##### 



EXHIBIT 14.2

The Companys responses to the requirements of Form 20-F have been incorporated
into this annual report by reference to the Companys Report on Form 6-K dated
December 10, 2003 which contains the Companys Report and accounts 2003.
Pursuant to Rule 12b-23(a) of the Securities Exchange Act of 1934, the
information incorporated into this annual report by reference to such Form 6-K
is attached as an exhibit hereto.





---



##### 



(THE BOC GROUP REPORT AND ACCOUNTS 2003 COVER)





---



##### 





Report of the directors02
    
    Financial highlights04
    

Chairmans statement06
    

Chief
executives review08
    
    Board of directors10
    
    Executive management board12
    
    Group five year record14
    
    Group profile23
    
    Employees25
    
    Safety, health and the environment28
    
    Research, development and information technology29
    
    Risk factors31
    
    Operating review46
    
    Financial review53
    
    Corporate governance60
    
    Report on remuneration




Financial statements70
    
    Responsibility of the directors71
    
    Report by the independent auditors72
    
    Group profit and loss account73
    
    Group balance sheet74
    
    Group cash flow statement75
    
    Total recognised gains and losses75
    

Movement
in shareholders funds76
    
    Balance sheet of The BOC Group plc77
    
    Accounting policies79
    
    Notes to the financial statements122
    
    Group undertakings




Shareholder information124
    
    Dividends124
    
    Nature of trading market125
    
    Analysis of shareholdings126
    
    Taxation128
    
    Financial calendar128
    
    Key contacts information130
    
    Cross reference to Form 20-F131
    
    Glossary of terms132
    
    Index










---



##### 



(BOC GROUP STATEMENT)

Cautionary statement

The report and accounts includes forward-looking information within the
meaning of section 27A of the US Securities Act of 1933 (the Securities Act),
as amended, and section 21E of the US Securities Exchange Act of 1934 (the
Exchange Act), as amended. Certain sections of this annual report including,
without limitation, those concerning (i) the companys strategies, (ii) the
companys research and product development, and information technology, (iii)
the companys investments, (iv) commencement of operations of new plants and
other facilities, (v) the companys restructuring plan, (vi) efficiencies,
including cost savings, for the company resulting from business reviews and
reorganisations, (vii) managements view of the general development and
competition in the economies and markets in which it does, or plans to do,
business, (viii) managements view of the competitiveness of its products and
services, and (ix) the companys liquidity, capital resources and capital
expenditure, contain certain forward-looking statements concerning the
companys operation, economic performance and financial condition. Although the
company believes that the expectations reflected in such forward-looking
statements are reasonable, no assurance can be given that such expectations
will prove to have been correct. Accordingly, results could differ materially
from those set out in the forward-looking statements as a result of, among
other factors, changes in economic conditions, continued downturn in the
semiconductor industry, success of business and operating initiatives and
restructuring objectives, changes in the regulatory environment, outcome of
litigation, other government actions, natural phenomena such as floods and
earthquakes, customer strategies and stability, and fluctuations in interest
and exchange rates.


Financial year

Throughout the report and accounts, reference to 2003 in the text means the
financial year ended 30 September 2003. Similarly, references to other years,
eg 2004,2002 and 2001, also mean the financial years to 30 September.


01   The BOC Group plcAnnual report and accounts 2003





---



##### 



Board of directors



(PHOTOS) Rob
Margetts CBE no (01) 57, chairman.
 Appointed chairman in January 2002. He is chairman of Legal & General Group
plc, a non-executive director of Anglo American plc, chairman of the Natural
Environment Research Council and a governor of Imperial College, London.
Previously he was with ICI PLC for 31 years, becoming a main board director in
1992 and vice chairman in 1998. He is a fellow of both the Royal Academy of
Engineering and the Institution of Chemical Engineers.
 Tony
Isaac
no4Δ (02) 61, chief executive.
 Appointed an executive director in October 1994 and became chief executive in
May 2000. He was previously finance director of Arjo Wiggins Appleton plc,
which he joined shortly before the de-merger from BAT Industries p.l.c. in
1990. Prior to that he had been finance director of GEC Plessey
Telecommunications Ltd since its formation in 1988. He is a non-executive
director of International Power plc and Schlumberger Ltd.
 Fabiola
Arredondo
lOn (03) 36, non-executive director.
 Appointed in November 2001. She is the managing partner of FRA Holdings LLC, a
private investment firm, and was previously the managing director of Yahoo!
Europe, a director of BBC Worldwide and held senior executive positions at BMG
Entertainment. She is a non-executive director of Intelsat Corporation,
Bankinter SA and the World Wildlife Fund UK and is also a member of the US
Council on Foreign Relations and the World Economic Forum. She has a BA in
political science from Stanford University and an MBA from the Harvard Business
School.




(PHOTOS) Julie
Baddeley
lOno (04) 52, non-executive director.
 Appointed in May 2001. She was an executive director of Woolwich plc until
October 2000, responsible for e-commerce, information technology and human
resources, and was previously head of change management for Maritime Region,
Accenture. She is a non-executive director of the Yorkshire Building Society,
the Government Pensions Group, and chairman of three venture capital trusts.
She is also an Associate Fellow of Templeton College, Oxford and a Companion of
the Institute of Management. She has an MA honours degree in zoology from
Oxford University.
 John
Bevan4Δ (05) 46, chief executive, Process Gas Solutions.
 Appointed an executive director in December 2002. He joined BOC in 1978 as a
graduate in the Australian gases business and has held various positions in
general management in Australia, Korea, Thailand and the UK and was formerly
chief executive Asia, based in Singapore. He has a degree in commerce
(marketing) from the University of New South Wales.
 Andrew
Bonfield
lOn (06) 41, non-executive director.
 Appointed in July 2003. He is senior vice-president and chief financial officer
of Bristol-Myers Squibb Company. He qualified as a chartered accountant in
South Africa, working for Price Waterhouse, before joining SmithKline Beecham
in 1990 and rising to become chief financial officer in 1999. He joined BG
Group plc in 2001 as executive director  finance before assuming his current
role at Bristol-Myers Squibb Company in September 2002.




08   The
BOC Group plcAnnual report and accounts 2003





---



##### 





(PHOTOS) René
Médori
o4Δ (07) 46, group finance director.
 Appointed an executive director in July 2000. He joined BOC in 1987 and has
held several finance appointments in the Group. He was appointed finance
director of BOCs gases business in the Americas in 1997. Before joining BOC,
he worked for Accenture and Schlumberger Ltd. He is a finance graduate of the
Université de Paris-Dauphine and has a doctorate degree in economics. He is a
non-executive director of Scottish & Southern Energy plc.
 Roberto
G Mendoza l
Ono (08) 58, non-executive director.
 Appointed in October 2002. He is a founding partner of Integrated Finance Ltd,
the non-executive chairman of Egg Plc, and a board member of Prudential Plc,
Reuters Plc and Vitro S.A. He joined J.P. Morgan in 1967 and served as vice
chairman of the board from 1990 to 2000. He was a managing director of Goldman
Sachs & Co from 2000 until he resigned to co-found Integrated Finance Ltd in
2001. He was born in Cuba, obtained a BA in history from Yale and an MBA with
high distinction from the Harvard Business School.
 Matthew
Miau lOn (09) 57, non-executive director.
 Appointed in January 2002. He is chairman of MiTAC-Synnex Group, one of
Taiwans leading high-tech industrial groups. He is also a Convenor of Civil
Advisory Committee of National Information and Communications Initiatives
(NICI) and a member of the Board of Supervisors of the Industrial Technology
Research Institute (ITRI) and the Board of Directors of the Institute for
Information Industry (III),Taiwan. He obtained a BS in electronic engineering
and computer science from U.C. Berkeley, an MBA degree from Santa Clara
University and holds an honorary doctorate degree from the National Chiao Tung
University, Taiwan.




(PHOTOS) Sir
Christopher ODonnell
lOn (10) 57, non-executive director.
 Appointed in March 2001. He is chief executive of Smith & Nephew plc.
Previously he held senior positions with Davy Ashmore, Vickers Limited and C R
Bard Inc. He has an honours degree in mechanical engineering from Imperial
College, London and an MBA from the London Business School. He is a chartered
engineer and a member of the Institution of Mechanical Engineers.
 Dr
Raj Rajagopal4Δ (11) 50, chief executive, BOC Edwards.
 Appointed an executive director in July 2000. He joined BOC in 1981 and has
held several positions in BOC Edwards. He was appointed managing director,
Edwards Vacuum Products in 1993 and managing director, vacuum technology
division in 1996. He was appointed a non-executive director of FSI
International Inc in January 2001. He has a PhD in mechanical engineering from
the University of Manchester. He is a Fellow of the Royal Academy of Engineers
as well as the Institution of Electrical Engineers, Mechanical Engineers and
the Chartered Institute of Management. Dr Rajagopal was awarded the Sir Eric
Mensforth International Manufacturing Gold Medal in March 2003.
 John
Walsh4Δ (12) 48, chief executive, Industrial and Special Products.
 Appointed an executive director in July 2001. He was previously president,
Process Gas Solutions, north America. He joined BOC in 1986 as vice president,
special gases and has held various senior management positions in the Group,
including president, BOC Process Plants. He has a BA in economics and an MBA,
both from Harvard Business School.
 Board committeesl
    
    Audit committeeO
    
    Remuneration committeen
    
    Nomination committeeo
    
    Pensions committee4
    
    Executive management boardΔ
    
    Investment committee




09   The BOC Group plcAnnual report and accounts 2003





---



##### 



Executive management board



(PHOTOS) John Bevan (01) 46, chief executive, Process Gas Solutions since January 2003.
 Appointed to the executive management board in June 2000. See page 08 for
biographical details.
 Nick Deeming (02) 49, group legal director and company secretary since May 2001.
 Appointed to the executive management board in May 2001. He has over 16 years
in-house counsel experience, including Schlumberger, SEMA and Axa PPP
Healthcare, specialising in corporate and commercial law. He has a degree in
law from Guildhall University, an MBA from Cranfield University and qualified
as a solicitor in 1980.
 Stephen Dempsey (03) 52, group director, corporate relations since February 1999.
 Appointed to the executive management board in October 1999. He joined BOC in
1990 as director of marketing services for the UK gases business and has held
various communications roles in the Group. He has an MA in geography from
Oxford University and an MBA from Cranfield University.




(PHOTOS) Peter Dew (04) 43, group director, information management since February 1998.
 Appointed to the executive management board in October 1999. He joined BOC in
1986. He has held information technology roles in the Groups businesses in
South Africa, the UK and most recently as information management director for
the Groups businesses in Asia/Pacific.
 Tony Isaac (05) 61, chief executive since May 2000.
 Appointed to the executive management board in July 1996. See page 08 for
biographical details.
 Rob Lourey (06) 46, group human resources director since June 2000.
 Appointed to the executive management board in June 2000. He joined BOC in
Australia in 1996 and most recently was human resources director for
Asia/Pacific. He has a bachelor of business degree in personnel management.




10   The BOC Group plcAnnual report and accounts 2003





---



##### 





(PHOTOS) Kent Masters (07) 42, president, Process Gas Solutions, north America since July 2001.
 Appointed to the executive management board in December 2002. He joined BOC in
1985 and has held positions of increasing responsibility in engineering,
marketing and general management, most recently, president, BOC Process Plants.
He holds an engineering degree from Georgia Institute of Technology and an MBA
from New York University.
 René Médori (08) 46, group finance director since June 2000.
 Appointed to the executive management board in June 2000. See page 09 for
biographical details.
 Dr Raj Rajagopal (09) 50, chief executive, BOC Edwards since June 1998.
 Appointed to the executive management board in July 1996. See page 09 for
biographical details.




(PHOTOS) Greg Sedgwick (10) 42, group director, business development since June 2000.
 Appointed to the executive management board in June 2000. He also has
responsibility for Afrox Healthcare Ltd. He joined BOC in 1984 and has held a
variety of senior management roles in the south Pacific region, most recently
managing director, Industrial and Special Products. He was previously market
sector director, minerals and a director of BOC India. He has a degree in
marketing and a masters degree in business planning from the University of New
South Wales.
 John Walsh (11) 48, chief executive, Industrial and Special Products since June 2001.
 Appointed to the executive management board in June 2000. See page 09 for
biographical details.




11   The BOC Group plcAnnual report and accounts 2003





---



##### 



Group five year record



(GROUP FIVE YEAR RECORD CHARTS)




1999
    
    2000
    
    2001
    
    2002
    
    2003Profit and loss
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionTurnover1
    
    
    3,052.7
    
    
    
    3,579.7
    
    
    
    3,772.9
    
    
    
    3,657.7
    
    
    
    3,718.3Total operating profit before
exceptional items2
    
    
    479.9
    
    
    
    496.4
    
    
    
    530.6
    
    
    
    500.1
    
    
    
    505.6Exceptional items
    
    
    (69.4
    )
    
    
    (4.4
    )
    
    
    (108.3
    )
    
    
    (74.5
    )
    
    
    (67.0
    )Total operating profit2
    
    
    410.5
    
    
    
    492.0
    
    
    
    422.3
    
    
    
    425.6
    
    
    
    438.6Profit/(loss) on termination/disposal
of businesses
    
    
    32.5
    
    
    
    12.5
    
    
    
    
    
    
    
    (20.2
    )
    
    
    Profit on disposal of fixed assets
    
    
    
    
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    Profit before interest
    
    
    443.0
    
    
    
    504.5
    
    
    
    425.9
    
    
    
    405.4
    
    
    
    438.6Interest on net debt
    
    
    (80.2
    )
    
    
    (111.5
    )
    
    
    (123.4
    )
    
    
    (103.1
    )
    
    
    (96.1
    )Interest on pension scheme liabilities
    
    
    
    
    
    
    (100.7
    )
    
    
    (107.2
    )
    
    
    (106.1
    )
    
    
    (110.2
    )Expected return on pension scheme assets
    
    
    
    
    
    
    149.5
    
    
    
    166.9
    
    
    
    139.1
    
    
    
    119.6Other net financing income
    
    
    
    
    
    
    48.8
    
    
    
    59.7
    
    
    
    33.0
    
    
    
    9.4Profit before tax
    
    
    362.8
    
    
    
    441.8
    
    
    
    362.2
    
    
    
    335.3
    
    
    
    351.9Tax on profit on ordinary activities
    
    
    (85.3
    )
    
    
    (135.2
    )
    
    
    (104.6
    )
    
    
    (106.2
    )
    
    
    (96.4
    )Profit after tax
    
    
    277.5
    
    
    
    306.6
    
    
    
    257.6
    
    
    
    229.1
    
    
    
    255.5Minority interests
    
    
    (27.4
    )
    
    
    (28.0
    )
    
    
    (33.5
    )
    
    
    (26.2
    )
    
    
    (36.4
    )Profit for the financial year
    
    
    250.1
    
    
    
    278.6
    
    
    
    224.1
    
    
    
    202.9
    
    
    
    219.1Earnings per 25p Ordinary shareBasic: on profit for the financial year
    
    
    51.4
    p
    
    
    57.2
    p
    
    
    46.0
    p
    
    
    41.4
    p
    
    
    44.5
    p before exceptional items
    
    
    56.6
    p
    
    
    53.5
    p
    
    
    57.5
    p
    
    
    55.9
    p
    
    
    52.9
    pDiluted: on profit for the financial year
    
    
    51.2
    p
    
    
    56.9
    p
    
    
    45.9
    p
    
    
    41.2
    p
    
    
    44.5
    p before exceptional items
    
    
    56.4
    p
    
    
    53.3
    p
    
    
    57.3
    p
    
    
    55.7
    p
    
    
    52.9
    pOrdinary dividends per share3Actual
    
    
    32.7
    p
    
    
    35.0
    p
    
    
    37.0
    p
    
    
    38.0
    p
    
    
    39.0
    pNumber of fully paid Ordinary shares
in issue at the year end (million)
    
    
    491.0
    
    
    
    492.2
    
    
    
    494.4
    
    
    
    497.3
    
    
    
    497.7
 1.
    
    Subsidiary undertakings only.2.
    
    Including share of operating profit of joint ventures and associates.3.
    
    Dividends paid in the calendar year.4.
    
    Excludes exceptional items. A fuller explanation of the term adjusted, and
the reasons for presenting such a measure, is given in the operating review on
page 31. A reconciliation of adjusted profit before tax to profit before tax is
given in the profit and loss account on page 72. A reconciliation of adjusted
return on capital employed to return on capital employed is given in the
operating review on page 32.  Information for 2001 and 2000 was restated in 2002 to be on a comparable basis
with 2002 following the adoption of FRS17 and FRS19 in 2002. Information for
1999 has not been restated.
 All turnover and operating profit arose from continuing operations.




12   The BOC Group plcAnnual report and accounts 2003





---



##### 





(GROUP 5 YEAR RECORD CHARTS)




1999
    
    2000
    
    2001
    
    2002
    
    2003Balance sheet
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionFixed assets
    intangible assets
    
    
    36.5
    
    
    
    49.2
    
    
    
    48.1
    
    
    
    150.7
    
    
    
    206.1
    tangible assets
    
    
    3,043.9
    
    
    
    3,294.0
    
    
    
    3,168.6
    
    
    
    3,027.4
    
    
    
    2,913.4
    joint ventures, associates and other
investments
    
    
    365.9
    
    
    
    456.3
    
    
    
    449.8
    
    
    
    468.6
    
    
    
    656.7Working capital
(excluding bank balances and short-term loans)
    
    
    275.5
    
    
    
    282.8
    
    
    
    257.0
    
    
    
    203.1
    
    
    
    220.1Deferred tax provisions
    
    
    (36.4
    )
    
    
    (295.8
    )
    
    
    (294.3
    )
    
    
    (291.8
    )
    
    
    (279.2
    )Other non current liabilities and provisions
    
    
    (262.9
    )
    
    
    (181.4
    )
    
    
    (184.3
    )
    
    
    (173.7
    )
    
    
    (145.8
    )Net borrowings and finance leases
    
    
    (1,138.5
    )
    
    
    (1,308.4
    )
    
    
    (1,272.1
    )
    
    
    (1,325.6
    )
    
    
    (1,368.1
    )Net assets excluding pension assets
and liabilities
    
    
    2,284.0
    
    
    
    2,296.7
    
    
    
    2,172.8
    
    
    
    2,058.7
    
    
    
    2,203.2Pension assets5
    
    
    
    
    
    
    402.0
    
    
    
    107.0
    
    
    
    54.3
    
    
    
    50.7Pension liabilities5
    
    
    
    
    
    
    (31.1
    )
    
    
    (56.0
    )
    
    
    (311.0
    )
    
    
    (341.8
    )Net assets including pension assets
and liabilities
    
    
    2,284.0
    
    
    
    2,667.6
    
    
    
    2,223.8
    
    
    
    1,802.0
    
    
    
    1,912.1Shareholders capital and reserves
    
    
    2,013.1
    
    
    
    2,394.0
    
    
    
    2,086.2
    
    
    
    1,684.1
    
    
    
    1,734.8Minority shareholders interests
    
    
    270.9
    
    
    
    273.6
    
    
    
    137.6
    
    
    
    117.9
    
    
    
    177.3Total capital and reserves
    
    
    2,284.0
    
    
    
    2,667.6
    
    
    
    2,223.8
    
    
    
    1,802.0
    
    
    
    1,912.1Other selected financial information
Capital employed6Total capital and reserves
    
    
    2,284.0
    
    
    
    2,667.6
    
    
    
    2,223.8
    
    
    
    1,802.0
    
    
    
    1,912.1Non current liabilities and provisions
    
    
    299.3
    
    
    
    477.2
    
    
    
    478.6
    
    
    
    465.5
    
    
    
    425.0Net borrowings and finance leases7
    
    
    1,138.5
    
    
    
    1,308.4
    
    
    
    1,272.1
    
    
    
    1,325.6
    
    
    
    1,368.13,721.8
    
    
    
    4,453.2
    
    
    
    3,974.5
    
    
    
    3,593.1
    
    
    
    3,705.2Total assets
    
    
    4,814.0
    
    
    
    5,618.3
    
    
    
    5,060.0
    
    
    
    4,947.4
    
    
    
    4,931.8Long-term liabilities and provisions
    
    
    1,278.7
    
    
    
    1,399.0
    
    
    
    1,554.5
    
    
    
    1,897.5
    
    
    
    1,851.5Capital expenditure1
    
    
    505.4
    
    
    
    413.7
    
    
    
    352.6
    
    
    
    354.3
    
    
    
    281.2Depreciation and amortisation1
    
    
    270.8
    
    
    
    313.3
    
    
    
    329.5
    
    
    
    330.9
    
    
    
    333.4EmployeesUK
    
    
    10,067
    
    
    
    9,929
    
    
    
    10,597
    
    
    
    11,266
    
    
    
    10,414Overseas
    
    
    32,057
    
    
    
    32,780
    
    
    
    32,574
    
    
    
    35,014
    
    
    
    34,093Continuing operations
    
    
    42,124
    
    
    
    42,709
    
    
    
    43,171
    
    
    
    46,280
    
    
    
    44,507RatiosReturn on capital employed8
    
    
    11.2%
    
    
    
    12.4%
    
    
    
    10.3%
    
    
    
    10.5%
    
    
    
    10.8%Adjusted return on capital employed4, 9
    
    
    13.1%
    
    
    
    12.5%
    
    
    
    12.9%
    
    
    
    12.3%
    
    
    
    12.5%Net debt/capital employed
    
    
    30.6%
    
    
    
    29.4%
    
    
    
    32.0%
    
    
    
    36.9%
    
    
    
    36.9%Net debt/equity
    
    
    49.8%
    
    
    
    49.0%
    
    
    
    57.2%
    
    
    
    73.6%
    
    
    
    71.5%
 5.
    
    Pension assets represents the excess of pension assets over pension
liabilities in countries where pension assets exceed pension liabilities.
Pension liabilities represents the excess of pension liabilities over pension
assets in countries where pension liabilities exceed pension assets.6.
    
    As defined in note 1 b) to the financial statements.7.
    
    Analysed for 2003 and 2002 in note 20 to the financial statements.8.
    
    Operating profit as a percentage of the average capital employed excluding
net pension liabilities. The average is calculated on a monthly basis.9.
    
    Operating profit before exceptional items as a percentage of the average
capital employed excluding net pension liabilities. The average is calculated
on a monthly basis.
  Information for 2001 and 2000 was restated in 2002 to be on a comparable basis
with 2002 following the adoption of FRS17 and FRS19 in 2002. Information for
1999 has not been restated.




13   The BOC Group plcAnnual report and accounts 2003





---



##### 



Group profile







Introduction The BOC Group began its business life over 100 years ago as the Brins Oxygen
Company. The company was incorporated in England in 1886 and adopted its
present name on 1 March 1982.
 A technology to extract oxygen from the air in commercial quantities had just
been developed and in 1886 the Brin brothers started production at a factory in
Westminster, London. Two uses had already been found for oxygen. One was to
intensify limelight, which was then used in theatres. The other was to assist
patients breathing during and after surgery. New technology was soon developed
that allowed air to be separated into all its major components  nitrogen,
oxygen and argon. By 1960, industrial gases were in widespread use and BOCs
business was firmly established. Tonnage plants were supplying steelworks with
oxygen and the customer base had been broadened to extend from metal cutting
and welding to food and medicine. The business had also spread overseas with
subsidiaries or associated companies as far away as Australia and South Africa.
During the 1980s, BOCs South African subsidiary began to invest in private
hospitals. This diversification was the basis of the current Afrox hospitals
segment.
 BOC acquired the vacuum equipment company Edwards High Vacuum International
Limited in 1968 and this formed the basis of what was to become the BOC Edwards
line of business today.
 The BOC Distribution Services business (now called Gist) was first established
in 1970, initially providing a chilled food distribution service for Marks &
Spencer and relying upon distribution skills and liquid nitrogen chilling
technology, acquired as a result of BOCs involvement in gases.
 In 1978, BOC completed the acquisition of Airco Inc in America, a predominantly
gases business that doubled the Groups size and brought BOC for the first time
into the US gases market. In the period from 1970 to 1990 The BOC Group
significantly increased its presence in the Asia/Pacific region through
participation in several joint ventures or associated companies. BOC
established strong market positions in Thailand, Indonesia, Taiwan, the
Philippines, China and Korea.
 An investment in 1982 gave BOC effective management control of the Japanese
gases company Osaka Sanso Kogyo KK (OSK). Conversion of loan stock and
subsequent purchases of shares raised BOCs holding in OSK to 97 per cent. In
September 2002 BOC and Air Liquide announced a conditional agreement to merge
their industrial and medical gases businesses in Japan. The merger became
effective in January 2003 and BOCs subsidiary in Japan has retained a 45 per
cent interest in the combined company called Japan Air Gases Limited. In the
period from 1998 to 2001, BOC increased investments in its gases companies in
Thailand, Indonesia and the Philippines by acquiring the interests of joint
venture partners or minority shareholders.
 The BOC Group has an international portfolio of companies operating as three
lines of business. These are Process Gas Solutions (PGS), Industrial and
Special Products (ISP) and BOC Edwards. In addition there are two separately
managed specialist businesses, Afrox hospitals and Gist. Operating results are
reported separately for these five segments.
 The main exports of the Group in 2003 were special products from the UK and
vacuum equipment and semiconductor manufacturing equipment from the UK, the US
and Japan. Trade between Group undertakings is conducted at fair market prices.
 Although BOC Process Plants was combined with Linde Engineering in the US with
effect from September 2002, BOC retains an interest in the manufacture of
industrial gas equipment though its Cryostar business based in France. Cryostar
makes specialist cryogenic pumps and expansion turbines that are used by most
manufacturers of industrial gas plant. Over the last two years Cryostar has
also developed a strong position in the market for shipboard compressors and
heat exchangers used aboard liquefied natural gas (LNG) tankers. Management
believes that Cryostar is the leading manufacturer of its product range
worldwide.
 Analysis of results by business (including share of joint ventures and associates)
 Turnover
    
    Operating profit
    
    Adjusted operating profit£ million
    
    %
    
    £ million
    
    %
    
    £ million
    
    %Process Gas Solutions
    
    
    1,242.7
    
    
    
    29
    
    
    
    177.1
    
    
    
    40
    
    
    
    184.0
    
    
    
    36Industrial and Special Products
    
    
    1,751.2
    
    
    
    40
    
    
    
    238.2
    
    
    
    54
    
    
    
    242.7
    
    
    
    48BOC Edwards
    
    
    684.1
    
    
    
    16
    
    
    
    7.9
    
    
    
    2
    
    
    
    18.5
    
    
    
    4Afrox hospitals
    
    
    353.4
    
    
    
    8
    
    
    
    46.1
    
    
    
    11
    
    
    
    46.1
    
    
    
    9Gist
    
    
    291.8
    
    
    
    7
    
    
    
    29.2
    
    
    
    7
    
    
    
    29.2
    
    
    
    6Corporate
    
    
    
    
    
    
    
    
    
    
    (59.9
    )
    
    
    (14
    )
    
    
    (14.9
    )
    
    
    (3
    )4,323.2
    
    
    
    100
    
    
    
    438.6
    
    
    
    100
    
    
    
    505.6
    
    
    
    100
 Adjusted operating profit excludes exceptional items. See also pages 31 and 32
of the operating review.
  The BOC Group contributes to the economies of some 50 countries
throughout the world. The US is the largest single source of sales
revenue for the Groups products and services, followed by the UK.
Other major geographic areas for the Group are Australia, South
Africa, Japan and other markets in the Asia/Pacific region. The
business therefore operates from a broad geographical base with
local manufacturing in most of the key overseas markets.




