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    Annual Report 2011


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    Our operations Business Sector Consumer Care Focused on health and wellbeing, our Consumer Care segment consists of Personal Care, Health Care and Crop Care. We supply innovative ingredients that help consumers look and feel great, promote vitality and a healthy lifestyle and ensure the food we eat is safe and plentiful. Consumers want to look and feel good, but also want products that combine great performance with excellent sustainability credentials. Revenue £m (% Group total) 574.3 53.8% Operating profit £m (% Group total) 173.4 71.5% Financial highlights Revenue £1,068.4m Bought in materials £627.8m and services Value added £440.6m To employees £172.4m To governments £76.3m To providers of capital £67.9m Retained in the business £124.0m Croda locations Head office Manufacturing site Sales office America Asia Rest of the world Regional groups Americas Europe Revenue by destination £m 367.8 34.4% 471.1 44.1% (% Group total) Number of employees 627 19.5% 1,972 61.4% (% Group total)


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    Industrial Specialities Industrial Specialities provides speciality ingredients to the Lubricants, Coatings & Polymers, Home Care, Geo Technologies, Polymer Additives and Process Additives markets, delivering enhanced performance and efficiencies to industries like automotive and transportation, construction, surface cleaning and food packaging. 494.1 46.2% 69.0 28.5% Asia Rest of the world Totals 174.3 16.3% 55.2 5.2% £1,068.4m 567 17.6% 47 1.5% 3,213


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    Contents Directors’ report Business review Business highlights 1 Chairman’s statement 2 Chief Executive’s review 4 Financial review 8 Sustainability 12 Governance Board of directors 22 Corporate governance 24 Remuneration report 30 Other disclosures 43 Financial statements Group independent auditors’ report 47 Group income statement 48 Group statement of comprehensive income and expense 48 Group balance sheet 49 Group statement of changes in equity 50 Group statement of cash flows 51 Group cash flow notes 52 Group accounting policies 53 Notes to the Group accounts 58 Company independent auditors’ report 86 Company balance sheet 87 Company accounting policies 88 Notes to the Company accounts 90 Other information Principal subsidiary companies 98 Shareholder information 99 Five year record 102


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    Business highlights Financial highlights Revenue - Profit before tax Earnings per share - Directors’ report | Business review continuing operations continuing operations £1,068.4m £242.2m 122.5p 2010: £1,001.9m 2010: £192.3m 2010: 95.4p 6.6% 25.9% 28.4% Directors’ report | Governance Earnings per share - Dividends per share basic 123.7p 55.0p 2010: 96.1p 2010: 35.0p 28.7% 57.1% Financial statements Non-financial highlights Energy Landfill Lost time consumption waste injury rate 4.9% 42.9% 35.9% Other information 1% Club time* % of employees receiving training 132% 86% *Employer sponsored volunteering programme 1


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    Croda International Plc Annual Report 2011 Chairman’s statement All three business areas in Consumer I am delighted Care delivered good sales and profit growth in every quarter of 2011. Sales to report another increased 11.2% to £574.3m (2010: £516.4m) and operating profit rose outstanding set of 27.0% to £173.4m (2010: £136.5m). results. This continued Health Care and Crop Care saw the highest sales and profit growth, success is testimony and Personal Care also performed to the effectiveness very strongly. Return on sales (ROS) increased to 30.2% (2010: 26.4%). of our strategic In Industrial Specialities, sales were up focus on market led 1.8% to £494.1m (2010: £485.5m) and operating profit increased by 11.1% to innovation in fast £69.0m (2010: £62.1m). Lubricants, growing sectors and Coatings & Polymers and Home Care performed extremely well and Geo economies worldwide, Technologies made good underlying and an unrivalled progress, excluding the windfall gain in 2010 from the clean-up following the understanding of our oil spill in the Gulf of Mexico. Sales and customers. profits declined in Polymer Additives and Process Additives, but overall sector ROS increased to 14.0% (2010: 12.8%), as we recovered raw material cost inflation and continued to improve our Full Year Results portfolio of products. Croda again set new records for both In both reporting segments we saw sales and profits in 2011, with turnover strong demand for innovative, high increasing by 6.6% to £1,068.4m performance products, partially offset (2010: £1,001.9m) and operating by lower growth and volume losses profit advancing 22.1% to £242.4m in older, less differentiated lines and (2010: £198.6m). We achieved strong commodity business. performances in both Consumer Care and Industrial Specialities during the Acquisitions and Disposals year. In January 2011, the Group completed Pre-tax profits grew by 25.9% to the sale of its 60% holding in its Korean £242.2m (2010: £192.3m), with the joint venture, Croda Woobang, for increase at the operating profit level a consideration of £2.2m. The profit further boosted by lower borrowing on sale of £0.6m has been disclosed costs and higher pension funding as exceptional within discontinued credits. activities. Earnings per share for continuing Dividend operations grew by 28.4% to 122.5p The Board announced its new dividend (2010: 95.4p), reflecting the rise in pre- policy when it reported interim results tax profit, a reduced tax rate and the on 28 July 2011. In the light of Croda’s £50m share buyback undertaken during strong balance sheet position and the year. the highly cash generative nature of Martin Flower, Non-executive Chairman our business, we stated our intention to increase the annual dividend to between 40% and 50% of sustainable In the longer term, our focus on innovation earnings. In line with this new policy, the interim dividend was increased and technology, and our increasing exposure by 153.8% to 24.75p (2010: 9.75p), to the growing economies of Asia and Latin comprising 40% of first half earnings. America, give me great confidence in the future prospects of the Group 2


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    Keith Layden was appointed to the Board as an executive director in the new role of Chief Technology Officer in February 2012. Keith joined Croda Directors’ report | Business review in 1984 and has extensive experience of the chemical industry and related technologies. The creation of his new role will help us to accelerate the development of innovative technologies and underlines the critical importance of this area to the future development of the Group. Alan Ferguson joined the Board as an independent non-executive director in July 2011 and was appointed Chairman of the Audit Committee in August 2011. Alan is a Chartered Accountant who has previously served as Chief Financial Officer of Lonmin Plc, Group Finance Directors’ report | Governance Director of The BOC Group and Group Finance Director of Inchcape plc. Mike Buzzacott retired from the Board Our Home Care division launched a new additive for hard surface cleaners called in August 2011 after seven years ModiSurf™ Clarity during 2011. ModiSurf Clarity forms a protective layer on surfaces of service as an independent non- such as glass, which repels limescale and reduces the tendency of surfaces to mist up. executive director, including four years Unlike most alternative products, ModiSurf Clarity has a high content of renewable as Chairman of the Audit Committee. raw materials, over 60%, and is biodegradable. As ModiSurf Clarity remains effective We thank him for his contribution to for longer than conventional products, the consumer uses less of the cleaning Croda and wish him well. Mike has product. The result is a reduction in the quantity of chemicals washed down the drain. ModiSurf Clarity, therefore, provides both performance and environmental benefits for been succeeded as Senior Independent the consumer. non-executive director by Nigel Turner, a member of the Board since 2009. Outlook Trading in January was encouraging The Board proposes to increase the final The Board and this positive trend has continued, despite the obvious economic Financial statements dividend by 19.8% to 30.25p (2010: There have been a number of 25.25p), making a total dividend for uncertainties in Europe. While it is still significant changes to the Board during the year of 55.0p (2010: 35.0p), an early in the year and our visibility is the year. increase of 57.1%. This represents a limited, we expect 2012 to be another Mike Humphrey retired from the Board year of progress for Croda. payout ratio of 45%, in the middle of at the end of 2011 after 42 years with our target range. In the longer term, our focus on the Company, including 13 years as Subject to future trading and the innovation and technology, and our Group Chief Executive. Mike led the maintenance of a prudent approach to increasing exposure to the growing transformation of Croda into the unique cash and balance sheet management, economies of Asia and Latin America, and exceptionally successful business Croda expects to maintain this dividend give me great confidence in the future that it is today and on behalf of all our prospects of the Group. policy in the years ahead. shareholders and staff, I thank him for his outstanding achievements and offer Capital Structure him our very best wishes for the future. In 2011, we repaid £50m to Steve Foots succeeded Mike as Group shareholders by means of a share Chief Executive on 1 January 2012. buyback, purchasing 2.8m shares at an Other information Steve has worked for Croda since average price of £17.82. 1990, beginning his career with us We are again likely to generate surplus as a graduate trainee, and has been cash from trading in 2012. We intend a member of the Board as President to invest this in acquisitions and of Croda Europe since July 2010. I am further organic investment if suitable confident that Steve is ideally qualified opportunities arise. Any future buybacks to build on Mike’s success and lead will be reviewed in the light of the Croda in the next phase of its growth Martin Flower above. and development. Non-executive Chairman 3


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    Croda International Plc Annual Report 2011 Chief Executive’s review In today’s world, people not only want Croda has delivered to look and feel good, but increasingly want to use renewable raw materials another year of record that combine great performance with sales, profits and excellent sustainability credentials. The trend towards sustainable products in margins, despite a our industrial markets is also growing challenging economic rapidly. Our customers want improved performance from products which are environment in 2011. also safe to use and can meet the ever We made significant increasing regulatory demands imposed progress in both our on specific industries and in different countries around the world. business segments With our continued focus on innovation, throughout the year and coupled with approximately 70% 2012 has started well. of our raw materials coming from natural sources, Croda is well placed This continued strong to take advantage of these drivers. performance underlines We are continuing to drive top line growth through successful new product the resilience of our development, moving even closer to unique and highly our customers and increasing our focus on faster growing emerging economies, innovative business particularly in Asia and Latin America. model which is focused Within our industrial businesses, we are on fast-growing niche replicating this approach to significantly increase sales of speciality products, markets and high adopting the same emphasis on niche margin businesses markets, differentiated technologies and innovative marketing that we have where we can utilise applied so successfully in Consumer our global reach. Care. We will accelerate the capture of new technologies across the Group, with a Our Strategy strong focus on sustainability. We focus on niche markets driven by We will only invest in businesses, strong, positive megatrends in beauty current and future, that can be truly and ageing, health and wellbeing, global, in which we can create and the increasing importance of profitable innovation, that operate in sustainability and environmental end markets which have long term protection. These factors, coupled growth prospects well above global with the strong structural drivers GDP, and in which we can realistically of population growth, increasing sustain high operating margins. disposable incomes and, ultimately, growing consumer spending, give me New Reporting Segments and great confidence that the core markets Medium Term Targets in which we operate will continue to From 2012, we will change the way grow. we report our sales and profits to better reflect the new internal management Steve Foots, Group Chief Executive and business structure in place from 1 January 2012. Industrial Specialities will be renamed The business moved forward in all our four Performance Technologies. Process Additives, previously part of Industrial operating regions Specialities, will in future be reported separately and renamed Industrial Chemicals. 4


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    In recent years Croda’s operations in China and Taiwan have been scaled up with sales offices in six major cities Directors’ report | Business review employing 50 people and serving over 1,200 customers. The area also has laboratories in Guangzhou with facilities to perform efficacy testing and Beijing Shanghai Taipei formulation development. Directors’ report | Governance Guangzhou Shenzhen Hong Kong There are also some speciality products Our best performance was in Health reporting purposes: in the portfolio. Care, driven primarily by very strong growth of our excipient business selling Consumer Care (unchanged), This segment accounts for 27% of into the pharmaceutical, dermatology comprising Personal Care, Health Care Group volumes, 10% of turnover and and animal health markets. During and Crop Care. 3% of operating profit. Much of the the year our production facility in volume in this business is driven by our This segment accounts for 31% of Leek, Staffordshire, was successfully activity levels elsewhere, but we have Group volumes, 54% of turnover and inspected by the US Food and Drug little pricing power and margins are 72% of operating profit. Sales are Administration (FDA). This is a really lower than the other two sectors and driven by global population dynamics. exciting development, which we have can be erratic. Volumes are high but The majority of product launches are worked for 10 years to achieve, that their value is relatively low. patented and competition is fairly gives us the ability to supply Omega-3 fragmented. Volumes are relatively The segment will seek to maximise into the pharmaceutical arena. low but margins are high, driven by profitability. We continue to seek new opportunities Financial statements innovation, quality and the highly These segments have different to expand the market for Omega-3 in technical nature of the products. dynamics in terms of drivers, growth dietary supplements and will shortly The segment is targeting sales growth and margins and we believe that launch a new Incromega™ 3mulsion, of 5-10% per annum and ROS above managing and reporting them responding to market demand for 25%. separately will permit us to maximise a tastier Omega 3 in the form of a Performance Technologies, comprising our focus and drive profitability concentrated, flavoured emulsion that is Lubricants, Coatings & Polymers, Geo improvements in all parts particularly well suited for consumption Technologies, Polymer Additives and of the Group. by children. Home Care. Business Performance and Crop Care also performed extremely well, particularly in Europe, the USA This segment generates 42% of Group Prospects volumes, 36% of turnover and 25% and Latin America, and especially in Consumer Care excipient and adjuvant products. We of operating profit. Sales are driven by product performance and the strength The sector continued to break all have successfully developed new of our “green” credentials. Many, but records, with sales growing by 11.2% polymeric surfactants for electrolyte to £574.3m (2010: £516.4m) and tolerant systems that offer significant Other information not all, new product launches are patented. Margins are good, though not operating profit increasing by 27.0% performance advantages in Crop Care as high as in Consumer Care. to £173.4m (2010: £136.5m). Our ROS formulations. rose by 3.8 percentage points to 30.2% The segment is targeting sales growth (2010: 26.4%), the first time in Croda’s of 4-8% per annum and ROS of 20%. history that ROS has exceeded 30%. It Industrial Chemicals produces basic was particularly pleasing to see strong fatty acids, glycerine and other by- sales and profit increases in all three products together with our textile business areas throughout the year. business and other industrial products. 5


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    Croda International Plc Annual Report 2011 Chief Executive’s review Personal Care, which is the largest Lubricants, Home Care and Coatings business area within Consumer Care, & Polymers all contributed to the We are continuing achieved impressive turnover and strong profit growth in this sector. to drive top line profit growth, driven by sales to our Geo Technologies also made good major multinational customers in all underlying progress, though the growth through parts of the world. Throughout the windfall sales and profits resulting from year, consumers showed no inclination the Gulf of Mexico clean-up in 2010 successful to trade down even in those areas were obviously not repeated in 2011. new product under most economic pressure. Our product pipeline in this area has never In Polymer Additives, weak sales in Europe outweighed strong growth in development, been stronger and we launched a other parts of the world. number of successful new products Our strategic aim in this sector is to moving even closer during the year. Highlights included replicate the success we have achieved the Crodasone™ Cystine hair therapy to our customers smoothing system and Resistem™ for in Consumer Care by launching many new products into profitable niche and increasing our skincare, making revolutionary new use market applications, and good progress of plant stem cell technology to deliver was made in this during the year. In focus on faster anti-ageing protection and improved Lubricants, we introduced the Perfad™ skin transparency. 3000 series of organic friction modifiers, growing emerging which offer outstanding friction Industrial Specialities economies, Sales increased by 1.8% to £494.1m reduction and improved fuel economy in oil based systems. In Home Care, we particularly in Asia (2010: £485.5m) and operating profit grew by 11.1% to £69.0m (2010: launched Modisurf™ Clarity, a stay- clean additive for hard surface cleaners, and Latin America £62.1m), representing a ROS of 14.0% acting as an effective lime scale (2010: 12.8%). Breaking this down into repellent that is also environmentally the new reporting sectors we will use friendly and mild to the skin. from 2012: In Coatings & Polymers, our new Performance Technologies sales Maxemul™ polymerics capitalise on the increased by 2.6% to £389.2m (2010: trend to water-based coatings driven by £379.4m) and operating profit rose by ever tighter environmental regulations 17.4% to £60.1m (2010: £51.2m), a restricting the use of Volatile Organic ROS of 15.4% (2010: 13.5%). Compounds (VOCs). Maxemul™ permits the total elimination of VOC solvents without any compromise on product performance. In Polymer Additives, we have focused our efforts on developing products for wood-plastic composites to improve output, decrease water uptake and provide internal lubrication. In Geo Technologies, we have launched a range of green demulsifiers to help with the challenge of improving environmental performance in the oil industry. Our launches have included several new products that are designed to help oilfield service companies meet the very specific needs of each oil production well with improved environmental ratings. Right across the sector, our successful innovation has meant the replacement of higher volume, low margin products The Cystine Hair Smoothing system is a unique set of demonstration formulations by new lines that add real value for put together by Croda’s application scientists to show how Croda ingredients can be our customers and offer higher levels combined to create products for effective semi-permanent hair smoothing. The hair of profitability. This was the key driver smoothing category has seen an explosion of global market interest in the last few of the significant improvement in the years yet safe and effective technical solutions have been hard to find. Cystine Hair sector’s return on sales during the year. Smoothing is the ideal solution for this significant market need. 6


