points.
Over 2017 as a whole, sales increased by
12.6% to £456.9m (2016: £405.6m) and by
6.6% at constant currency. Overall volume
grew by 1.0%, with an improved product
mix supported by progressive recovery
of increased raw material prices. Adjusted
operating profit increased by 13.2% to
£75.4m (2016: £66.6m), up 10.7% in
constant currency, the second successive
year of double digit constant currency
profit growth for the sector. Return on
sales improved by 10 basis points to
16.5% (2016: 16.4%).
Smart Materials delivered good growth
in 2017, with robust demand in the
automotive and premium packaging
markets for polymer additives. Our novel
Incroslip™SL slip additive doubled sales for
the third year running and there is growing
interest in our anti-scratch technology.
However, sales from our China plant were
adversely impacted by higher prices for
domestically sourced rape seed. We
commenced a £27m project to expand
capacity in the UK and acquired IonPhasE,
an innovative technology provider of
static electricity dissipation solutions for
electronic and automotive applications.
In the coatings market, MyCroFence™,
Case study
Investing in electrostatic
protection
The ‘internet of things’ is an exciting and
fast growing trend that is driving innovation.
The opportunities within this market are
endless as it becomes the norm for items
such as handheld devices, vehicles and
appliances to be digitally connected through
embedded micro electronic components.
However, these are sensitive components
that require higher standards of electrostatic
protection to prevent damage.
This was a key driver for our recent
acquisition of IonPhasE, the technology
leader for controlled electrostatic discharge
release. Their unique, patent protected range
of anti-static additives prevents damage to
electrical components, as well as dust build
up in automotive parts, giving us access to
this niche, high value segment of the
polymers market.
Maarten Heybroek
President, Performance Technologies
Performance Technologies markets are
witnessing unprecedented technological
change which is creating attractive
opportunities for Croda’s innovation. In 2017,
we sharpened our focus on the premium
Smart Materials and Energy Technologies
markets, where we are seeing opportunities
for high added value innovation that
improves the performance of our
customers’ products with a reduced
environmental profile, to deliver our
medium term 20% return on sales target.
Performance Technologies delivered a good
result in 2017. Following an exceptionally
strong growth in demand at the start of the
year, which saw constant currency sales
increase 9.1% in the first half, we
Sales
£456.9m 2016: £405.6m†
Adjusted operating profit
£75.4m 2016: £66.6m†
Return on sales
16.5% 2016: 16.4%†
† Restated Note 1 p100
Marine Environment
Sustainability
The global marine transport industry
needs lubricants that meet stringent
legislation requirements, so that vessels
can enter any waters in the world
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Niche
Regulations demand that the lubricants
used in a marine environment have minimal
damage to aquatic life to protect our oceans.
These regulations are regional, but can have
global implications. For example, the United
States Environment Protection Agency
Vessel General Permit (VGP) applies to ships
entering USA territorial waters, but ship
owners and operators need the flexibility to
send any ship into USA waters at any time.
Technology
We have a long history of producing lubricant
base oils that are readily biodegradable,
do not bio-accumulate in the environment,
have superior toxicity credentials and are
based on renewable raw materials. They are
designed with performance and the marine
environment in mind, providing optimum
performance in ship power transmission
and positioning systems, whilst meeting
the requirements of all major international
Ecolabelling schemes.
People
Our research and development team work
alongside our global product safety and
regulatory experts to ensure that we offer
the right solution to our customers. This is
fundamental in enabling our customers to
operate without limitation in any waters
across the world, as they can be called upon
to deliver products anywhere at short notice,
making it an absolute requirement that our
products are designed for global application.
Smart Partnering
It is critical that we work in partnership
across our entire supply chain to make sure
that the lubricants we offer meet the highest
performance and environmental requirements
of our customers’ products. This in turn must
satisfy the needs of the equipment they are
used in both above and below the waterline.
Through ongoing industry and customer
collaborations, we gain an early understanding
of these demands, so that together we can
respond quickly to new performance and
regulatory requirements to protect our oceans.
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Strategic Report
| Sector Review
Industrial Chemicals
Maarten Heybroek
President, Industrial Chemicals
Sales
£127.0m 2016: £125.2m†
Adjusted operating profit
£4.3m 2016: £6.5m†
Return on sales
3.4% 2016: 5.2%†
† Restated Note 1 p100
In 2017 we continued to improve the
product mix in Industrial Chemicals,
with a targeted reduction in low value add
co-product and tolling business, which
saw sector volume reduce by 12%. Sales
increased by 1.4% to £127.0m (2016:
£125.2m) but reduced by 4.0% in constant
currency. Adjusted operating profit was
£4.3m (2016: £6.5m).
Industrial Chemicals continued to refine
its business. The transfer of co-product
glycerine from external sales to in-house
green energy conversion resulted in a
further 10,000mt reduction in sales from
our manufacturing facility in the Netherlands
but with greater value generated from
lower energy costs. The sector continues
to innovate selectively to develop niche
NPP for new performance-based
applications. We will continue to focus
on our strategy of creating a smaller,
innovation orientated Industrial
Chemicals business.
Sustainability
in the textile
supply chain
The processing of textile
materials requires many
different products in
conjunction with the
consumption of significant
amounts of water
and energy
Investing in...
Niche
Global retailers are now scrutinising water
and energy usage within their supply chain
and are demanding reductions from their
textile processors.
Technology
Our technology focuses on optimising
enzyme activity, enabling processing
temperatures to be reduced by up to
20-25°C, whilst eliminating the need for
harsher chemicals to be used in manufacturing
and also reducing the number of processing
stages. Combined, these benefits reduce
water and energy usage, and decrease
discharge into waste water, consequently
reducing the environmental impact of
water treatment.
Smart Partnering
We collaborate with our customers to ensure
that the ingredients we develop will meet
their performance needs, whilst satisfying
consumers’ increasing sustainability
demands. Further down the supply chain,
this has already seen our inclusion on the
approved supplier lists for national retailers.
People
Such complex products and processing
techniques require our research and
development teams, and also our sales
people to have a high degree of technical
knowledge. We ensure that these teams
are continually learning about the latest
advancements in the textile industry through
the results of our own internal technical trials
and market presentations.
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Sustainability
Sustainable Product Innovation
Making high performance,
high quality products
with the sustainable benefits
our customers want and need,
to meet consumer demands
Key Material Areas
Product Design
Deliver the most innovative
and sustainable ingredients
to our customers
Product
Stewardship
Ensure that the ingredients
we produce contribute
positively to the environment
and society throughout
their life cycle
Environmental
Impact
Minimise the impact
of our operations
Quality Assurance
Contribute to, and
proactively seek, higher
quality standards across
product and operational
aspects of our Business
to ensure consumer safety
To find out more, read our 2017
Sustainability Report at
www.croda.com/sustainability
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We know that it is only by being close to
our customers that we can understand
and fulfil their needs finding new ways to
improve sustainable product performance
and reduce environmental impacts.
In 2016 we introduced the concept of
intrinsic and extrinsic sustainability
benefits. Intrinsic refers to attributes such
as renewable raw material content, product
purity and cradle-to-gate life cycle
assessment. We assess the compliance
of our new products with the 12 Principles
of Green Chemistry and in 2017 our New
and Protected Products (NPP) scored
an average of 10.6 out of 12. The growth
of crops from which many of our raw
materials are derived, removes CO2 from
the atmosphere, resulting in low carbon
footprints for many of our products.
The extrinsic sustainability impacts of our
products include the social, environmental
and financial benefits that our products
have in use. We are working to quantify
these benefits for some of our product
application areas, calculating associated
carbon savings.
Our rigorous quality assurance processes
ensure the satisfaction of our customers
and the safety of consumers. We are
leading the way in the transformation to
Roundtable on Sustainable Palm Oil
(RSPO) certified palm oil derivatives, and are
continually striving to increase transparency
in our raw material supply chains.
All of this activity and more differentiates
and futureproofs our Business,
whilst offering our customers many
product advantages.
Highlights
61.1%
Top 1%
of our raw materials were from renewable
sources in 2017, an industry leading position
is where we are placed amongst all companies
assessed by the sustainability platform
EcoVadis, with a score of 83/100
60%
94%
increase in sales of products made with RSPO
certified palm oil derivatives compared to 2016
of our Rising Star products, those expected to
be a top 50 seller in the next five years, offer a
known sustainability benefit in use
Life Cycle Assessment
In order to continue developing low carbon,
sustainable products to meet our customers’
requirements, we need to fully understand
where the current environmental impacts of
our products lie.
We have recently invested in extending
our in-house life cycle assessment (LCA)
capability, using internationally recognised
software to model the cradle-to-gate LCAs
of selected product families, following
ISO 14067 and examining the climate
change impact category.
In 2017, our focus was on our new
ECO product range of 100% bio-based
surfactants, where we have shown that
switching to bio-ethylene oxide reduces
the carbon footprint of the resulting ECO
products. We will continue to look at
additional product families, prioritising
according to business and customer needs.
Cradle-to-gate
Intrinsic benefits
Extrinsic benefits
Raw material
source
End of product
life
Upstream raw
material processing
Consumer product
use phase
Customer
product manufacture
Croda product
manufacture
and sale
Distribution
of Croda
product
Life cycle of our products
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Strategic Report | Sustainability
Planet and Process
People and Community
Minimising our impacts
within our customers’ supply
chains
Key Material Areas
Environmental
Impact
Minimise the impact
of our operations
Quality Assurance
Contribute to, and
proactively seek, higher
quality standards across
product and operational
aspects of our Business to
ensure consumer safety
Process Safety
Keeping our manufacturing
sites safe and legally
compliant
To find out more, read our 2017
Sustainability Report at
www.croda.com/sustainability
22 Croda International Plc
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Our manufacturing processes take raw
materials and intermediates from our
suppliers and we subject them to
chemical and physical processes that
require resources such as energy, air
and water. We strive to minimise the
resources and minimise the waste
generated with every kilogram of
product we make. We then pack our
products in recyclable packaging, and
where possible aim to manufacture the
products as close as possible to our
customers to minimise the energy
required for transportation.
We measure the impacts of our
resource consumption and waste
generation, and have set targets
to reduce these impacts.
The impacts of our operations are not
just environmental. We are acutely aware
of the hazards presented by some of the
processes we operate. In addition
to maintaining full compliance with
the law in every country where we
operate, we have our own Process
Safety Framework that we apply to
our sites, and we invest in maintaining
sufficient internal capability to do this.
Keeping our plants safe is part of our
licence to operate.
Avoiding the transportation of flammable
raw materials over thousands of miles
from the southern USA is a major
benefit of our new ECO process,
recently established at our Atlas Point
manufacturing site, in North America
(p10). This removes the risks associated
with transportation of hazardous
materials as well as saving energy
for transportation and its associated
greenhouse gas (GHG) emissions.
Highlights
15.9%
4.4%
reduction in total waste sent to landfill since
2015 versus our target of 10% by 2020
reduction in water usage since 2015 versus
our target of 10% by 2020
A–
rating by CDP for our Climate Change report
14.9%
reduction in scope 1 and 21 greenhouse gas
emissions intensity since 2015 versus our target
of 10% by 2020
GHG Emissions
Since 2015, our baseline year, total emissions
have fallen by 0.6% even as our Business has
expanded and new capacity has been
commissioned. Within this, scope 1 emissions
have increased by 3.1%, whilst scope 2
emissions have fallen by 7.4%.
GHG emissions (TeCO2e)1
Our chosen measure of GHG emission
intensity divides our GHG emissions by value
added2: a measure of our business activity.
Since 2015, our GHG emissions intensity has
fallen by 14.9%, illustrating how our Business
has grown without a negative impact on
GHG emissions intensity.
GHG emissions intensity (TeCO2e/£m)
2017
2016
2015
134,562
128,550
130,492
66,432
67,350
71,727
2017
2016
2015
347
356
408
Scope 1 Scope 2
All of our GHG emissions data is verified by
Carbon Smart. Their formal Independent
Verification Statement is available
at www.croda.com/carbonverification
1 Scope 1 emissions are calculated using the International
Energy Agency’s published conversion factors for the tonne
equivalents of CO2. Scope 2 emissions are location based
2 Value added is defined as operating profit before depreciation
and employee costs at 2015 constant currency
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People underpin everything we do
and are the focus of our Business.
Our family culture, can-do attitude,
entrepreneurial spirit and talented people
set us apart from our peers. Investing in
our people ensures that everyone can fulfil
their potential; whilst creating an inclusive
environment means that everyone can
achieve their best.
The health and safety of our employees
is paramount and we are increasingly
focusing on the physical and mental
welfare of our employees.
We are proud of our people’s personal and
professional achievements, both within the
Croda family and in the wider world, as
they represent us in industry and through
volunteering work in our local communities.
People remain the focus of five out of 10
of our Material Areas, which ensures that
where it is important to do so, we go
beyond the human rights, anti-corruption
and anti-bribery matters required by law.
In 2017, we demonstrated our
commitment to health and safety by
rolling out a behavioural safety training
programme recognising that behaviour
is at least as important as the process.
Also in 2017, we completed our Global
Employee Culture Survey (p02), we
developed a series of actions to increase
the number of women in senior roles
and we also began implementing a new
global Human Resources (HR) system.
These significant investments will
continue in 2018 where we will focus
on the results of the survey and continue
to implement our diversity actions.
Ensuring the success and
safety of our people and
supporting the communities
in which we operate
Key Material Areas
Occupational
Health & Safety
Empower employees to
have health and safety at
the forefront of their thinking
Our People
Create an environment
where people can thrive
Diversity &
Inclusion
Embrace and empower
all individuals
Highlights
107,000+
training hours were recorded by
82.7% of employees
Knowledge
Management
Safeguard our knowledge
and expertise
Global
Living Wage
employer in the UK, accredited by the Living
Wage Foundation
50.0%
Community
Education &
Involvement
Support the communities
in which we operate,
with a primary focus on
encouraging young people
to work within science
and technology
To find out more, read our 2017
Sustainability Report at
www.croda.com/sustainability
Behavioural Safety Training Programme
implemented
of 1% Club time was spent on educational
initiatives
Diversity and Inclusion
We embrace the differences of a multi-ethnic,
multi-geographic and multi-skillset company
Across the Group
67.1% (2,890) male
2016: 67.5%
32.9% (1,419) female
2016: 32.5%
Regional and Business Board Members
and Senior Functional Heads
83.8% (88) male
2016: 81.6%
16.2% (17) female
2016: 18.4%
Executive Committee Members
88.9% (8) male
2016: 90.0%
11.1% (1) female
2016: 10.0%
Board of Directors
75.0% (6) male
2016: 75.0%
25.0% (2) female
2016: 25.0%
We continue to comply with the
ILO Declaration on Fundamental Principles
and Rights at Work. Key policies can be
found at www.croda.com/companypolicy
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23
Strategic Report
Key Performance Indicators
How we performed
Link to Strategy
Delivering Growth
Driving Innovation
Sustainable Solutions
KPI
Comment
Target
Our performance
KPI
Comment
Target
Our performance
On target
Return on sales
(ROS)%
KPI definition
Operating profit as a
percentage of sales.
Personal Care continued to deliver
strong margin, although ROS did
reduce on a broader mix as sales
growth returned across the product
portfolio. Life Sciences delivered
excellent profit growth and an improved
ROS, driven by innovative technologies
and the successful integration of
Incotec. Performance Technologies
ROS also improved slightly, reflecting
a continued focus on premium markets
and value-add products. Industrial
Chemicals profit declined as we refine
the product mix and develop a smaller,
innovation orientated business.
Personal Care (PC)
and Life Sciences
(LS) maintain
2016 levels.
Performance
Technologies (PT)
grow to 20% in
the medium term.
Industrial Chemicals
(IC) maximise
profitability.
Return on sales %
40
30
20
10
0
2013
2014
2015
2016
2017
PC 33.3%
LS 30.1%
PT 16.5%
IC 3.4%
Group Total 24.2%
On target
Non-fossil fuel
energy %
KPI definition
The proportion of our energy
that comes from non-fossil
fuel sources.
The proportion of our energy
requirements supplied from non-fossil
sources increased to 24.1% in 2017,
helped by the steady running of our
Gouda biogas CHP facility, and
increased sourcing of renewable
electricity. Landfill gas usage at Atlas
Point was restricted by reduced
availability of the CHP generators
which underwent a major overhaul.
We continue to track towards our
target of 27%.
27% by 2020.
Non-fossil fuel energy %
2017
2016
2015
2014
2013
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24.1%
21.3%
20.5%
22.5%
20.9%
On target
Core Business sales
growth %
KPI definition
Total sales growth in the
Core Business measured
at constant currency.
This new KPI has been introduced
in 2017 to align with our strategic
approach for delivering revenue growth.
Strong organic sales growth in 2017
was driven by our ongoing focus on
premium, faster growth niches, and
supported by continued investment in
innovative technologies. Growth was
balanced across the Core Business,
with each sector on or ahead of target.
Low-to-mid single
digit % growth
(excluding raw
material price
recovery).
Core Business sales growth %
2017
2016
2015
2014
5.6%
4.6%
4.2%
3.7%
Behind target
Lost time injury
(LTI) rate
KPI definition
Rate of injuries that result in an
absence from work of one day
or more, divided by total number
of hours worked per annum,
multiplied by 200,000 hours.
Our combined LTI rate has increased
to 0.42, even as our Total Recordable
Injury rate declined by 5% versus 2016.
The contractor rate reduced further,
maintaining the improvement seen
since 2011 but the Croda employee
rate was disappointing at 0.46. We
continue to embed and improve our
behaviour based safety programme
which is showing early signs of success
in several locations.
Our aspirational
goal for the LTI
rate is zero.
Lost time injury rate
(per 200,000 hours worked)
1.2
0.8
0.4
0
2013
2014
2015
2016
2017
Croda
Contractor
Combined
On target
NPP sales %
KPI definition
NPP sales as a percentage of
Group sales. NPP products are
where sales are protected by
virtue of being either newly
launched, protected by intellectual
property or by unique quality
characteristics.
We focus technically and commercially
on increasing the percentage of sales
that we define as NPP. Our innovation
pipeline remains healthy with many
new projects coming to market across
our entire business. Our relentless
focus on innovation includes revisiting
our existing extensive product portfolio
and discovering novel ways of
creating additional value from it.
This has enabled us to deliver a
further improvement in the 2017
Group margin.
NPP sales to be
30% of Group
sales in the
medium term.
NPP sales %
Creating shareholder value
2017
2016
2015
2014
2013
27.6%
27.4%
26.1%
23.4%
21.4%
Ahead of target
Adjusted basic
earnings per share
(EPS) growth
KPI definition
Adjusted profit after tax divided
by the average number of
issued shares.
We are pleased to report an adjusted
EPS of 179.0p, representing an
increase of 14.9% on last year, partly
benefitting from currency translation.
We remain ahead of our target range,
reflecting the continued effective
delivery of our strategy.
5-11% EPS growth
per annum.
Adjusted basic earnings per share (p)
2017
2016
2015
2014
2013
179.0p
155.8p
135.0p
125.2p
132.2p
Behind target
Relative NPP sales
growth
KPI definition
Underlying NPP sales growth
as a ratio of non-NPP sales
growth. Shown as greater than
2x when non-NPP sales growth
is negative.
This new KPI has been introduced
in 2017 to align with our strategic
approach for delivering revenue growth.
2x non-NPP
sales growth.
Our continued technical and
commercial focus on creating novel,
differentiated solutions for our
customers delivered growth in the year
but the ratio to non-NPP sales was
below the target. This was primarily
due to the strong return to growth of
our Beauty Formulations business in
Personal Care, which specialises in
selling the more differentiated products
in our heritage ingredient portfolio.
Relative NPP sales growth
NPP
growth %
Non-NPP
growth %
+5.3%
+1.7%
+4.4%
-2.8%
+15.5%
+0.0%
+11.9%
-0.7%
Ratio
1.2x
>2x
>2x
>2x
2017
2016
2015
2014
On target
Return on Invested
Capital (ROIC) %
KPI definition
Adjusted operating profit after tax
divided by the average invested
capital for the year for the Group.
Invested capital represents the net
assets of the Group, adjusted for
earlier goodwill written off to
reserves, net debt, retirement
benefit liabilities, provisions and
deferred taxes.
Croda’s model is capital light and
delivers superior returns. ROIC
remained stable in 2017, ahead of
realising the benefits of recent capital
investments and acquisitions.
Maintaining ROIC
at two to three
times Weighted
Average Cost of
Capital (estimated
at 6.6%).
Return on Invested Capital %
2017
2016
2015
2014
2013
19.2%
19.3%
20.1%
21.2%
23.8%
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Strategic Report
Finance Review
Record profit delivered
Sales by sector (£m)
£1,373.1m
Total sales
Personal Care
Life Sciences
Performance Technologies
Industrial Chemicals
£466.6m
£322.6m
£456.9m
£127.0m
Currency
Currency translation had a beneficial
impact on both sales and profit in
the first half of 2017, due to the continued
weakness of Sterling. However, Sterling
strengthened somewhat during the second
half year, reducing this benefit. Across
the year as a whole, Sterling averaged
US$1.290 (2016: US$1.354) and €1.141
(2016: €1.224). Currency translation
increased sales compared to 2016
by £71.9m and adjusted profit before
tax by £13.2m.
Sales
Sales grew by 10.4% to £1,373.1m (2016:
£1,243.6m) (Figure 1). At constant currency,
sales rose by 4.6%. There was no material
impact from acquisitions. In the Core
Business, constant currency sales
increased by 5.6%, with sales volume 3.0%
higher and sales price/mix benefitting from
the impact of innovation and an improved
product mix, together with raw material
price recovery in Performance Technologies.
After a return to steady growth in the first
half of the year, with Core Business
constant currency sales rising by 4.4%,
growth accelerated in the second half of
the year, up 5.7% in the third quarter and
7.9% in the fourth quarter. This reflected a
progressive improvement in Personal Care
and Life Sciences (Figure 2).
Adjusted profit
Adjusted operating profit rose by 11.4%
to £332.2m (2016: £298.2m) (Figure 3).
On a constant currency basis, adjusted
operating profit increased by 6.9%.
The constant currency improvement in
adjusted operating profit was driven by
the organic growth across the Core
Business, with all sectors seeing profit
increase (Figure 4). Return on sales
increased by 20 basis points to 24.2%
(2016: 24.0%). To reflect changes to
product portfolios, 2016 sector revenue
and adjusted operating profit have
been restated by £3.1m and £0.4m
respectively for a net reclassification of
business from Industrial Chemicals to
Performance Technologies.
The net interest charge increased to
£11.9m (2016: £9.9m), with higher debt
from acquisitions and the special dividend
in the prior year partly offset by capitalised
interest on the construction of the North
American bio-surfactant plant. Adjusted
profit before tax increased by £32.0m to
£320.3m (2016: £288.3m) (Figure 5).
The effective tax rate on this profit
reduced to 26.8% (2016: 28.0%),
reflecting the geographic mix of profit
and the lower UK statutory rate of 19.25%
(2016: 20.0%). There were no other
significant adjustments between the
Group’s expected and reported tax
charge based on its accounting profit.
The Group’s adjusted profit for the year
was £234.4m (2016: £207.6m). Adjusted
basic earnings per share (EPS) increased
by 14.9% to 179.0p (2016: 155.8p).
The profit after tax for the year on an
IFRS basis was £236.7m (2016: £197.6m)
(Figure 6) and basic EPS were 180.8p
(2016: 148.2p).
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A preliminary assessment of the impact
of the new US tax law on the Group’s
effective tax rate suggests an expected
fall of approximately 2.5 percentage points
in 2018, which will benefit EPS. Currency
translation could have an adverse impact
on 2018 reported currency profit, compared
to the beneficial impact in 2017, if Sterling
maintains its recent strength.
IFRS profit
Adjusted profit is stated before exceptional
items (including discontinued business
costs), acquisition costs and amortisation
of intangible assets arising on acquisition,
and tax thereon. The Board believes
that the adjusted presentation (and
the columnar format adopted for the
Group income statement on page 88)
assists shareholders in better understanding
the performance of the business and is
adopted on a consistent basis for each
half year and full year results.
The charge before tax for exceptional
items, acquisition costs and amortisation
of intangible assets arising on acquisition
was £6.2m (2016: £12.6m). Acquisition
costs were £0.8m (2016: £1.1m), the charge
for amortisation of intangible assets was
£3.7m (2016: £3.1m) and exceptional
items were £1.7m (2016: £8.4m), being an
increase in environmental provisions on
discontinued business. The US Tax Cuts
and Jobs Act led to a revaluation of the
Group’s net deferred tax liability, resulting
in a £7.7m exceptional tax credit. The net
credit after tax for exceptional items,
acquisition costs and amortisation
of intangible assets arising on acquisition
was £2.3m (2016: £10.0m charge).
Figure 2
Figure 3
Figure 4
Figure 5
Sales at constant
currency
Personal Care
Life Sciences
Performance
Technologies
Core Business
Industrial Chemicals
Group
First
half
%
2.3
0.8
Second
half
%
8.2
8.2
9.1
4.4
(1.1)
3.8
4.3
6.8
(6.8)
5.4
Full
year
%
5.3
4.6
6.6
5.6
(4.0)
4.6
Adjusted operating profit (£m)
Adjusted operating profit
13.3
332.2
21.0
318.9
(0.3)
298.2
6
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Personal Care
Life Sciences
Performance Technologies
Core Business
Industrial Chemicals
Group
2017
Reported
£m
155.5
97.0
75.4
327.9
4.3
332.2
2017
Constant
currency
£m
147.8
93.5
73.7
315.0
3.9
318.9
2016
Restated
£m
143.1
82.0
66.6
291.7
6.5
298.2
Summary income statement
Sales
Operating costs
Adjusted operating profit
Net interest charge
Adjusted profit before tax
2017
£m
1,373.1
(1,040.9)
332.2
(11.9)
320.3
2016
£m
1,243.6
(945.4)
298.2
(9.9)
288.3
Croda International Plc
Annual Report and Accounts 2017
27
After a return to growth
in the first half of the year,
growth accelerated in the
second half.”
Jez Maiden
Group Finance Director
Sales value
£1,373.1m
2016: £1,243.6m
Adjusted profit before tax
+11.1%
2016: +13.2%
Free cash flow
£98.5m
2016: £155.5m
Financial data
Figure 1
Sales (£m)
71.9
1,373.1
57.6
1,301.2
1,243.6
6
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2
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26 Croda International Plc
Annual Report and Accounts 2017
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Strategic Report | Finance Review
Cash management
Delivering good cash generation is core
to Croda’s strategy. This cash is used to
invest in Research and Development, faster
growth technologies, both organically and
by acquisition, to expand production
capacity and to pay increased dividends.
EBITDA increased to £381.8m (2016:
£344.3m), which funded net capital
expenditure of £157.2m (2016: £104.5m),
as our capital programme peaked with
the completion of installation of our
bio-surfactant plant. Working capital
increased by £33.3m, reflecting stronger
trading and higher inventories at the end
of the year to support sales orders. As a
result, free cash flow was £98.5m (2016:
£155.5m) (Figure 7).
After currency translation, net debt
increased by £17.4m to £381.5m (2016:
£364.1m). The leverage ratio (the ratio of
net debt to EBITDA) reduced to 1.0x
(2016: 1.1x) and remains substantially
below the maximum covenant level under
the Group’s lending facilities of three times.
There were no material changes to
committed debt facilities during the year.
These facilities provide ample liquidity to
meet the Group’s immediate plans at a
relatively low interest cost. At 31 December
2017 the Group had £433.7m (2016:
£461.6m) of cash and undrawn committed
credit facilities available.
Dividend and capital allocation
Croda seeks to deliver high quality profits,
measured through a superior ROIC,
earnings growth and strong cash returns.
The Group’s capital allocation policy is to:
1. Reinvest for growth – we reinvest in
capital projects to grow sales, increase
product innovation and expand in
attractive geographic markets,
delivering a superior ROIC of 19.2% in
2017 (2016: 19.3%). During 2017 capital
investment was over three times
depreciation, funding asset
replacement, new investment in key
technologies and construction of the
bio-surfactant plant, all of which should
support future ROIC. We expect the
level of capital expenditure to return to
around 1.5x depreciation from 2018,
depending on organic growth
opportunities;
2. Provide regular returns to
shareholders – we pay a regular
dividend to shareholders, representing
40% to 50% of adjusted earnings over
the business cycle. The Board has
proposed an increase of 9.5% in the full
year dividend to 81.0p (2016: 74.0p), a
payout of 45% of adjusted EPS;
3. Acquire promising technologies – we
have identified a number of exciting
technologies to supplement organic
growth in existing and adjacent
markets. Some of these will be
acquired, either as nascent
opportunities for future scale-up or
as larger ‘bolt ons’. During 2017 we
completed the acquisitions of Enza
Biotech and IonPhasE, together with
an investment in Cutitronics; and
4. Maintain an appropriate balance
sheet and return excess capital – we
maintain an appropriate balance sheet
to meet future investment and trading
requirements. We target leverage
of 1 to 1.5x (excluding deficits on
retirement benefit schemes), although
we are prepared to move above this
range if circumstances warrant and will
consider further returns to shareholders
in the event that leverage falls below
the target range.
Retirement benefits
The post-tax deficit on retirement benefit
plans, measured on an accounting
valuation basis under IAS 19, decreased to
£21.1m (2016: £112.7m), reflecting strong
asset returns. Cash funding of the various
plans within the Group is driven by the
schemes’ ongoing actuarial valuation
reviews. No deficit funding payments are
currently required to the Group’s largest
pension scheme, the UK Croda Pension
Scheme, and this is not expected to
change with the latest valuation of the
scheme, as at 30 September 2017, which
is currently ongoing.
Alternative performance
measures
We use a number of alternative
performance measures to assist in
presenting information in this statement in
an easily analysable and comprehensible
form. We use such measures consistently
at the half year and full year and reconcile
them as appropriate. The measures used
in this statement include:
→ Constant currency sales and profit:
these reflect current year results
for existing business translated at
the prior year’s average exchange
rates, and include the impact of
acquisitions. They are reconciled
to reported results in Figure 1 and
Figure 3. Sales in Latin America are
primarily based on US dollars, which
is used as the functional currency for
constant currency sales translation;
→ Underlying sales: these reflect
constant currency values adjusted
to exclude the impact of acquisitions.
They are reconciled to reported
sales in Figure 1;
→ Adjusted profit: this is profit before
exceptional items, acquisition costs
and amortisation of intangible assets
arising on acquisition. It is reconciled
in Figure 6;
→ Adjusted EPS: this is earnings per
share using the adjusted profit after
tax and is reconciled in note 7 of the
accounts;
→ Return on sales: this is adjusted
operating profit divided by sales;
→ Return on Invested Capital (ROIC):
this is adjusted operating profit after
tax divided by the average invested
capital for the year for the Group.
Invested capital represents the net
assets of the Group, adjusted for
earlier goodwill written off to reserves,
net debt, retirement benefit liabilities,
provisions and deferred taxes;
→ Net debt: comprises cash and cash
equivalents (including bank
overdrafts), current and non-current
borrowings and obligations under
finance leases; and
→ Leverage: this is the ratio of net
debt to Earnings Before Interest, Tax,
Depreciation and Amortisation
(EBITDA). EBITDA is adjusted
operating profit plus depreciation.
The Core Business comprises the core
sectors of Personal Care, Life Sciences
and Performance Technologies.
Financial data
Figure 6
IFRS profit
Adjusted profit before tax
Exceptional items, acquisition costs
and amortisation of intangibles
Profit before tax
Tax
Profit after tax
2017
£m
320.3
(6.2)
314.1
(77.4)
236.7
2016
£m
288.3
(12.6)
275.7
(78.1)
197.6
Figure 7
Cash flow
Adjusted operating profit
Depreciation and amortisation
EBITDA
Working capital
Net capital expenditure
Non-cash pension expense
Interest & tax
Free cash flow
Dividends
Acquisitions
Other cash movements
Net cash flow
2017
£m
332.2
49.6
381.8
(33.3)
(157.2)
3.4
(96.2)
98.5
(100.0)
(30.4)
5.6
(26.3)
2016
£m
298.2
46.1
344.3
7.2
(104.5)
(10.9)
(80.6)
155.5
(230.2)
(1.4)
3.6
(72.5)
Case study
Incotec adding value to crop growth
Seed enhancement leads to
sustainable crop growth
With the world’s growing population and
declining availability of arable land, our
innovative seed enhancement business,
Incotec, is hugely important due to the
extrinsic sustainability benefits of its
products, which are offered to its customers.
Seed treatments can be integrated within
our film coatings, allowing for a targeted
application, stimulating root and plant
growth and leading to enhanced nutrient
uptake. During the early weeks of plant
growth, seed coating leads to an 80-90%
reduction in the amount of plant protection
product required.
Improving the livelihood of
farmers in Ethiopia
Teff is the most valuable seed crop in
Ethiopia, and a traditional staple due to
its nutritional value. The small size of Teff
seeds causes problems during sowing,
making it difficult to control distribution,
thus impacting crop yield. Incotec has
developed a pellet which doubles the seed
size, enabling more accurate planting.
In recent field trials, this saw an increase
in seed yield by 80%, helping to transform
the livelihood of local Teff farmers.
28 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
29
Strategic Report
Our Risks
Protecting value
Effective risk management is essential to support the achievement of our strategic and operational
objectives as we address the challenges and uncertainties facing businesses today.
How we manage risk
The Board has overall responsibility for the
risk framework and for ensuring that we
manage risks appropriately (p48). Through
regular review, the Board ensures that our
risks are appropriate to our strategy. It is
the role of our Executive Risk Management
Committee to ensure that our market
sectors, manufacturing sites, regions and
functions manage their individual risk
registers by applying our common Risk
Framework. Ultimately, all of our
employees have a responsibility in
managing the Company’s risks.
At the request of the Board, the
Audit Committee directs internal audit
to undertake assurance audits over
selected key risk mitigating controls
which are reported back to and reviewed
by the Committee.
Our Risk Framework illustrates our
approach to managing risk which reflects
a ‘three lines of defence’ model. We employ
both a top down and bottom up approach
to risk assessment using this common
framework, enabling comparison across
sectors, regions, manufacturing sites and
functions using our dashboarding tool.
However, our risk management programme
can only provide reasonable, not absolute,
assurance that our risks are managed
at an acceptable level.
Risk framework
What we monitor
How we manage it
Our risk
landscape
Current risks
Risks that could affect our Business, customers, supply
chain employees and communities and stop us achieving
our strategic goals
Emerging risks
Risks with a future impact, identified through our rigorous
internal risk assessment process, from external or internal
threats and opportunities
Our risk
categories
include over
50 risks
Strategic
People
Process
External environment
IT systems
and security
Financial
What we
assess
Risk ownership
each risk has a named owner
Likelihood and impact
globally applied 6*6 scoring
scale
Gross risk
before mitigating controls
Mitigating controls
subject to internal audit
review and monitoring
Net risk
after mitigating controls
are applied
Board
→ Responsible for the risk
management framework
and definition of risk appetite
→ Reviews key risks with an
opportunity for in depth
discussion of specific key risks
and mitigating controls twice
a year (p42)
Audit Committee
→ Reviews the effectiveness
of the Group risk management
process
→ Directs internal audit to
undertake assurance reviews
over controls for selected key
risks and reviews the results
(p52)
Risk Management Committee*
→ Monitors and reviews non SHEQ
SHEQ Steering Committee*
→ Meets quarterly to review
risks quarterly
→ Identifies and considers
emerging risks
→ Receives an in-depth
presentation on one key risk and
its mitigating controls from the
Executive owner at each meeting
Safety, Health, Environmental
and Quality (SHEQ) risks
→ Considers the results of
assurance audits over
SHEQ controls
→ Monitors against stretching
targets and agreed KPIs
Ethics Committee*
→ Meets quarterly to review ethics
and compliance risks
→ Monitors against agreed KPIs
Our bottom
up register
Identify, own and manage risks involved in day-to-day
operations
Market sectors
Regions
Manufacturing sites
Functions
Executive Risk Register
Our Executive Committee review a combined summary of all
individual bottom-up registers to identify the key emerging risks
that may need to be added to their top-down register of key risks
* Executive Committee (p60)
30 Croda International Plc
Annual Report and Accounts 2017
Our key risks
Our risk framework considers more than
50 generic risks across six categories
in over 20 risk registers; the key risks
identified in the heat map below and on
pages 32 to 34 in more detail, are those
which we consider could threaten the
delivery of our long term strategic
objectives, business model, future
performance, solvency or liquidity.
The Board has carried out a robust
assessment of these key risks and has
taken them into consideration when
assessing the long term viability of the
Company on page 35.
Changes to our gross risk
environment in 2017
As a result of our risk review throughout
2017, the assessment of gross risk has
been amended for four key risks;
an increase in major capital project
management and security of business
information and networks, and a
decrease in revenue generation in
established and emerging markets
and ineffective management of pension
fund. See pages 32 to 34 for an
explanation of these changes.
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Low
3
5
11
9
2
8
4
6
1
10
7
12
Our principal risks are reported gross
(before mitigating controls)
1 Revenue generation in established
and emerging markets
2
3
4
5
Talent development and retention
Product and technology innovation
Protect new intellectual property
Product liability claims
6 Major safety or environmental incident
7
Security of raw material supply
8 Major capital project management
9 Chemical regulatory compliance
10 Security of business information
and networks
11 Ethics and compliance
Impact
High
12
Ineffective management of pension fund
Gross risk increase
Gross risk no change
Gross risk decrease
Risk management in action:
Brexit risk
During 2017, our Brexit project team
continued to review the implications of the
result of the UK referendum to leave the EU
(‘Brexit’) on our business model, strategy
and operations and this was discussed
with the Board. While Brexit has introduced
a level of uncertainty into how our
European business will operate in the
future, it is experienced in dealing with
the challenges associated with trading
across borders that do not benefit from
the Single Market.
Potential increased levels of bureaucracy
may incur additional compliance costs.
We have modelled the costs to the Group
of future UK-EU trade being conducted
under the World Trade Organisation tariffs
and duties and consider the impact should
not be material. The Board will continue to
keep emerging Brexit risk under review.
Croda International Plc
Annual Report and Accounts 2017
31
Risk heat map
Strategic Report | Our Risks
Link to Strategy
Key
Link to our business model
Delivering Growth
Risk increase
Driving Innovation
No change
Sustainable Solutions
Risk decrease
E
C
M
S
Engage
Create
Make
Sell
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Key risk
Potential impact
on our Business
How we respond
What we have
done in 2017
Key risk
Potential impact
on our Business
How we respond
What we have
done in 2017
Failure to keep pace with our
customers as they follow consumers
into emerging markets, and
increasing competition from
mainstream and other chemical
companies looking to move into our
established markets, will adversely
impact delivery of strategic objective
to deliver consistent top and bottom
line growth.
Innovation plays a critical role across
our operations; it differentiates us
from the competition, protects sales
and improves our margins. Failure to
drive New and Protected Products
(NPP) through innovation will impact
on growth.
Failure to protect our Intellectual
Property (IP) in both existing and
new markets could undermine our
competitive advantage.
The vision and experience of our
knowledgeable and specialist
employees is critical to maintaining
the Group’s success. Inability to
recruit and retain appropriately
skilled people could adversely
impact our ability to deliver our
current and future business
requirements and strategic priorities.
If these individuals were to leave,
it would take time to replace them if
no succession plans were in place.
We sell into a number of highly
regulated markets. Non-compliance
with our customers’ stringent quality
requirements could expose us to
liability and reputational damage,
especially in light of our commitment
to sustainability.
Through our global sector sales,
marketing and technology teams,
we identify consumer trends and
respond swiftly to satisfy customer
needs through key technologies.
Our direct selling model enables us
to get closer to our customers.
Delivered a year of record profits
and sales growth, when all core
sectors and major regions
contributed to growth (p10). The
reduced risk reflects the improved
macroeconomic and business-led
sales environment in 2017.
Our outstanding technical resources
are fully integrated into our global
sector leadership teams to focus
innovation on customer requirements.
We build partnerships with customers
and open innovation partners and
invest in external acquisitions to
remain at the cutting edge. We have
identified key technology platforms
(p12) that will direct future innovation
acquisition and development.
Continued to expand our
innovation pipeline supported
by almost 400 open innovation
partnerships with universities,
specialist research laboratories and
SMEs. We acquired Enza Biotech
(p12), and IonPhaseE (p18) and we
invested in Cutitronics (p14) which
enables us to utilise the very latest
in digital technology.
We have a specialist IP team who
participate in the technical and
business planning and strategy
meetings to identify ways to protect
any new products and technologies.
They defend our IP and challenge
third party IP where appropriate.
Reward programmes, a strong
development culture and excellent
learning opportunities support the
retention and career development
of the high-quality teams we need.
Global graduate and management
development programmes
include stretching and high profile
assignments and provide a pipeline
of internal talent.
The annual global talent review
process supports review of
resources and succession plans
for critical roles, with actions
monitored by the Executive
Committee and the Board.
Our sites are certified to demanding
external quality standards which
are highly valued by our customers.
Compliance with these is audited
both internally by our specialist
audit team and externally.
We work proactively with relevant
trade associations to shape
future regulation.
Filed patents in several key areas,
concentrating on recently acquired
businesses and technologies such
as Enza Biotech (p12).
The implementation of a new
global HR Information System was
approved, to provide better people
data and improve succession and
development processes. A global
employee culture survey was
conducted (p02) and action plans
developed. Progress has been
made in implementing Diversity
and Inclusion actions and internal
targets have been set to increase
the number of women in leadership
positions (p23).
All sites maintained the required
level of Good Manufacturing
Practice. In 2017, the relevant
standards are also being applied
by our new acquisitions, as well
as to our larger sales offices, to
ensure we have global coverage.
Revenue generation
in established and
emerging markets
E
S
Product and
technology
innovation
C
Protect new
intellectual
property
C
Talent development
and retention
E
C
M
S
Product liability claims
M
32 Croda International Plc
Annual Report and Accounts 2017
Major safety or
environmental
incident
M
Security of raw
material supply
M
Major capital project
management
M
Chemical regulatory
compliance
C
We rely on the continued sustainable
operation of our manufacturing sites
around the world.
A major event causing loss of
production, or violating safety, health
or environmental regulations could
limit our operations and expose
the Group to liability, cost and
reputational damage, especially
in light of our commitment to
sustainability and customer service.
Monitored by our SHEQ steering
committee (p30), our global network
of safety specialists located at each
site enforce compliance with the
policies and procedures defined in
the Group SHE manual. Assurance
over mitigating controls is provided
by the dedicated Group SHE internal
audit team, whilst external audits
assess compliance with OHSAS
18001 and ISO 14001 certifications.
Convened a global Process
Safety conference to examine
the strengths and weaknesses
of our Process Safety
programme, identifying areas
for improvement and delivering
targeted training.
We rolled out a behavioural
safety training programme,
recognising that behaviour is
as important as the process.
We have business continuity plans
in place for each site and a Group
crisis management plan which is
tested at least annually.
An interruption in the supply of key
raw materials would significantly
affect our operations and financial
position. Such a disruption could
arise from market shortages or from
restrictive legislation, for example
that relating to the transport of
hazardous goods.
Professional purchasing teams
based in our regions monitor supply
to identify potential future shortages.
We look to develop good relationships
with our suppliers and to agree long
term contracts. To protect supply, we
aim to source from multiple suppliers.
Where this is not possible, we build up
our own inventories.
Current major strategic capital
expenditure programmes require
closely controlled project
management to avoid overspend
and late delivery, both of which
would have an impact on growth.
Specialist project management
teams are formed for all major
capital expenditure programmes,
with steering groups chaired by
a member of the Executive
Committee.
As a global chemical manufacturer,
we operate in highly regulated
markets, which are subject to
regular change. Violation, incomplete
knowledge or change of the
appropriate regulations could
limit the markets into which we
can sell, or expose the Group to
fines or penalties.
Global regulatory expertise is
provided by our in-house team
of specialists, who have in depth
knowledge of the regional and
market regulatory frameworks within
which we operate. They work
proactively to influence regulation
and they are an integral part of our
new product development process.
We use the SAP EHS module to
ensure that regulatory changes are
applied to existing products.
Embedded ownership of the
key raw material assessment
framework and policy with regional
management, delivering face
to face training and guidance.
Monitoring of continuous
improvement programmes rests
with the global operations
leadership group. There were no
interruptions to raw material supply
in 2017.
Audited completed capital projects
against cost, schedule, quality and
financial expectations to identify
learnings which were shared with
the Board (p42) and other sites.
Our risk has increased due to
the current scale of our capital
investment programme, with a
focus on successful delivery of
our North American bio-surfactant
plant, high purity excipients plant
and UK polymer additives plant.
Rolled out a Globally Harmonised
System of Classification (GHS)
to relevant locations, and
implemented controls in SAP
to ensure REACH volume
thresholds are not breached.
Frameworks to demonstrate
compliance with the Nagoya
protocol were written, communicated
and adopted. Our specialists are
members of a UK working party
on the implications of Brexit
on REACH.
Croda International Plc
Annual Report and Accounts 2017
33
Strategic Report | Our Risks
Key risk
Potential impact
on our Business
How we respond
What we have
done in 2017
Ethics and compliance
E
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Security of business
information and
networks
E
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Ineffective
management of
pension fund
E
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We are subject to UK legislation,
including the Bribery Act, which
is far reaching in terms of
global scope.
Our increased presence in emerging
economies and the introduction of
regulations such as the Modern
Slavery Act gives rise to an elevated
risk to our Business.
Our Group Ethics Committee (set up
at the start of 2017) meets quarterly
to promote the importance of ethics
and compliance across our
Business and those third parties we
choose to work with (p60).
Compliance training and education
programmes are rolled out globally,
with results monitored by the
Committee and followed up with
refresher training.
Rolled out a refreshed compliance
programme across the Business.
Our ethics network have performed
targeted due diligence on a number
of our supply chain partners as we
seek increased transparency, and
we have refreshed our bribery and
corruption risk assessments,
meeting with many of our suppliers,
agents and distributors to reinforce
our expectations of their behaviour
when acting on our behalf.