14   The BOC Group plcAnnual report and accounts 2003





---



##### 









Analysis of results by region(including share of joint ventures and associates)Turnover
    
    Operating profit
    
    Adjusted operating profit£ million
    
    %
    
    £ million
    
    %
    
    £ million
    
    %Europe
    
    
    1,154.4
    
    
    
    27
    
    
    
    137.0
    
    
    
    31
    
    
    
    144.3
    
    
    
    29Americas
    
    
    1,238.8
    
    
    
    29
    
    
    
    42.7
    
    
    
    10
    
    
    
    91.8
    
    
    
    18Africa
    
    
    585.5
    
    
    
    13
    
    
    
    85.0
    
    
    
    19
    
    
    
    85.0
    
    
    
    17Asia/Pacific
    
    
    1,344.5
    
    
    
    31
    
    
    
    173.9
    
    
    
    40
    
    
    
    184.5
    
    
    
    364,323.2
    
    
    
    100
    
    
    
    438.6
    
    
    
    100
    
    
    
    505.6
    
    
    
    100
 Adjusted operating profit excludes exceptional items. See also pages 31 and 32
of the operating review.
  The UK accounts for the largest part of the Groups activities in Europe but
BOC has significant gases subsidiaries in Ireland and Poland, vacuum products
manufacturing in France and a pharmaceutical packaging machinery operation in
the Netherlands.
 Gist, BOCs supply chain solutions business, operates principally in the UK but
also has operations in other countries.
 Subsidiaries in the US are engaged in the Groups three lines of business. The
Groups other principal subsidiaries, joint ventures and associates in the
Americas are located in Canada, Venezuela, Colombia, Chile and Mexico.
 The largest Group subsidiary in Africa is African Oxygen Limited (Afrox), a
South African public company in which the Group owns 56 per cent of the equity.
The largest shareholder, other than BOC, holds less than 15 per cent of the
equity. Afrox, primarily through wholly-owned subsidiaries, is engaged in the
manufacture and sale of products within the PGS and ISP lines of business.
Afrox also has interests in private hospitals, clinics and other health care
services in southern Africa, primarily through its 69 per cent holding in Afrox
Healthcare Limited.
 There are other Group or Afrox subsidiary companies in Africa located in
Botswana, Kenya, Malawi, Mozambique, Namibia, Nigeria, Swaziland, Zambia and
Zimbabwe. These companies are engaged primarily in the manufacture and/or sale
of products in the ISP line of business.
 BOC has businesses in most of the Asia/Pacific markets, including Japan, Korea,
Thailand, Taiwan, Indonesia, Malaysia, Singapore, China, the Philippines,
India, Pakistan, Bangladesh, Australia and New Zealand. In Australia, the
Groups business is conducted by BOC Limited. This company, as well as its
subsidiaries, joint ventures or associates, is engaged in the manufacture and
sale of products in the PGS and ISP lines of business. BOC participates in the
liquefied petroleum gas market in Australia through a 50 per cent shareholding
in Elgas Limited. Elsewhere in the Pacific region, the Group conducts its
business through subsidiaries, joint ventures and associated companies.
 Management organisation BOCs management structure is based on three global lines of business and two
specialist businesses. Each line of business serves a clearly defined type of
customer and each pursues its own strategy for growth and performance at a
local level. The organisation is designed to maximise BOCs global as well as
local strengths. The lines of business have global responsibility to set
strategy and prioritise investment. They include operational business units and
these local units are responsible to the Group chief executive for delivering
financial, safety and operational performance. The business units contribute to
the development of the strategies of the lines of business and customise and
implement them in local markets. The business unit heads collaborate in order
to share best practice and to maximise growth and profit opportunities wherever
they may appear.
 Process Gas Solutions (PGS) manages all aspects of BOCs business with
customers requiring bulk supplies of industrial gases from on-site plants or by
pipeline as well as deliveries of liquefied gases. Typical customers are found
in the oil and chemicals, food and beverage, metals, and glass sectors all
round the world. Marketing, business development and the execution of
investments to provide customer specific solutions for the supply of industrial
gases are handled by Process Systems, which forms part of PGS. Until 2002,
Process Plants, another unit forming part of PGS, was responsible for supplying
air separation technology within the Group with plants of its own design or
acquired from alliance partners and others. In March 2002 BOC announced plans
to merge its Process Plants operations with Linde Engineering in the US to form
a new company, Linde BOC Process Plants LLC.
The transaction was completed just before the end of 2002. BOC owns 30 per cent
of the combined company and Linde Engineering has become the principal supplier of industrial gases plant to BOC
worldwide.
 Industrial and Special Products (ISP) covers BOCs business with customers in
the fabrication, medical and leisure sectors as well as the special products
and liquefied petroleum gases businesses.




15   The BOC Group plcAnnual report and accounts 2003





---



##### 



Group profile continued







BOC Edwards embraces all aspects of business with semiconductor industry
customers worldwide including the supply of bulk gases and electronic
materials, vacuum and abatement technology, chemical management systems and
semiconductor-related services. BOC Edwards also serves general vacuum markets
around the globe and manufactures pharmaceutical freeze-drying and packaging
machinery.
 The segment reporting as Afrox hospitals operates through Afrox Healthcare
Limited, which is quoted on the Johannesburg Stock Exchange. It owns and
manages private hospitals and clinics in southern Africa. Additional services
include a direct medicines service for chronic medication, occupational health
services, nursing training, pharmacy management and laboratory services. BOCs
majority-owned subsidiary, African Oxygen Limited (Afrox), holds 69 per cent of
Afrox Healthcare Limited (AHealth). In July 2003 Afrox announced that it was in
the process of considering its strategic options with regard to its
shareholding in AHealth. On 17 November 2003, Afrox announced that it had
agreed to sell its entire holding in AHealth to a consortium of Black Economic
Empowerment investors. The sale remains subject to certain conditions including
clearance from the relevant competition and other regulatory authorities.
 During 2001, BOC Distribution Services was re-named Gist to reflect the
changing nature of its business. Gist operates as a separate business unit
outside the lines of business structure. It remains focused on developing
business with major customers, including Marks & Spencer, and has developed
capability in supply chain consultancy, managed solutions, and electronic
commerce fulfilment services.
 Corporate development Over the last three years BOC has continued to invest in its core businesses at
the same time as divesting assets and businesses that were no longer consistent
with its strategy.
 In 2001 BOC assumed full ownership of two south American hydrogen plants. BOC
purchased the interests from Foster Wheeler Power Systems in joint ventures
already operating in Chile and Venezuela.
 As a result of a successful tender offer, BOC increased its shareholding in
Osaka Sanso Kogyo KK (OSK) in Japan from approximately 55 per cent to over 93
per cent with effect from 8 May 2001. The holding was further increased during
2002 to 97 per cent. In September 2002 BOC and Air Liquide announced a
conditional agreement to merge their industrial and medical gases businesses in
Japan. The merger became effective in January 2003 and BOCs subsidiary in
Japan has retained a 45 per cent interest in the combined company called Japan
Air Gases Limited. In June 2001, BOC increased its holding in Thai Industrial
Gases Public Company Limited (TIG) from approximately 60 per cent to over 90
per cent and launched a tender offer for the outstanding shares leading to 99
per cent ownership.
 In October 2001 BOC Edwards agreed terms for the acquisition of the vacuum and
pressure business of the Smiths Group. These businesses are located in the UK,
north America and continental Europe and typically serve customers in the
metallurgy, water treatment, food, power and chemical industries.
 Hydromatix and Semco were also acquired during 2002 with the intention of
positioning BOC Edwards in those market segments expected to deliver the
fastest growth. These two companies, based in the US, are involved principally
in semiconductor wet processing technology including chemical blending delivery
and collection systems as well as liquid waste abatement systems.
 BOC Edwards sold its glass coating business, based in the US, in April 2002 but
retained its Temescal business that supplies technology for compound
semiconductor manufacturing.
 The acquisition of the turbomolecular pumps business from Seiko Instruments Inc
in Japan was announced in February 2002 and completed in March 2002 with the
principal objective of enhancing the ability of BOC Edwards to develop vacuum
sub-systems to satisfy the growing trend to on-tool pumping in the
semiconductor industry.
 In April 2002 BOC purchased Matheson Gas Products Canada Inc, thereby adding an
important special products capability to BOCs Industrial and Special Products
range in Canada.
 In May 2002 BOC acquired Unique Gas and Petrochemicals Public Company Limited
(UGP), in Thailand. UGP is a leading supplier of liquefied petroleum gas (LPG)
and packaged ammonia in the industrial and special products markets.
 In March 2002 BOC announced plans to merge its Process Plants operations with
Linde Engineering in the US to form a new company, Linde BOC Process Plants
LLC. The transaction was completed at the end of September 2002. BOC owns 30
per cent of the combined company and Linde Engineering has become the principal
supplier of industrial gases plant to BOC worldwide.
 BOCs associated company in Malaysia acquired 35.6 per cent of the gases
company Nissan Industrial Oxygen Inc (NIOI) in March 2002 and increased its
holding to 100 per cent in September 2002 following a tender offer. Each of
BOCs three lines of business has absorbed a part of NIOI.
 At the end of August 2002, BOC announced an agreement to purchase Praxairs
Polish gases business. The transaction was completed at the end of January 2003
following approval by the Polish competition authority. The business acquired
includes a high proportion of industrial and special products sales.
 In October 2002, BOC acquired Environmental Management Corporation (EMC), a
privately owned water services company based in St Louis, Missouri. EMC manages
water and wastewater treatment facilities for both industrial and local
municipal customers around the US. EMC forms part of the PGS line of business,
which intends to expand the range of solutions offered to its industrial
customer base.
 At the end of January 2003, BOC acquired the partial oxidation syngas plant at
Clear Lake, Texas, from Celanese. Under the agreement BOC fulfils a significant
proportion of the industrial gas requirements for the Celanese chemical
facility at Clear Lake.
 In March 2003 BOC announced an agreement to purchase the Canadian packaged gas
and related welding equipment business of Air Products. The acquisition was
completed in April 2003 following approval from the Canadian regulatory
authority.




16   The BOC Group plcAnnual report and accounts 2003





---



##### 









Industrial gases The BOC Group is one of the major producers of industrial gases in the world.
Its products include the atmospheric gases (nitrogen, oxygen and argon)
produced by air separation plants as well as hydrogen, carbon monoxide and
syngas (a mixture of hydrogen and carbon monoxide) made by technologies
including steam-reforming or partial oxidation of hydrocarbons. The Group also
markets carbon dioxide, helium and liquefied petroleum gas. These are generally
derived as by-products from chemical processes or from natural sources and are
also purchased from other producers. In addition, the Group markets dissolved
acetylene and a wide range of special gases, medical gases, gas mixtures and
gaseous chemicals.
  Industry structure and consolidationThe industrial gases business is
capital-intensive, with increasing demand, together with economies of scale,
leading to the need for large production units and distribution networks. The
need for fixed asset investments, the trend towards global customers and the
benefits from the transfer of applications technology worldwide have resulted
in the business being handled by a relatively small number of companies
internationally.
 One or more other major international producers compete in each of the
industrial gases markets served by the Group, and in many of the markets there
are smaller local producers as well. International competitors include Air
Liquide, Praxair, Air Products and Chemicals, Linde, Messer, Airgas and Nippon
Sanso. The world market for gases and related products is estimated to be over
£20 billion a year.
 On 13 July 1999 the board of The BOC Group agreed the terms of a
pre-conditional cash offer at £14.60 per share to be made jointly by Air
Liquide and Air Products. Making the offer was conditional upon those companies
obtaining satisfactory regulatory clearances in Europe, Canada and the US by 13
March 2000. Following an extension to the pre-conditional offer period to
conclude discussions with the Federal Trade Commission (FTC) in the US, the
bidders allowed the offer to lapse on 10 May 2000.
  Principal industrial gas productsNitrogen possesses two key characteristics
that make it the worlds most widely used and versatile industrial gas.
Nitrogen is almost inert and when liquefied it is intensely cold. This makes
liquid nitrogen a highly effective, versatile and non-polluting agent for
freezing and chilling.
 Under normal conditions nitrogen is chemically inactive. This makes it an
important purging and blanketing gas in the chemical and refining industry as
well as in the electronics industry.
 Oxygen, in contrast to nitrogen, is useful for its reactivity. It supports
combustion and it supports life. Oxygen has been used in welding and medicine
for over 100 years and in steel production since the 1950s.
 Iron and steel producers use oxygen to accelerate melting and to improve metal
quality during the refining process. It is also used by the oil and chemicals
industries and many others for a variety of oxidation processes. Mixed with
fuel gases, oxygen provides a heat source for many welding, cutting and metal
fabrication processes.
 Argon makes up less than one per cent of the atmosphere but it is the most
abundant truly inert gas. It is used to provide a shielding atmosphere in
welding, metal fabrication, aluminium processing, microelectronics, glass
coating, advanced ceramics and other industrial processes. It is also used in
the steel industry, principally in the production of stainless steel.
 Hydrogen is typically produced by steam reforming or partial oxidation of
natural gas, petroleum gas, or liquid or solid hydrocarbon feedstocks. Hydrogen
may also be recovered from by-products purchased by BOC from external
suppliers. Hydrogen is used primarily in the oil and chemicals industries for
applications aimed at upgrading crude oil through hydrocracking to form lighter
fractions and to remove sulphur in the production of cleaner fuels. The
chemicals industry also uses hydrogen where it is required as an active
ingredient in many large-scale processes.
 Helium is extracted from natural gas deposits. Only a few sources in the world
contain a sufficient proportion of helium to justify its separation. The
Groups supplies now come from the US, Poland and Russia and are secured by
long-term contracts. In June 2003, BOC announced an agreement to obtain half
the output from a new helium extraction facility to be constructed in Qatar.
Deliveries from this new source are expected to begin in July 2005. Because of
its high value, helium is the only major industrial gas to be extensively
traded internationally. Helium is used in welding, leak detection, hospital MRI
scanners and increasingly in the production of optical fibres. Helium gas
mixtures are used in balloons.
 Carbon dioxide supplied by BOC is obtained as a by-product from other
companies manufacturing processes, from natural sources or recovered in the
generation process for hydrogen or syngas and put to constructive use. Solid
carbon dioxide is, like liquid nitrogen, used for chilling and freezing in the food
industry. As a gas it is used to carbonate and dispense beverages of all kinds.
 Acetylene is normally supplied in cylinders and used together with oxygen in
metal cutting and welding applications. BOC is a major manufacturer of
dissolved acetylene.
 Liquefied petroleum gas (LPG) is a fuel gas with a wide variety of domestic,
industrial and transport applications. BOC is a major distributor of LPG in
South Africa and Thailand, and its joint venture company Elgas Limited is a
major distributor in Australia. BOC has smaller market positions in several
other countries.




17   The BOC Group plcAnnual report and accounts 2003





---



##### 



Group profile continued







Production of industrial gasesOxygen was first extracted from the atmosphere
by a chemical process. This was superseded over 80 years ago by the cryogenic
(low temperature) process involving the liquefaction and distillation of air.
The cryogenic process is still by far the most widely used, but non-cryogenic
techniques (pressure swing adsorption and membrane diffusion), which were first
developed during the 1970s, are becoming increasingly significant for smaller
or less demanding on-site applications.
 Cryogenic air separation is a mature and stable technology, although
incremental technical advances are still yielding improvements in capital cost,
operating cost, ease of operation and reliability. The only significant raw
material, apart from the air itself, is electricity, which is used in large
quantities to drive compressors, pumps and other equipment. The production
process in modern air separation plants is highly automated, and remote
operation of BOCs plants from control centres is becoming increasingly common.
 The production of hydrogen and syngas uses steam reforming or partial oxidation
of hydrocarbon feedstocks such as natural gas, petroleum or coal to separate
the hydrogen and carbon compounds. The choice of feedstock is related to their
prices in local markets.
  Distribution of industrial gasesIndustrial gases may be supplied to customers
in a variety of ways; through pipelines from on-site or nearby cryogenic or
non-cryogenic plants, by deliveries of liquefied gases in road or rail tankers,
in portable cryogenic containers or in cylinders (also called compressed or
packaged gases).
 Distribution is an important competitive factor in the industrial gases
business and the methods of distribution vary according to the nature of the
products themselves and the customers volume requirements. Most gases have to
be stored and distributed either under great pressure, which requires them to
be carried in heavy and bulky cylinders, or at extremely low temperatures in
specially insulated tankers, which limits how far they can be transported
before carriage costs become unacceptable. Pipeline delivery involves high
capital costs and the routing is inflexible. As a result, there is little
international trade in industrial gases. Production has to occur in or near the
market being served and there is a trend towards production at customers own
sites.
 Business segments The BOC Group reports financial results for the three lines of business and for
Afrox hospitals and Gist separately.
 Process Gas Solutions (PGS) This line of business covers BOCs business with larger-scale industrial
customers worldwide, typically in the oil and chemicals, food and beverage,
metals, and glass sectors. Gases and services are supplied as part of
customer-specific solutions that create the most value for customers at the
lowest cost to BOC. These range from supply by pipeline or from dedicated
on-site plants to the largest users, to supply by road tanker in liquefied form
to others.
 Tonnage (pipeline) customers are usually supplied on the basis of long-term
contracts, typically containing a fixed facility charge together with a
variable charge for product supplied in excess of a set minimum quantity.
Revenues from these contracts thus have a measure of stability with respect to
changes in demand for product. Tonnage plants are often built to produce
merchant gases in addition to those required by the tonnage customer and these
gases can be sold to other customers. The BOC Group has substantial positions
in the tonnage markets of the UK, the US, Australia, South Africa and Asia as
well as in some smaller markets. The products supplied to tonnage customers
have traditionally been the atmospheric gases oxygen, nitrogen and argon. More
recently, hydrogen and syngas are becoming significant tonnage products as are
associated utilities including steam and power.
 The delivery of liquefied gases by road or rail to the customers site is
normally limited by transport costs to a radius of about 200 miles. Product for
this market is supplied either from merchant plants or from tonnage plants
incorporating liquefiers. Larger users are typically supplied with product in
liquid form delivered in cryogenic tankers into special storage vessels
installed at customer premises. Tankers and vessels are often BOC Group owned.
Liquefied gases are usually supplied on the basis of contracts with terms of
one to five years. Revenues are generally based upon the actual quantity of gas
consumed, with an additional fixed charge for the use of storage equipment.
 The growth of sales and profit in this line of business is driven by investment
in new production facilities. Such investment is predominantly the result of
opportunities to satisfy long-term supply contracts with one or more heavy
industrial customers for each plant.
 Marketing, business development and the execution of investments to provide
customer-specific solutions for the supply of industrial gases are handled by
Process Systems, which forms part of PGS.




18   The BOC Group plcAnnual report and accounts 2003





---



##### 









Business developmentDuring the early part of 2001, BOC reached full commercial
operation of an integrated refinery and merchant gases facility in Brisbane,
Australia, significantly ahead of schedule. The facility supplies hydrogen,
using partial oxidation technology, for BPs mild hydrocracker and has an air
separation complex supplying oxygen to help upgrade the capacity of the
refinerys catalytic cracker unit. In addition the facility produces oxygen,
nitrogen, argon, hydrogen and carbon dioxide for BOCs merchant market,
replacing and increasing capacity over previous and less-efficient production
facilities.
 In 2001, BOC took full ownership of two hydrogen joint ventures already
operating at refineries in Chile and Venezuela. This was done by purchasing the
interests of the other partner, Foster Wheeler Power Systems.
 BOC started the supply of up to 800 tonnes per day of oxygen to Mitsubishi
Materials copper and electrical component recycling facility at Onahama, Japan
in 2001.
 A number of hydrogen supply plants were completed during 2001, including those
supplying Dow Corning and Roche in the UK.
 A plant to supply OneSteel at Whyalla in South Australia was commissioned in
November 2001 also replacing and increasing capacity over previous and less
efficient merchant plants in Adelaide. Shortly afterwards in January 2002 a new
plant began supplying Huntsman on Teesside in the UK with hydrogen to be used
for the production of aniline.
 In April 2002, BOC established a joint venture in Nanjing with Yangtze
Petrochemical Corporation (YPC), which is a subsidiary of Sinopec, Chinas
leading petrochemical company. BOC purchased existing air separation assets
with effect from May 2002 and construction of new air separation capacity is
underway. BOCs joint venture will be a supplier to a new BASF and YPC joint
venture plant also under construction and scheduled to begin production in
2004. Additional liquefaction capacity was added to the existing air separation
facility during 2003. These investments give BOC a strategic position as a key
supplier in the Nanjing area, which is being developed through foreign
investment as a leading centre for chemical production in China.
 In the US a new plant began to supply WCI Steel in Ohio in May 2002 and a plant
at Midland, North Carolina, began production in June 2002.
 In October 2002, BOC acquired Environmental Management Corporation (EMC), a
privately owned water services company based in St Louis, Missouri. EMC manages
water and wastewater treatment facilities for both industrial and local
municipal customers around the US. EMCs management services extend to steam
systems, cold and chilled water systems and wastewater treatment. Customers
include small to medium municipalities and industrial customers, many of which
are in the food sector. EMC forms part of the PGS line of business and BOCs
strategy is to expand the range of solutions offered to its industrial customer
base.
 At the end of January 2003, BOC acquired the partial oxidation syngas plant at
Clear Lake, Texas, from Celanese. Under the agreement BOC fulfils a significant
proportion of the industrial gas requirements for the Celanese chemical
facility at Clear Lake. The Celanese facility is located on the Houston ship
canal, and includes a world scale vinyl acetate monomer plant and the worlds
largest acetic acid plant. These require large quantities of oxygen and
nitrogen as well as carbon monoxide.
 A new hydrogen and carbon monoxide (HyCO) plant supplying the Thai
Polycarbonate Company for the manufacture of plastic resins began production in
2003 and in August 2003, BOC announced that a new plant at Rayong would double
its carbon dioxide capacity in Thailand before the end of calendar 2003. The
plant will supply the local poultry and prawn industries as well as providing
carbonation gas to the beverage industry.
 In October 2003, BOC commissioned a new hydrogen plant supplying Citgos oil
refinery at Lemont, Illinois. The hydrogen will be used in the removal of
sulphur to produce clean fuels.
 Industrial and Special Products (ISP) Gases for cutting and welding, hospitality, laboratory applications and a
variety of medical purposes are mainly distributed under pressure in cylinders.
The ISP line of business covers products and services provided to this section
of the market together with sales of packaged chemicals and liquefied petroleum
gas (LPG). Customers are typically in the fabrication, engineering, automotive,
refrigeration, hospitality or medical sectors. The customer base is therefore
broad and varied. The number of separate customers served by ISP is much
greater than the other two lines of business and the quality of service is
often the key factor in securing existing or obtaining new customers. In order
to raise service standards at the same time as reducing costs, national
customer service centres have been successfully established in all the major markets.
 In addition to supplying gases, BOC also supplies a range of associated
equipment in many of its major markets. This includes cutting and welding
products and, in some markets, associated safety equipment.