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    minimising the environmental impact of our operations through a series of initiatives to reduce our consumption of energy and water, and to cut the Directors’ report | Business review quantities of waste we send to landfill. We also remain strongly committed to being a first class employer and a good neighbour to the communities in which we operate. Full details of our policies and actions can be found in the Sustainability review on pages 12 to 21 and in our separately published Sustainability (formerly Corporate Social Responsibility) Report. Perfad™ 3000 and Perfad 3050 are unique organic friction modifiers, both in terms of their chemistry and their performance. Based on polymer chemistry, they deliver Our People outstandingly low friction properties, which is the key to increasing fuel efficiency, Croda employs more than 3,200 people reducing CO2 emissions and engine wear, as well as extending the durability of engine in 33 countries around the world. Many equipment. A small improvement in individual vehicle fuel efficiency has a dramatic are highly qualified chemists; all share impact on total fuel consumption and exhaust emissions. an overriding commitment to putting Directors’ report | Governance our customers first, through their focus on identifying and meeting customers’ current and future needs. Industrial Chemicals sales were down Our continuing business success 1.1% at £104.9m (2010: £106.1m) We will accelerate and operating profit was 18.3% lower depends on our ability to attract and retain individuals who are passionate at £8.9m (2010: £10.9m), a ROS of the capture of new 8.5% (2010: 10.3%). This reflected high about personal and business development and who want to make technologies across raw material prices and competitive commodity and textile markets, though a significant contribution to the future of Croda. We recognise that our the Group, with we did see an improving trend in the employees want to make a difference final quarter. and through open and honest dialogue a strong focus on Geography we are able to design reward strategies and development opportunities that sustainability The business moved forward in all meet the individual needs of our global our four operating regions, with the workforce. We have a terrific talent pool Financial statements strongest progress being achieved in in Croda and we look forward to seeing Latin America, where sales grew by our people grow in the organisation. 11%, and in Europe, with sales growth of 9%. Sales in North America grew by I am grateful to all my colleagues for a more modest 4% as we exited from their contributions as individuals and as a major distributor, which reduced sales teams to another year of outstanding in the second and third quarters. In progress for the Group. Asia, our deliberate de-marketing from Summary the tail of our Industrial Specialities We have a clear strategy, a strong business held sales back to an overall business model, robust finances, increase of 3%. talented people, great products and a Sustainability strong development pipeline. Taken Croda’s “green” credentials are one of together these provide us with the our greatest strengths, with our focus soundest of platforms for continuing to on the production of natural ingredients deliver customer satisfaction, meeting our ambitious performance targets Other information and some 70% of our raw materials already derived from renewable and delivering shareholder value. resources. As a leader in sustainable I look forward with confidence to technologies, we are proud that so leading Croda’s continued growth and many of our products enhance the development in the years ahead. quality of life through their beneficial impact on human health and wellbeing, and on the wider environment. We continue to place a strong emphasis Steve Foots on responsible sourcing and on Group Chief Executive 7


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    Croda International Plc Annual Report 2011 Financial review Dividend Croda has continued to The increased final dividend of 30.25p deliver strong growth per share (2010: 25.25p) will be paid on 1 June 2012 to shareholders on the in profits and earnings, register at the close of business on 4 May 2012, subject to shareholder and to improve approval. performance against our Debt and Liquidity main financial KPIs. Our As a result of the continuing strength strong cash generation of the Group’s cash flow, net debt at the year-end stood at £231.1m (2010: has enabled us to return £220.3m), an increase of less than £118m to shareholders £11m despite the return of £118m to shareholders through dividends and through dividends and share buybacks during the year. This compares with our committed facilities share buybacks, while of £472.0m (2010: £473.8m). significantly increasing All our debt ratios continued to investment in the improve, with our main banking ratio of net debt to EBITDA falling to 0.8x business and further (2010: 1.0x) and EBITDA interest cover improving our debt improving to 33.5x (2010: 26.9x). ratios. Capital Expenditure We have worked hard to increase the rate of internal investment in Croda, spending £58.6m (2010: £41.7m) on capital expenditure, 82% higher than Pre-tax Profit our depreciation figure of £32.2m. Our strong operating profit performance The most significant project during was further enhanced by slightly lower the year was a £12m investment in net interest costs of £8.2m (2010: a new acrylic polymers plant at our £8.6m) and a significantly increased Rawcliffe Bridge site in East Yorkshire, IAS 19 pension funding credit of £8.0m enabling us to meet growing demand (2010: £2.3m). This meant that pre-tax from customers in the Personal Care, profit increased 25.9% to £242.2m Crop Care and Home Care sectors. (2010: £192.3m). In addition, the Group undertook numerous expansion projects to Exceptional Items increase capacity at its facilities around There was an exceptional credit of the world, although none of these were £1.6m in 2011, comprising the profit individually material. on the disposals of the Group’s Korean We are targeting a capital spend for joint venture and our Bromborough 2012 of £65m. site, compared with pre-tax exceptional credits totalling £3.9m in 2010. All exceptional items relate to discontinued operations. Earnings per Share The share buyback was the main reason for the fall in the average number of shares outstanding from 136.0m in 2010 to 135.3m in 2011. Our tax rate fell one percentage point to 31.5% as underlying corporate tax rates were reduced in the UK and elsewhere in the world. As a result, earnings per share from continuing operations increased faster than pre-tax profit, growing by Sean Christie, Group Finance Director 28.4% to 122.5p (2010: 95.4p). 8


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    During 2011 construction began on a new Acrylic Polymers plant at our Directors’ report | Business review Rawcliffe Bridge manufacturing site in the UK, a £12m investment for the Group. The plant will enable us to produce products which improve the rheology, dispersion and suspension profile of formulations. The initial focus of the plant will be on Personal Care, Crop Care and Home Care products, however, Acrylic Polymers have performance benefits across all market sectors, with an overall target market of £500m. Croda has a dedicated business team in place and has several patented products planned for launch in the second half of 2012. Directors’ report | Governance Retirement Benefits The market value of our pension fund assets increased to £647.5m (2010: We have worked The gross IAS 19 deficit on our pension scheme increased by £51.1m £641.9m). We feel comfortable with hard to increase to £198.9m (2010: £147.8m) and the current level of the deficit as it will require only a small movement in the the post-tax deficit rose by £36.7m the rate of internal to £141.6m (2010: £104.9m). This discount rate to achieve a significant reduction in our liability. investment in reflected an increase in the net present Financial statements value of our pension payment liabilities Financial KPIs Croda as a result of the continuing decline in Performance against our five main KPIs corporate bond interest rates. (before exceptional items) is shown in the following table: Target 2011 2010 Return on sales >15% 22.7% 19.8% EPS growth +5-10% +28.4% +77.3% Post tax ROIC >WACC*† 23.7% 19.3% Debt/EBITDA <3x 0.8x 1.0x EBITDA interest cover* >4x 33.5x 26.9x Other information *excluding IAS 19 credit † WACC: Weighted average cost of capital, 2011 average 7.8% (2010: 7.5%) 9


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    Croda International Plc Annual Report 2011 Financial review Risk Management The framework comprises a standard The output from the risk reviews Effective management of risks and set of risk categories and definitions, are consolidated and reported to opportunities is essential to the together with the process and risk the Risk Management Committee delivery of the Group’s financial and register format to be used in analysing to identify Group wide impacts non-financial objectives, thereby and managing risk. Risks are ranked by and trends including external and ensuring the Group delivers value combining the economic, operational emerging risks. In addition, a top to the shareholders, protects its or environmental impact (rated by down review is performed to identify reputation and meets the requirements value) and the likelihood of occurrence, Group level risks that will not have of good corporate governance. both before and after identification of been identified at regional or site Croda is committed to the effective mitigating controls, and any actions level. The most significant risks are management of all key risks identified. required to address weaknesses. collated into the Group risk register The responsibility for risk identification, using the same risk management The Group coordinates its global analysis, evaluation and mitigation rests framework, which is reviewed at each approach through the Risk Management with management at regional and site meeting. The Committee evaluates Committee which meets quarterly level. All regions and key functional the controls and procedures which are and reports directly to the Board. This groups are required to undertake a full in place to mitigate these risks, and a Committee is chaired by the Group review of risks and their mitigating nominated member of the Committee Finance Director and comprises the strategies at least half yearly, with sites is responsible for ensuring that best regional Presidents, the Group Financial required to undertake the same review practice is followed in tackling each Controller and the Company Secretary at least annually. Each risk is allocated area and that continuous progress is with the Group Risk and Control an owner who has the responsibility for made in managing the risks. Manager in attendance. monitoring and managing it. The key risks identified by the Group A structured risk management system is are summarised below. implemented across the Group which is defined in the Group’s risk management framework. Risk Description and impact Mitigation Strategic Product and Croda operates in competitive markets in which We have 18 R&D laboratories around the world. technology product and technology innovation are key to We have unrivalled customer contact, ensuring innovation success. Innovation failing to deliver could result in a that our innovation is market led and relevant lack of competitive products and erosion of margins to their needs. We have just appointed our Chief and/or loss of market share. Technology Officer to the Board. Merger and The Group has experienced growth through The Group has established policies and processes in acquisition strategy acquisitions and continues to pursue acquisitions place to manage the acquisition process, integrate to meet its strategic objectives. Whether the acquired businesses and monitor performance. Group realises the anticipated benefits from these acquisitions depends on the integration of the acquired businesses and their performance in relation to the Group’s acquisition expectations. External environment Product liability Croda sells into a number of highly regulated Quality management procedures are in place markets. Non-compliance with quality regulations for each site, and all manufacturing sites hold could expose the Group to liability and reputational ISO9001 standards. Major sites have also been damage. audited against GMP (Good Manufacturing Practice) standards. Regulatory As a global chemical producer and supplier, Croda The most significant chemical legislation currently compliance operates in a highly regulated environment. facing the Group is the implementation of REACh Violation of these regulations could limit the (Registration, Evaluation, Authorisation and markets into which we can sell, or subject the restriction of Chemicals) in Europe. We have Group to fines or penalties. introduced a range of procedures in order to maintain compliance with this regulation and have successfully completed the necessary registrations to date. 10


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    Risk Description and impact Mitigation People and process Directors’ report | Business review Major site event Significant operational problems could have an We maintain strictly audited internal safety and involving the loss of adverse effect on Croda’s financial position. We maintenance programmes and have business a site are reliant on the continued operation of our continuity plans in place. manufacturing sites. Major Violations of safety, health and environmental In addition to maintaining compliance with environmental regulations could limit operations and expose the national and international safety standards, we incident Group to liability, cost and reputational impact. maintain strictly audited internal safety, health and environmental programmes. Interruption of raw Interruption in the supply of key raw materials Wherever possible, we try to multi source our key material supply would significantly impact operations and our raw materials and/or we purchase them under financial position. Interruption of supply could arise medium to long term contracts. We manage from the implementation of new, more rigorous our raw material stock levels taking these legislation or from market shortage. considerations into account. Loss of key We rely on employees such as divisional board We have global procedures in place to identify and personnel members and technical experts whose vision and retain key employees and to develop succession Directors’ report | Governance knowledge is critical to maintaining the Group’s plans for key positions. success. Business systems IT systems and Croda relies heavily on IT systems to operate We have a global IT group who are very security failure effectively and efficiently and to facilitate experienced. During 2011 we moved to a high communication globally. Failure of these systems for availability mirrored system to further strengthen a prolonged period of time would have an impact the IT infrastructure. on operations and ultimately our financial position. Financial Management of Croda has legal commitments relating to the The Group’s pension schemes are overseen by pension fund assets provision of pensions and the operation of our the Trustees of the funds who take professional pension schemes. In current market conditions, actuarial and investment advice as necessary. increased future funding requirements may have an Trustees have the required skills as a result of adverse effect on Croda’s financial position. experience and training, and where appropriate the Group will appoint professional trustees to its schemes. Financial statements Working capital Cash flow generation from the effective The Group operates a well embedded working management management of working capital is required to capital programme which is managed on an support the cash outflows arising from capital individual business basis with central monitoring. investment programmes, servicing of debt, taxation, and pension fund requirements. Currency exchange The global nature of the Group’s business exposes We maintain a strategic spread of manufacturing rate movements it to volatility in currency exchange rates which and selling locations globally which itself limits could have an adverse impact on Croda’s financial currency exposures. The Group hedges its currency position. exposure on trade debtors and creditors where appropiate. Other information Sean Christie Group Finance Director 11


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    Croda International Plc Annual Report 2011 Sustainability Chief Executive’s It is no longer enough to strive to what we see as the most significant be successful in traditional financial sustainability issues we are facing statement terms: businesses today have to realise today. their responsibilities are broader. In the pages that follow, and in more Corporate social responsibility (CSR) detail in our separate Sustainability What is Sustainability? recognises the positive contribution Report, we want to shed some light business makes to society and also the light on these issues and how we are For Croda it’s simple – doing detrimental impact a business can have working hard to address them; by business sustainably means if it does not operate responsibly. acting now and by setting meaningful doing business the right As a chemicals manufacturer, the targets for future action. I am way. potential impact of not operating particularly pleased that we are able responsibly is obvious. As an employer to report a reduction in the Group’s lost The right way by our and neighbour, the consequences of time injury rate in 2011, as well as people, the environment, irresponsible behaviour would be far further reductions in energy use and the communities we work reaching. As a sustainable, successful waste to landfill. Equally pleasing is within and those business, we have to recognise this the continued success of our employee responsibility and look for continuous volunteering programme, the 1% Club. organisations we work with. improvement not only in economic In 2011, more than twice as many terms, but also in our social and employees were involved in some form environmental performance. of local voluntary project compared to We have found it a real challenge as 2010, investing a total of over 4,600 a business to define in detail what we hours of work time. mean by “sustainability”. One definition We also recognise that to continue that struck a particular chord came from being successful in our sustainability the Brundtland Report, commissioned journey, we have to establish a by the United Nations: “Sustainable pragmatic way of getting things done. development is development that We have made great strides this year meets the needs of the present without with the creation of a dedicated in- compromising the ability of future house Corporate Social Responsibilty generations to meet their own needs”.1 department, responsible for informing We feel that through our emphasis on and guiding our sustainability strategy, emerging markets and technologies, we whilst at the same time ensuring we are making our own small contribution, have sensible and effective structures going beyond “not compromising” and in place to enable communication actually “enhancing” the capabilities of and information sharing with all future generations. stakeholders, inside and outside the Equally challenging is a way of ensuring Group. that all of our aspirations, worthy as We believe that our business model they are, are underpinned by real puts us at the very forefront of tangible targets. These targets that can sustainable business; that said, the help ensure our day to day behaviour last thing we will be is complacent. is supportive of longer term goals, and As our business continues to develop can illustrate and help to communicate new technologies and forge new what sustainability really means to us partnerships in emerging markets, at Croda. sustainability will continue to be central Hence the need to identify the real to our thinking. sustainability issues facing our business today. We have worked hard in 2011 to identify the key issues we must address if we want to be a truly sustainable business. This hard work has been led by our Group Executive Committee with our CSR Steering Committee, reflecting the top level commitment within our organisation. The results of this work are best illustrated by our materiality matrix on page 13. The matrix was one of the outputs of our first Sustainability 1 United Nations, 1987, Report of the World Commission on Strategy Day, held in July 2011, and is Steve Foots Environment and Development, General Assembly Resolution 42/187, 11 December 1987 a simple graphical representation of Group Chief Executive 12


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    Material Issues we operate. This must embrace the matrix was mapped to illustrate the areas that are of most significance to relative materiality of the issues Our underlying approach to our business and those that are of most identified, plotting business impact sustainability has focused on importance to our stakeholders. against stakeholder perception. Since Directors’ report | Business review establishing clear commitments and To identify our most material issues, this meeting, all of these issues have performance targets aligned to our the CSR Chair, CSR Manager and Pillar been embedded into our sustainability material issues. Owners met with the Group Executive strategy and activities. By material issues we mean topics Committee in July 2011 for an in depth or issues with the potential to affect Sustainability Strategy Day to discuss the long term success of our business the major issues to our business and the sustainability of the economy, and key stakeholders. A materiality environment and communities in which Croda’s Materiality Matrix High 3 1 1 2 1 1 2 3 Directors’ report | Governance 2 Importance to stakeholders 2 3 3 1 2 1 4 2 Diagram 5 Financial statements Low High Impact & risk to Croda Section Material issue Section Material issue Environment 1 Air quality & climate Employees 1 Recruitment & retention change 2 Compensation & benefits 2 Water quality & supply 3 HR policies & systems 3 Landfill waste Talent management & 4 employee development Health & Process safety safety 1 management Performance 5 management Other information Occupational health & Corporate stakeholder 2 safety Corporate 1 stakeholders engagement Responsible Renewable raw 2 Ethical supply chain sourcing 1 materials Community Community 1 communication Responsible Palm Oil 2 sourcing 2 Community involvement Product data 3 gathering 3 Community education 13