We published our first Modern
Slavery statement.
We rely heavily on the availability
of IT networks and systems and
an extended interruption of these
services may result in an inability
to meet customer requirements.
Society and business are subject
to more numerous and increasingly
sophisticated threats to security,
including hackers, viruses and
ransomware attacks which could
compromise access. In addition
regulatory responsibilities relating
to data protection are becoming
more stringent, including the
implementation of the General
Data Protection Regulation (GDPR)
from 2018.
The Group maintains an open
defined benefit pension scheme in
the UK, which faces similar risks to
other defined benefit schemes such
as future investment returns, longer
life expectancy and regulatory
changes which could result in
pension schemes becoming more
of a financial burden.
Our information security specialists
monitor our IT services and network,
and oversee computer and mobile
device protection, in line with our
established policies and processes.
Regular penetration testing is
undertaken and we run our key
applications in distributed computing
environments with regular failover
testing. We have externally audited
ISO 27001 certification for key
systems and locations, whilst internal
audit specialists review the operation
of all IT controls annually.
Undertook a cyber maturity
benchmark review which was
reported to the Board (p42).
Formed a project team to review
and update personal and data
security controls in the context
of GDPR. Provided regular
security awareness training and
communication to all employees.
The increased risk reflects
the raised threat from cyber
activity, despite the Company’s
enhanced response in 2017.
The Company maintains close
dialogue with the UK Pension
Trustee, and the move to a career
average capped salary basis of
calculation in 2016 mitigated some
of the risks. The pension fund
investment strategy is delivered with
the support of professional advisers,
and trained pension fund Trustee
Directors take professional advice
and monitor and review
arrangements quarterly.
The risk has reduced as the
Trustee has continued to extend
the liability driven investment
component of the scheme’s
assets to better match assets
with liability movements arising
on changes in interest rates and
inflation, with approximately 85%
of liabilities now hedged. The
scheme’s return seeking assets
have been further diversified to
reduce expected future volatility.
The triennial valuation is ongoing
but no deficit contribution is
expected (p28).
Long term viability statement
Assessment of prospects
In assessing the prospects of the
Company and determining the appropriate
viability period, the Board have taken
account of:
→ the financial and strategic planning
cycle, which cover a three year period.
The strategic planning process is led by
the CEO and fully reviewed by the
Board (p47);
→ the investment planning cycle, which
covers three years. The Executive
Committee considers, and the Board
reviews, likely customer demand and
manufacturing capacity for each of its
key technologies. The three year period
reflects the typical maximum lead time
involved in developing new capacity;
→ the business model (p06) and its
diversified portfolio of products,
operations and customers, which
reduce exposure to specific
geographies and markets, as well as
large customer/product combinations;
→ the strong innovation pipeline, which
supports the Company’s business
through development of new sales
growth opportunities, protects sales
and margins, differentiates the
Company from competitors and
provides barriers to entry;
→ the Company’s strong cash generation
and its ability to renew and raise debt
facilities in most market conditions (p28).
A critically important driver of the
Company’s business model is its
innovation pipeline. The Board reviews
this over a period longer than three years,
in line with longer development cycles
for new products. However, the Board
considers that, in assessing the viability
of the Company, its investment and
planning horizon of three years, supported
by detailed financial modelling, is the
appropriate period.
Assessment of viability
Viability has been assessed by considering the ‘top-down headroom’ available in
terms of the overall funding capacity to withstand events, together with the ‘bottom-up
headroom’ assessing the potential financial impact of events reflecting the Company’s
principal risks, both individually and in combination.
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Top-down headroom
Funding capacity
Bank
leverage
covenant
The ratio of net debt to EBITDA at the end of 2017 of 1.0x remains substantially
below the maximum covenant level under the Group’s lending facilities of 3
times (p28), providing significant headroom. EBITDA would need to fall by more
than 50% before triggering an event of default. Action could also be taken to
conserve cash.
Debt
headroom
Current committed debt facilities largely mature after the viability assessment
period (p28) and have significant undrawn credit available. In normal lending
market circumstances, additional debt funding could also be raised.
Bottom-up scenarios
Each of the key risks identified on pages 32 to 34 has been assessed for its potential
financial impact as part of the viability assessment. Of these, the most severe but
plausible scenarios (or combinations thereof) were identified as follows:
Scenario modelled
Uninsured catastrophic loss of a manufacturing site – the
impact of losing the contribution from the single largest site
was considered assuming no insurance cover. However, for
most loss events, we carry insurance cover.
Significant compliance breach – the financial impact of
regulatory fines was considered along with the associated
reputational damage.
Link to Key Risks
Major safety or environmental
incident p33
Ethics and compliance p34
Disruptive technology – the impact of substitute technologies
affecting current sales were modelled together with new digital
technology impacting our route to market.
Product and technology
innovation p32
Loss of IT systems (particularly SAP Enterprise Resource
Planning system) for a prolonged period.
Security of business information
and networks p34
The results of the bottom up scenario modelling showed that no individual event or
plausible combination of events would have a financial impact sufficient to endanger
the viability of the Company in the period assessed. It would therefore be likely that
the Company would be able to withstand the impact of such scenarios occurring over
the assessment period.
Viability statement
Based on their assessment of prospects and viability, the Directors confirm that they
have an expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the next three years in line with the Company’s financial
and strategic time planning horizons.
Signed on behalf of the Board who approved the Strategic Report
on 27 February 2018.
Steve Foots
Group Chief Executive
34 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
35
Directors’ Report
Our Board
A strong leadership team
Key
Chairman of the Committee
Member of the Committee
Secretary of the Committee
N | Nomination Committee
RM | Remuneration Committee
A | Audit Committee
E | Group Executive Committee
ET | Group Ethics Committee
F | Group Finance Committee
R | Risk Management Committee
SHEQ | Group SHEQ Committee
Anita Frew, 60
Chairman
Steve Foots, 49
Group Chief Executive
N RM
E F SHEQ
Jez Maiden, 56
Group Finance Director
R E F
Alan Ferguson, 60
Non-Executive Director
A RM N
Keith Layden, 58
Non-Executive Director
N
Tom Brophy, 44
Group General Counsel
& Company Secretary
ET A
RM N R E
Appointment: March 2015 and
Chairman since September 2015
Appointment: July 2010 and Group Chief
Executive since the beginning of 2012
Appointment: January 2015 as
Group Finance Director
Key strengths and experience:
Anita has been on plc boards for 20
years and has extensive leadership and
international experience, together with a
broad knowledge of strategic management
across a range of sectors, including
speciality chemicals. Her prior board roles
include Chairman of Victrex Plc and Senior
Independent Director of Aberdeen Asset
Management PLC.
Key strengths and experience:
Strong business, operational and strategic
leadership, and wide-ranging sales and
marketing experience. Steve joined Croda
as a graduate trainee in 1990 and has held
a number of senior management positions
in the Group, becoming President of Croda
Europe in July 2010. Prior to this, Steve
held a number of Managing Director roles
across Croda’s European business.
External appointments: Anita is Deputy
Chairman of Lloyds Banking Group plc and
a Non-Executive Director of BHP Billiton
Plc and BHP Billiton Limited.
External appointments: Chairman of the
Chemical Growth Partnership (CGP).
Key strengths and experience:
Extensive experience in financial
management, acquisitions and disposals
and of working in the speciality chemical
sector. Jez has been Group Finance
Director at National Express Group and
prior to that held the same role at Northern
Foods Plc. He has been Chief Financial
Officer at British Vita Plc and Group
Finance Director at Hickson International
Plc. Jez is a fellow of the CIMA.
External appointments: Non-Executive
Director and Audit and Risk Committee
Chairman of PZ Cussons plc.
Helena Ganczakowski, 55
Non-Executive Director
A RM N
Nigel Turner, 68
Non-Executive Director
(Senior Independent Director)
A RM N
Steve Williams, 70
Non-Executive Director
RM A N
Appointment: February 2014
Key strengths and experience:
Wealth of experience in consumer
marketing and innovative product
development. Helena worked for Unilever
for 23 years and held senior positions in
brand management, consumer marketing
and strategy development. Helena has
a PhD in Engineering from the University
of Cambridge.
External appointments: Helena is a
Non-Executive Director of Greggs Plc.
She runs a consulting business working
with a range of organisations, helping them
to develop and implement strategies.
36 Croda International Plc
36
Annual Report and Accounts 2017
Appointment: June 2009 and Senior
Independent Director since August 2011
Key strengths and experience:
Broad City experience having spent over
35 years as a corporate financier. Nigel
was Chairman of Numis Securities Ltd and
Deputy Chairman of Numis Corporation
Plc. Earlier, from 2000 to 2005, he had
responsibility for the Global Corporate
Finance and Global Equities Divisions at
ABN AMRO and had been Managing
Director and a member of the Supervisory
Board at Lazard.
External appointments: Senior
Independent Director and Chairman of the
Remuneration Committee at Genus Plc.
Appointment: July 2010
Key strengths and experience:
Extensive industry, legal and board
experience. Steve was General Counsel
and Chief Legal Officer of Unilever plc and
Unilever NV from 1986 until 2010. He was
formerly the Senior Independent Director
of Arriva Plc, Non-Executive Director of
Bunzl Plc and Non-Executive Director
of Whitbread PLC.
External appointments: Steve is a
Non-Executive Director of Eversheds LLP
and a senior adviser to Spencer Stuart
LLP. He is Deputy Chairman of the De La
Warr Pavilion Charitable Trust, on the
Board of Leverhulme Trust and Deputy
Chairman of Moorfields NHS Trust.
Appointment: July 2011
Key strengths and experience:
Extensive international financial
management and board experience. Alan
was Chief Financial Officer and a Director
of Lonmin Plc and, prior to that, Group
Finance Director of The BOC Group. Before
that he spent 22 years in a variety of roles
at Inchcape Plc, including Group Finance
Director. Alan is a Chartered Accountant.
External appointments: Alan is Senior
Independent Director of Johnson Matthey
Plc and Marshall Motor Holdings Plc, Non-
Executive Director of The Weir Group Plc
and chairs the Audit Committee of each of
these companies. He sits on the Business
Policy Panel of the Institute of Chartered
Accountants of Scotland.
Appointment: February 2012 and
Non-Executive Director since May 2017
Key strengths and experience:
Deep understanding of chemical innovation
and broad operational and management
experience. Keith joined Croda in 1984,
retiring as an Executive Director in 2017.
His roles included responsibility for global
R&D, the Technology Investment Group
and President of Life Sciences.
External appointments: Keith is an
Honorary Professor of Chemistry and
Industry at the University of Nottingham.
He represents Croda on the chemistry
advisory boards at the Universities of
Nottingham and York and has council and
committee roles at the University of
Sheffield. He is a Fellow of the Royal
Society of Chemistry.
Appointment: December 2012 as
Board Secretary
Key strengths and experience:
Tom is a solicitor and has responsibility for
legal affairs, corporate governance, human
resources and insurance. Prior to joining
Croda, Tom spent seven years at Wolseley
Plc in a number of legal and governance
roles, including as Deputy General Counsel
and Company Secretary. Before then he
worked as a corporate lawyer at City law
firm Hogan Lovells.
D
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To read the full biographies of
our Board members please visit
www.croda.com/ourboard
Gender of the Board
Board skills and experience
Areas of existing strength
Male
75%
Female 25%
Sector
experience
Operational
Financial
Strategy
and risk
Innovation
Technical
Marketing
Tenure as a Non-Executive Director
Areas of opportunity for new Board appointments
<1 year
1
1-3 years 1
3-6 years 1
>6 years 3
International/
emerging markets
Digital
General
management/CEO
experience
Croda International Plc
Annual Report and Accounts 2017
37
37
Directors’ Report
Corporate Governance
Chairman’s letter
Dear fellow shareholder
The Board remains committed to the
highest standards of corporate governance
and integrity. Our governance framework,
which underpins our ability to deliver our
strategy and create long term value for our
shareholders, cascades from the Board
across the Group. This framework stresses
the importance of compliance with rules
and guidance, but equally, it sets the tone
for the rest of the organisation. As guardian
of our culture, the Board has a vital role
to play in defining our behaviours and the
ways in which we do business. The
Company has complied with the UK
Corporate Governance Code (April 2016)1
for the period under review.
The Board is accountable to Croda’s
shareholders for good governance and
this report, together with the Directors’
Remuneration Report set out on pages
61 to 77, describe how the Code’s main
principles of governance have been
applied by the Company.
This report includes practical insights into
how our governance framework underpins
and supports our Business and the
decisions we make every day.
Culture and values
The Board spends a considerable amount
of time meeting with employees and visiting
our offices and manufacturing sites around
the world. This ensures that our Non-
Executive Directors develop and maintain
greater insight and understanding of the
Business, which enhance the quality of
decision making and debate. That diversity
of thought allows the Board to consider the
broader long term impact of its decisions
on our employees, suppliers and customers
and the communities in which we operate.
On page 43 we set out more details of the
Board’s programme of activities outside
the boardroom.
We recognise the value of culture, and
these visits also create opportunities for
a cultural tone to be cascaded from the
boardroom. Directors are able to promote
the values-based conduct and behaviours
expected from every part of the Company.
The Board has spent time working on the
development of our Culture Plan, linking
our culture to our Business strategy in
order to deliver business results. Central
to this plan is the Global Employee Culture
1 The Code can be accessed at www.frc.org.uk.
Survey, conducted in 2017 and designed
in-house specifically to examine our
culture and ensure that it is consistent
with our values across the Business.
More information about the survey can
be found on page 02.
Leadership
The Directors continue to provide strong
leadership, with an exceptional mix of skills
and experience from across the business
spectrum. Having served nine years on the
Board, Nigel Turner will retire at this year’s
Annual General meeting (AGM). I would
like to thank Nigel for his dedication and
outstanding contribution to Croda. Upon
Nigel’s retirement Alan Ferguson will be
appointed as the Senior Independent
Director. Alan has been on the Board since
2011 and acts as Chairman of the Audit
Committee. Alan brings a wealth of
relevant experience, having served as
Senior Independent Director within other
listed companies.
I am pleased to report that Helena
Ganczakowski, Alan Ferguson and Steve
Williams had their respective appointments
as Non-Executive Directors extended
during the period and all Directors were
reappointed by our shareholders at last
year’s AGM. This, combined with Professor
Keith Layden’s appointment as a Non-
Executive Director following his retirement
from the Company last year, means we
continue to have effective and insightful
leadership at a Board level.
We have assessed the skills and
experiences of the Board to ensure that we
have the right balance and composition;
the results are summarised on page 37.
The assessment has also enabled us to
identify areas of opportunity, to bring fresh
and alternative insights to the Board and
enhance diversity in its broadest sense.
This is especially relevant at this time as
we think about the recruitment of a
new Non-Executive Director to replace
Nigel Turner.
We have focused on succession planning
to ensure that we have a healthy talent
pipeline for future Executive Committee
and Board roles. We have overlaid the
Board skills assessment onto the
development plans of those members of
the Executive Committee and other key
management employees who were
As guardian of our culture, the
Board has a vital role to play in
defining our behaviours and the
ways in which we do business.”
Anita Frew
Chairman
Leadership ................................................. 40
Effectiveness .............................................. 44
Board Evaluation...............................................46
Accountability ............................................ 48
Relations with Shareholders ...................... 49
Audit Committee ........................................ 51
Nomination Committee ............................. 58
Other Committees ..................................... 60
Remuneration Report ................................ 61
Other Disclosures ...................................... 78
38 Croda International Plc
Annual Report and Accounts 2017
identified as having Board potential when
we considered the Company’s succession
planning arrangements, thus allowing us
to tailor each individual’s plan to further
strengthen the bench.
improvements to the Board’s operation with
a view to creating even further opportunity
to focus on those areas that the Board
believes will make the greatest difference
to the Company’s continuing success.
Effectiveness
As Chairman, I am responsible for leading
and ensuring that we have an effective and
functioning Board. Strong and sustained
progress has been made against the
actions agreed following the 2016 Board
effectiveness review and the priorities the
Board set for itself for 2017. This progress is
summarised on page 43. The rebalancing
of the Board’s agendas and streamlining of
the Board papers and presentations has
freed greater time for the Board to spend
considering major strategic issues, growth,
merger and acquisition opportunities,
market dynamics and organisational issues,
such as succession planning, Board
composition and Company culture.
Working with the Chief Executive and
Company Secretary, I will continue to seek
The Board and Committee review for 2017
was conducted by EgonZehnder, an
external Board review specialist. The last
such external evaluation was carried out
in 2014. I actively encourage a culture
and environment in the boardroom that
facilitates candid debate and encourages
our Non-Executive Directors to provide
constructive challenge to management;
I am pleased that this was borne out in
the results of the Board review, which
was overall very positive once again.
The review has also helped us to identify
some opportunities for the Board, which
could further improve our decision making
by focusing on increased diversity for new
Board appointments.
More details on the review process and its
outcomes are set out on pages 46 and 47.
Accountability
The Board spent a considerable amount
of time discussing the areas of risk
assessment, risk management and internal
control systems (including a review of
control failings), and assessing the long
term prospects of the Company. More
information can be found on pages 30 to
35 and 48.
Relations with shareholders
As Chairman, I am responsible for effective
communication with shareholders and for
ensuring that the Board understands the
views of major shareholders. During the
year, I have met with several shareholders
(as have other Non-Executive Directors) as
well as speaking with many shareholders
at our AGM. Our shareholders support our
strategy and are very comfortable with our
approach to corporate governance.
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Anita Frew
Chairman
Case study
Governance in action
The Board’s agendas have been rebalanced
to create further opportunity to concentrate
on those areas that the Board believes will
make the greatest difference to the
Company’s continuing success, following
feedback from the 2016 Board effectiveness
review. Board meetings now focus on four
specific areas: reporting; approvals;
governance and strategy. Papers for the
Board have been significantly shortened,
concentrating on performance through the
use of KPI dashboards, and distinguishing
information reporting from decisions sought.
These interventions are designed to free
more Board time for high level strategic
decisions. This revised format is working
well, as has been borne out in the recent
Board evaluation, which welcomed the
improved meeting discipline.
Looking ahead to 2018
As well as those focus areas identified
during the latest Board evalution (p47),
the Board will:
→ Perform longer term strategic
reviews
→ Oversee the recruitment of a
new Non-Executive Director and
consider Non-Executive Director
succession
→ Focus on international operations
and manufacturing strategy
→ Refine risk appetite for key
Company risks
→ Consider the Company’s
digitalisation strategy
→ Review regular updates on safety,
health and the environment; risk
and ethical supply chain
→ Review and implement the
relevant requirements of the
Financial Reporting Council’s
revised UK Corporate Governance
Code, which is anticipated
following the FRC’s announcement
of its plans and subsequent public
consultation in 2017.
Croda International Plc
Annual Report and Accounts 2017
39
Directors’ Report | Corporate Governance | Leadership
A strong framework
Leadership
Role and operation
of the Board
The Board has ultimate responsibility
for the overall leadership of the
Group. In this role, it oversees the
development of a clear Group strategy,
monitors operational and financial
performance against agreed goals
and objectives and ensures that
appropriate controls and systems
exist to manage risk.
Specific Board matters
The matters reserved for the Board
fall into four broad areas:
1. Matters required by law to be
reserved for the Board’s decision,
such as approving the Annual
Report and Accounts, appointing
new Directors and declaring
dividends
2. The requirements of the UK Listing,
Prospectus and Disclosure and
Transparency Rules, such as
approving circulars to shareholders
and other significant
communications
UK Corporate Governance Code
recommendations, such as
ensuring the Company has a
sound system of internal control
and risk management, and
approving the Board and
Committees’ terms of reference
3. Other matters, such as approval of
the Group’s strategy and budget,
material corporate transactions
and capital expenditure.
The full schedule of matters reserved
for the Board can be found at
www.croda.com
40 Croda International Plc
Annual Report and Accounts 2017
At the date of this report, the Board
comprises eight Directors: the Chairman;
the Group Chief Executive; the Group
Finance Director; four independent
Non-Executive Directors and one non-
independent Non-Executive Director, who
was the Company’s Chief Technology
Officer until his retirement in 2017. The
small size of our Board allows time for
full discussion and debate of items and
enables all Directors’ views to be heard.
The Non-Executive Directors have a
broad range of business, financial and
international skills and experience, which
provide appropriate balance and diversity
within the Board. A key consideration for
any new Board appointment will be the
additional breadth a new Director could
bring, in terms of skills, knowledge,
experience, gender or ethnicity. Directors’
biographical notes appear on pages 36
and 37 and at www.croda.com
With support from the Company
Secretary, the Chairman sets the annual
Board agenda programme and Board
meeting agendas and determines the
number of meetings to be held during
the year. She ensures enough time is
devoted, during meetings and throughout
the year, to discuss all material matters,
including strategic, financial, operational,
business, risk, human resources and
governance issues.
The Board has taken action to strike a
balance between reporting, approvals and
governance matters, whilst ensuring more
time is devoted to major strategic issues.
Board roles
Chairman
The Chairman leads the Board and is
responsible for promoting open and effective
communication between the Executive and
Non-Executive Directors and for creating an
environment at Board meetings in which all
Directors contribute to discussions and feel
comfortable in engaging in healthy debate
and constructive challenge.
The Chairman leads the annual Board
effectiveness review process and ensures that
all new Directors have an appropriately tailored
induction process.
Group Chief Executive
The Group Chief Executive has day-to-day
responsibility for the effective management
of the Group’s Business and for ensuring that
Board decisions are implemented. He plays
a key role in devising and reviewing Group
strategies for discussion and approval by the
Board. The Group Chief Executive is tasked with
providing regular reports to the Board on all
matters of significance relating to the Group’s
Business, or reputation, to ensure that the
Board has accurate, timely and clear information
on all matters.
Senior Independent Director
The Senior Independent Director provides a
sounding board for the Chairman and acts
as an intermediary for the Non-Executive
Directors, where necessary. He is available
to shareholders where communication through
the Chairman or Executive Directors has not
been successful or where it may not seem
appropriate. The Senior Independent Director
is responsible for leading the Non-Executive
Directors in appraising the performance of the
Chairman and in their discussions of her term
of appointment and fees.
Independent Non-Executive Directors
The role of independent Non-Executive Director
is central to an effective and accountable
Board structure. They constructively challenge
the Executive Directors and scrutinise the
performance of management in meeting agreed
goals and objectives. They help develop and
monitor the delivery of the strategy within
the risk and control framework set by the
Board. They determine appropriate levels of
remuneration for Executive Directors and have
a prime role in succession planning and the
appointment and, where necessary, the removal
of Executive Directors.
Non-independent Non-Executive
Directors
Having served Croda for 33 years, the latter
five of which were as a member of the Board,
Keith Layden is not considered independent.
However, because of that experience, Keith
contributes strongly to the Board’s culture and
personality, and adds unique and valuable
insight and constructive challenge. With
appropriate management of conflicts, Keith can
constructively challenge the Executive Directors
and scrutinise the performance of management
in meeting agreed goals and objectives in a way
largely unavailable to the Independent Non-
Executive Directors.
Group General Counsel and
Company Secretary
The Group General Counsel and Company
Secretary is secretary to the Board and its
Committees. He ensures that Board procedures
are complied with and advises on regulatory
compliance and corporate governance. In
addition, he develops Board and Committee
agendas and collates and distributes meeting
papers. He facilitates induction programmes
for new Directors and provides briefings on
governance, legal and regulatory matters.
Governance structure
The Board has three main Committees:
the Audit Committee; the Remuneration
Committee and the Nomination
Committee. The terms of reference for
each Board Committee can be found at
www.croda.com.
The day-to-day operational management
of the Business is delegated by the Board
to the Group Chief Executive, who uses
several Committees to assist him in this
task: the Group Executive Committee;
the Group Finance Committee;
the Risk Management Committee;
the Group Safety, Health, Environment
and Quality (SHEQ) Steering Committee;
the Group Ethics Committee and the
Routine Business Committee. For further
information on each of these Committees
see page 60.
Group Board
Chaired by Anita Frew
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Principal Board Committees
Group Chief Executive
Audit Committee
Chaired by Alan Ferguson
Monitors the integrity of the Group’s financial
statements and announcements, the effectiveness
of internal controls and risk management as well as
managing the external auditor relationship. For more
information see pages 51 to 57.
Remuneration Committee
Chaired by Steve Williams
Approves the Company’s remuneration policy
and framework and determines the remuneration
packages for members of senior management.
For more information see pages 61 to 77.
Nomination Committee
Chaired by Anita Frew
Reviews the structure, size and composition of the
Board and its Committees, identifies and nominates
suitable candidates for appointment to the Board and
has responsibility for Board and Executive Committee
succession planning. For more information see pages
58 and 59.
Group Executive Committee
Chaired by Steve Foots
Group Finance Committee
Chaired by Steve Foots
Risk Management Committee
Chaired by Jez Maiden
Group SHEQ Steering Committee
Chaired by Stuart Arnott
Group Ethics Committee
Chaired by Tom Brophy
Routine Business Committee
Chaired by Steve Foots or Jez Maiden
Croda International Plc
Annual Report and Accounts 2017
41
Directors’ Report | Corporate Governance | Leadership
The Board’s 2017 activities and priorities
Membership of the Board and attendance (eligibility) at Board meetings held during the year ended
31 December 2017
Anita Frew
(Chairman)
Alan Ferguson
Steve Foots
Helena Ganczakowski
Keith Layden
Jez Maiden
Nigel Turner
Steve Williams
8 (8)
8 (8)
8 (8)
8 (8)
8 (8)
8 (8)
8 (8)
8 (8)
The Board has an agenda programme
that ensures strategic, operational,
financial, human resources and corporate
governance items are discussed at the
appropriate time at Board meetings. The
Board agenda has strong links to the
strategic objectives for the Business. The
Board has seven routine meetings during
the year and an additional strategy day,
which is attended by all members of the
Executive Committee. The strategy day
in the first half of the year is followed
by the consideration of the three year
plan in the autumn and then the approval
of the budget towards the end of the
year. Key highlights of the Board’s 2017
activities and priorities are set out below,
along with an estimate of the proportion of
the time that the Board spent discussing
each area.
Board activity in 2017
Delivering
growth (p12) (20%)
Strategy
Driving
innovation (p12) (20%)
Sustainable
solutions (p12) (15%)
→ Croda Latin America, Incotec Latin
America and Croda India business
reviews
→ Product innovation programmes
→ Safety, health, environment
and technology platforms
and quality
→ Technology led acquisitions and
→ Sustainability strategy and targets
→ Adjacent market opportunities
entrepreneurial cells
→ Product manufacturing strategies
→ New and Protected Products pipeline
→ Various acquisition opportunities
→ Innovation and Research and
and pipeline
Development metrics
→ Open innovation
→ Review of Sustainability Report
→ Senior management succession
→ Ethical supply chain compliance
programme
People (15%)
Governance and reporting (10%)
→ Talent review and succession
→ Review of Annual Report and Accounts
planning
→ Board diversity
→ Executive development profiles for
and other financial statements
→ External Board and Committee
effectiveness evaluation
the Executive Committee
→ Defence strategy
→ The Croda culture
→ Investor relations review
→ Health and safety of our employees
→ Tendering of external audit (p55)
and contractors
→ Diversity and inclusion of our
workforce
→ Women in leadership roles initiatives
→ Change to Group remuneration
advisers
42 Croda International Plc
Annual Report and Accounts 2017
Financial, risk and performance
management (20%)
→ Capital expenditure approvals and
performance reviews of historic
capex
→ Capital allocation policy and capital
returns
→ The Group’s budget, forecasts
and key performance targets and
indicators
→ Dividend approvals
→ USA tax changes
→ Change of Group insurance broker
→ Cyber security, anti-bribery and
major capital projects risk reviews
→ Long term viability
Update on 2016 Board evaluation actions
In 2016, the Board review was conducted using an online questionnaire tailored to our activities and concerns.
The key actions, and progress in meeting them, are summarised below:
Key actions
What we did
Status
Spend time looking at major
strategic issues including
innovation, sustainability
and market dynamics
→ Appointed a Chief Digital Officer to grow our digital strategy
→ Performed a technology gap analysis as a blueprint for future organic and inorganic growth
→ Reviewed our sustainability agenda and completed the installation phase of our industry
leading bio-surfactant plant in North America
→ Reviewed the market landscape and generated plans to remain ahead.
Regularly review our innovation
pipeline
→ Reviewed the technology acquisition pipeline
→ Considered the open innovation pipeline
→ Reviewed the importance of innovation as part of a strategy day session
→ Regularly received updates on each Sector’s performance against innovation KPIs.
→ Commissioned a group wide Global Employee Culture Survey
→ Considered Global Employee Culture Survey results and proposed action plans
→ Focused on cultural fit when considering Non-Executive Director succession planning.
→ Undertook a Directors’ skills and experience analysis (p37)
→ Prepared a talent succession development profile for each member of the Executive
Committee
→ Undertook a Board and Committee effectiveness review (pp46 and 47).
Continue to monitor the culture
and behaviours within the
organisation, taking account of
these when making decisions
Focus on Board succession
planning and the optimum
balance and composition
of the Board
Completed
Ongoing
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Outside the boardroom
In addition to formal Board meetings,
the Directors attended offsite meetings
to review the Group’s strategy and were
present at the AGM. They also met with
the Company’s financial and public
relations advisers to discuss the feedback
from investors and analysts on the Group’s
annual results. The Chairman and Non-
Executive Directors met together without
the Executive Directors present.
The Chairman spends a considerable
amount of time meeting with Steve Foots
and the senior management team at the
Company’s head office. This ensures
that she is kept appraised of significant
developments in the Business between
Board meetings.
All Directors are involved in the Group’s
Leadership Development Programme. This
involves attending various sessions, and
includes discussions on business strategy
and leadership chaired by a Director,
as well as interacting with employees
on the programme in team building
sessions or at dinners.
The Board visited our manufacturing site
and sales office in Campinas, Brazil and
Incotec’s Brazilian operation at Holambra.
More details of this visit can be read on
page 45.
During the year, all of the Non-Executive
Directors (with the exception of Keith
Layden) made additional overseas site
visits, outside of the normal Board site
visits. Anita Frew visited the Croda India
manufacturing site in Thane and the
Argentinian sales office, accompanied
by Helena Ganczakowski on the latter
visit. Helena also visited the Mevisa
manufacturing site in southern Spain,
accompanied by Steve Williams. Nigel
Turner and Alan Ferguson visited Incotec’s
headquarters and manufacturing
site at Enkhuizen, in the Netherlands.
The Non-Executive Directors discussed
a wide range of topics with the local
management teams, including process
safety, innovation, business ethics, plant
expansion plans and challenges and
opportunities in each market.
As in previous years, members of the
Executive Committee and other senior
managers from across the Company
attended Board dinners where the Board
discussed topics relevant to the Business
and its strategy. In addition, during the
Board’s visit to Brazil, the Directors met
informally with many of the Group’s
employees. These interactions enhance
the Board’s understanding of the Business
and allow Directors to spend time with the
Group’s senior managers and potential
future leaders.
Croda International Plc
Annual Report and Accounts 2017
43
Directors’ Report | Corporate Governance | Effectiveness
Effectiveness
Board re-election
The Board has a broad range of
skills and experience from different
industries, advisory roles and from
international markets.
These skills support the strategic aims
of the Company. Following individual
performance assessments, the Board
is satisfied that each Director continues
to perform effectively, allocates sufficient
time for his/her duties and remains fully
committed to his/her role in the Company.
With the exception of Nigel Turner, all
Directors will stand for re-election
at the 2018 AGM. Full biographies for the
Directors can be found on pages 36 and
37, with more detail at www.croda.com
Directors’ induction
Upon joining Croda, Directors receive a
tailored induction programme. New
Directors need to quickly absorb a great
deal about the Business if they are to fulfil
their roles effectively from the start. Our
tailored inductions offer a swift and
thorough way to help new Directors
understand our Business, markets, culture
and relationships and to establish a link
with employees.
As part of the induction, new Directors gain
a thorough understanding of our Business
through meetings with Croda employees
across all regions in which we operate. This
includes site visits, typically hosted by one
of our Executive Committee members. This
allows our new Directors to get to know the
regional and local leadership teams and to
discuss a wide range of topics, including
the local organisation structure, growth
plans, strategic priorities, risks and the
competitive landscape. Directors also
spend time at our laboratories with the
research and development teams, where
they gain insight into technology platforms
and chemistries, as well as our product
development pipeline. Visiting our
manufacturing sites enables new Directors
to explore our complex manufacturing
processes and approach to process safety
and behavioural safety. They are also able
to discuss our challenging sustainability
targets and find out about quality and
regulatory matters.
New Directors are given lots of
opportunities to spend time engaging with,
and talking to, a wide variety of employees
across all functions and seniorities. This
includes time at dinners and social events.
Through these interactions new Directors
gain an insight into the Croda culture and
our values, which are a key differentiator
between us and our competitors.
Review
The Company Secretary and the new
Director have regular reviews, with input
from the Chairman, to agree what extra
insights the induction needs to deliver.
Board support
Each Director has access to the advice
and services of the Company Secretary.
Where necessary, the Directors may take
independent professional advice at the
Company’s expense.
Training and briefings are available to all
Directors taking into account their existing
experience, qualifications and skills. In
order to build and increase the Non-
Executive Directors’ familiarity with, and
understanding of, the Group’s people,
businesses and markets, senior managers
regularly make presentations at Board
meetings. The Board also receives regular
face-to-face briefings from the Company
Secretary and, where appropriate, the
Company’s professional advisers. As well
as planned training on governance, legal
and regulatory matters, the programme is
sufficiently flexible to capture new and
emerging regulation, development
stemming from evaluation and specific
training requests from Directors. Each
Director’s training programme includes the
same online training on competition law
and anti-bribery and corruption as taken by
managers and selected employees across
the Business.
Before each Board meeting, the Company
Secretary makes sure that the meeting
papers and other information are delivered
electronically, via a secure, iPad-
accessible, web portal. Following feedback
from the 2016 Board effectiveness review
and leveraging experience gained from
When planning an induction we take the following steps:
1
2
3
4
Bespoke
programme
Our Company Secretary
discusses how the
programme should be
tailored to meet a new
Director’s needs.
Varied delivery
We use diverse formats to
communicate information.
These include iPad reading
materials, meetings with
employees and fellow Directors,
briefings and training from
external advisers and site visits.
Length
Conscious of a Director’s other
commitments and not wanting
to overload him/her with too
much information in too short a
time, we deliver the induction
over the full Board cycle of
12 months.
Review
The Company Secretary and
the new Director have regular
reviews, with input from the
Chairman, to agree what extra
insights the induction needs
to deliver.
Case study
Outside the boardroom
In September 2017, the Board visited
the Company’s operations in Brazil
where Directors officially opened
a new laboratory facility, which then
hosted them for interactive demonstrations.
The Directors undertook tours of
both the local Croda and Incotec
manufacturing facilities, where they
met with local management and members
of the operational teams to gain a
fuller understanding of the sites’ key
technologies. The Directors also met
with many of the local employees, which
allowed them to interact in a less formal
setting, whilst spending time with senior
managers and potential future leaders.
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other Boards, papers have been
significantly shortened, concentrating
on performance through the use of KPI
dashboards and distinguishing information
reporting from decisions sought. Meeting
papers are made available one week in
advance, which ensures that each Director
has the time and resources to fulfil his/her
duties. Directors have the opportunity to
raise questions stemming from the papers
prior to the meeting, should they wish
to do so. A resource centre within the
web portal provides access to useful
information about the Group, including
corporate governance materials, finance
and strategy information, Group policies
and procedures, and information on topics
such as risk and insurance.
Independence of Non-Executive
Directors
Croda complies with the Code in having
experienced Non-Executive Directors
who represent a source of strong advice,
judgement and challenge to the Executive
Directors. At present there are five such
Directors, including the Chairman and
the Senior Independent Director, each
of whom has significant commercial
experience. Their understanding of the
Group’s operations is enhanced by regular
business presentations and site visits.
The independence of the Non-Executive
Directors is kept under review. The
Chairman was independent upon her
appointment in 2015 but, as Chairman,
is not classified as independent. Steve
Williams has consultancy roles with
Eversheds LLP, which provides legal
services to the Group of immaterial
monetary value, and Spencer Stuart, a
search consultancy firm that has previously
been used by Croda. The Board does not
consider that these roles would affect his
judgement in relation to Croda and its
Business. With the exception of Keith
Layden, the Board therefore considers
that all Non-Executive Directors who
served during the year are independent in
character and judgement, with no
relationships or circumstances that are
likely to affect, or could appear to affect,
their judgement. Keith Layden is not
considered independent, having served as
the Company’s Chief Technology Officer
prior to retirement from the Company and
appointment as a Non-Executive Director
in May 2017.
Conflicts of interest
The Board has an established process
for declaring and monitoring actual
and potential conflicts. The Articles of
Association of the Company allow the
non-conflicted members of the Board
to authorise a conflict or potential conflict
situation. In addition to the potential
conflicts of Steve Williams noted above,
Nigel Turner declared a potential conflict
in relation to the possible sale of farm
produce (oilseed rape) through agents
to Croda. In the period, Helena
Ganczakowski held a Non-Executive
Director role at customer, People Against
Dirty, prior to its dissolution on sale.
Jez Maiden has a Non-Executive Director
role on the board of PZ Cussons plc,
a customer of Croda.
Details of the professional commitments
of the Chairman and the Non-Executive
Directors are included in their biographies
on pages 36 and 37. The Board is
satisfied that these do not interfere
with the performance of their duties
for the Company.
During 2017, no Independent Non-
Executive Director had served on the
Board for more than nine years from the
date of their first election, with the range
between three years and eight and a half
years. Keith Layden served just over five
years as an Executive Director, prior to his
appointment as a Non-Executive Director
on 1 May 2017.
The terms and conditions of appointment
of Non-Executive Directors can be viewed
at www.croda.com. They can be inspected
during normal business hours at the
Company’s registered office by contacting
the Company Secretary and will also be
available for inspection at the AGM.
Time commitment
Each Director is aware of the need to
allocate sufficient time to the Company
to discharge his/her responsibilities
effectively. In addition to time spent at
Board and Committee meetings, the
Directors participate in several Company
related events; details are set out on
page 43.
External consultants
In the period, Korn Ferry and Deloitte have
provided remuneration consultancy to the
Remuneration Committee.
44 Croda International Plc
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Croda International Plc
Annual Report and Accounts 2017
45
Directors’ Report | Corporate Governance | Effectiveness
2017 Board evaluation
Board performance
The nature of Board service has
significantly changed, requiring an ever
wider range of skills and greater time
commitment. The Board is not just a
governing body; boards are being
leveraged as a competitive advantage to
complement and support management
and add value. Demand for exceptional,
highly qualified Directors is growing and
increasingly specialist skills are required
in the boardroom.
The Board undertakes a formal review of
its performance and that of its Committees
each year. The 2017 review was conducted
by EgonZehnder, an external board
review specialist. At the time of the review,
EgonZehnder had no other connections
with the Company in line with the
requirements of the Code. The last such
independent evaluation was carried out in
2014 and we anticipate the next will take
place in 2020. The results of the review
were, once again, extremely positive.
They endorsed the boardroom culture and
Non-Executive Director participation and
2017 External evaluation of the Board: the preparation
challenge to management that is actively
promoted by the Chairman. The review
identified some opportunities for the
Board, which have helped inform the
Board’s priorities for 2018 and beyond.
The Board’s resulting areas of focus are
summarised on page 47. Its priorities for
2018 are set out on page 39.
The Board identified a number of
potential independent external Board
review specialists. The Chairman, CEO
and Company Secretary interviewed
three of those identified, selecting
EgonZehnder from that process.
EgonZehnder were briefed on the focus
areas for the review and developed and
distributed a tailored questionnaire to the
members of the Board.
EgonZehnder held one-to-one discussions
with each Director and the Company
Secretary, as well as the Group Human
Resources Director and the Group’s Vice
President of Risk and Assurance.
Phase One
Engagement
Phase Two
Questionnaire
Phase Three
One-to-one
discussions
Phase Six
Summary
recommendations
to the Board
Phase Five
Feedback with
the Chairman
Phase Four
Observations
from the Board
and Committee
meetings
EgonZehnder held a one-to-one meeting
with the Chairman, where feedback on
the summary findings was presented
and discussed.
EgonZehnder attended Board and
Committee meetings to observe each
meeting’s effectiveness and the contribution
of each individual Director.
EgonZehnder reported back with a
Board presentation of findings and made
recommendations on further performance
improvements for the Board, the Committees
and their operation. The report and
findings were discussed by the Board at its
December meeting and areas of focus to
address certain recommendations agreed.
46 Croda International Plc
Annual Report and Accounts 2017
2017 External evaluation of the Board: the process
We covered a broad range of areas
Purpose
Strategy and
performance
Risks
Culture
People
Meetings
Committees
Effectiveness
benchmarking
We took a deeper dive on certain topics
Strategy
Risk
Growth
Future
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The Board is appropriately
involved with strategy formulation
and is well equipped to help
shape the strategic debate. The
Board is aligned on the strategic
priorities of the Business.
The Board’s agenda covers
the right issues for the Company
and strikes the right balance
between strategy and operations.
Board Directors are clear on
the type and level of risks that
the Business needs to take to
deliver its growth plan and feel
confident that the potential
risks facing the Business
are clearly defined and
appropriately mitigated.
The Directors have clarity on
our values and how they are
shaping our culture.
The Board is fully aligned on
growth as a strategic priority
and the Directors demonstrate
a sense of responsibility for the
success of the Company.
Board deliberations are
constructive and robust, with
high levels of energy and pace.
The CEO and Executives feel
comfortable bringing open-
ended questions to the Board.
Board meetings are well
led; agendas are balanced
and Board papers have
been streamlined. Board
members actively leverage
their knowledge of other
Board practices to improve
Board effectiveness.
There is clear and appropriate
division of roles between
the Chair and the CEO,
who enjoy an open and
trusting relationship.
→ Perform longer term strategic reviews
→ Refine risk appetite for key Company risks
Our areas of focus
→ Define those elements of the culture that must be preserved and those that might flex as the Company grows and the markets
around us develop
→ Commission an external gap analysis for succession
→ Development mechanisms for the evaluation of past Board decisions.
Croda International Plc
Annual Report and Accounts 2017
47
Directors’ Report | Corporate Governance | Accountability
Accountability
The Audit Committee
The Audit Committee’s report, which
describes the membership of the Audit
Committee, its responsibilities, main
activities in 2017 and priorities for 2018,
is set out on pages 51 to 57.
Risk management and
internal control
The Board acknowledges its responsibility
for ensuring the maintenance of a sound
system of internal controls and risk
management. In accordance with the
guidance set out in the Financial Reporting
Council’s (FRC’s) Guidance on Risk
Management, Internal Control and Related
Financial Business Reporting 2014, and in
the Corporate Governance Code itself,
an ongoing process has been established
for identifying, evaluating and managing
the principal risks faced by the Group
(p30). The Directors have established an
organisational structure with clear operating
procedures, lines of responsibility and
delegated authority.
In particular, there are clear procedures
and defined authorities for the following:
→ Financial reporting, with clear policies
and procedures governing the financial
reporting process and preparation
of the financial statements. There is
a clear and documented framework
of required controls. Each reporting
location prepares an annual
self-assessment of compliance with
these controls, which is assured during
planned internal audit visits
→ Comprehensive monitoring and
quantification of business risks, under
the direction of the Risk Management
Committee. The Group’s approach
to risk management and the principal
risks facing the Group are discussed
in more detail in the Strategic Report
on pages 30 to 34
→ Capital investment with detailed
appraisal, risk analysis, authorisation
and post-investment review
procedures.
This process has been in place for the full
financial year and up to the date on which
the financial statements were approved by
the Directors.
The Board discharged its responsibility for
monitoring the operational effectiveness of
the internal control and risk management
systems throughout the financial year and
up to the date of approval of the Annual
Report and Accounts. It used a process
which involved:
→ Written confirmations from relevant
senior executives and divisional
directors concerning the operation of
those elements of the system for which
they are responsible
→ Internal audit work carried out by
KPMG LLP, which reports through the
Vice President of Risk and Assurance
to the Audit Committee
→ Reports from the external auditors
→ Presentations of key risks and controls
by the Executive owner and other
assurance providers
→ Half-yearly report on significant controls
from the Vice President of Risk and
Assurance
This system is designed to mitigate,
rather than eliminate, the risk of failure to
achieve business objectives and provides
reasonable, but not absolute, assurance
against material misstatement or loss. As
appropriate, the Board also ensures that
necessary actions have been, or are being
taken, to remedy failings or weaknesses
identified from the review of internal
controls’ effectiveness and judges their
level of significance.
Fair, balanced and understandable
The process of compiling the Annual
Report and Accounts starts early
enough to give the Board time to
assess whether it is fair, balanced and
understandable, as required by the Code.
The Board considered whether the Annual
Report and Accounts contained the
necessary information for shareholders to
assess the Company’s position and
performance, business model and
strategy. The tone was reviewed to ensure
a balanced approach and the Board made
sure the narrative at the front end of the
Annual Report was consistent with the
financial statements.
Our annual internal audit
programme
One element of our internal control
framework is the work carried out by
our internal auditors.
The planning process for the year’s audit work
is undertaken by the internal audit team, led
by our Vice President Risk and Assurance.
Themes from prior year audits, key risk
areas and fundamental controls feed into
the selection of the audit programme, which
is approved by the Audit Committee.
Consideration is given to the appropriate
mix of IT and manual controls to be tested.
Self-assessments of controls are carried out
by local management and systems’ owners,
which are analysed by the internal audit team
with its findings and any emerging themes
being reported to the Audit Committee. The
Committee places great importance on the
self-assessments and is concerned when
there are differences (positive or negative)
between the self-assessed scores and those
assessed during the audit visits.
The site-based audit fieldwork and IT audits
are undertaken between May and October,
followed by the risk-based reviews. The
outcome of this work is reported to the Audit
Committee and any failures of internal controls
or weaknesses from non-financial and risk-
based reviews are followed up by the Audit
Committee, with common themes feeding
into the planning process for the following
year’s audit programme.