19   The BOC Group plcAnnual report and accounts 2003





---



##### 



Group profile continued







BOC has devoted considerable attention over the last three years to understand
the requirements of different types of customer in its major markets and to
provide the required service at an appropriate price. Such customer
segmentation programmes have been implemented in the UK, South Africa,
Australia, Asia, Latin America and are in progress elsewhere.
 The cutting and welding applications are a relatively mature part of the
industrial gases business and growth opportunities are principally in other
segments of the market such as medical applications, packaged chemicals,
hospitality and services. BOC is pursuing these opportunities by the
development of new products, packages and services as well as by marketing
initiatives to take advantage of BOCs global capabilities by introducing
existing products to new regions. Electronic commerce has also become an
important tool for sustaining and growing sales by making it easier for
customers to manage their business with BOC as a supplier.
 BOC is a leading supplier of helium and has liquid helium distribution centres,
or transfills, in many markets around the world. With 42 helium transfills
worldwide, management believes that this is the largest global network of its
kind. Helium has a broad range of applications, including medical imaging and
welding, and is vital to the production of optical fibres, semiconductors and
special alloys. It is also used for leak detection, underwater breathing
mixtures and lifting.
  Business developmentIn April 2002, BOC acquired Matheson Gas Products Canada
Inc, one of Canadas leading providers of special gases and equipment. Unique
Gas and Petrochemicals Public Company Limited (UGP), a leading distributor of
liquefied petroleum gas (LPG) and ammonia in Thailand, was acquired in May
2002. BOCs associated company in Malaysia acquired 35.6 per cent of the gases
company Nissan Industrial Oxygen Inc (NIOI) in March 2002 and, following a
tender offer, increased its holding to 100 per cent in September 2002. At the
end of August 2002, BOC announced an agreement to purchase Praxairs Polish
gases business. The transaction was completed in January 2003 following
approval by the Polish competition authority. The business acquired includes a
high proportion of industrial and special products sales.
 During 2002, BOC continued its global roll-out of a light-weight medical
cylinder with an integrated valve and regulator for homecare patients and
emergency services. Heliox, a helium and oxygen mixture formulated to ease the
respiratory effort associated with airway obstruction, was launched in the UK.
 Capacity at BOCs Otis, Kansas, helium plant was expanded in 2002 to match
market demands. In addition, BOC has access to helium produced by other US
plants, as well as to product from Poland and Russia. In 2003 BOC and KRIO, a
division of the Polish Oil and Gas Company, entered into a new helium supply
agreement. BOC will purchase for export all of KRIOs helium that is not sold
to its domestic customers in Poland. BOC has been KRIOs sole customer for bulk
liquid helium since the original agreement was signed in 1972. In June 2003,
BOC announced an agreement to obtain half the output from a new helium
extraction facility to be constructed in Qatar. Deliveries from this new source
are expected to begin in July 2005.
 Magnetic resonance imaging (MRI) systems use liquid helium to cool
superconducting magnets. BOC provides helium as well as a liquid nitrogen
filling service to meet MRI operators total requirements. In 2002, ISP signed
a major helium supply scheme with Oxford Magnet Technology in the UK.
 BOC continued to invest in refrigerant filling facilities during 2002 and in
2003 new filling facilities were installed in Hong Kong, Malaysia and the
Philippines. Each of these was built to a standardised global design. BOC now
supplies refrigerants in 19 countries compared with six countries in 1999. In
June 2003, BOC announced a global alliance with Hudson Technologies to promote
technology for cleaning and recycling used refrigerants.
 Significant progress in developing web-based customer portals was made in 2002.
Amongst others, ISP launched customer portals in the UK, Australia and New
Zealand. Thousands of customers are now able to access detailed material on
BOCs product service offers, manage and settle their accounts and place orders
on-line.
 BOC acquired the Canadian packaged gas and related welding equipment business
of Air Products in April 2003.




20   The BOC Group plcAnnual report and accounts 2003





---



##### 









BOC Edwards This line of business specialises in gases, services and equipment for the
semiconductor industry as well as vacuum products for a range of other
industries. It is organised into four customer-facing divisions for sales and
marketing and into four manufacturing divisions. The customer-facing divisions
are Asia/Pacific, Japan, the US and Europe and the manufacturing divisions are
Vacuum and Exhaust Management, Chemical Management, Bulk Gases and Electronic
Materials. Kachina (semiconductor process tool component management service),
Coating Technology and Pharmaceutical Systems were managed separately in the
period 2001 to 2003. The major markets for BOC Edwards products are in Asia,
north America and Europe.
 Management believes that BOC Edwards has a unique position as a fully
integrated supplier of gases, vacuum, chemical, slurry and exhaust management
products, as well as services to the global semiconductor industry and is a
leader in the design and manufacture of vacuum pumps, instrumentation and
systems for both general vacuum and semiconductor applications.
 The vacuum and exhaust product ranges are manufactured or assembled primarily
in the UK, with additional manufacturing and assembly in the US, Japan and
Korea. They include vacuum pumps, coating systems, exhaust management systems,
temperature control systems and heat exchangers, instrumentation and controls,
vacuum accessories and leak-detection equipment. The range also includes
specially designed systems for specific applications, depending on customer
requirements.
 In addition to the semiconductor industry, the leading customers are in the
chemicals, scientific instruments and other industries, as well as in
educational and research establishments. General vacuum products are sold to
such customers by a separate sales force.
 Chemical Management Division specialises in the design, manufacture and
installation of the systems used to deliver liquid process chemicals, including
planarisation slurries to the point of use within semiconductor fabrication
facilities. BOC Edwards chemical management products are manufactured mainly
in the US, while electronic materials plants are located in the US and in Asia.
 BOC Edwards service facilities, including plants for cleaning semiconductor
process tool parts, are located near concentrations of semiconductor
fabrication facilities around the world.
 Technology is important to maintain a competitive edge in this business, and
considerable resources are committed to enable the business to address new
applications and markets. A new exhaust management laboratory was opened in
Japan during 2001. Over 250 staff are employed in development project teams
worldwide.
 The Groups vacuum products are sold directly by Group companies to end users
and also through distributors and agents. Management believes that the Group is
a leading manufacturer of the types of vacuum products that it makes and
provides. The business is highly competitive, with product design and quality,
leading to the lowest cost of ownership, being very significant factors.
 Sales opportunities for much of BOC Edwards semiconductor equipment business
are dependent upon capital investment by the semiconductor industry. Management
believes that semiconductor production remains on a long-term growth trend but
capital investment by semiconductor manufacturers has been subject to sharp
variations for a number of reasons, some of which arise from advances in
technology.
 The products of BOC Edwards Pharmaceutical Systems are tailored specifically to
individual customer requirements in the pharmaceutical industry and are used
mainly for injectable products. Freeze-drying systems are made in Tonawanda,
New York, US. Filling, sterilising and packaging lines for the pharmaceutical
industry are made at Dongen in the Netherlands.
  Business developmentIn the period 2001 to 2003, new ranges of dry pumps for
the semiconductor industry were introduced as well as a comprehensive new range
of exhaust management products. These new products meet the needs of new 300mm
wafer and flat panel manufacturing facilities.
 A new range of turbomolecular pumps and an innovative dry pump were introduced
for scientific customers as well as new dry pumps for industrial customers over
the same period. New single axis on-tool pumps for semiconductor manufacturing
and a range of liquid ring pumps for industrial applications were introduced in
2003.
 During 2003, an enhanced range of gases and vacuum products for lithography was
offered to semiconductor manufacturers. Narrower line widths are requiring new technology including a
supercritical carbon dioxide process for wafer cleaning.
 In July 2000, BOC Edwards acquired Kachina Semiconductor Services, a US company
specialising in the cleaning of process tool chamber parts. In the same year a
new facility and divisional headquarters was established in Phoenix, Arizona,
followed by a new facility in Portland, Oregon. Additional facilities were
opened in France and China during 2002.




21   The BOC Group plcAnnual report and accounts 2003





---



##### 



Group profile continued







Production of nitrogen trifluoride gas (NF3) for the semiconductor industry was
started at a plant in South Africa during 2000 and production capacity was
further increased during 2003. This product is an important etchant that is
also used for in-position cleaning of semiconductor process equipment.
 In September 2001, BOC acquired Fluorogas Limited, a UK based company with
expertise in the development and operation of low pressure on-site fluorine
generators. The acquisition was made to assist in BOC Edwards development of
alternative cleaning systems for semiconductor process tool chambers. As a
result of a jury verdict against Fluorogas Limited in a US litigation action,
Fluorogas Limited was placed in administration. Further details of the
litigation are given in the financial review on page 50.
 During 2001, a decision was taken to concentrate electronic materials
production into fewer locations and to close some existing facilities in the UK
and the US to increase efficiency and reduce costs. These closures were
completed in 2002.
 In October 2001 BOC Edwards agreed terms for the acquisition of the vacuum and
pressure business of the Smiths Group. These businesses are located in the UK,
north America and continental Europe and typically serve customers in the
metallurgy, water treatment, food, power and chemicals industries rather than
semiconductor manufacturing.
 The acquisition of the turbomolecular pumps business from Seiko Instruments Inc
in Japan was completed in March 2002 with the principal objective of enhancing
the ability of BOC Edwards to develop vacuum sub-systems to satisfy the growing
trend to on-tool pumping in the semiconductor industry.
 Hydromatix and Semco were also acquired during 2002 with the intention of
positioning BOC Edwards in those market segments expected to deliver the
fastest growth. These two companies, based in the US, are involved principally
in semiconductor wet processing technology including chemical blending delivery
and collection systems as well as liquid waste abatement systems.
 BOC Edwards sold its glass coating business, based in the US, in April 2002 but
retained its Temescal business that supplies technology for compound
semiconductor manufacturing.
 Afrox hospitals Afrox Healthcare Limited owns 63 hospitals and clinics and has a minority
interest in a further seven hospitals managed by others. In addition it also
manages the Lifecare group of chronic-care hospitals. In addition to hospitals
and clinics, which are the core business, Afrox Healthcare Limited also
includes Afrox Healthcare Services, which facilitates a direct medicines
service for chronic medication, and provides occupational health services,
nursing training and laboratory services. Management believes that Afrox
Healthcare Limited is the leading provider of private health care in southern
Africa.
 During 2000, African Oxygen Limited (Afrox) increased its holding of Afrox
Healthcare Limited to 82 per cent. During 2001, the 55 per cent interest in
Lifecare Special Health previously held by Afrox was bought by Afrox Healthcare
Limited.
 In January and July 2002, Afrox sold parts of its holding in Afrox Healthcare
Limited but retains a 69 per cent interest. This disposal was in accordance
with the terms of the transaction between Afrox and PresMed that took place in
1999.
 In July 2003 Afrox announced that it was in the process of considering its
strategic options with regard to its shareholding in Afrox Healthcare Limited.
On 17 November 2003, Afrox announced that it had agreed to sell its entire
holding in Afrox Healthcare Limited to a consortium of Black Economic
Empowerment investors. The sale remains subject to certain conditions including
clearance from the relevant competition and other regulatory authorities.
 Gist (formerly BOC Distribution Services) Gist is a provider of specialist supply chain solutions. The name Gist was
adopted during 2001 to reflect both the continuing focus on supply chain
operations and an increased emphasis on supply chain consulting, managed
solutions and logistics support to e-fulfilment opportunities. This realignment
of the business followed a planned withdrawal from most non-Marks & Spencer
primary temperature controlled operations in the period 1999 to 2000.
 High quality supply chain operations remain at the core of the business. Gist
manages a range of supply chains on behalf of retailers, mainly in the UK, as well as some overseas. For over 30
years Gist has been the largest supply chain provider for Marks & Spencer. Gist
currently handles all of its UK food distribution and the consolidation and
dispatch of all overseas shipments to subsidiaries and franchised operations.
 During 2003, Gist ceased to operate general merchandise logistics and garment
stockholding operations on behalf of Marks & Spencer.
 Gist has provided supply chain consultancy services to major supermarket and
catalogue retailers in the UK and demonstrated its capabilities in managing
international supply chains. In addition an on-line wholesaling operation has
extended the range of Gists skills offered externally.




22   The BOC Group plcAnnual report and accounts 2003





---



##### 



Employees







At 30 September 2003 the Group had 44,507 employees (2002: 46,280 employees,
2001: 43,171 employees). Employees of the company and its subsidiaries were
located as follows:
 Europe
    
    
    12,353Americas
    
    
    7,451Africa
    
    
    17,138Asia/Pacific
    
    
    7,565
 The employee base was very stable and unplanned turnover was low during the
year. BOC was successful at retaining the organisations core skills and
capabilities and, as a result, continues to be able to meet its business,
customer service and health and safety targets. BOCs capability review and
succession planning processes highlight that it has solid capability in most
areas and adequate succession depth to meet both its technical and leadership
requirements. Plans to strengthen this capability further are progressing well.
 Employee satisfaction and commitment Levels of employee satisfaction and commitment are generally high. Progress
continues to be made in achieving a culture of accountability, collaboration,
transparency and stretch, known as ACTS in BOC. The ACTS principles provide a
framework that enables employees to evaluate and critique how they deal with
each other as well as how they work with customers, suppliers and the
community. Business units continue to work on improvement areas identified as a
result of the 2002 Employee Survey. Progress will be measured through a
follow-up survey.
 Employment policies and Code of Conduct The BOC Group takes its responsibilities as a global organisation seriously. It
is committed to fostering a workplace that is safe and environmentally sound.
It will always act in line with all applicable laws, regulations and industry
standards. It expects people to respect confidential information and company
time and assets. It believes in open and honest communication, fair treatment
and equal opportunities. It opposes public corruption, anti-competitive
behaviour and insider trading, and it supports the fundamental principles of
good governance and human rights.
 The company is a signatory of the UN Global Compact and subscribes to its nine
principles of human rights. These principles represent minimum standards for
BOC and in many of the areas covered, existing standards exceed those set out
in the Global Compact.
 During the year, BOC launched a global Code of Conduct, a framework of legal
and ethical standards for all BOC people to work and live by. This is an
important programme that draws together and builds on many existing standards
and processes in BOC.
 The code is supported by a number of processes. BOC has introduced a
confidential helpline to deal with questions in every country where it
operates. It has translated the standards into key languages. It is also making
sure everyone has access to appropriate training and guidance.
 In addition to the Code of Conduct, BOC provides guidance and leading-edge
human resources policies to support BOC people in their day-to-day activities
and long-term career planning. These are aligned to a set of corporate values
and principles. The heart of this approach is the recognition that the energy
and application of individuals and teams throughout the organisation will
determine competitive advantage in todays complex global market.
 BOCs employment policies are designed to underpin the Groups operating
requirements and growth strategies. The human resources units implementing
these policies are close to the business units in each geography and, as far as
practicable, Group policies are adapted to meet local requirements.
 Communication and involvement BOC places a high priority on two-way communications with its people. The
primary communication channels are within the business units, where local
managers work with their people and two-way communication is most achievable.
 The Group also uses a number of formal and informal communication channels to
share information and to shape behaviour. In addition to traditional media such as videos, magazines,
newsletters and briefing packs, BOC has continued to invest in e-mail and
web-based communications technologies to ensure that consistent and coherent
messages are conveyed speedily to its people around the world.
 The Group actively searches for ways to involve employees in shaping the
future. It is common to find teams of people meeting to review or jointly
create processes, systems or strategies. A variety of employee structures exist
for these purposes, including peer groups, special interest groups, teams of
excellence and quality teams. Multi-disciplinary and cross-geographic groups of
employees regularly meet, either face-to-face, or by using tele-, video- and
web-based meeting technologies which have been installed for these purposes.
 Resourcing, training and development Resourcing, training and development programmes are designed to ensure that the
Group has a pool of well-qualified, gifted individuals able to meet day-to-day
operational needs and plans for the future.
 BOC conducts a robust annual process to assess the strengths and weaknesses of
its units.
 It is committed to providing its people with opportunities to develop and grow,
but also to bring new blood into the organisation through targeted external
recruitment. A global, web-based recruiting platform is being rolled out
globally to supplement other recruitment channels.
 BOC continued to place great emphasis on personal and career development over
the past year. Employees are encouraged to be proactive about their future
careers and development opportunities. The aim is for all employees to have
regular discussions with their managers regarding their aspirations, prospects
and development needs. These result in the formulation of an individual
development plan, which is an agreed course of action to meet employees needs
as well as the needs of the organisation.




23   The BOC Group plcAnnual report and accounts 2003





---



##### 



Employees continued







BOC offers many opportunities for career and personal development. Employee
development takes the form of on-the-job coaching and training, development
projects, secondments, e-learning, as well as more traditional classroom-based
training.
 In addition to the development that takes place to achieve current job
effectiveness of all employees, high potential employees are identified and
developed with future roles in mind. Lead is an ambitious executive development
programme for high potential senior managers, facilitated by world class
external providers as well as senior BOC executives. It is customised for BOC
and is comprehensive in its scope. The programme offers a tailored curriculum
and is designed to equip the participants with the broad range of skills and
experiences they will need to be successful leaders within the Group. To date,
over 100 senior leaders have had the opportunity to participate in Lead
programmes.
 During the past year, a new leadership development programme, iLead, has been
designed and developed for high potential middle managers. It is the intention
to run iLead programmes in each BOC region, each year. Lead and iLead augment
many other management development initiatives, which are provided to
supervisors and managers around the world.
 BOC believes that how its employees work is as important as what they produce,
which is why it has concentrated on the behaviours associated with
accountability, collaboration, transparency and stretch  the ACTS cultural
principles. Accountability comes through people knowing what they are
accountable for and being empowered to deliver. Collaboration is about drawing
on the rich diversity of styles, talents and skills across the Group to
maximise achievements. BOC values transparency because of the belief that
visible problems can be solved and that informed people make better decisions.
Finally, stretch advocates continually pushing the boundaries of performance.
BOC has created a set of leadership competency models, which are aligned to
ACTS. All recruitment, development, recognition and enhancement processes are
being aligned to this comprehensive and unified BOC view of leadership and
management.
 Reward and recognition An organisation that aspires to excellence must recognise and reward the
achievement of excellence. The Group continues to refine the key value drivers
of its business units and to ensure it can reward and recognise outstanding
individual and team performance in the fulfilment of business goals. Programmes
to achieve this are cascaded throughout the organisation to heighten focus on
effective performance at all levels.
 The Group continues to move towards a total reward system that allows people to
structure their remuneration and benefits to suit their individual needs.
Senior executives remuneration is linked to a Group-wide variable compensation
plan, which is described in the report on remuneration on page 60.
 Retirement benefit plans BOC considers it important that its people provide for their retirement, and
fully supports their efforts in this regard. Around the world, the Group
provides opportunities for people to participate in retirement programmes
tailored to suit local conditions. Just as important, the boards pensions
committee takes prudent steps to monitor and control Group-wide retirement
benefit plans with local managers being responsible for safeguarding the
security of each retirement plan that they sponsor.
 During the year, BOC closed its UK defined benefit pension schemes to new
members and replaced them with a new defined contribution plan.
 The financial position of the Groups main pension funds is detailed in note 8
to the financial statements.
 Diversity As one of the UKs few truly global companies, BOC highly values the rich
diversity of its people. While the Group consistently champions a set of
unifying values and principles, they are not imposed regardless of local
sensibilities. Rather, the Group strives to build on the qualities inherent in
its global environment by encouraging people with different views, styles and
approaches. Wherever in the world it operates, BOC is committed to maintaining
a workplace free from discrimination for reasons of race, creed, culture,
nationality, religion, gender, sexual orientation, age or marital status.
 Disability is not considered a barrier to employment and, as far as local
conditions allow, employees are selected on the basis of their ability to
perform the job. Further necessary training is arranged, taking account of
their particular needs and the resources required to meet them.
 Employee share schemes Many BOC employees in the UK and some other countries have built up an equity
interest in the Groups business through employee share schemes. Options may be
granted at a discount to the market price at the date of grant. The term of
options granted could be from three to seven years and any option is
conditional on a commitment by the individual to make regular savings from pay
that are then held by an independent organisation to purchase shares at the end
of the option period. The exercise of options under these schemes can be
satisfied by the issue of new shares or the transfer of existing shares.




24   The BOC Group plcAnnual report and accounts 2003





---



##### 



Safety, health and the environment



Overall safety performance 2002
    
    20031Lost workday case rate
    
    
    0.37
    
    
    
    0.45Total recordable case rate
    
    
    0.76
    
    
    
    1.18Passenger car avoidable
accident rate
    
    
    1.72
    
    
    
    1.99Truck avoidable accident rate
    
    
    2.13
    
    
    
    2.75
 (LOST WORKDAY CHARTS)




BOC is committed to excellence in safety, health and environmental management.
Each employee is expected to comply with all external regulations and the
Groups global Code of Conduct. BOCs commitment is best illustrated by the
breadth of measures taken to equip employees with the appropriate safeguards,
tools and training.
 This year, BOC launched and implemented its Code of Conduct. The code sets out
the values and standards which guide the way BOC businesses around the world
conduct themselves. The legal, ethical and corporate responsibility dimensions
of safety, health, environment and quality (SHEQ) management are key features
of the codes programme of communication, training, adherence, checks and
audits. The code also ensures that SHEQ issues are managed consistently across
all countries and businesses.
 A dedicated SHEQ department ensures that the Group has a deliverable policy, is
proactive in its risk assessment and professional in its remediation.
 BOC has well-established programmes governing SHEQ performance. These
standards, procedures and tools are firmly embedded by the Groups global
integrated management systems and standards (IMSS) database. IMSS disseminates
the Groups SHEQ policies through the BOC intranet, outlining the minimum
standards and actions needed to align with or conform to ISO 9000 (quality
assurance), ISO 14001 (environment) and ISO 18001 (health and safety)
management systems as well as the international safety rating systems (ISRS).
 The management of safety and environmental performance is measured in the same
way as are other key business indicators. BOC has improved efficiency with more
recycling, better energy conservation and less raw materials waste from the
Groups production and distribution processes.
 Safety BOC manufactures and distributes some products that are potentially hazardous,
being stored at very low temperature or under pressure, with some exhibiting
toxic or flammable properties. BOC is committed to practising and communicating
safe operations around the world as part of its product stewardship process. It
is as important for the Group to transmit safe working methodologies to
customers and suppliers as it is to have clear, entrenched and measurable
performance standards practised by all BOC plants, depots and distributors.
 Each business unit has a safety function, reporting to the business units
executive and to the Group SHEQ function through a peer group network. This
ensures that global best practice and the functional requirements of the
business are always at the forefront of management thinking.
 Controlling process-related risks is of the utmost importance. Any incidents
that do occur are thoroughly investigated and the lessons learned are applied
throughout the organisation to minimise the likelihood of recurrence. Safety
lessons are shared throughout the gases industry and BOC continues to
participate fully in the development and application of industry-wide codes.
 In 2001, BOC instigated a five-year plan to halve the Groups accident rate.
Five-year strategies were developed across all business units to enable safety
objectives to be achieved. The main items underpinning the strategy are
implementing, communicating, measuring and reporting best practice as well as
standardising worldwide competency levels, training and increasing focus on
safety behaviours.
 The competence and training of BOC employees is continually improving as the
Groups IMSS package is rolled out globally. BOCs senior executives have
committed to achieve agreed safety training competencies. This process is being
cascaded throughout the organisation.
 As part of its five-year strategy, BOC has started to implement a process
focusing on safety behaviours to improve and sustain performance across the
organisation. This process combines visible leadership, a binding safety
policy, an integrated organisation for managing safety across the Group, a
system of behavioural safety assessments and the use of positive leading
indicators such as training and the clearance of corrective action to ensure
the achievement of safety goals.
 This year, the Group safety function changed the basis of its incident
reporting. Incident reports have been extended to include recent mergers and
acquisitions and all joint ventures. The graph figures detailing BOCs safety
performance for 2003 are on this basis but it is not possible to rebase the
preceding years.
 It is with great sadness that the Group reported four employee fatalities this
year. This is a matter of intense regret. None of the fatalities was process
related. One employee died in Thailand after a roadside incident. One died in
Chile when he fell from a warehouse roof. One died in South Africa when his
tanker hit some debris on the road. One died in the UK in a road traffic
accident.
 A great deal of effort has been made to improve safety performance with
increased scrutiny and implementation of rigorous procedures, including new
Group and business unit safety processes. As in every year, BOC takes steps to
prevent and address the underlying causes of serious incidents as well as to
ensure employee security in the workplace. The Group uses four principal
indicators to provide a consistent measure of its workplace and vehicle safety
performance. These are:
 
    
    Lost workday case rate (LWCR) per 200,000 hours. This includes all accidents
resulting in the loss of one complete day of work, according to best
international practice. Many companies only report cases resulting in three or
more lost workdays as deemed reportable under RIDDOR regulations. 
    
    Total recordable case rate (TRCR) per 200,000 hours. This includes all LWCRs
and medical treatment cases. 
    
    Passenger car avoidable accident rate (PCAAR) per million miles. 
    
    Truck avoidable accident rate (TAAR) per million miles.




25   The BOC Group plcAnnual report and accounts 2003





---



##### 



Safety, health and the environment continued



(BAR CHARTS)




Occupational health and hygiene BOC requires its businesses around the world to manage employee health
activities in accordance with local laws and regulations and according to BOCs
own codes of practice. The Groups occupational health and hygiene (OHH)
function continues to provide a global service, striving to eradicate the
organisations work-related health hazards. It also ensures that those who
travel internationally on Group business are properly protected against disease
and that the medical requirements of visas and work permits are met.
 Access to global guidance on OHH, together with manuals, training videos and
safety data sheets, is available through local and global SHEQ functions and on
a dedicated intranet site.
 The OHH function carries out reviews in all business units and regions to
provide information and guidance on the main health issues that exist in BOC
operations globally and how best these potential hazards may be minimised or
eliminated. This is achieved by providing best practice standards and guidance
to local SHEQ personnel who then implement policies as necessary. Adverse
employee health effects are monitored through occupational health checks around
the world. Some checks are managed internally and others are out-sourced to
professional occupational health providers. Voluntary well-person and routine
yearly medical examinations are conducted to monitor the health of employees.
 The main potential health issues that exist in BOC operations differ across
business units. In the gases businesses, the main potential health issues are:
exposure to noise from gas compression activities and from cylinder handling;
potential exposure to some gases filled into cylinders; potential exposure to
chemicals used in metal cleaning; vehicle maintenance and painting operations;
and ergonomic and manual handling risks, particularly associated with
cylinders.
 OHH programmes have been developed to deal with these issues and are applied
across the Group through local initiatives and the SHEQ integrated management
system. BOC programmes include: an education programme to raise awareness of the
effects of noise; a manual handling training video; a legionella control
programme for water systems such as cooling towers on sites; a programme for
the assessment of display screen equipment to minimise ergonomic health risks; a
chemical assessment and management programme and specific work to reduce the
use of chemical solvents.
 The environment Although classified in the chemicals sector, BOC does not have the same direct
or significant environmental issues to deal with as traditional chemicals
manufacturers. The nature of BOCs activities and the type of chemicals handled
are quite different. However, in line with other industries, BOC is committed
to the conscientious stewardship of its products and services.
 Management of environmental issues that are relevant to the Groups businesses
are overseen by the SHEQ department operating at a global and local business
unit level. Group environmental strategies continue to help to improve business
performance in sites across the world. Many BOC business units have programmes
to achieve ISO 14001 environmental certification.
 In 2003, KPMG (a professional services firm) reviewed BOCs integrated
management system and standards (IMSS) to assess whether IMSS environmental
documentation conforms to the requirements of ISO 14001 for environmental
management systems. KPMG concluded that IMSS documentation complies in all
material respects with the standard. As a result, KPMG provided BOC with an
assurance statement which can be seen on www.boc.com Assurance by an
independent auditor is an important indicator, showing that BOC takes
environmental management seriously and has robust sustainability systems. If a
BOC business can demonstrate that it has implemented the requirements of IMSS
it can also show that it adheres to ISO 14001 without having to undergo ISO
certification for all sites.
 The SHEQ department continues to pursue a programme to integrate environmental
goals into the organisations management performance contracts and develop
global best operating practices. BOCs global environment working group this
year developed an improved annual environmental survey. This new web-based
platform will be used to develop action plans and report performance on-line.
Web-based management systems will contribute to significant efficiency
enhancements in the future. For example, introduction of a new control system
that enables a nitrogen liquefaction unit to be started remotely at BOCs
Midland site in the US will lead to energy savings of some US$1 million per
annum.
 BOC has operated a comprehensive environmental survey programme of its sites
for more than ten years. The annual survey highlights issues relevant to the
business and assesses how well they are being managed. Objectives for improved
performance remain an integral part of business performance contracts.
 The transport of product by road has a potentially significant environmental
impact. BOC operates its vehicle fleet to the highest environmental standards.
Gist, the Groups distribution and supply chain business, won the environment
award at the 2003 Motor Transport Awards in London. Environmentally focused
initiatives ranged from development of innovative vehicle design and use, such
as noise minimisation equipment and new exhaust treatments, pallet recycling,
waste reduction and various site-specific initiatives. For example, Gist and
Marks & Spencer are co-operating to recycle 3.5 million food distribution
trays.
 The use of energy in BOC operations is an area of constant focus. Over the last
three years, Process Gas Solutions operations have focused on plant and
distribution efficiency improvements, resulting in more than one thousand
projects that will deliver significant annual savings.
 BOCs commitment to environmental stewardship and partnership is shown in its
approach to new plants, facilities and services. For example, BOC and Hudson
Technologies signed a global alliance to promote technology that cleans and
reclaims refrigerants. The technology will improve plant efficiency leading to
greater energy savings for customers and environmental benefits from reduced
carbon dioxide emissions.
 Selecting the right supplier for BOC is fundamental to conducting business
effectively and ethically. Throughout its businesses, BOC has adopted
the SESPATM process for supplier
evaluation, selection and performance appraisal, together with a new ethical
purchasing policy implemented by the supply management function.