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    Croda International Plc Annual Report 2011 Sustainability To enable the Group to take meaningful action against each of the material issues identified, it is important that we are able to define each issue and explain why it is material in terms that are clear to our stakeholders, both internal and external. In the following tables, we seek to do just that. Environment Air quality & climate change 1 The link between emissions of combustion products such as CO2 and climate change is now well established. It is therefore essential that as a socially responsible company we reduce the impact of our emissions to a sustainable level. The expectation of all our stakeholders is that we continue to make progress in reducing discharges of climate change gases. Water quality & supply 2 Fresh water is becoming increasingly scarce as population and industrial activity increases. Furthermore, the onset of climate change may influence rainfall patterns such that water resources in some parts of the world become increasingly stressed. Left unmanaged, supplies would eventually run out. Whilst our operations are not in regions where water resources are under immediate threat, many of our manufacturing sites and offices operate in communities that are dependent on a shared natural fresh water resource. We therefore have a public responsibility and a business need to have a strategy for water management to ensure the sustainability of our operation. Landfill waste 3 Like other resources, land is becoming increasingly stressed. Productive land has been consumed by development and subsequently contaminated, so less space is available to grow food. One of the most environmentally unfriendly activities is landfill, which modifies the land permanently and incidentally introduces contamination to air as well as to water. Whilst our activities do not have a direct impact on the land we occupy, we have a responsibility to minimise our landfill waste and ultimately look to eliminate this activity from our business. Health & safety Process safety management 1 Process safety encompasses the most significant hazards associated with our operations. The consequences of poor process safety are well documented on a multitude of historical industrial disasters, for example Union Carbide in Bhopal and BP in Texas City, which not only led to many fatalities, but also significant harm to the environment and lasting material damage to the companies involved and their reputations. The moral obligation alone that every company has in this area is indisputable and one that we have always committed significant time and resource to managing. Occupational health & safety 2 No one should expect to be injured when they work at any of our manufacturing sites or offices. In addition to this moral obligation, the cost to the business of an unsafe workplace can be enormous in terms of fines, compensation for injury, loss of production and loss of reputation. High workplace injury rates are often symptomatic of poor general management practices and they do not signal a sustainable business. Responsible sourcing Renewable raw materials 1 The developing world is increasing its reliance on oil and other non-renewable material sources; it is clear that these resources are being depleted and the environment cannot support current production levels in the future. To ensure that we can continue to make the products that our customers require, we are committed to developing and manufacturing high performance products from renewable raw materials wherever reasonably practicable. Responsible Palm Oil sourcing 2 As the demand for Palm Oil (PO) and Palm Kernel Oil (PKO) continues to grow, primarily for inclusion in food, it becomes ever more important that it is sourced sustainably. Whilst we use extremely small volumes of the actual PO, a number of our products do include derivatives that are a result of processing the oil for food markets. The supply chain of derivatives is very complex due to the number of different producers involved. However, through our involvement with the Roundtable on Sustainable Palm Oil (RSPO) we are determined to do what we can to bring about change to secure a sustainable supply of derivatives. Product data gathering 3 In order to ensure that we can continue to manufacture our products and to look for opportunities to enhance their environmental profile, it is very important to the Company and its stakeholders that we have an extensive amount of data to hand on the products we make. This data goes beyond what is required for regulatory purposes, to build a detailed picture of the sourcing of each raw material used to make our products and the impact those products have on the environment from origin to final use. Employees Recruitment & retention 1 Like all successful businesses, we recognise that our future depends on our ability to attract and retain individuals who are passionate about personal and business growth and want to make a significant contribution to the future of our business. Recruiting individuals that fit this description and the culture of the business is always hard, but within the chemical industry it is increasingly a problem with a high level of competition for a decreasing number of graduates. As our business is focused on innovation and growth in emerging markets and developing countries, this challenge increases further. 14


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    Employees Compensation & benefits 2 In a competitive recruitment marketplace we are conscious that we should not lose critical staff because of issues relating to pay or Directors’ report | Business review additional benefits. We realise that the remuneration package we offer plays a key part in attracting and retaining employees. HR policies & systems 3 Information and knowledge sharing are at the heart of making better business decisions. Streamlined systems and policies not only provide the data and trends on which to base decisions, but will in turn drive employee engagement.We believe that well defined policies and procedures allow our employees to operate without constant management intervention. It is this autonomy and freedom to act that has made our business what it is today. Talent management & employee development 4 The key to the future success of any business lies in the skills and abilities of its workforce. It is only through the continual development of our workforce that we will be able to meet the future demands of our customers in relation to enhanced creativity, innovation and customer service. Being a business dependent upon a large number of specialists including engineers and scientists as well as finance, IT, HR, marketing, purchasing, sales, regulatory and legal professionals we have to place great focus on continuous development. Performance management 5 A strong, efficient performance management culture is not only important to employees’ professional development, but also to meet the Company’s objectives and so ultimately contributing to its bottom line. In addition, a clear, robust process will lead to enhanced communications and an opportunity to address performance problems effectively, thus delivering improvements in employee morale. Directors’ report | Governance Corporate stakeholders Corporate stakeholder engagement 1 For any company to be successful it cannot work in isolation; it must consider and take necessary action to meet the needs and expectations of its stakeholders. Our key corporate stakeholders are our customers, investors, suppliers and Non-Governmental Organisations (NGOs). We have always been committed to working with these stakeholder groups and have long standing relationships with them as we understand their importance to our success. We now want to deepen our understanding of these groups, particularly in relation to their key sustainability issues, as what will affect them will also have an impact on us. Ethical supply chain 2 It is the responsibility of all companies to act ethically, but standards can differ from one business to the next. At Croda, we apply the same high ethical and sustainability standards across all operations. Our suppliers are a critical part of our business and we believe that they should operate to the same standards as we do. With increasing consumer awareness and customer demands in this area, we have to work even more closely with all suppliers. Community Financial statements Community communication 1 Operating ethically means being aware of the impact a business has and acting responsibly within the communities in which it is located and where its employees live. This can only be achieved through open dialogue with the community. The relationship we have with our local communities is extremely important to us. We take pride in ensuring that we keep our neighbours informed of activities that are planned to take place at our manufacturing sites and other key locations where health and safety is of paramount importance. As our business grows, it is vital that we develop and maintain a supportive external environment, as well as a strong brand and reputation. This will continue to reinforce our Company culture, which has community awareness and activity at its heart. Community involvement 2 Putting talk into action is the true way of demonstrating a company’s commitment to their communities. Our Company culture is such that we have the capability to be both proactive and reactive to community needs and we have the motivation to make a positive impact in the communities in which we operate. The morale of our employees is enhanced by the goodwill that is created through community involvement. It is also very important to our business that we use this activity as an opportunity for personal and team development. Community education 3 For any business operating in very specialist markets it is essential to raise awareness of the opportunities it offers and the skills it needs by educating future generations. Our rich scientific heritage and our strategic reliance on delivering market led innovation mean we must ensure that we play our part in developing scientists, technologists and engineers. By developing a strong external educational platform to Other information engage with potential employees in these areas, we will also enhance our image and reputation, thus helping us to recruit appropriately educated people who will support our future technical activities. We continue to evaluate these issues carefully to ensure they remain the Group’s most material sustainability issues. As outlined in the Chief Executive’s statement on page 12, identifying and succinctly defining the issues is only the first step. Performance targets supported by a robust management approach then need to be established for each material issue, followed up with ongoing monitoring and regular reporting of performance. In the sections that follow, we discuss some of the material issues from each of the key areas in a little more detail to illustrate the work we have been doing on establishing targets, monitoring and reporting performance and thereby making a tangible difference, both inside and outside the business. 15


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    Croda International Plc Annual Report 2011 Sustainability Air Quality & Climate Change Some progress was made towards our target of 25% energy from non-fossil Strategy sources, up from 13.3% to 14.5% by At Croda, we have now carefully the end of 2011. However, projects are measured emissions of gases in hand to make significant progress implicated in climate change for more towards this target in the next two than 15 years and have consistently years. set targets for reduction. Increasingly demanding targets have been set for Total energy usage for continuing operations by year 2015 by our Group Executive Committee 6,000 under the guidance of the SHE Steering 5,000 Committee. To ensure actions can be The installation of in line drying taken to bring about change, all major 4,000 Energy/TJ vessels at our Rawcliffe Bridge SHE targets are set over a five year time 3,000 manufacturing site in the UK is part of ongoing capital investment, period. A strategy for further significant 2,000 improved management and change beyond 2015 is already in place. 1,000 equipment optimisation that will It is the responsibility of all significantly reduce VOC emissions. 0 manufacturing site directors to Over the past 10 years, the site has implement improvements in both 2007 2008 2009 2010 2011 reduced emissions by 36%. The plant and operational practices, latest investments will see a further which contribute to a reduction in the 20% reduction with additional novel amount of CO2 and other greenhouse VOC emissions fell by 8.8% from the technology expected to deliver 2010 baseline to 280 tonnes. Improved further improvements in the gases produced. Our Group Executive Committee will continue to support process control and a slight reduction coming years. in production volumes both contributed this through the approval of relevant capital expenditure, which will also to this improvement. The sustainability include activities at our offices where of the improvement will be checked in appropriate. 2012. 2011 Targets The Future l Based on 2010, reduce total 2011 Performance In 2011, compared to our 2010 A pilot Site Energy Audit is planned Group energy consumption by for 2012, paving the way for 5% by 2015. baseline year, energy consumption was reduced by 4.9%. This was due to further detailed energy audits at all l To have 25% of the Group’s manufacturing sites in line with our total energy requirements the implementation of a large number of energy saving projects across the strategic approach. generated from non-fossil fuel Group. An additional contributing factor Major projects on energy sourcing are sources by 2015. was a reduction in production volume expected to start delivering an increase l Based on 2010, reduce total in non-fossil sourced energy in 2012 Group VOC emissions by 10% during the year, so the challenge will be to maintain the reduction in energy and further process optimisation is by 2015. expected to deliver more reductions in consumption sustainably as production volumes increase, to ensure that we VOC emissions in the period up to 2015. reach our 2015 target. Our North American operations have completed a number of projects in 2011 to reduce energy consumption. Our Edison office launched their 305 kilowatt solar energy system in July 2011. The first of its type at any of our operations, the system is expected to provide more than 50% of the power required to run the facility, which is approximately equivalent to powering 42 average sized homes, removing 47 cars from the road or saving over 100,000 litres of petrol each year. Our Atlas Point manufacturing site installed LED lighting fixtures that use 50% less energy, whilst improving the quality of light for operators and reducing maintenance costs due to the LED’S 10 year lifespan. 16


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    Renewable Raw Materials 2011 Performance 2011 Targets In 2011, 65% of the raw materials l In 2011, to use the ERP based Strategy used within all of the products we system to record a baseline At Croda, we have a history of using manufactured across the Group were Directors’ report | Business review measurement of the number renewable raw materials in our from renewable resources. Although of new products developed products wherever possible, with this figure has decreased by 3% based solely on renewable sustainability being embedded in our compared to 2010, largely due to raw materials. product innovations since we launched changes in product mix, it is still a high l In 2011, to use the ERP based our very first product, lanolin. percentage for the chemicals industry system to record a baseline Our research scientists work with our and it sets us apart from our peers. measurement of the total marketing teams to determine the In 2011, we monitored the percentage volume (tonnes) of products market opportunities early in the new of all new products launched based sold based solely on product screening and development solely on renewable raw materials and renewable raw materials. phase; this includes consideration to found this figure to be 32%, whilst the origin of the raw material used the average percentage of renewable in terms of safety and environmental raw material content in all of the impact. Underpinning this process is products we launched in 2011 was our adoption of the 12 Principles of higher at 58%. It is also encouraging Green Chemistry, where our scientists to see that in Personal Care and Directors’ report | Governance ensure our products meet as many of Coatings & Polymers this figure is these principles as practically possible, significantly higher. An example of a therefore ensuring that our products 100% renewable product launch in have the most minimal impact on 2011 is NatraGem™ S150 NP, a natural health and the environment. The solubiliser for active ingredients. challenge is meeting the demands for green and safe products, whilst The Future maintaining competitive product We shall remain committed to performance and functionality. developing new products based on as high a proportion of renewable raw materials as possible and assess each new product according to the 12 Principles of Green Chemistry. The speciality chemical industry is fast moving away from using Our French research and development depleting resources and energy and manufacturing operation, Sederma, Financial statements intensive, environmentally took on the challenge of developing compromising processes. The focus natural molecules for the cosmetic is on sustainable raw materials industry without causing any damage and greener, cleaner and safer to the environment using Plant Cell manufacturing methods. With Biotechnology. This technology uses our heritage in naturally derived plant cells to produce a range of natural products, we are at the forefront of molecules with unique performance this evolution. characteristics. Culturing these cells It was biotechnology that stood has a number of benefits, but the most out to us amongst the array of significant is the preservation of the approaches to achieving sustainable environment as the process can start product design. It is a path offering from a very small fragment of plant leaf many promising opportunities or root. The culturing of plant cells does in the future, which is why we not require fertilisers, pesticides or land have dramatically expanded our use and can be done any time of the investment in the research and year. In 2011, Sederma launched the development and manufacture first product using this new technology. Other information of these products at our Ditton Resistem™ is an active cosmetic manufacturing site in the UK. ingredient that helps the skin to protect In 2011, we published a Whitepaper and regenerate itself to build its own called “Biotechnology and its role anti-ageing defence system. in Sustainable Design”, which was a technical article describing this field of science and our desire to incorporate its capabilities into our core technologies. 17


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    Croda International Plc Annual Report 2011 Sustainability Recruitment & Retention To support our developing regions 2011 Targets of Latin America and Asia we are l All regions to complete an Strategy now taking the expertise we have in employee engagement survey It is only through robust, effective and graduate recruitment, selection and by the end of 2011. stringent recruitment processes that we development in our mature markets of l On a global basis, to maintain can ensure we have the best possible North America and Europe and utilising average voluntary turnover at starting point from which to develop it in these developing markets. This less than 10% in 2011. the right leaders and specialists for the will ensure we maintain the quality l Every Croda manufacturing future of our business. and supply of future leaders across our site to hold a minimum two Our internally developed and delivered business. employee communications leadership and succession processes sessions in 2011. can only be effective if the raw talent is there to start with across all functions. Through our global competency framework we can ensure recruitment practices across the Group identify the people with the right skills, knowledge and aptitude, but more importantly During 2011 our Latin American the behaviours and attitudes that will division introduced health make them, and in turn our business, a assessments for all employees success. regardless of service or position within this business. In a region It is then, by listening to our employees where health care is not easily through surveys, appraisals, consultation accessed by everyone due to its committees and communication high cost this is a significant benefit. sessions the world over that we can 99% of employees in the regions ensure the investment we make in took up the offer, which included recruitment pays off. Understanding examinations for hearing, vision, our employees’ needs, aspirations and cardiovascular risk and nutritional advice. opinions will ensure we continually develop a retention strategy that works for our business. Our European graduate recruitment programme has gone from strength to strength over the past three years and now sees an average of 15 graduates per annum recruited into one of our four schemes that enable us to focus their future development on areas of the business where we need the skills, namely engineering, technical, operations and commercial. 18