January
Planning
Reporting
Preparation
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On-going
communication with:
Audit Committee,
senior management and
external auditors
IT audits and
risk reviews
A
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Site and
IT self
assessment
Site-based
audits
July
Relations with shareholders
arises; no such meetings were requested
by shareholders during the year.
Communication with shareholders
The Chairman, Executive Directors and
other senior managers maintain regular
contact with existing and potential
shareholders to ensure that our strategy
and trading trends are clearly understood.
Recognising the importance of
communicating with our shareholders,
our Vice President, Investor Relations
manages the day-to-day contact with the
investment community, including investors
and analysts, as well as co-ordinating site
visits and presentations at investor
conferences and roadshows.
The Board engages in active dialogue
with shareholders through the Group
Chief Executive, Group Finance Director
and the Chairman, who regularly meet
with shareholders. These meetings provide
an appropriate means of capturing
shareholders’ opinions and the Chairman
ensures that the Board is regularly
appraised of shareholders’ views and key
issues. All Non-Executive Directors are
available to attend meetings if requested by
shareholders and the Senior Independent
Director is available to discuss matters
concerning the Chairman if the need
The Board believes its practices in
this area are consistent with both
the Code’s provisions concerning
dialogue with shareholders and with
good governance.
During the year, numerous meetings
were held with investors in the UK, North
America, Europe and Asia, including
face-to-face meetings, telephone and
video conferences and hosted site visits
in numerous regions.
The Board invites the Company’s brokers
and financial public relations advisers to
attend at least one meeting each year,
at which the economic and investment
environment, Croda’s performance
(generally and in comparison with its
sector peers) and investor reactions are
discussed. These presentations are
webcast live, so all shareholders have
access to them, and are also available
to download. We answer all investor
questions sent to our website.
Set out on page 50 are answers to the
most commonly asked shareholder
questions and a calendar of our investor
events attended by senior management
throughout the year.
Geographical breakdown of shareholder base
Substantial shareholders
As at the date of this Annual Report
and Accounts the Company had
received notification of the following
material shareholdings pursuant to the
Disclosure and Transparency Rules
of the UK Listing Authority:
BlackRock, Inc.
Number
of shares
7,463,118
% of
issued
capital
5.68%
Investor concentration
Percentage of issued capital
by type of holder
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Institutional holders
Private holders
Other holders
93.19%
3.54%
3.27%
North
America
31.69%
UK
46.32%
Continental
Europe
18.39%
Asia
3.60%
48 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
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Directors’ Report | Corporate Governance | Relations with shareholders
Top 5 investor questions
1
How does the Company
manage its allocation of
capital?
The Company has good capital
discipline that is aligned with its clearly
defined Capital Allocation Policy (p28)
2
What are the growth targets
for the core business?
Low-to-mid single digit growth
(excluding raw material price
recovery) (p24)
3
What are the Company’s
priorities in respect of merger
and acquisition activity?
The Company has three types of
M&A targets:
→ Nacent technologies
→ Small to medium sized bolt-ons
→ Transformational
4
What is the target for New
and Protected Products (NPP)
sales growth?
The aim is to grow NPP at twice the
non-NPP sales growth rate (p24)
5
Can the Company expand
its margin?
Our focus on value over volume
growth and increasing innovation
should lead to margin expansion
Our investor calendar
Set out below is a calendar of our investor events attended by senior
management in 2017:
February
→ Full year results announced
July
→ Half year results announced
March
→ Roadshows in London, Frankfurt,
Montreal, Toronto and Boston and
Mid-Atlantic, USA
→ Conferences in New York,
Stockholm and London
→ Investor field trip in the UK
April
→ Q1 Trading Update published
→ Annual General Meeting in York
May
→ Roadshows in Edinburgh,
Copenhagen, Oslo, London and
Mid-West, USA
June
→ Roadshows in Geneva and the
Netherlands
→ Conferences in Paris and London
→ Investor field trip to Paris
→ Roadshow in London
September
→ Conferences in Dublin and London
→ Roadshow in Zurich
→ Investor field trips to France and
the UK
October
→ Q3 Trading Update announced
→ Roadshow in Helsinki
→ Conference in East Yorkshire
November
→ Conferences in Boston and
London
→ Roadshows in London, New York,
Chicago and Toronto
→ Investor field trip in the UK
December
→ Investor field trip in the UK
Annual General Meeting (AGM)
The AGM provides an opportunity for
private shareholders to raise questions
with Board members. The Directors
are also available to answer questions
afterwards, in an informal setting.
The Annual Report and Accounts,
including the notice of AGM, are sent to
shareholders at least 20 working days
before the meeting. There is a separate
investor relations section on www.croda.
com that includes, amongst other items,
presentations made to analysts. The AGM
will be held at the Pavilions of Harrogate,
on 25 April 2018 at 12 noon.
Deadlines for exercising
voting rights
Votes are exercisable at a General Meeting
of the Company in respect of which the
business being voted upon is being heard.
Votes may be exercised in person, by
proxy or, in relation to corporate members,
by corporate representatives. The
Company’s Articles of Association provide
a deadline for submission of proxy forms
of not less than 48 hours before the time
appointed for the holding of a meeting or
adjourned meeting.
Audit Committee
Report of the
Audit Committee
for the year ended
31 December 2017
The Committee has
delivered on its key
priorities during the year,
including the successful
tenders of the external
and internal audits.”
Alan Ferguson
Chairman of the Audit Committee
Members and attendance
(eligibility) at meetings held
during the year ended
31 December 2017
Alan Ferguson
Chairman
Helena Ganczakowski
Independent Non-Executive
Nigel Turner
Independent Non-Executive
Steve Williams
Independent Non-Executive
6 (6)
6 (6)
6 (6)
6 (6)
One of the meetings held during the
year was solely concerned with the
outcome of the external and internal
audit tenders. In addition there were
two meetings held subsequent to the
year end, with attendance full at both,
other than for Nigel Turner who
missed one meeting due to
commitments overseas.
Dear fellow shareholder
In my capacity as Chairman of the Audit
Committee, I am pleased to present the
Audit Committee Report for the year
ended 31 December 2017, which I hope
you find informative. It provides detail of the
activities carried out by the Committee in
what was a busy year. By its very nature
this report covers a number of matters
that were also covered last year. Whilst
it is important that these are reported on,
I would draw your attention to the sections
on external audit tendering, internal
audit and risk management and those
highlighting our key focus areas for 2017
and looking ahead to 2018.
Committee membership
The Committee consists of four Non-
Executive Directors. The experience of
each member of the Committee is
summarised on pages 36 and 37. I have
held a number of senior finance director
roles and am Chairman of the Audit
Committees of two other FTSE 100/250
companies, as well as an AIM listed
company. The Board considers each
member of the Committee is independent
within the definition of the Code and
has relevant financial experience, as
well as a broad and diverse spread
of commercial experience. Such
consideration provides the Board with
assurance that the Committee has the
appropriate skills and experience to ensure
that it can be fully effective, and that it
meets the Code requirement that at least
one member has significant, recent and
relevant financial experience.
The Chairman of the Board, Professor
Layden (a Non-Executive Director), the
Group Chief Executive, the Group Finance
Director, the Group Financial Controller,
the Vice President of Risk and Assurance,
who leads the internal audit function,
and representatives from the external
and internal auditors attend the meetings
by invitation.
The Committee periodically, and I more
regularly, meet separately with the Vice
President of Risk and Assurance and the
external auditors without the Executives
being present. While these meetings are
invaluable, I also meet with the external
auditors, the Group Finance Director and
the Group Financial Controller at least
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twice each year to discuss the detail
of the year end and half year results
before the relevant Committee meetings.
This helps me to better understand
the key issues and to make sure
enough time is devoted to them at the
subsequent meeting.
Responsibilities
The Committee assists the Board in
ensuring that the Group’s financial
systems provide accurate and up-to-date
information on its financial position.
Key responsibilities:
→ To monitor the integrity of the
financial statements and results
announcements of the Group and to
review significant financial reporting
issues and judgements
→ To recommend external auditor
appointment and removal, assess
audit quality, negotiate and approve
the audit fee, assess independence,
monitor non-audit services and be
responsible for audit tendering
→ To review the adequacy and
effectiveness of the Group’s internal
controls and risk management
systems, and the adequacy,
effectiveness and output of the
internal audit function
→ To review the adequacy of the Group’s
whistleblowing arrangements and
procedures for detecting fraud.
In addition to its business as usual
activities, the Committee selects certain
focus areas each year for detailed review.
Detailed responsibilities are set out in the
Committee’s terms of reference, which
can be found at www.croda.com.
50 Croda International Plc
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Croda International Plc
Annual Report and Accounts 2017
51
Directors’ Report | Corporate Governance | Audit Committee
Main (business as usual) activities of the Committee since the publication of the 2016 Annual Report
and Accounts
The Committee met four times in 2017 after publication of the 2016 Annual Report and Accounts and twice between the
year end and the publication of this Annual Report. The key issues covered at the Committee meetings were reported at the
subsequent Board meeting.
The Committee’s main business as usual activities, excluding the focus areas, and an estimate of the proportion of time spent
on them, are detailed below:
Financial reporting (20%)
The Committee:
→ Monitored the Group’s financial
statements and results
announcements, and reviewed
significant financial reporting and
accounting issues including the
going concern assessment and
exceptional items
Governance (20%)
The Committee:
→ Reviewed the effectiveness of the
Group’s anti-bribery and fraud
procedures, including the whistle-
blowing procedure. The Committee
were satisfied that appropriate
procedures were in place for
proportionate and independent
investigation of whistleblowing reports,
including follow up actions
→ Met with internal audit and external
audit without management being
present
→ Received presentations from the
Finance Director of Personal Care, the
Group Financial Controller and Finance
Director of Life Sciences and the
Finance Director of Asia
→ Undertook an externally facilitated
effectiveness review as part of the
review of the Board and its Committees
as described on page 46
→ Reviewed its terms of reference and
made changes to reflect the updated
UK Corporate Governance Code
and the FRC Guidance on Audit
Committees
→ As part of its annual review of
the Group’s tax strategy and
risks, approved the publication
of the tax strategy on our website
www.croda.com.
Committee activity in 2017
→ Undertook regular reviews of the
Group’s material litigation and was
satisfied with the approach to
provisioning
→ In conjunction with the Board,
reviewed the financial modelling and
stress testing based on plausible
scenarios arising from selected key
risks, noting the effect they would
have during the viability period.
External audit (15%)
The Committee:
→ Discussed and approved the external
audit plan, including: the assessment of
significant audit risks; the engagement
risk profile; the scope of the audit; the
materiality level and the de minimus
reporting threshold (see pages 82 to 85
of the Audit Report); the approach to
working with internal audit; and the
key members of the engagement team
supported by specialist auditors
where necessary. The resulting audit
fee was approved
→ Reviewed compliance with the
FRC’s Ethical Standard for auditors
and the restrictions on auditors to
provide non-audit services; in particular
as regards to PriceWaterhouseCooper’s
(PwC) role in tax compliance services
in the USA (see page 56 for further
details)
→ Discussed the FRC’s 2016/2017 Audit
Quality Inspection of PwC in support of
the Committee’s annual assessment of
the quality of the external audit. Further
details can be found on page 56
→ Considered and confirmed the
independence of PwC, as further
described on page 56
→ Approved the plans for the transition of
the external audit from PwC to KPMG
(see pages 55 and 56).
Internal audit and risk
management (20%)
The Committee:
→ Received a report from the Vice President
Risk and Assurance at each meeting
and monitored compliance with the
Group risk management programme.
The Committee reviewed the reliance
placed by management on the risk
mitigating controls of the Group’s highest
risks and analysed the types of
assurance, both internal and external,
that applied to these controls
→ Agreed a revised approach to the
coverage of internal audit’s programme
of work. Further details on this approach
are described on page 54
→ Assessed the 2017 risk-based and
thematic assurance activity carried out
by internal audit (with reference to the
Group’s principal risks), which included
a review of: cyber security maturity;
UK payroll and UK pensions; ethics
and compliance programme; and
Group Treasury
→ Considered the results of the 2017
internal audits and the IT audits, the
self-assessment process, the adequacy
of management’s response to matters
raised and the time taken to resolve
such matters
→ Considered controls over the
implementation of capital projects as
part of the site internal audit reviews
→ Reviewed and approved the 2018 internal
audit plan and the plans to transition the
internal audit co-source provider from
KPMG to PwC (see page 54)
→ Conducted its annual review of the
Group’s internal auditor (see page 54).
Key focus areas for 2017 (25%)
The Audit Committee has delivered on our ‘business as usual’ work, as set out in our terms of reference, and from this perspective
there is nothing to highlight for your attention. Last year, we noted five focus areas for 2017, which absorbed the balance of the
Committee’s time of around 25%, which is much higher this year due to the incremental work on the two audit tenders.
Key focus area
Actions during the year
Progress
Plan and conduct the tenders of the
external and internal audit services
We undertook a rigorous process for both tenders, including pre-meetings with the
tendering firms, the provision of a comprehensive data room and detailed selection
criteria. All Committee members attended and fully participated in the tender
presentations, reaching a unanimous decision in respect of both appointments
(see page 55).
Review the implementation of
our enhanced ethical compliance
programmes relating to anti-bribery
and sales of products into sanctioned
markets
In support of the renewed programme, new and enhanced internal controls were
adopted and self-assessments against these controls were carried out by local
management and control owners. In addition, the internal audit team conducted testing
of these controls at sites visited during the year. The Committee received a review of
compliance against the renewed programme, follow up actions were approved and
will be monitored. This will remain a focus area for 2018 as the programme becomes
embedded around the world.
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Review the progress of the project to
increase the use of data analytics
both as an audit tool and as a tool to
examine process flows within SAP
Continue to focus on cyber security
risk and ensure the Committee
receives training in this area
Completed
Ongoing
PwC were engaged to run their process analytics tools on the SAP purchase to pay
process to help ensure the investment in one version of SAP is fully maximised. The
review was undertaken cross region and company, based on 12 months of SAP
transactional data. The findings from the review were shared with the Audit Committee,
with the Committee agreeing detailed recommendations to be followed up by
management and internal audit. The Committee will monitor the follow up of these
recommendations during 2018. A review of the inventory management process using
the same tools is planned in Q1 2018.
The innovative use of SAP and data analytics was a key selection criterion for the
external and internal audit tenders (see page 55) and we expect to see a further step
change integrated into the audit approaches from 2018 onwards.
Our internal audit team undertook a cyber security maturity review to obtain a holistic
view of Croda’s information security assurance capability. A report was presented to
the Committee, which included a maturity assessment across several areas, including:
leadership and governance; training and awareness; information risk management;
business continuity; operations and technology; and legal and compliance. The
Committee discussed how we benchmarked against industry peers, identified
opportunities to improve cyber maturity and agreed a detailed action plan with
management. Cyber security testing forms a core part of the IT controls testing by
internal audit, as well as the ISO27001 standard adopted within the Group. The
Committee reviewed the IT activity relating to cyber security, including the output of
penetration testing and breach detection tools.
In response to the output of the 2016 Committee effectiveness review, the Committee
participated in a face to face training session conducted by cyber security specialists
from PwC.
52 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
53
Directors’ Report | Corporate Governance | Audit Committee
Internal audit and risk management
In 2017 I met with the Vice President Risk
and Assurance several times outside
of the formal meetings to discuss the
performance and output of the internal
audit function and aspects of risk
management. The Vice President Risk
and Assurance attended each Committee
meeting and presented an internal audit
report that was fully reviewed and
discussed, highlighting any major
deviations from the annual plan agreed
with the Committee.
At each meeting, the Committee
considered the results of the audits
undertaken and the adequacy of
management’s response to matters raised,
including the time taken to resolve such
matters. Particular focus was addressed
to those areas where there was a major
divergence between the outcome of the
internal audit and the scoring of the
self-assessment questionnaire, completed
annually by each business unit. In these
instances the Committee challenged
management as to what actions it was
taking to minimise the chances of
divergences arising in the future. The
Committee looked at recurring themes
where issues were identified across a
number of locations; these will inform the
scope of the work undertaken in the 2018
audit plan.
The approach to the selection of locations
for audit visits for the 2017 internal audit
plan evolved from that used the prior year.
Using the three lines of defence model,
assurance obtained from multiple internal
and external assurance providers were
mapped, with core levels of assurance
being provided by the annual controls
self-assessment process and embedded
SAP application controls. This was
supported by enhanced assurance at
a selection of sites provided through an
internal audit visit in line with the refreshed
risk assessment process. In addition a
programme of ‘Croda peer reviews’ was
implemented within regions as part of the
internal audit plan, under the direction of
the Vice President Risk and Assurance,
reporting back to the Audit Committee.
This revised approach ensured that the
internal audit resource added the greatest
value to the internal control environment
by focusing in the right areas.
Significant financial statement
reporting issues
With support from the external auditors,
the Committee considered a number of
significant ongoing issues related to the
financial statements for the year ended
31 December 2017, as set out below.
Pensions: The Committee monitored the
Group’s pension arrangements, in particular
the funding of the defined benefit plans in
the UK, the US and the Netherlands, which
are sensitive to assumptions made in
respect of discount rates, salary increases
and inflation. The Committee reviewed the
actuarial assumptions used, compared
them with those used by other companies,
considered the views of the external
auditors and found them to be reasonable.
Provisions: The Committee reviewed
whether certain environmental,
reorganisation, litigation and other legal
provisions were sufficient to cover estimated
costs of potential and actual claims and
decided that they were reasonable and
appropriate. For larger areas of exposure,
the Committee was reassured by legal
opinions and insurance coverage.
Taxation: The global footprint of the Group
necessitates an understanding of, and
compliance with, complex tax regulations.
The Committee reviewed the basis of
calculation of the effective tax rate, including
the impact of the recent USA legislative
changes, the status of the Group’s tax
compliance, details of potentially significant
challenges from tax authorities, the level
of accruals and the relevant disclosures.
The Committee concurred with
management’s views.
Goodwill: The strategy of the Group
includes acquiring new technologies and
businesses operating in adjacent markets.
Goodwill represents a significant asset value
on the balance sheet (£320.2m out of a total
net assets of £829.9m at 31 December
2017). The Committee completed its routine
annual impairment review of the carrying
value of goodwill, as prepared by
management, including the sensitivity to a
number of underlying assumptions. After
due challenge, the Committee was satisfied
that the assumptions were reasonable and
that no impairments were necessary.
In addition to the ongoing issues the
Committee reviewed the capitalisation of
interest this year as it was significantly
higher than normal due to the investment in
the bio-surfactant plant in North America. It
also reviewed and discussed the Alternative
Performance Measures being used (p29)
and the associated disclosures.
54 Croda International Plc
Annual Report and Accounts 2017
In February, the Committee conducted
its annual review of the internal auditor,
including the approach to audit planning
and risk assessment, communication
within the Business and with the
Committee and its relationship with the
external auditors. Internal feedback is used
in this process. This did not highlight any
significant areas for development other
than the desire for a more analytical based
audit approach to be considered.
As previously reported, the Committee
took the decision to tender the internal
audit contract held by KPMG for the last
seven years. This was because of the
length of their tenure and the fact that if
KPMG were successful in the external
audit tender we would have to tender the
internal audit contract in undue haste.
A description of the tender process is set
out on page 55. As a result of the tender,
the Committee approved PwC as the
internal audit co-source provider from the
financial year 2018. This decision was
unanimous. It was based on the belief that
their analytical based approach would drive
most benefit to the Business and that the
team put forward by PwC had the right
range of skills to address the changing
nature of the audit as well as having the
best cultural fit. PwC’s appointment will
not commence before their resignation as
external auditor at the Company’s AGM on
25 April 2018; however, familiarisation
meetings have taken place with PwC team
members and the 2018 audit approach,
including further use of extended data
analytics in both internal audit and peer
reviews, have been discussed.
Details on how the Business implements
its risk management and controls on a
Group wide basis are set out on pages
30 and 31.
Case study
External Audit Tender
Set out below is the process we ran to select the best external auditor for the Business. The Internal Audit tender essentially followed the
same process, other than in September the Audit Committee Chairman, Group Finance Director and Vice President, Risk and Assurance
reduced the internal audit candidate firms from five, including the incumbent KPMG, to four shortlisted firms and the Vice President Risk and
Assurance was a member of the selection panel.
October 2016
The Audit Committee Chairman and Group Finance Director met with potential successor firms (PwC were
not asked to tender due to their tenure as external auditors), at the most senior level, and gave an outline of
the tender process that we intended to run. Most importantly the key attributes that we expected from the
lead audit partner and senior members of the audit team as well as the likely structure of that team were set
out. This enabled the firms to select the most appropriate audit partners who could lead the tender. In
addition independence was discussed and processes put in place to avoid any such issues arising.
November 2016/
January 2017
Following the introductory meetings three firms confirmed interest in tendering and put forward their
proposals for lead audit partner followed by other senior team members. Time was taken to meet with
those individuals to ensure the ones selected were the best fit for Croda, in its broadest sense, as without
that it was unlikely that Croda would receive the best possible tenders.
The Committee were then notified of the key individuals selected from each tendering firm.
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The Committee finalised the detailed selection criteria for the tendering process. These included:
→ Expertise, competency and cultural fit of the lead partner and team
→ Knowledge and understanding of our business, industry and key geographies
→ Audit approach including use of data analytics
→ Technical expertise, including SAP, and audit quality, including the results of recent FRC Audit Quality
Reviews and Inspections
→ Conflicts of interest and independence
→ Quality of reporting and communication, including the ability to challenge constructively
→ The selection panel’s previous experience of the firms
→ Value for money.
Formal tender request issued and data room opened.
Meetings, held over a number of days, allowing each of the tendering firms to meet with our key personnel
in order for them to get a better understanding of the culture, the business and the key requirements.
Feedback was gathered from our attendees following each meeting to provide input into the subsequent
decision making process.
Written proposal documents were then received and reviewed.
July/August 2017
September 2017
October 2017
Selection panel interviews conducted with oral presentations from the shortlisted firms.
The panel comprised:
→ All members of the Audit Committee
→ Group Chief Executive
→ Group Finance Director
→ Group Financial Controller
A formal decision was made by the Committee, taking account of the selection panel’s recommendations,
and its recommendation to appoint KPMG as external auditor was made to the Croda Board.
Croda International Plc
Annual Report and Accounts 2017
55
Directors’ Report | Corporate Governance | Audit Committee
External auditors’ effectiveness
During the year, the Committee assessed
the effectiveness of PwC as Group external
auditor. To assist in the assessment, the
Committee reviewed the output from a
questionnaire completed by senior
members of the finance team to obtain
their views on PwC’s effectiveness in
carrying out the 2017 audit. The
questionnaire covered:
→ Quality of planning, delivery and
execution of the audit
→ Quality and knowledge of the
audit team
→ Effectiveness of communications
between management and the
audit team
→ Robustness of the audit, including
the audit team’s ability to challenge
management as well as demonstrate
professional scepticism and
independence.
The Committee also considered the quality
of reports from PwC and the additional
insights provided by the audit team,
particularly at partner level. It took account
of the views of the Group Finance Director
and Group Financial Controller, who had
met local audit partners when visiting some
of the Group’s businesses, to gauge the
quality of the team and their knowledge
and understanding of the Business. The
Committee considered how well the
auditors assessed key accounting and
audit judgements and the way they applied
constructive challenge and professional
scepticism in dealing with management.
We reviewed the FRC’s 2016/2017 Audit
Quality Inspection report on the PwC’s
UK arm. The results were reassuring and
given our focus on data analytics it was
encouraging to see this was an area
highlighted as an example of good
practice. The main areas identified by
the FRC as requiring actions were
discussed by the Committee. A review
of effectiveness also forms part of PwC’s
own system of quality control and this was
discussed with the Committee during the
presentation of the 2017 audit plan.
Following the review, the Committee
concluded that the audit was effective.
External audit tendering
We are in compliance with the Statutory
Audit Services Order 2014. Although PwC
could remain as auditor until 2020, as
previously reported, the Committee agreed
to coincide an audit tender with the expiry
of Ian Morrison’s term as Lead Audit
Partner, when he would sign the 2017
Annual Report and Accounts, or sooner if it
were felt necessary by the Committee. The
Committee formally committed to tender
the audit during 2017, with the first year to
be audited by the newly appointed firm
being the year to 31 December 2018.
For the reasons noted in the Internal audit
and risk management section (p54) the
Committee considered that it was most
effective and efficient to run the external
and internal audit tenders at the same time.
When the Committee decided to tender
it was made clear that audit quality was
to be at forefront of mind when going
through the process. A timely, rigorous
and independent audit is fundamentally
important to the Business. Upfront
planning was key to making sure the right
senior teams were selected from the
tendering firms and that they were given
enough information and access to enable
them to prepare a compelling tender, the
objective being to have the best possible
tenders from all the competing firms. Part
of the planning process included reviewing
auditor independence. In conjunction with
the firms themselves, we ensured they
were independent at the start of the
process and then monitored the Group’s
spend with those tendering to avoid any
independence issues arising in the run
up to the tender.
More information on the tender process,
including a chronology and details of the
selection criteria, are contained in the
case study on the previous page.
Following the tender, the Committee
recommended two firms to the Board
as possible external auditors, with a
unanimous recommendation to appoint
KPMG with Chris Hearld as the Lead
Audit Partner. This decision was based
on the view that the team put forward by
Chris was the strongest and best fit for
our Business and that the proposed
audit approach would bring a fresh
perspective through greater use of
analytics being applied to Croda’s
single instance of SAP.
Once the decision was made thoughts
turned to managing the transition.
Plans to do this effectively and efficiently
were drawn up and then discussed
with the Committee.
External auditors’ independence
The Committee and the Board place
great emphasis on the objectivity of the
Group’s external auditors in reporting
to shareholders.
PwC were the Group’s joint auditors
from 1970 to 1980 and have been the
sole auditors since 1981. To ensure
objectivity, the rotation of audit partners
has taken place.
Our Group policy on the provision
of non-audit services by external
auditors, which is on our website
www.croda.com, sets out prohibited
non-audit services and the controls over
assignments awarded to the external
auditor to ensure that audit
independence is not compromised.
During the year, the Committee
undertook a detailed review of the
provision of non-audit services by PwC
and compliance with the FRC’s Revised
Ethical Standard for auditors, in particular
in regard to the work undertaken by PwC
in relation to providing tax compliance
and advice to our North American
business. The Committee decided that
Looking ahead to 2018
In addition to our routine business,
the Committee has four focus areas
for 2018. We will:
→ Monitor and assist in the transition
to the new firms providing external
and internal audit services with
a focus on driving audit quality
→ Continue to review the
implementation of our enhanced
ethical compliance programme as
it becomes embedded across
the world
→ Review the implementation of
effective policies and procedures
to comply with the General Data
Protection Regulation coming into
force in May 2018
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→ Maintain our ongoing focus on
cyber security risk
a globally consistent approach should
be taken and this work has been
moved away from PwC, with a new firm
appointed who were not involved in
the external audit tender process.
Non-audit fees have fallen for the sixth
consecutive year. In 2017, they were
£0.1m, significantly less than the total
audit fees of £1.0m; the non-audit to audit
fees ratio stands at 0.1:1.
The Committee undertook its annual
review of the Group’s policies relating to
external audit, including the policy that
governs how and when employees and
former employees of the Group’s auditors
can be employed by the Company. No
changes were made. The Committee also
reviewed PwC’s Independence letter.
scoring well in the questionnaire and
getting good feedback from the
observations. The Committee was felt to
be operating effectively, having a balanced
agenda, receiving high quality papers and
setting high standards. The challenge, not
untypical in my experience, is making sure
all members of the Committee feel able to
challenge and contribute when the topic
has an element of technical content.
Something for me to continually work on.
I will be available at the AGM to respond to
any questions shareholders may raise on
the Committee’s activities in the year.
In conclusion the Committee agreed that
PwC were independent.
Alan Ferguson
Chairman of the Audit Committee
External auditor reappointment
As noted above, the Committee
recommended to the Board that KPMG be
offered for election at the forthcoming
AGM, based on the audit tender process.
Committee Effectiveness Review
This year the Committee undertook an
externally facilitated effectiveness review
as part of the review of the Board and its
Committees as described on page 46.
The process involved completing a
questionnaire, one to one discussions and
EgonZehnder observing a meeting. The
output was positive with the Committee
56 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
57
Directors’ Report | Corporate Governance
Nomination Committee
Dear fellow shareholder,
On behalf of your Board, and as
Chairman of the Nomination Committee,
I have pleasure in presenting the
Nomination Committee report for the
year ended 31 December 2017.
Main activities and priorities
in 2017
During the year the Committee carried
out a review of the size, structure and
composition of the Board for its current
and future needs, to align with the
Company’s strategy. Whilst considering
succession planning for Board roles, the
Committee focused on the collective
skills and experiences of the Directors. A
number of areas were identified from the
latest two Board evaluations, against
which the Committee assessed existing
Board expertise and experience. The
results of this analysis helped identify
opportunities for the Board (p37). These
opportunities informed the candidate
brief for the recruitment of a new
Non-Executive Director to succeed Nigel
Turner, as he retires from the Board at
the AGM, having served his nine-year
tenure. Looking ahead, an updated
version of this analysis will guide our
recruitment process as we begin to
consider a replacement for Steve
Williams, who will retire in 2019, also
having served nine years on the Board.
The Committee considered which
of the Independent Non-Executive
Directors should succeed Nigel Turner
as Senior Independent Director,
concluding that Alan Ferguson had
a suitable combination of skills and
experience to perform that role. Alan
will become the Senior Independent
Director upon Nigel’s retirement.
The Committee considers diversity on
the Board and throughout the Company
to be a key factor in the Company’s
strategic and financial success. We see
diversity of thought, skills, knowledge,
experience, gender and ethnicity as
critical to the Company’s sustainable
future. Diversity is a central
consideration for all new Board
appointments. It is also vital that we
have diversity throughout the Company,
as this leads directly to more balanced
decision making and helps generate a
diverse talent pipeline for the Executive
Committee, and ultimately the Board.
Our Leadership Development
programmes comprise of employees
from different cultures, backgrounds
and nationalities. The global review of
talent undertaken by the Executive
Committee and the Board aims to
ensure that we will have diverse and
global representation for the Group’s
future leaders.
One recommendation of the Hampton-
Alexander Review, an independent,
business led review supported by the
UK Government, is that all FTSE 350
Boards should target 33% female
membership. Currently, 25% of the
existing members of the Board are
female and we have committed to reach
the Hampton-Alexander target of 33%
in the medium term. We have updated
our Board diversity policy to capture
this commitment; the policy already
contained a commitment to maintain
the existing 25% level of female
representation on the Board. We
ensure that the specification for any
new Director role is equally suited to
applicants of any gender and that no
unlawful discrimination occurs at any
stage in the selection process on any
applicant characteristic. We are
intensifying our efforts across the
Company to increase the number
of women in leadership roles with a
range of initiatives. Examples include
a mentoring programme for high
potential female employees on executive
succession plans, unconscious bias
training amongst management
populations, greater internal promotion
of flexible working approaches and
‘female friendly’ job adverts and
gender balanced shortlists in our
recruitment processes.
Report of the
Nomination Committee
for the year ended
31 December 2017
The Committee considers
diversity on the Board and
throughout the Company
to be a key factor in the
Company’s strategic and
financial success.”
Anita Frew
Chairman of the Nomination Committee
Members and attendance
(eligibility) at meetings held
during the year ended
31 December 2017
Anita Frew
Chairman
Alan Ferguson
Independent Non-Executive
Steve Foots*
Group Chief Executive
Helena Ganczakowski
Independent Non-Executive
Keith Layden**
Non-Executive
Nigel Turner
Independent Non-Executive
Steve Williams
Independent Non-Executive
3 (3)
3 (3)
2 (2)
3 (3)
2 (2)
3 (3)
3 (3)
* Stood down July 2017, responding to shareholder
expectations
** Joined the Committee upon appointment as a
Non-Executive Director
58 Croda International Plc
Annual Report and Accounts 2017
Looking ahead to 2018
In addition to our routine business,
during the year the Committee will:
→ Oversee the recruitment of a new
Non-Executive Director upon
Nigel Turner’s retirement
→ Monitor the outcome and
consider the effectiveness of
interventions intended to increase
diversity, in particular looking at
the number of women on the
Board and Executive Committee
and in senior roles in the
Company
→ Prepare for Steve Williams’
retirement in 2019 as he
concludes his nine year Board
tenure, focusing on the
opportunity to further diversify
the Board
→ Review and implement the
relevant requirements of the
Financial Reporting Council’s
revised UK Corporate Governance
Code, which is anticipated
following the FRC’s announcement
of its plans and subsequent public
consultation in 2017.
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A copy of our Board diversity policy,
which is regularly reviewed by the Board,
is available at www.croda.com
The Committee considered a talent
succession development profile for each
member of the Executive Committee,
ensuring that a healthy talent pipeline
exists for future Board roles. The
Committee discussed each individual’s
existing strengths, development
opportunities and future development
plan. For those considered potential
Group Chief Executive (CEO) successors,
the development profiles were overlaid
against the Board expertise analysis
described earlier. This allows for the further
focusing of the future development plan
of each of those individuals to ensure that
they bring the right strengths, should they
be appointed to the Board.
The Committee reviewed the time
commitment of the Non-Executive
Directors and was satisfied that all of
the Non-Executive Directors remain
able to commit the required time for the
proper performance of their duties. The
Committee considered and concluded
that, with the exception of Keith Layden,
all Non-Executive Directors continue
to fulfil the criteria of independence.
As Keith was formerly an Executive
Director of the Company, he is not
considered independent.
The Committee also considered
emergency CEO succession, should
the Board need to appoint a temporary
CEO due to unforeseen circumstances.
I will be available at the AGM to respond to
any questions shareholders may raise on
the Committee’s activities.
Anita Frew
Chairman of the Nomination Committee
Responsibilities
The Committee is responsible for
nominating candidates for appointment to
the Board for approval by the Board, and
for succession planning. It evaluates the
balance of skills, knowledge, experience
and diversity on the Board.
Key responsibilities
→ To regularly review the structure, size
and composition, including the skills,
knowledge, experience and diversity, of
the Board and make recommendations
for any changes to the Board
→ To give full consideration to succession
planning for Directors and other senior
Executives, taking into account the
challenges and opportunities facing the
Company and, consequently, what
skills and expertise the Board will need
in the future
→ Where a Board vacancy is identified, to
evaluate the balance of skills, knowledge,
experience and diversity on the Board,
and prepare a description of the role
and capabilities required for the
respective appointment
→ To identify and nominate candidates to
fill Board vacancies, for the approval of
the Board, as and when openings arise
→ To keep the organisation’s leadership
needs, both Executive and Non-
Executive, under review to ensure that
the Company continues to compete
effectively in the marketplace
→ To review annually the time required
from a Non-Executive Director and the
Chairman
→ To make recommendations on
succession planning for the Board.
Detailed responsibilities are set out in the
Committee’s terms of reference, which can
be found at www.croda.com
Croda International Plc
Annual Report and Accounts 2017
59
Directors’ Report | Corporate Governance
Other Committees
The operational management of the
Business is delegated by the Board to the
Group Chief Executive, who uses several
Committees to assist him in this task.
These Committees and their membership
at the date of the Annual Report and
Accounts is shown in the table below.
Group Executive Committee
The Committee meets eight times
a year and is responsible for: developing
and implementing strategy, operational
plans, policies, procedures and
budgets; monitoring operational and
financial performance; assessing and
controlling risk and prioritising and
allocating resources.
Group Finance Committee
The Committee meets every month to
review monthly operating results and
examine capital expenditure projects.
Risk Management Committee
The Committee meets quarterly to evaluate
and propose policies and monitor
processes to control business, operational
and compliance risks faced by the Group,
and to assess emerging risks.
Group SHEQ Steering Committee
The Committee meets quarterly to monitor
progress against the Group safety, health,
environment and quality objectives and
targets, review safety performance and
audits, and determine the requirement for
new or revised SHEQ policies, procedures
and objectives.
Group Ethics Committee
This Committee was set up at the start of
2017 and meets quarterly in support of our
culture of integrity, honesty and openness,
and to promote the importance of ethics
and compliance across the Group and
amongst our supply chain partners.
Routine Business Committee
The Committee comprises the Group
Chief Executive and Group Finance
Director, with the Group General Counsel
and Company Secretary and Group
Financial Controller acting as alternates.
The Committee attends to business of a
routine nature and to the administration
of certain matters, the principles of which
have been agreed by the Board or the
Group Executive Committee.
Group
Executive
Committee
•
•
•
•
•
•
•
•
•
Risk
Management
Committee
Group
Finance
Committee
•
•
Group SHEQ
Steering
Committee
•
•
•
•
•
•
•
•
•
•
•
Group
Ethics
Committee
Routine
Business
Committee
•
•
•
•
•
•
•
•
Committee membership
(as at the date of this report)
Steve Foots
Stuart Arnott
Sandra Breene
Tom Brophy
Group Chief Executive
President Global Operations
President Personal Care
Group General Counsel and
Company Secretary
President Life Sciences
Nick Challoner
Anthony Fitzpatrick President Corporate Development
Maarten Heybroek President Performance Technologies
Jez Maiden
Graham Myers
& Industrial Chemicals
Group Finance Director
Group Financial Controller
• Chairman
• Member
60 Croda International Plc
Annual Report and Accounts 2017
Remuneration Report
Report of the
Remuneration Committee
for the year ended
31 December 2017
Keeping in mind our One Croda
Culture, Executive Directors,
Executive Committee members
and other senior leaders all
share the same performance
metrics for annual bonus and
Performance Share Plan
schemes. We believe that this
focuses everyone on working
together to provide the best
for our customers and in turn
for our shareholders.”
Steve Williams
Chairman of the Remuneration Committee
Chairman’s Letter ...............................................................61
Remuneration at a glance ...........................................63
Summary and feedback from
Remuneration Policy adopted 2017 ..................64
Report of the Remuneration Committee
for year ending 2017 .........................................................66
Main components of the
Remuneration Policy ........................................................76
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Chairman’s Letter
On behalf of your Board, and as Chair
of the Remuneration Committee, I have
pleasure in presenting the Directors’
Remuneration Report for the year ended
31 December 2017.
The Committee believes that the
properly chosen remuneration policies
can and do aid the Group. First they
support the successful achievement of
our business objectives and second they
reward only those actions that result in
sustainable growth.
Last year we submitted a new
remuneration policy to all our shareholders
and it was adopted without amendment.
This year, we are making only one change
to the operation of that policy. Responding
to developing shareholder expectations,
we will be aligning the pension provisions
for future Executive Directors with those
of other employee members of the UK
pension scheme.
Also this year we have sought to simplify
the presentation of our Remuneration
Report. This has been done both to aid
understanding and provide greater clarity
for our shareholders. I hope you agree that
it is an improvement and one that we hope
to build upon.
We strongly believe that pay should be
aligned to company performance and the
delivery of our strategy. During 2017, we
made progress against each of the three
areas of our strategy; delivering consistent
top and bottom line growth, increasing
the proportion of protected innovation
and accelerating the capture of new
sustainable technologies.
Let me now summarise how our policy
aligns with our key business objectives and
how we have responded to shareholder
feedback. I will also provide a summary of
the remuneration out-turns for 2017 and
look forward to 2018.
Alignment to key strategic
objectives
The objectives of the business have
remained constant over a number of years
– delivering growth, driving innovation and
providing sustainable solutions to meet our
customers’ needs. In addition, we consider
our culture to be as important as our
strategy, and therefore we believe it is
important to keep our cultural values in
mind when assessing and operating our
remuneration policy.
Delivering growth – is an objective that is
aligned with our performance measures
and targets. Our annual bonus targets are
based on a single operating profit metric
with the principal requirement that no
bonus can be paid unless and until the
previous year’s income is exceeded. For
our longer term Performance Share Plan
(PSP), 40% of the award is based on
Earnings Per Share (EPS) growth, and
40% is based on performance against a
bespoke Total Shareholder Return group,
of our most relevant competitors.
Driving Innovation – is an objective
that is directly aligned through the
introduction in 2017 of a new and
challenging PSP target relating to the
introduction of New and Protected
Products (NPP) – products upon which
our future growth depends. 20% of the
total award is based on this metric.
Sustainable solutions are a key
component of our growth plans. We are
an industry leader in using sustainable
materials and processes to deliver
value for our customers. We consider
progress against our sustainability
metrics, specifically safety, health and
environment, as a key underpin for both
our annual and long term incentive plans.
We look at rewards holistically, which
means that the Committee must
satisfy itself, each year, that other
measures of corporate performance
have not been sacrificed to achieve a
result against our primary incentive plan
performance measures.
Keeping in mind our one Croda culture,
Executive Directors, Executive Committee
members and other senior leaders all
share the same performance metrics
for annual bonus and PSP schemes.
We believe that this focuses everyone
on working together to provide the best
for our customers and in turn, for
our shareholders.
Responding to shareholder
feedback and expectations
At the 2017 Annual General Meeting
(AGM) we received support from 86%
of our shareholders. Whilst the policy
received a strongly positive vote, we
recognised that some shareholders
withheld their support and a key issue for
them was a change we made to pensions
in 2016. We continued a dialogue with
shareholders following the AGM and have
changed our pension policy for new
Croda International Plc
Annual Report and Accounts 2017
61
Directors’ Report | Remuneration Report | Chairman’s Letter
Executive Directors and indeed new
members of the Executive Committee.
In future the implementation of our pension
policy for new Executive Directors and
Members of the Executive Committee
will be wholly consistent with that of our
general UK pension scheme members.
Thus, going forward for any future new
Executive Directors and members of the
Executive Committee, the cash supplement
element of their pension will be 15% of
base salary.
Remuneration outturn for 2017
This year the Group has delivered another
strong performance; with sales increasing
by 10.4% to £1,373.1m and operating profit
by 6.9% to £318.9m, on a constant
currency basis. This strong performance
has resulted in a bonus payment of 78.39%
of the maximum potential for 2017.
The annual bonus is subject to a safety,
health and environment underpin and this
received explicit consideration by the
Committee. I am pleased to confirm that
health, safety and environment performance
across the Group was good and in line
with our internal objectives. Under our new
performance framework, the Committee
also specifically considered Return on
Invested Capital (ROIC), as part of the
general financial underpin, before
approving bonus payments. Again I am
pleased to say that the Company target
of maintaining ROIC at two to three times
weighted average cost of capital was met
in 2017.
The Remuneration Committee year
With regard to longer term incentives, 2017
was the year in which grants made in 2015
under the PSP reached the conclusion of
the three year performance period. As
you will read in the following pages, these
programmes required TSR and EPS
targets to be met in the years from 2015 to
2017 before any vesting could take place.
Over the performance period we delivered
a three year TSR of 87.5% which placed
our performance in the top quartile against
our FTSE 350 comparator group, which
was the relevant comparator for grants
under the old policy. This results in 100%
of this part of the award vesting. EPS
growth over the performance period was
43%, resulting in 100% of this part of the
award vesting. Therefore, overall vesting
will be at 100% of the total award.
It is the Committee’s view that these
awards are consistent with and reflective
of the overall success of the business in
the last three years.
Salaries for 2018
In 2018 the general increase set for
the UK workforce was 3% and this level
of increase was also given to the
Executive Directors.
Sharing success with our employees
We have a high take up for our Sharesave.
Indeed around 83% of our UK workforce
participated in this plan and therefore share
in rewards enjoyed by all shareholders. For
example, an employee saving £250 per
month in the 2014 Sharesave plan would
have been awarded 510 shares; if they
chose to sell those shares today they
would make in excess of £13,000 profit
based on recent share price.
New remuneration advisers
We began this year with a change of
advisers to the Remuneration Committee.
I would like to welcome Deloitte to the role
and to thank Korn Ferry and Aon New
Bridge Street for their support over the
last few years.
Looking ahead to 2018
With the exception to the change to
the application of our policy described
earlier, your Committee does not propose
to make any further changes in 2018.
Targets have been set in line with 2017,
and we are confident that the current
policy will serve us well in the coming
year. We will of course continue our
dialogue with shareholders and are
committed to ensuring that our
remuneration policies reflect the changing
expectations of shareholders,
stakeholders and society at large.
Yours sincerely,
Steve Williams
Chairman of the Remuneration
Committee
February 2017
York, UK
April 2017
York, UK
October 2017
Snaith, UK
→ Considered feedback from the shareholder consultation exercise
→ Reviewed the draft Director Remuneration Report
→ Approved the calculation for 2016 annual bonus award for payment in March 2017
→ Approved the vesting outcome for the 2014 Performance Share Plan (PSP) Awards
→ Approved the granting of PSP Awards for 2017
→ Agreed leaving arrangements for the Chief Technology Officer
→ Reviewed update on ABI headroom limits as they apply to the Business.
→ Gave authority for UK employees to join the UK Sharesave Scheme and non-UK employees to join the International
Scheme
→ Agreed the tender process to appoint a new Independent Adviser.
→ Appointed a new Independent Adviser
→ Considered and reviewed remuneration trends
→ Agreed a change to future pension contributions for Executive Directors and Executive Committee
→ Reviewed the updated Committee’s Terms of Reference
→ Agreed dividend enhancement to the Deferred Bonus Share Plan.
December 2017
York, UK
→ Approved salary increases for Executive Directors, Executive Committee and fee increase for the Chairman
→ Approved the creation of a new Restricted Share scheme to be used below Executive Committee level
→ Reviewed shareholder consultation feedback
→ Reviewed proposed targets for 2018 annual bonus and PSP award.
62 Croda International Plc
Annual Report and Accounts 2017
2017 remuneration at a glance
How we performed in 2017
Adjusted Operating Profit
+ 11.4% to £332.2m
EPS
+ 14.9% to 179.0p
NPP as a % of Group Sales
+ 0.2% to 27.6%
How was our policy implemented in 2017?