26   The BOC Group plcAnnual report and accounts 2003





---



##### 





(BAR & PIE CHARTS)




Environmental,
safety and social considerations are key SESPATM and
supply management standards. BOC also uses a best practice guide to
define supplier safety, health and environmental requirements. This
looks for positive environmental attributes such as ongoing
environmental performance, awards, legal action and proactivity.
 BOC aims to comply fully with all material environmental laws
and regulations. BOC received one administrative fine in the US of
US$1,500 in 2003. This related to the late submission of paperwork
to a local regulatory authority. No prosecutions for breach of any
environmental regulation were incurred and BOC was compliant with
external standards, but not all businesses complied fully with all
internal codes or practices. Where this is the case, it has
responded with measures to abate and prevent future occurances as
part of the Groups programme of continuous improvement.
 The US Environmental Protection Agency has named The BOC Group
Inc as a potentially responsible party for clean-up costs at a number
of hazardous waste sites. Although liability for the remediation of
such sites may be legally imposed without regard to the quantity of
waste contributed, based upon the information available management
believes that it is unlikely that any costs incurred will have a
significant impact on the financial position of the Group.
 BOC continues to contribute technology and processes to meet the
environmental needs of customers who are striving to improve their
own environmental performance. The increase in the demands set by
environmental legislation also presents BOC with a number of
potential business opportunities. BOCs eco-efficiency technologies
include the Vitox oxygen injection system, which improves water
quality and can, for instance, help fish farmers improve production
rates. BOC has also patented systems to recover carbon dioxide from
other companies productive processes and put it to constructive
use. For example, reclaimed carbon dioxide is infused in
drip-irrigation water or used to enrich atmospheres to enhance crop
growth. The glass and metals industries use BOCs oxy-fuel burners to
increase the efficiency of combustion, using less fuel and reducing
polluting emissions.
 BOC installed some of its new BOC low emission swirl (LES)
oxy-fuel burner systems at a Johnson Matthey precious metals
refinery in the UK this year. The oxy-fuel burners improve emission
performance and operational efficiency.
 BOC and Maxon Corporation jointly developed a new combustion
technology, known as the oxy-therm low emission flat flame (LEFF)
burner, that helps glass manufacturers to reduce energy costs and
increase yield.
 BOC put itself at the forefront of the UK double glazing
industrys drive to combat global warming with a scheme to reduce
heat loss through windows and cut carbon dioxide emissions. BOC
also launched safety workshops for UK refrigerant gas users.
 The Group continues to develop technology that is more energy
efficient, which helps to support customers and partners meet their
carbon dioxide emission reduction commitments under the Kyoto
protocol on climate change. BOCs Hartford air separation plant in
Illinois received the Compressed Gas Associations 2003 award for
environmental excellence. This was the result of the plants efforts
to reduce power consumption by 320 kilowatts per hour while avoiding
the use of ozone depleting substances.
 The Group continues to work actively with its stakeholders 
customers, suppliers, employees, local communities and governments  to
ensure environmental issues are approached responsibly and supported
actively. BOC sponsored the third BOC environment award at the UKs
Institute of Chemical Engineers annual award ceremony in July. The
award was given to Dow Corning for an environmental management system
that saved the company £8 million in the last two years. BOC was also
awarded a special Green Ribbon award in recognition of its
outstanding contribution to sustaining, protecting and enhancing the
environment in New Zealand.
 Underlining the Groups adherence to sound,internationally
attested environmental practices, BOC is a signatory to the UNs
Global Compact in support of human rights, labour and environmental
principles. The continuing importance of global compliance, corporate
social responsibility and sustainability amongst the Groups wider
stakeholders means that BOC has continued to review and adapt its
business practices appropriately by strengthening policies, training
and implementation programmes and processes. This has been further
enhanced by including environmental concerns in the Groups Code of
Conduct. In the Americas, BOC supports the chemical industrys
Responsible Care programme. BOCs Colombian business reached its third
year of active support for cleaner production with 22 other companies
in the north Aburra valley. BOC continues to participate in the
Business in the Environment survey for the UK. This year the Group
improved its overall survey score achieving 88 per cent against 76 per cent in 2002, taking BOC into the top 25 per cent of FTSE
companies participating in its survey.
 BOC Edwards also became a signatory to Global Care, a
semiconductor industry initiative designed to establish a framework
where members can strengthen their commitments to the
environment, health and safety.
 The BOC Foundation for the Environment The UK-based BOC Foundation for the Environment, which was established
with an initial injection of £1 million in 1990, has so far supported
nearly 120 projects. This year the company contributed £180,000 to
Foundation projects. Since the Foundations inception BOC has donated
£3.7 million. The Foundation concentrates its funds on projects that
improve air and water quality. Air is important to BOC because it is
the source of BOCs raw materials: oxygen, nitrogen and argon. Water is
both an essential part of many of BOCs production processes and a
growing market opportunity.
 The Foundation wants to make a practical contribution. It
encourages those with good scientific ideas who need financial help
to turn academic or early results into workable environmental
solutions. It expects the projects it supports to make a measurable
difference within a few years and to benefit the community as a
whole, not just the recipient of the grant. The Foundation has worked
in partnership with government departments, local authorities,
environmental charities and commercial organisations.




27   The BOC Group plcAnnual report and accounts 2003





---



##### 



Research, development and information technology







Research and development Research and development (R&D) is conducted around the world with key sites
located in north America, the UK and Japan. The Group Technical Center (GTC) in
Murray Hill, New Jersey, is a primary R&D location for market applications for
Process Gas Solutions and for electronic materials for BOC Edwards.
 Process Gas Solutions delivers technology through internal development, the
formation of alliances and partnerships with universities and customers,
licensing or acquisition of technologies from third parties and by
participating in technology-based ventures. BOC now has access through Linde
BOC Process Plants to much broader technology and product offerings, especially
in hydrogen and syngas. The development of ceramic-based technologies for the
production of hydrogen and syngas continues.
 BOC has acquired proven technology from Eco-Snow for precision cleaning using
carbon dioxide (CO2) snow. It also recently acquired ultra violet/ozone-based technology from RGF
Environmental to provide additional food safety solutions by preventing the
growth of listeria and extending product shelf life.
 BOC joined Sumitomo Electric Industries and Intermagnetics General Corporation
to demonstrate high temperature superconducting cable technology in Albany, New
York with substantial government and state funding. The European Union is
funding further development, with other companies and universities, into
ceramic-based oxygen separation to enhance CO2 sequestration.
 BOCs investments in hydrogen energy include vehicle fuelling demonstrations,
very high pressure gaseous hydrogen fuelling stations and participation in
Chrysalix, a hydrogen energy venture capital fund.
 Industrial and Special Products has developed the LASOX laser cutting
technology jointly with partners. Through internal developments and
participation in ventures it has invested in new opportunities in the medical
sector. It has also used advanced techniques to drive operational and
distribution efficiencies.
 BOC Edwards uses joint development agreements with original equipment
manufacturers and end users, along with guidance from the International
Technology Roadmap for Semiconductors (SIA), to prioritise its investments in
semiconductor technology. Programmes draw on a combination of BOC technologies
in gases, vacuum, purification, delivery and systemisation. An example is
supercritical CO2 technology for cleaning wafers with small features.
 A new reconfigurable control system for chemical dispense equipment
dramatically reduces set-up time, and allows for easy and flexible process
changes. Enhancements have also been made to slurry delivery, including point
of use delivery.
 An important development area is high capacity abatement technology for flat
panel applications. The Zenith line of integrated pumping and abatement systems
are smaller and give reduced cost of ownership for customers in both silicon
and compound semiconductor facilities.
 BOC Edwards continues to focus on products for sub-90 nanometre integrated
circuit fabrication. Pumping systems designed for 300mm fabs form the basis for
a range of solutions for flat panel manufacturers, including the latest
generation 7 factories in Asia and Japan.
 BOC Edwards advanced systems for copper technology include flexible, high
accuracy blending technology for chemicals and chemical mechanical
planarization (CMP) slurries, along with novel technology to address the waste
generated by these advanced processes. Load cell technology increases blend
accuracy, improves control over slurry distribution to the CMP tools and
enhances equipment stability.
 Patented metal removal technologies are being applied to the treatment of
electro-less plating bath waste streams. Similarly, copper CMP slurry waste
streams can now be abated using a process which removes copper from a stream of
suspended solids without removing the solids.
 Development programmes continue on materials designed to meet increasing purity
requirements for the storage and delivery of gases and liquids. In situ sensors
have been introduced for enhancing manufacturing productivity in semiconductor
fabs.
 Continuing work with a leading manufacturer of lithography tools aims to solve
vacuum problems for extreme ultraviolet lithography tools, projected to be
needed for sub-45 nanometre integrated circuit technology. Development
continues on ultra-pure gas systems for 157 nanometre lithography tools.
 Pumps have been developed with improved hydrogen performance for key
applications in the dielectric deposition market. Development continues on low
noise and vibration pumps, and to improve motors and drive mechanisms. For the
scientific sector, the range of pumps has been expanded to bring dry pumping
technology to the life sciences, primarily users of mass spectrometry.
 Kachinas technology has developed from high purity cleaning of semiconductor
chamber parts to the broader requirement of providing technology-based
solutions that reduce the cost of ownership of the customers operations.
 BOC Edwards Pharmaceutical Systems continues to focus on developments in
automated handling systems for aseptic packaging, driven by the industrys
increasing requirement to separate potent drugs from human operators; and
in-line product inspection, which is now receiving the support of the US Food
and Drug Administrations Process Analytical Technology initiative. Its most
recent inspection product uses nuclear magnetic resonance to weigh the contents
of vials in high-speed motion down a packaging line.
 Total R&D expenditure in 2003 was £39.9 million, compared with £47.0 million in
2002 and £59.7 million in 2001.
 Information technology The number of countries running the SAP business computing system grew again
this year when the system was further extended to the Process Gas Solutions and
Industrial and Special Products business units in the US, Canada and Poland.
Deployment throughout BOC Edwards worldwide also began. The global data centre,
which provides a central facility for managing all SAP transactions from around
the world, continued to function well. A fully-equipped back-up centre was
established capable of instantaneous operation in the event of a failure.
 The Webcentric project in the south Pacific demonstrated the feasibility of
running all office-based software on remote computers, accessed by users as and
when needed from simple terminals on their desktops. A number of new
technologies were also deployed to support improved business processes and to
offer competitive advantage in some key markets.




28   The BOC Group plcAnnual report and accounts 2003





---



##### 



Risk factors







This document contains certain forward-looking statements which involve risk
and uncertainty as they relate to future events and circumstances. The
following risk factors, as well as those discussed on pages 47 and 48 of the
financial review, could cause actual results to differ materially from those
expressed or implied by these forward-looking statements:
 BOC is affected by the semiconductor business cycle Manufacturers of semiconductors represent BOC Edwards major customer base, and
BOC Edwards profitability is directly linked to the demand of these
manufacturers for vacuum equipment, services and industrial gases. The
semiconductor industry has experienced significant growth over the long term,
but is cyclical in nature. Owing to reduced demand from end users of technology
products and excess supply of semiconductors, the semiconductor industry
continues to experience a severe downturn, which negatively impacts the demand
for BOC Edwards products and services. A delay in the recovery of the
semiconductor industry, or a further downturn in that industry, could continue
to adversely impact BOCs financial results.
 Acquisitions may not be successful in achieving intended benefits and synergies BOC has completed a number of acquisitions in recent years as part of its
growth strategy. While BOC will have identified expected synergies, cost
savings and growth opportunities prior to acquisition and integration of
acquired entities, these benefits may not be achieved owing to, among other
things:
 
    
    delays or difficulties in completing the integration of acquired companies or assets; 
    
    higher than expected costs or a need to allocate resources to manage unexpected operating difficulties; 
    
    diversion of the attention and resources of BOCs management; 
    
    inability to retain key employees in acquired companies; 
    
    inability to retain key customers; and 
    
    assumption of liabilities unrecognised in due diligence. The growth of BOCs gases business will depend on the ability to win and
execute large projects profitably BOC, through its Process Gas Solutions line of business, has a strategy for
growth that requires significant investment each year to serve key customers in
different geographies. Failure to execute projects successfully for these
customers will impact PGSs ability to win new projects from these customers,
and therefore may impact BOCs future financial results. The specific risks
associated with major projects include:
 
    
    failure to complete the project on time owing to unforeseen construction
problems (which may require BOC to pay penalties under the terms of the
customer contract); 
    
    failure of the plant to deliver the contracted volumes and quantities of
product required by the customer because of design errors or errors in
manufacturing or construction (which may require BOC to pay penalties under the
terms of the customer contract); and 
    
    inability to operate the plant at costs assumed in BOCs financial evaluation
of the project. The safety of BOCs operations is critical to success Industrial gases are hazardous substances and BOC recognises that managing
safety in operations, transportation and products is critical to achieve growth
and financial results. Failure to maintain high levels of safety can result in
a number of negative outcomes, including:
 
    
    exclusion from certain market sectors deemed important for future development
of the business (such as medical gases); 
    
    damage to reputation; 
    
    fines and penalties for breaches of safety laws; and 
    
    liability payments and costs to employees or third parties arising from injury or damage. BOC operates in over 50 different countries and is therefore exposed to
economic, political and business risks associated with international operations BOCs overall success as a business with global operations depends, in part,
upon its ability to succeed in differing economic, political and business
conditions. BOC encounters different legal and regulatory requirements in
numerous jurisdictions. These include taxation laws, environmental regulations,
regulations concerning operational standards and competition laws. BOC is also
confronted by political risks such as the expropriation of assets and the
inability to export currency. The business risks and challenges faced in each
geography include the need to manage credit risks of local customers,
appointing and retaining key staff, general economic conditions locally and
currency fluctuation. Recognition of changing market conditions in local
geographies is critical to BOCs long-term success. In addition, BOCs
operations are exposed to varying degrees of natural catastrophe risk, such as
earthquake and flood, as well as security risk, in the different countries in
which BOC operates.
 BOC relies on development of, or access to, technology to support business
growth BOCs success is dependent in part on its continued investment in technology to
develop new products and services across all businesses, new applications for
existing products or to design effective means for producing industrial gases.
Failure to access or develop technology or anticipate, manage or adopt
technological changes in operations or product applications on a timely basis
could have a material impact on BOCs future results. For example, the rapid
development of technology in the semiconductor sector requires BOC Edwards to
be aware of changes in customer technology requirements and to introduce new
products to meet those requirements in a timely manner. Failure to do so could
result in reduced market share and profitability.




29   The BOC Group plcAnnual report and accounts 2003





---



##### 



Risk factors continued







BOC operates in a highly competitive environment The industrial gases market is very competitive, with several large competitors
and a significant number of smaller local competitors in different territories.
Although the current trend in the industry is to seek price increases for
industrial gases, the industry has experienced falling prices in some previous
years. There is no guarantee that the current trend will continue and there is
a risk that competitors will seek to maintain or increase market shares by
reducing prices. These price reductions would result in lower revenues, profits
and cash flows.
 Recognising and anticipating changes in the manufacturing economy is key to
BOCs success BOCs industrial gas businesses serve a wide range of manufacturing customers
in major geographies such as the US, UK, Japan and Australia. This is
particularly true of the Industrial and Special Products line of business which
provides products and services to customers involved in the welding and cutting
of metal, the largest source of revenue for this division. As customers in
these traditional manufacturing-based economies seek to move their
manufacturing operations to lower cost territories in, for example, Asia and
Latin America, the risk arises that BOCs operations in the major geographies
will have lower growth opportunities. Failure to recognise these trends and
manage the consequences, through the development of alternative markets and/or
meeting demand in higher growth territories, could have a negative impact on
future Group results.
 BOCs success depends to a significant extent on its key personnel and
employees BOCs performance depends on the skills and efforts of its employees and
management team across all of its businesses. BOC recognises that failure to
attract new talent and retain existing expertise, knowledge and skills in
operations, products and infrastructure areas such as information technology
could have a negative impact on revenues and profits. In addition, the success
of BOCs acquisitions may depend, in part, on BOCs ability to retain
management personnel of acquired companies.
 Litigation may have an adverse impact on financial results The global nature of BOCs business exposes it to the potential for litigation
from third parties. From time to time BOC is involved in lawsuits in the US, as
well as other geographies, resulting from current and past operations or
products. The outcome of these lawsuits may result in damages and awards which
could have a material impact on BOCs profitability, its business operations or
financial condition. Details of current litigation where claims for damages in
large amounts have been asserted are provided in the financial review on pages
49 and 50.
 Increased energy costs could reduce profitability The production of industrial gases requires significant amounts of electrical
energy. Energy costs are a key component of the cost of manufacturing
industrial gases, and increases in these costs can impact profitability if they
cannot be passed on to customers. Accurately predicting trends in energy costs
is difficult to achieve as energy costs are to a large extent subject to
factors beyond the companys control  for example, political conditions in
oil producing regions. BOC also operates large fleets of commercial vehicles in
certain major geographies. An increase in energy costs associated with the use
of these commercial vehicles may negatively impact profit levels.
 Ineffective implementation of computer software systems The introduction of software to improve efficiency and effectiveness of various
business processes is an important contributor to BOCs growth strategy.
Failure to design, select appropriate suppliers or implement such systems
effectively could result in unplanned costs or reduced levels of customer
satisfaction which could adversely affect Group results.




30   The BOC Group plcAnnual report and accounts 2003





---



##### 



Operating review







Introduction The Groups results are prepared under UK Generally Accepted Accounting
Principles (GAAP) and comply with UK Companies Act requirements. While the UK
GAAP reporting basis provides the core information for users of this report and
accounts to understand the financial performance of the Group, management
believes that users will be assisted in understanding the performance relative
to previous periods by presenting the results in an alternative manner. This
presentation isolates the impact of currency movements from year to year and
eliminates the impact of exceptional or non-recurring items. It is also the
basis used by management to review performance of the business and is a
component of variable compensation plans. The elements of this alternative
presentation are described in more detail below.
 Impact of currency movements The Group has operations in some 50 countries around the world and the majority
of its profit is generated outside the UK. Results of overseas operations are
translated at the average rates of exchange against sterling for the year.
Changes in such rates from year to year can significantly affect the Groups
results when these are presented in pounds sterling. In some cases, such
changes may make it difficult to understand underlying business performance
trends without providing additional information. For example, the average value
of the South African rand to pounds sterling changed by 15 per cent in 2003
compared with 2002. When looking at the financial performance of the Afrox
hospitals business segment in 2003, it is therefore important to highlight this
currency impact to users of the information.
 Consequently, management has for many years monitored business performance on a
constant currency basis. This basis eliminates the impact of changes in the
rates of exchange used to translate the results of overseas businesses into
sterling by retranslating the results of the comparative year at the rates of
exchange used in the current year. This is the basis for all internal
management reporting throughout the year.
 In this operating review, the comparison of financial performance between years
may in places be referred to as on this constant currency basis. Comments on
all segmental performance are on a constant currency basis.
 The impact of changes in the rates of exchange used to translate the results of
overseas businesses into sterling is shown in the table below.
 Impact of
    
    2001 results
    
    
    
    
    
    Impact of
    
    2002 results2001 results
    
    movements
    
    (at 2002 rates
    
    2002 results
    
    movements
    
    (at 2003 rates(as reported)
    
    in currency
    
    of exchange)
    
    (as reported)
    
    in currency
    
    of exchange)£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionTurnover (including share of
joint ventures and associates)Process Gas Solutions
    
    
    1,193.0
    
    
    
    (35.4
    )
    
    
    1,157.6
    
    
    
    1,200.6
    
    
    
    (50.5
    )
    
    
    1,150.1Industrial and Special Products
    
    
    1,573.9
    
    
    
    (75.4
    )
    
    
    1,498.5
    
    
    
    1,605.3
    
    
    
    (5.0
    )
    
    
    1,600.3BOC Edwards
    
    
    873.1
    
    
    
    (26.7
    )
    
    
    846.4
    
    
    
    688.2
    
    
    
    (30.3
    )
    
    
    657.9Afrox hospitals
    
    
    287.8
    
    
    
    (76.8
    )
    
    
    211.0
    
    
    
    259.0
    
    
    
    46.9
    
    
    
    305.9Gist
    
    
    231.4
    
    
    
    0.2
    
    
    
    231.6
    
    
    
    264.8
    
    
    
    (0.1
    )
    
    
    264.7Total
    
    
    4,159.2
    
    
    
    (214.1
    )
    
    
    3,945.1
    
    
    
    4,017.9
    
    
    
    (39.0
    )
    
    
    3,978.9Operating profitProcess Gas Solutions
    
    
    103.7
    
    
    
    (3.3
    )
    
    
    100.4
    
    
    
    161.2
    
    
    
    (6.6
    )
    
    
    154.6Industrial and Special Products
    
    
    227.0
    
    
    
    (11.6
    )
    
    
    215.4
    
    
    
    229.3
    
    
    
    2.1
    
    
    
    231.4BOC Edwards
    
    
    62.7
    
    
    
    (1.7
    )
    
    
    61.0
    
    
    
    (1.4
    )
    
    
    (0.8
    )
    
    
    (2.2
    )Afrox hospitals
    
    
    32.3
    
    
    
    (8.6
    )
    
    
    23.7
    
    
    
    29.7
    
    
    
    5.4
    
    
    
    35.1Gist
    
    
    20.6
    
    
    
    
    
    
    
    20.6
    
    
    
    25.5
    
    
    
    0.3
    
    
    
    25.8Corporate
    
    
    (24.0
    )
    
    
    0.1
    
    
    
    (23.9
    )
    
    
    (18.7
    )
    
    
    0.4
    
    
    
    (18.3
    )Total
    
    
    422.3
    
    
    
    (25.1
    )
    
    
    397.2
    
    
    
    425.6
    
    
    
    0.8
    
    
    
    426.4Adjusted operating profitProcess Gas Solutions
    
    
    156.5
    
    
    
    (4.4
    )
    
    
    152.1
    
    
    
    185.2
    
    
    
    (7.1
    )
    
    
    178.1Industrial and Special Products
    
    
    248.8
    
    
    
    (12.5
    )
    
    
    236.3
    
    
    
    248.0
    
    
    
    2.0
    
    
    
    250.0BOC Edwards
    
    
    78.8
    
    
    
    (2.2
    )
    
    
    76.6
    
    
    
    26.1
    
    
    
    (1.0
    )
    
    
    25.1Afrox hospitals
    
    
    32.3
    
    
    
    (8.6
    )
    
    
    23.7
    
    
    
    29.7
    
    
    
    5.4
    
    
    
    35.1Gist
    
    
    21.3
    
    
    
    
    
    
    
    21.3
    
    
    
    25.5
    
    
    
    0.3
    
    
    
    25.8Corporate
    
    
    (7.1
    )
    
    
    0.1
    
    
    
    (7.0
    )
    
    
    (14.4
    )
    
    
    0.4
    
    
    
    (14.0
    )Total
    
    
    530.6
    
    
    
    (27.6
    )
    
    
    503.0
    
    
    
    500.1
    
    
    
    
    
    
    
    500.1
 Exceptional or non-recurring items Management believes that to present the results of the Group in the most
meaningful way, items of an exceptional nature should be separately identified
and disclosed. This enables users of the information to have a better
understanding of underlying business performance. Examples of such items in
2003 include a litigation settlement expense, the costs of the business
initiative programme announced in August 2001, other restructuring programmes
and charges relating to the integration of OSK (BOCs gases business in Japan)
and part of the Air Liquide business in Japan to form Japan Air Gases.
Additionally in 2002 there were charges in connection with the formation of the
Linde BOC Process Plants business and a write-down in the value of the net
assets of OSK ahead of the merger with part of Air Liquide Japan.
 Exceptional items include those items classified as both operating and
non-operating under UK GAAP.