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    2011 Performance The Future Testimonial: Martin Lim, Graduate Our 2011 graduate recruitment The global HR strategy has provided the Trainee, Croda Singapore programme saw 24 new employees business with a clear framework of the join in the UK, France, Spain, North areas on which we need to focus. Directors’ report | Business review America, China, India and Singapore. In relation to recruitment and retention, These individuals were all carefully we will ensure that by the end of 2013 selected using our robust recruitment emerging markets have a programme processes and join a growing body of of regional graduate and trainee Croda graduates dating back over 20 recruitment to support future business years. needs. Building on our experiences in For the past three years graduates from Asia, we will utilise this knowledge India, Singapore and more recently and expertise to develop a programme China have taken part in training and suitable to the Latin American market. development activities in the UK with Building on the success of our European the European graduates. The success employee satisfaction survey, and those of these residential programmes in that have taken place in the other The 2010 Graduate Programme developing key skills and retaining regions in which we operate in previous was a first for Croda Singapore and these key individuals for the Asian years, we will complete one global thankfully I had the opportunity to business has led us to develop an Asian employee engagement survey in 2014. Directors’ report | Governance be part of the pioneer batch. graduate programme during 2011. This survey will then be conducted at The two year programme was Regarding retention performance, all least every three years. structured to give us exposure to different functions by rotating 1,900 of our European employees were through three or four roles, invited to take part in the region’s first During July 2011, all employees in which ensured we gained ever engagement survey. The focus of Europe were invited to take part in an varied experience and a good the questions was based on the Croda employee engagement survey. understanding of day to day Vision and had two main goals. Firstly operations. We also took part in Key results of the survey were: to give us a measure of the level of residential training events and had l 62% overall response rate; employee engagement across Europe, individual mentoring sessions with l 96% of respondents stated that they a senior manager to support our and secondly to show us where we are get personal satisfaction from doing development. doing well and also where we need to their job well; I am now on my last placement in improve. We achieved a 62% response l 87% of respondents agree that sales and already I can look back rate across our European operations and Croda is an ethical and responsible on my previous sales and customer the results showed us that engagement company; care roles and see that the Graduate levels in Europe are exceptionally high. l 83% of respondents would refer Programme has many benefits in Croda to a friend as a good place to Financial statements several areas. Job rotation has given work; me a broad understanding of the l 81% of respondents are committed business and first-hand experience to a long term career with Croda; and of different roles. Mentoring l The three key areas of action are accelerated my development as I career management, reward and gained different perspectives and recognition and communication. had timely advice along the way. The overseas training opportunities and a wide variety of special work assignments expanded my horizons and allowed me to build important relationships across the Group, all of which I hope will allow me to contribute to the future success of Croda. Other information 19


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    Croda International Plc Annual Report 2011 Sustainability Corporate Stakeholder Preliminary analysis of the survey is Engagement providing confirmation of the areas that are material to our customers and Strategy giving a deeper insight into what may We aim to maintain ongoing and be more material in the future. regular engagement with all our corporate stakeholders in face to face During 2011, we also started to meetings and via specially designed engage face to face with investors on surveys. We will engage with our major sustainability issues and we saw an customers, investors and suppliers on increasing level of enquiries from this all aspects of sustainability, particularly stakeholder group. concentrating on the issues that most The Future affect them. Our goal is to gain an In 2012, we will further engage with understanding of the key sustainability many of the customers who responded issues that are of concern to our key to our 2011 customer survey to discuss corporate stakeholders, so that we the key sustainability issues facing can constantly aspire to meet their their organisations and understand sustainability expectations. how we might be able to work more 2011 Performance closely together. A wider survey of 2011 Targets To obtain feedback on the material our customers will also be conducted l In 2011, we will conduct a sustainability issues from our top to include the key customers in each formal survey of our top 50 50 customers we conducted an region across all market sectors. customers across all market online survey. The survey was future In response to the growing number of sectors. focused and aimed to go beyond any enquiries from investors, as they seek current formal requirements within confirmation that they are investing in our customers’ supplier code. The sustainable companies, we will formally customers contacted came from many engage with our investor community different industries and questions to gain feedback on our sustainability included: factors that influence the performance. choice of raw material, environmental concerns, employees, labour standards, neighbours and business ethics and standards. In 2010, we launched Solaveil™ SpeXtra, a novel titanium dioxide dispersion offering protection against both UVA and UVB radiation, for which we were presented with the “Best New Technology” Award by Cosmetics & Toiletries in 2011. Following the long awaited F.D.A Final Rule on sunscreen labelling and effectiveness testing in 2011, we have been able to provide consumers all over the world with Ourguidance clear Atlas Point manufacturing on broad spectrumsite UV in North America protection, completed which Solaveil two projects SpeXtra provides. to reduce To support electricity this activity, consumption we launched in a 2011,Physical Solaveil with theShield combined annualwhich campaign, saving is aexpected marketing to initiative be approximately to support£120,000. our customers’ The first products by communicating was the installation of LED the superior quality, lighting fixturesperformance that use 50% andless reliability energy, of Solaveil UV actives, whilst improving theasquality well asofthe proven light for safety and mildness operators of inorganic and reducing sunscreens. maintenance An costs integral duepart of this to their 10promotion is the year lifespan. educational The second website, www.solaveil.com, investment was a system which thatprovides information automatically adjustsfor the temperature general public about and lighting whenthe theimportance buildings are of UV protection, an SPF guidance tool, details unoccupied. on the science behind our UV actives and advice on where they can find personal care products containing Solaveil. 20


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    Community Involvement Even more satisfying is that a total of 684 (21.3% of Group) employees took Total 1% Club hours worked in the community and Strategy part in 1% Club activities during 2011, percentage of employees accessing the scheme Our involvement in the local community compared to 9.3% in 2010. Directors’ report | Business review 4,000 aims to deliver against a broad array of objectives. Firstly, it satisfies our The Future corporate desire “to do the right The 1% Club has proven to be thing”, ensuring that we invest in extremely successful in allowing our communities and play our part our employees to contribute to the 2,000 6,000 in ensuring they are appropriately community, and to express their supported. Secondly, it is a great way passion for the good causes affecting 2.8% to motivate employees, helping them the lives of those in the areas in 2010 9.3% to feel that they are part of a business which we live and work. In every 2011 21.3% measurement of performance, including 0 hours that values the communities in which it operates. breadth and quantity of involvement We believe that the 1% Club will by our employees, the level of impact continue to play a significant role delivered by our personnel is fantastic. in meeting many of our employee It is our belief that developing both development targets, and will the quality and quantity of this activity will continue to deliver benefits for our Directors’ report | Governance continue to be a means by which we can illustrate our commitment to business in terms of staff motivation community involvement. and personnel development, whilst developing quality links with our 2011 Performance neighbours. 2011 Targets All manufacturing sites and offices As such we will continue to challenge l All operations of >30 completed a stakeholder audit and our level of activity in terms of employees to undertake an developed at least one project as a community engagement and will audit of key local stakeholder result of community engagement. look to further increase activity levels needs and develop at least In 2011, our employees have spent against those delivered in 2011. one project in line with 4,679 hours in their local community, both business and stakeholder significantly exceeding the 2,021 requirements. hours invested in 2010. The number of l In 2011, to continue employees using four or more hours monitoring 1% Club activity, of 1% Club time was 488 (15.2% of aiming to increase the total Group). time (hours) spent in the Financial statements community by 20% based on 2010 figures. l To increase the number of individuals in the Group using at least one half day of 1% Club time over 12 months to 15% of the global workforce. More detail on the Group’s approach to Sustainability, including additional information with regard to each of our material issues, can be At a number of our global conferences in 2011, delegates focused their team building found in the accompanying 2011 activities on taking part in 1% Club activity near where the conferences were held. Sustainability Report or online at At the sales conference in Latin America, 81 employees spent half a day conducting Other information www.croda.com/csr. extensive repairs and redecoration at a local school, Escuela Veron in Punta Cana, Dominican Republic. The internal and external improvements to the school were very much appreciated by the students and teachers. The employees that took part also found the experience very fulfilling. Andres Rey from Croda Miami said; “This was a first for Punta Cana and certainly impressed the local community. The whole team got involved and we have left a legacy that we are all proud of”. 21


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    Croda International Plc Annual Report 2011 Board of directors Martin Flower Steve Foots Sean Christie Keith Layden Non-executive Chairman Group Chief Executive Group Finance Director Chief Technology Officer Martin Flower was appointed Steve Foots was appointed to Sean Christie was appointed Keith Layden was appointed to the Croda Board in May the Croda Board in July 2010 to the Croda Board as Group to the Croda Board in the 2005 and became Chairman and became Group Chief Finance Director in April 2006. new role of Chief Technology at the end of September Executive at the beginning of He previously held a number Officer on 6 February 2012. He 2005. He is chairman of the 2012. Steve joined Croda as a of senior finance positions in joined Croda in 1984 and since Nomination Committee and a graduate trainee in 1990 and Northern Foods Plc and was 2004 has been President of member of the Remuneration has held a number of senior Group Finance Director from Croda’s Enterprise Technology Committee. He formerly management positions in the 1996 to 2004. He was a non- and Actives businesses. Prior held various senior executive Group, becoming President executive director of KCOM to this he held a number of positions over 36 years with of Croda Europe in July 2010. Group plc for eight years until Managing Director roles across Coats plc, culminating in a Steve has been a member 2007 and a non-executive Croda’s European business. period as Chairman before of Croda’s Group Executive director of Cherry Valley He currently represents Croda his retirement in 2004, and Committee since January Farms Ltd from 2006 until the as a member of the advisory he was Deputy Chairman and 2007. He is a member of the company was sold in 2010. board for chemistry at the Senior Independent Director Nomination Committee. Universities of Newcastle, of Severn Trent Plc until June Nottingham and York and is 2006. In 2010 he retired as a member of the Innovation Chairman of Autogrill Holdings Strategy Board for Chemistry UK Plc (formerly Alpha Group Innovation and the Industrial Plc). He is currently a non- Biotechnology Leadership executive director of The Forum. Morgan Crucible Company plc and is Chairman of Low & Bonar PLC.


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    Stanley Musesengwa* Nigel Turner* Steve Williams* Alan Ferguson* Independent non-executive Senior Independent Independent non-executive Independent non-executive director non-executive director director director Stanley Musesengwa joined Nigel Turner joined the Croda Steve Williams joined the Alan Ferguson joined the Directors’ report | Business review the Tate & Lyle Group in 1979 Board in June 2009 and was Croda Board in July 2010 as a Croda Board in July 2011 as as a refinery manager and appointed Senior Independent non-executive director. Steve a non-executive director and subsequently performed a Director in August 2011. He was General Counsel and Chief was appointed Chairman number of different roles has over 35 years experience Legal Officer of Unilever plc of the Audit Committee in in Africa, before becoming in corporate finance and and Unilever NV from 1986 August 2011. Alan was Chief Regional Director, Tate & Lyle was the Chairman of Numis until 2010. Prior to this he Financial Officer and a director Africa in 1995. In December Securities Ltd and Deputy spent 11 years at Imperial of Lonmin Plc until December 1999 he was appointed Chief Chairman of Numis Corporation Chemical Industries PLC as 2010. Prior to that he was Executive Officer of Tate & Lyle plc from December 2005 until a commercial lawyer and Group Finance Director of Europe. He was appointed to his retirement in November Assistant Secretary. From 1995 The BOC Group until it was the Tate & Lyle Board in April 2007. From 2000 until 2005 he until 2004 he was a non- acquired by the Linde Group 2003 and took up the position was with ABN AMRO following executive director of Bunzl plc. in 2006. Before then he spent of Chief Operating Officer on fifteen years with Lazard From 2004 until 2010 he was 22 years in a variety of roles 1 May 2003 until his Brothers in London where he Senior Independent Director of at Inchcape plc, including retirement in 2008. He joined was Managing Director and Arriva plc. Since 2008 he has six years as Group Finance the Croda Board in May a member of the Supervisory been a non-executive director Director from 1999. Alan is a Directors’ report | Governance 2007 and was appointed Board of the Lazard Group. of Whitbread PLC, where he is Chartered Accountant and has Chairman of the Remuneration Nigel has been the Senior also the Senior Independent been a non-executive director Committee in 2009. Independent Director of Genus Director. In addition, Steve is of Johnson Matthey PLC since plc since 2008. a director of Eversheds LLP, January 2011. In December an international law firm, and 2011 Alan was appointed as a a senior advisor to Spencer non-executive director of The Stuart LLP. He is Chairman of Weir Group PLC. the De La Warr Pavilion Trust and a member of the Board of the Leverhulme Trust. * Member of Audit, Remuneration and Nomination committees Financial statements Other information 23


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    Croda International Plc Annual Report 2011 Corporate governance The Board is committed to high standards of corporate governance and to complying with the provisions of the UK Corporate Governance Code (the “Code”) where practicable. This report, together with the directors’ remuneration report, set out on pages 30 to 42, describes how the relevant principles of governance set out in the Code have been applied by the Company. Compliance The information contained in this report demonstrates that, throughout 2011, the Company has complied fully with all relevant provisions set out in the Code. On pages 4 to 7 of the Chief Executive’s review we provide an explanation of the Group’s business model and the basis on which the Group generates value over the long term and the strategy for meeting our corporate objectives. The Board The Board has ultimate responsibility for the overall leadership of the Company and in this role it assists in the development of a clear strategy for the Group, monitors operational and financial performance against agreed goals and objectives and ensures that appropriate controls and systems are in place to manage risk. It has a formal schedule of matters specifically reserved to it and this is posted on the Company’s website (www.croda.com). At the date of this report the Board comprises the Chairman, the Group Chief Executive, the Group Finance Director, the Chief Technology Officer and four independent non-executive directors who have a range of business, financial and international skills and experience. This provides an appropriate balance within the Board. Biographical notes appear on pages 22 and 23. The Chairman and the Group Chief Executive have written accountabilities that have been approved by the Board. The Chairman and non-executive directors meet together without the executive directors present on an ad hoc basis and the non-executive directors meet at least annually in the absence of the Chairman in order to appraise his performance. In addition to formal Board meetings, the Chairman and the Group Chief Executive meet on a regular basis. All members of the Board have full access to the advice and services of the Company Secretary. Where necessary the directors may take independent professional advice at the Company’s expense. Directors are granted an indemnity from the Company in respect of liabilities incurred as a result of their positions to the extent permitted by law. In addition the Company maintained directors’ and officers’ liability insurance cover throughout the year. Training and briefings are available to all directors on appointment and subsequently, as appropriate, 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 and businesses and the markets in which it operates. Presentations from senior managers are made at Board meetings on a regular basis. The Board also usually holds at least one Board meeting a year at a Croda operating site. In September the Board held its meeting in Brazil during a visit to our manufacturing site at Campinas. Earlier in the year the Board also visited the Rawcliffe Bridge manufacturing site in the UK. These visits allow the non-executives to tour the sites and observe the operations at first hand as well as providing the opportunity to meet the local management and employees and gain their insight into the business. Non-executive directors also undertake site visits on an individual basis. Attendance at meetings Details of the attendance by directors at meetings of the Board and the Board committees on which they are eligible to sit are set out below: Board Nomination Committee Remuneration Committee Audit Committee Eligible Eligible Eligible Eligible to attend Attended to attend Attended to attend Attended to attend Attended M C Flower 10 10 3 3 5 5 – 3† M C Buzzacott (retired 1 August 2011) 7 7 2 2 3 3 2 2 A M Ferguson (appointed 1 July 2011) 4 4 1 1 3 3 2 2 S Musesengwa 10 10 3 3 5 5 3 3 P N N Turner 10 10 3 3 5 5 3 3 S G Williams 10 9 3 3 5 4 3 2 M Humphrey 10 10 3 3 – 5† – 3† M S Christie 10 10 – – – – – 3† S E Foots 10 10 – – – – – 3† † Attended by invitation In addition to the formal Board meetings, all the directors attended a half day meeting to review the Group’s strategy and attended the Annual General Meeting. They also met with the Company’s financial and public relations advisers to discuss the feedback from investors and analysts on the Group’s 2010 annual results. 24