Key component
and timeline
Basic salary
and core
benefits
Annual bonus
Deferred
element
of bonus
PSP
Feature
Metrics and results
How we implemented in 2017
Competitive package to
attract and retain high
calibre Executives
N/A
Incentivise delivery of
strategic plan, targets set
in line with Group KPIs
Income growth (see page 66 for
definition of income)
Threshold
2016 actual
Maximum
2016 actual plus 10%
Actual
2016 actual plus 7.83%
78.39% of maximum bonus paid
N/A
Compulsory deferral
of one third of bonus into
shares with three year
holding period to align
with long term business
performance
Chief Executive
Officer
Group Finance
Director
Chief Technology
Officer*
Pay rise of 1% awarded to Executive Directors.
UK workforce was awarded a 2% increase.
£624,316
£430,563
£333,349
£734,102
£421,898
£85,911
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£244,701
deferred
(out of
£734,102)
£140,633
deferred
(out of
£421,898)
£28,637
deferred
(out of
£85,911)
Incentivise execution of the
business strategy over long
term measuring profit and
shareholder value (EPS growth
p.a. is calculated on a simple
average basis over the three
year period).
Vesting of the 2015 PSP award
£1,865,602
£964,949
£581,035
EPS*
TSR
Threshold
6% p.a.
Median
Maximum
12% p.a.
Upper quartile
Actual over
3 years
43%
87.5%
100% of maximum PSP vesting
Shareholding
requirements
Share ownership guideline
to ensure material personal
stake in business
CEO
200% of salary
GFD
CTO
150% of salary
>200%
of target
<150%
of target
>150%
of target
* Represents annual salary – Professor Layden retired as an Executive Director in April 2017
Time horizon key
Single figure remuneration at a glance
1 year
2 years
3 years
O ngoing
Steve Foots (total £3,430,462)
Jez Maiden (total £1,953,230)
Keith Layden (total £864,874)†
† Includes all earnings in 2017 as an Executive Director and Non-Executive Director
0%
20%
40%
60%
80%
100%
Salary
Benefits
Pension (incl. supplement)
Bonus
LTIPs
Other
Croda International Plc
Annual Report and Accounts 2017
63
Directors’ Report | Remuneration Report
Summary and Feedback
Remuneration Policy
adopted 2017
An updated Remuneration Policy was
presented and approved by shareholders
at the 2017 AGM and will operate until the
AGM in 2020. Changes to the Policy
were minimised and the Committee
believes that the changes that were made
are right for the business, reflect the values
of the organisation and remain reasonable
and proportionate.
Objectives of the policy
The Committee spent several months
considering the effectiveness of the
previous policy and any potential changes
for the future. This review was completed
with the following five principal objectives in
mind:
1. To achieve the closest possible
alignment with the Company’s strategy
2. To raise the profile of performance and
to ensure that it is judged against true
business competition
3. To ensure that the policy properly
reflects the various concerns of
shareholders as to structure and
metrics
4. To ensure that year by year target
setting sets truly stretching ambitions
and that the scale of reward is
proportionate
5. The Committee’s method of operation
will be flexible and dynamic taking
account of external changes and
business performance
Summary of policy
Salary
Set taking into account an individual’s responsibilities, performance and experience, as well as external factors, pay
and employment conditions elsewhere in the Group.
Annual Bonus
Maximum annual bonus opportunities:
→ Group Chief Executive 150% of salary
→ Group Finance Director 125% of salary
Income growth targets, with no bonus payable until the previous year’s income is exceeded. General financial and
safety, health and environmental underpins apply.
One third deferred for three years.
Malus and clawback provisions apply.
Maximum performance share plan award:
→ Group Chief Executive 200% of salary
→ Group Finance Director 150% of salary
Awards based on EPS, Relative TSR and NPP. Subject to satisfactory underlying financial performance of the Group.
Three year performance period with an additional two year holding period.
Malus and clawback provisions apply.
Pension benefits are either a capped career averaged defined benefit pension plan with a cash supplement above
the cap, or a cash supplement.
Cash allowance of up to 25% of salary, for future appointments this will be reduced to up to 15% of salary.
Typical other benefits include company car, private fuel allowance, private health insurance and other insured
benefits.
Shareholding guidelines apply.
Performance
Share Plan
Pension and
benefits
Shareholding
guidelines
Changes to the application of
Remuneration Policy effective 2018
In direct response to shareholder
concerns, the Committee has agreed
that for all future Executive Director or
Executive Committee appointments the
cash supplement element of their pension
will be 15% of base salary in line with the
general population.
Consultation with shareholders
Prior to the 2017 AGM and also afterwards
the Committee Chairman supported by the
Group General Counsel and Group Human
Resources Director consulted directly with
shareholders about the new Remuneration
Policy; in all nearly 20% of the total
shareholders were talked to. These
discussions were open, frank and often
wide ranging. As a direct result of this
consultation, changes to the pension
policy were approved for new appointments,
the Board Chairman, Anita Frew, stood
down from the Remuneration Committee,
and the Committee is looking at ways to
incorporate wider sustainability metrics into
the PSP and bonus underpins. Throughout
this useful consultation exercise we were
asked how the new policy relates to the
business strategy, below is a summary
of this alignment.
A summary of the policy can be found on
pages 76 to 77.
How our Remuneration Policy
links to strategy
Delivering both top and bottom line growth
is critical to our business success.
Therefore we reward increases in profit
over prior year within our bonus plan.
Longer term growth is measured and
rewarded through the EPS and TSR
metrics within the PSP; the general
financial underpin ensures that the
Remuneration Committee can use its
discretion to reduce payments if profit
growth has been achieved at the expense
of other financial measures.
Driving innovation is the key differentiator
between ourselves and our peers, making
us the preferred supplier for our customers.
We reward success in this area directly
through the New and Protected Products
(NPP) metric in the PSP but we also
recognise that sustained EPS growth can
only come about through relentless
innovation and the creation of new
ingredients for our customers.
We are industry leaders in providing
sustainable solutions for our customers
and innovation in sustainable products is
central to our long term growth. Many of
our customers are well known brands that
have a direct connection to consumers
who expect branded products to be
made using sustainable ingredients.
Our customers rely on the integrity of
our ingredients to retain their market
position. Therefore the EPS and NPP
metric within the PSP, by measuring long
term growth and innovation, drives our
sustainability agenda. A very direct
connection to sustainability is also
rewarded within the annual bonus plan
through the provision of a safety, health
and environment underpin.
We are proud of our culture at Croda and
believe sustaining this culture is key to our
ongoing success. One of the principal
pillars of our culture is ‘One Croda’
coupled with a strong sense of fairness
and transparency, therefore we have the
same simple bonus metric for the top
400 employees within Croda; profit has
to increase over prior year for any bonus
to be paid. Another prime element of our
culture, as well as our strategy, is creativity
and innovation which as discussed is
supported by our PSP metric related
to NPP.
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Delivering
growth
Driving
innovation
Sustainable
solutions
One Croda
culture
Long term
shareholder return
How our Remuneration
practices support
our strategy
Bonus
Profit
Long term
incentive
plan
EPS
TSR
NPP
Underpins
Safety, health and
environment
General financial
Other
features
Holding periods
& deferrals
Shareholding
requirements
64 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
65
Directors’ Remuneration for the year ending 2018
Key component
Implementation in 2018
Key component
Implementation in 2018
Basic salary
→ Executive Directors’ base salaries were reviewed during the final
quarter of the financial year ending 31 December 2017. Salaries for
2018 are as follows:
Performance
Share Plan
Directors’ Report | Remuneration Report | Annual Report on Remuneration
Report of the
Remuneration Committee
for the year ended
31 December 2017
In this section
Directors’ Remuneration for the
year ending 2018 ....................................................................66
Directors Remuneration for the
year ending 2017 ...................................................................68
Pension ...........................................................................................70
Keith Layden Retirement .................................................70
Payment for Cessation of Office ...............................71
Payments to past Directors ..........................................71
Share Interests..........................................................................71
Ten year Remuneration Figures
for Group Chief Executive...............................................71
Chairman and other Non-Executive
Directors’ remuneration ...................................................71
Non-Executive Director Remuneration .............72
Performance Graph ............................................................72
Service Contracts and Outside Interests .........72
Wider Employee Context of Reward ....................73
Percentage change in
Remuneration Levels ...........................................................74
Relative importance of the spend on pay ..........74
Remuneration Committee and Advisers ...........74
Statement of Voting ..............................................................75
66 Croda International Plc
Annual Report and Accounts 2017
Salary at
Jan 2018
Salary at
Jan 2017
Steve Foots
Jez Maiden
£643,045
£443,480
£624,316
£430,563
Increase
3%
3%
→ UK based employees will be awarded an increase of 3% in 2018.
Commentary
→ The Committee considered each individual’s progression in
their role as well as their responsibilities, performance, skills and
experience.
→ The Committee also took into account the wider pay levels and salary
increases being proposed across the Group as a whole.
Other benefits
→ Other benefits such as company cars or car allowances, fuel
allowance and health benefits are made available to Executive
Directors.
Performance
related
annual bonus
→ In 2018, award levels will be as follows:
Steve Foots
150% of salary
Jez Maiden
125% of salary
→ The targets for 2018 are set out below:
Level of award
Threshold
Income*
At least equivalent
to 2017 actual
Maximum
2017 actual plus 10%
% of bonus payable
0%
100%
* Income growth is the growth in underlying profitability (defined for bonus purposes as
Group EBITDA for continuing operations before exceptional items and any charges or
credits under IFRS2 share based payments) less a notional interest charge on working
capital employed during the year. Income is measured after providing for the cost of
bonuses on a constant currency basis.
→ When determining bonus outcomes the Committee will take health,
safety and environmental performance into consideration and may
reduce the bonus awards if it considers it appropriate.
→ One third of any bonus paid will be deferred into shares for a three
year period.
→ Malus and clawback provisions apply.
→ Full retrospective disclosure will be made.
Commentary
→ No change to maximum awards or performance measures from
last year.
→ The Committee remains comfortable that the structure of the
annual bonus does not encourage inappropriate risk taking and
that the mandatory deferral of one third of bonus into shares provides
clear alignment with shareholders and fosters a longer term link
between annual performance and reward.
→ The Committee considers the targets set for 2018 to be at least
as demanding as in previous years and were set after taking
due account of the Company’s commercial circumstances and
inflationary expectations.
→ In 2018, award levels will be as follows:
Steve Foots
200% of salary
Jez Maiden
150% of salary
→ The targets for the 2018 award are set out below:
Performance measures
(weighting)
Relative TSR1 (40%)
EPS growth2 (40%)
NPP (20%)
Threshold
vesting
Median
5% p.a.
Maximum
vesting
Upper quartile
11% p.a.
Target vesting for NPP sales
growth to be at least twice non-NPP
sales, subject to a minimum average of
5% growth per year and overall positive
Group profit growth
1 TSR peer group constituents: AkzoNobel, Albemarle, Arkema, Ashland, BASF, Clariant,
Koninklijke DSM, Eastman Chemicals, Elementis, Evonik Industries, Givaudan,
Johnson Matthey, Kemira, Lanxess, Novozymes, Solvay, Symrise, Synthomer, Victrex.
2 EPS growth p.a. is calculated on a simple average basis over the three year period and
therefore growth of 33% or more over three years is required for maximum vesting.
Commentary
→ No change to maximum awards or performance measures
from last year.
→ Awards are also subject to a general finance underpin, the Committee
may consider such things as management of ROIC and cash.
→ An additional two-year holding period will apply for any shares
vesting.
→ Malus and clawback provisions apply.
→ Performance period 01.01.18 to 31.12.20.
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Full retrospective disclosure of the targets and actual performance will be provided in
next year’s Annual Report on Remuneration.
EPS vesting schedule
g 100
n
i
t
s
e
v
t
n
e
m
e
e
S
P
E
l
f
o
%
80
60
40
20
0
1%
3%
5%
TSR vesting schedule
g
n
i
t
s
e
v
t
n
e
m
e
e
R
S
T
l
f
o
%
100
80
60
40
20
0
25
7%
Adjusted EPS growth (p.a.)
11%
9%
13%
15%
17%
19%
50
75
100
Percentile ranking %
Croda International Plc
Annual Report and Accounts 2017
67
Directors’ Report | Remuneration Report | Report of the Remuneration Committee for the year ended 31 December 2017
Directors’ Remuneration for the year ending 2017
Elements of remuneration
Executive Directors’ Remuneration
Executive Director
Steve Foots
Jez Maiden
Keith Layden7
Total 2017
Total 2016
2017
2016
2017
2016
2017
2016
Salaries
and fees¹
£
624,316
618,135
430,563
426,300
111,116
330,049
1,165,995
1,374,484
Benefits2
£
31,650
30,302
28,179
27,377
7,630
20,061
67,459
77,740
Pension3
supplement
£
146,704
132,276
107,641
101,246
27,779
78,387
282,124
311,909
Long term
Incentives5A-B
Annual
bonus
£
Pension4
£
28,088
35,884
–
–
–
–
£
734,102 1,865,602
812,204
772,669
964,949
421,898
–
426,300
581,035
85,911
296,813
330,049
28,088 1,241,911 3,411,586
1,109,017
35,884
1,529,018
Other6
Total
£
£
– 3,430,462
2,971 2,404,441
– 1,953,230
985,066
3,843
11,710
825,181
1,581 1,056,940
11,710 6,208,873
8,395 4,446,447
1 Steve Foots’ salary before salary sacrifice pension contributions of £3,000
2 Benefits include benefit-in-kind for company car or cash allowance, benefit-in-kind for private medical insurance and private fuel allowance
3 Represents the 20% cash supplement paid to Jez Maiden and Keith Layden and the 20% supplement paid to Steve Foots in relation to benefits provided above the salary pension cap from
1 January to 31 March 2016. The cash supplements increased to 25% with the introduction of the CARE scheme on 1 April 2016
4 For defined benefit pensions the amount included is the additional value accrued during the year, calculated using HMRC’s methodology for the purposes of income tax using a multiplier of 20
5A The PSP awards granted in March 2015 reached the end of their performance period on 31 December 2017. The awards will vest at 100% (see below). The values included in the table above are
based on the three month average price to 31 December 2017 of 41.482. These values will be updated in next year’s Annual Report based on the share price at vesting which will take place on
5 March 2018.
5B The 2016 PSP award has been updated to reflect the actual share price at vesting of 3923p
6 Holiday pay and fractional payment relating to SIP
7 Keith Layden retired as an Executive Director on 30 April 2017. Details on the treatment of his outstanding share awards is set out on page 70. Following his retirement as an Executive Director he
was appointed as a Non-Executive Director, remuneration in respect of these services is included in the table on page 72.
Annual bonus
The 2017 bonuses for Executive Directors were calculated by reference to the amount by which the income for the year exceeded the
income for 2016 (the ‘base income’). Bonuses for 2017 are payable against a graduated scale once the 2017 income exceeds the base
income with bonus targets set, and performance measured, based on constant currency actual exchange rates.
Income
Threshold target
£319m
(last year’s
income)
Maximum target
£350.9m
(10% above the
threshold target)
Actual
Bonus outcome
(% of maximum)
£343.9m
78.39%
The Remuneration Committee has discretion to reduce (including to zero) the amount of any payment under the scheme if it considers
the safety, health or environment (SHE) performance is in serious non-compliance with the Croda SHE policy statement, document of
minimum standards. In addition the Committee can also reduce any payment (including to zero) if it considers the underlying business
performance of the Company is not sufficient to support the payment of any bonus.
PSP
PSP awards vesting in March 2018
The PSP awards granted in March 2015 reached the end of their three-year performance period on 31 December 2017.
Measure
Weighting
Threshold
Relative TSR versus FTSE 350 constituents
Adjusted annual average EPS growth over 3 years*
50%
50%
Median
(50th percentile)
6% pa
Maximum
Upper quartile
(75th percentile)
12% pa
Actual
Performance
87.5%
percentile%
43%
Out-turn
(% of max element)
100%
100%
* EPS growth p.a. is calculated on a simple average basis over the three year period; and therefore growth of 36% or more over three years is required for maximum vesting.
As well as considering the EPS and TSR targets under the rules of the PSP, the Remuneration Committee are obliged to consider the
underlying performance of the Company over the performance period.
The forecast vesting value of the awards made in March 2015, subject to the above performance targets, is included in the 2017 single
figure table above.
Gains made on exercise of share options and PSPs
The gains are calculated according to the market price of Croda International Plc ordinary shares of 10.35143p each on the date of
exercise, although the shares may have been retained.
Executive Director
Steve Foots
Keith Layden
Exercise date
12 May 2017
12 May 2017
Shares exercised
20,701
7,565
Scheme
PSP
PSP
Exercise price
0
0
Market price
3923.5p
3923.5p
Gain (before tax)
£812,203.74
£296,812.78
PSP awards granted in 2017
Directors were eligible to receive PSP awards up to a value of 200% of salary at grant. The PSP awards granted on 9 March 2017 were
as follows:
Executive Director
Steve Foots
Jez Maiden
Number of PSP
shares awarded
34,880
18,041
Basis of
award granted
(% of salary)
200%
150%
Face/maximum
value of awards at
grant date1
1,248,599
645,814
% of award vesting
at threshold
(maximum)
25% (100%)
25% (100%)
Performance
period
01.01.17 – 31.12.19
01.01.17 – 31.12.19
1 Face value/maximum value of award is calculated based on a share price of £35.797, being the average mid-market share price of the three dealing days prior to the date of grant
The 2017 PSP awards, are subject to a performance condition which is split into three parts; 40% EPS, 40% TSR and 20% NPP.
Vesting will take place on a sliding scale.
All employee share plans
Executive Directors are invited to participate in the HMRC tax-approved UK Sharesave Scheme and the Croda Share Incentive Plan
(SIP) in line with, and on the same terms as, the wider UK workforce.
SIP
Details of shares purchased and awarded to Executive Directors under the SIP are shown in the table below. A brief description of the
SIP is set out in note 22 on page 124.
Executive Director
Steve Foots
Jez Maiden1
Keith Laydon
SIP shares
held 01.01.17
5,623
100
5,623
Partnership shares
acquired in year
47
48
17
Matching shares
awarded in year
47
48
17
Total shares
held 31.12.17*
5,717
199
–
SIP shares that became
unrestricted in the year
112
–
5,657
Total unrestricted SIP
shares held at 31.12.17
5,239
–
–
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1 Jez Maiden also had three additional shares acquired through the Dividend Reinvestment Plan
Sharesave
Details of awards made under the UK Sharesave scheme are set out below:
Date of grant
Steve Foots
18 September 2014
17 September 2015
16 September 2016
13 September 2017
Jez Maiden
17 September 2015
16 September 2016
Earliest
exercise
date
Expiry
date
Face
value*
Exercise
price
Number at
01.01.17
( shares)
Granted
in year
Exercised
in year
Number at
31.12.17
(shares)
1 November 2017
1 November 2018
1 November 2019
1 November 2020
30 April 2018
30 April 2019
30 April 2020
30 April 2021
£2,247.06
£4,490.29
£6,728.94
£6,725.10
1763p
2232p
2639p
3092p
1 November 2018
1 November 2019
30 April 2019
30 April 2020
£11,239.67
£11,247.89
2232p
2639p
102
161
204
–
467
403
341
744
–
–
–
174
174
–
–
–
102
161
204
174
641
403
341
744
–
–
During 2017, the highest mid-market price of the Company’s shares was 4413p and the lowest was 3214.5p. The year end closing price was 4424p. The year end mid-market price was 4413.5p.
* Face value is calculated using the market value on the day before the date of grant, multiplied by the number of shares awarded
68 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
69
Directors’ Report | Remuneration Report | Report of the Remuneration Committee for the year ended 31 December 2017
Pension
The pension rights that accrued during the year in line with the policy on such benefits as set out in the Policy Report were as follows:
Payments for cessation of office
There were no payments for loss of office during the year under review.
Defined benefit schemes
Executive Director
Steve Foots
Jez Maiden
Keith Layden
Normal retirement
date under the CPS
14 September 2033
N/A
18 October 2020
Accrued pension
2017
£000
119
0
691
Single remuneration
figure 2017
£000
175
108
28
Single remuneration
figure 2016
£000
168
101
78
Single remuneration figure
excluding supplement
£000
28
0
0
1 Keith Layden started to draw his pension on 19 October 2014.
Note: Members of the CPS have the option to pay voluntary contributions. Neither the contributions nor the resulting benefits are included in this table. During 2017, Steve Foots was paid £146,704
(2016: £132,275), Keith Layden was paid £27,779 (2016: £67,386) and Jez Maiden was paid £107,641 (2016: £101,246) in addition to their basic salary to enable them to make independent provision
for their retirement.
Croda has a number of different pension plans in the countries in which we operate. Pension entitlements for Company Executives are
tailored to local market practice, length of service and the participant’s age.
Following a review of pension provision in the UK conducted in 2014, a Career Average Revalued Earnings scheme was introduced with
a cap applied to pension benefits. The plan was rolled out in 2016 and at this time, the cap was set at £65,000; and is increased each
year in line with inflation and from April 2018 will be £67,620.
Employees who earn in excess of the pension cap receive a pension supplement. For current Executive Directors this supplement is up
to 25% of salary; however from 2018, any new appointments to the role of Executive Director or to the Executive Committee will receive
a supplement of up to 15% in line with the general population.
Where employees elect not to join the pension plan, cash is paid in lieu of a Company pension contribution. Again, for current Executive
Directors this is set at 25% of salary; however from 2018, any new appointments to the role of Executive Director or to the Executive
Committee will receive a supplement of 15% in line with the general population.
Steve Foots’ pension provision
Steve Foots accrues pension benefits under the Croda Pension Scheme (CPS) with an accrual rate of 1/60th and an entitlement to retire
at age 60. From 6 April 2011 onwards, pension benefits accruing are based on a capped salary. This cap was £187,500 until April 2014
at which point it reduced to £150,000, and due to annual allowance regulations and changes to the pension scheme, reduced to £37,500
in April 2016 (reduced from the scheme cap of £65,650 due to annual allowance regulations). If Steve Foots retires before he is 61, a
reduction will be applied to the element of his pension accrued after 6 April 2006. If he retires before the age of 60, a reduction will be
applied to the element of his pension accrued before 6 April 2006, unless in either instance, he is retiring at the Company’s request. In
the event of death, a pension equal to two-thirds of the Director’s pension would become payable to the surviving spouse. Steve Foots’
pension in payment is guaranteed to increase in line with the rate of inflation up to a maximum of 10% per annum for benefits accrued
before 6 April 2006, and in line with inflation up to a maximum of 2.5% per annum for benefits accrued from 6 April 2006 onwards.
Steve Foots is entitled to death-in-service benefits from the CPS. He also receives a pension supplement at 25% of salary above his
personal pension benefit cap.
Jez Maiden’s pension provision
Jez Maiden has elected not to join the CPS and is therefore paid a pension supplement of 25% of salary. He has an agreement with
the Company to provide him with death-in-service benefits outside of the CPS.
Keith Layden’s pension provision
As previously detailed, Keith Layden started to draw his pension under the CPS on 19 October 2014. He can draw this deferred
pension, with Company consent, while continuing in employment. His pension will increase in line with retail price index (RPI) to
a maximum of 10% per annum for pension accrued before April 2006 and a maximum of 2.5% for pension accrued afterwards.
Keith Layden was paid a pension supplement of 25% of salary up until his retirement as an Executive Director in April 2017.
Keith Layden retirement
As announced on 28 February 2017, Keith Layden retired from his role as Chief Technology Officer and Executive Director on 30 April
2017. Keith continued to receive base salary and contractual benefits up to his retirement date at which time these payments and
benefits ceased. In line with the provisions in the relevant plan rules, as a retiree, he was considered to be a good leaver. As a result, he
was eligible to receive a pro-rata annual bonus payment for the period of his employment in 2017 (based on the number of complete
calendar months worked in the relevant year). The payment will be made at the normal time calculated based on the performance targets
tested over the complete financial year. One-third of the bonus earned will be deferred for three years. With regard to his outstanding
shares awards, as a good leaver, these will remain eligible to vest in line with the relevant plan rules. Vesting in connection with Performance
Share Plan awards will be subject to a pro-rata reduction to reflect the proportion of the relevant performance periods for which he was
employed and with performance targets tested at the normal time. The holding period applying to vested share awards will continue to
apply. No PSP awards were made in 2017. No further payments will be made in connection with his retirement.
Payments to past directors
Mike Humphrey, former CEO, was paid £60,000 in 2017 in respect of consultancy services to the business.
Share interests
The interests of the Directors who held office at 31 December 2017 are set out in the table below:
Legally owned1
SIP
31.12.16
31.12.17
PSP
(unvested)
DBSP
(unvested)
Sharesave
(unvested)
Restricted Unrestricted
Total
31.12.17
% of salary held under
shareholding guideline
124,225
3,475
135,177
3,475
121,138
44,616
14,077
7,763
641
744
478
199
5,239
–
276,750
56,797
>200% target
<150% target
2,414
9,655
362
68,141
14,482
11,566
2,414
9,655
370
72,143
14,482
11,824
–
–
–
34,542
–
–
–
–
–
6,011
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,414
9,655
370
112,696
14,482
11,824
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–
–
–
–
–
Executive Director
Steve Foots
Jez Maiden
Non-Executive Director
Alan Ferguson
Anita Frew
Helena Ganczakowski
Keith Layden
Nigel Turner
Steve Williams
1 Including connected persons
There have been no changes in the interests of any Directors between 31 December 2017 and the date of this report, except for the
purchase of 7 partnership shares and 7 matching shares by Steve Foots and Jez Maiden during January and February 2018.
Ten year remuneration figures for Group Chief Executive
The total remuneration figure includes the annual bonus and long term incentive awards which vested based on performance in those
years. The annual bonus and long term incentive award percentages show the payout for each year as a percentage of the maximum.
Total remuneration (£)
Annual bonus (%)
Long term incentives vesting (%)
* Relate to Mike Humphrey
^ Relate to Steve Foots
2009*
2010*
1,943,740 3,224,875
100%
100%
100%
100%
2011*
2012^
4,142,608 1,364,048
28%
100%
100%
100%
2013^
1,427,156
0%
81.8%
2014^
769,414
0%
0%
2015^
2016^
2017^
1,374,046 2,404,441 3,430,462
78.36%
100%
76.38%
0%
100%
42.95%
Chairman and other Non-Executive Directors’ remuneration
The fees paid to the Non-Executive Directors (including for chairmanship of Committees) and to the Senior Independent Director were
reviewed in December 2017 and increased by 3% which was in line with the UK employee population. These changes will take effect
from 1 January 2018. The revised fee structure for the Chairman and other Non-Executive Directors for 2018 is detailed below.
Non-Executive Director
Anita Frew
Alan Ferguson*
Helena Ganczakowski
Keith Layden
Nigel Turner*
Steve Williams*
Position
Chairman
Audit Committee Chairman
Non-Executive Director
Non-Executive Director
Senior Independent Director
Remuneration Committee Chairman
2017 Fee
£238,000
£65,000
£55,000
£55,000
£65,000
£65,000
2018 Fee
£245,140
£66,950
£56,650
£56,650
£66,950
£66,950
* Committee Chairman and the Senior Independent Director receive a supplementary fee of £10,000 in respect of their additional duties.
70 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
71
| Remuneration Report | Report of the Remuneration Committee for the year ended 31 December 2017
Directors’ Report | Remuneration Report | Report of the Remuneration Committee for the year ended 31 December 2017
Non-Executive Directors’ remuneration
The remuneration of Non-Executive Directors for the year ended 31 December 2017 payable by Group companies was as follows:
Non-Executive Directors
The effective dates of the letters of appointment for the Chairman and each Non-Executive Director who served during 2017, are shown
in the table below:
Non-Executive Director
Anita Frew
Nigel Turner
Steve Williams
Alan Ferguson
Helena Ganczakowski
Keith Layden
Total 2017
Total 2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Salaries and fees
£
236,917
225,000
64,917
63,583
64,917
63,833
64,917
63,833
54,917
53,833
36,667
–
523,252
470,082
Benefits1
£
7,295
8,727
4,947
2,651
4,043
3,263
3,215
2,077
6,230
4,370
3,026
–
28,756
21,088
Total
£
244,212
233,727
69,864
66,234
68,960
67,096
68,132
65,910
61,147
58,203
39,693
–
552,008
491,170
)
d
e
s
a
b
e
R
(
n
r
u
t
e
R
l
r
e
d
o
h
e
r
a
h
S
l
a
t
o
T
1,200
1,000
800
600
400
200
0
31/12/2008
31/12/2009
31/12/2010
31/12/2011
31/12/2012
31/12/2013
31/12/2014
31/12/2015
31/12/2016
31/12/2017
Non-Executive Director
Anita Frew
Alan Ferguson
Helena Ganczakowski
Nigel Turner
Steve Williams
Keith Layden
Original appointment date
5 March 2015
1 July 2011
1 February 2014
1 June 2009
1 July 2010
1 May 2017
Expiry date of current term
5 March 2021
30 June 2018
31 January 2020
31 May 2018
30 June 2018
1 May 2020
Wider employee context of reward
When making decisions about Executive remuneration the Committee considers the pay and reward structures across the
business. One of the principles of Croda’s culture is to forge ‘One Croda’. Therefore many of the Remuneration structures that
apply to Executives also apply further in the global organisation:
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Yes
Yes
No – but local
bonus schemes
apply in many
locations
All employees
3,391
Defined benefit plan
No
after 1 yrs service
Yes
1 Other pension arrangements, aligned to local practice and legislation apply to many of our global locations.
2 Sharesave or similar schemes are provided where local security law allow
Employee participation in our SIP and Sharesave plans has remained consistently strong and is driven by our culture of employees
feeling a strong loyalty to the business.
Employee participation in employee share schemes %
1 The benefits relate to Directors undertaking business travel on behalf of Croda and ensuring the Directors are not out of pocket for related tax.
Performance graph
Total shareholder return
Employee group
Executive Directors
Executive Committee
Senior Managers
Number of
employees
Annual bonus based
on operating profit
Yes
Pension (UK only)1
PSP
Yes
SIP
Sharesave2
2
7
400
125% – 150% Defined benefit plan
Defined benefit plan
Defined benefit plan
150% – 200% after 1 yrs service
after 1 yrs service
after 1 yrs service
Yes
Top 60
Yes
Yes
Yes
Croda International
Source: Thomson Reuters Datastream
FTSE 100
FTSE 250
FTSE 350
Service contracts and outside interests
The Executive Directors have service contracts as follows:
Executive Director
Steve Foots
Jez Maiden
Contract date
16 September 2010
9 October 2014
Termination provision
by the Company 12 months
by the Director 6 months
by the Company 12 months
by the Director 6 months
External directorships
Executive Directors are permitted to accept external appointments with the prior approval of the Board. It is normal practice for
Executive Directors to retain fees provided for non-executive roles. Jez Maiden was appointed as a Non-Executive Director of
PZ Cussons on 16 October 2016 and received a fee of £65,382 for 2017.
100
90
80
70
60
50
40
30
20
10
0
2013
2014
2015
2016
2017
UK
Overseas
72 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
73
Directors’ Report | Remuneration Report | Annual Report on Remuneration
The Committee is also considering the
implications of the gender pay gap and
CEO pay ratios. The Committee will
continue to consider these issues over the
coming months and will make specific
recommendations as the data becomes
clear. One initial recommendation that has
been adopted is to sign up for the real
Living Wage accreditation from the Living
Wage foundation. We are pleased to
announce that in February 2018 we gained
accreditation as a Living Wage Employer
from the Living Wage foundation. From
1 January 2018 all directly employed UK
based employees met the minimum real
wage requirement outside of London of
£8.75 per hour. Only a small group of
employees required an increase to meet
this standard, and all regular contractors
will move to this wage during 2018.
The Company, in line with current market
practice, does not actively consult with
employees on Executive remuneration,
however the Group Human Resources
Director updates the Committee
periodically on feedback received on
remuneration practices across the
Group and this again will be a topic of
conversation at the Board during 2018.
Change in remuneration levels %
Salary
Benefits
Bonus
-23.9%
1.6%
1.0%
21.6%
4.4%
-5.0%
-30
-20
-10
0
10
20
30
% change (from 2016 to 2017)
UK employees (ex. Executive Directors)
CEO
Relative importance of the
spend on pay
The chart below shows the movement
in spend on staff costs versus that in
dividends and adjusted profit after tax.
Relative importance of the spend on pay %
Employee remuneration cost1
+7.0%
Dividends2
+9.5%
Adjusted profit after tax3
+12.9%
Remuneration Committee
and advisers
Members and attendance (eligibility)
at meetings held during the year
ended 31 December 2017
Steve Williams
Chairman
Alan Ferguson
Independent Non-Executive
Helena Ganczakowski
Independent Non-Executive
Nigel Turner
Senior Independent
Non-Executive
4 (4)
4 (4)
4 (4)
4 (4)
The Chairman, Anita Frew, stepped
down as a member of the Committee
in October 2017. Anita Frew attended 2 (2)
meetings prior to stepping down from
the Committee.
In addition the Committee invites
individuals to attend meetings to ensure
that decisions are informed and take
account of pay and conditions in the wider
Group. During 2017, invitees included other
Directors and employees of the Group
and the Committee’s advisers (see below),
including Steve Foots (Group Chief
Executive), Jez Maiden (Group Finance
Director), Keith Layden (Non-Executive
Director), Tracy Sheedy (Group HR
Director), and Tom Brophy (Group General
Counsel and Company Secretary).
Percentage change in
remuneration levels
The following chart shows the movement
in the salary, benefits and annual bonus
for the Group Chief Executive between
the current and previous financial year
compared with that of the average UK
employee. The Committee has chosen this
comparator as it feels it provides a more
appropriate reflection of the earnings of the
average worker than the movement in the
Group’s total wage bill, which is distorted
by fluctuations in the number of employees
and variations in wage practices in our
overseas markets.
0
25 50 75 100 125 150 175 200 225 250 275
£m
2017
2016
1 Employee remuneration costs, as stated in the notes to the
Group accounts on page 105. These comprise all amounts
charged against profit in respect of employee remuneration
for the relevant financial year, less redundancy costs and
share-based payments, both of which can vary significantly
from year to year
2 Dividends are the amounts payable in respect of the relevant
financial year
3 Adjusted profit after tax is profit for the relevant year
adjusted for exceptional items, acquisition costs,
amortisation of intangible assets arising on acquisition
and the tax thereon
74 Croda International Plc
Annual Report and Accounts 2017
Responsibilities
The Committee determines and
agrees with the Board the Company’s
remuneration policy and framework.
It determines the remuneration packages
for all Executive Directors and the
Chairman, and recommends and monitors
the level and structure of remuneration
for senior managers.
Key responsibilities:
Summary of key decisions for 2017
→ New Remuneration Policy presented and approved by shareholders at the AGM; main
change was the increase of bonus quantum for Group CEO and Group Finance Director
→ Vesting of 2014 PSP awards; the EPS target representing 50% of the award was not met,
the TSR target vested at 85.9% with the overall award vesting at 42.95%
→ Payment of 2016 annual bonus in March 2017 at 100% of maximum target reflecting
a 12.9% increase in operating profit
→ Granting of 2017 PSP Awards based on 40% EPS, 40% TSR and 20% NPP target
→ Establishing annual bonus target for 2017
→ To determine the Company's
→ Salary of the CEO and Group Finance Director to be increased by 3% effective 1 January
remuneration policy and framework,
taking into account factors which it
deems necessary, including legal and
regulatory requirements
→ To review the ongoing appropriateness
and relevance of the remuneration
policy
→ To determine the total individual
remuneration packages for the
Chairman, each Executive Director,
the Company Secretary and other
members of the Executive
management team as are designated
by the Board from time to time
→ To ensure that no payment or proposed
payment is made that is not consistent
with the remuneration policy most
recently approved by shareholders
→ To select, appoint and set the terms
of reference for any remuneration
consultants who advise the Committee
→ To oversee any major changes in
employee benefit structures throughout
the Group.
Detailed responsibilities are set out in the
Committee’s terms of reference, which can
be found at www.croda.com.
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2018, in line with UK workforce
→ Fee of Chairman also to be increased by 3% effective from 1 January 2018
→ Agreed that Professor Layden would be treated as a good leaver for bonus and PSP
purposes upon his retirement but that no loss of office payments would be made
→ Appointment of Deloitte as the new independent advisers to the Committee
External advisers to the Committee
Korn Ferry Hay Group was retained as the
appointed adviser to the Committee until
October 2017 to provide independent
advice on remuneration policy and
practice. During the Summer of 2017, the
Committee conducted a tendering process
inviting a long list of members of the
Remuneration Consulting Group (RCG) to
participate in the pre-tender process. From
this process, four firms were invited to
present to a sub-group of the Committee
and Deloitte were selected to be the new
advisers from October 2017.
Korn Ferry Hay Group did not have any
connection with the Group other than in
providing advice in relation to Executive
remuneration and Non-Executive fees.
Deloitte also provided overseas tax and
legal advisory services. Both Deloitte and
Korn Ferry Hay Group are signatories to
the Remuneration Consultants Group
Code of Conduct.
The total fees paid to Korn Ferry Hay
Group for its services during the year were
£74,320 (excluding VAT) and the total fees
paid to Deloitte during the year were
£13,600 (excluding VAT).
The Committee regularly reviews the
external adviser relationship and is
comfortable that the advice it is receiving
remains objective and independent.
Statement of voting
At the 2017 AGM, the Directors Remuneration Policy and Directors Remuneration Report
received the following votes from shareholders:
Votes cast in favour
Votes cast against
Total votes cast
Withheld
Remuneration Policy
Annual Report on Remuneration
number of votes
77,434,375
12,253,393
89,687,768
320,236
% of votes
86.34
13.66
100
number of votes
87,511,176
2,369,282
89,880,458
127,546
% of votes
97.36
2.64
100
I will be available at the AGM to respond to any questions shareholders may raise on the
Committee’s activities.
On behalf of the Board
Steve Williams
Chairman of the Remuneration Committee
27 February 2018
Croda International Plc
Annual Report and Accounts 2017
75
Directors’ Report | Remuneration Report | Remuneration Policy
Remuneration Policy
An updated Remuneration Policy was presented and approved by shareholders at the 2017 AGM and will operate until the AGM in 2020.
Changes to the application of Remuneration Policy effective 2018
In direct response to shareholder concerns the Committee has agreed that for all new Executive Director or Executive Committee
appointments the cash supplement element of their pension will be up to 15% of base salary.
Main components of the Remuneration Policy
Link to strategy
Operation
Maximum opportunity
Basic salary
To assist in the recruitment
and retention of high-calibre
executives.
Reviewed annually with increases effective from
1 January.
Salaries may be increased each year in percentage of
salary terms.
Base salaries will be set by the Committee, taking into
account:
→ The performance and experience of the individual
The Committee will be guided by the salary increase
budget set in each region and across the workforce
generally.
concerned
→ Any change in responsibilities
→ Pay and employment conditions elsewhere in the
Group
→ Rates of inflation and market-wide wage increases
across international locations
→ The geographical location of the Executive
→ Rates of pay in international manufacturing and
pan-sector companies of a comparable size and
complexity.
Increases beyond those linked to the region of the
Executive or the workforce as a whole (in percentage of
salary terms) may be awarded in certain circumstances
such as where there is a change in responsibility,
experience or a significant increase in the scale of the role
and/or size, value or complexity of the Group.
The Committee retains the flexibility to set the salary of a
new hire at a discount to the market level initially, and to
implement a series of planned increases in subsequent
years, in order to bring the salary to the desired
positioning, subject to individual performance.
Framework used to assess performance and for the recovery of sums paid
The Committee considers individual salaries at the appropriate Committee meeting each year, taking due account of the factors noted
in operation of the salary policy.
Cost of benefits is not pre-determined and may vary
from year to year based on the cost to the Group.
Benefits
To provide competitive
benefits to act as a retention
mechanism and reward
service.
The Group typically provides the following benefits:
→ Company car (or cash allowance)
→ Private fuel allowance
→ Private health insurance and other insured benefits
→ Other ancillary benefits, including relocation
expenses/arrangements as required.
Additional benefits might be provided from time to time
(for example in circumstances where an Executive
Director is recruited from overseas). The Committee will
consider whether the payment of any additional benefits
is appropriate and in line with market practice when
determining whether they are paid.
Framework used to assess performance and for the recovery of sums paid
None.
76 Croda International Plc
Annual Report and Accounts 2017
Link to strategy
Operation
Maximum opportunity
Performance related
bonus
To incentivise and reward
delivery of the Group’s key
annual objectives.
To contribute to longer term
alignment with shareholders
Compulsory deferral of one third of any bonus paid into
shares for three years through the Deferred Bonus Share
Plan (DBSP).
The Committee has the discretion to permit DBSP
awards to benefit from dividends on shares that vest.
The balance of the bonus is paid in cash.
Group Chief Executive: 150% of salary
Group Finance Director: 125% of salary
Other Executive Directors: 100% of salary
Framework used to assess performance and for the recovery of sums paid
Details of the performance measures used for the current year and targets set for the year under review and performance against them is provided
in the Annual Report on Remuneration. Bonus will be based on a challenging range of financial targets set in line with the Group’s KPIs (for example
income growth targets). The Committee has the flexibility to include, for a minority of the bonus, targets related to the Group’s other KPIs where this
is considered appropriate. For each objective set, bonus starts to accrue once the threshold target is met (0% payable) rising on a graduated scale
to 100% for out-performance. The Committee takes health, safety and environmental performance into consideration when determining the actual
overall level of individual bonus payments and it may reduce the bonus awards if it considers it appropriate to do so. Bonuses paid are subject to
provisions that enable the Committee to recover value overpaid through the withholding of variable pay previously earned or granted (malus) or
through requesting a payment from an individual (claw back) in the event of a material misstatement of results or serious misconduct. The provisions
will operate for a three-year period following the date on which the bonus is paid.
Performance Share Plan
(PSP)
To incentivise and reward
the execution of business
strategy over the longer term
The PSP provides for awards of free shares (ie either
conditional shares or nil-cost options) normally made
annually which vest after three years subject to
continued service and the achievement of challenging
performance conditions.
Normal maximum opportunity of 200% of salary.
In exceptional circumstances (eg recruitment), awards
may be granted up to 300% of salary to compensate for
value forfeited from a previous employer.
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To reward sustained growth
in (i) profit and (ii) shareholder
value
Shares (on an after tax basis) are subject to a two year
post-vesting holding period.
The Committee has the discretion when awards are
granted, to permit awards to benefit from the dividends
paid on shares that vest.
Framework used to assess performance and for the recovery of sums paid
Granted subject to a blend of challenging financial (eg EPS), shareholder return (eg relative TSR) and strategic targets (eg NPP).
Targets will normally be tested over three years.
In relation to financial targets (eg EPS growth and TSR) 25% of awards subject to such targets will vest for threshold performance with a graduated
scale operating through to full vesting for equalling, or exceeding, the maximum performance targets (no awards vest for performance below
threshold). In relation to strategic targets, the structure of the target will vary based on the nature of target set (i.e it will not always be practicable to set
such targets using a graduated scale and so vesting may take place in full for strategic targets if specific criteria are met in full). Vesting is also
dependent on satisfactory underlying financial performance of the Group over the performance period and subject to potential claw back in the event
of a material misstatement of results or serious misconduct. The claw back provisions will operate for a three year period following the date on which
the awards vest.
All-employee share plans
To encourage long term
shareholding in the
Company
To provide all employees
with the opportunity to
become shareholders in the
Company on similar terms
Periodic invitations are made to participate in the Group’s
Sharesave Plan and Share Incentive Plan.
Shares acquired through these arrangements have
significant tax benefits in the UK subject to satisfying
certain HMRC requirements.
The plans can only operate on an all-employee basis.
The plans operate on similar terms but on a non-tax
favoured basis outside the UK as appropriate.
Framework used to assess performance and for the recovery of sums paid
There are no post-grant performance targets applicable to these awards.
Pension
To provide competitive long
term retirement benefits
To act as a retention
mechanism and reward
service
Pension benefits are typically provided either through
(i) participation in the UK’s defined benefit pension plan
with a cash supplement provided above any pension
salary cap or (ii) a cash supplement provided in lieu of
pension.
Only basic salary is pensionable.
Framework used to assess performance and for the recovery of sums paid
None.
The maximum participation level (for UK-based
employees) is as per HMRC limits (see Annual Report on
Remuneration for current maximum limits).
Career Average Revalued Earnings Scheme with up to
1/60th accrual up to a capped salary currently set at up
to £65,650 plus cash allowance of up to 15% of salary
above the cap. The salary cap may be reduced due to
annual allowance regulations.
or
Cash allowance of up to 15% of salary.
(A cap of 25% applies to Executive Directors appointed
prior to 2018)
Croda International Plc
Annual Report and Accounts 2017
77
Directors’ Report
Other Disclosures
Pages 36 to 81 inclusive, together with
the sections of the Annual Report and
Accounts incorporated by reference,
constitute a Directors’ Report that has
been drawn up and presented in
accordance with applicable English
company law; the liabilities of the Directors
in connection with that report are subject
to the limitations and restrictions provided
by that law.
Research and development
Research and development activities are
undertaken with the prospect of gaining
new scientific or technical knowledge
and understanding.
Dividends
The Directors are recommending a final
dividend of 46p per share (2016: 41.25p). If
approved by shareholders, total dividends
for the year will amount to 81p per share
(2016: 74p). Details of dividends are shown
in note 8 on page 104; details of the
Company’s Dividend Reinvestment Plan
can be found on page 141. The Company
has established various Employee Benefit
Trusts (EBTs) in connection with the
obligation to satisfy future share awards
under employee share incentive schemes.
The trustees of the EBTs have waived their
rights to receive dividends on certain
Ordinary Shares of the Company held in
the EBTs. Such waivers represent less than
1% of the total dividend payable on the
Company’s Ordinary Shares. Further
details of the EBTs can be found in note 24
on page 124.