31   The BOC Group plcAnnual report and accounts 2003





---



##### 



Operating review continued







The review of results excluding exceptional items is part of the normal
internal management reporting process. The growth in operating profit excluding
exceptional items is also one of the measures used in the variable element of
the senior management compensation scheme.
 Further information regarding the business initiative programme, which is now
largely complete, as well as the other exceptional items is given in the
financial review on page 46. An analysis of all operating and non-operating
exceptional items is given in note 2 b) to the financial statements on page 83.
 In this review, the adjustments to eliminate exceptional items have been made
to operating profit (both Group and by segment), profit before tax and earnings
per share. Exceptional items are commented on in the Group results section as
well as in the individual business segments to which they relate. A
reconciliation of these adjusted items to the equivalent UK GAAP measure is
shown in the profit and loss account on page 72. When any results or measures
used in this review have been adjusted to exclude exceptional items, they are
referred to as adjusted.
 Within the individual business segments of the operating review, operating
exceptional items are commented on separately. Comments on other aspects of
financial trends and performance are based on adjusted operating profit. This
provides more meaningful comment on underlying business performance.
 A reconciliation of adjusted operating profit to operating profit is given in
the table below.
 2003
    
    2002
    
    2001Adjusted
    
    Operating
    
    
    
    
    
    Adjusted
    
    Operating
    
    
    
    
    
    Adjusted
    
    Operatingoperating
    
    exceptional
    
    Operating
    
    operating
    
    exceptional
    
    Operating
    
    operating
    
    exceptional
    
    Operatingprofit
    
    items
    
    profit
    
    profit
    
    items
    
    profit
    
    profit
    
    items
    
    profit£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionProcess Gas Solutions
    
    
    184.0
    
    
    
    (6.9
    )
    
    
    177.1
    
    
    
    185.2
    
    
    
    (24.0
    )
    
    
    161.2
    
    
    
    156.5
    
    
    
    (52.8
    )
    
    
    103.7Industrial and
Special Products
    
    
    242.7
    
    
    
    (4.5
    )
    
    
    238.2
    
    
    
    248.0
    
    
    
    (18.7
    )
    
    
    229.3
    
    
    
    248.8
    
    
    
    (21.8
    )
    
    
    227.0BOC Edwards
    
    
    18.5
    
    
    
    (10.6
    )
    
    
    7.9
    
    
    
    26.1
    
    
    
    (27.5
    )
    
    
    (1.4
    )
    
    
    78.8
    
    
    
    (16.1
    )
    
    
    62.7Afrox hospitals
    
    
    46.1
    
    
    
    
    
    
    
    46.1
    
    
    
    29.7
    
    
    
    
    
    
    
    29.7
    
    
    
    32.3
    
    
    
    
    
    
    
    32.3Gist
    
    
    29.2
    
    
    
    
    
    
    
    29.2
    
    
    
    25.5
    
    
    
    
    
    
    
    25.5
    
    
    
    21.3
    
    
    
    (0.7
    )
    
    
    20.6Corporate
    
    
    (14.9
    )
    
    
    (45.0
    )
    
    
    (59.9
    )
    
    
    (14.4
    )
    
    
    (4.3
    )
    
    
    (18.7
    )
    
    
    (7.1
    )
    
    
    (16.9
    )
    
    
    (24.0
    )Total Group
    
    
    505.6
    
    
    
    (67.0
    )
    
    
    438.6
    
    
    
    500.1
    
    
    
    (74.5
    )
    
    
    425.6
    
    
    
    530.6
    
    
    
    (108.3
    )
    
    
    422.3
 Other non GAAP measures This review also presents return on capital employed (ROCE) and adjusted return
on capital employed. Adjusted return on capital employed removes exceptional
items from the measure of operating profit used in the calculation. Adjusted
return on capital employed is used by management for reasons similar to those
described above.
 A reconciliation of these two measures is shown below.
 2003
    
    2002
    
    2001Average
    
    
    
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    
    
    
    AverageOperating
    
    capital
    
    
    
    
    
    Operating
    
    capital
    
    
    
    
    
    Operating
    
    capitalprofit
    
    employed
    
    ROCE
    
    profit
    
    employed
    
    ROCE
    
    profit
    
    employed
    
    ROCE£ million
    
    £ million
    
    %
    
    £ million
    
    £ million
    
    %
    
    £ million
    
    £ million
    
    %Adjusted ROCE
    
    
    505.6
    
    
    
    4,053.4
    
    
    
    12.5
    
    
    
    500.1
    
    
    
    4,053.8
    
    
    
    12.3
    
    
    
    530.6
    
    
    
    4,108.2
    
    
    
    12.9Operating
exceptional items
    
    
    (67.0
    )
    
    
    
    
    
    
    
    
    
    
    (74.5
    )
    
    
    
    
    
    
    
    
    
    
    (108.3
    )
    
    
    ROCE
    
    
    438.6
    
    
    
    4,053.4
    
    
    
    10.8
    
    
    
    425.6
    
    
    
    4,053.8
    
    
    
    10.5
    
    
    
    422.3
    
    
    
    4,108.2
    
    
    
    10.3
 1.
    
    ROCE is operating profit as a percentage of the average capital employed excluding net pension liabilities.  The Group commentary in this review also comments on free cash flow. Free cash
flow is a measure often referred to by BOC management and other users of
financial information to highlight the cash flow available from underlying
ongoing business operations before acquisition and disposal activity. Whether
or not this remains positive over time is an indicator that dividends to
shareholders are being paid out of cash generated by existing Group businesses.
As such it is a useful additional measure of financial performance.
 A reconciliation of this measure to the nearest equivalent UK GAAP measure, net
cash flow, is shown below.
 2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ millionFree cash flow
    
    
    141.8
    
    
    
    166.5
    
    
    
    192.3Exceptional cash items
    
    
    (28.3
    )
    
    
    (67.3
    )
    
    
    (51.8
    )Acquisitions and disposals
    
    
    (118.3
    )
    
    
    (215.5
    )
    
    
    (133.6
    )Other items within capital expenditure and financial investment:Purchases of intangible fixed assets
    
    
    (1.2
    )
    
    
    (0.1
    )
    
    
    (0.3
    )Net sales/(purchases) of current asset investments
    
    
    16.6
    
    
    
    4.3
    
    
    
    (6.5
    )Purchases of trade and other investments
    
    
    (10.8
    )
    
    
    (19.7
    )
    
    
    (10.2
    )Sales of trade and other investments
    
    
    6.5
    
    
    
    11.5
    
    
    
    7.8Net cash inflow/(outflow) before use of liquid resources and financing
    
    
    6.3
    
    
    
    (120.3
    )
    
    
    (2.3
    )




32   The BOC Group plcAnnual report and accounts 2003





---



##### 



Operating review (comparing 2003 with 2002)



(CHARTS)




Group Turnover including the Group share of joint ventures and associates was
£4,323.2 million in 2003, up eight per cent compared with £4,017.9 million in
2002. Operating profit was £438.6 million, up three per cent compared with
£425.6 million in 2002. After charging operating and non-operating exceptional
items totalling £67.0 million and net interest and other financing items of
£86.7 million, profit before tax was £351.9 million, up five per cent compared
with £335.3 million in 2002. Earnings per share were 44.5p, up seven per cent
compared with 41.4p in 2002. Excluding the exceptional items, adjusted
operating profit for the year was £505.6 million, adjusted profit before tax
was £418.9 million and adjusted earnings per share were 52.9p.
 Comparisons with 2002 are affected by exchange rate movements. For the
currencies that principally affect the Groups results, movements in the
Australian dollar and the South African rand were favourable and movements in
the US dollar and Japanese yen were adverse. If the results of a year ago had
been translated at the rates applied to this year, turnover would have been
reduced by £39.0 million. There would have been an increase in operating profit
of £0.8 million and adjusted operating profit would have been unchanged.
Adjusted profit before tax would have been £5.3 million higher and adjusted
earnings per share would have been increased by 0.3p.
 The table set out below summarises results reported both under UK GAAP and as
adjusted. Results for 2002 are shown both as reported in that year and on a
constant currency basis.
 2002 (at 20032003
    
    2002
    
    exchange rates)1Turnover including share of joint ventures and associates (£ million)
    
    
    4,323.2
    
    
    
    4,017.9
    
    
    
    3,978.9Operating profit (£ million)
    
    
    438.6
    
    
    
    425.6
    
    
    
    426.4Adjusted operating profit (£ million)2
    
    
    505.6
    
    
    
    500.1
    
    
    
    500.1Profit before tax (£ million)
    
    
    351.9
    
    
    
    335.3
    
    
    
    342.8Adjusted profit before tax (£ million)2
    
    
    418.9
    
    
    
    430.0
    
    
    
    435.3Earnings per share
    
    
    44.5p
    
    
    
    41.4p
    
    
    
    41.9pAdjusted earnings per share2
    
    
    52.9p
    
    
    
    55.9p
    
    
    
    56.2p
 1.
    
    A reconciliation of turnover, operating profit and adjusted operating profit for 2002 at 2002 and at 2003 rates of exchange is shown on page 31. 2.
    
    A reconciliation of adjusted results with UK GAAP results is shown on page 32 and in the profit and loss account on page 72.  Exceptional items in 2003 amounted to a charge of £67.0 million. The charge
comprises £43.2 million for a litigation settlement, costs of £15.5 million for
completion of restructuring programmes and £8.3 million relating to the
integration of the BOC and Air Liquide businesses in Japan.
 Exceptional items in 2002 included restructuring charges of £47.2 million and a
£21.3 million charge relating to the closure of facilities in connection with
the combination of BOC Process Plants with Linde Engineering in the US. An
exceptional charge of £21.2 million was made to write down the value of OSK,
BOCs gases business in Japan, in advance of the then proposed merger of OSK
with part of Air Liquide Japan.
 Adjusted return on capital employed for the year to 30 September 2003 was 12.5
per cent. Return on capital employed for the year to 30 September 2003 was 10.8
per cent. Free cash flow (as defined on page 32) remained positive and was
£141.8 million in 2003. Net cash flow, after acquisitions, disposals and other
investing activities, and including exceptional cash items, was £6.3 million in
2003. A reconciliation of these measures is shown on page 32.
 A first interim dividend for 2003 of 15.5p per share was paid in February 2003
and a second interim dividend of 23.5p per share was paid in August 2003. In
aggregate this was a 2.6 per cent increase over the annual dividend of the
previous year. A first interim dividend for 2004 of 15.5 p per share has been
declared for payment in February 2004.
 Capital expenditure by subsidiaries (including interest capitalised) was £281.2
million in 2003, compared with £354.3 million in 2002. Capital expenditure by
joint ventures and associates was £81.4 million in 2003, of which the BOC
share was £36.1 million. Equivalent expenditure in 2002 was £74.2 million, of
which the BOC share was £34.5 million. The Group also made acquisitions of
businesses of £135.5 million in 2003 and proceeds from disposals were £3.9
million. Equivalent items in 2002 were £207.3 million and £10.6 million
respectively.
 Process Gas Solutions (PGS)Changeon 200212003
    
    Change
    
    (constant£ million
    
    on 2002
    
    currency)Turnover
    
    
    1,242.7
    
    
    
    +4%
    
    
    
    +8%Operating profit
    
    
    177.1
    
    
    
    +10%
    
    
    
    +15%Adjusted operating profit2
    
    
    184.0
    
    
    
    -1%
    
    
    
    +3% 1.
    
    A reconciliation of results for 2002 at 2002 and at 2003 rates of
exchange is shown on page 31. 2.
    
    A reconciliation of adjusted
operating profit with operating profit is shown on page 32. 3.
    
    All comments below are on a constant currency basis.
  Increased turnover resulted from generally firm price trends as well as
revenues from acquisitions and new plants serving chemical industry customers.
The additional revenues came principally from BOCs joint venture with Yangtze
Petrochemical Corporation (YPC) at Nanjing, China, from a new hydrogen and
carbon monoxide (HyCO) plant at Map Ta Phut, Thailand and from the acquisitions
of a partial oxydation syngas plant at Clear Lake, Texas, and the US water
services company, Environmental Management Corporation.
 Improved adjusted operating profit was also a result of operational efficiency
gains. The closure of facilities in connection with the combination of BOCs
Process Plants business with Linde Engineering in the US led to lower costs
towards the end of 2002 and there was a full year of savings in 2003. There
were also further cost reductions arising from continued progress in delivery
scheduling and remote plant operation.




33   The BOC Group plcAnnual report and accounts 2003





---



##### 



Operating review (comparing 2003 with 2002) continued







As in 2002, economic uncertainties constrained the authorisation of investment
projects by customers during the year. A new hydrogen and carbon monoxide
(HyCO) plant serving Citgos oil refinery at Lemont in Illinois came into
production in October 2003 and a new air separation plant is under construction
in Nanjing. When completed in 2004 this will supply industrial gases to nearby
chemical facilities being completed by a joint venture company established
between BASF of Germany and the Chinese chemical company YPC.
 Operating exceptional items in 2003 were for the completion of restructuring
programmes, including those that were part of the programme announced in August
2001. Additionally, there were charges relating to the integration of the BOC
and Air Liquide businesses in Japan to form Japan Air Gases.
  EuropeTurnover and adjusted operating profit increased in the UK and in Poland
but declined slightly in Ireland. A full year of revenues from the plant
commissioned in January 2002 to supply hydrogen to Huntsman on Teesside and
from the Teesside pipeline system acquired in July 2002 were contributors to
increased turnover in the UK. Despite continued weakness in UK manufacturing,
sales volumes increased in the merchant market for liquefied gases and prices
were also slightly firmer. The key factors behind the increase in adjusted
operating profit were lower costs in 2003 as a result of restructuring and a
charge of £3.6 million in 2002 for an asset write down and debt provision after
a steel customer went into receivership.
 The relocation of some customers and a general decline in manufacturing
activity led to lower sales volumes and adjusted operating profit in Ireland.
As in the UK, the trend of selling prices remained positive and marginally
ahead of inflation.
 Business in Poland benefited from stable economic conditions in anticipation of
joining the European Union in 2004. The acquisition of the business of Praxair
Polska took effect in February 2003 and added additional air separation
capacity as well as BOCs first source of carbon dioxide in the region.
 Cryostar is BOCs engineering company based in France, manufacturing cryogenic
pumps, expansion turbines and compressors for a variety of industrial gas
applications and for marine liquefied natural gas (LNG) tankers. Turnover and
adjusted operating profit increased in 2003 as a result of strong demand for
industrial gas applications in China and for shipboard expansion units on LNG
tankers.
  North AmericaDespite a small increase in turnover, adjusted operating profit
in 2003 was at a similar level to 2002. Selling price trends were favourable 
particularly in the second half of the year  and were sufficient to offset
cost inflation. Sales volumes were lower as a result of general weakness in
manufacturing industries and some business was lost early in 2003 as customers
changed to alternative supplies. At the same time, a significant volume of new
liquefied gas business was obtained, mainly in the closing months of the year.
 Steel industry customers that had benefited from US tariff protection in the
previous year faced renewed competitive pressure in 2003. Some customers are
operating under chapter 11 creditor protection.
 Carbon dioxide for beverage applications continued to be in strong demand.
During 2003 BOC improved analytical capabilities to upgrade product quality
assurance for its Premier Beverage carbon dioxide service to the soft drinks
industry.
 At the end of January 2003, BOC acquired the partial oxidation syngas plant at
Clear Lake, Texas, from Celanese. Under the agreement BOC fulfils a significant
proportion of the industrial gas requirements for the Celanese chemical
facility at Clear Lake. The Celanese facility is located on the Houston ship
canal, and includes a world scale vinyl acetate monomer plant and the worlds
largest acetic acid plant. These require large quantities of oxygen and
nitrogen as well as carbon monoxide.
 A new HyCO plant serving Citgos oil refinery at Lemont in Illinois began
production in October 2003. This further expands BOCs hydrogen business with a
variety of petroleum and chemical industry customers around the world.
  Latin AmericaTurnover increased significantly, although growth was held back
by a general strike in Venezuela in the period December 2002 to February 2003.
This inevitably affected customers requirements for industrial gases. Adjusted
operating profit also increased because of better sales volumes especially in
Chile and Brazil and because of selling price increases that generally exceeded
local rates of inflation.
 BOCs joint venture company in Mexico supplying high-pressure pure nitrogen to
Pemex for pressurising its Cantarell oilfield in the Gulf of Mexico performed steadily throughout the year.
 In September 2003, a new 200 tonnes-a-day air separation unit was commissioned
in Santiago to supply oxygen for leaching copper ores. Another plant is due to
begin production in 2004 and will supply oxygen for CST, a steel producer in
Brazil.
  AfricaBoth turnover and adjusted operating profit increased in 2003. Sales
volumes were broadly similar but selling prices were higher and cost controls
also contributed to better margins. The focus of business development was on
the use of gases in mineral processes in the extraction of precious metals.
  JapanThe combination of BOCs and Air Liquides industrial and medical gases
businesses in Japan took effect from January 2003. Until then the results of
OSK, BOCs gases business in Japan, were consolidated as a subsidiary.
Subsequently BOC has accounted for its share of turnover and profit of the
merged company, Japan Air Gases, on an equity basis. This distorts the
comparison of turnover and profit between 2003 and earlier years for BOCs
three lines of business. On the respective bases used in each year, there was
an increase in both turnover and adjusted operating profit for PGS in Japan for
2003.
 The integration process that began in 2003 made good progress. The two
organisations have been successfully integrated in the key areas and the number
of branch offices has been reduced. Cryogenic equipment manufacturing has also
been integrated into a single location. As a result of the merger, management
remains confident of achieving cost savings at the annual rate of some Japanese
yen 5 billion by the end of 2004.




34   The BOC Group plcAnnual report and accounts 2003





---



##### 









North AsiaTurnover and adjusted operating profit were up significantly in
2003. Margins improved as a result of better operational efficiency coupled
with some price increases.
 Turnover gains were largely as a result of growth in north China but there was
also growth in mainland south China, Korea and Taiwan. Turnover was down in
Hong Kong as some customers relocated production to mainland China. Underlying
growth of adjusted operating profit in south China was further boosted by
additional profit arising from the renegotiation of a power supply contract.
Results in north China benefited from the addition for a full year of the joint
venture begun in May 2002 serving the petrochemical industry in Nanjing.
Further liquefaction capacity was added to its existing air separation plant
during 2003 to serve the local merchant market. Results also benefited from
strong growth in the steel industry as a result of increasing local demand.
 In October 2003 BOC announced that its joint venture with the Taiyuan Iron and
Steel Corporation (TISCO), was to build two new air separation units (ASUs) to
supply a total of 2,700 tonnes a day of oxygen to TISCOs plant in Shanxi
province in north-central China. The new ASUs are expected to come on stream at
the end of 2005. TISCO is the largest stainless steel producer in China and has
been selected by the central government as one of two stainless steel
development centres. Further investments at BOCs subsidiaries at Suzhou near
Shanghai and plans to add some 400 tonnes a day of capacity at its associated
company Pearl River Gases in southern China were also announced.
 A new air separation plant is already under construction for BOCs joint
venture in Nanjing. When completed in 2004 this plant will supply gases to the
BASF and Yangtze Petrochemical Company (YPC) joint venture chemical facility
under construction nearby.
  South East AsiaEconomic growth was generally buoyant across the region but
Singapore continued to be affected by the migration of electronics and other
industries to lower cost countries in Asia. The outbreak of the SARS infection
also curtailed travel and affected business activity. Economic trends in
Thailand, Malaysia and Indonesia were favourable.
 In aggregate, both turnover and adjusted operating profit increased across the
region. Margins improved as a result of operational efficiency gains. Prices
were held down by competitive pressures in Malaysia and Thailand but improved
in Indonesia and the Philippines. Tonnage volumes increased in Malaysia as a
result of sales to the steel industry and growing demand from the electronics
assembly and food-freezing industries. Turnover was also boosted by a full year
contribution from Nissan Industrial Oxygen Inc (NIOI) which became fully owned
by BOCs associated company in Malaysia during September 2002.
 Increased turnover in Thailand was based on better underlying demand as well as
increased production. A new hydrogen and carbon monoxide (HyCO) plant began
production at Map Ta Phut during 2003 and carbon dioxide capacity was doubled
with the addition of a new 300 tonnes-a-day plant at Rayong to serve food and
beverage customers.
 Underlying trends were favourable in both Indonesia and the Philippines but
results in the Philippines were adversely affected by the closure of a
customers plant.
  South AsiaEconomic growth in India led to better sales of liquefied gases in
the merchant market and sustained demand from the steel industry. A new 225
tonnes-a-day oxygen plant was commissioned in the last quarter of the year for
the Tata Iron and Steel Company, BOCs principal tonnage customer in the
region.
 During the early part of 2004, a new plant should begin to supply beverage
industry customers in Pakistan with carbon dioxide.
  South PacificTurnover and adjusted operating profit were slightly higher than
a year ago despite adverse business trends in some Australian industries. The
strengthening of the Australian dollar in 2003 had a negative impact on the
important minerals sector, which responded by restructuring. There was also an
adverse effect on the food industry. Volumes of liquefied gas sales in the
merchant market were therefore lower.
 The Australian steel industry was somewhat less affected and a low cost base
enabled it to remain globally competitive. Tonnage volumes increased in 2003.
New business has been obtained with BHP in New South Wales. In January 2003 BOC
commenced supplying additional oxygen and nitrogen, following a process upgrade
to BOCs Port Kembla facility.
 Improved operational efficiencies helped to improve margins in the merchant
market. Centralised plant operation was further extended during 2003 to the
control of plants in New Zealand from an operations centre in Australia. Prices
were raised in the merchant market and further increases will be required in
2004 to offset increased electricity costs that have resulted from the further
rationalisation of generating capacity ownership.
  Process systemsDuring 2003 BOC continued to benefit from lower costs arising
from the combination of its Process Plants business with Linde Engineering in
the US to form the new company, Linde BOC Process Plants LLC, based in Tulsa,
Oklahoma. This transaction was completed at the end of September 2002, making
Linde Engineering the principal supplier of BOCs industrial gas plants
worldwide with access to Lindes global technical capabilities in air
separation, hydrogen production and other gas technologies.
 2003 was another year of low demand for new industrial gas facilities. This was
particularly so in the developed western economies and business opportunities
were principally in the developing economies of the Far East. The rapid pace of
expansion in the Chinese steel and chemical industries is expected to offer
further opportunities to BOC next year.
  Water servicesIn October 2002, BOC acquired Environmental Management
Corporation (EMC), a US water services company with the intention of using a
similar business model to that of PGS in developing additional business with
industrial customers.
 EMC is a management company providing services for steam systems, cold and
chilled water systems and wastewater treatment. Customers include small to
medium sized municipalities and industrial customers, many of which are in the
food manufacturing sector.
 Turnover was on an increasing trend in 2003. Integration of the business was
achieved smoothly but initial integration costs made the business unprofitable
in this first period under BOC ownership.




35   The BOC Group plcAnnual report and accounts 2003





---



##### 



Operating review (comparing 2003 with 2002) continued







Industrial and Special Products (ISP)Changeon 200212003
    
    Change
    
    (constant£ million
    
    on 2002
    
    currency)Turnover
    
    
    1,751.2
    
    
    
    +9%
    
    
    
    +9%Operating profit
    
    
    238.2
    
    
    
    +4%
    
    
    
    +3%Adjusted operating profit2
    
    
    242.7
    
    
    
    -2%
    
    
    
    -3%
 1.
    
    A reconciliation of results for 2002 at 2002 and at 2003 rates of exchange is shown on page 31. 2.
    
    A reconciliation of adjusted operating profit with operating profit is shown on page 32. 3.
    
    All comments below are on a constant currency basis.  Good business performances in most markets were offset by a disappointing
result in the US. Market conditions remained depressed in the US and in the UK
but there was an overall improvement elsewhere. Trends were particularly
favourable in South Africa and in the south Pacific region during the first
half of 2003 but the pace of growth slowed later in the year as a result of
exchange rate movements, which affected exporting industries.
 BOCs helium business continued to grow globally and so did the packaged
chemicals business and the sales of medical gases. Margins improved in the
liquefied petroleum gas (LPG) markets as a result of more rapid selling price
adjustments to reflect changing input costs. In June 2003, BOC announced an
agreement to obtain half the output from a new helium extraction facility to be
constructed in Qatar. Deliveries from this new source are expected to begin in
July 2005 and the location will assist in satisfying fast-growing demand in
Asian markets.
 Operating exceptional items in 2003 were for the completion of restructuring
programmes, including those that were part of the programme announced in August
2001. Additionally, there were charges relating to the integration of the BOC
and Air Liquide businesses in Japan to form Japan Air Gases.
  EuropeTurnover and adjusted operating profit increased in 2003 despite weak
manufacturing activity in the key markets.
 BOC has a strong market position in the mature UK manufacturing sector and
achieved turnover growth by extending the range of products and services
offered to its customers. Growth of adjusted operating profit was also assisted
by productivity improvements, control of costs and favourable price trends.
Sales to the medical sector increased because of service improvements and the
introduction of new products  notably lightweight portable cylinders for
emergency applications. Sales of special gases including helium also increased
and a new contract to supply the needs of Oxford Magnet Technology for medical
imaging devices was announced during 2003. Sales of Sureflow hospitality gases
and equipment improved, as did sales of refrigerant gases.
 Economic growth in Ireland slowed during 2003. Despite improved hospitality
product sales, turnover was almost unchanged and adjusted operating profit was
marginally lower.
 Increased turnover and adjusted operating profit in Poland were principally
because of the addition of the business of Praxair Polska that took effect from
February 2003. The integration with BOCs existing business in Poland and the
introduction of common business systems has proceeded smoothly. Price increases
in Poland were adequate to recover cost inflation during 2003.
  North AmericaIn total, sales of gases in 2003 were similar to the previous
year but sales of welding products were depressed. Weak conditions in the
manufacturing economy across north America coupled with costs related to the
implementation of a new business system in the US led to a sharp decline in
adjusted operating profit.
 Increased volumes of LPG and of special gases, including helium, together with
modest price increases for most products were sufficient to offset lower
volumes of industrial gases leading to a marginal improvement in gases turnover
in the US.
 Market conditions were also difficult in Canada but the acquisition of business
from Air Products in Canada led to a higher turnover and adjusted operating
profit.
  Latin AmericaThere was an improvement in both turnover and adjusted operating
profit across the region. This was generally based on trends that were
favourable in terms of both volumes and selling prices.
 Despite extended unrest and political uncertainly, there was a particularly
strong performance in Venezuela. BOCs associated company based in Chile also
achieved good growth. Business in Colombia was expanded during 2003 with the
acquisition of an LPG business. Turnover from respiratory homecare products
grew in Colombia, where a local homecare company was acquired during the year,
as well as in Chile, where an acquisition was made in the previous year.
  AfricaTurnover and adjusted operating profit again increased significantly in
2003, as manufacturing activity was strong in South Africa. Although economic
growth moderated later in the year as the rand strengthened, the increased
international investment in manufacturing in South Africa continued to provide
a firm base for sales of gases and welding products.
 The mining industry also provided good business opportunities. There was a
significant expansion of platinum mining and ferro-chrome was also in strong
demand. Production of the Afrox Res-Q-Pak was further increased in 2003 as
demand for the product continued to accelerate. Several of the major mining
companies are issuing this device to their workforce to provide an emergency
oxygen supply for those working underground.
 Exports of Afrox welding products started the year well but growth was later
curtailed by the strengthening of the rand, which began to reduce the
competitive advantage. LPG sales increased and margins improved as a result of
lower input costs.
 Results from other countries in Africa were somewhat mixed with good
performances in Namibia and Kenya offset by weakness in the Zambian copper
industry. Overall, results were not significantly different in 2003.