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    Re-election of directors The Company’s Articles of Association require the directors to offer themselves for re-election at least once every three years and for newly appointed directors to offer themselves for election at the first annual general meeting (“AGM”) after the date of their appointment. However, the Board is observing the recommendation set out in the Code requiring directors of FTSE 350 companies to be subject to annual Directors’ report | Business review election and so all the directors will be standing for election. Following individual performance assessments, the Board is satisfied that each director continues to perform effectively and demonstrate commitment to the role. Further details about the directors are given in the notice of the AGM which is in a separate document issued to shareholders with the annual report. 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. No conflicts were identified or authorised during the year. Non-executive directors Croda complies with the Code in having experienced non-executive directors who represent a source of strong independent advice and judgement. At present there are five such directors, including the Chairman and the Senior Independent director, Nigel Turner, each of whom has significant commercial experience. Their understanding of the Group’s operations is enhanced by regular business presentations and by site visits. The independence of the non-executive directors is kept under review. The non-executive Chairman was independent on his appointment in 2005 but, as Chairman, is not classified as independent. From January 2011, until his retirement in August 2011, Mike Buzzacott served Directors’ report | Governance alongside Nigel Turner as a non-executive director of Genus Plc, a company which has no other connection with Croda’s business. Steve Williams has a consultancy role with Eversheds LLP, which provides some legal services to the Group. The Board does not consider that these roles would affect the directors’ judgement in relation to Croda and its business and, therefore, it is the Board’s opinion that all the non- executive directors who have served during the year are independent in character and judgement with no relationships or circumstances which are likely to affect, or could appear to affect, their judgement. During 2011 no non-executive director or the Chairman had served on the Board for more than nine years from the date of their first election. Details of the professional commitments of the Chairman and the non-executive directors are included in their biographies on pages 22 and 23. The Board is satisfied that these do not interfere with the performance of their respective duties to the Company. The terms and conditions of appointment of non-executive directors can be inspected during normal business hours at the Company’s registered office by contacting the Company Secretary and are available at the AGM. Board committees The Board has three main committees which are established by Board resolution and each has written terms of reference which can be found on the Company’s website. Report of the Audit Committee Financial statements Alan Ferguson (appointed 1 July 2011, Chairman from 1 August 2011) Mike Buzzacott (Chairman - retired 1 August 2011) Stanley Musesengwa Nigel Turner Steve Williams The Audit Committee, which consists of all the non-executive directors other than the Chairman, meets at least three times a year to coincide with key dates in the Company’s financial reporting cycle. The Board is satisfied that each of the Committee members has the relevant experience to enable them to contribute to the Committee’s work. The Chairman, the executive directors, the Group Financial Controller, the Group Risk and Control Manager and representatives from the external and internal auditors attend meetings by invitation. The chairman of the Audit Committee holds independent meetings with the Group Risk and Control Manager and also with the external auditors, without the executives being present. The Committee’s remit is to assist the Board in fulfilling its responsibility for ensuring that the Group’s financial systems provide accurate and up to date information on its financial position and that the Group’s published financial statements represent a true and fair reflection of this position. As part of its normal responsibilities the Committee monitors the integrity of the financial statements of the Group. This includes reviewing significant financial reporting issues and judgements contained in the statements and the consistency of, and any changes to, Other information accounting policies. In addition it is responsible for monitoring the effectiveness of the Group’s internal controls and risk management systems including that of the Group’s internal audit function. It reviews and approves the annual internal audit plan and the key points from all internal audit reports across the Group, agrees the annual audit plan with the external auditors and reviews the findings of the audit and the interim review with the external auditors. 25


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    Croda International Plc Annual Report 2011 Corporate governance During the year the Committee Members also: l reviewed the Group policy and strategy in relation to taxation; l received reports and presentations concerning key specific risks identified by the Risk Management Committee; l monitored compliance with the Group risk management programme; l considered initial work on a review of risk strategy and processes including determination of a risk maturity profile; and l supervised a process whereby the external auditors presented to the Board which resulted in their continued appointment. Audit independence The Committee and the Board place great emphasis on the objectivity of the Group’s external auditors, PricewaterhouseCoopers LLP (“PwC”), in their reporting to shareholders. The PwC audit partner is present at all Audit Committee meetings to ensure full communication of matters relating to the audit. The overall performance of the auditors is reviewed annually by the Audit Committee, taking into account the views of management, and feedback is provided to senior members of PwC unrelated to the audit. This activity also forms part of PwC’s own system of quality control. The scope of the forthcoming year’s audit is discussed in advance by the Audit Committee. Audit fees are reviewed by the Committee and then referred to the Board for approval. The rotation of audit partners’ responsibilities within PwC is required by their profession’s ethical standards, is actively encouraged and has taken place. Assignments awarded to PwC are subject to controls by management that have been agreed by the Audit Committee in order to ensure that audit independence is not compromised. The chairman of the Audit Committee is required to give prior approval of work carried out by PwC and its associates in excess of predetermined thresholds; part of this review is to determine that other potential providers of the services have been properly considered. As reported last year, PwC is providing advisory services in relation to the implementation of computer systems which has increased significantly their non-audit activities for 2011. Given the nature of these services the full Audit Committee considered and approved PwC’s appointment. This work, undertaken in a number of the Group’s smaller locations, will continue through 2012 into 2013 as the Group completes the roll out of its ERP system to the global sales network. All responsibility for the design and implementation of the ERP system resides with management. This includes managing the system’s operation, monitoring its internal controls and ensuring data integrity. PwC’s role is restricted to assessing the system’s implementation against the design criteria developed by management. These controls provide the Committee with adequate confidence in the independence of PwC in their reporting on the audit of the Group. Report of the Nomination Committee During 2011 the committee comprised: Martin Flower (Chairman) Mike Buzzacott (retired 1 August 2011) Alan Ferguson (appointed 1 July 2011) Mike Humphrey (retired 31 December 2011) Stanley Musesengwa Nigel Turner Steve Williams The Nomination Committee consists of the non-executive directors and the Group Chief Executive. It meets on an ad hoc basis and is responsible for nominating, for approval by the Board, candidates for appointment to the Board and succession planning. During the year the Committee led the process to find a suitable successor for Mike Humphrey as Group Chief Executive. Spencer Stuart, an external search consultancy which Croda has employed on other Board appointment assignments, was retained to assess potential internal candidates and identify possible external candidates against a candidate specification developed by the Committee. After taking full consideration of Spencer Stuart’s findings and the perceived requirements of the Company, the Committee endorsed the nomination of Steve Foots. At the same time the Committee was instrumental in reaching agreement with Mike Humphrey on the terms of an orderly transition on his retirement. Early in the year the Committee started the process to find a new Chairman for the Audit Committee to replace Mike Buzzacott on his retirement in August 2011. Spencer Stuart was retained to draw up a list of candidates. Following interviews with each Board member, the Committee recommended Alan Ferguson’s appointment to the Board. His experience in senior finance positions in international businesses was thought to be of significant benefit to the Company. The Committee maintained its focus on succession planning and development programmes for senior employees by reviewing the progress of the three new Group wide leadership development programmes introduced during 2011 and the development of a new assessment process designed to help identify those individuals who required further development or more radical action to enable them to improve. The Committee carried out its customary corporate governance review and was satisfied that the size, structure and composition of the Board and the required time commitment from non-executive directors remained appropriate and that all the non-executive directors continued to fulfil the criteria of independence and were able to commit the required time for the proper performance of their duties. 26


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    The Board supports the principles set out in the Code regarding Board appointments and agrees that having a diverse mix of skills, experience and backgrounds, including gender diversity, on the Board is very important. It has considered the recommendations of the Davies report on “Women on Boards” and will ensure that any long list of candidates for future Board appointments includes a good proportion of women. However, the Board is uncomfortable with the idea of setting out the percentage of women it aims to have on the Directors’ report | Business review Croda Board, as it believes that all Board appointments should be based on merit and not on a policy of positive discrimination. Ultimately the best way to get women onto the Board is to increase the number of women rising to senior positions within the Company and this will receive increased focus as part of the Company’s own succession planning and development programmes. The Board will also keep the criteria for Board candidates under review to ensure that they do not inadvertently exclude particular categories of candidate. Remuneration Committee Stanley Musesengwa (Chairman) Mike Buzzacott (retired 1 August 2011) Alan Ferguson (appointed 1 July 2011) Martin Flower Nigel Turner Steve Williams The Remuneration Committee, which consists of the non-executive directors, is responsible for advising on remuneration policy for senior executives and for determining the remuneration packages of the executive directors and the Chairman. The Group Chief Executive is normally invited to attend all its meetings. Further details of the Committee’s activities during the year can be found in the directors’ remuneration report set out on pages 30 to 42 . A Directors’ report | Governance resolution will be proposed at the AGM to approve the report. Board and Committee evaluation The Board usually carries out an annual self-evaluation exercise towards the end of the financial year. In view of the changes to the composition of the Board as a result of the appointment of a new non-executive director in July and the impending change of Group Chief Executive at the year end, the Board took the decision to defer such an exercise until 2012. It was felt that greater value would be obtained from carrying out a more formal review during 2012 once the new Board had been in place for several months. Accordingly, an externally facilitated evaluation will take place later in the year. Other Committees The management of the business is delegated by the Board to the Group Chief Executive. He utilises a series of committees to assist him in this task. Group Executive Committee During 2011 the Committee comprised: Mike Humphrey (Chairman) - Group Chief Executive Steve Foots - President – Europe Financial statements Sean Christie - Group Finance Director David Barraclough - President – Asia Pacific Miguel De Bellis - President – Latin America Kevin Gallagher - President – North America Keith Layden - President – Actives & Enterprise Technology Kevin Nutbrown - President – Global Operations Louise Scott - Company Secretary & Legal Counsel Steve Foots became Chairman of the Committee following Mike Humphrey’s retirement on 31 December 2011. On 6 February 2012 he relinquished his role as President, Europe and the European business was divided into two areas under the leadership of Sandra Breene, President – Consumer Care Europe and Maarten Heybroek, President – Performance Technologies & Industrial Chemicals Europe. Consequently, both have joined the Group Executive Committee. The Committee meets quarterly and its remit is responsibility for the development and implementation of strategy, operational plans, policies, procedures and budgets, the monitoring of operating and financial performance, the assessment and control of risk and the prioritisation and allocation of resources. Finance Committee The Finance Committee meets monthly to review operating results, identify operational and risk issues and examine capital expenditure proposals. During 2011 the members were: Other information Mike Humphrey (Chairman) - Group Chief Executive Sean Christie - Group Finance Director Graham Myers - Group Financial Controller/Treasurer Kevin Nutbrown - President – Global Operations Since the year end Steve Foots has assumed the chairmanship of the Committee. The other members of the Group Executive Committee are invited to attend all meetings of the Finance Committee. 27


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    Croda International Plc Annual Report 2011 Corporate governance Risk Management Committee During 2011 the Committee comprised: Sean Christie (Chairman) – Group Finance Director David Barraclough - President – Asia Pacific Miguel De Bellis - President – Latin America Steve Foots - President – Europe Kevin Gallagher - President – North America Keith Layden - President – Actives & Enterprise Technology Graham Myers - Group Financial Controller/Treasurer Kevin Nutbrown - President – Global Operations Louise Scott - Company Secretary & Legal Counsel Steve Foots is no longer a member of the Committee since becoming Group Chief Executive on 1 January 2012. The Committee’s role is to evaluate, propose policies and monitor processes to control the business, operational and compliance risks faced by the Group. It normally meets four times a year. Group SHE Steering Committee The Group also operates a Safety, Health and Environment (“SHE”) Steering Committee which is chaired by Kevin Nutbrown, President – Global Operations and comprises the heads of regional businesses, operational functions and the VP Group SHE. It meets quarterly and monitors progress against the Group SHE objectives and targets, reviews safety performance and determines the requirement for new or revised SHE policies, procedures and objectives. Routine Business Committee The Routine Business Committee comprises the Group Chief Executive and the Group Finance Director with the Company Secretary and Group Financial Controller acting as alternates. The Committee may make decisions with one executive director and the alternate for the other executive director being present. It attends to business of a routine nature and to the administration of matters, the principles of which have been agreed previously by the Board or the Group Executive Committee. Investor relations The Company recognises the importance of communicating with its shareholders. The Group Chief Executive and the Group Finance Director maintain regular contact with major shareholders and they ensure that their views are communicated to the Board as a whole through the reporting of feedback from shareholder meetings and the provision of brokers’ reports. 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, both generally and in comparison with its sector peers, and investor reaction are discussed. The Senior Independent director and other non-executive directors are available to attend meetings with major shareholders if requested, however no such meetings were requested during the year. The AGM provides an opportunity for private shareholders to raise questions with the members of the Board. The directors are also available to answer questions after the meeting in a more informal setting. The annual report, including notice of AGM, is sent to shareholders at least twenty working days before the meeting. There is a separate investor relations section on the Company’s website (www.croda.com) which includes, amongst other items, presentations made to analysts. Internal control The Code provision C.2.1 on internal control requires the directors to conduct, at least annually, a review of the effectiveness of the Group’s system of internal control, including financial, operational, compliance and risk management controls, and report to the shareholders that they have done so. In accordance with the Turnbull guidance (2005) and in order to discharge this responsibility, the directors have utilised an organisational structure with clear operating procedures, lines of responsibility, and delegated authority. In particular there are clear procedures and defined authorities to act for: l capital investment, with detailed appraisal, authorisation and post-investment review; l financial reporting, with specific internal controls and risk management systems governing the financial reporting process and preparation of the annual financial statements. These systems include clear policies and procedures for ensuring that the Group’s financial reporting processes and the preparation of its consolidated financial statements comply with all regulatory reporting requirements. This framework is enshrined in the Group’s policy documents which set out the core business processes and accounting principles to be employed at all Group companies. Compliance with the policies is ensured by regular internal reviews supplemented by focused audit work; and l comprehensive monitoring and quantification of business risks, under the direction of the Risk Management Committee. The Group co-ordinates its approach to risk management globally through its Risk Management Committee. The Committee is chaired by the Group Finance Director and comprises the heads of each business unit, the Group Financial Controller and the Company Secretary. The Group Risk & Control Manager attends all the meetings. Each operating site and function within the Group compiles its own risk register, highlighting the key risks it faces along with the mitigating controls in place to offset the risk. These registers are reviewed and consolidated to ensure there is a comprehensive view of the material risks facing the Group along with the controls in place to mitigate these risks. The Group’s approach to risk management is discussed in more detail in the Financial review on pages 10 and 11 and in the Group’s separate Sustainability report. 28


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    The Board acknowledges its responsibility for the Group’s system of internal control and for reviewing its effectiveness, and has reviewed its operational effectiveness throughout the financial year and up to the date of approval of the annual report using a process which involved: l written confirmations from relevant senior executives and divisional directors concerning the operation of those elements of the system Directors’ report | Business review for which they are responsible; l internal audit work carried out by KPMG LLP who report through the Group Risk & Control Manager to the Audit Committee; and l reports from the external auditors. Such a 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. The Board also, where appropriate, ensures that necessary actions have been, or are being, taken to remedy significant failings or weaknesses identified from the review of effectiveness of internal controls. Going concern The Group’s activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive’s review and the financial position of the Company, its cashflows and liquidity are described in the Financial review. The financial statements, which appear on pages 48 to 97, 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 and the Group have adequate resources to continue in operational existence for the foreseeable future. Directors’ report | Governance Financial statements Other information 29


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    Croda International Plc Annual Report 2011 Remuneration report Dear Shareholder As described in the Business Review, 2011 was another outstanding year of growth for Croda, particularly in light of the record results delivered in 2010 and the wider context of continuing tough global economic conditions. The results demonstrate the ability of our business to continue to deliver growth in difficult market conditions and, in particular, the strength of the Group’s strategy and effective leadership of our dynamic and experienced management team. The Remuneration Committee (the “Committee”) consider the remuneration paid to our management team to fairly reflect their performance during the year. The annual bonus paid out in full (arising from the 2011 income, as calculated for the purpose of the bonus scheme, exceeding the maximum targeted income) and the 2009 LTIP and BCIP awards’ performance targets were also met in full, which reflected a growth in earnings per share of 137% over the three year period ended 31 December 2011, and a total shareholder return created of over 290% (which resulted in Croda being amongst the top fifteen performing FTSE 250 companies over the three year performance period). As described in the Chairman’s statement, 2012 marks the start of a new era at Croda, with a new Group Chief Executive in post. The new Group Chief Executive has been with Croda for over 20 years and is supported by a highly experienced and dedicated senior team. The Board consider the leadership team to be ideally placed to continue to deliver the Company’s consistent track record of delivering profitable growth. The Committee considers our current remuneration policy of paying competitively against comparable international businesses, with an incentive structure weighted towards long-term performance, to continue to serve the business well. The Committee has a clear track record of aligning pay with performance and shareholder value creation. As a result, our broad policy framework is to be retained for 2012. However, in light of the changes to the Board that take effect for 2012, and in response to developments in corporate governance expectations, the following amendments to our current policy are being introduced for 2012: l the new Group Chief Executive’s remuneration has been adjusted to reflect his promotion; and l clawback provisions are to be introduced into both the annual and long-term incentive plans operated by the Company from 2012. The Committee believes that the policy in place for 2012 will provide it with sufficient flexibility to meet its objective of retaining and motivating the Company’s management team to continue to deliver the Board’s strategic objectives. In addition, given that a substantial proportion of the total package is weighted towards long-term performance, the deferral requirement that forms part of the annual bonus arrangements and the introduction of clawback provisions for 2012, the Committee is comfortable that the current arrangements do not inadvertently encourage undue risk taking. As a result, the Committee looks forward to your support of our remuneration policy at the 2012 AGM. S Musesengwa Chairman of the Remuneration Committee 30