Directors
The Company’s Articles of Association
(Articles) give the Directors power to
appoint and replace Directors. Under the
terms of reference of the Nomination
Committee, any appointment must be
recommended by the Nomination
Committee for approval by the Board of
Directors. The present Directors of the
Company are shown on pages 36 and 37.
In line with the UK Corporate Governance
Code, each Director will be standing for
re-election at the AGM, with the exception
of Nigel Turner, who will retire at the AGM.
Details of the Directors’ service contracts
are given in the Directors’ Remuneration
Report on page 72.
Apart from the share option schemes, long
term incentive schemes and service
contracts, no Director had any beneficial
interest in any contract to which the
Company or a subsidiary was a party
during the year.
A statement indicating the beneficial and
non-beneficial interests of the Directors in
the share capital of the Company, including
share options, is shown in the Directors’
Remuneration Report on page 71.
The Directors are responsible for managing
the business of the Company and may
exercise all the powers of the Company
subject to the provisions of relevant
statutes, the Company’s Memorandum
and Articles and any directions given by
special resolution.
Directors’ indemnities
The Company maintains Directors and
Officers’ liability insurance that gives
appropriate cover for any legal action
brought against its Directors. The
Company has also granted indemnities
to each of its Directors and the Company
Secretary, which represent ‘qualifying third
party indemnity provisions’ (as defined by
Section 234 of the Companies Act 2006),
in relation to certain losses and liabilities
that the Directors or Company Secretary
may incur to third parties in the course of
acting as Directors or the Company
Secretary or as employees of the Company
or of any associated company. In addition,
such indemnities have been granted to
other officers of the Company who are
Directors of subsidiary companies within
the Group. The Company has also granted
an indemnity representing ‘qualifying
pension scheme indemnity provisions’ (as
defined by Section 235 of the Companies
Act 2006) to a paid Director of the
corporate trustee of the Group’s UK
pension scheme. Such indemnities were
in place during 2017 and at the date of
approval of the Group financial statements.
Share capital
At the date of this Report, 135,124,108
Ordinary Shares of 10.357143p each have
been issued and are fully paid up and
quoted on the London Stock Exchange.
At the date of this Report, the Company
has issued and fully paid up 21,900 7.5%
Cumulative Preference Shares, 498,434
6.6% Cumulative Preference Shares and
615,562 5.9% Cumulative Preference
Shares, all of £1 each (the Preference
Shares). The rights and obligations
attached to the Company’s Ordinary
Shares and Preference Shares are set
out in the Articles, copies of which can be
obtained from Companies House in the
UK or by writing to the Company Secretary.
There are no restrictions on the voting
rights attached to the Company’s Ordinary
Shares or on the transfer of securities
in the Company. The 7.5% Cumulative
Preference Shares do not confer on the
holders any right to receive notice of or
to be present or to vote at any general
meeting of the Company, unless the
cumulative preferential dividend on such
shares is more than 12 calendar months
in arrears. The 6.6% and 5.9% Cumulative
Preference Shares do not confer on the
holders any right to receive notice of or
to be present or to vote at any general
meeting of the Company, unless the
cumulative preferential dividend on such
shares is more than six calendar months
in arrears or the business of the general
meeting includes the consideration of a
resolution for reducing the share capital
of the Company, to sell the undertaking
of the Company or to alter the Articles.
No person holds securities in the Company
that carry special rights with regard to
control of the Company. The Company
is not aware of any agreements between
holders of securities that may result in
restrictions on the transfer of securities
or on voting rights.
Power to issue or buy back shares
At the 2017 AGM, authority was given
to the Directors to allot unissued shares in
the Company up to a maximum amount
equivalent to approximately one third of the
issued share capital, excluding shares held
in treasury, for general purposes, plus up
to a further one third of the Company’s
issued share capital, excluding shares held
in treasury, but only in the case of a rights
issue. No such shares have been issued.
A further special resolution passed at that
meeting granted authority to the Directors
to allot equity securities in the Company
for cash, without regard to the pre-emption
provisions of the Companies Act 2006.
Both of these authorities expire on the date
of the 2018 AGM, that is 25 April 2018, and
so the Directors propose to renew them for
a further year.
At last year’s AGM the members renewed
the Company’s authority to purchase up to
10% of its Ordinary Shares. No purchases
were made during the year. As a result the
Company will be seeking to renew its
authority to purchase its own shares at the
2018 AGM. Shares will only be purchased
if the Board believes that such purchases
will improve earnings per share and be in
the best general interest of shareholders. It
is the Company’s intention that any shares
purchased will be held as treasury shares.
At the date of this report the Company
holds 3,731,314 shares in treasury.
Employees
Diversity: We are committed to the
principle of equal opportunity in
employment and to ensuring that no
applicant or employee receives less
favourable treatment on the grounds
of gender, marital status, race, ethnic
origin, religion, disability, sexuality or age,
or is disadvantaged by conditions or
requirements that cannot be shown to be
justified. Group human resources policies
are clearly communicated to all of our
employees and are available through
the Company intranet.
Recruitment and progression: It is
established policy throughout the Business
that decisions on recruitment, career
development, promotion and other
employment related issues are made solely
on the grounds of individual ability,
achievement, expertise and conduct.
We give full and fair consideration to
applications for employment from people
with disabilities, having regard to their
particular aptitudes and abilities. Should an
employee become disabled during their
employment with the Company, they are
fully supported by our Occupational Health
provision. Efforts are made to continue
their employment with reasonable
adjustments being made to the workplace
and role where feasible. Retraining is
provided if necessary.
Development and learning:
The Company recognises that the key to
future success lies in the skills and abilities
of its dedicated global workforce.
The continuous development of all of our
employees is key to meeting the future
demands of our customers, especially in
relation to enhanced creativity, innovation
and customer service. During 2017, 82.7%
of our employees received training, totalling
over 107,000 hours.
Involvement: We are committed to
ensuring that employees share in the
success of the Group. Owning shares
in the Company is an important way
of strengthening involvement in the
development of the Business and bringing
together employees and shareholders’
interests. In 2017, 83.26% of our UK
employees and 56.89% of our non-UK
employees participated in one of our
all-employee share plans, indicating
employees’ continued desire to be
involved in the Company.
Employees are kept informed of matters
of concern to them in a variety of ways,
including the Company magazine, the
Croda Way; quarterly updates; the
Company intranet, Connect; team briefing
webinars and Croda Now email messages.
These communications help achieve
a common awareness of the financial
and economic factors affecting the
performance of Croda and of changes
within the Business. We are committed
to providing employees with opportunities
to share their views and provide feedback
on issues that are important to them. All
regions have undertaken an employee
survey since 2010. More information on
the 2017 Global Employee Culture Survey
can be found on page 02.
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Croda International Plc
Annual Report and Accounts 2017
79
Directors’ Report | Other Disclosures
All the information cross referenced above
is incorporated by reference into the
Directors’ Report.
References in this document to other
documents on the Company’s website,
such as the Sustainability Report, are
included as an aid to their location and are
not incorporated by reference into any
section of the Annual Report and Accounts.
Independent auditors
PricewaterhouseCoopers LLP will sign
the 2017 audit report and will then
retire as external auditors. Following a
comprehensive tender process, which is
fully described on page 55, KPMG, with
Chris Hearld as Lead Audit Partner, will be
recommended for appointment as the
Company’s external auditors at the AGM
on 25 April 2018.
Audit Information
The Directors confirm that, so far
as they are aware, there is no relevant
audit information of which the Company’s
auditors are unaware, and that they have
each taken all the steps they ought to
have taken as a Director in order to
make themselves aware of any relevant
audit information and to establish that
the Company’s auditors are aware
of that information.
Articles of Association
Unless expressly specified to the contrary
in the Articles, the Company’s Articles may
be amended by a special resolution of the
Company’s shareholders.
Significant contracts and
change of control
The Group has borrowing facilities which
may require the immediate repayment of all
outstanding loans together with accrued
interest in the event of a change of control.
The rules of the Company’s employee
share plans set out the consequences
of a change in control of the Company
on participants’ rights under the plans.
Generally, such rights will vest and become
exercisable on a change of control
subject to the satisfaction of performance
conditions. None of the Executive
Directors’ service contracts contains
provisions that are affected by a change of
control and there are no other agreements
that the Company is party to that take
effect, alter or terminate in the event of a
change of control of the Company, which
are considered to be significant in terms
of their potential impact on the Group.
The Company does not have any
contractual or other arrangements that are
essential to the business of the Group.
Political donations
No donations were made for political
purposes during the year (2016: £nil).
Financial risk management
The Group’s exposure to and management
of capital, liquidity, credit, interest rate and
foreign currency risks are contained in note
19 on pages 115 to 119.
Capitalised interest
The Group’s policy for capitalising
borrowing costs directly attributable to the
purchase or construction of fixed assets is
set out on page 98.
Other disclosures
Certain information that is required to
be included in the Directors’ Report can
be found elsewhere in this document
as referred to below, each of which is
incorporated by reference in to the
Directors’ Report:
→ Information on greenhouse gas
emissions (p22)
→ An indication of likely future
developments in the Group’s Business
can be found in the Strategic Report,
starting on page 02
→ An indication of the Company’s
overseas branches (pp138 to 140)
There have been no events affecting the
Company since the financial year end to
report to shareholders in accordance with
the Accounts Regulations and Disclosure
and Transparency Rules.
For the purposes of Listing Rule (LR)
9.8.4R, the information required to be
disclosed by LR 9.8.4R can be found on
the following pages of this Annual Report
and Accounts:
Section Topic
(1)
Capitalised interest
(2)
(3)
(4)
Publication of unaudited
financial information
Smaller related party
transactions
Details of long term
incentive schemes
established specifically
to recruit or retain a
Director
Page reference
Page 80
Not applicable
Not applicable
Not applicable
(5) (6) Waiver of emoluments by
Not applicable
(7) (8)
(9)
a Director
Allotments of equity
securities for cash
Page 79
Participation in a placing
of equity securities
Not applicable
(10)
Contracts of significance
Page 80
(11) (14) Controlling shareholder
Not applicable
disclosures
(12) (13) Dividend waiver
Page 78
Practice (United Kingdom Accounting
Standards, comprising FRS101
‘Reduced Disclosure Framework’, and
applicable law), give a true and fair
view of the assets, liabilities, financial
position and profit of the Company
→ The Group financial statements,
which have been prepared in
accordance with IFRSs as adopted
by the EU, give a true and fair view of
the assets, liabilities, financial position
and profit of the Group
→ The Directors’ Report and Strategic
Report include a fair review of the
development and performance of
the Business and the position of the
Group and Company, together with
a description of the principal risks
and uncertainties that they face.
In the case of each Director in office
at the date the Directors’ Report is
approved:
→ So far as the Director is aware, there is
no relevant audit information of which
the Group and Company’s auditors
are unaware, and
→ They have taken all steps that they
ought to have taken as a director
to make themselves aware of any
relevant audit information and to
establish that the Group and
Company’s auditors are aware of
that information.
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Statement of Directors’
responsibilities
The Directors are responsible for
preparing the Annual Report, the
Directors’ Remuneration Report and the
financial statements in accordance with
applicable law and regulations.
Company law requires the Directors to
prepare financial statements for each
financial year. Under that law the
Directors have prepared the Group
financial statements in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union, and the Company
financial statements in accordance with
United Kingdom Generally Accepted
Accounting Practice (United Kingdom
Accounting Standards, comprising
FRS101 ‘Reduced Disclosure
Framework’, and applicable law).
Under Company law the Directors must
not approve the financial statements
unless they are satisfied that they give a
true and fair view of the state of affairs of
the Group and the Company and of the
profit or loss of the Group and Company
for that period. In preparing the financial
statements, the Directors are required to:
→ Select suitable accounting policies
and then apply them consistently
→ Make judgements and accounting
estimates that are reasonable and
prudent
→ State whether applicable IFRSs as
adopted by the European Union
and applicable UK Accounting
Standards have been followed,
subject to any material departures
disclosed and explained in the Group
and Company financial statements
respectively
The Directors’ Report and the Strategic
Report, including the sections of the
Annual Report and Accounts incorporated
by reference, is the ‘management report’
for the purposes of the Financial Conduct
Authority Disclosure and Transparency
Rules (DTR 4.1.8R). It was approved by the
→ Prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Company will continue in business.
The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
Company’s transactions and disclose
with reasonable accuracy at any time
the financial position of the Company and
the Group, and enable them to ensure
that the financial statements and the
Directors’ Remuneration Report comply
with the Companies Act 2006 and, as
regards the Group financial statements,
Article 4 of the IAS Regulation. They are
also responsible for safeguarding the
assets of the Company and the Group
and hence for taking reasonable steps
for the prevention and detection of fraud
and other irregularities.
The Directors are responsible for
the maintenance and integrity of the
Company’s website. Legislation in
the United Kingdom governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
The Directors consider that the Annual
Report and Accounts, taken as a whole,
is fair, balanced and understandable and
provides the information necessary for
shareholders to assess the Company’s
position and performance, business
model and strategy.
Each of the Directors, whose details are
set out on pages 36 and 37, confirms
that, to the best of his/her knowledge:
→ The Company financial statements,
which have been prepared in
accordance with the United Kingdom
Generally Accepted Accounting
Board on 27 February 2018 and is signed
on its behalf by
Tom Brophy
Group General Counsel
and Company Secretary
27 February 2018
80 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
81
Financial Statements
Group Independent Auditors’ Report
to the Members of Croda International Plc
Report on the audit of the
Group financial statements
Our audit approach
Overview
Materiality
→ Overall Group materiality: £15.7 million (2016: £13.8 million),
based on 5% of profit before tax.
Audit scope
→ We, as the Group engagement team, audited the two
financially significant components – the UK and the US –
covering 43% of the Group’s external revenues and 46% of
the Group’s profit before tax.
→ For the next seven largest components of the Group, which
are audited by PwC component auditors (the five largest as
full scope audits and the remaining two subject to specified
procedures), we were heavily involved at all stages of their
audits by virtue of numerous communications throughout the
process, including the issuance of detailed audit instructions,
review and discussion of audit findings, in particular over our
areas of focus.
→ As a result of this scoping we obtained coverage over 75% of
the Group’s external revenues and 87% of the Group’s profit
before tax.
Key audit
matters
→ Provision for environmental remediation.
→ Valuation of defined benefit pension scheme liability.
→ Taxation.
To the best of our knowledge and belief,
we declare that non-audit services
prohibited by the FRC’s Ethical Standard
were not provided to the Group.
Other than those disclosed in the Directors’
Report, we have provided no non-audit
services to the Group in the period from
1 January 2017 to 31 December 2017.
The scope of our audit
As part of designing our audit, we
determined materiality and assessed the
risks of material misstatement in the
financial statements. In particular, we
looked at where the Directors made
subjective judgements, for example in
respect of significant accounting estimates
that involved making assumptions and
considering future events that are
inherently uncertain.
We gained an understanding of the legal
and regulatory framework applicable
to the Group and the industries in which
it operates, and considered the risk of
acts by the group which were contrary to
applicable laws and regulations, including
fraud. We designed audit procedures to
respond to the risk, recognising that
the risk of not detecting a material
misstatement due to fraud is higher than
the risk of not detecting one resulting from
error, as fraud may involve deliberate
concealment by, for example, forgery or
intentional misrepresentations, or through
collusion. We designed audit procedures
that focused on the risk of non-compliance
related to the Group’s financial conduct
as well as ongoing legal claims as a
consequence of the Group’s production
of speciality chemicals. Our tests included
review of legal correspondence, discussions
with the Group’s legal counsel and
management’s experts. We did not
identify any key audit matters relating to
irregularities, including fraud. As in all of
our audits we also addressed the risk of
management override of internal controls,
including testing journals and evaluating
whether there was evidence of bias by the
Directors that represented a risk of material
misstatement due to fraud.
Opinion
In our opinion, Croda International Plc’s
Group financial statements (the ‘financial
statements’):
→ give a true and fair view of the state of
the Group’s affairs as at 31 December
2017 and of its profit and cash flows for
the year then ended;
→ have been properly prepared in
accordance with IFRSs as adopted by
the European Union; and
→ have been prepared in accordance
with the requirements of the
Companies Act 2006 and, as regards
the Group financial statements, Article
4 of the IAS Regulation.
We have audited the financial statements,
included within the Annual Report and
Accounts (the ‘Annual Report’), which
comprise: the Group balance sheet as
at 31 December 2017; the Group income
statement and statement of comprehensive
income, the Group statement of cash
flows, and the Group statement of changes
in equity for the year then ended; the
accounting policies; and the notes to the
financial statements.
Our opinion is consistent with our reporting
to the Audit Committee.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities under ISAs (UK) are further
described in the Auditors’ responsibilities
for the audit of the financial statements
section of our report. We believe that
the audit evidence we have obtained is
sufficient and appropriate to provide
a basis for our opinion.
Independence
We remained independent of the Group in
accordance with the ethical requirements
that are relevant to our audit of the financial
statements in the UK, which includes the
FRC’s Ethical Standard, as applicable to
listed public interest entities, and we have
fulfilled our other ethical responsibilities in
accordance with these requirements.
82 Croda International Plc
Annual Report and Accounts 2017
Key audit matters
Key audit matters are those matters that, in
the auditors’ professional judgement, were
of most significance in the audit of the
financial statements of the current period
and include the most significant assessed
risks of material misstatement (whether or
not due to fraud) identified by the auditors,
including those that had the greatest effect
on: the overall audit strategy; the allocation
of resources in the audit; and directing the
efforts of the engagement team. These
matters, and any comments we make on
the results of our procedures thereon, were
addressed in the context of our audit
of the financial statements as a whole, and
in forming our opinion thereon, and we do
not provide a separate opinion on these
matters. This is not a complete list of all
risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Provision for environmental remediation
Refer to page 54 (Audit Committee Report), page
93 (Accounting Policies) and page 119 (notes).
As a consequence of the Group’s production of
chemicals, there are a number of open claims and
litigation against the Group relating to soil and
potential groundwater contamination on sites,
both currently in use and previously occupied.
Environmental standards and legislation are
specific to, and often contain unique requirements,
in each territory the Group operates in and may be
subject to change. As such, understanding the
potential environmental risks and the financial
implications that the Group is exposed to is
often complex.
The provision held for environmental liabilities
within the balance sheet at 31 December 2017
totalled £10.2 million, which relates to a number of
matters. For each matter, the Directors, in
conjunction with experts they engaged, assessed
the likelihood of the Group being found liable for
any remedial work and, where applicable the costs
of that work, as well as any associated fines and
legal costs.
Assessing the likelihood and quantum of any
financial obligations arising, requires judgement.
There is a risk that the provision could be materially
misstated and the required disclosures insufficient
due to the inherent uncertainties and the potentially
wide range of outcomes and timelines in respect of
the resolution of each matter.
The Directors performed a detailed assessment of
environmental liabilities to ensure that the level of
environmental provision held remains appropriate.
We obtained and read the Directors’ assessment of each specific
environmental matter that the Directors made us aware of, and assessed
the completeness of the list against publicly available information and other
information on potential environmental exposure at current and former sites.
We performed audit work on each matter as there is a risk that the liability for
each matter could be materially misstated.
We evaluated the Directors’ assumptions, both in terms of the likelihood of
the Group being found liable and also of any resulting financial obligation by:
→ reading publicly available information, correspondence with relevant
stakeholders and other information available to the Directors relating to
the specific matters identified, and assessing the Directors’ assumptions
against this information;
→ reading remediation plans drawn up by the Directors’ external experts
and considering whether the Directors have properly reflected them
in the calculation of the provision;
→ evaluating the independence, objectivity and competence of the experts
that the Directors engage to assess the likely outcome of the cases
against the Group, and the cost of remediation needed, by confirming
they are qualified and affiliated with the appropriate industry bodies in the
respective local territory;
→ comparing historic provisions with actual remediation costs incurred
during the year to assess the Directors’ historical forecasting accuracy;
→ assessing the Directors’ accuracy in estimating exposures for fines and
legal costs by comparing historic provisions for cases that have been
settled with the actual fine/legal costs;
→ discussing all matters with the Group’s legal counsel and Vice President
of Sustainability, and obtaining independent confirmations from the
Group’s external legal advisers on the progress of each claim; and
→ discussing all matters arising in Europe and the US with local
management, and corroborating information received from all parties.
We found, based on the results of our testing, that the provision recorded
and disclosures made in the financial statements were consistent with the
supporting evidence obtained. We consider management’s estimates to
be a reasonable reflection of the current situation.
Croda International Plc
Annual Report and Accounts 2017
83
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Financial Statements | Group Independent Auditors’ Report to the Members of Croda International Plc
Key audit matter
How our audit addressed the key audit matter
Valuation of defined benefit pension scheme
liability
Refer to page 54 (Audit Committee Report),
page 93 (Accounting Policies) and pages 106
to 109 (notes).
The Group has a number of defined benefit
pension schemes that, together, are in a net deficit
position of £30.5 million, which is material both in
the context of the overall balance sheet and the
results of the Group.
The valuation of the pension liability requires
significant levels of judgement and technical
expertise in choosing appropriate assumptions, a
number of which can be volatile. Small changes in
a number of the key assumptions (including salary
increases, inflation, discount rates, and mortality)
can have a material impact on the calculation of
the liability.
Taxation
Refer to page 54 (Audit Committee Report), page
93 (Accounting Policies) and pages 102 and 103
(notes).
Due to the large number of tax jurisdictions in
which the Group operates, the calculation of the
Group’s tax position is complex and is subject to
scrutiny and challenge by different tax authorities.
An error in the interpretation of, often complex,
tax regulations, particularly relating to transfer
pricing, could lead to a material misstatement
in the tax expense.
The Group also holds a number of specific
judgemental tax accruals that relate to specific
transfer pricing risks, open tax investigations/audits
and other such matters. The estimation of the
accrual is dependent on the Directors’ assessment
of the outcome of the outstanding matters.
We primarily focused our work on the pension plan surplus/deficit in the UK
and the US which, together, account for the majority of the balance and,
hence, estimation uncertainty.
We evaluated the Directors’ assessment of the assumptions they made in
relation to the valuation of the liabilities in the pension plan as follows:
→ we agreed the discount and inflation rates used in the valuation of the
pension liabilities to our internally developed expectations using our
internal actuarial specialists and compared the assumptions around
salary increases and mortality to national and industry accepted
averages;
→ we evaluated the competence of the experts that the Directors engaged
to calculate the defined benefit pension schemes, by confirming they are
qualified and affiliated with the appropriate industry body;
→ we evaluated the sensitivity of the pension scheme liabilities to differences
between our independent judgements and those made by the Directors,
both individually and in aggregate; and
→ we have reviewed the Trust Deed and Rules for the UK scheme to confirm
that the Group has the unconditional right to the refund, in line with the
requirements of IFRIC 14 and IAS 19R.
Based on the evidence obtained, we found that the assumptions used
by the Directors in the valuation of the liability were within a range considered
to be reasonable using an internally developed range of acceptable
assumptions for valuing pension liabilities, based on our view of various
economic indicators.
We evaluated the Directors’ assumptions for determining and calculating
the consolidated tax expense, balances and accruals. For all in scope
territories we:
→ obtained the Group’s tax computations and tested the deductions and
tax rates applied by reference to local tax legislation;
→ obtained the Group’s latest internal transfer pricing studies and
associated documentation and used our internal tax specialists to assess
its reasonableness;
→ assessed the amount of the specific tax accruals based on our
experience of similar situations both related and unrelated to the Group;
→ read the latest correspondence between the Group and tax authorities
and considered any implications this may have had on the tax position
reported in the Group’s financial statements;
→ utilised our experience of similar tax exposures and risks faced by other
multinational groups to assess the evidence described above; and
→ compared the levels of tax expense by territory with the local statutory tax
rates and investigated the basis for any differences.
The Directors’ judgements in respect of the Group’s position on uncertain
tax items are supportable and reasonable in the context of the information
currently available to them and no matters were identified by our work that
the Directors had not adequately reflected in their estimate of the tax
expense, balances and accruals.
How we tailored the audit scope
We tailored the scope of our audit to
ensure that we performed enough work to
be able to give an opinion on the financial
statements as a whole, taking into account
the structure of the Group, the accounting
processes and controls, and the industry in
which it operates.
The Group operates through various
components in 37 different countries
across five continents.
We, as the Group engagement team,
tailored the scope of our audit to ensure
that we performed enough work to be able
to give an opinion on the financial
statements as a whole, taking into account
the geographic structure of the Group, the
accounting processes and controls, and
the industry in which the Group operates.
We, as the Group engagement team,
performed an audit of the complete
financial information for the two financially
significant components- the UK and the
US. For the next five largest components
of the Group, PwC component auditors,
under our instructions, performed an audit
of their complete financial information.
PwC component auditors also performed
specified procedures at the two next
largest components of the Group.
Where the work was performed by
PwC component auditors we determined
the level of involvement we needed to have
in the audit work at those components to
be able to conclude whether sufficient
appropriate audit evidence had been
obtained as a basis for our opinion on the
Group financial statements as a whole.
We were involved at all stages of their
audits by virtue of numerous communications
throughout the process, including the
issuance of detailed audit instructions,
review and discussion of audit findings,
in particular over our areas of focus.
We, as the Group engagement team,
were also responsible for other head
office activities such as the consolidation,
financial statement disclosures and share
based payments.
The procedures performed over the
components (either by the Group team
or PwC component audit teams) and
specifically by the Group team (for
example, on goodwill), accounted for 75%
of the Group’s external revenues and 87%
of the Group’s profit before tax.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain
quantitative thresholds for materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature, timing and extent of our
audit procedures on the individual financial statement line items and disclosures and in
evaluating the effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for the financial
statements as a whole as follows:
Overall Group materiality
£15.7 million (2016: £13.8 million).
How we determined it
5% of profit before tax.
Rationale for
benchmark applied
We believe that profit before tax is the primary
measure used by the shareholders in assessing
the performance of the Group, and is a generally
accepted auditing benchmark.
For each component in the scope of our Group audit, we allocated a materiality
hat is less than our overall Group materiality. The range of materiality allocated
across components was between £0.7 million and £14.0 million. Certain components
were audited to a local statutory audit materiality that was also less than our overall
Group materiality.
We agreed with the Audit Committee that we would report to them misstatements
identified during our audit above £0.8 million (2016: £0.7 million) as well as misstatements
below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
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We are required to report if we have anything
material to add or draw attention to in respect of
the Directors’ statement in the financial
statements about whether the Directors
considered it appropriate to adopt the going
concern basis of accounting in preparing the
financial statements and the Directors’
identification of any material uncertainties to the
Group’s ability to continue as a going concern
over a period of at least twelve months from the
date of approval of the financial statements.
We are required to report if the Directors’
statement relating to going concern in
accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge
obtained in the audit.
We have nothing material to add
or to draw attention to. However,
because not all future events or
conditions can be predicted, this
statement is not a guarantee as to
the Group’s ability to continue as
a going concern.
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We have nothing to report.
84 Croda International Plc
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Annual Report and Accounts 2017
85
Financial Statements | Group Independent Auditors’ Report to the Members of Croda International Plc
Reporting on other information
The other information comprises all of the
information in the Annual Report other
than the financial statements and our
Auditors’ Report thereon. The Directors are
responsible for the other information. Our
opinion on the financial statements does
not cover the other information and,
accordingly, we do not express an audit
opinion or, except to the extent otherwise
explicitly stated in this report, any form of
assurance thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements
or our knowledge obtained in the audit,
or otherwise appears to be materially
misstated. If we identify an apparent
material inconsistency or material
misstatement, we are required to perform
procedures to conclude whether there is a
material misstatement of the financial
statements or a material misstatement of
the other information. If, based on the work
we have performed, we conclude that
there is a material misstatement of this
other information, we are required to report
that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic Report and
Directors’ Report, we also considered
whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described
above and our work undertaken in the
course of the audit, the Companies Act
2006, (CA06), ISAs (UK) and the Listing
Rules of the Financial Conduct Authority
(FCA) require us also to report certain
opinions and matters as described
below (required by ISAs (UK) unless
otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Directors’ Report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and its environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the
solvency or liquidity of the Group
We have nothing material to add or draw attention to regarding:
→ The Directors’ confirmation on page 35 of the Annual Report that they have carried out a robust assessment of the principal
risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
→ The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
→ The Directors’ explanation on page 35 of the Annual Report as to how they have assessed the prospects of the Group, over
what period they have done so and why they consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over
the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or
assumptions.
We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust assessment
of the principal risks facing the Group and statement in relation to the longer term viability of the Group. Our review was
substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process
supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate
Governance Code (the ‘Code’); and considering whether the statements are consistent with the knowledge and understanding
of the Group and its environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
→ The statement given by the Directors, on page 81, that they consider the Annual Report taken as a whole to be fair, balanced
and understandable, and provides the information necessary for the members to assess the Group’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Group obtained in the course
of performing our audit.
→ The section of the Annual Report on pages 51 to 57 describing the work of the Audit Committee does not appropriately
address matters communicated by us to the Audit Committee.
→ The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a
relevant provision of the Code specified, under the Listing Rules, for review by the auditors.
A further description of our responsibilities
for the audit of the financial statements
is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities.
This description forms part of our
Auditors’ Report.
Use of this report
This report, including the opinions, has
been prepared for and only for the
Company’s members as a body in
accordance with Chapter 3 of Part 16 of
the Companies Act 2006 and for no other
purpose. We do not, in giving these
opinions, accept or assume responsibility
for any other purpose or to any other
person to whom this report is shown or
into whose hands it may come save where
expressly agreed by our prior consent
in writing.
Other required reporting
Companies Act 2006 exception
reporting
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
→ we have not received all the information
and explanations we require for our
audit; or
→ certain disclosures of Directors’
remuneration specified by law are not
made.
We have no exceptions to report arising
from this responsibility.
Appointment
Following the recommendation of the
Audit Committee, we were appointed by
the Directors in 1970 to audit the financial
statements for the year ended December
1970 and subsequent financial periods.
The period of total uninterrupted
engagement is 48 years, covering the
years ended December 1970 to
December 2017.
Other matter
We have reported separately on the
Company financial statements of Croda
International Plc for the year ended
31 December 2017 and on the information
in the Directors’ Remuneration Report
that is described as having been audited.
Ian Morrison
(Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
Leeds
27 February 2018
Responsibilities for the financial
statements and the audit
Responsibilities of the Directors
for the financial statements
As explained more fully in the Statement of
Directors’ Responsibilities set out on page
81, the Directors are responsible for the
preparation of the financial statements in
accordance with the applicable framework
and for being satisfied that they give a true
and fair view. The Directors are also
responsible for such internal control as they
determine is necessary to enable the
preparation of financial statements that are
free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the
Directors are responsible for assessing the
Group’s ability to continue as a going
concern, disclosing as applicable, matters
related to going concern and using the
going concern basis of accounting unless
the Directors either intend to liquidate the
Group or to cease operations, or have no
realistic alternative but to do so.
Auditors’ responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue an Auditors’
Report that includes our opinion.
Reasonable assurance is a high level of
assurance, but is not a guarantee that an
audit conducted in accordance with ISAs
(UK) will always detect a material
misstatement when it exists. Misstatements
can arise from fraud or error and are
considered material if, individually or in
aggregate, they could reasonably be
expected to influence the economic
decisions of users taken on the basis
of these financial statements.
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Financial Statements
Group Consolidated Statements
Group Income Statement
for the year ended 31 December 2017
Revenue
Cost of sales
Gross profit
Operating costs
Operating profit
Financial costs
Financial income
Profit before tax
Tax
Profit after tax for the year
Attributable to:
Non-controlling interests
Owners of the parent
Note
1
2
3
4
4
5
2017
2017
Adjusted
£m
1,373.1
(855.7)
517.4
(185.2)
332.2
(12.5)
0.6
320.3
(85.9)
234.4
Adjustments
£m
–
–
–
(6.2)
(6.2)
–
–
(6.2)
8.5
2.3
2016
2016
Adjusted
£m
1,243.6
(798.5)
445.1
(146.9)
298.2
(10.6)
0.7
288.3
(80.7)
207.6
Adjustments
£m
–
–
–
(12.6)
(12.6)
–
–
(12.6)
2.6
(10.0)
2017
Reported
Total
£m
1,373.1
(855.7)
517.4
(191.4)
326.0
(12.5)
0.6
314.1
(77.4)
236.7
(0.3)
237.0
236.7
Adjustments relate to exceptional items, acquisition costs, amortisation of intangible assets arising on acquisition and the tax thereon.
Earnings per 10.36p ordinary share
Basic
Diluted
7
7
Pence
180.8
179.0
Group Statement of Comprehensive Income
Note
11
5
for the year ended 31 December 2017
Profit for the year
Other comprehensive income/(expense):
Items that will not be reclassified
subsequently to profit or loss:
Remeasurements of post-employment
benefit obligations
Tax on items that will not be reclassified
Items that may be reclassified
subsequently to profit or loss:
Currency translation
Other comprehensive income for the year
Total comprehensive income for the year
Attributable to:
Non-controlling interests
Owners of the parent
Arising from:
Continuing operations
Discontinued operations
88 Croda International Plc
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2017
£m
236.7
121.9
(23.8)
98.1
(22.6)
75.5
312.2
(0.6)
312.8
312.2
313.9
(1.7)
312.2
(0.6_
(0.6_
22
2016
Reported
Total
£m
1,243.6
(798.5)
445.1
(159.5)
285.6
(10.6)
0.7
275.7
(78.1)
197.6
0.9
196.7
197.6
Pence
148.2
146.9
2016
£m
197.6
(65.5)
10.4
(55.1)
79.0
23.9
221.5
1.7
219.8
221.5
221.5
–
221.5
Group Balance Sheet
at 31 December 2017
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Deferred tax assets
Retirement benefit assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Liabilities
Current liabilities
Trade and other payables
Borrowings and other financial liabilities
Provisions
Current tax liabilities
Net current assets
Non-current liabilities
Borrowings and other financial liabilities
Other payables
Retirement benefit liabilities
Provisions
Deferred tax liabilities
Net assets
Equity
Ordinary share capital
Preference share capital
Share capital
Share premium account
Reserves
Equity attributable to owners of the parent
Non-controlling interests in equity
Total equity
Note
2017
£m
2016
£m
12
13
15
6
11
16
17
19
18
19
20
19
11
20
6
21
23
25
386.3
684.0
2.2
33.1
19.1
1,124.7
258.5
202.2
63.3
524.0
(201.4)
(18.4)
(5.2)
(45.9)
(270.9)
253.1
(426.4)
(1.1)
(49.6)
(7.4)
(63.4)
(547.9)
829.9
14.0
1.1
15.1
93.3
713.9
822.3
7.6
829.9
355.3
598.1
1.0
56.3
–
1,010.7
235.7
192.4
61.0
489.1
(186.2)
(10.4)
(8.1)
(47.0)
(251.7)
237.4
(414.7)
(2.6)
(146.5)
(9.2)
(66.3)
(639.3)
608.8
14.0
1.1
15.1
93.3
492.2
600.6
8.2
608.8
The financial statements on pages 88 to 125 were signed on behalf of the Board who approved the accounts on 27 February 2018.
Anita Frew
Chairman
Jez Maiden
Group Finance Director
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Financial Statements | Group Consolidated Statements
Group Statement of Cash Flows
for the year ended 31 December 2017
Cash flows from operating activities
Cash generated from operations
Interest paid
Tax paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of subsidiaries
Acquisition of associates
Purchase of property, plant and equipment
Purchase of other intangible assets
Proceeds from sale of property, plant and equipment
Proceeds from sale of other investments
Cash paid against non-operating provisions
Interest received
Net cash used in investing activities
Cash flows from financing activities
New borrowings
Repayment of borrowings
Capital element of finance lease repayments
Sale of own shares held in trust
Dividends paid to equity shareholders
Net cash used in financing activities
Net movement in cash and cash equivalents
Cash and cash equivalents brought forward
Exchange differences
Cash and cash equivalents carried forward
Cash and cash equivalents carried forward comprise:
Cash at bank and in hand
Bank overdrafts
Note
ii
27
15
13
12
20
iii
21
8
i,iii
iii
2017
£m
359.3
(13.9)
(82.9)
262.5
(29.0)
(1.4)
(155.8)
(3.5)
2.1
–
(2.5)
0.6
(189.5)
359.3
(331.8)
(0.8)
0.7
(100.0)
(72.6)
0.4
56.4
(1.9)
54.9
63.3
(8.4)
54.9
2016
£m
345.1
(11.1)
(70.2)
263.8
(1.4)
–
(103.8)
(1.6)
0.9
0.1
(2.2)
0.7
(107.3)
699.3
(632.5)
(0.4)
1.2
(230.2)
(162.6)
(6.1)
55.8
6.7
56.4
61.0
(4.6)
56.4
Group Cash Flow Notes
for the year ended 31 December 2017
(i) Reconciliation to net debt
Movement in cash and cash equivalents
Movement in debt and lease financing
Change in net debt from cash flows
New finance lease contracts
Exchange differences
Net debt brought forward
Net debt carried forward
(ii) Cash generated by operations
Adjusted operating profit
Exceptional items
Acquisition costs and amortisation of intangible assets arising on acquisition
Operating profit
Adjustments for:
Depreciation and amortisation
Loss on disposal of property, plant and equipment
Net provisions charged (note 20)
Share-based payments
Cash paid against operating provisions (note 20)
Non-cash pension expense
Share of loss of associate
Movement in inventories
Movement in receivables
Movement in payables
Cash generated by continuing operations
(iii) Analysis of net debt
Cash and cash equivalents
Bank overdrafts
Movement in cash and cash equivalents
Borrowings repayable within one year
Borrowings repayable after more than one year
Finance leases
Movement in borrowings and other financial liabilities
Total net debt
Note
iii
iii
iii
Note
iv
2017
£m
63.3
(8.4)
(9.6)
(426.0)
(0.8)
(381.5)
Cash
flow
£m
4.2
(3.8)
0.4
(4.7)
(22.8)
0.8
(26.7)
(26.3)
Exchange
movements
£m
(1.9)
–
(1.9)
0.5
11.0
–
11.5
9.6
2017
£m
0.4
(26.7)
(26.3)
(0.7)
9.6
(17.4)
(364.1)
(381.5)
2017
£m
332.2
(1.7)
(4.5)
326.0
53.3
1.5
1.3
9.2
(2.2)
3.4
0.1
(31.0)
(14.4)
12.1
359.3
Other
non-cash
£m
–
–
–
–
(0.7)
(0.7)
2016
£m
(6.1)
(66.4)
(72.5)
(0.5)
(31.8)
(104.8)
(259.3)
(364.1)
2016
£m
298.2
(8.4)
(4.2)
285.6
49.2
0.9
4.3
9.5
(0.7)
(10.9)
–
8.4
(10.9)
9.7
345.1
2016
£m
61.0
(4.6)
(5.4)
(414.2)
(0.9)
(364.1)
(iv) Cash flow on exceptional items
The total cash outflow during the year in respect of exceptional items, including those recognised in prior years’ income statements,
was £4.7m (2016: £2.9m). Details of exceptional items can be found in note 3 on page 101.
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Financial Statements | Group Consolidated Statements
Group Statement of Changes in Equity
for the year ended 31 December 2017
At 1 January 2016
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income for the year
Transactions with owners:
Dividends on equity shares
Share-based payments
Sale of own shares held in trust
Total transactions with owners
Total equity at 31 December 2016
At 1 January 2017
Profit for the year
Other comprehensive (expense)/income
Total comprehensive (expense)/income for the year
Transactions with owners:
Dividends on equity shares
Share-based payments
Sale of own shares held in trust
Total transactions with owners
Note
Share
capital
£m
15.1
Share
premium
account
£m
93.3
Other
reserves
£m
(2.0)
Retained
earnings
£m
494.4
Non-
controlling
interests
£m
6.5
8
8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15.1
15.1
93.3
93.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
78.2
78.2
–
–
–
–
76.2
76.2
–
(22.3)
(22.3)
–
–
–
–
196.7
(55.1)
141.6
(230.2)
9.0
1.2
(220.0)
416.0
416.0
237.0
98.1
335.1
(100.0)
8.2
0.7
(91.1)
0.9
0.8
1.7
–
–
–
–
8.2
8.2
(0.3)
(0.3)
(0.6)
–
–
–
–
Total
equity
£m
607.3
197.6
23.9
221.5
(230.2)
9.0
1.2
(220.0)
608.8
608.8
236.7
75.5
312.2
(100.0)
8.2
0.7
(91.1)
Total equity at 31 December 2017
15.1
93.3
53.9
660.0
7.6
829.9
Other reserves include the Capital Redemption Reserve of £0.9m (2016: £0.9m) and the Translation Reserve of £53.0m (2016: £75.3m).
Group Accounting Policies
The principal accounting policies
adopted in the preparation of these
financial statements are set out below.
These policies have been consistently
applied to all the years presented,
unless otherwise stated.
Basis of preparation
The consolidated financial statements
have been prepared under the historical
cost convention, in accordance with
International Financial Reporting Standards
Interpretations Committee (IFRSIC) and
the Companies Act 2006 applicable
to companies reporting under IFRS.
The standards used are those published
by the International Accounting Standards
Board (IASB) and endorsed by the EU
at the 31 December 2017. A summary of
the more important Group accounting
policies is set out below.
Going concern
The financial statements which appear
on pages 88 to 125 have been prepared
on a going concern basis as, after making
appropriate enquiries, including a review
of forecasts, budgets and banking facilities,
the Directors have a reasonable expectation
that the Group has adequate resources to
continue in operational existence.
Accounting estimates and judgements
The Group’s significant accounting policies
under IFRS have been set by management
with the approval of the Audit Committee.
The application of these policies requires
estimates and assumptions to be made
concerning the future and judgements to
be made on the applicability of policies to
particular situations. Estimates and
judgements are continually evaluated and
are based on historical experience and
other factors, including expectations of
future events that are believed to be
reasonable under the circumstances.
Under IFRS an estimate or judgement may
be considered critical if it involves matters
that are highly uncertain or where different
estimation methods could reasonably have
been used, or if changes in the estimate
that would have a material impact on the
Group’s results are likely to occur from
period to period. The critical judgements
required when preparing the Group’s
accounts are as follows:
(i)
Provisions – as disclosed in note 20,
the Group has made provision for
potential environmental liabilities.
The rationale behind these and other
provisions is discussed in note 20, with
consideration of contingent liabilities
disclosed in note 28. The Directors
believe that these provisions are
appropriate based on information
currently available.
(ii) Goodwill and fair value of assets
acquired (note 12) – under IFRS,
management are required to undertake
an annual test for impairment of
indefinite lived assets such as goodwill.
Accordingly, the Group tests annually
whether goodwill has suffered any
impairment and the Group’s goodwill
value has been supported by detailed
value-in-use calculations relating to the
recoverable amounts of the underlying
Cash Generating Units (‘CGUs’). These
calculations require the use of
estimates to enable the calculation of
the net present value of cash flow
projections of the relevant CGU, the
critical estimates are as follows:
→Growth in EBITDA (calculated as
operating profit before depreciation
and amortisation) – estimated at 3%
long term, a prudent estimate given
the Group’s historical growth rates
→Timing and quantum of capital
expenditure – estimated to grow
from current levels at the same
3% rate
→Selection of appropriate discount
rates to reflect the risks involved
– typically the Group’s weighted
average cost of capital would be
used as a starting point unless
the risk profile of a particular
acquired business warranted
different treatment.
Currently, as recoverable amounts
exceed carrying values, including
goodwill, there is thus no impairment
within a reasonable range
of assumptions. Goodwill arising on
acquisition is allocated to the CGU
that is expected to benefit from the
synergies of the acquisition. Such
goodwill is then incorporated into the
Group’s standard impairment review
process as described above.
(iii) Retirement benefit liabilities – as
disclosed in note 11, the Group’s
principal retirement benefit schemes
are of the defined benefit type. Year
end recognition of the liabilities under
these schemes and the valuation of
assets held to fund these liabilities
require a number of significant
assumptions to be made, relating
to levels of scheme membership,
key financial market indicators
such as inflation and expectations
on future salary growth and asset
returns. These assumptions are made
by the Group in conjunction with
the schemes’ actuaries and the
Directors are of the view that any
estimation should be prudent
and in line with consensus opinion.
(iv) Taxation – the Group is subject to
corporate income taxes in numerous
jurisdictions. Significant judgement is
often required in determining the
worldwide expense and liability for such
taxes, including consideration of the
potential impact of transfer pricing.
There are many transactions and
calculations where the ultimate tax
determination is uncertain during the
ordinary course of business. The
Group recognises liabilities for tax
issues based on estimates of whether
additional taxes will be due, based on
its best interpretation of the relevant
tax laws and rules. Where the final tax
outcome of these matters is different
from the amounts that were initially
recorded, such differences will impact
the income tax and deferred tax
provisions in the period in which such
determination is made.
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Financial Statements | Group Accounting Policies
Changes in accounting policy
(i)
New and amended standards adopted
by the Group for the first time for
the financial year beginning on
1 January 2017:
There are no IFRSs or IFRIC
interpretations that are effective for
annual periods beginning after
1 January 2017 that have had a
material impact on the Group.
(ii) New standards and interpretations
not yet adopted – a number of new
standards and amendments to
standards and interpretations are
effective for annual periods beginning
on or after 1 January 2018, and have
not been applied in preparing these
consolidated financial statements.
Those most relevant to the consolidated
financial statements of the Group are
set out below:
IFRS 9, ‘Financial Instruments’
includes requirements for classification
and measurement, impairment and
hedge accounting.
It replaces the classification and
measurement models for financial
instruments in IAS 39 with three
classification categories: amortised
cost, fair value through profit or
loss and fair value through other
comprehensive income. The standard
will become effective for periods ending
on or after 1 January 2018, subject
to EU endorsement. The Group has
assessed the impact of IFRS 9 and
concluded that it will not have a
material impact, consistent with the
non-complex nature of the Group’s
financial instruments.