36   The BOC Group plcAnnual report and accounts 2003





---



##### 









JapanThe basis of accounting for BOCs business in Japan changed during 2003
as a result of a merger. Full details can be seen in the PGS section on page
34. On the respective bases used in each year, turnover and adjusted operating
profit for ISP in Japan were lower in 2003.
  East AsiaTurnover increased but adjusted operating profit was marginally lower
in 2003, with the full year benefit of acquisitions being reduced by the effect
of industrial decline in the key market of Hong Kong and also by the increase
in business overheads to support the future development of business in the
region.
 Two acquisitions affected business performance comparisons in 2003. Unique Gas
and Petrochemicals Public Company Limited (UGP) was acquired by BOCs
subsidiary in Thailand in May 2002 and BOCs associated company in Malaysia
took full control of Nissan Industrial Oxygen Inc (NIOI) in September 2002. The
integration of NIOI proceeded smoothly during 2003 and the business performed
well. Although up on the previous year, results from UGP were adversely
affected by sharply competitive conditions in the ammonia business but LPG,
which is the other main product line for UGP, improved due to partial
deregulation of end consumer prices.
 While competition remained strong in industrial products, especially in
Thailand and Malaysia, investments in special products facilities enabled this
more profitable business to be expanded. Facilities for breaking bulk and
repackaging refrigerant gases have already been installed in Hong Kong, the
Philippines and Malaysia and a further facility will be built in Thailand
during 2004.
  South PacificAlthough economic growth was less rapid in 2003 than it was in
2002, both turnover and adjusted operating profit improved. Increased turnover
was largely a result of better prices rather than increased sales volume and
firm prices were coupled with effective cost controls.
 Good progress was made in developing the safety products business in 2003 with
significant new business from major customers. The medical gas business also
benefited from the introduction of new products. A web-based customer portal
was launched enabling customers to carry out transactions as well as to track
and pay their accounts over the Internet.
 BOCs joint venture company, Elgas, a leading supplier of LPG in the eastern
part of Australia, enjoyed a record year. Sharp increases in costs before the
Iraq war were successfully recovered by rapid adjustments to selling prices.
Although automobile gas is a minor part of the companys turnover, sales may be
affected in the longer term by the Australian governments decision to remove
the excise tax exemption for this application in the period 2008 to 2012.
 After difficult conditions in 2002, better results were obtained from Papua New
Guinea and the other Pacific islands during 2003.
 BOC EdwardsChangeon 200212003
    
    Change
    
    (constant£ million
    
    on 2002
    
    currency)Turnover
    
    
    684.1
    
    
    
    -1
    %
    
    
    +4
    %Operating profit
    
    
    7.9
    
    
    note 4a
    
    note 4bAdjusted operating profit2
    
    
    18.5
    
    
    
    -29
    %
    
    
    -26
    %
 1.
    
    A reconciliation of results for 2002 at 2002 and at 2003 rates of exchange is shown on page 31. 2.
    
    A reconciliation of adjusted operating profit with operating profit is shown on page 32. 3.
    
    All comments below are on a constant currency basis. 4a.
    
    Compares with a loss of £1.4 million in 2002 4b.
    
    Compares with a loss of £2.2 million in 2002  Operating exceptional items in 2003 were for the completion of restructuring
programmes, including those that were part of the programme announced in August
2001. Additionally, there were charges relating to the integration of the BOC
and Air Liquide businesses in Japan to form Japan Air Gases.
 The semiconductor equipment downturn that affected most of 2002 continued
throughout 2003. The second half of 2002 had benefited from some improvement in
activity but this proved transient and no such upturn was repeated in 2003.
Business was concentrated with those manufacturers with a specific investment
strategy. This was predominantly for upgrades and expansions of existing
facilities rather than new plants. Demand for general vacuum products from
key customers in the chemicals, aerospace and automotive industries was also
weaker in 2003. Turnover and adjusted operating profit were therefore lower.
 The impact of these adverse business conditions was lessened by rationalising
manufacturing facilities and by careful control of costs. Industrial vacuum and
pressure products manufacturing in Philadelphia, Bolton and the Czech Republic
was rationalised. Also in 2003, the size of a facility in Massachusetts was
reduced to suit the lower volume of business available.
 The pharmaceutical freeze-drying and packaging business suffered from delayed
investment by pharmaceutical manufacturers during 2003 but order intake has
since improved.
 Semiconductor gases turnover was essentially unchanged in 2003 as a whole,
despite an improving trend in the second half. Additional volumes from new
business were offset by pressure on prices as competition became more severe
during the second year of the downturn. The focus was therefore on retaining
market share, winning new business in Asia and on product development.
Management believes that a major share of the bulk gas business has been
secured for the new semiconductor fabrication plants being built in China.
Production of nitrogen trifluoride has been increased and fluorine generators
remain under evaluation by leading semiconductor manufacturers.
 The basis of accounting for BOCs business in Japan changed during 2003 as a
result of a merger. Full details can be seen in the PGS section on page 34. On
the respective bases used in each year, turnover and adjusted operating profit
for BOC Edwards in Japan increased in 2003.




37   The BOC Group plcAnnual report and accounts 2003





---



##### 



Operating review (comparing 2003 with 2002) continued







Vacuum equipment volumes worldwide were slightly better in 2003 and much of the
increase was derived from products for flat panel display manufacture.
Management believes that BOC Edwards has achieved a leading share of this
fast-growing market  particularly in Taiwan and Korea. However, these pumps
currently earn lower margins than semiconductor pumping systems. Although
semiconductor equipment demand was weak in 2003, improved products were
developed to strengthen BOC Edwards position in vacuum technology. These
included single axis on-tool semiconductor pumps and a range of small dry pumps
for the growing scientific equipment market.
 The Kachina process tool component cleaning service grew in 2003 but the
chemical management business suffered from the small number of new
semiconductor plants being built. Cost levels were reduced to improve financial
performance.
 Contracts were won in Asia and Europe furthering a strategy to expand the range
of value-added services to electronic manufacturers. These include gases
management, chemicals supply, support services and materials logistics. Other
developments included an improved offering of gases and vacuum systems for
lithography and supercritical carbon dioxide cleaning technology.
  Afrox hospitalsChangeon 200212003
    
    Change
    
    (constant£ million
    
    on 2002
    
    currency)Turnover
    
    
    353.4
    
    
    
    +36%
    
    
    
    +16%Operating profit
    
    
    46.1
    
    
    
    +55%
    
    
    
    +31%Adjusted operating profit2
    
    
    46.1
    
    
    
    +55%
    
    
    
    +31% 1.
    
    A reconciliation of results for 2002 at 2002 and at 2003 rates of exchange is shown on page 31. 2.
    
    A reconciliation of adjusted operating profit with operating profit is shown on page 32. 3.
    
    All comments below are on a constant currency basis.  Although hospital occupancy rates increased only marginally, turnover and
adjusted operating profit both increased significantly. This resulted from some
minor acquisitions, positive price trends and a reduction in overhead costs.
New facilities continued to be added to existing hospitals in order to widen
the range of available services.
 There was a significant change in the reimbursement system during 2003 and the
trend is expected to continue in 2004. Insurance companies had previously paid
private health care providers such as Afrox hospitals a fee for their services
but this is changing to a risk reimbursement system. A fixed payment is made
for each kind of procedure thus transferring some financial risk to the
provider if complications arise.
 Although acute care hospitals continued to make up the great majority of both
turnover and adjusted operating profit, there were better results from the
Lifecare chronic care business, from occupational health services and from the
Direct Medicines pharmacy services business following restructuring to address
more competitive market conditions.
 In July 2003 African Oxygen Limited (Afrox) announced that it was in the
process of considering its strategic options with regard to its shareholding in
Afrox Healthcare Limited. On 17 November 2003, Afrox announced that it had
agreed to sell its entire holding in Afrox Healthcare Limited to a consortium
of Black Economic Empowerment investors. The sale remains subject to certain
conditions including clearance from the relevant competition and other
regulatory authorities.
  GistChangeon 200212003
    
    Change
    
    (constant£ million
    
    on 2002
    
    currency)Turnover
    
    
    291.8
    
    
    
    +10%
    
    
    
    +10%Operating profit
    
    
    29.2
    
    
    
    +15%
    
    
    
    +13%Adjusted operating profit2
    
    
    29.2
    
    
    
    +15%
    
    
    
    +13% 1.
    
    A reconciliation of results for 2002 at 2002 and at 2003 rates of exchange is shown on page 31. 2.
    
    A reconciliation of adjusted operating profit with operating profit is shown on page 32. 3.
    
    All comments below are on a constant currency basis.  Improved turnover reflects both new contracts and increased volumes with
existing customers. The increase in adjusted operating profit is not only as a
result of higher turnover but also because of a gain of some £4.1 million
arising principally from the termination of operations for the Marks & Spencer
General Merchandise business.
 Gist continues to operate all of Marks & Spencers chilled and ambient food
distribution and services and remains its largest supply chain provider.
 In 2003, a contract with Carlsberg-Tetley, a leading brewer, was expanded to
manage the entire primary transport distribution business. A contract to manage
the international inbound supply chain was also secured with New Look, the UK
high street fashion retailer.




38   The BOC Group plcAnnual report and accounts 2003





---



##### 



Operating review (comparing 2002 with 2001)







Group Turnover including the Group share of joint ventures and associates was
£4,017.9 million in 2002, down three per cent compared with £4,159.2 million in
2001. Operating profit was £425.6 million, up one per cent compared with £422.3
million in 2001. After charging operating and non-operating exceptional items
totalling £94.7 million and net interest and other financing items of £70.1
million, profit before tax was £335.3 million, down seven per cent compared
with £362.2 million in 2001. Earnings per share were 41.4p, down ten per cent
compared with 46.0p in 2001. Excluding the exceptional items, adjusted
operating profit for the year was £500.1 million, adjusted profit before tax
was £430.0 million and adjusted earnings per share were 55.9p.
 Year ago comparisons are adversely affected by exchange rate movements, mainly
for the South African rand and, in the closing months of the year, for the US
dollar. If the results of a year ago had been translated at the rates applied
to this year, turnover would have been reduced by £214.1 million. The
corresponding reductions in operating profit and adjusted operating profit
would have been £25.1 million and £27.6 million respectively. Adjusted profit
before tax would have been £22.7 million less and adjusted earnings per share
would have been reduced by 1.7p.
 The table set out below summarises results reported both under UK GAAP and as
adjusted. Comparisons with the previous year are shown both as reported in that
year and on a constant currency basis.
 2001 (at 20022002
    
    2001
    
    exchange rates)1Turnover
including share of joint ventures and associates (£ million)
    
    
    4,017.9
    
    
    
    4,159.2
    
    
    
    3,945.1Operating profit (£ million)
    
    
    425.6
    
    
    
    422.3
    
    
    
    397.2Adjusted operating profit (£ million)2
    
    
    500.1
    
    
    
    530.6
    
    
    
    503.0Profit before tax (£ million)
    
    
    335.3
    
    
    
    362.2
    
    
    
    340.7Adjusted profit before tax (£ million)2
    
    
    430.0
    
    
    
    466.9
    
    
    
    444.2Earnings per share
    
    
    41.4
    p
    
    
    46.0
    p
    
    
    44.4
    pAdjusted earnings per share2
    
    
    55.9
    p
    
    
    57.5
    p
    
    
    55.8
    p
 1.
    
    A reconciliation of turnover, operating profit and adjusted operating profit for 2001 at 2001 and at 2002 rates of exchange is shown on page 31. 2.
    
    A reconciliation of adjusted results with UK GAAP results is shown on page 32 and in the profit and loss account on page 72.  Exceptional items in 2002 included restructuring charges of £47.2 million and a
£21.3 million charge relating to the closure of facilities in connection with
the combination of BOC Process Plants with Linde Engineering in the US. An
exceptional charge of £21.2 million was made to write down the value of OSK,
BOCs gases business in Japan, in advance of the then proposed merger of OSK
with part of Air Liquide Japan.
 Exceptional items in 2001 included restructuring charges of £35.8 million, a
charge of £24.5 million for the write-down and impairment of assets, a charge
of £21.0 million for the write-down of unproductive assets identified for
disposal and a charge of £16.7 million for a prior period amendment to pension
plan benefits.
 Adjusted return on capital employed for the year to 30 September 2002 was 12.3
per cent, after six successive quarters of improvement. Return on capital
employed for the year to 30 September 2002 was 10.5 per cent. Free cash flow
(after interest, tax, dividends and capital spending but before acquisitions)
remained positive and was £166.5 million in 2002. Net cash outflow, after
acquisitions, disposals and other investing activities, and including
exceptional cash items, was £120.3 million in 2002. A reconciliation of these
measures is shown on page 32.
 A first interim dividend for 2002 of 15.5p per share was paid in February 2002
and a second interim dividend of 22.5p per share was paid in August 2002. In
aggregate this was a 2.7 per cent increase over the annual dividend of the
previous year.
 Capital expenditure by subsidiaries (including interest capitalised) was £354.3
million in 2002, compared with £352.6 million in 2001. Capital expenditure by
joint ventures and associates was £74.2 million in 2002, of which the BOC share
was £34.5 million. Equivalent expenditure in 2001 was £109.7 million, of which
the BOC share was £53.3 million. The Group also made acquisitions of businesses
of £207.3 million in 2002 and proceeds from disposals were £10.6 million.
Equivalent items in 2001 were £145.9 million and £2.7 million respectively.
 Process Gas Solutions (PGS)Changeon 200112002
    
    Change
    
    (constant£ million
    
    on 2001
    
    currency)Turnover
    
    
    1,200.6
    
    
    
    +1%
    
    
    
    +4%Operating profit
    
    
    161.2
    
    
    
    +55%
    
    
    
    +61%Adjusted operating profit2
    
    
    185.2
    
    
    
    +18%
    
    
    
    +22% 1.
    
    A reconciliation of results for 2001 at 2001 and at 2002 rates of exchange
is shown on page 31. 2.
    
    A reconciliation of adjusted operating profit with operating profit is shown
on page 32. 3.
    
    All comments below are on a constant currency basis.
  In addition to the revenues added by new plants coming into production and firm
pricing trends, operational efficiency gains were a key factor behind the
adjusted operating profit increase. Towards the end of 2002, cost savings were
realised from the closure of facilities in connection with the combination of
BOCs Process Plants business with Linde Engineering in the US. Costs were also
reduced as a result of better delivery scheduling and remote plant operation.
Operational service centres were already established in the UK, the US and
Australia. Management then believed that a further 70 plants could benefit from
remote operation during the next 18 months and new links were being established
to bring Asian plants into the network.




39   The BOC Group plcAnnual report and accounts 2003





---



##### 



Operating review (comparing 2002 with 2001) continued







New plants were commissioned for OneSteel at Whyalla in South Australia in
November 2001, a hydrogen plant for Huntsman on Teesside in the UK during
January 2002, an air separation unit for WCI Steel in Ohio in May 2002 and
another at Midland, North Carolina in June 2002. These further strengthened
BOCs established base in the metals sector and highlighted a growing
commitment to the chemicals and oil sectors.
 Economic uncertainties reduced the number of investment projects receiving
authorisation from customers in 2002. However, despite the somewhat dull market
conditions BOC Process Systems was able to win new business by offering
integrated solutions that added value for process industry customers.
 Operating exceptional items in 2002 were mainly for the write-down of assets in
the OSK business in Japan based on valuations ahead of the merger with Air
Liquide and further restructuring costs as part of the programme announced in
August 2001. Operating exceptional items in 2001 related to the business
initiative programme announced in August 2001 with the objective of releasing
cash tied up in unproductive assets and improving cash generation.
  EuropeTurnover increased in the UK but adjusted operating profit was
marginally lower despite success in reducing overhead costs. The increase in
turnover was due to additional sales from the plant commissioned in January
2002 to supply hydrogen to Huntsmans chemical plant on Teesside but this was
offset by the effect of weak manufacturing output in the UK. This affected
sales volumes and prices in most sectors as some customers closed plants in the
UK and moved production to lower cost areas. Adjusted operating profit was also
depressed by a temporary shutdown of a customers steel furnace, leading to
less efficient operation of BOCs air separation plant in south Wales. Another
steel customer went into receivership towards the end of 2002 and a provision
of £3.6 million was made for a bad debt and to write down the value of BOCs
plant supplying a facility that has closed.
 In July BOC acquired pipeline assets serving customers on the Teesside chemical
complex. This gave BOC more direct contact with its customers in this important
area.
 Although turnover in Ireland was similar to the previous year, adjusted
operating profit increased as a result of success in reducing costs. Adjusted
operating profit also increased in Poland for the same reason and because a bad
debt provision depressed adjusted operating profit in 2001.
  North AmericaOverall turnover increased slightly but growth was restrained by
generally weak economic conditions in the US and by lower power and fuel costs
leading to the reduction or elimination of surcharges. Some increases in
tonnage volumes arising from the recovery of steel output in the US and
increased sales of carbon dioxide to the food and beverage sector were offset
by generally lower demand for liquefied gases in the merchant market.
 Adjusted operating profit grew faster than sales as a result of firmer prices
and cost savings, which more than made up for some bad debt provisions for
customers in liquidation.
 New plant and acquisitions that affected the comparison with a year ago
included a replacement plant commissioned in May 2002 to supply WCI Steel in
Ohio, a plant commissioned in September 2002 at Midland, North Carolina, and a
plant supplying Vitrotex in Texas that started up in July 2002. Assets
purchased from Messer increased BOCs capacity to supply the growing market for
carbon dioxide in the US.
  Latin AmericaDespite continuing political uncertainty, BOCs business in
Venezuela achieved significantly better adjusted operating profit in 2002.
Demand from the glass industry was strong and sales of both nitrogen and carbon
dioxide to the food and beverage sector also increased. More efficient plant
operation coupled with control of overhead costs made an important contribution
to adjusted operating profit growth in 2002.
 Adjusted operating profit in Colombia was also better as a result of improved
operating efficiency coupled with better activity in the steel industry.
Indura, BOCs associate based in Chile, also achieved a better adjusted
operating profit as a result of new business in both Chile and in Argentina.
Selling price increases that exceeded inflation also made an important
contribution to adjusted operating profit growth in Chile.
 BOCs associated company in Mexico supplying a Pemex company with high-pressure
nitrogen continued to demonstrate the value of re-pressurisation to enhance oil
recovery. A number of equipment problems that emerged after commissioning were
investigated and corrective action was taken in 2002. This had no significant
impact on the adjusted operating profit for the year. BOC increased its share
of the company from 30 per cent to 35 per cent in early 2002.
  AfricaBuoyant conditions in the South African manufacturing economy made it
possible to achieve a significant increase in turnover. Together with strict
cost controls, this drove a still greater increase in adjusted operating
profit. Demand from steel industry customers was high and sales to other
sectors were expanded. New business was obtained in the pulp and paper sector
and an oxygen plant was commissioned to satisfy a supply scheme contract. Price
increases were sufficient to offset inflation in 2002.
  JapanTurnover and adjusted operating profit were lower in 2002, reflecting
continued weakness in the Japanese economy, which affected both gas equipment
sales and demand for liquefied gases. The impact on adjusted operating profit
was limited by operational cost savings. During 2002 BOCs under-utilised air
separation unit at Himeji was closed and BOC began to supply its customers by
purchasing products from another gas producer. Despite the weak economic
conditions, three new on-site generators were commissioned in 2002 and a
further one is due to be completed in 2003.




40   The BOC Group plcAnnual report and accounts 2003





---



##### 









North AsiaGrowth of sales revenues in Korea was limited by weak economic
conditions but adjusted operating profit was significantly better as a result
of operational and overhead cost savings and improved plant efficiency.
 Rapid economic growth attracted exceptionally high levels of foreign direct
investment into China during 2002. A number of manufacturers began to expand in
China at the expense of existing production in other parts of the world. This
was accompanied by heavy expenditure on local infrastructure and these factors
combined to create a particularly favourable environment for BOCs business in
China. Turnover increased significantly and adjusted operating profit nearly
doubled. Existing joint ventures performed strongly  partly in response to
rising steel production, which boosted the performance of BOCs venture
supplying the Taiyuan Iron and Steel Company in north China. At the same time
BOC took the opportunity to withdraw from underperforming joint ventures and
succeeded in improving the performance of others. New liquefaction capacity was
added to supply the growing merchant market in south China.
 In April 2002, BOC established a joint venture in Nanjing with Yangtze
Petrochemical Corporation (YPC), which is a subsidiary of Sinopec, Chinas
leading petrochemical company. BOC purchased existing air separation assets
with effect from May 2002 and committed to installing a new air separation
plant. This gave BOC a strategic position as a key supplier in the Nanjing
area, which is being developed through foreign investment as a leading centre
for chemical production in China. BOCs joint venture is to supply industrial
gases to a new BASF and YPC joint venture plant now under construction and
scheduled to begin production in 2004. In order to take advantage of the new
business opportunities presented by the rapid growth of investment in China,
BOC Process Systems designated China as a new and separate marketing zone
during 2002.
 Taiwan was one of the main regions to be affected by the diversion of
investment into mainland China during 2002. Manufacturing growth was weak,
leading to a more competitive environment in the gases business and some
pressure on prices. In response to these structural changes in the Taiwanese
economy, a cost reduction programme was initiated during 2002. Activity related
to the electronics industry increased somewhat during the second half of 2002.
 Business conditions in Hong Kong remained weak in 2002 as some customers also
prepared to relocate production to lower cost areas.
  South East AsiaEconomic growth in the region was led by Thailand, supported by
somewhat slower growth in Malaysia. Singapore suffered from the slowdown in the
electronics sector during 2002. Economic conditions in the Philippines and
Indonesia remained difficult.
 There was some improvement in demand from the steel sector and petrochemical
activity remained stable. Direct foreign investment, which had supported growth
previously, was diminished as more new investment was directed towards north
Asia.
 Improved turnover and adjusted operating profit were driven mainly by increased
merchant sales in Thailand  particularly in the food sector. During 2002 BOC
was able to supply its customers with food freezing equipment constructed to
BOC standards by a manufacturer in Thailand.
 A new hydrogen and carbon monoxide (HyCO) plant was under construction at Map
Ta Phut in Thailand.
 BOCs associated company in Malaysia acquired Nissan
Industrial Oxygen Inc (NIOI) during 2002.
The acquisition began with the purchase of 35.6 per cent of the company in
March 2002. Following a tender offer, 100 per cent ownership was achieved in
September 2002. NIOI has significant business in the glass sector. BOCs
associated company in Singapore acquired part of Messers merchant industrial
gases business there in late September 2002.
  South AsiaBOCs line of business structure was not then fully implemented in
this region. The following commentary therefore applies to both the Process Gas
Solutions business and to the smaller element of Industrial and Special
Products business in the region.
 During 2002, concerns about security and political stability continued to limit
foreign direct investment. Business opportunities were therefore limited to
those generated by the local economies.
 In India, asset disposals contributed towards a sharp increase in adjusted
operating profit but there was also a significant improvement in underlying
sales and adjusted operating profit. A new supply scheme to provide industrial
gases to Tata Iron and Steel was won and the new plant was constructed in 2003.
 Sales and adjusted operating profits also increased in Bangladesh and Pakistan.
New carbon dioxide capacity was added in 2003 to satisfy growing demand from the beverage industry in Pakistan.
  South PacificRecent investments in new plants were reflected in higher sales.
The plant commissioned to supply BP at Brisbane came into production during
2001 and contributed for a full year in 2002. A plant to supply OneSteel at
Whyalla in South Australia began production early in 2002. Increased customer
demand following a process change resulted in increased sales from the plant at
Port Kembla that came into production during 1999. Demand for carbon dioxide
used in the food and beverage industries grew and increased awareness of food
safety issues placed additional emphasis on product quality. Plant investments
made during 2001 provided additional product supply security in 2002.
 Adjusted operating profit increased significantly faster than sales as a result
of improved operating efficiency and control of overhead costs. Plant
reliability was increased and 12 of the key production plants in Australia
became controlled from a central operations centre. In South Australia,
production from the new plant at Whyalla commissioned in November 2001 allowed
savings to be achieved through the closure of an older and less efficient plant
at Adelaide. Price increases in the merchant markets for liquefied gases were
generally slightly below inflation but the shortfall was more than offset by
operational efficiencies and overhead cost reductions.




41   The BOC Group plcAnnual report and accounts 2003





---



##### 



Operating review (comparing 2002 with 2001) continued







Process PlantsIn March 2002, BOC reached a master agreement to combine its
Process Plants business with Linde Engineering in the US to form a new company,
Linde BOC Process Plants LLC, based in Tulsa, Oklahoma. The transaction was
completed at the end of September 2002 and makes Linde Engineering the
principal supplier of BOCs industrial gas plants worldwide with access to
Lindes global technical capabilities in air separation, hydrogen production
and other gas technologies.
 Spending on new air separation plants remained generally depressed in 2002 but
the new arrangement with Linde allowed a significant reduction of unrecovered
costs in the second half of the year as the agreement was implemented. Costs
were also reduced by the closure of BOC Process Plants UK manufacturing
facility at Edmonton in north London.
 BOCs Cryostar turbine and compressor business based in France produced
significantly better adjusted operating profit in 2002 following
diversification to reduce its former dependence on investments in new air
separation projects. Sales of equipment to process liquefied natural gas (LNG)
on board tankers were significantly increased.
 Industrial and Special Products (ISP)Changeon 200112002
    
    Change
    
    (constant£ million
    
    on 2001
    
    currency)Turnover
    
    
    1,605.3
    
    
    
    +2%
    
    
    
    +7%Operating profit
    
    
    229.3
    
    
    
    +1%
    
    
    
    +6%Adjusted operating profit2
    
    
    248.0
    
    
    Nil
    
    
    +5% 1.
    