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    The directors present their remuneration report which covers the remuneration of both executive and non-executive directors and certain senior executives. This report sets out the policy for the financial year just ended, for the forthcoming year and, subject to ongoing review, for subsequent years. The report has been approved by the Board and signed on its behalf by the chairman of the Remuneration Committee. The first section of the report contains unaudited information and the second section audited information. The report will be Directors’ report | Business review subject to approval by shareholders at the AGM in April 2012. Section 1: Unaudited information The role of the Remuneration Committee The Committee reviews and approves the annual salaries, bonus arrangements, service agreements and other employment conditions of the executive directors and certain members of the senior executive management team designated by the Board. In so doing it takes due account of pay and conditions in the Group as a whole and receives information on pay proposals for other employees throughout the Group. It also approves the design of, and determines targets for, any performance related/bonus pay schemes operated by the Group, approves the total annual payments made under such schemes, reviews the design of all share incentive plans for approval by the Board and shareholders and approves the award of long-term incentives. The Committee has delegated responsibility for setting the remuneration of the Chairman. The full terms of reference of the Committee are published on the Company’s website (www.croda.com). Membership and operation The Committee comprises all non-executive directors including the Chairman and is chaired by Stanley Musesengwa. The Group Chief Executive is usually invited to attend all meetings but neither he nor the Chairman attends when their individual remuneration is being discussed. The Committee met five times during the year. Other directors and employees of the Company who attended some, or all, of the meetings during the year and provided advice and services to the Committee were Samantha Brook (VP Human Resources), Graham Directors’ report | Governance Myers (Group Financial Controller/Treasurer) and Louise Scott (Company Secretary). All have the appropriate qualifications and experience to advise the Committee on aspects of the Group’s policies and practices. New Bridge Street (NBS) have been appointed by the Committee to provide independent advice on remuneration policy and practice. NBS has no connection with the Company other than in the provision of advice in relation to executive remuneration. Another subsidiary of Aon Corporation, the ultimate parent company of NBS, provides insurance broking services to the Group. The Committee is comfortable that no conflicts arise out of these relationships. The key activities of the Committee undertaken during the year (which were supported, as appropriate, by NBS) are set out below. Further details of these activities appear later in this report: l reviewing executive directors’ and senior executives’ salary levels (including setting an appropriate salary level for the new Group Chief Executive); l determining annual bonus awards in respect of 2010 performance; l setting the annual bonus plan terms for 2011; l testing of performance targets for the Company’s 2008 long-term incentive awards; l determining 2011 award levels and the associated performance targets under the Company’s long-term incentive plans; l reviewing the level of the Chairman’s fee; Financial statements l determining the treatment of Mike Humphrey’s long term incentives on his retirement; and l implementation of clawback provisions in the Company’s annual bonus and long-term incentive plans. Policy on directors’ and senior executives’ remuneration The key objectives of Croda’s executive remuneration policy are: l to ensure that individual rewards and incentives are comparable with those provided by similar companies having regard to the Group’s turnover, business sector and market worth and the need for skills to manage international businesses; l to enable the Group to attract and retain high calibre people; l to give full consideration to the relevant principles on directors’ remuneration set out in the 2010 UK Corporate Governance Code; and l to ensure a balance between fixed and performance related remuneration, the latter being related to objective measurement of the financial performance of the Company. The Committee believes that the interests of shareholders and directors are more closely aligned by the operation of short-term incentives which encourage the achievement of stretching profit targets and under which rewards may be delivered in the form of cash and shares, combined with share-based long-term incentives that reward performance against three year earnings per share and relative total shareholder return targets. Other information In designing an appropriate incentive structure for the executive directors and senior executive management team, the Committee endeavours to set challenging performance criteria that are aligned with the Group’s strategy for the business and the enhancement of shareholder value. In line with the Association of British Insurers’ Guidelines on Responsible Investment Disclosure, the Committee ensures that the incentive structure for executive directors and senior executive management will not raise environmental, social or governance (ESG) risks by inadvertently motivating irresponsible behaviour. More generally, with regard to the overall remuneration structure, there is no restriction on the Committee which prevents it from taking into account corporate governance on ESG matters and it takes due account of issues of general operational risk when structuring incentives. The Committee takes due account of remuneration structures elsewhere in the Group when setting pay for the executive directors (for example, consideration is given to the overall salary increase budget and the incentive structures that operate across the Group). 31


  • Page 36

    Croda International Plc Annual Report 2011 Remuneration report Summary of components of remuneration Set out below is a summary of the key components of executive directors’ remuneration: Element Objective Performance Policy period Basic salary To position at a competitive level Annually Individual pay levels are set having regard to for similar roles within comparable the performance, skills and experience of each companies. individual. Performance related To incentivise delivery of 1 year Bonus payments are based on the achievement of a bonus performance objectives. challenging range of income* growth targets. The net element of bonus above 50% of salary is compulsorily invested in the Company’s shares for three years. Clawback provisions apply from 2012. Pension & benefits To provide competitive benefits and Ongoing The policy is to provide market competitive to act as a retention mechanism retirement benefits tailored to local market practice. and reward service. Executive directors typically participate in the Company’s defined benefit pension plans or receive a cash alternative in lieu of pension with which the executive may make his own arrangements. Only basic salary is pensionable. Other market standard benefits are provided. Long-Term Incentive To drive performance, aid retention 3 years Half of any award is subject to EPS growth. Plan (“LTIP”) and align the interests of executive The remaining half is subject to the relative total directors with shareholders. shareholder return (“TSR”) of the Company compared against an appropriate peer group. Clawback provisions apply from 2012. Bonus Co-investment To encourage investment in the 3 years Net of tax bonus may be voluntarily invested in the Plan (“BCIP”) Company’s shares. Company’s shares with the net of tax bonus earned above 50% of salary compulsorily invested in shares. Invested shares are the subject of a matching award (based on their pre-tax value) at a ratio of 1:1. Matching shares vest based on the same EPS targets as for the LTIP above. Clawback provisions apply from 2012. Share ownership To align executive directors with N/A A shareholding of 100% of salary is expected to be guidelines shareholders. achieved within five years. The retention of 50% of the net of tax number of vested shares under the LTIP and BCIP is expected. *income is defined as Group EBITDA for continuing operations before exceptional items and any charges or credits under IFRS 2 “Share based payments” less a notional interest charge on working capital employed during the year. 32


  • Page 37

    Balance between fixed and variable pay As described previously, a substantial proportion of the executive directors’ pay is performance related. The charts below illustrate the balance between fixed and performance related pay at target and maximum performance levels based on the remuneration policy that is to operate in the current financial year (the full policy is described in detail below). Directors’ report | Business review Fixed and variable pay: Average executive director at target and maximum performance levels Assumptions: Maximum Target: annual bonus award of 50% of salary plus threshold vesting under the LTIP and BCIP (the BCIP assumes 50% of target bonus invested in the plan). Maximum: maximum bonus award plus Target full vesting under LTIP and BCIP (the BCIP assumes a maximum bonus award which is invested in the BCIP in full). 0% 20% 40% 60% 80% 100% Benefits: (including pension) have been excluded from the analysis for simplicity. Directors’ report | Governance Base salary Annual bonus LTIP & BCIP As can be seen from the charts, a substantial proportion of the total package is weighted towards long-term performance through the LTIP and BCIP long-term incentive arrangements. In addition, there is a deferral requirement that forms part of the annual bonus arrangements (which requires bonus awards in excess of 50% of salary to be deferred into Croda shares for a period of three years), share ownership guidelines and, from 2012, clawback provisions operating across the incentive arrangements for executive directors and senior executives. After taking due account of these factors, allied to the rigorous process that is undertaken in setting incentive plan targets and determining payouts (including regular liaison between the Audit and Remuneration Committees as appropriate), the Committee is comfortable that the current arrangements do not inadvertently encourage undue risk taking. In testing the LTIP and BCIP performance targets, independent third party advisors provide information in respect of the extent to which targets are met, with audited results used to determine vesting in respect of EPS targets. Components of executive directors’ remuneration Basic salary The Committee reviews the base salary levels annually with effect from 1 January. Account is taken of the performance of the individual concerned, together with any change in responsibilities that may have occurred, and the rates of pay in international manufacturing and Financial statements pan-sector companies of a comparable size (market capitalisation and turnover) and complexity. Data is sourced from the Committee’s independent advisers, NBS. The salary levels of the executive directors who were in their posts on 1 January 2012 are as follows: Executive director Basic salary at Basic salary at % increase 1 January 2012 31 December 2011 S E Foots £500,000 £300,000 66 M S Christie £350,200 £340,000 3 The revised salary set for Steve Foots reflected his additional responsibilities on being promoted to Group Chief Executive but also took due account of the fact that this is his first role as a PLC Chief Executive. Accordingly, his salary was set at around the lower quartile of the relevant benchmarks with the Committee’s intention being to increase his salary, based on performance and experience in the position, over the next few years to ensure his remuneration is consistent with the Company’s stated remuneration policy. The salary increase awarded to Sean Christie, at 3%, was consistent with the salary increase budget operated across the Group and reflects the individual’s continued strong performance. Other information Keith Layden was appointed a director on 6 February 2012 and his current salary is £280,000. 33


  • Page 38

    Croda International Plc Annual Report 2011 Remuneration report Performance-related annual bonus The Company operates bonus schemes for its directors and senior executives. Bonus payments are not pensionable. The 2011 bonuses for executive directors were calculated by reference to the amount by which the income for the year, which is defined as the Group EBITDA for continuing operations before exceptional items and any charges or credits under IFRS 2 “Share based payments” less a notional interest charge on working capital employed during the year (the “2011 income”), exceeded the income for 2010 calculated on the same basis (the “base income”). Bonuses for 2011 are payable against a graduated scale once the 2011 income exceeds the base income by inflation (defined as the consumer prices index (CPI)), with maximum bonuses due at CPI plus 10%. Income is measured after providing for the cost of any bonuses. Once the level of bonus has been determined against the targets set at the start of the year, the Committee has the discretion to take 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 (e.g. if health, safety and environmental performance is not considered satisfactory during the period over which the bonus was earned). The maximum amount of bonus payable to the executive directors is 100% of salary with the net element of any bonus in excess of 50% of salary being compulsorily invested in the BCIP. With regard to the actual performance delivered during 2011, 2011 income exceeded base income by 11.2% above CPI. Following an assessment of the health, safety and environmental performance of the Group in 2011, which was considered satisfactory, the bonuses payable to each of the executive directors were at 100% of salary reflecting the fact that the maximum target was exceeded. Actual bonus payments are included in the table on page 39. Given the record performance delivered in 2011 the Committee were comfortable paying maximum bonuses for what was considered an exceptional achievement. With regard to 2012 bonuses, the maximum bonus opportunity will remain unchanged at 100% of salary. The performance targets will continue to operate on a similar basis, requiring out-performance of the 2011 income before bonuses become eligible for payment. The target range set for 2012 will require 2011 income to be exceeded by 10% above CPI with the Committee considering this target to be equally as challenging as the range of targets set for the 2011 annual bonus given that 2011 was another record year and the fact that current economic circumstances remain challenging. The Committee remains comfortable that the structure of the annual bonus does not encourage the pursuit of strategies that may involve inappropriate risk-taking and that the mandatory reinvestment of net bonuses in excess of 50% of salary into shares in any year is considered to provide clear alignment with shareholders and foster a longer-term link between annual performance and reward. In addition, the 2012 annual bonus will also be subject to clawback provisions which will enable the Committee to recover the value overpaid to an executive director in respect of 2012 performance in the event of a misstatement of the Company’s financial results, an error being made in assessing the extent to which performance targets were ultimately achieved or in the event of serious misconduct. The clawback provisions will operate for a three year period following the date on which the bonus is paid. Long-term incentives Long-term incentives are provided to executive directors through two long-term incentive plans, the BCIP and the LTIP. It is the Committee’s policy, subject to unforeseen circumstances, that these will comprise the sole long-term elements of the total remuneration package of executive directors for the foreseeable future. It is also the Committee’s policy to continue exercising its right to decide the number of LTIP awards to be granted to each executive director subject to plan limits. BCIP The BCIP operates in conjunction with the annual bonus schemes and allows participants to invest a proportion of their net annual cash bonus in Company shares. Participants have to agree to hold the invested shares for three years in return for which they receive a conditional award entitling them to additional shares subject to the achievement of the BCIP’s performance condition. The maximum number of shares over which an award can be granted to an employee in a single year is limited to shares having a market value not exceeding 100% of the employee’s salary. The levels of awards differ between participants. As detailed in last year’s remuneration report, following consultation with the Company’s major shareholders and shareholder protection bodies, since 2011, executive directors and members of the Group Executive and Finance Committees receive matching shares based on the pre-tax equivalent number of shares invested in the BCIP by participants from their net of tax annual bonus proceeds. Prior to 2011, matching shares were awarded based on the post-tax number of invested shares. It is compulsory for members of this group, whose gross bonus could exceed 50% of their annual salary, to invest the excess over 50%, net of tax, in shares unless they are within three years of anticipated retirement date. The awards to date have been subject to a performance condition initially adopted in 2007 which is structured to require the achievement of a challenging sliding scale of adjusted earnings per share growth (“EPS”) targets in excess of retail price inflation (“RPI”): Adjusted EPS growth over the three year period Proportion of award vesting Less than RPI + 12% No vesting RPI + 12% 30% RPI + 24% 100% Straight-line vesting occurs between these points 34


  • Page 39

    If the performance target is met, awards vest and shares become eligible to be transferred to the employee. If the employee does not retain their invested shares until the release date their award lapses. It is intended that the same performance target will be applied to any BCIP awards made in 2012. EPS continues to be a key internal measure used to assess the performance of the business and is aligned with the Company’s objectives of continuing to deliver profitable growth and operating a progressive dividend policy. With regard to the range of Directors’ report | Business review targets set, they are considered to remain appropriate, providing a stretching but realistic target from a record result in 2011. LTIP Participation in the LTIP is limited to executive directors and senior executives. Annual awards of shares are made based on varying percentages of salary. Shareholder approval was sought and received at the 2011 AGM to increase the annual award limit under the LTIP from 100% of salary to 200% of salary. However, awards were limited to 100% of salary in 2011 and it is intended that awards will remain at, or below, 100% of salary in 2012. Awards are subject to performance conditions measured over a period of not less than three years. The awards are subject to a performance condition which is split into two separate parts, each with a separate performance condition. Half of any LTIP awards vest based on a condition measuring the Company’s relative total shareholder return (TSR). For awards to date, relative TSR performance has been measured against the constituents of the FTSE 250 Index (excluding investment trusts). There are a limited number of direct competitors to Croda and the Committee was mindful of the dangers inherent in operating a relative TSR-based performance condition with a comparator group comprised of only a small number of companies. The FTSE 250 (excluding investment trusts) has, therefore, been considered to date as an appropriate comparator group by the Committee since it has been the index within which Croda resides. Vesting takes place on the following sliding scale: Rank of the Company’s TSR against the FTSE 250 (excluding Investment Trusts) Vesting % (TSR part) Directors’ report | Governance Below median 0% Median 30% Upper quartile 100% Between median and upper quartile 30% - 100% pro rata The remaining half of the awards vest based on the same EPS growth condition that is set for the BCIP, with vesting thus taking place on the following slide scale: Adjusted EPS growth over the three year period Vesting % (EPS part) Less than RPI + 12% No vesting RPI + 12% 30% RPI + 24% 100% Straight-line vesting occurs between these points Use of relative TSR in tandem with EPS growth targets is considered appropriate since it provides clear alignment between executives and Financial statements shareholders in focusing management to deliver above market total returns at the same time as incentivising executives to deliver growth in EPS which, as described above, is a key internal measure of performance. If the performance target is met, awards will become eligible for exercise by the employee. With regard to awards to be granted in 2012, it is intended that awards will be granted at 100% of salary to the Group Chief Executive and Group Finance Director with the newly appointed Chief Technology Officer being granted awards at 70% of salary. In terms of performance targets, it is also anticipated that the same approach will operate. LTIP and BCIP awards granted in 2012 to executive directors will also be subject to clawback provisions which will enable the Committee to clawback the value overpaid to an executive director in respect of performance during the three years ending 31 December 2014 in the event of a material misstatement of the Company’s financial results or misconduct. The clawback provisions will operate for a three year period following the date on which the awards vest. The gains arising from LTIP and BCIP awards vesting in 2011 are set out on page 42 with the awards vesting in full due to the performance targets applying to the awards granted in 2009 being achieved in full. Other information 35