IFRS 15, ‘Revenue from contracts’
deals with revenue recognition and
establishes principles for reporting
useful information to users of financial
statements about the nature, amount,
timing and uncertainty of revenue and
cash flows arising from an entity’s
contracts with customers. Revenue is
recognised when a customer obtains
control of a good or service and thus
has the ability to direct the use and
obtain the benefits from the good or
service. The standard replaces IAS 18
‘Revenue’ and IAS 11 ‘Construction
contracts’ and related interpretations.
The standard is effective for annual
periods beginning on or after 1 January
2018, with earlier application permitted.
The Group has completed a detailed
assessment of IFRS 15 and has
concluded that the impact will not be
material to the Group’s revenue and
profit. This reflects the relatively
non-complex and largely standardised
terms and conditions applicable
to the Group’s revenue contracts.
Accordingly, the Group does not intend
to restate prior year comparators
when the new standard is adopted.
IFRS 16, ‘Leases’ will require lessees to
recognise a lease liability reflecting
future lease payments and a ‘right-of-
use asset’ for virtually all lease
contracts. Under IAS 17, lessees are
required to make a distinction between
a finance lease (on balance sheet) and
an operating lease (off balance sheet).
The IASB has included an optional
exemption for certain short term leases
and leases of low value assets;
however, this exemption can only be
applied by lessees. The standard is
effective for annual periods beginning
on or after 1 January 2019.
The Group will complete its IFRS 16
implementation work over the next
twelve months. The Group does not
intend to early adopt IFRS 16, having
already undertaken a significant review.
The new standard will result in most of
the Group’s current operating leases
(as defined under IAS 17) being
recognised on balance sheet. As
at the reporting date, the Group had
non-cancellable operating lease
commitments of £30.7m (as shown in
note 14). However, the Group has not
yet fully determined to what extent
these commitments will result in the
recognition of an asset and a liability for
future payments and how this will affect
the Group’s profit and classification of
cash flows, although the impact on the
latter will not be material based on initial
estimates. Some existing operating
lease commitments are expected to be
covered by the exception for short term
and low-value leases.
The Group does not intend to restate
prior year comparators when the new
standard is adopted, with lease asset
values being set equal to lease liabilities
at the date of transition in line with the
‘simplified approach’ under IFRS 16.
There are no other IFRSs or IFRIC
interpretations that are not yet effective
that would be expected to have a
material impact on the Group in the
current or future reporting periods and
on foreseeable future transactions.
Group accounts
General information
Croda International Plc is a public limited
company, which is listed on the London
Stock Exchange and incorporated
and domiciled in the United Kingdom.
It is registered in England and Wales
and the address of its registered office
can be found on page 142.
Subsidiaries
Subsidiaries are all entities (including
structured entities) over which the Parent
Company has control. The Parent controls
an entity when it is exposed to, or
has rights to, variable returns from its
involvement with the entity and has the
ability to affect those returns through its
power over the entity. Subsidiaries are
fully consolidated from the date on which
control is transferred to the Group.
They are deconsolidated from the date
that control ceases.
The Group uses the acquisition
method of accounting to account for
business combinations. The consideration
transferred for the acquisition of a
subsidiary is the fair value of the assets
transferred, the liabilities incurred and
the equity interests issued by the
Group. Acquisition costs are expensed
as incurred.
Identifiable assets acquired, and liabilities
and contingent liabilities assumed, in a
business combination are measured
initially at their fair values at the acquisition
date, irrespective of the extent of any
minority interest. The excess of the cost
of acquisition over the Group’s share
of identifiable net assets acquired is
recorded as goodwill.
Inter-company transactions, balances
and unrealised gains on transactions
between Group companies are eliminated.
Unrealised losses are also eliminated.
Accounting policies of subsidiaries have
been changed where necessary to ensure
consistency with the policies adopted by
the Group.
Transactions with
non-controlling interests
The Group treats transactions with
non-controlling interests as transactions
with the equity owners of the Group. For
purchases from non-controlling interests,
the difference between any consideration
paid and the relevant share acquired
of the carrying value of net assets of the
subsidiary is recorded as equity. Gains
or losses on disposals to non-controlling
interests are also recorded in equity.
Intangible assets
Goodwill
On the acquisition of a business, fair values
are attributed to the net assets acquired.
Goodwill arises where the fair value of the
consideration given for a business exceeds
such net assets. Goodwill arising on
acquisitions is capitalised and carried at
cost less accumulated impairment losses.
Goodwill is subject to impairment review,
both annually and when there are
indications that the carrying value may
not be recoverable. For the purpose of
impairment testing, assets are grouped at
the lowest levels for which there are
separately identifiable cash flows, known
as CGUs. If the recoverable amount of the
CGU is less than the carrying value of the
goodwill, an impairment loss is recognised
immediately against the goodwill value.
The recoverable amount of the CGU is the
higher of fair value less costs to sell and
value in use. Value in use is estimated with
reference to estimated future cash flows
discounted to net present value using a
discount rate that reflects the risks specific
to the CGU. Typically the Group’s weighted
average cost of capital would be used as a
starting point unless the risk profile of a
particular acquired business warranted
different treatment. The Group uses
prudent growth estimates that track below
the Group’s historical growth rates.
Other intangible assets arising
on acquisition
On acquisition, intangible assets other than
goodwill are recognised if they can be
identified through being separable from the
acquired entity or arising from specific
contractual or legal rights.
Once recognised, such intangible assets
will be initially valued using either the
‘market approach’ (where a well-defined
external market for the asset exists), the
‘income approach’ (which looks at the
future income the asset will generate) or
the ‘cost approach’ (the cost of replacing
the asset), whichever is most relevant to
the asset under consideration. Following
initial recognition, the asset will be written
down on a straight-line basis over its useful
life. Useful lives are regularly reviewed to
ensure their continuing relevance.
Research and development
Research expenditure, undertaken with
the prospect of gaining new scientific or
technical knowledge and understanding,
is charged to the income statement
in the year in which it is incurred. Internal
development expenditure, whereby
research findings are applied to a plan
for the production of new or substantially
improved products or processes, is
charged to the income statement in
the year in which it is incurred unless it
meets the recognition criteria of IAS 38
‘Intangible Assets’. Measurement and other
uncertainties generally mean that such
criteria are not met. Where, however, the
recognition criteria are met, intangible
assets are capitalised and amortised over
their useful economic lives from product
launch. Intangible assets relating to
products in development are subject
to impairment testing at each balance
sheet date or earlier upon indication of
impairment. Any impairment losses are
written off to the income statement.
Computer software
Acquired computer software licences
covering a period of greater than one
year are capitalised on the basis of the
costs incurred to acquire and bring to
use the specific software. These costs
are amortised over their estimated
useful lives (three to seven years).
Revenue recognition
Sale of goods
Revenue comprises the fair value for the
sale of goods, excludes inter-company
sales and value-added taxes and
represents net invoice value less estimated
rebates, returns and settlement discounts.
The Group supplies products to customers
from its various manufacturing sites and
warehouses and in some limited instances
from consignment inventory held on
customer sites, under a variety of standard
terms and conditions. In each case
revenue is recognised when the transfer
of legal title, which is defined and generally
accepted in the standard terms and
conditions, arises between the Group
and the customer. This will typically be on
dispatch or delivery. Provisions for sales
discounts and rebates to customers are
based upon the terms of sales contracts
and are recorded in the same period as the
related sales as a deduction from revenue.
The Group estimates the provision for sales
discounts and rebates based on the terms
of each agreement at the time the revenue
is recognised.
Royalties and profit
sharing arrangements
Revenues are recognised on an accruals
basis in accordance with the substance
of the underlying agreement, subject
to reliable measurement of the amounts.
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Interest and dividend income
Interest income is recognised on a
time-proportion basis using the effective
interest method.
Dividend income is recognised when the
right to receive payment is established.
Segmental reporting
An operating segment is a group
of assets and operations engaged in
providing products and services that
are subject to risks or returns that are
different from those of other segments.
Operating segments presented in the
financial statements are consistent
with the internal reporting provided to
the Group’s Chief Operating Decision
Maker, which has been identified
as the Group Executive Committee.
Employee benefits
Pension obligations
The Group accounts for pensions and
similar benefits under IAS 19 ‘Employee
Benefits’ (revised). In respect of defined
benefit plans (pension plans that define an
amount of pension benefit that an
employee will receive on retirement, usually
dependent on one or more factors such as
age, years of service and compensation),
obligations are measured at discounted
present value whilst plan assets are
recorded at fair value. The assets and
liabilities recognised in the balance sheet in
respect of defined benefit pension plans is
the net of plan obligations and assets. A
scheme surplus is only recognised as an
asset in the balance sheet when the Group
has the unconditional right to future
economic benefits in the form of a refund
or a reduction in future contributions.
No allowance is made in the past service
liability in respect of either the future
expenses of running the schemes or for
non-service related death in service
benefits which may arise in the future. The
operating costs of such plans are charged
to operating profit and the finance costs
are recognised as financial income or an
expense as appropriate.
Service costs are spread systematically
over the lives of employees and financing
costs are recognised in the periods in
which they arise. Actuarial gains and
losses are recognised in the statement
of comprehensive income. Payments to
defined contribution schemes (pension
plans under which the Group pays fixed
contributions into a separate entity) are
charged as an expense as they fall due.
Other post-retirement benefits
Some Group companies provide
post-retirement healthcare benefits to
their retirees. The entitlement to these
benefits is usually conditional on the
employee remaining in service up to
retirement age and the completion of a
minimum service period. The expected
costs of these benefits are accrued over
the period of employment using an
accounting methodology similar to that for
defined benefit pension plans. Actuarial
gains and losses are recognised in the
statement of comprehensive income.
These obligations are valued annually
by independent qualified actuaries.
Termination benefits
Termination benefits are payable
when employment is terminated by
the Group before the normal retirement
date, or whenever an employee accepts
voluntary redundancy in exchange for
these benefits. The Group recognises
termination benefits when it is
demonstrably committed to either
(i) terminating the employment of current
employees according to a detailed formal
plan without possibility of withdrawal
or (ii) providing termination benefits as
a result of an offer made to encourage
voluntary redundancy.
Share-based payments
The Group operates a number of cash
and equity-settled, share-based incentive
schemes. These are accounted for in
accordance with IFRS 2 ‘Share-based
Payments’, which requires an expense
to be recognised in the income statement
over the vesting period of the options.
The expense is based on the fair value
of each instrument which is calculated
using the Black-Scholes or binomial
model as appropriate. Any expense
is adjusted to reflect expected and
actual levels of options vesting for non-
market based performance criteria.
Currency translations
Functional and presentation currency
Items included in the financial statements
of each of the Group’s entities are
measured using the currency of the
primary economic environment in which
the entity operates (‘the functional
currency’). The consolidated financial
statements are presented in Sterling,
which is the Company’s functional
and presentation currency.
Transactions and balances
Monetary assets and liabilities are
translated at the exchange rates ruling
at the end of the financial period.
Exchange profits or losses on trading
transactions are included in the Group
income statement except when
deferred in equity as qualifying cash
flow hedges and qualifying net
investment hedges.
Group companies
The results and financial position of all
the Group entities that have a functional
currency different from the presentation
currency are translated into the
presentation currency as follows:
(i)
assets and liabilities for each balance
sheet presented are translated at
the closing rate at the date of that
balance sheet;
(ii) income and expenses for each income
statement are translated at average
exchange rates (unless this average
is not a reasonable approximation
of the cumulative effect of the rates
prevailing on the transaction dates,
in which case income and expenses
are translated at the dates of the
transactions); and
(iii) all resulting exchange differences are
recognised as a separate component
of equity.
On consolidation, exchange differences
arising from the translation of the net
investment in foreign entities, and of
borrowings and other currency instruments
designated as hedges of such investments,
are taken to shareholders’ equity.
When a foreign operation is sold, such
exchange differences are recognised
in the income statement as part of the
gain or loss on sale.
Taxation
The charge for taxation is based on the
profit for the year and takes into account
taxation deferred because of temporary
differences between the treatment of
certain items for taxation and for
accounting purposes. Temporary
differences arise on differences between
the carrying value of assets and liabilities
in the financial statements and their tax
base and primarily relate to the difference
between tax allowances on tangible fixed
assets and the corresponding depreciation
charge, and upon the net pension fund
deficit. Full provision is made for the tax
effects of these differences. No provision
is made for unremitted earnings of foreign
subsidiaries where there is no commitment
to remit such earnings.
Similarly, no provision is made for
temporary differences relating to
investments in subsidiaries since realisation
of such differences can be controlled and
is not probable in the foreseeable future.
Deferred tax assets are recognised, using
the balance sheet liability method, to the
extent that it is probable that future taxable
profit will be available against which the
temporary differences can be utilised.
All taxation is calculated on the basis of the
tax rates and laws enacted or substantively
enacted at the balance sheet date.
Exceptional items
Exceptional items are those items that in
the Directors’ view are required to be
separately disclosed by virtue of their size
or incidence to enable a full understanding
of the Group’s financial performance. In the
current year all exceptional items relate
to environmental costs of businesses
discontinued in prior years. Exceptional
items in the prior year relate to
reorganisation costs. Details can be found
in note 3 on page 101.
Income statement presentation
The acquisition in 2016 of Inventiva and in
2017 of Enza Biotech AB and IonPhasE
OY, increased acquisition costs and
amortisation of acquired intangible assets.
If the right targets can be found, these
costs are likely to increase in the future.
To avoid distorting the underlying trend in
profitability, the Group introduced the
definitions ‘Adjusted operating profit’,
‘Adjusted profit before tax’ and ‘Adjusted
earnings per share’. In each case
acquisition costs, amortisation or write-off
of intangible assets arising on acquisition
and exceptional items, including the
respective tax effect, are excluded. The
Group income statement has been
produced in a columnar format to further
aid this analysis.
Property, plant and equipment
Property, plant and equipment is stated at
historical cost less depreciation, with the
exception of assets acquired as part of a
business combination. Cost includes the
original purchase price of the asset and the
costs attributable to bringing the asset to
its working condition for its intended use.
The Group’s policy is to write-off the
difference between the cost of all property,
plant and equipment, except freehold land,
and their residual value on a straight-line
basis over their estimated useful lives.
Reviews are made annually of the
estimated remaining lives and residual
values of individual productive assets,
taking account of commercial and
technological obsolescence as well as
normal wear and tear, and adjustments are
made where appropriate. Under this policy
it becomes impractical to calculate average
asset lives exactly. However, the total lives
range from approximately 15 to 40 years
for land and buildings, and 3 to 15 years for
plant and equipment. All individual assets
are reviewed for impairment when there are
indications that the carrying value may not
be recoverable. By far the bulk of the
Group’s ‘plant and equipment’ asset class
relates to the value of plant and equipment
at the Group’s manufacturing facilities.
Consequently, the Group does not seek to
analyse out of this class other items such
as motor vehicles and office equipment.
Impairment of non-financial assets
The Group assesses at each year end
whether an asset may be impaired.
If any evidence exists of impairment,
the estimated recoverable amount is
compared to the carrying value of the asset
and an impairment loss is recognised
where appropriate. The recoverable
amount is the higher of an asset’s value
in use and fair value less costs to sell.
In addition to this, goodwill is tested for
impairment at least annually. Non-financial
assets other than goodwill which have
suffered impairment are reviewed for
possible reversal of the impairment at
each reporting date.
Leases
Assets acquired under finance leases
are included in the balance sheet
under property, plant and equipment
at an amount reflecting the lower of the
present value of future rentals and
the fair value of the asset and are
depreciated over the shorter of the lease
term and their estimated useful lives.
The capital element of future lease rentals
is included in borrowings. Finance charges
are allocated to the income statement
each year in proportion to the capital
element outstanding.
The cost of operating leases is charged to
the income statement on a straight-line
basis over the lease period.
Derivative financial instruments
The Group uses derivative financial
instruments to hedge its exposure to
interest rates and short term currency
rate fluctuations.
Derivative financial instruments are
recorded initially at cost. Subsequent
measurement depends on the designation
of the instrument as either: (i) a hedge of
the fair value of recognised assets or
liabilities or a firm commitment (fair value
hedge); or (ii) a hedge of highly probable
forecast transactions (cash flow hedge).
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redemption value is recognised in the
income statement over the period of the
borrowings using the effective interest
method. Borrowings are classified as
current liabilities unless the Group has
an unconditional right to defer settlement
of the liability for at least 12 months after
the balance sheet date.
Borrowing costs
General and specific borrowing costs
directly attributable to the acquisition,
construction or production of qualifying
assets, which are assets that necessarily
take a substantial period of time to get
ready for their intended use or sale, are
added to the cost of those assets, until
such time as the assets are substantially
ready for their intended use or sale.
Trade and other payables
Trade and other payables are recognised
initially at fair value and subsequently
measured at amortised cost using the
effective interest method.
Inventories
Inventories are stated at the lower of cost
and net realisable amount on a first in first
out basis. Cost comprises all expenditure,
including related production overheads,
incurred in the normal course of business
in bringing the inventory to its location and
condition at the balance sheet date. Net
realisable amount is the estimated selling
price in the ordinary course of business
less any applicable variable selling costs.
Provision is made for obsolete, slow
moving and defective inventory where
appropriate. Profits arising on intra
Group sales are eliminated in so far as
the product remains in Group inventory
at the year end.
Trade and other receivables
Trade and other receivables are recognised
initially at fair value and subsequently
measured at amortised cost, using the
effective interest method, less impairment
losses. A provision for impairment is
made when there is objective evidence
that the amount will not be collectible.
Such amounts are written down to
their estimated recoverable amounts,
with the charge being made to
operating expenses.
Cash and cash equivalents
Cash and cash equivalents comprise
cash balances and short term deposits.
Bank overdrafts that are repayable
on demand and form an integral part
of the Group’s cash management are
included as a component of cash and
cash equivalents for the purpose of the
statement of cash flows. Cash and bank
overdrafts are offset and the net amount
reported in the balance sheet when
there is a legally enforceable right to
offset the recognised amounts, there is
an intention to settle on a net basis and
interest is charged on a net basis.
Environmental, restructuring
and other provisions
The Group is exposed to environmental
liabilities relating to its operations and
liabilities arising from the restructuring
of its operations following the acquisition
of Uniqema. Provisions are made
immediately where a legal obligation
is identified, can be quantified and it is
regarded as more likely than not that an
outflow of resources will be required to
settle the obligation. The Group does
consider the impact of discounting when
establishing provisions and provisions are
discounted when the impact is material
and the timing of cash flows can be
estimated with reasonable certainty.
Share capital
Investment in own shares
(i) Employee share ownership trusts –
shares acquired by the trustees of the
employee share ownership trust (the
Trustees), funded by the Company and
held for the continuing benefit of the
Company are shown as a reduction
in equity attributable to owners of the
parent. Movements in the year arising
from additional purchases by the Trustees
of shares or the receipt of funds due to
the exercise of options by employees are
accounted for within reserves and shown
as a movement in equity attributable
to owners of the parent in the year.
Administration expenses of the trusts
are charged to the Company’s income
statement as incurred.
(i) Fair value hedge
Changes in the fair value of derivatives,
for example interest rate swaps and
foreign exchange contracts, that are
designated and qualify as fair value
hedges are recorded in the income
statement, together with any changes
in the fair value of the hedged asset
or liability that are attributable to the
hedged risk.
(ii) Cash flow hedge
The effective portion of changes
in the fair value of derivatives that are
designated and qualify as cash flow
hedges are recognised in equity. The
gain or loss relating to the ineffective
portion is recognised immediately in the
income statement. Amounts accumulated
in equity are recycled in the income
statement in the periods when the hedged
item will affect profit or loss (for instance
when the forecast sale that is hedged
takes place). However, when the forecast
transaction that is hedged results in
the recognition of a non-financial asset
(for example, inventory) or a liability,
the gains and losses previously deferred
in equity are transferred from equity
and included in the initial measurement
of the cost of the asset or liability.
When a hedging instrument expires or is
sold, or when a hedge no longer meets
the criteria for hedge accounting, any
cumulative gain or loss existing in equity
at that time remains in equity and is
recognised when the forecast transaction
is ultimately recognised in the income
statement.
When a forecast transaction is no
longer expected to occur, the cumulative
gain or loss that was reported in equity
is immediately transferred to the
income statement.
Certain derivative instruments do not
qualify for hedge accounting. Changes
in the fair value of any derivative
instruments that do not qualify for
hedge accounting are recognised
immediately in the income statement.
Borrowings
Borrowings are recognised initially at fair
value, net of transaction costs incurred.
Any difference between the proceeds
(net of transaction costs) and the
98 Croda International Plc
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(ii) Treasury shares – where any Group
company purchases the Company’s
equity share capital as treasury shares,
the consideration paid, including any
directly attributable incremental costs
(net of income taxes) is deducted from
equity attributable to the Company’s
equity holders until the shares are
cancelled, reissued or disposed of.
Where such shares are subsequently
sold or reissued, any consideration
received, net of any directly attributable
incremental transaction costs and the
related income tax effects, is included
in equity attributable to the Company’s
equity holders.
Dividends
Dividends on Ordinary share capital are
recognised as a liability when the liability
is irrevocable. Accordingly, final dividends
are recognised when approved by
shareholders and interim dividends are
recognised when paid.
Investments
Investments in quoted securities are
treated as ‘available for sale’ and stated
at fair value, being the appropriate quoted
market value, with movements in the
fair value being recognised in equity.
Investments in unquoted securities are
carried at fair value unless such value
cannot be reliably measured, in which
case the investments are carried at cost.
Investments in associates are initially
recorded at cost and subsequently
adjusted for the Group’s share of results.
Investments are subject to impairment
testing at each balance sheet date or
earlier upon indication of impairment.
Held to maturity investments are
measured at amortised cost using
the effective interest rate method.
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Financial Statements
Notes to the Group Accounts
1. Segmental analysis
The Group’s sales, marketing and research activities are organised into four global market sectors, being Personal Care, Life Sciences,
Performance Technologies and Industrial Chemicals. These are the segments for which summary management information
is presented to the Group’s Executive Committee, which is deemed to be the Group’s Chief Operating Decision Maker. A review
of each sector can be found within the Strategic Report on pages 14 to 20.
There is no material trade between segments. Segmental results include items directly attributable to a specific segment as well
as those that can be allocated on a reasonable basis. Segment assets consist primarily of property, plant and equipment, intangible
assets, inventories and trade and other receivables.
Income statement
Revenue
Personal Care
Life Sciences
Performance Technologies2
Industrial Chemicals2
Total Group revenue
Adjusted operating profit
Personal Care
Life Sciences
Performance Technologies2
Industrial Chemicals2
Total Group operating profit (before exceptional items, acquisition costs and amortisation of intangible assets
arising on acquisition)
Exceptional items, acquisition costs and amortisation of intangible assets arising on acquisition1
Total Group operating profit
1 Relates to Personal Care £0.6m (2016: £0.8m), Life Sciences £3.2m (2016: £11.3m), Performance Technologies £0.6m (2016: £0.5m),
Industrial Chemicals £0.1m (2016: £nil) and operations discontinued in prior years £1.7m (2016: £nil)
2 2016 sector revenue and adjusted operating profit have been increased by a net of £3.1m and £0.4m respectively in Performance Technologies for product
portfolio changes, with corresponding reductions in Industrial Chemicals.
Balance sheet
Total assets
Segment total assets:
Personal Care
Life Sciences
Performance Technologies
Industrial Chemicals
Total segment assets
Tax assets
Retirement benefit assets
Cash and investments
Total Group assets
Capital expenditure and depreciation
Personal Care
Life Sciences
Performance Technologies
Industrial Chemicals
Total Group
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2017
£m
Additions to
non-current
assets
50.5
41.6
56.3
15.9
164.3
Depreciation and
amortisation
14.0
14.8
18.5
6.0
53.3
2017
£m
2016
£m
Restated
466.6
322.6
456.9
127.0
1,373.1
155.5
97.0
75.4
4.3
332.2
(6.2)
326.0
561.4
358.9
444.0
166.7
1,531.0
33.1
19.1
65.5
1,648.7
420.6
292.2
405.6
125.2
1,243.6
143.1
82.0
66.6
6.5
298.2
(12.6)
285.6
527.3
315.0
389.4
149.8
1,381.5
56.3
–
62.0
1,499.8
2016
£m
Additions to
non-current
assets
31.4
21.2
43.8
12.0
108.4
Depreciation and
amortisation
13.0
13.6
16.8
5.8
49.2
The Group manages its business segments on a global basis. The operations are based in the following geographical areas; Europe,
with manufacturing sites in the UK, France, the Netherlands, Italy, Spain and Finland; the Americas, with manufacturing sites in the US,
Brazil and Argentina; Asia, with manufacturing sites in Singapore, Japan, India, China and Indonesia; and Australia and South Africa.
The Group’s revenue from external customers in the UK is £50.2m (2016: £45.0m), in Germany is £113.6m (2016: £113.6m), in the
US is £356.5m (2016: £317.2m) and the total revenue from external customers from other countries is £852.8m (2016: £767.8m).
The total of non-current assets other than financial instruments, retirement benefit assets and deferred tax assets located in the UK is
£94.0m (2016: £90.2m), and the total of the non-current assets located in other countries is £658.3m (2016: £557.1m). Goodwill has not
been split by geography as this asset is not attributable to a geographical area.
No single external customer represents more than 3% of the total revenue of the Group.
2. Operating costs
Analysis of net operating expenses by function:
Distribution costs
Administrative expenses
2017
£m
74.1
117.3
191.4
Additional information on the nature of operating expenses, including depreciation and employee costs, is provided in note 3.
3. Profit for the year
The Group profit for the year is stated after charging/(crediting):
Depreciation and amortisation (note 12 & 13)
Staff costs (note 9)
Redundancy costs
Non-exceptional
Exceptional
Inventories
Cost recognised as expense in cost of sales
Provision movement in the year
Research and development
Hire of plant and machinery and other operating lease rentals
Net foreign exchange
Bad debt charge (note 17)
Adjustments (including exceptional items):
2017
£m
53.3
265.8
1.6
–
741.9
(2.4)
37.5
9.9
1.2
0.8
2016
£m
59.5
100.0
159.5
2016
£m
49.2
245.5
1.6
4.1
674.8
5.1
34.6
5.9
(3.3)
1.8
Adjustments in the Group income statement of £6.2m (2016: £12.6m) include £1.7m relating to environmental costs of businesses
discontinued in prior years (2016: £8.4m of costs associated with the reorganisation of Incotec during the year). Also included are
acquisition costs of £0.8m (2016: £1.1m) and amortisation of intangible assets arising on acquisition of £3.7m (2016: £3.1m).
Services provided by the Group’s auditors
Audit services
Fees payable to the Group auditors for the audit of Parent Company and consolidated financial statements
Fees payable to the Group auditors and its associates for the audit of the Company’s subsidiaries
Other audit services
Tax compliance services
2017
£m
0.1
0.9
0.1
1.1
2016
£m
0.1
0.8
0.3
1.2
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Financial Statements | Notes to the Group Accounts
4. Net financial costs
Financial costs
US$100m 5.94% fixed rate 10 year bond
2014 Club facility due 2021
2016 Club facility due 2021
€30m 1.08% fixed rate 7 year bond
€70m 1.43% fixed rate 10 year bond
£30m 2.54% fixed rate 7 year bond
£70m 2.80% fixed rate 10 year bond
Net interest on retirement benefit liabilities
Other bank loans and overdrafts
Capitalised interest
Financial income
Bank interest receivable and similar income
Net financial costs
5. Tax
(a) Analysis of tax charge for the year
UK current corporate tax
Overseas current corporate taxes
Current tax
Deferred tax (note 6)
(b) Tax on items charged/(credited) to equity
Deferred tax on actuarial movement on retirement benefit liabilities
Deferred tax on share based payments
(c) Factors affecting the tax charge for the year
Profit before tax
Tax at the standard rate of corporation tax in the UK, 19.25% (2016: 20.00%)
Effect of:
Deferred tax rate change
Prior year overprovisions
Tax cost of remitting overseas income to the UK
Expenses and write-offs not deductible for tax purposes
Net effect of higher overseas tax rates
2017
£m
4.6
2.9
0.1
0.3
0.9
0.8
2.0
3.6
2.3
(5.0)
12.5
(0.6)
11.9
2017
£m
16.4
65.5
81.9
(4.5)
77.4
23.8
(1.7)
22.1
314.1
60.5
(7.7)
(2.9)
0.8
0.6
26.1
77.4
2016
£m
4.4
3.2
0.2
0.1
0.4
0.4
1.0
2.5
1.4
(3.0)
10.6
(0.7)
9.9
2016
£m
17.4
59.3
76.7
1.4
78.1
(10.4)
(0.5)
(10.9)
275.7
55.1
(0.4)
–
0.3
0.5
22.6
78.1
Croda’s 2017 effective adjusted corporate tax rate of 26.8% is significantly higher than the UK’s standard rate of 19.25%. Croda
operates in many tax jurisdictions other than the UK, both as a manufacturer and distributor, with the majority of those jurisdictions
having rates higher than the UK; considerably so in some cases. It is the exposure to these different tax rates that increases the
effective tax rate above the UK standard rate and also makes it difficult to forecast the Group’s future tax rate with any certainty given
the unpredictable nature of exchange rates, individual economies and tax legislators. Other than the exposure to higher overseas tax
rates, there are no significant adjustments between the Group’s expected and reported tax charge based on its accounting profit.
Given the global nature of the Group, and the number of associated cross-border transactions between connected parties, we are
exposed to potential adjustments to the price charged for those transactions by tax authorities. However, we would not expect such
adjustments, if any, to have a material impact on the Group’s tax charge in future years. Details of the Group’s tax strategy can be found
on our website at www.croda.com.
The main rate of UK corporation tax reduced from 20% to 19% from 1 April 2017. Further reductions to the UK tax rate have been announced
that will reduce the rate to 17% by 1 April 2020, although for 2017 the rate as currently enacted will be 19%. The future changes to rates were
substantively enacted on 6 September 2016. Overseas tax is calculated at the rates prevailing in the respective jurisdictions.
On 22 December 2017, The Tax Cuts and Jobs Act was given legislative effect in the US. The principal change for the Group is the reduction
in the headline rate of Federal Corporate tax from 35% to 21% with effect from 1 January 2018. The change in Federal rate will contribute to a
fall in the Group’s future effective rate from where it otherwise would have been. Assuming the Group’s current taxable profits by territory
remain unchanged, the net benefit of the Act’s changes is estimated to be worth approximately 2.5ppts off the Group’s effective tax rate. The
change in rate also resulted in a reduction in the Group’s US net deferred tax liability at 31 December 2017, with the £7.7m benefit treated as
exceptional in these financial statements.
6. Deferred tax
The deferred tax balances included in these accounts are attributable to the following:
Deferred tax assets
Retirement benefit liabilities
Provisions
Deferred tax liabilities
Accelerated capital allowances
Revaluation gains
Acquired intangibles
Retirement benefit assets
Other
The movement on deferred tax balances during the year is summarised as follows:
Deferred tax (charged)/credited through the income statement
Continuing operations before adjustments
Adjustments and exceptional items
Deferred tax (charged)/credited directly to equity (note 5(b))
Acquisitions
Exchange differences
Net balance brought forward
Net balance carried forward
Deferred tax (charged)/credited through the income statement relates to the following:
Retirement benefit obligations
Accelerated capital allowances
Provisions
Other
2017
£m
12.5
20.6
33.1
45.0
1.9
12.4
3.1
1.0
63.4
(4.0)
8.5
(22.1)
(3.4)
0.7
(20.3)
(10.0)
(30.3)
(0.2)
4.8
(2.7)
2.6
4.5
2016
£m
33.8
22.5
56.3
52.2
1.9
9.4
–
2.8
66.3
(2.1)
0.7
10.9
–
(2.6)
6.9
(16.9)
(10.0)
(3.0)
(0.9)
–
2.5
(1.4)
Deferred tax is calculated in full on temporary differences under the balance sheet liability method at rates appropriate to each
subsidiary. Deferred tax expected to reverse in the year to 31 December 2018 and beyond has been measured using the rate due
to prevail in the year of reversal.
Deferred tax assets have been recognised in all cases where such assets arise, as it is probable the assets will be recovered.
Deferred tax is only recognised on the unremitted earnings of overseas subsidiaries to the extent that remittance is expected
in the foreseeable future. If all earnings were remitted, an additional £3.2m (2016: £2.9m) of tax would be payable.
All movements on deferred tax balances have been recognised in income with the exception of the charges shown in note 5(b),
which have been recognised directly in equity.
Of the deferred tax assets, £5.0m are expected to reverse within 12 months of the balance sheet date, due to payments against
provisions. No material reversal of any of the deferred tax liability is expected within 12 months of the balance sheet date based
on the Group’s current capital expenditure programme.
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7. Earnings per share
Adjusted profit for the year
Exceptional items, acquisition costs and amortisation of intangible assets
Tax impact of exceptional items, acquisition costs and amortisation of intangible assets
Non-controlling interests
Weighted average number of 10.36p ordinary shares in issue for basic calculation
Deemed issue of potentially dilutive shares
Average number of 10.36p ordinary shares for diluted calculation
Basic earnings per share
Adjusted basic earnings per share from continuing operations
Diluted earnings per share
Adjusted diluted earnings per share from continuing operations
2017
£m
234.4
(6.2)
8.5
0.3
237.0
Number
m
131.1
1.3
132.4
Pence
180.8
179.0
179.0
177.3
2016
£m
207.6
(12.6)
2.6
(0.9)
196.7
Number
m
132.7
1.2
133.9
Pence
148.2
155.8
146.9
154.4
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number
of ordinary shares in issue during the year, excluding those held in the employee share trusts (note 24) which are treated as cancelled
as except for a nominal amount, dividends have been waived.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all
potentially dilutive ordinary shares.
Additional earnings per share calculations are included above to give a better indication of the Group’s underlying performance.
8. Dividends
Ordinary
Interim
2016 interim, paid October 2016
2017 interim, paid October 2017
Final
2015 final, paid June 2016
2015 special, paid June 2016
2016 final, paid June 2017
Preference (paid June and December)
Pence per
share
2017
£m
Pence per
share
2016
£m
–
35.00
–
–
41.25
76.25
32.75
–
38.00
100.00
–
170.75
–
45.8
–
–
54.1
99.9
0.1
100.0
42.9
–
51.5
135.7
–
230.1
0.1
230.2
The Directors are recommending a final dividend of 46.0p per share, amounting to a total of £60.4m, in respect of the financial year
ended 31 December 2017.
Subject to shareholder approval, the dividend will be paid on 31 May 2018 to shareholders registered on 20 April 2018 and has not
been accrued in these financial statements. The total dividend for the year ended 31 December 2017 will be 81.0p per share amounting
to a total of £106.2m.
9. Employees
Group employment costs including Directors
Wages and salaries
Share-based payment charges (note 22)
Social security costs
Post retirement benefit costs
Redundancy costs
Average employee numbers by function
Production
Selling and distribution
Administration
2017
£m
190.3
17.0
35.0
23.5
1.6
267.4
2016
£m
181.7
13.0
32.5
18.3
5.7
251.2
2017
Number
2016
Number
2,659
1,032
579
4,270
2,683
1,017
589
4,289
As required by the Companies Act 2006, the figures disclosed above are weighted averages based on the number of employees
at each month end and include Executive Directors. At 31 December 2017, the Group had 4,309 (2016: 4,273) employees in total.
10. Directors’ and key management compensation
Detailed information concerning Directors’ remuneration, interests and options is shown in the Directors’ Remuneration Report,
which is subject to audit on pages 61 to 77 forming part of the Annual Report and Accounts.
Aggregate compensation for key management, being the Directors and members of the Group Executive Committee, was as follows:
Key management compensation including Directors
Short term employee benefits
Post retirement benefit costs
Share-based payments
2017
£m
6.6
0.1
3.4
10.1
2016
£m
7.1
0.1
2.4
9.6
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11. Post retirement benefits
The table below summarises the Group’s net year end post-employment liabilities and activity for the year.
The amounts recognised in the balance sheet in respect of these schemes are as follows:
Balance sheet:
Retirement benefit assets
Retirement benefit liabilities
Net liability in Group balance sheet
Net balance sheet liabilities for:
Defined pension benefits
Post-employment medical benefits
Income statement charge included in profit before tax for:
Defined pension benefits
Post-employment medical benefits
Remeasurements included in other comprehensive (income)/expense for:
Defined pension benefits
Post-employment medical benefits
2017
£m
19.1
(49.6)
(30.5)
(17.1)
(13.4)
(30.5)
22.1
1.0
23.1
(119.9)
(2.0)
(121.9)
2016
£m
–
(146.5)
(146.5)
(130.3)
(16.2)
(146.5)
15.9
1.2
17.1
69.2
(3.7)
65.5
Defined benefit pension schemes
The Group operates defined benefit pension schemes in the UK, US and several other territories under broadly similar regulatory
frameworks. All of the Group’s final salary type pension schemes (which provide benefits to members in the form of a guaranteed
level of pension payable for life based on salary in the final years leading up to retirement) are closed to future service accrual with the
exception of a small number of ‘grandfathered’ employees in the US scheme. The UK scheme operated on a final salary basis until
5 April 2016, following which the scheme changed to a Career Average Revalued Earnings (CARE) defined benefit scheme, with annual
pensionable earnings capped at a CPI indexed £65,000 and indexation of pensions in payment based on CPI (previously RPI), for
service accrued from 6 April 2016. This change is expected to reduce the future comparable cost and risk attached to the UK scheme.
Material defined benefit pension schemes in other territories operate on a similar basis to the UK, except in the US, which (other than
for ‘grandfathered’ employees) operates a cash balance pension scheme that provides a guaranteed rate of return on pension
contributions until retirement. From 1 January 2018 the US scheme has closed to new joiners who will receive defined contribution
benefits. The US plans also do not generally receive inflationary increases once in payment. With the exception of this difference in
inflationary risk, the Group’s main defined benefit pension schemes continue to face broadly similar risks, as described on page 109.
The majority of benefit payments are from trustee administered funds; however, there are also a number of unfunded plans where
the relevant Group company meets the benefit payment obligation as it falls due.
Plan assets held in trusts are governed by local regulations and practice in each country, as is the nature of the relationship between
the Group and the trustees (or equivalent) and their composition. Responsibility for governance of the schemes – including investment
decisions and contribution schedules – predominantly lies with the particular scheme’s board of trustees with appropriate input from
the relevant Group company. The board of trustees must be composed of representatives in accordance with each scheme’s
regulations and any relevant legislation.
Present value of funded obligations
UK pension scheme
US pension scheme
Netherlands pension scheme
Rest of World
Fair value of schemes’ assets
UK pension scheme
US pension scheme
Netherlands pension scheme
Rest of World
Net liability in respect of funded schemes
Present value of unfunded obligations
Liability in Group balance sheet (excluding post-employment medical benefits)
Movement in present value of retirement benefit obligations in the year:
Opening balance
Current service cost
Interest cost
Remeasurements
Change in demographic assumptions
Change in financial assumptions
Experience gains
Contributions paid in
Employee
Benefits paid
Exchange differences on overseas schemes
Movement in fair value of schemes’ assets in the year:
Opening balance
Interest income
Remeasurements
Return on scheme assets, excluding amounts included in financial expenses
Contributions paid in
Employee
Employer
Benefits paid out including settlements
Exchange differences on overseas schemes
2017
£m
2016
£m
(991.6)
(127.9)
(176.0)
(22.3)
(1,317.8)
1,010.1
128.5
151.0
15.2
1,304.8
(13.0)
(4.1)
(17.1)
2017
£m
1,359.7
19.1
34.4
(5.5)
21.0
(60.3)
2.6
(41.8)
(7.3)
1,321.9
(1,036.1)
(135.7)
(164.1)
(19.5)
(1,355.4)
956.4
126.3
134.3
12.4
1,229.4
(126.0)
(4.3)
(130.3)
2016
£m
1,032.4
14.1
37.4
(0.7)
272.5
(7.5)
2.6
(38.6)
47.5
1,359.7
1,229.4
31.4
969.6
35.6
75.1
195.1
2.6
15.8
(41.8)
(7.7)
1,304.8
2.6
25.1
(38.6)
40.0
1,229.4
106 Croda International Plc
Annual Report and Accounts 2017
As at the balance sheet date, the present value of retirement benefit obligations was comprised of approximately £370m in respect
of active employees, £358m in respect of deferred members and £594m in relation to members in retirement.
Total employer contributions to the schemes in 2018 are expected to be £12.8m.
The significant actuarial assumptions were as follows:
Discount rate
Inflation rate – RPI
Inflation rate – CPI
Rate of increase in salaries
Rate of increase for pensions in payment
Duration of liabilities (ie life expectancy) (years)
Remaining working life
2017
UK
2.4%
3.2%
2.2%
4.2%
3.0%
19.9
12.7
2017
US
3.6%
2.5%
n/a
4.0%
n/a
11.1
11.1
2017
Netherlands
1.9%
1.9%
n/a
2.4%
1.5%
22.4
13.0
2016
UK
2.6%
3.3%
2.3%
4.3%
3.1%
20.5
15.8
2016
US
4.0%
2.5%
n/a
4.0%
n/a
11.5
11.1
2016
Netherlands
1.9%
1.9%
n/a
2.4%
1.5%
23.9
13.5
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Financial Statements | Notes to the Group Accounts
11. Post retirement benefits continued
Mortality assumptions are based on country-specific mortality tables and where appropriate allow for future improvements in life
expectancy. Where credible data exists, actual plan experience is taken into account. Applying the mortality tables adopted, the
expected future average lifetime of members currently at age 65 and members at age 65 in 20 years’ time is as follows:
Male
Female
UK
21.5
24.0
US
21.1
23.0
Current age 65
Netherlands
22.1
24.8
UK
22.9
25.5
Age 65 in 20 years
Netherlands
23.8
26.4
US
22.6
24.4
The sensitivity of the defined benefit obligation to changes in the assumptions is as follows:
Discount rate
Inflation rate
Mortality (assumes a one year increase in life expectancy)
Impact on retirement benefit obligation
Sensitivity
0.5%
0.5%
1 year
Of increase
-9.0%
+6.6%
+3.0%
Of decrease
+10.4%
-6.2%
n/a
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice,
this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined
benefit obligation to significant actuarial assumptions, the same method (present value of the defined benefit obligation calculated
with the projected unit credit method at the end of the reporting year) has been applied as when calculating the retirement benefit
obligation recognised in the Group balance sheet.
The weighted average duration of the defined benefit obligation is 19.3 years (2016: 19.9 years).
The assets in the schemes comprised:
Quoted
Equities
Government bonds
Corporate bonds
Other quoted securities
Unquoted
Cash and cash equivalents
Real estate
Liability driven instruments
Other
2017
£m
355.1
64.5
128.7
1.9
43.1
66.8
378.3
266.4
1,304.8
2017
%
27%
5%
10%
0%
3%
5%
29%
21%
100%
2016
£m
486.5
56.4
123.8
4.8
66.8
67.2
179.6
244.3
1,229.4
Post-employment medical benefits
The Group operates an unfunded post-employment medical benefit scheme in the US. The method of accounting, significant
assumptions and the frequency of valuations are similar to those used for defined benefit pension schemes set out above with
the addition of actuarial assumptions relating to the long term increase in health care costs of 7.6% a year (2016: 8.0%).
The amounts recognised in the balance sheet in respect of this scheme are as follows:
Present value of unfunded obligations
US scheme
Movement in present value of retirement benefit obligations in the year:
Opening balance
Current service cost
Interest cost
Remeasurements
Change in demographic assumptions
Change in financial assumptions
Experience gains
Benefits paid
Exchange differences on overseas schemes
108 Croda International Plc
Annual Report and Accounts 2017
2017
£m
13.4
2017
£m
16.2
0.4
0.6
–
(1.3)
(0.7)
(0.3)
(1.5)
13.4
2016
%
40%
5%
10%
0%
5%
5%
15%
20%
100%
2016
£m
16.2
2016
£m
16.0
0.5
0.7
(0.2)
(2.0)
(1.5)
(0.4)
3.1
16.2
Pension and medical benefits – risks and volatility
Through its defined benefit pension schemes and post-employment medical schemes, the Group is exposed to a number of risks,
the most significant of which are detailed below:
Asset volatility
The schemes’ liabilities are calculated using a discount rate set with reference to corporate bond yields; if scheme assets underperform
this yield, a deficit will be created. Both the UK and US plans hold a significant proportion of equities, which are expected to outperform
corporate bonds in the long term while providing volatility and risk in the short term. Whilst our Dutch scheme is less mature, regulatory
pressures result in lower equity holdings. As the schemes mature, the Group intends to reduce the level of investment risk by investing
more in assets that better match the liabilities. However, the Group and the pension trustees (Trustees) believe that due to the long term
nature of the scheme liabilities and the strength of the supporting Group, a level of continuing equity investment is an appropriate
element of the Group’s long term strategy to manage the schemes efficiently. See below for more details on the Group’s asset-liability
matching strategy.
Changes in bond yields
A decrease in corporate bond yields will increase scheme liabilities, although this will be partially offset by an increase in the value
of the schemes’ bond holdings.
Inflation risk
Some of the Group’s pension obligations are linked to inflation, and higher inflation will lead to higher liabilities. However, the level of
inflationary increases are usually capped to protect the scheme against extreme inflation. The majority of the schemes’ assets are either
unaffected by inflation in the case of fixed interest bonds or loosely correlated in the case of equities, meaning that an increase in inflation
will thus increase the deficit. In the US schemes, the pensions in payment are not linked to inflation, so this is a less material risk.
Life expectancy
The majority of the schemes’ obligations are to provide benefits for the life of the member, so increases in life expectancy will result
in an increase in the schemes’ liabilities. This is particularly significant in the UK scheme, where inflationary increases result in higher
sensitivity to changes in life expectancy. In the case of the funded schemes, the Group ensures that the investment positions are
managed within an asset-liability matching (ALM) framework that has been developed to achieve long term investments that are
cognisant of the obligations under the pension schemes. Within this framework, the Group’s ALM objective is to match a portion of
assets to the pension obligations by investing in long term fixed interest securities with maturities that match the benefit payments as
they fall due and in the appropriate currency. The Group and Trustees actively monitor how the duration and the expected yield of the
investments are matching the expected cash outflows arising from the pension obligations. The Group has not changed the processes
used to manage its risks from previous years. As part of these processes, the Group increased the proportion of assets in its UK liability
driven investment portfolio during the year by 18.7% to leave approximately 85% of liabilities hedged against interest rate and inflation
movements. Investments are well diversified, such that the failure of any single investment would not have a material impact on the
overall level of assets. A large portion of assets in 2017 consist of equities and bonds, although the schemes also invest in property,
cash and infrastructure funds. The Group believes that equities offer the best returns over the long term with an acceptable level of risk.