    A reconciliation of results for 2001 at 2001 and at 2002 rates of
exchange is shown on page 31. 2.
    
    A reconciliation of adjusted
operating profit with operating profit is shown on page 32. 3.
    
    All comments below are on a constant currency basis.
  Weak manufacturing activity in the key markets of the US and the UK affected
sales of industrial products but there was growth in both South Africa and in
the south Pacific region. Sales of special products, medical gases as well as
hospitality products and services increased in all markets. Margins improved
mainly as a result of increased productivity following restructuring.
 Operating exceptional items in 2002 were mainly for the write-down of assets in
the OSK business in Japan based on valuations ahead of the merger with Air
Liquide and further restructuring costs as part of the programme announced in
August 2001. Operating exceptional items in 2001 related to the business
initiative programme announced in August 2001 with the objective of releasing
cash tied up in unproductive assets and improving cash generation.
  EuropeA modest improvement in UK turnover was matched by a similar increase in
adjusted operating profit. Sales of industrial products declined in line with
falling manufacturing output but this was offset by increased sales of special
and medical gases and the growth of BOCs Sureflow hospitality gases and cellar
service business. A lightweight medical oxygen cylinder with integral regulator
has proved popular for portable applications such as in the emergency services.
A new arrangement has been made with an equipment wholesaler to improve sales
of refrigerant gases to the contractor market and a refrigerant filling plant
in the UK is being extended to include additional production and storage
capacity.
 Sales and adjusted operating profit also increased in Ireland and BOCs
commercial systems accommodated the change to the new euro currency without
problems.
 Although ISP was a minor part of BOCs business in Poland during 2002, there
was a significant improvement in sales and adjusted operating profit. In
September BOC announced that it had agreed to acquire Praxairs industrial
gases business in Poland. This transaction then remained subject to approval by
the competition authority in Poland. This approval was subsequently granted in
2003.
  North AmericaTurnover increased only slightly as the trend in overall sales
volumes was essentially flat and price increases for most products were modest.
Weakness in the manufacturing sector was reflected in lower sales of welding
and cutting equipment and consumable products in particular. In such conditions
and with the initial financial impact of installing a new enterprise resource and planning system during the year,
adjusted operating profit in north America decreased despite successful cost
reduction programmes.
 Helium prices were an exception to the generally slow trend and continued to
rise more rapidly as higher input costs were recovered in selling prices. BOC
invested in new purification and liquefaction capacity in the US during 2002 to
support its worldwide helium business.
 During the year a new plant was opened to supply special gases to customers on
the Gulf coast and a range of gas apparatus was launched under the Airco brand
name. These products were sold through distributors during 2003. During 2002,
BOC continued its roll-out of a medical gas cylinder with an integrated
regulator.
 Although economic conditions in Canada were similar to those in the US, there
was a greater increase in sales. Two acquisitions, Technogas and Matheson Gas
Products Canada Inc, were successfully integrated with the existing business in
Canada in 2002. The Matheson acquisition added important special products
capability to BOCs product range in Canada.




42   The BOC Group plcAnnual report and accounts 2003





---



##### 









Latin AmericaTurnover and adjusted operating profit increased significantly in
each of the key markets. While export-related heavy industry prospered, general
manufacturing remained weak in Venezuela but growth was driven by increased
sales of special products and carbon dioxide. While sales of special products,
including refrigerants and ammonia, also increased in Colombia, the main source
of growth was the medical gas and home health care markets in an otherwise
difficult industrial economy.
 Indura, BOCs associated company based in Chile, benefited from a stable
political environment that served to insulate the Chilean economy from heavy
devaluations in neighbouring Argentina and Brazil. This led to a firm pricing
environment that allowed the benefits of cost controls to be realised.
  AfricaTurnover and adjusted operating profit increased significantly in 2002
as a result of a sustained resurgence in South African manufacturing. This was
reflected in the growth of sales volumes in the core cutting and welding
business for the first time in five years. New business in packaged chemicals
and other special gases further increased the growth of turnover as new
propellants and refrigerants were added to the product range. Adjusted
operating profit also increased significantly despite making additional
provisions for bad debts.
 Sales volumes of liquefied petroleum gas grew slowly but higher input costs
were successfully recovered in selling prices. Hospitality products and
services, and medical gases were also less important sources of sales growth in
2002. However, a recently introduced rescue pack providing a portable oxygen
supply for mineworkers continued to generate strong demand, which exceeded
production capacity.
 Exports of cutting and welding equipment from South Africa principally to other
African countries increased strongly in 2002.
  JapanDuring 2002 difficult economic conditions were reflected in essentially
unchanged turnover and a decline in adjusted operating profit. This was despite
good growth in gases for applications in lasers, medical gases and measurement
equipment.
  East AsiaTurnover and adjusted operating profit both increased but mainly as a
result of acquisitions. Economic growth in Taiwan and Singapore was curtailed
by their dependence on various aspects of electronics manufacturing, which
remained depressed in 2002, particularly during the first half. Weak demand
also restrained price increases, which were generally below the level of
inflation.
 The chief source of turnover and adjusted operating profit growth in the region
during 2002 was the acquisition of Unique Gas and Petrochemicals Public Company
Limited (UGP) in Thailand in May. UGP is a leading supplier of liquefied
petroleum gas and packaged ammonia.
 BOCs associated company in Malaysia acquired 35.6 per cent of the gases
company Nissan Industrial Oxygen Inc in March 2002 and, following a tender
offer, the holding was increased to 100 per cent in September 2002 providing a
wider platform for growth in 2003.
  South PacificStrong economic and manufacturing growth supported increased
sales and adjusted operating profit in the key markets of Australia and New
Zealand. The underlying growth of adjusted operating profit was ahead of the
sales increase. Civil turmoil and political uncertainty curtailed growth in the
Pacific islands.
 Increased manufacturing activity particularly in Australia but also in New
Zealand supported growth in every part of BOCs business. Mining, manufacturing
for export and infrastructure projects were particularly strong sectors. Prices
remained firm and overhead cost reduction, coupled with rationalisation of the
supply chain for welding and safety products, helped to widen margins.
 The sales and adjusted operating profit of BOCs associated company, Elgas,
which supplies liquefied petroleum gas (LPG) in south-eastern Australia,
increased sharply. Imported LPG prices remained stable and a relatively cold
winter encouraged sales in the home energy sector. The use of LPG as a vehicle
fuel declined.
 BOC EdwardsChangeon 200112002
    
    Change
    
    (constant£ million
    
    on 2001
    
    currency)Turnover
    
    
    688.2
    
    
    
    -21%
    
    
    
    -19%Operating profit
    
    
    (1.4
    )
    
    
    -102%
    
    
    
    -102%Adjusted operating profit2
    
    
    26.1
    
    
    
    -67%
    
    
    
    -66% 1.
    
    A reconciliation of results for 2001 at 2001 and at 2002 rates of
exchange is shown on page 31. 2.
    
    A reconciliation of adjusted
operating profit with operating profit is shown on page 32. 3.
    
    All comments below are on a constant currency basis.
  Despite the reduction in adjusted operating profit for the year, BOC Edwards
remained profitable in each quarter and was strongly cash generative during
2002.
 Operating exceptional items in 2002 were mainly for the write-down of assets in
the OSK business in Japan based on valuations ahead of the merger with Air
Liquide and further restructuring costs as part of the programme announced in
August 2001. Operating exceptional items in 2001 related to the business
initiative programme announced in August 2001 with the objective of releasing
cash tied up in unproductive assets and improving cash generation.
 The severe reduction in capital expenditure by semiconductor manufacturers that
began in the second half of 2001 continued into 2002. Although there was some
revival of demand for semiconductor equipment in the second half of 2002, the
rate of order intake declined at the end of the year.




43   The BOC Group plcAnnual report and accounts 2003





---



##### 



Operating review (comparing 2002 with 2001) continued







Those Asian markets that were the basis of the mid-year revival did not sustain
the earlier investment trends but opportunities were presented by a number of
customers investing in China. In August 2002 BOC formed a joint venture with
Lienhwa Corporation of Taiwan to help to take advantage of new business
opportunities presented by Taiwanese electronics companies investing in China.
The venture combined the marketing capabilities of Lienhwa with BOCs existing
resources in China. It delivered three new gas supply contracts to supply
semiconductor fabrication plants, including those under construction by Belling
and HJT in the Shanghai area. BOC Edwards also won an order to supply a new
plant in Singapore.
 Apart from the semiconductor industry, some other vacuum equipment markets such
as aerospace and chemicals also became more difficult in 2002. The
pharmaceutical and biotechnology markets remained buoyant and BOC Edwards was
notably successful in increasing sales of pharmaceutical drying and packaging
systems.
 Gases sales were also affected by weak conditions in the semiconductor industry
worldwide, which led to reduced plant utilisation and closures by some
customers. The overall profit impact of lost revenue on adjusted operating
profit was offset by increased productivity. In 2002 a programme to rationalise
production facilities for electronic materials was completed. This involved the
closure of electronic gases facilities at some sites, including Immingham in
the UK and part of the facility at Research Triangle Park in North Carolina, in
order to concentrate global production into fewer locations.
 The capacity to produce nitrogen trifluoride at BOCs plant in South Africa was
increased during 2002 to reach 50 tonnes a year. This product, which is used
for cleaning semiconductor process tool chambers, is undergoing qualification
trials with major customers. It will be possible to raise output further if it
is justified by demand.
 The pause in semiconductor capacity expansion did not prevent a drive by
manufacturers to invest in projects designed to reduce unit costs. Typically
this included outsourcing of major sub-systems, materials and services. BOC
Edwards participated in this movement through the development of several
important new products, through its close relationships with original equipment
manufacturers and by acquisitions in new business areas. During 2002 the
Kachina process tool component cleaning business was expanded by opening new
facilities to service customers in the US (Oregon), France and China.
 In 2002 BOC Edwards acquired the industrial vacuum and pressure businesses of
the Smiths Group.
This acquisition expanded BOC Edwards existing general vacuum product range
into new markets and added new high volume pumping technology to the portfolio.
Typical customers are in the metallurgy, water treatment, food, power and
chemical industries. The integration of the business was completed smoothly and
it was operating profitably by the end of the year.
 The most significant acquisition was of Seiko Instruments turbomolecular pumps
business based in Japan, which was completed in March 2002. Management believes
that the addition of Seiko turbomolecular pumps to the BOC Edwards range of
products should enhance the opportunity to develop vacuum sub-systems to
satisfy the growing trend towards on-tool pumping.
 The acquisitions of Hydromatix and Semco were also completed in January and
April 2002 respectively with the intention of positioning BOC Edwards in those
market segments that are expected to grow most rapidly. These companies now
form part of BOC Edwards Chemical Management Division.
 Hydromatix is based in the US and helps companies in the surface finishing
industry to recycle rinse waters with a minimum amount of waste, allowing them
to cut discharges. Customers are involved in plating, printed circuit boards
and galvanising, as well as higher-technology fields such as disc and
semiconductor production.
 Semco designs and manufactures high efficiency, process-critical, liquid
chemical blend, delivery and collection systems used in rapidly growing wet
deposition processes, such as copper plating, a common application in the
semiconductor manufacturing industry.




44   The BOC Group plcAnnual report and accounts 2003





---



##### 









Afrox hospitalsChangeon 200112002
    
    Change
    
    (constant£ million
    
    on 2001
    
    currency)Turnover
    
    
    259.0
    
    
    
    -10%
    
    
    
    +23%Operating profit
    
    
    29.7
    
    
    
    -8%
    
    
    
    +25%Adjusted operating profit2
    
    
    29.7
    
    
    
    -8%
    
    
    
    +25%
 1.
    
    A reconciliation of results for 2001 at 2001 and at 2002 rates of
exchange is shown on page 31. 2.
    
    A reconciliation of adjusted operating profit with operating profit is shown on page 32. 3.
    
    All comments below are on a constant currency basis.  The acquisitions of the Amahosp and Wilgers hospital groups in the first half
of 2002 added to turnover and more significantly to adjusted operating profit
as integration benefits were realised. The acquisitions added approximately
1,000 acute care beds to Afrox hospitals existing capacity. Existing hospital
facilities were also enhanced during 2002 through investment in new services
such as renal dialysis, physical and mental rehabilitation, pathology and
radiography.
 Acute care hospitals accounted for the majority of both turnover and adjusted
operating profit. The remainder was made up of health care services including
chronic care, occupational health and pharmacy services. During 2002 there was
a downturn in the Afrox direct medicines business that facilitates the supply
of chronic medication to patients by post. This followed increased competition
as health care funding organisations set up their own supply mechanisms at the
same time as limiting reimbursement for patients.
 Turnover of nursing staff continued to be a problem in South Africa as trained
nurses were lured overseas by higher pay. Afrox responded by increasing
spending on training activities to ensure that sufficient well-qualified staff
were available.
 Gist2002
    
    Change£ million
    
    on 20011Turnover
    
    
    264.8
    
    
    
    +14%Operating profit
    
    
    25.5
    
    
    
    +24%Adjusted operating profit2
    
    
    25.5
    
    
    
    +20% 1.
    
    A reconciliation of results for 2001 at 2001 and at 2002 rates of
exchange is shown on page 31. 2.
    
    A reconciliation of adjusted
operating profit with operating profit is shown on page 32. 3.
    
    All comments below are on a constant currency basis.
  Despite competitive conditions in the logistics market, Gist achieved strong
results with improved margins and some notable business wins. Turnover
increased by 14 per cent to £264.8 million and adjusted operating profit rose
20 per cent to £25.5 million.
 Operating supply chains for customers remained at the core of the business and
improved adjusted operating profit reflects both new contracts and increased
volume with existing customers. Gist now handles all of Marks & Spencers
chilled and ambient food distribution and services as well as the entire
warehouse and distribution operations for Budgens, another major UK retailer.
 E-business continued to grow steadily and offered a number of opportunities
with commercial promise to order on-line products and services. Gist provided
e-fulfilment warehousing operations for Ocado, an on-line grocery shopping and
home delivery company established in partnership with the Waitrose supermarket
chain, for Marks & Spencers Lunch to Go operation and for Blueheath, the
on-line wholesaler.
 With increasing emphasis on global supply chains, Gists experience, skills and
systems capabilities were already being used to manage complex international
supply chains, such as managing supplies for BOC Edwards global manufacturing
operations. Gist also provided stand-alone consulting services to a range of
customers.




45   The BOC Group plcAnnual report and accounts 2003





---



##### 



Financial review



(NET DEBT CHARTS)




Post balance sheet events An action was filed against The BOC Group Cash Balance Retirement Plan
(the Plan) in the US. At the time of the preliminary announcement of
the Groups results on 13 November 2003, no provision was made in
respect of this case, as at that time the outcome of the litigation
was uncertain and the amount of any loss could not be reliably
estimated. Subsequently the parties have reached an agreement in
principle to settle at US$69 million, subject to approval by the court
at a fairness hearing. Under UK accounting principles (FRS17) this
amount has been recognised as a charge in the profit and loss account
of the Group. It has been shown as an exceptional item. The
settlement will be paid out of Plan assets. Further information is
given on page 50.
 On 17 November 2003, the Groups South African subsidiary company
African Oxygen Limited announced that it had agreed to sell its entire
holding in Afrox Healthcare Limited. The sale remains subject to
certain conditions, including clearance from the relevant competition
and other regulatory authorities.
 Corporate transactions Group expenditure on acquisitions of businesses was £135.5 million
(2002: £207.3 million). The main acquisitions during 2003 were
Environmental Management Corporation, a privately held US water
services company, Praxairs Polish gases business and the Canadian
packaged gas and related welding equipment business of Air Products.
During 2002 the main acquisitions were the turbomolecular pumps
business of Seiko Instruments Inc, the vacuum and pressure business of
the Smiths Group and Unique Gas and Petrochemicals Public Company
Limited in Thailand.
 In September 2002 BOC completed the merger of its Process Plants
operations with Linde Engineering in the US to form a new company,
Linde BOC Process Plants LLC. The costs of £21.3 million for closing
BOCs Process Plants business were charged as an exceptional item in
2002. In September 2002 BOC and Air Liquide announced a conditional
agreement to merge their industrial and medical gases businesses in
Japan to form Japan Air Gases Limited. Valuations undertaken as part
of the business combination resulted in an exceptional write down of
£21.2 million in 2002. The combination took effect in January 2003 and
BOC has accounted for its 45 per cent share of Japan Air Gases Limited
as a joint venture from that date.
 Restructuring Costs of restructuring programmes amounting to £23.8 million have been
charged in 2003. This includes £5.0 million related to the business
initiative announced in August 2001 to divest some assets and to
restructure and improve returns in the businesses being retained.
These programmes are now completed and have resulted in some 1,600 job
losses. Further restructuring opportunities identified resulted in an
additional cost of £10.5 million charged this year and these
programmes are also completed. Management expects that savings from
restructuring programmes will amount to over £50 million a year. Costs
of £8.3 million were also incurred relating to the integration of the
BOC gases business and part of the Air Liquide business in Japan to
form Japan Air Gases Limited.
 In 2002 £47.2 million was charged for restructuring of which
£34.4 million related to the business initiative announced in
August 2001 and £12.8 million related to further restructuring
opportunities. Both of these programmes continued into 2003 and
were completed in 2003.
 Financial indicators The trends of financial indicators which, taken together, are a
measure of the performance and efficiency of the Groups finance and
tax structures, are:
 2003
    
    
    2002
    
    
    2001Interest cover (times)1
    
    
    4.6
    
    
    
    4.1
    
    
    
    3.4Adjusted interest cover (times)2
    
    
    5.3
    
    
    
    4.9
    
    
    
    4.3Net debt/equity (%)
    
    
    71.5
    
    
    
    73.6
    
    
    
    57.2Net debt/capital employed (%)
    
    
    36.9
    
    
    
    36.9
    
    
    
    32.0Average cost of net borrowings (%)
    
    
    5.6
    
    
    
    6.2
    
    
    
    7.2Group tax rate (%)
    
    
    27.4
    
    
    
    31.7
    
    
    
    28.9Adjusted Group tax rate (%)3
    
    
    29.0
    
    
    
    30.0
    
    
    
    32.5
 Adjusted means excluding exceptional items.
  1.
    
    Interest on net debt covered by operating profit. 2.
    
    Interest on net debt covered by adjusted operating profit.
 3.
    
    The adjusted tax charge expressed as a percentage of adjusted profit
before tax.
 The ratios are commented on below in the appropriate section.




46   The BOC Group plcAnnual report and accounts 2003






---



##### 







Financing The Group has access to a range of funding. Debt finance is raised
by issuing bonds, commercial paper, other obligations to investors
and through borrowings from banks.
 As well as medium and long-term borrowings, the Group maintains
short-term borrowings, principally in the form of commercial paper and
bank borrowings. The Group maintains US$450 million (£271 million) of
committed multi-currency facilities with a group of relationship banks.
These facilities mature in 2008 and provide back-up for the issue of
commercial paper as well as general liquidity for the Group.
Additional committed facilities are maintained by the principal
operating units in the Group.
 Overall, net debt increased by £42.5 million as a result of a net
cash inflow of £6.3 million, a £3.7 million inflow from the issue of
shares, an outflow of £31.8 million for the impact of business
acquisitions and disposals and £20.7 million for the effect of exchange
rate movements. In 2002, net debt increased by £53.5 million as a
result of a net cash outflow of £120.3 million offset by £25.0 million
inflow from the issue of shares and £41.8 million for the effect of
exchange rate and other movements. During the year, borrowings by the
parent company increased reflecting the companys effort to centralise
its longer term funding needs.
 The gearing ratio (net debt including finance leases as a
percentage of capital employed) was 36.9 per cent in 2003 compared
with 36.9 per cent in 2002 and 32.0 per cent in 2001. The decline in
the value of pension fund assets following the fall in world equity
markets accounted for some three per cent of the increase in 2002. The
2003 year end net debt/equity ratio was 71.5 per cent, compared with
73.6 per cent in 2002 and 57.2 per cent in 2001.
 The Group has access to a diverse range of debt finance including
commercial paper, public bonds and bank borrowings which, it believes,
will be available to meet long-term financing needs. The Group has
sufficient facilities to cover likely borrowing needs. Management
anticipates that capital expenditure in 2004 will be at a slightly
higher level than in 2003 and will be covered by cash inflow from
operating activities.
 Management of financial risks The board of directors sets the treasury policies and objectives of the
Group which include controls over the procedures used to manage
currency, interest rate and credit risk. The approach to managing risk
is set out below. This approach is expected to continue during the
next financial year. On a day-to-day basis, Group treasury carries out
these policies, with regular review meetings with the Group finance
director. Specific and significant activities need approval from the
finance committee, which includes any two directors of the company.
 The Group does not undertake any trading activity in financial
instruments nor does it enter into any leveraged derivative
transactions.
 Currency risk The Group faces currency risk principally on its net
assets, most of which are in currencies other than sterling. Currency
movements can therefore have a significant effect on the Groups
balance sheet when translating these foreign currency assets into
sterling. In order to reduce this effect the Group manages its
borrowings, where practicable and cost effective, to hedge its foreign
currency assets. Where possible, hedging is done using direct borrowings in the
same currency as the assets being hedged or through the use of other
hedging methods such as currency swaps. Group borrowings are
currently held in a wide range of currencies and, after swaps,
81 per
cent of net debt (2002: 86 per cent) is denominated in the principal
currencies affecting the Group: US dollars, Australian dollars,
Japanese yen, South African rand and sterling. The aggregate of the
notional principal values of currency swaps was £474.7 million
(2002: £360.7 million) spread over a range of currencies. The fair
value of such swaps is included in note 21 b) i) to the financial
statements.
 The balance sheets of overseas operations are translated into
sterling at the closing rates of exchange for the year and any exchange
difference is dealt with as a movement in reserves. This is explained
more fully in the accounting policy note on page 77. The profit and
loss accounts of overseas businesses are translated at average rates of
exchange and this translation impact directly affects the profit and
loss account of the Group.
 The Group manages its currency flows to minimise currency
transaction exchange risk and forward contracts are used as appropriate
to hedge net currency flows and selected individual transactions. The
Groups foreign exchange cover is mainly managed in the UK, Australia,
Japan and South Africa. The UK manages the cover for exposures on net
trade flows of the Groups companies in the US and certain other
countries. The aggregate principal amount of forward cover outstanding
at 30 September 2003 amounted to £173.8 million
(2002: £133.9 million).




47   The BOC Group plcAnnual report and accounts 2003






---



##### 



Financial review continued



(BAR GRAPH)




Interest rate risk At 30 September 2003, the Groups net debt position
after interest rate hedging activity included a net exposure of
£436.3 million (2002: £497.3 million) to floating interest rates. Based on
the Groups 2003 year end level and composition of net debt, an
increase in average interest rates of one per cent per annum would
result in a decrease in future earnings, before tax, of £4.4 million
per annum (2002: £5.0 million).
 In order to manage interest rate risk the Group maintains both
floating rate and fixed rate debt. At 30 September 2003, there was a
32:68 ratio (2002: 38:62) between floating and fixed rate net debt.
Underlying borrowings are arranged on both a fixed rate and a floating
rate basis and, where appropriate, the Group uses interest rate swaps
to vary this mix and to manage the Groups interest rate exposure.
 At 30 September 2003,the aggregate of the notional principal
values of swap agreements which affect the floating rate/fixed rate
mix was £417.6 million (2002: £420.0 million). The fair value of
such swaps is included in note 21 b) i) to the financial statements.
 Foreign exchange
risk At 30 September 2003, the Group had outstanding
forward exchange contracts totalling £173.8 million
(2002: £133.9 million) in respect of its actual and forecast transaction exposures.
The fair value of these contracts at 30 September 2003 amounted to a
gain of £5.8 million (2002: a gain of £4.9 million). A ten per cent
appreciation of sterling would increase the fair value of these
contracts by £13.7 million (2002: £7.4 million). In addition to these forward contracts, the Group is exposed to
foreign exchange movements on its net debt position. At 30 September
2003 net debt, after currency swaps, comprised net sterling liabilities
of £285.3 million (2002: £345.2 million) and net currency liabilities
of £1,082.8 million (2002: £980.4 million). Based on the Groups 2003
year end level and composition of net debt, a ten per cent appreciation
of sterling would result in a reduction in the value of net currency
liabilities of £90.5 million (2002: £89.1 million).
 Counterparty risk Cash deposits and other financial instruments give
rise to credit risk on the amounts due from counterparties. Credit
risk is managed by limiting the aggregate amount and duration of
exposure to any one counterparty depending upon its credit rating and
by regular reviews of these ratings. The possibility of material loss
arising in the event of non-performance by a counterparty is considered
unlikely by management. The currency and interest rate hedging profile of the Groups
borrowings at 30 September 2003 is shown in note 21 to the financial
statements. Further information on financial risk management is also
given in note 21 to the financial statements.
 Interest on net debt The net charge before the Groups share of interest of joint ventures
and associates was £75.8 million in 2003
(2002: £78.6 million, 2001: £98.5 million), which, after excluding interest income
from loans to joint ventures and associates, represented 5.6 per cent
of average net borrowings during the year. After taking into account
capitalised interest and the Groups share of joint ventures and
associates the net charge was £96.1 million. Adjusted interest cover
(the number of times that the interest charge on net debt is covered by
adjusted operating profit) increased to 5.3 times
(2002: 4.9 times, 2001: 4.3 times).
 Net interest on pension financing items The interest on pension scheme liabilities was £110.2 million in
2003 (2002: £106.1 million, 2001: £107.2 million). The expected
return on pension scheme assets was £119.6 million in 2003
(2002: £139.1 million, 2001: £166.9 million). The decline in the
expected return on pension scheme assets reflects the fall in the
value of world equity markets.
 Debt maturity profileThe maturity profile of the Groups gross borrowings is as follows:2003
    
    
    2002£ million
    
    
    %
    
    
    £ million
    
    
    %More than five years
    
    
    521.8
    
    
    
    36.1
    
    
    
    549.5
    
    
    
    36.4Two to five years
    
    
    416.4
    
    
    
    28.8
    
    
    
    390.6
    
    
    
    25.8One to two years
    
    
    146.5
    
    
    
    10.1
    
    
    
    180.9
    
    
    
    12.0Within one year
    
    
    360.9
    
    
    
    25.0
    
    
    
    390.1
    
    
    
    25.8Total
    
    
    1,445.6
    
    
    
    100.0
    
    
    
    1,511.1
    
    
    
    100.0
 A portion of the debt which matures within one year is commercial
paper issued by various Group companies. The Group maintains
US$450 million (£271 million) of committed multi-currency facilities
with a group of relationship banks. These facilities mature in 2008
and provide back-up for the issue of commercial paper as well as
general liquidity for the Group. Additional committed facilities are
maintained by the principal operating units in the Group.
 Additional information on the Groups gross borrowings can be
found in note 20. Details of the Groups share of net debt of joint
ventures and associates, the majority of which is non-recourse, are
given in note 13a).