  • Page 40

    Croda International Plc Annual Report 2011 Remuneration report Senior Executive Share Option Schemes Following the adoption of the BCIP and the LTIP, the operation of the Senior Executive Share Option Schemes was discontinued except in relation to options already granted. The only options now outstanding were granted in 2003. The options were granted subject to performance conditions which required basic EPS before exceptional items to grow at RPI plus 7% per annum over the performance period for 100% of the options granted to be exercisable. The performance conditions have been satisfied in full. Mike Humphrey was the only director who held these options and details of his options are shown in the table on page 38. It is the Company’s current intention to satisfy awards under the BCIP and the LTIP and the exercise of share options primarily from shares held in the Employee Share Ownership Trust, treasury shares and shares purchased in the market and not by the issue of new shares. Details of shares held for this purpose are given in note 25 on page 84. Pension and other benefits Croda has a number of different pension plans in the countries in which it operates. Pension entitlements for Croda’s executives are tailored to local market practice, the length of service and age of the participants. The principal pension plan in the UK is a defined benefit scheme which provides a pension based on a proportion of final salary with a salary cap imposed from 6 April 2011 onwards. A salary supplement in lieu of pension provision above the salary cap now applies. The Company is flexible in the manner in which pension provision is made for executive directors with the aim of balancing the needs of the director against the liability of the Company. Hence, it makes contributions by direct contribution to the Croda defined benefit pension scheme and/or by way of a cash supplement in lieu of pension benefits to enable the funding of personal pension arrangements. Other customary benefits such as company cars or car allowances, health benefits, the UK SAYE Scheme and the Croda Share Incentive Plan (SIP) (which are available to all eligible UK employees), are made available to executive directors. Benefits in kind are not pensionable. The Committee reviews the individual components and the balance of these components from time to time. Components of senior executives’ remuneration The Group Executive Committee and the Finance Committee are made up from eight senior executives in addition to the three executive directors. The reward structure for these senior executives is broadly similar to that of the executive directors although there are some differences in LTIP participation. Service contracts and external appointments Policy The Committee’s policy on executive directors’ service contracts is for them to contain a maximum notice period of one year. In respect of termination, the Committee’s policy is to deal with each case on its merits, in accordance with the law and any further policy adopted by the Committee at the time. In the event of early termination, other than for cause, the relevant director’s then current salary and contractual benefits would be taken into account in calculating any liability of the Company. For clarification, the Company’s policy is that no entitlement to unearned bonus will be taken into account when determining payments on early termination. The principal contractual benefits provided in addition to salary are the provision of a car or car allowance, pension, medical insurance and life assurance. Annual bonuses and long-term incentives are non-contractual and are dealt with in accordance with the rules of the relevant schemes. Specific contracts Sean Christie and Steve Foots have service contracts dated 15 December 2006 and 16 September 2010 respectively which are terminable by the Company on one year’s notice and by them on six months’ notice. The Company may also terminate the contracts at any time with immediate effect and they would be entitled to receive compensation equivalent to twelve months’ salary plus the value of their pension benefits (valued at 20% of basic salary) and the value of other benefits, payable in equal monthly instalments for twelve months or, if less, the remaining period of any notice period not yet completed. Such payments would discontinue or reduce to the extent that they obtained alternative employment (i.e. any such payments would be phased and subject to mitigation to the extent that any alternative employment was commenced). Mike Humphrey’s service contract (dated 21 December 2005) ended on 31 December 2011 on his retirement as Group Chief Executive. No payments other than salary accrued due at the date of his retirement were made. In accordance with the rules of the executive bonus scheme, Mike Humphrey, as a retiree, is entitled to receive his full 2011 bonus as shown in the table of directors’ remuneration on page 39. Under the terms of the BCIP and LTIP, as a retiree, he is a “good” leaver and, accordingly, is entitled to potential vesting under his outstanding share awards. With regard to the shares represented by the award made to him under the BCIP and LTIP in 2009, since the performance targets have been met in full, he is entitled to exercise the awards in full. With regard to his unvested BCIP and LTIP awards granted in 2010, he can exercise the awards in full, subject to the application of performance targets, at the awards’ normal vesting dates. In relation to the awards granted in 2011, following the application of a pro-rata reduction to the original number of shares awarded of one third, he will be able to exercise a maximum of two-thirds of the original awards, subject to the application of performance targets at the awards’ normal vesting date at the end of 2013. In accordance with the rules of the SAYE scheme and the SIP Mike Humphrey is entitled to exercise his outstanding SAYE options and to withdraw the shares invested and awarded to him under the SIP. 36


  • Page 41

    Under the terms of his historic service contract, Mike Humphrey had a service contract that was terminable by the Company on one year’s notice and by Mike Humphrey on six months’ notice. The Company could also have terminated the contract at any time with immediate effect and Mike Humphrey would be entitled to receive compensation equivalent to twelve months’ salary plus the value of his pension benefits (valued at 20% of basic salary), bonus entitlement (50% based on the assumption that performance targets are deemed to have Directors’ report | Business review been achieved) and the value of other benefits, payable in equal monthly instalments for twelve months or, if less, the remaining period of any notice period not yet completed. Such payments would have discontinued or reduced to the extent that he obtained alternative employment (i.e. any such payments would have been phased and subject to mitigation to the extent that any alternative employment was commenced). Mike Humphrey’s contract was a legacy contract and it is not the Company’s current policy to include an element of bonus in payments following termination for other directors. As announced in July 2011, Mike Humphrey has been appointed Senior Advisor to the Board following his retirement on 31 December 2011. He will receive a fee of £150,000 for providing strategic advice for a term of 12 months. He is not eligible to participate in either the annual bonus plan or to receive future long-term incentive awards. External appointments Executive directors are permitted to accept external non-executive appointments with the prior approval of the Board. It is normal practice for executive directors to retain fees provided for non-executive appointments. Mike Humphrey became a non-executive director of IP Group plc in October 2011 and during the year he received total fee payments of £8,512. Neither of the other two executive directors held non- executive positions during the year. Apart from service agreements and share schemes, no director has had any material interest in any contract with the Company or its subsidiaries requiring disclosure under the Companies Act 2006. Directors’ report | Governance Policy on non-executive directors’ remuneration The Board is responsible for determining the policy on, and level of, the remuneration of non-executive directors. The aim is to attract non- executive directors who through their experience can further the interests of the Company through their stewardship and contribution to strategic development. The Board’s policy is to provide cash fees at a level commensurate with companies of Croda’s size, set fees to reflect the anticipated time commitment of fulfilling the relevant non-executive’s duties, not to grant share options to non-executive directors and to encourage non-executive directors to establish a holding of Croda shares. Components of non-executive directors’ remuneration Non-executives’ pay comprises cash fees, paid monthly. All non-executive directors are reimbursed for travel and related business expenses reasonably incurred in performing their duties. The Chairman’s fees are determined by the Remuneration Committee and the fees of the remaining non-executive directors are determined by the Chairman and the executive directors. These fees were last reviewed in 2008 resulting in increases with effect from 1 January 2009. During the year NBS was commissioned to provide benchmark fee and typical time commitment data for comparably sized international companies and, consequently, after consideration, fees were increased with effect from 1 April 2011. The Chairman’s fee is now £170,000, the basic annual fee for a non-executive director is now £46,000 with an additional £8,000 for chairing a committee and the Senior Independent director receives an additional £5,000. Terms of appointment Financial statements The Chairman and non-executive directors have letters of appointment for an initial fixed term of three years subject to earlier termination by either party on written notice. In each case, this term can be extended by mutual agreement. In the case of the Chairman, his term of office was due to expire in September 2011 after six years, but in order to provide continuity during the transition from Mike Humphrey to Steve Foots as Group Chief Executive the Board agreed that the Chairman’s period of office should be extended for a further two years. The discussions were led by the Senior Independent director who consulted with the other members of the Board. Mike Buzzacott retired from the Board at the end of his term of office in August 2011. The non-executive directors have no entitlement to contractual termination payments. The dates of their initial appointments are set out below. Original appointment date Expiry date of current term M C Flower 16 May 2005 28 September 2013 A M Ferguson 1 July 2011 30 June 2014 S Musesengwa 7 May 2007 6 May 2013 P N N Turner 1 June 2009 31 May 2012 Other information S G Williams 1 July 2010 30 June 2013 M C Buzzacott 2 August 2004 1 August 2011 (retired 1 August 2011) 37


  • Page 42

    Croda International Plc Annual Report 2011 Remuneration report Directors’ interests The beneficial interests at 31 December 2011 of the directors of the Company and their connected persons in the shares of the Company are shown below. Further information regarding employee share option schemes is given in note 23 to the financial statements on pages 80 to 83. At 31 December 2011 At 1 January 2011 BCIP† SIP†† BCIP† SIP†† Ordinary Ordinary Executive SAYE ordinary Ordinary Ordinary Executive SAYE ordinary shares shares options options shares LTIP shares shares options options shares LTIP M Humphrey 364,998 119,833 50,000 1,491 5,222 216,028 298,162 141,046 150,000 1,491 5,050 281,846 M S Christie 91,630 122,347 – 1,702 1,786 96,299 39,140 140,510 – 1,702 1,614 115,909 S E Foots 51,788 56,216 – 592 5,222 50,085 37,332 50,918 – 340 5,050 50,880 M C Flower 25,925 – – – – – 22,925 – – – – – M C Buzzacott 10,000 – – – – – 10,000 – – – – – (retired 1 August 2011) A M Ferguson 2,500 – – – – – – – – – – – (appointed 1 July 2011) S Musesengwa 15,000 – – – – – 15,000 – – – – – P N N Turner 15,000 – – – – – 15,000 – – – – – S G Williams 10,000 – – – – – 10,000 – – – – – Mike Humphrey has an interest in 100 7.5% preference shares but no other director had any interest in the 5.9%, 6.6% or 7.5% preference shares of the Company. † The BCIP shares comprise 137,924 shares invested by the directors (2010: 166,237) and 160,472 shares which are the subject of conditional awards (2010: 166,237). †† The SIP shares comprise 6,115 Partnership shares (2010: 5,857) and 6,115 Matching shares (2010: 5,857). Share ownership policy The Company has adopted share ownership guidelines which apply to all executive directors and members of the Group Executive Committee and the Finance Committee. Executives are required to build up a target shareholding of shares with a market value equivalent to 100% of salary from time to time through a combination of share purchases and the retention of incentive shares. On the exercise of SAYE and executive share options or the vesting of LTIP and/or BCIP awards, executives are required to retain shares from the shares awarded representing 50% of the net of tax gain until the target is met or exceeded. The target is expected to be reached within five years. All the executive directors have holdings well in excess of the target shareholdings. Total shareholder return: Croda International vs FTSE 250 The graph below shows the value, by 31 December 2011, of £100 invested in Croda International Plc on 31 December 2006 compared with the value of £100 invested in the FTSE 250 Index. 450 400 Total Shareholder Return (Rebased) 350 300 250 200 150 100 50 0 31/12/2006 31/12/2007 31/12/2008 31/12/2009 31/12/2010 31/12/2011 Croda International FTSE 250 In the opinion of the directors the FTSE 250 is the most appropriate index against which the total shareholder return of the Company should be measured because it is an index of similar sized companies to Croda International Plc. 38


  • Page 43

    Section 2: Audited information Directors’ remuneration Pension Directors’ report | Business review Basic salary supplement Bonus Benefits Fees 2011 Total 2010 Total £ £ £ £ £ £ £ M Humphrey† 577,000 115,399 577,000 33,696 – 1,303,095 1,262,400 M S Christie 340,000 22,876 340,000 19,771 – 722,647 635,341 S E Foots†† 300,000 16,875 300,000 21,376 – 638,251 485,640 M C Flower – – – – 166,254 166,254 153,504 M C Buzzacott – – – – 32,167 32,167 50,000 (retired 1 August 2011) A M Ferguson – – – – 26,334 26,334 – (appointed 1 July 2011) S Musesengwa – – – – 52,250 52,250 47,000 P N N Turner – – – – 46,834 46,834 41,000 S G Williams – – – – 44,751 44,751 20,500 Directors’ report | Governance 1,217,000 155,150 1,217,000 74,843 368,590 3,032,583 2,695,385 Notes 1 † Highest paid director. 2 †† Although only appointed to the Board on 1 July 2010 Mr Foots was an existing employee and so his remuneration for the whole of 2010 is shown. 3 Benefits incorporate all assessable tax benefits arising from employment by the Company and relate in the main to the provision of a Company car or car allowance, fuel allowances and private medical insurance. 4 The bonuses shown relate to the year ended 31 December 2011. Pension rights Prior to 6 April 2006, Mike Humphrey accrued pension benefits under the Croda International Supplemental Scheme (“CISS”). The CISS was merged with the Croda Group Pension Scheme on 30 September 2010 to form the Croda Pension Scheme (“CPS”). Mike Humphrey was entitled on retirement at age 60 to a pension equal to his accrued pension at 5 April 2006 (accrued at a rate of two-thirds of his annual pensionable remuneration as at 5 April 2006, pro-rated by the ratio of his actual service accrued prior to 5 April 2006 and prospective service to age 60), increased to age 60 at the rate which applies to all preserved pensions in the CISS section of the CPS. Mike Humphrey started to draw his pension from the Scheme on 21 March 2011, at age 60. In the event of death a pension equal to two-thirds of the director’s pension would become payable to the surviving spouse. Mike Humphrey’s pension in payment is guaranteed to increase in line Financial statements with the rate of inflation up to a maximum of 10% per annum. During 2011, Mike Humphrey was paid £115,399 (2010: £112,000) in addition to his basic salary to enable him to make independent provision for his retirement. This is the same level of contribution (expressed as a percentage of salary) in respect of salary in lieu of pension that has been provided to him since 2006. Sean Christie accrues pension benefits under the CPS with an accrual rate of 1/60th and an entitlement to retire at age 65. From 6 April 2011 onwards, pension benefits accruing are based on a capped salary of £187,500. If Sean Christie retires before age 65 a reduced pension is payable unless retiring at the Company’s request. In the event of death a pension equal to 50% of the director’s pension would become payable to the surviving spouse. Sean Christie’s pension in payment is guaranteed to increase in line with the rate of inflation up to a maximum of 2.5% per annum. During 2011, Sean Christie was paid £22,876 (2010: Nil) in addition to his basic salary to enable him to make independent provision for his retirement. This contribution reflects the introduction of a cap to the maximum salary on which benefits at retirement will be based under the CPS. Accordingly, benefits above this cap are now provided by a salary supplement in lieu of pension benefits above the cap of £187,500. This change in benefit structure is expected to be cost neutral for the Company. Steve Foots accrues pension benefits under the 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 of £187,500. If Steve Foots retires before age 61, a reduction will be applied to the element of his pension accrued after 5 April 2006, and if he retires before age 60 a reduction will also 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 Other information 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 prior to 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. During 2011, Steve Foots was paid £16,875 (2010: Nil) in addition to his basic salary to enable him to make independent provision for his retirement. As above for Sean Christie, this contribution reflects the introduction of a cap to the maximum salary on which benefits at retirement will be based under the CPS. Accordingly, benefits above this cap are now provided by a salary supplement in lieu of pension benefits above the cap of £187,500. This change in benefit structure is expected to be cost neutral for the Company. Sean Christie and Steve Foots are both also entitled to death in service benefits from the CPS. 39


  • Page 44

    Croda International Plc Annual Report 2011 Remuneration report Defined benefit schemes Increase in accrued Increase pension Transfer Transfer Increase/ Transfer in accrued during value of value of (decrease) value of the Accrued pension the year accrued accrued in transfer increase in pension at during the (excluding pension at pension at value over the accrued 31.12.111 year2 inflation)3 31.12.104 31.12.114,7 the year5,7 pension6,7 £000 £000 £000 £000 £000 £000 £000 M Humphrey 314 3 3 8,440 8,240 (200) N/A M S Christie 26 5 3 253 284 13 17 S E Foots 92 13 9 1,082 1,233 134 102 Notes 1 The figures shown represent: the amount of immediate annual pension payable at retirement on 21 March 2011, before commutation for a tax-free cash lump sum, for Mike Humphrey; and the amount of annual pension benefits which would have been preserved for Sean Christie and Steve Foots, had they left service on 31 December 2011, based on service to, and pensionable earnings at, that date. 2 The figure represents the difference between the total accrued pension at 31 December 2011 and the corresponding pension at the beginning of the year. 3 The figure represents the difference between the total accrued pension at 31 December 2011 and the corresponding pension at the beginning of the year after an adjustment to exclude inflation as required under paragraph 9.8.8 (12) (a) of the Listing Rules. 4 Transfer values are quoted on the basis recommended by the Scheme Actuary for valuation of accrued benefits if the member had transferred benefits to another approved scheme on the relevant date. The increase/decrease in transfer value between 31 December 2010 and 31 December 2011 takes account of changes in market conditions over the period. For Mike Humphrey, the transfer value of accrued pension at 31 December 2011 is based on market conditions at 31 December 2011, but calculated at the date he retired. 5 The figure represents the difference between transfer values of the accrued benefits at 31 December 2011 and 31 December 2010, less contributions paid by the director or on his behalf under the Company’s salary sacrifice scheme. 6 The figure represents the transfer value of the increase in accrued benefits over the period, adjusted for inflation, less contributions paid by the director or on his behalf under the Company’s salary sacrifice scheme. 7 Following receipt of legal advice regarding the application to the CPS of the UK Government’s introduction of CPI-based indexation, the Trustee of the CPS amended the transfer value basis with effect from March 2011. Members of the CPS have the option to pay voluntary contributions. Neither the contributions nor the resulting benefits are included in this table. Share options Options are granted over ordinary shares of 10p each under the Senior Executive Share Option Schemes and the Savings-Related Share Option Scheme. Senior executive share options Mike Humphrey is the only director who holds options under the Senior Executive Share Option Schemes and details of his options are set out below: Number at Number at 1 January 2011 31 December 2011 Date of grant Earliest exercise date Expiry date Exercise price (10p shares) Exercised in year (10p shares) M Humphrey 5 March 2003 5 March 2006 30 June 2012 230p 150,000 100,000 50,000 150,000 100,000 50,000 No price was paid for the award of the options and none of the terms and conditions of the share options were varied during the year. All performance conditions attaching to the share options have been satisfied. 40