Both the UK and Dutch schemes make use of a portfolio of derivative instruments to mitigate interest rate and inflation risk.
The triennial valuation of the UK scheme was last completed as at 30 September 2014. The results showed that the actuarial scheme
deficit had been eliminated following the last deficit payment of £22m in January 2015. As a result, no deficit funding payments to this
scheme were required prior to completion of the next triennial valuation (as at 30 September 2017) which is currently ongoing. The
funding review of our US scheme is undertaken annually. As at 1 December 2016 the scheme was 129% funded, with the funding level
allowing for contributions to be received during 2017. The Group’s Dutch scheme is subject to a more rigorous regulatory environment
under the supervision of the Dutch National Bank (DNB). As at 31 December 2017 the scheme was 115% funded on an actuarial basis
relative to the DNB’s required level of 121% and a minimum funding requirement of 104%.
The expected distribution of the timing of benefit payments is as follows:
Pension benefits
Post-employment medical benefits
Defined contribution schemes
Contributions paid charged to operating profit
Less than
a year
£m
34.8
0.5
35.3
Between
1–2 years
£m
34.9
0.5
35.4
Between
2–5 years
£m
117.1
1.7
118.8
Beyond
5 years
£m
1,135.1
10.7
1,145.8
2017
£m
4.0
Total
£m
1,321.9
13.4
1,335.3
2016
£m
3.7
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Financial Statements | Notes to the Group Accounts
12. Intangible assets
Cost
At 1 January 2016
Exchange differences
Additions
Acquisitions
Reclassification from plant and equipment
At 31 December 2016
At 1 January 2017
Exchange differences
Additions
Acquisitions
Disposals and write-offs
Reclassification from plant and equipment
At 31 December 2017
Accumulated amortisation and impairment losses
At 1 January 2016
Exchange differences
Charge for the year (note 3)
At 31 December 2016
At 1 January 2017
Exchange differences
Charge for the year (note 3)
Disposals and write-offs
Reclassification from plant and equipment
At 31 December 2017
Net carrying amount
At 31 December 2017
At 31 December 2016
At 1 January 2016
Goodwill
£m
Software
£m
Other
intangibles
£m
293.2
12.5
–
1.4
–
307.1
307.1
1.1
–
12.8
(0.8)
–
320.2
–
–
–
–
–
–
–
–
–
–
320.2
307.1
293.2
13.7
2.5
1.5
–
0.9
18.6
18.6
(0.2)
3.5
–
(1.0)
1.5
22.4
8.4
2.5
2.0
12.9
12.9
(0.3)
1.7
(1.0)
1.2
14.5
7.9
5.7
5.3
39.4
6.8
0.1
0.4
–
46.7
46.7
1.7
–
18.1
(0.1)
–
66.4
0.1
1.0
3.1
4.2
4.2
0.2
3.7
0.1
–
8.2
58.2
42.5
39.3
Total
£m
346.3
21.8
1.6
1.8
0.9
372.4
372.4
2.6
3.5
30.9
(1.9)
1.5
409.0
8.5
3.5
5.1
17.1
17.1
(0.1)
5.4
(0.9)
1.2
22.7
386.3
355.3
337.8
Intangible asset amortisation is recorded in operating costs within the income statement on page 88.
Impairment testing for goodwill
The goodwill relates predominantly to the value of commercial and other synergies arising from the combination of acquired
businesses, with Croda’s established global sales, marketing and R&D networks. This goodwill is allocated to the Group’s cash
generating units (CGUs) that are expected to benefit from that combination. The carrying amount of goodwill is allocated to CGUs as
follows:
Uniqema (Personal Care and Life Sciences)
Sipo
Incotec (Life Sciences)
Other
2017
£m
192.6
21.6
71.4
34.6
320.2
2016
£m
193.4
22.3
69.0
22.4
307.1
As discussed in the accounting policies note on page 95, goodwill is tested at each year end for impairment with reference to the
relevant CGUs’ recoverable amount compared to the unit’s carrying value including goodwill. Assets are grouped at the lowest level for
which there are separately identifiable cash flows relevant to the acquisition generating the goodwill. The recoverable amount is based
on value-in-use calculations using pre-tax discounted cash flow projections based on the Group’s current year results and a long term
future growth rate.
Unless the risk profile of a particular acquisition dictates otherwise, the cash flows are discounted using a rate derived from the Group’s
weighted average cost of capital, which for these purposes has been calculated to be approximately 6.6% pre-tax (2016: 7.3%). For the
purposes of the Sipo calculation, the pre-tax rate was increased to 8.4% (2016: 9.0%) because of the higher risk associated with this
investment. A long term future growth rate of 3% has been used for all calculations.
The key assumptions underpinning the forecasts employed in the value-in-use calculation reflect a prudent view of past experience and
are that market share will not change significantly and that gross and operating margins will remain broadly constant. In respect of the
brought forward goodwill, the Directors believe there are no reasonably possible changes in assumptions which would give rise to an
impairment charge in the year. Goodwill arising in the year will be subject to the same assumptions and review process commencing
the year after initial recognition.
110 Croda International Plc
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13. Property, plant and equipment
14. Future commitments
Cost
At 1 January 2016
Exchange differences
Additions
Acquisitions
Other disposals and write-offs
Reclassifications
At 31 December 2016
At 1 January 2017
Exchange differences
Additions
Acquisitions
Other disposals and write-offs
Reclassifications
At 31 December 2017
Accumulated depreciation and impairment losses
At 1 January 2016
Exchange differences
Charge for the year (note 3)
Other disposals and write-offs
At 31 December 2016
At 1 January 2017
Exchange differences
Charge for the year (note 3)
Other disposals and write-offs
Reclassifications
At 31 December 2017
Net book amount
At 31 December 2017
At 31 December 2016
At 1 January 2016
Land and
buildings
£m
Plant and
equipment
£m
151.5
27.5
7.9
–
(0.8)
0.6
186.7
186.7
(4.6)
10.1
–
(5.7)
0.1
186.6
49.5
12.0
5.5
(0.4)
66.6
66.6
(1.3)
5.6
(3.8)
–
67.1
119.5
120.1
102.0
595.7
122.6
98.9
0.1
(7.1)
(1.5)
808.7
808.7
(32.1)
150.7
3.0
(9.6)
(1.6)
919.1
237.1
60.8
38.6
(5.8)
330.7
330.7
(8.5)
42.3
(8.7)
(1.2)
354.6
564.5
478.0
358.6
Total
£m
747.2
150.1
106.8
0.1
(7.9)
(0.9)
995.4
995.4
(36.7)
160.8
3.0
(15.3)
(1.5)
1,105.7
286.6
72.8
44.1
(6.2)
397.3
397.3
(9.8)
47.9
(12.5)
(1.2)
421.7
684.0
598.1
460.6
The net book amount of assets held by the Group under finance leases for plant and equipment at 31 December 2017 was £1.0m
(2016: £1.1m). The leased equipment secures the lease obligations in note 19. No other property, plant or equipment have been
pledged as security for liabilities.
Group capital projects
At 31 December the Directors had authorised the following expenditure on capital projects:
Contracted, but not provided for
Property, plant and equipment
Intangible assets
Authorised, but not contracted for
Property, plant and equipment
Intangible assets
Operating leases – minimum lease commitments
At 31 December the Group’s future minimum lease commitments were due as follows:
Within one year
From one to five years
After five years
2017
£m
2016
£m
22.7
0.5
83.8
1.0
108.0
9.2
14.1
7.4
30.7
43.2
0.7
76.8
4.0
124.7
6.3
10.8
9.2
26.3
The Group leases various buildings, vehicles and other plant and equipment under non-cancellable operating lease arrangements.
The leases have various terms typical of lease agreements for the particular class of asset.
15. Investments
The amounts recognised in the balance sheet are as follows:
Associate
Other investments
2017
£m
1.3
0.9
2.2
2016
£m
–
1.0
1.0
On 18 July 2017, the Group acquired a 24.9% shareholding in Cutitronics Limited. This investment is recognised as an associate
on the Group’s balance sheet. Cutitronics is a multi-award winning company that has developed digital skin devices which assess
skin health and prepare it for the optimum delivery of skin care formulations. This investment will enable us to utilise the very latest
digital technology to gain greater insight of Personal Care consumer behaviour and the use of data for future product development.
Other investments of £0.9m (2016: £1.0m) comprise equity securities classified as available-for-sale and are included at cost, as fair
value cannot be measured reliably, or, if quoted on an active market, at market value.
The Directors believe the carrying value of the investments is supported by their underlying net assets.
The amounts recognised in the income statement are as follows:
Share of loss of associate
Other investments
16. Inventories
Raw materials
Work in progress
Finished goods
The Group consumed £741.9m (2016: £674.8m) of inventories during the year.
2017
£m
0.1
–
0.1
2017
£m
48.6
36.8
173.1
258.5
2016
£m
–
–
–
2016
£m
45.9
32.0
157.8
235.7
112 Croda International Plc
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Financial Statements | Notes to the Group Accounts
17. Trade and other receivables
Amounts falling due within one year
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments
The ageing of the Group’s year end overdue receivables against which no provision has been made is as follows:
Not impaired
Less than three months
Three to six months
Over six months
2017
£m
175.3
(4.8)
170.5
26.1
5.6
202.2
2017
£m
24.2
–
1.5
25.7
2016
£m
164.7
(4.4)
160.3
25.0
7.1
192.4
2016
£m
17.6
0.1
0.2
17.9
Sterling
US Dollar
Euro
Other
Movements on the Group’s provision for impairment of trade receivables are as follows:
At 1 January
Exchange differences
Charged to income statement
Net write-off of uncollectible receivables
At 31 December
2017
£m
13.7
59.2
72.1
57.2
202.2
2017
£m
4.4
(0.1)
0.8
(0.3)
4.8
2016
£m
13.3
54.2
71.0
53.9
192.4
2016
£m
2.9
0.4
1.8
(0.7)
4.4
Amounts charged to the income statement are included within administrative expenses. The other classes of receivables do not
contain impaired assets.
18. Trade and other payables
Trade payables
Taxation and social security
Other payables
Accruals and deferred income
All trade payables are payable within one year.
2017
£m
69.8
7.8
44.2
79.6
201.4
2016
£m
62.2
8.3
37.8
77.9
186.2
19. Borrowings, other financial liabilities and other financial assets
This note should be read in conjunction with the further liquidity disclosures in our accounting policies note and the Finance Review
on pages 26 to 29.
Current assets
Investments
Trade and other receivables (excluding prepayments)
Non-current liabilities
2014 Club facility due 2021
2016 Club facility due 2021
US$100m 5.94% fixed rate 10 year bond
€30m 1.08% fixed rate 7 year bond
€70m 1.43% fixed rate 10 year bond
£30m 2.54% fixed rate 7 year bond
£70m 2.80% fixed rate 10 year bond
Other secured bank loans
Other unsecured bank loans
Obligations under finance leases
2017
£m
2.2
196.6
198.8
114.0
10.1
7.9
0.4
132.4
144.4
–
73.9
26.6
62.1
30.0
70.0
0.7
18.3
0.4
426.4
2016
£m
1.0
185.3
186.3
100.0
4.7
5.3
0.4
110.4
80.3
20.0
81.8
25.7
60.1
30.0
70.0
–
46.3
0.5
414.7
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The initial Club facility was put in place in June 2014 and falls due for repayment upon expiry of the agreement in July 2021. During the
first half of 2016, a further facility was put in place and also falls due for repayment upon expiry of the agreement in July 2021. Interest
is charged on both agreements at a floating rate based on ICE GBP LIBOR, ICE LIBOR or EURIBOR, depending upon the drawdown
currency, plus a variable margin. The margin the Group pays on its borrowings over and above standard rates is determined by the
Group’s net debt to EBITDA ratio.
In addition to the new Club facility in 2016, the Group also took out four new Sterling and Euro denominated bonds in the US private
placement market. The bonds have an average maturity of 7.6 years and carry an average fixed rate of interest of 2.1% at the
31 December 2017.
The individually impaired receivables relate to customers in unexpectedly difficult economic circumstances. The overdue receivables
against which no provision has been made relate to a number of customers for whom there is no recent history of default, nor any other
indication that settlement will not be forthcoming. The other classes within trade and other receivables do not contain impaired assets
and are considered to be fully recoverable.
The carrying amounts of the Group’s receivables are denominated in the following currencies:
Current liabilities
Trade and other payables (excluding taxation, social security, accruals and deferred income)
Unsecured bank loans and overdrafts due within one year or on demand
Other loans
Obligations under finance leases
114 Croda International Plc
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Financial Statements | Notes to the Group Accounts
19. Borrowings, other financial liabilities and other financial assets continued
Interest rate and currency profile of Group financial liabilities
2017
£m
2016
£m
Fixed rate
weighted average
Maturity profile of financial liabilities
Repayments fall due as follows:
Within one year
Bank loans and overdrafts
Other loans
Obligations under finance leases
After more than one year
Loans repayable
Within one to two years
Within two to five years
Five years and over
Obligations under finance leases payable between years two and five
The minimum lease payments under finance leases fall due as follows:
Within one year
Within one to five years
Future finance charges on finance leases
Present value of finance lease liabilities
Undiscounted maturity analysis of financial liabilities
Within one year
Bank loans and overdrafts
Other loans
Obligations under finance leases
After more than one year
Loans repayable
Within one to two years
Within two to five years
Five years and over
Obligations under finance leases
10.1
7.9
0.4
18.4
0.1
237.2
188.7
0.4
426.4
0.5
0.4
0.9
(0.1)
0.8
2017
£m
14.0
4.8
0.5
19.3
0.1
255.6
219.4
0.4
475.5
4.7
5.3
0.4
10.4
0.1
228.3
185.8
0.5
414.7
0.5
0.5
1.0
(0.1)
0.9
2016
£m
5.4
5.0
0.5
10.9
0.1
249.5
220.5
0.5
470.6
The analysis above includes estimated interest payable to maturity on the underlying loans. For the loans due after more than one
year £11.1m (2016: £10.3m) of the interest falls due within one year of the balance sheet date, £11.1m (2016: £10.3m) within one to two
years, £16.2m (2016: £20.6m) within two to five years and £10.7m (2016: £14.7m) beyond five years.
Sterling
US Dollar
Euro
Other
At 31 December 2017
Sterling
US Dollar
Euro
Other
At 31 December 2016
Total
£m
147.7
176.8
108.0
12.3
444.8
159.6
141.3
117.1
7.1
425.1
Fixed
£m
100.0
73.9
88.7
–
262.6
100.0
81.8
85.8
–
267.6
Floating
£m
47.7
102.9
19.3
12.3
182.2
59.6
59.5
31.3
7.1
157.5
Interest
Rate %
2.72
5.94
1.33
–
3.16
2.72
5.94
1.33
–
3.26
Fixed period
Years
7.6
2.1
7.6
–
6.0
Fair values
The table below details a comparison of the book and fair values of the Group’s financial assets and liabilities. Where there are
no readily available market values to determine fair values, cash flows relating to the various instruments have been discounted
at prevailing interest and exchange rates to give an estimate of fair value.
Cash deposits
Other investments
2014 Club facility due 2021
2016 Club facility due 2021
US$100m 5.94% fixed rate 10 year bond
€30m 1.08% fixed rate 7 year bond
€70m 1.43% fixed rate 10 year bond
£30m 2.54% fixed rate 7 year bond
£70m 2.80% fixed rate 10 year bond
Other bank borrowings
Other loans
Obligations under finance leases
Book
value
2017
£m
63.3
2.2
(144.4)
–
(73.9)
(26.6)
(62.1)
(30.0)
(70.0)
(29.1)
(7.9)
(0.8)
Fair
value
2017
£m
63.3
2.2
(144.4)
–
(76.4)
(27.0)
(63.1)
(30.5)
(71.4)
(29.1)
(7.9)
(0.8)
Book
value
2016
£m
61.0
1.0
(80.3)
(20.0)
(81.8)
(25.7)
(60.1)
(30.0)
(70.0)
(51.0)
(5.3)
(0.9)
For financial instruments with a remaining life of greater than one year, fair values are based on cash flows discounted at prevailing
interest rates. Accordingly, the fair value of cash deposits and short term borrowings approximates to the book value due to the
short maturity of these instruments. The same applies to trade and other receivables and payables excluded from the above analysis.
Financial instruments
Effective 1 January 2013, the Group adopted the amendment to IFRS 13 for financial instruments that are measured in the balance
sheet at fair value. This requires disclosure of fair value measurements by level of the following hierarchy:
→Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1)
→Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices) (level 2)
→Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
All of the Group’s financial instruments are classified as level 3.
Borrowing facilities
As at 31 December 2017, the Group had undrawn committed facilities of £390.2m (2016: £410.6m). In addition, the Group had other
undrawn facilities of £59.0m (2016: £65.0m) available. Of the Group’s total committed facilities of £814.4m, £688.7m expire after 2020.
8.6
3.1
8.6
–
6.9
Fair
value
2016
£m
61.0
1.0
(80.3)
(20.0)
(84.1)
(25.5)
(61.6)
(30.3)
(70.0)
(51.0)
(5.3)
(0.9)
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Financial Statements | Notes to the Group Accounts
19. Borrowings, other financial liabilities and other financial assets continued
Financial risk factors
The Group’s activities expose it to a variety of financial risks: currency risk, interest rate risk, liquidity risk, and credit risk. The Group’s
overall risk management strategy is approved by the Board and implemented and reviewed by the Risk Management Committee.
Detailed financial risk management is then delegated to the Group Finance department which has a specific policy manual that sets
out guidelines to manage financial risk. Regular reports are received from all operating companies to enable prompt identification
of financial risks so that appropriate action may be taken. In the management and definition of capital the Group includes ordinary
and preference share capital and net debt.
Currency risk
The Group operates internationally and is exposed to currency risk arising from various currency exposures, primarily with respect
to the US Dollar and the Euro. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities
and net investments in foreign operations. Entities in the Group use foreign currency bank balances to manage their foreign exchange
risk arising from future commercial transactions, recognised assets and liabilities. The Group’s risk management policy is to manage
transactional risk up to three months forward. The Group has certain investments in foreign operations, whose net assets are exposed
to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations is not specifically
hedged but is reduced primarily through borrowings denominated in the relevant foreign currencies where it is efficient to do so.
For 2017, had the Group’s basket of reporting currencies been 10% weaker/stronger than the actual rates experienced, post-tax
profit for the year would have been £17.4m (2016: £14.8m) lower/higher than reported, primarily as a result of the translation of the
profits of the Group’s overseas entities, and equity would have been £56.6m (2016: £47.7m) lower/higher.
Interest rate risk
The Group has both interest bearing assets and liabilities. In 2016, the Group had a policy of maintaining no more than 60% of its gross
borrowings at fixed interest rates in normal circumstances. During 2016, the Group increased its amount of fixed rate debt following
payment of the £136m special dividend and consequent increase in core debt requirements. Bonds were issued in the amounts of
£100m and €100m with an average maturity of 9.1 years and interest rate of 2.08%. The Group also retained its US$100m loan note
repayable in 2020 carrying a fixed rate of 5.94%. During 2017, the policy formally increased the upper limit for fixed rate debt to 75%
of gross borrowings. At 31 December 2017, approximately 59% of Group borrowings were at fixed rates.
As at 31 December 2017, aside from the loan notes referred to above, all Group debt and cash was exposed to repricing within
12 months of the balance sheet date.
At 31 December 2017, the Group’s fixed rate debt was at a weighted average rate of 3.16% (2016: 3.26%). The Group’s floating rate
liabilities are predominantly based on LIBOR and its overseas equivalents.
Based on the above, had interest rates moved by 10 basis points in the territories where the Group has substantial borrowings, post-tax
profits would have moved by £0.2m (2016: £0.2m) due to increased interest expense on the Group’s floating rate borrowings.
Liquidity risk
The Group actively maintains a mixture of long term and short term committed facilities designed to ensure that the Group has
sufficient funds available for operations and planned investments. The Group also has a share buyback programme that is managed
to ensure the efficiency of the Group’s funding structure.
On a regular basis, management monitors forecasts of the Group’s cash flows against both internal targets and those targets imposed
by external lenders. The Group has substantial committed, unused facilities and the Directors are confident this situation will remain
the case for the foreseeable future.
Credit risk
The Group has no significant concentrations of credit risk. It has policies in place to ensure that sales of products are made to
customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high-credit quality
financial institutions. The Group has policies that limit the amount of credit exposure to any financial institution.
Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to
provide returns for shareholders and benefits for other stakeholders, as well as maintaining an optimal capital structure to reduce
overall cost of capital.
In order to maintain this optimal structure, the Group may adjust the amount of dividends paid, issue new shares, return capital
to shareholders or dispose of assets to reduce net debt. Given the Group’s strong balance sheet and sustained trading growth,
the Group announced a new dividend policy in 2011 of paying a dividend of between 40% and 50% of sustainable earnings.
Further details can be found in the Chairman’s Statement on pages 2 and 3.
Underlying growth coupled to Return on Invested Capital (ROIC) is the key perceived driver of shareholder value within the Group.
The Group’s ROIC now stands at 19.2% against a post-tax WACC of 4.8%, thus hitting the Group’s target of maintaining ROIC at a
higher level than the WACC. In addition, the Group employs two widely used ratios to measure our ability to service our debt. Both
net debt/EBITDA and EBITDA interest cover were well ahead of target in 2017. Further details can be found in the Finance Review
on pages 26 to 29. The Group was in compliance with its covenant requirements throughout the year. Additional information on
progress against Key Performance Indicators can be found on pages 24 and 25.
20. Provisions
At 1 January 2017
Exchange differences
Released to the income statement
Charged to the income statement
Cash paid against provisions and utilised
At 31 December 2017
Analysis of total provisions
Current
Non-current
Environmental
£m
12.1
(1.1)
–
1.7
(2.5)
10.2
Restructuring
£m
4.5
(0.3)
–
–
(2.2)
2.0
Other
£m
0.7
0.1
(0.4)
–
–
0.4
2017
£m
5.2
7.4
12.6
Total
£m
17.3
(1.3)
(0.4)
1.7
(4.7)
12.6
2016
£m
8.1
9.2
17.3
Provisions are made where a constructive or legal obligation has arisen from a past event, can be quantified and where the timing
of the transfer of economic benefits relating to the provisions cannot be ascertained with any degree of certainty.
The environmental provision relates to soil and potential groundwater contamination on a number of sites, both currently in use
and previously occupied, in Europe and the Americas.
In relation to the environmental provision, the Directors consider that the balance will be utilised within ten years. Provisions for
remediation costs are made when there is a present obligation, it is probable that expenditures for remediation work will be required
and the cost can be estimated within a reasonable range of possible outcomes. The costs are based on currently available facts and
prior experience. Environmental liabilities are recorded at the estimated amount at which the liability could be settled at the balance
sheet date. Remediation of environmental damage typically takes a long time to complete due to the substantial amount of planning
and regulatory approvals normally required before remediation activities can begin. In addition, increases in or releases of environmental
provisions may be necessary whenever new developments occur or additional information becomes available. Consequently,
environmental provisions can change significantly. The level of environmental provision is based on management’s best estimate of the
most likely outcome for each individual exposure. The Group has also considered the impact of discounting on its provisions and has
concluded that, as a consequence of the significant utilisation expected in a relatively short timescale, the impact is not material.
The restructuring provision primarily relates to the reorganisation of Incotec. Most of this provision is expected to be utilised within one year.
118 Croda International Plc
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Financial Statements | Notes to the Group Accounts
21. Ordinary share capital
Ordinary shares of 10.36p (2016: 10.36p)
Authorised at 1 January and 31 December
222,788,170 ordinary shares of 10.36p each (2016: 222,788,170 ordinary shares of 10.36p each)
Allotted, called up and fully paid at 1 January and 31 December
135,124,108 ordinary shares of 10.36p each (2016: 135,124,108 ordinary shares of 10.36p each)
2017
£m
23.1
14.0
2016
£m
23.1
14.0
At the Annual General Meeting on 27 April 2016, shareholders approved a share consolidation which was completed on 9 May 2016.
As a result, shareholders held 28 new ordinary shares of 10.357143 pence each in exchange for every 29 ordinary shares of 10 pence
each held immediately prior to the share consolidation, which were cancelled by the Company.
In 2017 options were granted to employees under the Croda International Plc Sharesave Scheme to subscribe for 84,674 ordinary shares
at an option price of 3092p per share and under the Croda International Plc International Sharesave Plan to subscribe for 279,032
ordinary shares at an option price of 3092p per share. Conditional awards over 233,280 ordinary shares were granted under the
Performance Share Plan during the year. Also granted in the year were 94,908 ordinary shares under the Deferred Bonus Share Plan.
During the year consideration of £0.7m was received on the exercise of options over 73,266 shares. The options were satisfied with
shares transferred from the Group’s employee share trusts. Since the year end a further 1,122 shares have been transferred from
the trusts.
There are outstanding options to subscribe for ordinary shares as follows:
Croda International Plc Sharesave Scheme
Croda International Plc International Sharesave Plan (2009)
Croda International Plc Performance Share Plan (2014)
Croda International Plc Deferred Bonus Share Plan
Croda International Plc Deferred Bonus Discretionary
Arrangement
Year option
granted
2014
2015
2016
2017
2015
2016
2017
2015
2016
2016
2017
2016
2016
2017
2016
Number
of shares
5,490
65,957
110,374
83,367
146,569
359,417
275,685
290,726
272,168
5,125
230,806
76,792
1,884
96,664
1,080
Price
1763p
2232p
2639p
3092p
2232p
2639p
3092p
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Options exercisable from
1 November 2017 to 30 April 2018
1 November 2018 to 30 April 2019
1 November 2019 to 30 April 2020
1 November 2020 to 30 April 2021
1 November 2018 to 30 November 2018
1 November 2019 to 30 November 2019
1 November 2020 to 30 November 2020
4 March 2018
4 March 2019
31 October 2019
9 March 2020
4 March 2019
16 March 2019
9 March 2020
16 March 2019
22. Share-based payments
The impact of share-based payment transactions on the Group’s financial position is as follows:
Analysis of amounts recognised in the income statement:
Charged in respect of equity settled share-based payment transactions
Charged in respect of cash settled share-based payment transactions
Analysis of amounts recognised in the balance sheet:
Liability in respect of cash settled share-based payment transactions
2017
£m
6.5
10.5
17.0
2016
£m
6.1
6.9
13.0
11.2
8.4
The key elements of each scheme along with the assumptions employed to arrive at the charge in the income statement are set out
across. Where appropriate the expected volatility has been based on historical volatility considering daily share price movements over
periods equal to the expected future life of the awards and the risk free rate is based on the Bank of England’s projected nominal
yield curve with appropriate duration.
120 Croda International Plc
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Croda International Plc Sharesave Scheme (‘Sharesave’)
The Sharesave scheme, established in 1983 and renewed in 2013, grants options annually in September to employees of the Group
at a fixed exercise price, being the market price of the Company’s shares at the grant date discounted by up to 20%. Employees
then enter into a savings contract over three to five years and, subject to continued employment, purchase options at the end of the
period based on the amount saved. Options are then exercisable for a six month period following completion of the savings contract.
For options granted in the year, the fair value per option granted and the assumptions used in the calculation of the value are as follows:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option
Vesting period
Expected volatility
Option life
Expected life
Risk free rate
Dividend yield
Possibility of forfeiture
Fair value per option at grant date
Option pricing model
2017
3777p
3092p
594
84,674
Three years
20%
Six months
–
0.3%
2.0%
7.5% p.a.
765.3p
Black
Scholes
2016
3328p
2639p
573
117,348
Three years
20%
Six months
–
0.1%
2.2%
7.5% p.a.
682.8p
Black
Scholes
A reconciliation of option movements over the year is as follows:
Outstanding at 1 January
Granted
Forfeited
Exercised
Outstanding at 31 December
Exercisable at 31 December
For options exercised in year, weighted average share price at date of exercise
Weighted average remaining life at 31 December (years)
2017
Weighted
average exercise
price (p)
2275
3092
2469
1791
2659
1763
4156
Number
267,091
84,674
(12,018)
(73,266)
266,481
6,510
2.3
2016
Weighted
average exercise
price (p)
2025
2639
2058
2116
2275
2141
3394
Number
214,885
117,348
(7,629)
(57,513)
267,091
2,841
2.5
Croda International Plc International Sharesave Plan (2009) (‘International’)
The International scheme, established in 1999 and renewed in 2009, has the same option pricing model, savings contract and vesting
period as the Sharesave scheme. At exercise, employees are paid a cash equivalent for each option purchased, being the difference
between the exercise price and market price at the exercise date. For options granted in the year, the fair value per option granted
and the assumptions used in the calculation of the value are as follows:
Grant date
Share price at grant date
Exercise price
Number of employees
Shares under option
Vesting period
Expected volatility
Option life
Expected life
Risk free rate
Dividend yield
Possibility of forfeiture
Fair value per option at 31 December
Option pricing model
2017
3777p
3092p
1,891
279,032
Three years
20%
One month
–
0.4%
1.7%
7.5% p.a.
1274.1p
Black
Scholes
2016
3328p
2639p
1,891
391,769
Three years
20%
One month
–
0.7%
2.3%
7.5% p.a.
613.6p
Black
Scholes
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22. Share-based payments continued
A reconciliation of option movements over the year is as follows:
Outstanding at 1 January
Granted
Forfeited
Exercised
Outstanding at 31 December
For options exercised in year, weighted average share price at date of exercise
Weighted average remaining life at 31 December (years)
2017
Weighted
average exercise
price (p)
2280
3092
2271
1779
2723
4179
Number
804,182
279,032
(62,876)
(237,922)
782,416
2.1
2016
Weighted
average exercise
price (p)
1999
2639
2056
2137
2280
3477
Number
621,464
391,769
(51,205)
(157,846)
804,182
2.1
Croda International Plc Performance Share Plan 2014 (‘PSP’)
The PSP scheme was established in 2014 and replaces the Company’s previous Executive long term incentive plans (the Long Term
Incentive Plan and the Bonus Co-Investment Plan). The PSP provides for awards of free shares (ie either conditional shares or nil-cost
options) normally made annually which vest after three years dependent upon an EPS performance related sliding scale (non-market
condition), an NPP growth measure (non-market condition) and the Group’s total shareholder return (market condition). The PSP is
discussed in detail in the Directors’ Remuneration Report (pages 61 to 77). Shares (on an after tax basis) are subject to a one year post
vesting holding period for awards granted in 2014 and a two year post vesting holding period for awards granted in subsequent years.
For options granted in the year, the fair value per option granted and the assumptions used in the calculation of the value are as follows:
Market
condition
31 October
2016
3498p
56
2,730
Three years
20%
–
–
2.1%
3.45%
1732p
Closed
form
valuation
Non-market
condition
31 October
2016
3498p
56
2,730
Three years
20%
–
–
2.1%
3.45%
3260p
Closed
form
valuation
Market
condition
4 March
2016
3114p
101
141,300
Three years
20%
–
–
2.3%
3.45%
1532p
Closed
form
valuation
2016
Non-market
condition
4 March
2016
3114p
101
141,299
Three years
20%
–
–
2.3%
3.45%
2902p
Closed
form
valuation
2017
Weighted
average exercise
price (p)
–
–
–
–
–
3924
Number
917,914
233,280
(235,164)
(117,205)
798,825
1.1
2016
Weighted
average exercise
price (p)
–
–
–
–
–
–
Number
645,556
288,019
(15,661)
–
917,914
1.2
Grant date
Share price at grant date
Number of employees
Shares under conditional award
Vesting period
Expected volatility
Expected life
Risk free rate
Dividend yield
Possibility of forfeiture
Fair value per option at grant date
Option pricing model
Market
condition
9 March
2017
3636p
94
93,312
2017
Non-market
condition
9 March
2017
3636p
94
139,968
Three years Three years
20%
–
20%
–
–
2.0%
3.45%
1767p
Closed
form
valuation
–
2.0%
3.45%
3423p
Closed
form
valuation
A reconciliation of option movements over the year is as follows:
Outstanding at 1 January
Granted
Forfeited
Exercised
Outstanding at 31 December
For options exercised in year, weighted average share price at date of exercise
Weighted average remaining life at 31 December (years)
122 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc Deferred Bonus Share Plan (‘DBSP’)
The DBSP scheme was established in 2014. From 2014 one third of any annual bonuses due to certain senior executives are deferred
under the DBSP. The size of award is determined by the amount of the total bonus divided by one third and converted into a number of
Croda shares using the market value of shares at the time the award is granted. Awards are increased by the number of shares
equating to the equivalent value of any dividend paid during the option period. The awards vest on the third anniversary of the date of
grant, unless the recipient has been dismissed for cause. There are no performance conditions applied to the award. The DBSP is also
discussed in the Directors’ Remuneration Report (pages 61 to 77).
Grant date
Share price at grant date
Number of employees
Shares under conditional award
Vesting period
A reconciliation of option movements over the year is as follows:
Outstanding at 1 January
Granted
Dividend enhancement
Forfeited
Exercised
Outstanding at 31 December
For options exercised in year, weighted average share price at date of exercise
Weighted average remaining life at 31 December (years)
2017
9 March
2017
3636p
109
94,908
Three years
2017
Weighted
average exercise
price (p)
–
–
–
–
–
–
–
16 March
2016
2893.5p
8
1,824
Three years
2016
4 March
2016
3114p
104
74,650
Three years
2016
Weighted
average exercise
price (p)
–
–
–
–
–
–
–
Number
–
76,474
–
(1,646)
–
74,828
2.2
Number
74,828
94,908
5,604
–
–
175,340
1.7
Croda International Plc Deferred Bonus Discretionary Arrangement
In addition to the awards under the DBSP, a no cost option over 1,061 shares was awarded in 2016 to similarly defer bonus entitlement
where the DBSP could not be used due to employment having ceased before the grant date. These options will be deemed to be
exercised automatically on the date falling three years after the date of grant. As of 31 December 2017, 1.2 years of the vesting period
remains outstanding.
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The LTIP was established in 2005 and granted no cost options to senior employees which vest after three years dependent upon an
EPS performance related sliding scale (non-market condition) and the Group’s total shareholder return (market condition). There were
no options granted during the year or prior year and no further options will be granted or remain to be exercised under the Plan.
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A reconciliation of option movements over the year is as follows:
Outstanding at 1 January
Lapsed
Outstanding at 31 December
For options exercised in year, weighted average share price at date of exercise
Weighted average remaining life at 31 December (years)
2017
Weighted
average exercise
price (p)
–
–
–
–
Number
–
–
–
–
2016
Weighted
average exercise
price (p)
–
–
–
–
Number
79,421
(79,421)
–
–
Bonus Co-Investment Plan (‘BCIP’)
The BCIP was established in 2005 and granted no cost options to senior employees which vest after three years dependent upon
an EPS performance related sliding scale. There were no options granted during the year or prior year and no further options will
be granted or remain to be exercised under the Plan.
A reconciliation of option movements over the year is as follows:
Outstanding at 1 January
Lapsed
Outstanding at 31 December
For options exercised in year, weighted average share price at date of exercise
Weighted average remaining life at 31 December (years)
2017
Weighted
average exercise
price (p)
–
–
–
–
Number
–
–
–
–
2016
Weighted
average exercise
price (p)
–
–
–
–
Number
48,070
(48,070)
–
–
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Financial Statements | Notes to the Group Accounts
22. Share-based payments continued
Croda International Share Incentive Plan (‘SIP’)
The SIP was established in 2003 and has similar objectives to the Sharesave scheme in terms of increasing employee retention
and share ownership. Under the SIP scheme, employees enter into an agreement to purchase shares in the Company each month.
For each share purchased by an employee, the Company awards a matching share which passes to the employee after three years’
service. The matching shares are allocated each month at market value with this fair value charge being recognised in the income
statement in full in the year of allocation.
23. Preference share capital
The authorised, issued and fully paid preference share capital comprises:
615,562 5.9% preference shares of £1 (2016: 615,562)
498,434 6.6% preference shares of £1 (2016: 498,434)
21,900 7.5% preference shares of £1 (2016: 21,900)
2017
£m
0.6
0.5
–
1.1
2016
£m
0.6
0.5
–
1.1
The preference shares have no redemption rights and carry no voting rights other than in certain circumstances affecting the rights
of the preference shareholders, details of which are set out in the Company’s Articles of Association. The three classes of preference
shares rank pari passu with each other but ahead of the ordinary shares on a winding up. Rights on a winding up are limited to
repayment of capital and any arrears of dividends.
24. Shareholders’ equity
Investments in own shares represent the Croda International Plc Qualifying Share Ownership Trust (QUEST), the Croda International Plc
Employee Benefit Trust (CIPEBT) and the Croda International Plc AESOP Trust (AESOP), which each hold shares purchased on the
open market or transferred from Treasury Shares to satisfy the future issue of shares under the Group’s share option schemes. As at
31 December 2017 the QUEST had a net amount due from the Company of £6.9m (2016: £5.6m) and held 113,706 (2016: 41,938) shares
transferred at a nil cost (2016: nil cost) with a market value of £5.0m (2016: £1.3m). As at 31 December 2017 the CIPEBT was financed
by a repayable on demand loan to the Company of £4.5m (2016: £3.9m) and held 43,167 (2016: 144,928) shares transferred at a nil cost
(2016: nil cost) with a market value of £1.9m (2016: £4.6m).
As at 31 December 2017 the AESOP had issued all its previously held shares, as financed by the Company, and thus had no residual
loan balance with the Company. All of the shares held by the QUEST and CIPEBT were under option at 31 December 2017 and,
except for a nominal amount, the right to receive dividends has been waived.
25. Non-controlling interests in equity
At 1 January
Exchange differences
Income allocated to non-controlling interests
At 31 December
2017
£m
8.2
(0.3)
(0.3)
7.6
2016
£m
6.5
0.8
0.9
8.2
26. Related party transactions
The Group has no related party transactions, with the exception of remuneration paid to key management and Directors which
is included in note 10.
27. Business combinations
On 7 July 2017, the Group acquired Enza Biotech AB, a research enterprise established as a spin-out company from Lund University in
Sweden. Enza Biotech’s patented technology will enable us to create the next generation of renewable surfactants using carbohydrate-
based chemistry, and enhance our well-established natural and renewable product portfolio to offer our customers, particularly in
Personal Care and Life Sciences markets.
On 8 December 2017, the Group acquired IonPhasE OY, an innovative technology provider of static electricity dissipation solutions for
electronic and automotive applications, headquartered in Tampere, Finland. IonPhasE’s products are a natural extension to our existing
product portfolio and by bringing together the expertise of both research and development teams, a broader and more diverse range
will be made available to customers through our Smart Materials marketing and sales force (within our Performance Technologies
sector).
The following table summarises the Directors’ provisional assessment of the consideration paid in respect of the acquisitions,
the fair value of assets acquired and liabilities assumed.
Consideration (inclusive of debt and deferred consideration)
Fair value of assets and liabilities acquired
Intangible assets
Property, plant and equipment
Inventories
Trade and other receivables
Trade and other payables
Taxation
Total identifiable net assets
Goodwill
Enza Biotech
£m
10.7
IonPhasE
£m
20.9
5.8
–
–
–
–
(1.0)
4.8
5.9
12.3
3.0
0.8
1.1
(0.8)
(2.4)
14.0
6.9
Total consideration is inclusive of £2.6m deferred consideration not contingent upon any performance criteria.
The goodwill is attributable to the synergies expected to arise from the combination of the acquired technologies and the Group’s
global sales and marketing network. It will not be deductible for tax purposes.
Acquisition-related costs of £0.8m have been charged to administration expenses in the consolidated income statement for the year
ended 31 December 2017.
During 2017, the Group completed its fair value review of the 2016 acquisition of Inventiva Indústria e Inovação em Produtos
Cosméticos Ltda. This review did not identify any changes to the asset base nor goodwill.
28. Contingent liabilities
The Group is subject to various claims which arise in the course of business. These contingent liabilities are reviewed on a regular
basis and where possible an estimate is made of the potential financial impact on the Group.
The Group is also involved in certain legal and environmental actions and proceedings. Whilst the Group cannot predict the outcome
of any current or future actions or proceedings with any certainty, it currently believes the likelihood of any material liabilities to be
low, and that the liabilities, if any, will not have a material adverse effect on its consolidated income, financial position or cash flows.
The Group also considers it has insurance in place in relation to any significant contingent liabilities.
124 Croda International Plc
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Financial Statements
Parent Company Financial Statements
Pages 127 to 137 represent the separate financial
statements of Croda International Plc as required
by the Companies Act 2006 (‘the Act’).
These financial statements have been prepared
in accordance with the Act and United Kingdom
Accounting Standards (United Kingdom Generally
Accepted Accounting Practice), including FRS 101
‘Reduced Disclosure Framework’.
Company Independent Auditors’ Report
to the Members of Croda International Plc
Report on the audit of the
Company financial
statements
Our audit approach
Overview
Materiality
→ Overall materiality: £10.2 million (2016: £10.5 million), based on
0.5% of net assets.
Opinion
In our opinion, Croda International Plc’s
Company financial statements
(the ‘financial statements’):
→ give a true and fair view of the state
of the Company’s affairs as at
31 December 2017;
→ have been properly prepared in
accordance with United Kingdom
Generally Accepted Accounting
Practice (United Kingdom Accounting
Standards, comprising FRS 101
‘Reduced Disclosure Framework’, and
applicable law); and
→ have been prepared in accordance
with the requirements of the
Companies Act 2006.
We have audited the financial statements,
included within the Annual Report and
Accounts (the ‘Annual Report’), which
comprise: the Company balance sheet as
at 31 December 2017; the Company
statement of changes in equity for the year
then ended; the accounting policies; and
the notes to the financial statements.
Our opinion is consistent with our reporting
to the Audit Committee.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities under ISAs (UK) are further
described in the Auditors’ responsibilities
for the audit of the financial statements
section of our report. We believe that the
audit evidence we have obtained is
sufficient and appropriate to provide
a basis for our opinion.
Audit scope
→ We performed full scope audit procedures over Croda
International Plc (the Parent Company of the Group).
Key audit
matters
→ Carrying value of investments.
Independence
We remained independent of the Group in
accordance with the ethical requirements
that are relevant to our audit of the financial
statements in the UK, which includes the
FRC’s Ethical Standard, as applicable to
listed public interest entities, and we have
fulfilled our other ethical responsibilities in
accordance with these requirements.
To the best of our knowledge and belief, we
declare that non-audit services prohibited
by the FRC’s Ethical Standard were not
provided to the Group or the Company.
Other than those disclosed in the Directors’
Report, we have provided no non-audit
services to the Group and its subsidiaries
in the period from 1 January 2017 to
31 December 2017.
The scope of our audit
As part of designing our audit, we
determined materiality and assessed
the risks of material misstatement in the
financial statements. In particular, we
looked at where the Directors made
subjective judgements, for example in
respect of significant accounting estimates
that involved making assumptions and
considering future events that are
inherently uncertain.
We gained an understanding of the legal
and regulatory framework applicable to the
Company and the industry in which it
operates, and considered the risk of acts
by the Company which were contrary to
applicable laws and regulations, including
fraud. We designed audit procedures to
respond to the risk, recognising that the
risk of not detecting a material
misstatement due to fraud is higher than
the risk of not detecting one resulting from
error, as fraud may involve deliberate
concealment by, for example, forgery or
intentional misrepresentations, or through
collusion. We designed audit procedures
that focused on the risk of non-compliance
related to financial conduct. Our tests
included review of legal correspondence
and discussion with management’s
experts. We did not identify any key audit
matters relating to irregularities, including
fraud. As in all of our audits we also
addressed the risk of management
override of internal controls, including
testing journals and evaluating whether
there was evidence of bias by the Directors
that represented a risk of material
misstatement due to fraud.
Key audit matters
Key audit matters are those matters that,
in the auditors’ professional judgement,
were of most significance in the audit of the
financial statements of the current period
and include the most significant assessed
risks of material misstatement (whether or
not due to fraud) identified by the auditors,
including those which had the greatest
effect on: the overall audit strategy; the
allocation of resources in the audit; and
directing the efforts of the engagement
team. These matters, and any comments
we make on the results of our procedures
thereon, were addressed in the context of
our audit of the financial statements as a
whole, and in forming our opinion thereon,
and we do not provide a separate opinion
on these matters. This is not a complete list
of all risks identified by our audit.
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Financial Statements | Company Independent Auditors’ Report to the Members of Croda International Plc
Key audit matter
How our audit addressed the key audit matter
Carrying value of investments
Refer to page 99 (Accounting Policies) and
page 134 (notes).
The investment balance of £492.5 million
relates to a number of subsidiary
companies and is required to be tested
annually for impairment. An impairment
charge of £3.8 million has been
recognised against these balances in the
current financial year. The risk we focused
on is that the investment balances may be
overstated and that a further impairment
charge may be required.
The large magnitude of the balance, and
the numerous assumptions made, add to
the judgemental nature of the balance.
To assess the impairment assessment performed by the Directors’ we have performed
the following:
→we compared the carrying value of the investment to the net assets of the individual
subsidiaries;
→we evaluated and assessed the reasonableness of the future cash flow forecasts,
and the process by which they were prepared, including comparing them to the
latest Board approved budgets, and testing the underlying calculations;
→tested the Directors’ key assumptions for long-term growth rates outside the budget
period, by comparing them to, and finding them broadly in line with, forecast inflation
rates;
→considered the discount rate by testing the inputs into the calculation, including the
Group WACC and the risk premium; and
→we performed our own sensitivities over the key drivers of the cash flow forecasts,
being revenue and margin growth, and the discount rate used. These sensitivities
confirm that there would have to be significant changes in the underlying
assumptions for the investments to be impaired.
Based on the results of our testing, we have not identified any issues in relation to the
carrying value of investments.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as
a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which it operates.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
£10.2 million (2016: £10.5 million).
How we determined it
0.5% of net assets.
Rationale for benchmark applied
We believe that net assets is considered to be appropriate as it is not a profit oriented
company. The Company holds the investments in subsidiaries and therefore net assets
is deemed a generally accepted auditing benchmark.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.8 million (2016:
£0.7 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
Outcome
We are required to report if we have anything material to add or draw attention to
in respect of the Directors’ statement in the financial statements about whether the
Directors considered it appropriate to adopt the going concern basis of accounting
in preparing the financial statements and the Directors’ identification of any material
uncertainties to the Company’s ability to continue as a going concern over a period
of at least twelve months from the date of approval of the financial statements.
We have nothing material to add or to
draw attention to. However, because
not all future events or conditions
can be predicted, this statement is
not a guarantee as to the Company’s
ability to continue as a going concern.
We are required to report if the Directors’ statement relating to going concern in
accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
We have nothing to report.
Reporting on other information
The other information comprises all of
the information in the Annual Report other
than the financial statements and our
Auditors’ Report thereon. The Directors are
responsible for the other information.
Our opinion on the financial statements
does not cover the other information and,
accordingly, we do not express an audit
opinion or, except to the extent otherwise
explicitly stated in this report, any form of
assurance thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements
or our knowledge obtained in the audit,
or otherwise appears to be materially
misstated. If we identify an apparent
material inconsistency or material
misstatement, we are required to perform
procedures to conclude whether there
is a material misstatement of the financial
statements or a material misstatement of
the other information. If, based on the work
we have performed, we conclude that
there is a material misstatement of this
other information, we are required to report
that fact. We have nothing to report based
on these responsibilities.
With respect to the Strategic Report and
Directors’ Report, we also considered
whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on the responsibilities described
above and our work undertaken in the
course of the audit, the Companies
Act 2006, (CA06), ISAs (UK) and the
Listing Rules of the Financial Conduct
Authority (FCA) require us also to report
certain opinions and matters as described
below (required by ISAs (UK) unless
otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and
Directors’ Report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
The Directors’ assessment of the prospects of the Company and of the principal risks that would threaten the
solvency or liquidity of the Company
We have nothing material to add or draw attention to regarding:
→ The Directors’ confirmation on page 35 of the Annual Report that they have carried out a robust assessment of the principal
risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.
→ The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
→ The Directors’ explanation on page 35 of the Annual Report as to how they have assessed the prospects of the Company,
over what period they have done so and why they consider that period to be appropriate, and their statement as to whether
they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.
We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust assessment
of the principal risks facing the Company and statement in relation to the longer term viability of the Company. Our review
was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process
supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate
Governance Code (the ‘Code’); and considering whether the statements are consistent with the knowledge and understanding
of the Company and its environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
→ The statement given by the Directors, on page 81, that they consider the Annual Report taken as a whole to be fair, balanced
and understandable, and provides the information necessary for the members to assess the Company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the Company obtained in the
course of performing our audit.
→ The section of the Annual Report on pages 51 to 57 describing the work of the Audit Committee does not appropriately
address matters communicated by us to the Audit Committee.
→ The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from
a relevant provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
→ In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006. (CA06)
128 Croda International Plc
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Financial Statements | Company Independent Auditors’ Report to the Members of Croda International Plc
Company Financial Statements
Appointment
Following the recommendation of the
Audit Committee, we were appointed by
the Directors in 1970 to audit the financial
statements for the year ended December
1970 and subsequent financial periods.
The period of total uninterrupted
engagement is 48 years, covering the
years ended December 1970 to
December 2017.
Other matter
We have reported separately on the Group
financial statements of Croda International
Plc for the year ended 31 December 2017.
Ian Morrison
(Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
Leeds
27 February 2018
Responsibilities for the financial
statements and the audit
Responsibilities of the Directors for
the financial statements
As explained more fully in the Statement of
Directors’ Responsibilities set out on page
81, the Directors are responsible for the
preparation of the financial statements in
accordance with the applicable framework
and for being satisfied that they give
a true and fair view. The Directors are also
responsible for such internal control as
they determine is necessary to enable the
preparation of financial statements that are
free from material misstatement, whether
due to fraud or error.
In preparing the financial statements, the
Directors are responsible for assessing the
Company’s ability to continue as a going
concern, disclosing as applicable, matters
related to going concern and using the
going concern basis of accounting unless
the Directors either intend to liquidate the
Company or to cease operations, or have
no realistic alternative but to do so.
Auditors’ responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due
to fraud or error, and to issue an
Auditors’ Report that includes our opinion.
Reasonable assurance is a high level
of assurance, but is not a guarantee
that an audit conducted in accordance
with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or
error and are considered material if,
individually or in aggregate, they could
reasonably be expected to influence
the economic decisions of users taken
on the basis of these financial statements.
A further description of our responsibilities
for the audit of the financial statements
is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities.
This description forms part of our
Auditors’ Report.
Use of this report
This report, including the opinions,
has been prepared for and only for the
Company’s members as a body in
accordance with Chapter 3 of Part 16 of
the Companies Act 2006 and for no other
purpose. We do not, in giving these
opinions, accept or assume responsibility
for any other purpose or to any other
person to whom this report is shown
or into whose hands it may come save
where expressly agreed by our prior
consent in writing.
Other required reporting
Companies Act 2006 exception
reporting
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
→ we have not received all the information
and explanations we require for our
audit; or
→ adequate accounting records have not
been kept by the Company, or returns
adequate for our audit have not been
received from branches not visited by
us; or
→ certain disclosures of Directors’
remuneration specified by law are not
made; or
→ the financial statements and the part of
the Directors’ Remuneration Report to
be audited are not in agreement with
the accounting records and returns.
We have no exceptions to report arising
from this responsibility.
Company Balance Sheet
at 31 December 2017
Fixed assets
Intangible assets
Tangible assets
Investments
Shares in Group undertakings
Other investments other than loans
Retirement benefit assets
Current assets
Debtors
Deferred tax asset
Cash and cash equivalents
Current liabilities
Creditors: Amounts falling due within one year
Borrowings
Net current assets
Total assets less current liabilities
Non-current liabilities
Deferred tax liability
Borrowings
Retirement benefit liabilities
Net assets
Capital and reserves
Ordinary share capital
Preference share capital
Called up share capital
Share premium account
Reserves1
Total shareholders’ funds
Note
D
E
F
G
L
H
I
J
K
I
K
L
2017
£m
–
1.6
492.5
0.6
0.9
495.6
1,853.7
–
5.1
1,858.8
(57.9)
(8.3)
(66.2)
1,792.6
2016
£m
–
1.4
447.7
0.6
–
449.7
1,930.8
0.7
6.4
1,937.9
(59.3)
(7.5)
(66.8)
1,871.1
2,288.2
2,320.8
(0.2)
(248.2)
–
(248.4)
–
(213.8)
(4.0)
(217.8)
2,039.8
2,103.0
14.0
1.1
15.1
93.3
1,931.4
2,039.8
14.0
1.1
15.1
93.3
1,994.6
2,103.0
1 Included within Reserves is profit after tax of £28.2m (2016: £37.2m).
The financial statements on pages 131 to 137 were approved by the Board of Directors on 27 February 2018 and signed
on its behalf by
Anita Frew
Chairman
Jez Maiden
Group Finance Director
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Financial Statements | Company Financial Statements
Company Statement of Changes in Equity
for the year ended 31 December 2017
At 1 January 2016
Profit for the year attributable to equity
shareholders
Other comprehensive expense
Transactions with owners:
Dividends on equity shares
Share-based payments
Sale of own shares held in trust
Total transactions with owners
Total equity at 31 December 2016
At 1 January 2017
Profit for the year attributable to equity
shareholders
Other comprehensive income
Transactions with owners:
Dividends on equity shares
Share-based payments
Sale of own shares held in trust
Total transactions with owners
Note
Share
capital
£m
15.1
–
–
–
–
–
–
15.1
15.1
–
–
–
–
–
–
Share
premium
account
£m
93.3
Capital
redemption
reserve
£m
0.9
Revaluation
reserve
£m
2.1
Retained
earnings
£m
2,184.1
Total
£m
2,295.5
–
–
–
–
–
–
93.3
93.3
–
–
–
–
–
–
–
–
–
–
–
–
0.9
0.9
–
–
–
–
–
–
–
–
–
–
–
–
2.1
2.1
–
–
–
–
–
–
37.2
(4.5)
(230.2)
3.8
1.2
(225.2)
37.2
(4.5)
(230.2)
3.8
1.2
(225.2)
1,991.6
2,103.0
1,991.6
2,103.0
28.2
3.2
(100.0)
4.7
0.7
(94.6)
28.2
3.2
(100.0)
4.7
0.7
(94.6)
Total equity at 31 December 2017
15.1
93.3
0.9
2.1
1,928.4
2,039.8
Of the retained earnings, £653.0m (2016: £556.3m) are realised and £1,275.4m (2016: £1,435.3m) are unrealised. Details of investments
in own shares are disclosed in note 24 of the Group financial statements.
Notes to the Company Financial Statements
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been
applied consistently to all years presented, unless otherwise stated.
A. Accounting policies
Basis of accounting
The Company meets the definition of a qualifying entity under Financial Reporting Standard 100 (FRS 100) issued by the Financial
Reporting Council. Accordingly, the Company has adopted FRS 101 ‘Reduced Disclosure Framework’ and has ceased to apply all UK
Accounting Standards issued prior to FRS 100. Therefore the recognition and measurement requirements of EU-adopted IFRS have
been applied, with amendments where necessary in order to comply with the requirements of the Companies Act 2006 (‘the Act’).
The financial statements have been prepared under the historical cost convention, in compliance with the provisions of the Act and the
requirements of the Listing Rules of the Financial Conduct Authority.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under the standard in relation
to share-based payments, financial instruments, capital management, presentation of comparative information in respect of certain
assets, presentation of a cash flow statement, standards not yet effective, impairment of assets and related party transactions.
Where required, equivalent disclosures are provided in the Group financial statements of Croda International Plc.
Going concern
The financial statements which appear on pages 131 to 137 have been prepared on a going concern basis as, after making
appropriate enquiries, including a review of forecasts, budgets and banking facilities, the Directors have a reasonable expectation
that the Company has adequate resources to continue in operational existence.
Principal accounting policies
The accounting policies which have been applied by the Company when preparing the financial statements are in accordance with
FRS 101. FRS 101 is based on the recognition and measurement requirements of EU-adopted IFRS, under which the Group financial
statements have been prepared. As a result, the accounting policies of the Company are consistent with those used by the Group as
presented on pages 93 to 99, except for those relating to the recognition and measurement of goodwill and the recognition of revenue,
which are not directly relevant to the Company financial statements.
The Group accounting policy for financial risk factors is also relevant to the preparation of the Company financial statements and is
disclosed on pages 118 and 119.
B. Profit and loss account
Of the Group’s profit for the year, £28.2m (2016: £37.2m) is included in the profit and loss account of the Company which was approved
by the Board on 27 February 2018 but which is not presented as permitted by Section 408 Companies Act 2006.
Included in the Company profit and loss account is a charge of £0.1m (2016: £0.1m) in respect of the Company’s audit fee.
C. Employees
Company employment costs including Directors
Wages and salaries
Share-based payment charges (note M)
Social security costs
Post retirement costs
Average employee numbers by function
Production
Administration
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2016
£m
9.3
3.8
1.2
0.4
14.7
2017
£m
9.6
5.1
1.2
0.5
16.4
2017
Number
2016
Number
24
34
58
23
32
55
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Annual Report and Accounts 2017
133
As required by the Companies Act 2006, the figures disclosed above are weighted averages based on the number of employees
at each month end and include Executive Directors. At 31 December 2017, the Company had 57 (2016: 54) employees in total.
Detailed information concerning Directors’ remuneration, interests and options is shown in the table within the Directors’ Remuneration
Report which is subject to audit on pages 61 to 77 which forms part of the Annual Report and Accounts.
Financial Statements | Notes to the Company Financial Statements
D. Intangible assets
Cost
At 1 January 2017
Additions
At 31 December 2017
Accumulated amortisation
At 1 January 2017
Charge for year
At 31 December 2017
Net carrying amount
At 31 December 2017
At 31 December 2016
E. Tangible assets
Cost or valuation
At 1 January 2017
Additions
Disposals
At 31 December 2017
Accumulated depreciation
At 1 January 2017
Charge for year
Disposals
At 31 December 2017
Net book amount
At 31 December 2017
At 31 December 2016
F. Shares in Group undertakings
Cost
At 1 January 2017
Exchange differences
Additions
Amounts repaid
At 31 December 2017
Impairment
At 1 January 2017
Impairment in the year
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
G. Other investments other than loans
Cost or valuation of net equity
At 1 January 2017 and 31 December 2017
Other investments
£m
0.6
Available for sale financial assets comprise unlisted investments included at Directors’ valuation based on appropriate attributable
net assets.
H. Debtors
Amounts owed by Group undertakings
Corporation tax
Other receivables
Prepayments
2017
£m
1,809.1
43.6
0.8
0.2
1,853.7
2016
£m
1,912.9
17.4
0.3
0.2
1,930.8
The amounts owed by Group undertakings are current and have no fixed date of repayment. Of the amount at 31 December 2017,
£1,808.0m will continue to attract interest from 1 January 2018 at a floating rate based on the main facility agreement. The remainder
will continue to be interest free.
I. Deferred tax
The deferred tax balances included in the balance sheet are attributable to the following:
Retirement benefit obligations
The movement on deferred tax balances during the year is summarised as follows:
At 1 January
Deferred tax charged through the profit and loss account
Deferred tax (charged)/credited directly to equity
At 31 December
2017
£m
(0.2)
0.7
–
(0.9)
(0.2)
Deferred tax assets were recognised in all cases where such assets arose, as it was probable that the assets would be recovered.
J. Creditors: Amounts falling due within one year
Amounts falling due within one year
Trade payables
Taxation and social security
Amounts owed to Group undertakings
Other payables
Accruals and deferred income
The amounts owed to Group undertakings are interest free, unsecured and have no fixed date of repayment.
2017
£m
0.3
1.2
47.0
5.7
3.7
57.9
2016
£m
0.7
0.2
(0.1)
0.6
0.7
2016
£m
0.1
1.1
46.5
7.1
4.5
59.3
Other Intangibles
£m
0.8
–
0.8
0.8
–
0.8
–
–
Total
£m
3.5
0.5
(0.3)
3.7
2.1
0.3
(0.3)
2.1
1.6
1.4
Total
£m
473.0
3.7
293.9
(249.0)
521.6
(25.3)
(3.8)
(29.1)
Land and
buildings
£m
Plant and
equipment
£m
1.7
0.3
–
2.0
1.2
0.1
–
1.3
0.7
0.5
Shares
£m
326.2
–
15.9
–
342.1
(25.3)
(2.5)
(27.8)
1.8
0.2
(0.3)
1.7
0.9
0.2
(0.3)
0.8
0.9
0.9
Loans
£m
146.8
3.7
278.0
(249.0)
179.5
–
(1.3)
(1.3)
314.3
300.9
178.2
146.8
492.5
447.7
The undertakings which affect the financial statements are listed on pages 138 to 140.
The Directors believe that the carrying value of the investments is supported by their underlying net assets.
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Financial Statements | Notes to the Company Financial Statements
K. Borrowings
The Company’s objectives, policies and strategies in respect of financial instruments are outlined in the accounting policies note
on pages 97 and 98 which forms part of the Annual Report and Accounts. Short term receivables and payables have been excluded
from all of the following disclosures.
Maturity profile of financial liabilities
2014 Club facility due 2021
€30m 1.08% fixed rate 7 year bond
€70m 1.43% fixed rate 10 year bond
£30m 2.54% fixed rate 7 year bond
£70m 2.80% fixed rate 10 year bond
Bank loans and overdrafts repayable on demand
Repayments fall due as follows:
Within one year
Bank loans and overdrafts
After more than one year
Loans repayable
Within one to five years
After five years
2017
£m
59.5
26.6
62.1
30.0
70.0
8.3
256.5
8.3
8.3
59.5
188.7
248.2
2016
£m
28.0
25.7
60.1
30.0
70.0
7.5
221.3
7.5
7.5
28.0
185.8
213.8
L. Post retirement benefits
In line with the requirements of FRS 101, the Company now recognises its share of the UK pension fund assets and liabilities. A full
reconciliation of the Group retirement benefit obligation can be found in note 11 of the Group financial statements on pages 106 to 109.
The table below shows the movement in the obligation during the year.
Opening balance:
Assets
Liabilities
Net opening retirement benefit liability
Movements in the year:
Service cost
Interest cost
Contributions
Actuarial movement
Closing balance
2017
£m
47.5
(51.5)
(4.0)
(0.5)
–
0.5
4.9
0.9
2016
£m
35.5
(36.3)
(0.8)
(0.3)
–
1.0
(3.9)
(4.0)
M. Share-based payments
The total charge for the year in respect of share based remuneration schemes was £5.1m (2016: £3.8m). The grant by the Company
of options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution.
The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting
period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity.
The key elements of each scheme along with the assumptions employed to arrive at the charge in the profit and loss account
are set out in note 22 to the Group financial statements.
N. Contingent liabilities
The Company has guaranteed loan capital and bank overdrafts of subsidiary undertakings amounting to £91.2m (2016: £128.1m).
O. Dividends
Details of dividends are disclosed in note 8 of the Group financial statements.
P. Related party transactions
The Company has taken advantage of the exemption available under FRS 101 from disclosing transactions with other Group
undertakings. There were no other related party transactions during the year. Information on the Group can be found in note 26
on page 124 of the Group financial statements.
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Other Information
Related Undertakings
Related undertakings of Croda International Plc
All companies listed below are owned by the Group and all interests are in ordinary share capital, except where otherwise indicated.
All subsidiaries have been consolidated. All companies operate principally in their country of incorporation. Unless otherwise indicated,
all shareholdings represent 100% of the issued share capital of the subsidiary.
Wholly owned subsidiaries:
Incorporated in the UK
Incorporated in China
Unit BCD, 19 Floor, Urban City Center, No.45, Nanchang Road,
Shanghai
Croda China Trading Company Ltd (vii)
Rm207 Xin Xing Building, No.8 Jia Feng Road, Wai Gao Qiao
Free Trade Zone, Shanghai
Croda Trading (Shanghai) Co., Ltd (viii)
No. 1 Hongda Road, Xihuan Beikou, Changping Town,
Changpin District, Beijing
Incotec (Beijing) Agricultural Technology Co. Ltd (vii)
No. 2 Plant, No. 1 QuanFeng Road, Wuqing Development Zone,
Wuqing District, Tianjin
Incotec (Tianjin) Agricultural Technology Co. Ltd (vii)
Incorporated in France
1, rue de Lapugnoy, 62920 Chocques
Croda Chocques SAS (vii)
Route Nationale 10, Immoparc, 78190 Trappes
Croda France SAS (vii)
Croda Holdings France SAS (ix)
Zone artisanale, 48230 Chanac
Crodarom SAS (vii)
4 rue Fernand Forest, 49000 Angers
Incotec France SARL (viii)
29 rue du Chemin Vert, 78610, Le Perray en Yvelines
Sederma SAS (vii)
Incorporated in the Netherlands
Buurtje 1, 2802 BE Gouda
AM Coatings BV (v) (viii
Croda Nederland B.V. (vii)
Unicorn Power BV (viii)
Uniqema BV (ix)
Westeinde 107, 1601 BL Enkhuizen
Incotec Europe B.V. (vii)
Incotec Group B.V. (i) (ix)
Incotec Holding B.V. (ix)
Cowick Hall, Snaith, Goole, East Yorkshire, DN14 9AA
Brookstone Chemicals Limited (viii)
Cowick Hall Trustees Limited (xi)
Croda (Goole) Limited (viii)
Croda Application Chemicals Limited (viii)
Croda Bakery Services Limited (viii)
Croda Bowmans Chemicals Limited (v) (viii)
Croda CE Limited (viii)
Croda Chemicals Limited (viii)
Croda Colloids Limited (viii)
Croda Cosmetics & Toiletries Limited (i) (v) (viii)
Croda Cosmetics (Europe) Limited (iii) (viii)
Croda Distillates Limited (i) (x)
Croda Enterprises Limited (viii)
Croda Europe Limited (i) (v) (vii)
Croda Fire Fighting Chemicals Limited (viii)
Croda Food Services Limited (viii)
Croda Hydrocarbons Limited (viii)
Croda Investments Limited (ix)
Croda Investments No 2 Limited (ix)
Croda Investments No 3 Limited (ix)
Croda JDH Limited (viii)
Croda Leek Limited (viii)
Croda Limited (viii)
Croda Overseas Holdings Limited (i) (ix)
Croda Pension Trustees Limited (viii)
Croda Polymers International Limited (i) (ix)
Croda Resins Limited (viii)
Croda Solvents Limited (iii) (iv) (viii)
Croda Trustees Limited (viii)
Croda Universal Limited (viii)
Croda World Traders Limited (i) (v) (viii)
John L Seaton & Co Limited (viii)
Southerton Investments Limited (i) (viii)
Sowerby & Co Limited (viii)
Technical and Analytical Services Limited (i) (viii)
Uniqema Limited (i) (viii)
Uniqema UK Limited (i) (viii)
c/o Thorntons Law LLP, 13 Melville Street
Edinburgh, EH3 7PE
Croda (CPI) Limited (ix)
138 Croda International Plc
Annual Report and Accounts 2017
Incorporated in the USA
300-A Columbus Circle, Edison, NJ 08837-3907
Croda Americas LLC (viii)
Croda Finance Inc (viii)
Croda Inc (vii)
Croda Inks Corp (viii)
Croda Investments Inc (ix)
Croda Storage Inc (viii)
Croda Synthetic Chemicals Inc (ix)
Mona Industries Inc (viii)
Sederma Inc (vii)
1293 Harkins Road, Salinas, CA 93901
Incotec Integrated Coating and Seed Technology, Inc. (vii)
Incorporated in other overseas countries
Argentina – Dardo Rocha 2044, 1640, Martinez, Buenos Aires
Croda Argentina SA (vii)
Argentina – Avenida del Libertador 498, Piso 12, Oficina 1220
Buenos Aires
Incotec Argentina S.A (vii)
Australia – Suite 102, 447 Victoria Street, Wetherill Park, NSW 2164
Croda Australia (ii) (vii)
Australia – 18 Doveton Street North, Ballarat, Victoria 3350
Kriset Pty. Ltd (vii)
Belgium – “Corporate Village”, Da Vincilaan 9/E6 Elsionor,
1930 Zaventem
Croda Belgium BVBA (vii)
Brazil – Rua Croda, 580, Distrito Industrial, Campinas,
São Paulo, CEP 13.074-710
Croda do Brasil Ltda (vii)
Brazil – Rua Pirajú, nº 255, Santa Maria Goretti, CEP 91030-190,
Porto Alegre – Rio Grande de Sul
Inventiva Indústria e Inovação em Produtos Cosméticos Ltda. ME (vii)
Canada – 1700 Langstaff Road, Suite 1000, Vaughan, Ontario, L4K 3S3
Croda Canada Ltd (vii)
Chile – Santa Beatriz 100, 12th Floor, Office 1205, Providencia
Santiago
Croda Chile Ltda (vi) (vii)
Colombia – Calle 90 # 19-41 Office 601, Bogotá
Croda Colombia (ii) (vii)
Czech Republic – Praha 5, Pekarˇská 603/12, 150 00
Croda Spol. s.r.o (vii)
Finland - Hepolamminkatu 29, 33720 Tampere
IonPhaseE Oy (vii)
Germany – Herrenpfad Süd 33, 41334 Nettetal
Croda GmbH (vii)
Sederma GmbH (vii)
Guernsey – Maison Trinity, Trinity Square, St Peter Port, GY1 4AT
Cowick Insurance Services Ltd (i) (xii)
Hong Kong – Room 908, East Ocean Centre, No.9 Science Museum
Road, Tsim Sha Tsui, East Kowloon
Croda Hong Kong Company Ltd (vii)
Hong Kong - Kreston CAC CPA Ltd, Rooms 2702-3, 27th Floor, Bank of
East Asia Harbour View Centre, 56 Gloucester Road, Wan Chai
IonPhaseE (H.K.) Limited (vii)
Hungary – 1117 Budapest XI, Bölcso utca 6. 1. emelet 4.
Croda Magyarorszag Kft (i) (vii)
India – Plot No. 1/1 Part, TTC Industrial Area, Thane Belapur Road,
Koparkhairne, Navi Mumbai 400710, Maharashtra
Croda India Company Private Ltd (i) (v) (vii)
India – 47, Mahagujarat Industrial Estate, Opp. Pharma Lab,
Sarkhej-Bavla Highway, At. Moraiya, Ta. Sanand,
Ahmedabad-382213, Gujarat
Integrated Coating and Seed Technology India Pvt. Ltd (vii)
Indonesia – Kawasan Industri Jababeka, Jl. Jababeka IV Blok V
Kav 74-75, Cikarang Bekasi 17530
PT Croda Indonesia (iii) (iv) (vii)
Iran – Apt. 305, 3rd Floor, No 14 Golestan Avenue, Alikhani Avenue,
Southern Shiraz Street, Tehran
Croda Pars Trading Co (vii)
Italy – Via P. Grocco 915, 27036 Mortara
Croda Italiana S.p.A. (vii)
Italy – Via Viazzolo Scala 936, 41038 San Felice sul Panaro (MO)
Incotec Mediterranean Srl (viii)
Japan – 4-3 Hitotsubashi 2-chome, Chiyoda-ku, Tokyo 101-0003
Croda Japan KK (i) (vii)
Malaysia – Unit no. 203, 2nd floor, block C, Damansara Intan no. 1,
Jalan SS20/27, Petaling Jaya, Selangor
Incotec Malaysia Sdn. Bhd (vii)
Mexico – Hamburgo 213, Piso 10, Colonia Juárez,
Delegacion Cuauhtémoc, D.F., C.P. 06600
Croda México SA de CV (vii)
Peru – Avenida La Encalada 1388 Oficina 801, Polo Hunt 1, Surco
Croda Peruana S.A.C (vii)
Poland – 31-131 Kraków, ul. Karmelicka 27/3
Croda Poland Sp. z o.o. (i) (vii)
Republic of Korea – Rm. 1201, 12th Floor, 42, Hwang Sae UI-Ro 360
Beon-Gil, Bun Dang-Gu, Seong Nam-Si, Gyeong Gi-Do, 13591
Croda Korea (ii) (vii)
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Russian Federation – Office 1333, 16 Raketnyi bulvar, Moscow,
129164
Croda RUS LLC (vii)
Singapore – 30 Seraya Avenue, Singapore 627884
Croda Singapore Pte Ltd (i) (v) (vii)
South Africa – Clearwater Estate Office Park, Block G, Corner of Atlas
& Park Road, Parkhaven Ext 8, Boksburg 1459
Croda (SA) (Pty) Ltd (vii)
Croda International Plc
Annual Report and Accounts 2017
139
Other Information | Related Undertakings
Shareholder Information
Incorporated in other overseas countries continued
Non-wholly owned subsidiaries and associates:
Corporate Calendar
South Africa – 4 Shortts Retreat Road, Mkondeni, Pietermaritzburg,
KwaZulu-Natal, 3201
Incotec South Africa (Pty.) Ltd (vii)
Spain – Plaza. Francesc Macià, 7, 7ºB , 08029 Barcelona
Croda Ibérica SA (vii)s
Sweden – Geijersgatan 2B, 216 18 Limhamn
Croda Nordica AB (vii)
Thailand – 319 Chamchuri Square Building, 16th Floor, Unit 13-14,
Payathai Road, Patumwan, Bangkok 10330
Croda (Thailand) Co., Ltd (i) (vii)
Turkey – Nidakule Göztepe Is¸ Merkezi, Merdivenköy Mahallesi,
Bora Sokak, No: 1 Kat:2/5 Kadıköy 34732, Istanbul
Croda Kimya Ticaret Limited S¸ irketi (vii)
United Arab Emirates – P. O. BOX 17916, Office 2112, 2113, 21st Floor,
Jafza One, Jebel Ali Free Zone, Dubai
Croda Middle East FZE (vii)
Zimbabwe – 4a Knightsbridge Crescent, Highlands, Harare
Croda Chemicals Zimbabwe Pvt Ltd (viii)
Croda Zimbabwe (Pvt) Ltd (viii)
Incorporated in the UK
Torus Building, Rankine Avenue, East Kilbride,
Scotland, G75 0QF
Cutitronics Ltd
Incorporated in other overseas countries
Brazil – Rua das Sementes nr. 291, Holambra,
State of São Paulo
Incotec America do Sul Tecnologia em Sementes Ltda. (vii)
Japan – No. 5-23, Nobitome 8-chome, Niiza-shi,
Saitama-ken
Incotec Japan Co. Ltd (viii)
Malaysia – Unit no. 203, 2nd floor, block C,
Damansara Intan no. 1, Jalan SS20/27,
Petaling Jaya, Selangor
Incotec Kedah (M) Sdn. Bhd (vii)
Sweden - Scheelevägen 22, 22363 Lund
Enza Biotech AB (xiii)
Joint venture:
Incorporated in China
24.90%
99.90%
97.50%
51.00%
87.99%
China – No 656 East Tangxun Road Economic and
Technological Development Zone Miangyang Sichuan
Croda Sipo (Sichuan) Co., Ltd (vii)
65.00%
Classifications Key
(i) Companies owned directly by Croda International Plc
(ii) Branch office
(iii) A Ordinary
(iv) B Ordinary
(v) Preference including cumulative, non-cumulative and redeemable shares
(vi) No share capital, share of profits
(vii) Manufacture, sales or distribution of speciality chemicals, or of seed treatment
services and products
(viii) Dormant
(ix) Holding company
(x) Property holding company
(xi) Trustee
(xii) Captive insurance company
(xiii) Research enterprise
2018 Annual General Meeting
2017 Final ordinary dividend payment
2018 Half year results announcement
2018 Interim ordinary dividend payment
2018 Preference dividend payments
2018 Full year results announcement
25 April 2018
31 May 2018
25 July 2018
3 October 2018
30 June 2018
31 December 2018
26 February 2019
Investor relations
Shareholders can now get up to
date information on Stock Exchange
announcements, key dates in the corporate
calendar, the Croda share price and
brokers’ estimates by visiting our corporate
website at www.croda.com and clicking
on the section called ‘Investors’.
Shareholders can receive shareholder
communications electronically by
registering on the Registrars’ website,
www.signalshares.com and following the
instructions. To register, shareholders will
require their investor code (IVC): this is an
11 digit number starting with five or six zeros
and can be found on your dividend tax
voucher or your share certificate. Receiving
corporate communications by email has
a number of benefits including being
more environmentally friendly, reducing
unnecessary waste, faster notification of
information to shareholders and eventually
leading to a reduction in company costs.
Shareholders who register on the above
website can also check their shareholding,
view their dividend history, elect for the
dividend reinvestment plan, register changes
of address and dividend mandate instructions.
Share price information
The latest ordinary share price is available
on our website at www.croda.com.
The middle market values of the listed
share capital at 31 December 2017,
or last date traded*, were as follows:
Ordinary shares
5.9% preference shares
6.6% preference shares
4413p
105p*
118p*
Dividend reinvestment plan (‘DRIP’)
Ordinary shareholders may wish to know
about this plan, which allows you to use
your dividends to buy further shares
in Croda. The DRIP is provided by Link
Asset Services, a trading name of Link
Market Services Trustees Ltd which is
authorised and regulated by the Financial
Conduct Authority.
For information and an application pack
please call 0371 664 0381 (calls are
charged at the standard geographic rate
and will vary by provider. Calls outside the
United Kingdom will be charged at the
applicable international rate. Lines are
open 9.00am to 5.30pm, Monday to
Friday, excluding public holidays in England
and Wales. From outside the UK dial
+44 (0)208 639 3402). Alternatively you can
email shares@linkgroup.co.uk or log on to
www.signalshares.com .
Payment of dividends
You can arrange to have your dividends
paid direct to your bank account. This
means that:
→ your dividend reaches your bank
account on the payment date;
→ it is more secure - cheques can
sometimes get lost in the post;
→ you don’t have the inconvenience of
deposting a cheque; and
→ helps reduce cheque fraud.
If you have a UK bank account you can
sign up to this service on Signal Shares
(www.signalshares.com by clicking on
‘your dividend options’ and following the
on-screen instructions) or by contacting the
Customer Support Centre.
Overseas shareholders –
choose to receive your next
dividend in your local currency
If you live outside the UK, Link has
partnered with Deutsche Bank to provide
you with a service that will convert Sterling
dividends into your local currency at
a competitive rate. You can choose to
receive payment directly to your local bank
account or alternatively you can be sent
a currency draft.
You can sign up to this service on Signal
Shares (www.signalshares.com by
clicking on ‘your dividend options’ and
following the on-screen instructions) or by
contacting the Customer Support Centre.
For further information contact Link:
By phone – UK 0871 664 0300, from
overseas +44 (0)371 664 0300 (calls cost
12p per minute plus your phone company’s
access charge. Calls outside the United
Kingdom will be charged at the applicable
international rate). Lines are open
9.00am to 5.30pm, Monday to Friday,
excluding public holidays in England
and Wales.
By email – ips@linkgroup.co.uk
Share dealing
A simple and competitive service to buy
and sell shares is provided by Link
Asset Services.
There is no need to pre-register and there
are no complicated application forms to
fill in. Visit www.linksharedeal.com to
access a wealth of stock market news
and information free of charge. For further
information on this service, or to buy and
sell shares, visit www.linksharedeal.com
or call 0371 664 0445 (calls are charged
at the standard geographic rate and will
vary by provider. Calls outside the United
Kingdom will be charged at the applicable
international rate. Lines are open 9.00am to
4.30pm, Monday to Friday, excluding public
holidays in England and Wales).
140 Croda International Plc
Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
141
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| Shareholder Information
Secretary and Registered Office
Tom Brophy (Company Secretary)
Cowick Hall, Snaith, Goole,
East Yorkshire DN14 9AA
Tel: +44 (0)1405 860551
Fax: +44 (0)1405 861767
Website: www.croda.com
Registered in England number 206132
Registrars
Link Asset Services
The Registry, 34 Beckenham Road,
Beckenham, Kent, BR3 4TU
Tel:
0871 664 0300 (from UK) +44
(0)371 664 0300 (from overseas)
– calls cost 12p per minute plus
your phone company’s access
charge. Calls outside the United
Kingdom will be charged at the
applicable international rate; lines
are open 9.00am to 5.30pm,
Monday to Friday excluding public
holidays in England and Wales.
Fax:
+ 44 (0)1484 601512
Website: www.linkassetservices.com
Email: enquiries@linkgroup.co.uk
Independent Auditors
PricewaterhouseCoopers LLP,
Central Square, 29 Wellington Street,
Leeds, LS1 4DL
Principal Financial Advisers
Morgan Stanley & Co. International plc
Principal Solicitors
Freshfields Bruckhaus Deringer LLP
Stockbrokers
Morgan Stanley & Co. International plc
J P Morgan Cazenove
Financial PR Advisers
Teneo Blue Rubicon
Share dealing continued
This is not a recommendation to buy or sell
shares and this service may not be suitable
for all shareholders. The price of shares
can go down as well as up, and you are
not guaranteed to get back the amount
that you originally invested. Terms,
conditions and risks apply. Link Asset
Services is a trading name of Link Market
Services Trustees Limited which is
authorised and regulated by the Financial
Conduct Authority. The service is only
available to private shareholders resident in
the European Economic Area, the Channel
Islands or the Isle of Man.
Link Asset Services is a trading name
of Link Market Services Limited and Link
Market Services Trustees Limited. Share
registration and associated services are
provided by Link Market Services Limited
(registered in England and Wales, No.
2605568). Regulated services are
provided by Link Market Services Trustees
Limited (registered in England and
Wales, No. 2729260), which is authorised
and regulated by the Financial
Conduct Authority.
Relating to beneficial owners of
shares with ‘information rights’
Please note that beneficial owners of
shares who have been nominated by the
registered holder of those shares to receive
information rights under section 146 of the
Companies Act 2006 are required to direct
all communications to the registered holder
of their shares rather than to the Company’s
registrar, Capita Asset Services, or to the
Company directly.
Share fraud warning
Share fraud includes scams where
investors are called out of the blue and
offered shares that often turn out to be
worthless or non-existent, or an inflated
price for shares they own. These calls
come from fraudsters operating in ‘boiler
rooms’ that are mostly based abroad.
While high profits are promised, those who
buy or sell shares in this way usually lose
their money.
The Financial Conduct Authority (‘FCA’)
has found most share fraud victims are
experienced investors who lose an average
of £20,000, with around £200m lost in the
UK each year.
Protect yourself
If you are offered unsolicited investment
advice, discounted shares, a premium
price for shares you own, or free company
or research reports, you should take these
steps before handing over any money:
→ Treat all unexpected calls, emails and
text messages with caution. Don’t
assume they’re genuine, even if the
person seems to know some basic
information about you
→ Don’t be pressured into acting quickly.
A genuine bank or financial services
firm won’t mind waiting if you want time
to think
→ Get the name of the person and
organisation contacting you
→ Check the Financial Services Register
at www.fca.org.uk to ensure they are
authorised
→ Use the details on the FCA Register
to contact the firm
→ Call the FCA Consumer Helpline on
0800 111 6768 if there are no contact
details on the Register or you are told
they are out of date
→ Search the list of unauthorised firms
and individuals to avoid doing business
with. If the firm isn’t on the list, don’t
assume it’s legitimate, it may not have
been reported yet.
Remember: if it sounds too good to be
true, it probably is!
If you use an unauthorised firm to buy
or sell shares or other investments,
you will not have access to the Financial
Ombudsman Service or Financial Services
Compensation Scheme (FSCS) if things
go wrong.
Report a scam
If you are approached about a share scam
you should tell the FCA using the share fraud
reporting form at www.fca.org.uk/scams,
where you can find out about the latest
investment scams. You can also call the
Consumer Helpline on 0800 111 6768.
If you have already paid money to share
fraudsters you should contact Action Fraud
on 0300 123 2040.
Five Year Record
Earnings
Turnover
Adjusted operating profit¹
Adjusted profit before tax¹
Profit after tax
Profit attributable to owners of the parent
Adjusted operating profit as a % of turnover1
Adjusted Return on Invested Capital (ROIC)1
Effective tax rate
Adjusted earnings per share1
Ordinary dividends per share
Net debt/EBITDA1
EBITDA interest cover1*
2017
£m
1,373.1
332.2
320.3
236.7
237.0
%
24.2
19.2
26.8
pence
179.0
81.0
times
1.0
28.7
2016
£m
1,243.6
298.2
288.3
197.6
196.7
%
24.0
19.3
28.0
pence
155.8
74.0
times
1.1
33.1
1 Before exceptional items, acquisition costs, amortisation of intangible assets arising on acquisition and the tax thereon where applicable
* Interest excludes pension scheme net financial expense and capitalised interest
Summarised Balance Sheet
Intangible assets, property plant and equipment and investments
Inventories
Trade and other receivables
Trade and other payables
Capital employed
Tax, provisions and other
Retirement benefit liabilities
Shareholders’ funds
Non-controlling interests
Net debt
Gearing (%)
2017
£m
1,072.5
258.5
202.2
(202.5)
1,330.7
(88.8)
(30.5)
1,211.4
822.3
7.6
829.9
381.5
1,211.4
2016
£m
954.4
235.7
192.4
(188.8)
1,193.7
(74.3)
(146.5)
972.9
600.6
8.2
608.8
364.1
972.9
2015
£m
1,081.7
264.2
254.7
181.1
180.7
%
24.4
20.1
28.0
pence
135.0
69.0
times
0.9
43.2
2015
£m
799.4
221.6
156.1
(161.7)
1,015.4
(70.0)
(78.8)
866.6
600.8
6.5
607.3
259.3
866.6
2014
£m
1,046.6
248.4
235.4
165.2
165.3
%
23.7
21.2
28.0
pence
125.2
65.5
times
0.6
33.2
2014
£m
633.5
201.0
145.0
(129.4)
850.1
(54.2)
(126.7)
669.2
482.9
6.1
489.0
180.2
669.2
2013
£m
1,077.0
264.6
251.4
177.9
177.5
%
24.6
23.8
28.9
pence
132.2
64.5
times
0.7
35.5
2013
£m
602.9
192.8
136.7
(129.1)
803.3
(45.9)
(135.8)
621.6
413.1
6.3
419.4
202.2
621.6
46.0
59.8
42.7
36.9
48.2
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Annual Report and Accounts 2017
Croda International Plc
Annual Report and Accounts 2017
143
Other Information
Glossary of Terms
12 Principles
of Green
Chemistry
Adjusted
Set of principles that when used in the design,
development and implementation of chemical
products and processes, enables scientists to protect
and benefit the economy, people and the planet
Before exceptional items, acquisition costs,
amortisation of intangible assets arising on acquisition
and the tax thereon where applicable
Annual General Meeting
Alternative Investment Market
Asset-Liability Matching
Active Pharmaceutical Ingredient
Bonus Co-Investment Plan
AGM
AIM
ALM
API
BCIP
Business Areas Personal Care, Health Care, Crop Protection, Seed
Enhancement, Smart Materials, Energy Technologies,
Home Care and Water Treatment, Industrial Chemicals
Career Average Revalued Earnings
Chief Executive Officer
Chemical Growth Partnership
Cash Generating Unit
Croda International Plc Employee Benefit Trust
Carbon Dioxide
Financial Reporting Council’s Corporate Code
Current year results for existing business translated at
the prior year’s average exchange rates
CARE
CEO
CGP
CGU
CIPEBT
CO2
Code
Constant
Currency
Core Business Personal Care, Life Sciences and Performance
CPI
CPS
DRIP
DBSP
EBITDA
EBT
EPS
FCA
FRC
FRS
FSCS
FTSE
GDPR
GHG
GHG emissions
– scope 1
GHG emissions
– scope 2
GMP
GRI
HMRC
HR
IAS
IASB
Technologies
Consumer Price Index
Croda Pension Scheme
Dividend Reinvestment Plan
Deferred Bonus Share Plan
Earnings Before Interest, Taxation, Depreciation
and Amortisation
Employee Benefit Trust
Earnings Per Share
Financial Conduct Authority
Financial Reporting Council
Financial Reporting Standard
Financial Services Compensation Scheme
Financial Times Stock Exchange
General Data Protection Regulation
Greenhouse Gas
Greenhouse Gas emissions from sources that
we own or control
Greenhouse Gas emissions that are a consequence
of our activities, but occur at sources owned or
controlled by another entity
Good Manufacturing Practice
Global Reporting Initiative
HM Revenue & Customs
Human Resources
International Accounting Standards
International Accounting Standards Board
144 Croda International Plc
Annual Report and Accounts 2017
IFRS
IFRSIC
International Financial Reporting Standards
International Financial Reporting Standards
Interpretation Committee
International Labour Organization
Intellectual Property
International Standards on Auditing
International Organization for Standardization
Information Technology
Key Performance Indicator
Life Cycle Assessment
Lost Time Injury
Long Term Incentive Plan
Mergers & Acquisitions
ILO
IP
ISA
ISO
IT
KPI
LCA
LTI
LTIP
M&A
Market sectors Personal Care, Life Sciences, Performance
Technologies, Industrial Chemicals
Material Areas Our ten most important sustainability areas
Net debt
NPP
OHSAS
PSP
QUEST
Borrowings and other financial liabilities less
cash and cash equivalents
New and Protected Products
Occupational Health and Safety Advisory Series
Performance Share Plan
Croda International Plc Qualifying Share
Ownership Trust
Research and Development
Remuneration Consulting Group
R&D
RCG
Return on sales Adjusted operating profit divided by revenue
ROIC
Adjusted operating profit after tax divided by the
average invested capital for the year for the Group.
Invested capital represents the net assets of the
Group, adjusted for earlier goodwill written off to
reserves, net debt, retirement benefit liabilities,
provisions and deferred taxes
Retail Price Index
Roundtable on Sustainable Palm Oil
Safety, Health and Environment module in the
SAP reporting system
Safety, Health, Environment
Safety, Health, Environment, Quality
Share Investment Plan
Small and Medium Enterprises
Tonnes
Total Shareholder Return
Current year results in local currency translated to
Sterling at the prior year average foreign exchange
rate excluding acquisitions
Weighted Average Cost of Capital
RPI
RSPO
SAP EHS
SHE
SHEQ
SIP
SMEs
Te
TSR
Underlying
WACC
Cautionary Statement
The information in this publication is believed to be accurate
at the date of its publication and is given in good faith but no
representation or warranty as to its completeness or accuracy
is made. Suggestions in this publication are merely opinions.
Some statements and in particular forward-looking statements,
by their nature, involve risks and uncertainties because they relate
to events and depend on circumstances that will or may occur
in the future and actual results may differ from those expressed
in such statements as they depend on a variety of factors outside
the control of Croda International Plc. No part of this publication
should be treated as an invitation or inducement to invest in
the shares of Croda International Plc and should not be relied
upon when making investment decisions.
Designed by
This Report is printed on UPM Fine
Offset which has been independently
certified according to the rules of the
Forest Stewardship Council® (FSC).
Printed in the UK by Pureprint,
a CarbonNeutral® company.
Both manufacturing paper mill and the
printer are registered to the Environmental
Management System ISO 14001:2004
and are Forest Stewardship Council® (FSC)
chain-of-custody certified.
Registered Office
Croda International Plc
Cowick Hall
Snaith
Goole
East Yorkshire
DN14 9AA
England
T +44 (0)1405 860551
F +44 (0)1405 861767
www.croda.com
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