  • Page 45

    SAYE share options Number at Number at Exercise 1 January 2011 Exercised Granted in 31 December 2011 Directors’ report | Business review Date of grant Earliest exercise date Expiry date price (10p shares) in year year (10p shares) M Humphrey 16 September 2008 1 November 2011 30 April 2012 509p 590 – – 590 15 September 2009 1 January 2012 30 June 2012 533p 681 – – 681 15 September 2010 1 January 2012 30 June 2012 1144p 220 – – 220 1,491 – – 1,491 M S Christie 15 September 2009 1 November 2012 30 April 2013 533p 1,702 – – 1,702 1,702 – – 1,702 S E Foots 15 September 2009 1 November 2012 30 April 2013 533p 340 – – 340 20 September 2011 1 November 2014 30 April 2015 1432p – – 252 252 Directors’ report | Governance 340 – 252 592 Each year employees are customarily invited to participate in a Save As You Earn Share Option Scheme under which they enter into three year savings contracts and, in return, are granted options. The option price is the value of ordinary shares at the date of grant discounted by 20%. At the end of the savings contract the amount saved can be used to exercise the options which are normally exercisable for a six month period. LTIP Details of awards made under the Croda LTIP are set out below (performance targets applying to each award are as described on page 35): Number at Number at Award price* Market price at 1 January 2011 Exercised Granted 31 December 2011 Date of award (£) Earliest vesting date date of award (10p shares) in year in year (10p shares) M Humphrey 20 February 2008 5.0285 20 February 2011 604p 103,410 103,410 – – 18 February 2009 5.0264 18 February 2012 509p 108,626 – – 108,626 24 February 2010 8.0217 24 February 2013 900p 69,810 – – 69,810 Financial statements 23 February 2011 15.3487 23 February 2014 1588p – – 37,592 37,592 281,846 103,410 37,592 216,028 M S Christie 20 February 2008 5.0285 20 February 2011 604p 41,761 41,761 – – 18 February 2009 5.0264 18 February 2012 509p 45,211 – – 45,211 24 February 2010 8.0217 24 February 2013 900p 28,937 – – 28,937 23 February 2011 15.3487 23 February 2014 1588p – – 22,151 22,151 115,909 41,761 22,151 96,299 S E Foots 20 February 2008 5.0285 20 February 2011 604p 17,897 17,897 – – 18 February 2009 5.0264 18 February 2012 509p 19,894 – – 19,894 Other information 24 February 2010 8.0217 24 February 2013 900p 13,089 – – 13,089 23 February 2011 15.3487 23 February 2014 1588p – – 17,102 17,102 50,880 17,897 17,102 50,085 * Award price is based on the average mid-market price of a Croda ordinary share for the first 30 dealing days of the financial year in which the award is made. 41


  • Page 46

    Croda International Plc Annual Report 2011 Remuneration report BCIP Details of the awards made under the Croda BCIP are set out below (performance targets applying to each award are as described on pages 34 and 35): Number at Number at Market price at 1 January 2011 Granted Released 31 December 2011 Date of award Earliest vesting date date of award (10p shares) in year in year (10p shares) M Humphrey 1 May 2008 1 May 2011 696.5p 21,886 – 21,886 – 30 April 2009 30 April 2012 544p 28,567 – – 28,567 29 April 2010 29 April 2013 990p 20,070 – – 20,070 3 May 2011 3 May 2014 1881p – 15,138 – 15,138 70,523 15,138 21,886 63,775 M S Christie 1 May 2008 1 May 2011 696.5p 21,550 – 21,550 – 30 April 2009 30 April 2012 544p 30,765 – – 30,765 29 April 2010 29 April 2013 990p 17,940 – – 17,940 3 May 2011 3 May 2014 1881p – 16,734 – 16,734 70,255 16,734 21,550 65,439 S E Foots 1 May 2008 1 May 2011 696.5p 6,559 – 6,559 – 30 April 2009 30 April 2012 544p 9,878 – – 9,878 29 April 2010 29 April 2013 990p 9,022 – – 9,022 3 May 2011 3 May 2014 1881p – 12,358 – 12,358 25,459 12,358 6,559 31,258 The gains are calculated according to the market price of Croda International Plc ordinary shares of 10p each on the date of exercise, although the shares may have been retained. The market price of the Company’s shares at 31 December 2011 was 1804p and the range of market prices during the year was between 1456p and 2081p. Gains made on exercise of share options and LTIPs Shares Gain Exercise date exercised Scheme Exercise price Market price (before tax) £ M Humphrey 3 May 2011 103,410 LTIP Nil 1881p 1,945,142 3 May 2011 21,886 BCIP Nil 1881p 411,676 16 December 2011 100,000 Senior Executive 230p 1736p 1,506,000 3,862,818 M S Christie 3 May 2011 41,761 LTIP Nil 1881p 785,524 3 May 2011 21,550 BCIP Nil 1881p 405,356 1,190,880 S E Foots 3 May 2011 6,559 BCIP Nil 1881p 123,375 13 May 2011 17,897 LTIP Nil 1872p 335,032 458,407 Share Incentive Plan Steve Foots and Sean Christie participate and Mike Humphrey formerly participated in the plan which, as a HMRC approved arrangement, is offered to all employees on the same terms. They each save or saved the maximum of £125 per month permitted under the regulations. Matching shares are allocated on a one for one basis for each Partnership share purchased by the employee. Shares are purchased on a monthly basis. During the year they each purchased 86 Partnership shares and were allocated 86 Matching shares. The average purchase price was 1753p. Since 31 December 2011 Steve Foots has purchased 12 Partnership shares and Sean Christie has purchased 13 Partnership shares and have been awarded a corresponding number of Matching shares under the SIP at an average price of 1963.75p per share. Otherwise there has been no change in the directors’ interests in shares or options granted by the Company between the end of the financial year and 29 February 2012. On behalf of the Board S Musesengwa Chairman of the Remuneration Committee 29 February 2012 42


  • Page 47

    Other disclosures Principal activities and Business review Croda International Plc is a marketing and technology company that produces and sells speciality chemicals. It is the parent company of a Group with operations across the globe and its headquarters at Cowick Hall, Snaith, Goole, East Yorkshire. The Group carries out research and development activities in the main markets it serves, further details of which can be found in the Chief Executive’s review on pages 4 to 7. Directors’ report | Business review The Companies Act 2006 requires the Company to set out in this report a fair review of the business of the Group during the financial year ended 31 December 2011 including an analysis of the development and performance of the Group during the year and the position of the Group at the end of the financial year, and a description of the principal risks and uncertainties facing the Group (known as a “Business review”). The information which makes up the Business Review can be found in the following sections of the annual report: l Chairman’s statement on pages 2 and 3 l Chief Executive’s review on pages 4 to 7 l Financial review on pages 8 to 11 l Sustainability review on pages 12 to 21 l Principal risks and uncertainties as discussed in the Financial review section on pages 10 and 11. Further information on Sustainability can be found in our full Sustainability report on our website at www.croda.com. Pages 1 to 46 inclusive (together with the sections of the annual report incorporated by reference) constitute a directors’ report that has Directors’ report | Governance been drawn up and presented in accordance with applicable English company law and 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. Profit and dividends The results for the year are set out on page 48. The directors are recommending a final dividend of 30.25p per share (2010: 25.25p). If approved by shareholders, total dividends for the year will amount to 55.0p per share (2010: 35.0p per share). Details of dividends are shown in note 9 on page 65 and details of the Company’s Dividend Reinvestment Plan can be found on page 100. Disposals During the year Croda’s 60% shareholding in its Korean joint venture was sold to the non-controlling shareholders. Further details appear in note 7 on page 63. Directors The Company’s Articles of Association (“the 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 22 and 23. In accordance with the UK Corporate Governance Code each Financial statements director will be standing for election at the AGM. Details of the directors’ service contracts are given in the directors’ remuneration report on pages 30 to 42. 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 38. 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. Corporate governance The directors’ corporate governance statement is set out on pages 24 to 29. Directors’ indemnities The Company maintains directors’ and officers’ liability insurance which gives appropriate cover for any legal action brought against its directors. The Company has also granted indemnities to each of its directors and the secretary which represent “qualifying third party Other information indemnity provisions” (as defined by section 234 of the Companies Act 2006), in relation to certain losses and liabilities which the directors (or secretary) may incur to third parties in the course of acting as directors (or secretary) or 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. 43


  • Page 48

    Croda International Plc Annual Report 2011 Other disclosures Share capital At the date of this report, 139,949,969 ordinary shares of 10 pence each have been issued and are fully paid up and quoted on the London Stock Exchange. The rights and obligations attaching to the Company’s ordinary 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 attaching to the Company’s ordinary shares or on the transfer of securities in the Company. No person holds securities in the Company carrying 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. Further information which fulfils the requirements of Section 992 of the Companies Act 2006 and which should be treated as forming part of this report by reference are included in the following sections of the annual report: l details of the structure of the Company’s share capital and the rights attached to the Company’s shares are set out on pages 79 and 84 l details of employee share schemes are set out on pages 80 to 83. Power to issue or buy back shares At the 2011 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 then Companies Act 1985. Both these authorities expire on the date of the 2012 AGM to be held on 26 April 2012 and so the directors propose to renew them for a further year. In February 2011 the Company announced that it intended to launch a share buyback programme later that year. At last year’s AGM the members renewed the Company’s authority to purchase up to 10% of its ordinary shares. Subsequently, during the year the Company purchased an aggregate of 2,805,225 ordinary shares of 10p each having a nominal value of £280,522.50 (representing 2.07% of the Company’s issued share capital as at 1 January 2011) for an aggregate consideration of £50.1m at an average cost of 1782p per share. As a result of these purchases the number of shares in respect of which the Company is now authorised to make market purchases has been reduced to 8,853,802 ordinary shares of 10p each (representing approximately 6.54% of the present issued share capital of the Company). The Company will be seeking to renew its authority to purchase its own shares at the 2012 AGM. Shares will only be purchased if the Board believes that such purchases will improve earnings per share and be in the best interests of the shareholders generally. It is the Company’s intention that any shares purchased will be held as treasury shares. Substantial shareholders As at 17 February 2012, the Company had been notified under DTR5 of the Financial Services Authority’s Disclosure and Transparency Rules of the following significant holdings of voting rights in its shares: Ordinary shares % of share capital Nature of holding AEGON Asset Management UK 4,074,691 2.99% Direct 2.9%, Indirect 0.09% Legal & General Group Plc 6,745,315 4.98% Direct 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 Articles provide a deadline for submission of proxy forms of not than less than 48 hours before the time appointed for the holding of the meeting or adjourned meeting. 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 contain provisions which are affected by a change of control and there are no other agreements to which the Company is a party which 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 which are essential to the business of the Group. 44


  • Page 49

    Employees Diversity Croda is committed to the principle of equal opportunity in employment and to ensuring that no applicant or employee receives less Directors’ report | Business review favourable treatment on the grounds of gender, marital status, race, ethnic origin, religion, disability, sexuality, or age, or is disadvantaged by conditions or requirements which cannot be shown to be justified. Group HR Policies are clearly communicated to all employees and are available through the Company intranet. Recruitment & progression It is established policy throughout Croda 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. Croda gives full and fair consideration to applications for employment from disabled persons. Should an employee become disabled during their employment with Croda, they are fully supported by its 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 & learning Croda recognises that the key to future success lies in the skills and abilities of its dedicated global workforce. It is only through the continuous development of our employees that we will be able to meet the future demands of our customers in relation to enhanced creativity, innovation and customer service. During 2011 our employees each had an average of 24 hours of training. Involvement Directors’ report | Governance Croda is 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 employee and shareholder interests. In 2011 45% of our employees applied for options under one of our SAYE schemes. Employees are kept informed of matters of concern to them in a variety of ways, including the Crodaway (the Company magazine), quarterly updates, Croda Connect (the Company intranet), team briefings, webinars and E-Lists (email messages). These communications help achieve a common awareness among employees of the financial and economic factors affecting the performance of Croda and of changes happening within the business. Croda is also 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. The largest of these targeting our European employees was completed during 2011. Corporate Social Responsibility Croda continues to believe that good corporate responsibility is essential to the long term success of the business. Details of our corporate responsibility initiatives and activities are set out on pages 12 to 21 of this report. Our separate Sustainability Report, available in print and online at www.croda.com/csr, expands on the core themes of Sustainability within Croda as well as providing more quantitative information on our performance against our CSR targets. Under the supervision of the CSR Steering Committee, responsibility is now completely embedded within the regional business units, which are fully accountable for delivering business objectives. Croda’s CSR Steering Committee is comprised of representatives from all regional Financial statements business units and is responsible for the strategic management of CSR within the Group, as well as ensuring all reporting obligations can be satisfied through the effective collation of robust data. Community engagement Community engagement is of great value within Croda and enables us to meet our business aims as well as satisfying our moral obligations to our employees and the local communities in which we live and operate. Community engagement extends across the three key areas of communication, involvement and education. The effects of our activities in these three areas combine to create beneficial outputs such as increased morale, better skills development/training, easier employee recruitment, enhanced public relations and a positive reputation with our stakeholders. In 2011 we embarked on an ambitious programme of improving our educational offering in the area of science by developing a programme aligned to the needs of pupils following the UK National Curriculum. This will be further developed in 2012 and we have an aim to see this extended into other geographies in the coming years. Supplier payment policy Group policy concerning the payment of suppliers is that each operating unit agrees terms of payment at the beginning of business or makes the supplier aware of the standard payment terms, and pays in accordance with those terms or other legal obligations. At 31 December 2011, the Group had an average of 31.2 days (2010: 35.8 days) purchases outstanding in trade creditors. The Company’s trade creditors are not material. Other information Market value of properties The Group’s property, plant and equipment are included in the financial statements at depreciated historic cost where the assets were acquired in the normal course of business or depreciated fair value if the assets were acquired as part of a business combination. The properties are in continuing use and many of them were acquired when market values were substantially lower than at present. The directors consider that a surplus over book value exists, but have not quantified the excess. Charitable and political donations Charitable donations made by the Group in the year amounted to £11,000 (2010: £13,000). No donations were made for political purposes (2010: £Nil). 45


  • Page 50

    Croda International Plc Annual Report 2011 Other disclosures Annual General Meeting The AGM will be held at Carlton Towers, Carlton, Goole, East Yorkshire, DN14 9LZ on Thursday, 26 April 2012 at 12 noon. The notice of meeting and explanation of the business to be considered at the AGM are contained in a separate document issued to shareholders with this annual report. Independent auditors Our auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office and, on the recommendation of the Audit Committee, a resolution regarding their reappointment and remuneration will be submitted to the AGM. 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 applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). 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 for that period. In preparing those financial statements, the directors are required to: l select suitable accounting policies and apply them consistently; l make judgements and estimates that are reasonable and prudent; l state whether 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 parent company financial statements respectively; and l prepare the financial statements on a going concern basis unless it is inappropriate to assume that the Company will continue in business. The directors are responsible for keeping proper 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 to enable them to ensure that the Group 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 Group and the Company 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. Each of the directors, whose details are set out on pages 22 and 23 confirms that, to the best of their knowledge: l 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; and l the Business review contained in this report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces. Audit information The directors confirm that, so far as they are aware, there is no relevant audit information of which the auditors are unaware and that each director has taken all the steps he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. Approved by the Board Louise Scott Secretary 29 February 2012 46

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