48   The BOC Group plcAnnual report and accounts 2003




---



##### 





(BAR CHART)




Other contractual obligations The maturity of other contractual obligations of the Group is as follows:
 TotalUnconditional
    
    
    contractualOperating
    
    
    purchase
    
    
    cashleases
    
    
    obligations
    
    
    obligations£ million
    
    
    £ million
    
    
    £ millionDue after more than five years
    
    
    120.7
    
    
    
    575.7
    
    
    
    696.4Due within two to five years
    
    
    93.3
    
    
    
    247.4
    
    
    
    340.7Due within one to two years
    
    
    46.6
    
    
    
    69.3
    
    
    
    115.9Due within one year
    
    
    55.4
    
    
    
    70.1
    
    
    
    125.5Total
    
    
    316.0
    
    
    
    962.5
    
    
    
    1,278.5
 See also note 25 to the financial statements.
 Off-balance sheet arrangements The Group has provided guarantees of £26.8 million to third parties at
30 September 2003. For further information on guarantees see note 26 a). Other than disclosed, there are no off-balance sheet arrangements
that have or are reasonably likely to have a current or future material
effect on the Groups financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
 Inflation Over the last three years, inflation has not had a material impact on the
revenue or profit of the Group.
 Taxation The tax charge for 2003 of £96.4 million is calculated in accordance
with UK accounting standards, including FRS19 (deferred tax), under
which full provision is made for deferred taxes.
 The effective tax rate on adjusted profit in 2003 was 29 per cent
(2002: 30 per cent, 2001: 32.5 per cent). The total tax rate was 27.4 per cent (2002: 31.7 per cent, 2001: 28.9 per cent). The Group pays
corporation tax in the UK at a rate of 30 per cent.
 The Group is currently liable to pay federal tax at the rate of
35 per cent in the US. This is reduced by the existence of tax
credits. In the other principal subsidiaries, the tax rate is
typically between 30 per cent and 42 per cent.
 Contingencies The Group monitors all contingent liabilities including matters
relating to litigation and the environment via a process of
consultation and evaluation which includes senior management, internal
and external legal advisers and internal and external technical
advisers. This process results in conclusions with respect to
potential exposure and provisions are made or adjusted accordingly.
Management believes that the Group has adequately provided for
contingencies which are likely to become payable in the future.
 Legal proceedings Group companies are parties to various legal proceedings, including
some in which claims for damages in large amounts have been
asserted.
 The outcome of litigation to which Group companies are party
cannot be readily foreseen, but the directors believe that such
litigation should be disposed of without material adverse effect on
the Groups financial condition or profitability.
 Welding fumes litigationBOC has been named in numerous lawsuits in
the US alleging injury from exposure to welding fumes. Many of these
cases were filed during 2003. Certain of these cases have been either
filed in, or transferred for pre-trial purposes to, the federal
district court in the Northern District of Ohio, where a
multi-district litigation (MDL) proceeding has been commenced. The
MDL proceeding is still at an early stage. The MDL proceeding is a
vehicle for coordinating pre-trial proceedings in cases pending in
different federal district courts in the US. In addition to the cases
in federal court, BOC is a defendant in a number of similar cases
pending in state courts. These cases are in different stages of
procedural development, and certain cases are scheduled for trial from
time to time. From the time it purchased Airco in 1978 until this year BOC had
never had an adverse jury verdict returned against it in a case
alleging injury from exposure to welding fumes. On 28 October 2003, a
jury in Madison County, Illinois, rendered a verdict against BOC and
two co-defendants. The jury awarded US$1 million to Mr Elam, a former
labourer who asserted that his idiopathic Parkinsons disease was
attributable to his exposure to welding fumes over a period of years.
BOC believes that the verdict is inconsistent with the decisions
rendered by juries in previous cases, is not supported by the existing
scientific evidence and intends to pursue vigorously its post-trial and
appeal rights.
 BOC believes that it has strong defences to the claims asserted in
these various proceedings related to alleged injury from exposure to
welding fumes and intends to defend vigorously such claims. Based on
BOCs experience to date, together with BOCs current assessment of the
merits of the claims being asserted, and applicable insurance, BOC
believes that continued defence and resolution of these proceedings
will not have a material adverse effect on its financial condition or
profitability and no provision has been made.




49   The BOC Group plcAnnual report and accounts 2003






---



##### 



Financial review continued







Fluorogas litigationIn February 2003, the company was notified that a
jury verdict in the US District Court for the Western District of Texas
was obtained for US$132 million against Fluorogas Limited, The BOC
Group Inc and The BOC Group plc. The verdict arises primarily out of
an alleged breach of a memorandum of understanding by Fluorogas Limited
before it was acquired by The BOC Group plc in September 2001. In
March 2003, the court also awarded interest and costs against the
defendants, making them jointly and severally liable for a total of
US$174 million. A bond for the full amount has been posted with the
Court as part of the normal appeals process.
 The company believes that the jurys verdict reflects a
misunderstanding of the law and does not reflect the facts of any loss
that may have been suffered by the plaintiff. The company is
challenging the verdict through the appropriate appeals process in the
US and hence no provision has been made. In addition, Fluorogas
Limited was placed in administration under the Insolvency Act of 1986
pursuant to an order of the English Courts. In a related proceeding in
a US Bankruptcy Court, the UK administrators have obtained injunctive
relief preventing the plaintiff in the Fluorogas litigation from
commencing or continuing any action or proceeding enforcing any
judgement against Fluorogas Limited in the US.
 ERISA litigationAn action was filed in the US District Court for the
Southern District of Illinois against The BOC Group Cash Balance
Retirement Plan (the Plan). The plaintiffs brought this action on
behalf of themselves and all others similarly affected, alleging that
the Plan improperly calculated lump sum distributions from the Plan
in violation of the Employee Retirement Income Security Act. The
maximum potential liability could have reached US$116 million and any
award would be paid out of Plan assets. The parties have reached an agreement in principle to settle at
US$69 million. The settlement documents are being prepared. The
settlement is subject to approval by the court at a fairness hearing.
A provision of US$69 million has been made in the financial statements.
Under UK accounting principles (FRS17), this has been recognised as a
charge in the profit and loss account of the Group. It has been shown
as an exceptional item.
 Insurance Operational management is responsible for managing business risks.
Several Group departments advise management on different aspects of
risk and monitor results. Insurance cover is held against major
catastrophes. For any such event, the Group will bear an initial
cost before external cover begins.
 Critical accounting policies The principal accounting policies affecting the results of operations
and financial condition are set out on pages 77 and 78 of the financial
statements. The application of certain of these policies requires
assumptions or subjective judgements by management. Management bases
these on a combination of past experience and any other evidence that
is relevant to the particular circumstances.
 The application of these assumptions and judgements affects the
reported amounts of profit during the year and the assets and
liabilities at the balance sheet date. Actual results may differ from
the estimates calculated using these assumptions and judgements.
Management believes that the following are the critical policies where
the assumptions and judgements made could have a significant impact on
the consolidated financial statements.
 Tangible fixed assetsA significant part of the capital employed of the
Group, particularly in the Process Gas Solutions and Industrial and
Special Products lines of business, is invested in tangible fixed
assets. The nature of the business demands significant capital
investment to renew or increase production capacity or to enable the
business to achieve greater productivity and efficiency. It is the Groups policy to depreciate tangible fixed assets,
except land, on a straight line basis over the effective lives of the
assets. This ensures that there is an appropriate matching of the
revenue earned with the capital costs of production and delivery of
goods and services. A key element of this policy is the estimate of
the effective life applied to each category of fixed assets which, in
turn, determines the annual depreciation charge. In deciding the
appropriate lives to be applied, management takes into account various
factors including, among other things, the accumulated experience of
the effective asset lives from historic business operations and an
assessment of the likely impact of any changes in technology.
 While Group earnings in any period would fluctuate if different
asset lives were applied, in some cases the original estimated life of
an asset is closely related to contractual arrangements with large
customers. Some of the earnings impact of choosing a different asset
life would be mitigated, as the different life may reflect different
contractual arrangements with such customers. Nevertheless,
variations in the effective lives could impact the earnings of the
business through an increase or decrease in the depreciation charge.
It is estimated that a change of one year in the effective life of all
plant, machinery, vehicles and cylinders would have an impact of
between £15 million and £20 million on annual Group operating profit.
A change in the effective life of buildings would have only a
negligible impact.
 Intangible fixed assetsIn a similar manner to tangible fixed assets,
management uses its judgement to determine the extent to which goodwill
arising from the acquisition of a business has a value that will
benefit the performance of the Group over future periods. It is the
Groups policy to amortise goodwill on a straight line basis over its
useful economic life. This takes into account, among other things, the
maturity of the business acquired and its product and customer base.
Any change in these assumptions would have an impact on the earnings of
the Group. It is estimated that a change of one year in the useful
economic life of all goodwill would have an impact of approximately
£1 million on annual Group operating profit.




50   The BOC Group plcAnnual report and accounts 2003






---



##### 









Retirement benefitsResults of the Group include costs relating to the
provision of retirement benefits for employees It is the directors
responsibility to set the assumptions used in determining the key
elements of the costs of meeting such future obligations. The
assumptions are based on actual historical experience and are set after
consultation with the Groups actuaries. They include the assumptions
used for regular service costs and for the financing elements related
to the pension schemes assets and liabilities. Whilst management
believes that the assumptions used are appropriate, a change in the
assumptions used would affect both the operating profit and net
interest cost of the Group.
 There are a number of elements used in the assumptions. These
vary for the different countries in which the Group operates, and there
may also be an inter-dependency between some of the assumptions. As a
result, it would be impractical and potentially misleading to give any
approximate impact on annual Group operating profit of a change in any
one assumption in isolation.
 Environmental provisionsIn certain parts of the business, mainly in
the US, the Group has obligations to carry out environmental clean-ups
at former and current production sites. Many of these obligations will
not arise for a number of years, and the costs are difficult to predict
accurately. Management uses its judgement and experience to provide an
appropriate amount for the likely cost of such clean-ups, and the
amounts, if material, are discounted to present values. Both the
amount of anticipated costs, and the interest rates used to discount
such costs, are subjective. The use of different assumptions would
impact the earnings of the Group. It is estimated that a change of one per cent in the interest
rate used to discount such costs would have an impact of
approximately £1 million on annual Group profit before tax.
 Current asset provisionsIn the course of normal trading activities,
management uses its judgement in establishing the net realisable value
of various elements of working capital  principally stocks,
work-in-progress and accounts receivable. Provisions are established
for obsolete or slow moving stocks, bad or doubtful debts and product
warranties. Actual costs in future periods may be different from the
provisions established and any such differences would affect future
earnings of the Group. The provisions are established at levels appropriate to the
circumstances within individual Group business units, and not on a
Group-wide systematic basis. It is therefore considered that any
estimate of the impact on annual Group operating profit of any change
in such provisions may not be meaningful. Nevertheless, a change of
ten per cent in the level of provision for bad and doubtful debts at 30 September 2003 would have an impact of approximately £3 million on
annual Group operating profit.
 The critical accounting policies under UK GAAP do not materially differ
from those under US GAAP. Further details of the differences between UK
and US GAAP are given in note 30 to the financial statements. Accounting The Groups accounting policies are based on accounting policies
generally accepted in the UK (UK GAAP). No new UK GAAP accounting
standards have been issued or have come into force since 30 September
2002. The accounts for the year to 30 September 2003 have therefore
been prepared on an accounting basis consistent with that applied in
the financial year ended 30 September 2002.
 The report and accounts also continues to include US reporting
requirements. This enables the Group to meet the reporting obligations
for a foreign private issuer as required by the US Securities and
Exchange Commission.
 The report on remuneration follows the disclosure requirements of
the UK Listing Authority Listing Rules and the UK Companies Act 1985.
Where appropriate, in order to improve clarity, voluntary disclosures
are also given.
 As a global business the Group supports initiatives to harmonise
accounting standards. The Group is preparing for the move to report
under International Financial Reporting Standards in line with the
timetable set out in European Union legislation. The first annual
report and accounts to which this will apply will be for the year
ended 30 September 2006.
 The Group plays an active part in accounting developments by
responding to new proposals and by appropriate representation.
 US GAAP The financial statements of the Group have been prepared in
accordance with UK GAAP, which differs in certain respects from US GAAP.
 The US accounting information in note 30 to the financial
statements gives a summary of the principal differences between the
amounts determined in accordance with the Groups accounting policies
(based on UK GAAP) and amounts determined in accordance with US GAAP
together with the reconciliation of net profit and shareholders
funds from a UK GAAP basis to a US GAAP basis, presentation of the
US GAAP measure of comprehensive income and a movement in
shareholders funds on a US GAAP basis.
 The
net income for the year ended 30 September 2003 under US GAAP was £264.3 million (2002: £255.4 million, 2001: £234.2 million), compared with the net profit
of £219.1 million in 2003 (2002: £202.9 million, 2001: £224.1 million) under UK GAAP. Shareholders funds at 30 September 2003
under US GAAP were £1,872.5 million (2002: £2,061.0 million),
compared with £1,734.8 million (2002: £1,684.1 million) under UK GAAP. The difference primarily results from the differing accounting
treatment of pensions, goodwill, financial instruments, investments
and fixed asset revaluations.




51   The BOC Group plcAnnual report and accounts 2003






---



##### 



Financial review continued



(BAR GRAPHS)




Exchange rates The majority of the Groups operations are located outside the UK and operate
in currencies other than sterling.
 The effects of fluctuations in the relationship between the
various currencies are extremely complex and variations in any
particular direction may not have a consistent impact on the reported
results. In 2003, sterling strengthened against two of the four
principal currencies affecting the Group: by nine per cent against the
US dollar and by four per cent against the Japanese yen. Sterling
weakened by five per cent against the Australian dollar and by 15 per
cent against the South African rand.
 In 2002, sterling strengthened against the US dollar, the Japanese
yen and the South African rand. It was almost unchanged against the
Australian dollar.
 In 2001, sterling weakened against the US dollar, but strengthened
against the Australian dollar, the Japanese yen and the South African
rand.
 The rates of exchange to sterling for the currencies which have
principally affected the Groups results over the last five years were:
 2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999US dollarAt 30 September
    
    
    1.66
    
    
    
    1.57
    
    
    
    1.47
    
    
    
    1.48
    
    
    
    1.65Average for the year
    
    
    1.60
    
    
    
    1.47
    
    
    
    1.44
    
    
    
    1.56
    
    
    
    1.63Highest rate during year
    
    
    1.69
    
    
    
    1.58
    
    
    
    1.50
    
    
    
    1.67
    
    
    
    1.72Lowest rate during year
    
    
    1.54
    
    
    
    1.41
    
    
    
    1.37
    
    
    
    1.40
    
    
    
    1.55Australian dollarAt 30 September
    
    
    2.45
    
    
    
    2.89
    
    
    
    2.98
    
    
    
    2.73
    
    
    
    2.52Average for the year
    
    
    2.62
    
    
    
    2.77
    
    
    
    2.76
    
    
    
    2.56
    
    
    
    2.55Highest rate during year
    
    
    2.89
    
    
    
    3.00
    
    
    
    3.03
    
    
    
    2.85
    
    
    
    2.87Lowest rate during year
    
    
    2.40
    
    
    
    2.54
    
    
    
    2.62
    
    
    
    2.45
    
    
    
    2.33Japanese yenAt 30 September
    
    
    185.60
    
    
    
    191.45
    
    
    
    175.09
    
    
    
    159.77
    
    
    
    175.34Average for the year
    
    
    191.01
    
    
    
    184.34
    
    
    
    170.04
    
    
    
    166.03
    
    
    
    191.43Highest rate during year
    
    
    199.49
    
    
    
    193.05
    
    
    
    181.26
    
    
    
    178.67
    
    
    
    230.73Lowest rate during year
    
    
    182.17
    
    
    
    173.82
    
    
    
    153.13
    
    
    
    149.77
    
    
    
    168.23South African randAt 30 September
    
    
    11.57
    
    
    
    16.58
    
    
    
    13.24
    
    
    
    10.68
    
    
    
    9.88Average for the year
    
    
    13.24
    
    
    
    15.64
    
    
    
    11.47
    
    
    
    10.24
    
    
    
    9.82Highest rate during year
    
    
    16.41
    
    
    
    19.49
    
    
    
    13.26
    
    
    
    11.18
    
    
    
    10.43Lowest rate during year
    
    
    11.40
    
    
    
    13.00
    
    
    
    10.54
    
    
    
    9.92
    
    
    
    9.12
 On 13 November 2003, the latest practicable date for inclusion in this
report and accounts, the rates of exchange to sterling for the
principal currencies were as follows: US dollar 1.69; Australian
dollar 2.34; Japanese yen 182.44; South African rand 11.39.
 The highest and lowest rates of exchange for sterling against the US dollar for
the last six months were:
 May
    
    June
    
    July
    
    August
    
    September
    
    OctoberHigh
    
    
    1.65
    
    
    
    1.69
    
    
    
    1.67
    
    
    
    1.62
    
    
    
    1.66
    
    
    
    1.70Low
    
    
    1.59
    
    
    
    1.63
    
    
    
    1.58
    
    
    
    1.57
    
    
    
    1.57
    
    
    
    1.66
 Principal operating companies The following operating companies principally affect the amount of profit or
assets of the Group:
  
    
    The BOC Group Inc, a wholly-owned Delaware corporation and a
subsidiary of The BOC Group Inc, a wholly-owned Nevada
corporation. 
    
    BOC Limited, a wholly-owned English company. 
    
    BOC Limited, a wholly-owned Australian company. 
    
    Gist Limited, a wholly-owned English company. 
    
    Japan Air Gases Limited, a Japanese company, in which the
Groups Japanese 98 per cent owned subsidiary holds 45 per cent. 
    
    African Oxygen Limited, a South African company, in which the Groups
shareholding is 56 per cent. Supplier payment policy The Group applies a policy of agreeing and clearly communicating the
terms of payment as part of the commercial arrangements negotiated
with suppliers and then paying according to those terms. In addition
the UK-based businesses have committed to the Better Payment Practice
Code. A copy of the code can be obtained from the Department of
Trade and Industry, DTI Publications Orderline, Admail 528, London SW1W
8YT.
 For UK businesses, of amounts owing to suppliers, trade creditors represents
54 days at 30 September 2003.
 Going concern The directors are confident, after having made appropriate enquiries,
that both the company and the Group have adequate resources to continue
in operation for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the accounts.
Management believes that its current credit facilities provide
sufficient working capital to meet the present requirements of its
existing businesses and that the gearing ratio is appropriate given the
nature of the Groups activities.
 Substantial holdings Details of substantial holdings of Ordinary shares at 13 November 2003 are shown on page 125.




52   The BOC Group plcAnnual report and accounts 2003






---



##### 



Corporate governance







The BOC Group is committed to business integrity, high ethical
values and professionalism in all its activities. As an essential
part of this commitment, the board supports the highest standards
in corporate governance.
 The board At 30 September 2003 the board comprised the chairman, five executive
directors and six non-executive directors. Biographies of each of the
directors can be found on pages 8 and 9. BOC has operated with a board
comprised of 12 members for some time and considers this to be an
effective size and balance for the company. The executive directors
are the chief executive, Group finance director and the three chief
executives of the lines of business. The non-executive directors bring
a wide range of experience and expertise to the board and all are
considered by the board to be independent. Sir Christopher ODonnell
is the senior independent director, having been appointed to this role
in March 2003 following the retirement of Göran Lundberg. The board
composition allows for changes to be made with minimum disruption. The
board reviews annually the senior managers and their succession and
development plans.
 The roles of chairman and chief executive are separate. This has
been so since 1994. The chairman leads the board, ensuring that each
director, particularly the non-executive directors, are able to make an
effective contribution. He monitors, with assistance from the company
secretary, the information distributed to the board to ensure that it
is sufficient, accurate, timely and clear. The chief executive
maintains day-to-day management responsibility for the companys
operations, implementing Group strategies and policies agreed by the
board. This division of responsibilities between the chairman and the
chief executive has been agreed with the board as a whole.
 During the year the chairmans other commitments have changed.
Whilst remaining a non-executive director of Anglo American plc he has
stepped down from the chairmanship of its audit committee and has
assumed the role of senior independent director. The board has
reviewed the chairmans current obligations and is satisfied that he
has sufficient time available to meet all his commitments.
 The board has a formal schedule of matters reserved to it. In
particular the boards main focus is on strategic and policy issues and
reviewing performance. These matters are reviewed annually at a
combined board and strategy meeting, lasting over a period of two days,
with updates provided to the board on a regular basis.
 The board delegates certain functions to committees. There are
six board committees, details of which are given below. The board,
however, takes direct responsibility for the review and monitoring of
key company policies in such areas as risk management, treasury matters
and corporate social responsibility including safety, environment and
the Code of Conduct. The board currently approves all Group
commitments in excess of £25 million.
Decisions relating to commitments below this level are delegated by
the board to the business unit heads, line of business chief
executives, investment committee and the executive management board
in accordance with specified financial levels agreed by the board.
The board monitors the financial performance of the company. It is
given presentations on major projects and receives reviews from each
of the individual businesses.
 The board meets six times a year, with two meetings held at major
operating subsidiaries and one of those two meetings at a location
outside the UK. The attendance of directors at the board and principal
board committee meetings during the year are detailed in the chart
below.
 Audit
    
    
    Nomination
    
    
    RemunerationBoard
    
    
    committee
    
    
    committee
    
    
    committee(six meetings)
    
    
    (four meetings)
    
    
    (six meetings)
    
    
    (six meetings)R J Margetts
    
    
    6
    
    
    
    
    
    
    
    6
    
    
    
    A E Isaac
    
    
    6
    
    
    
    
    
    
    
    6
    
    
    
    F R Arredondo
    
    
    5
    
    
    
    4
    
    
    
    5
    
    
    
    4J M Baddeley
    
    
    6
    
    
    
    4
    
    
    
    6
    
    
    
    6J A Bevan1
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    A R J Bonfield2
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1R S Grant3
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    G U U Lundberg4
    
    
    2
    
    
    
    1
    
    
    
    2
    
    
    
    3R Médori
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    R G Mendoza5
    
    
    5
    
    
    
    4
    
    
    
    4
    
    
    
    4M F C Miau
    
    
    6
    
    
    
    
    
    
    
    5
    
    
    
    4Sir Christopher ODonnell
    
    
    5
    
    
    
    4
    
    
    
    5
    
    
    
    4Dr K Rajagopal
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    J L Walsh
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
 1.
    
    appointed on 5 December 2002.
 2.
    
    appointed on 29 July 2003.
 3.
    
    resigned on 31 December 2002.
 4.
    
    resigned on 4 March 2003.
 5.
    
    appointed on 9 October 2002.
 The chairman meets twice a year with the non-executive directors
without the executive management present and at each meeting there is a
session without the chairman present, chaired by Sir Christopher
ODonnell as the senior independent director, during which they review
the chairmans performance. The company maintains directors and officers liability
insurance with a limit of cover of £100 million for each and every
claim or series of claims arising from the same set of circumstances.
 The board reviews board meeting papers, regular reports on the
company and market sector activity together with updates on governance
and regulatory matters and litigation affecting the Group.
 All directors have access to the advice and services of the
company secretary and there is a well established procedure enabling
any director, in the furtherance of his or her duties, to seek
independent professional advice at the companys expense.




53   The BOC Group plcAnnual report and accounts 2003






---



##### 



Corporate governance continued





Directors and officers The directors holding office at the date of this report are named on
pages 8 and 9. John Bevan joined the board as an executive director on
5 December 2002 and Dick Grant resigned as an executive director on 31
December 2002. Roberto Mendoza was appointed a non-executive director
on 9 October 2002 and, following the resignation of Göran Lundberg on 4
March 2003, Andrew Bonfield was appointed a non-executive director on
29 July 2003.
 The officers of the company are the executive directors and other
members of the executive management board as named on pages 10 and 11.
All held office throughout the year ended 30 September 2003 except Dick
Grant who resigned on 31 December 2002 and Kent Masters who became a
member of the executive management board on 11 December 2002. There
have been no further changes up to the date of this report.
 Non-executive directors The Group has long recognised the vital role that non-executive
directors play in ensuring high governance standards. The BOC board
has for many years had a significant presence of high calibre
non-executive directors. The nomination committee identifies and
evaluates candidates to fill vacancies and these are nominated for
approval by the board as a whole. Non-executive directors are
initially appointed for a three year term after which, whilst not
automatic, their appointment may be extended subject to mutual
agreement and shareholder approval.
 The non-executive directors have full access to management and
both internal and external auditors, and are encouraged to stay fully
abreast of the Groups business through site visits and meetings with
senior management. Appropriate training and briefings are available to
all directors on appointment and subsequently, as necessary, taking
into account their qualifications and experience. During 2003 a
non-executive director attended two relevant external training courses.
For all new non-executive directors a full induction programme is
provided including site visits and meetings with each of the line of
business chief executives, each member of the executive management
board and also the companys key external advisers.
 Board committees There are six board committees to which the board delegates specific areas of
responsibility as described below.
 Audit committee Members: Fabiola Arredondo, Julie Baddeley, Andrew Bonfield,
Roberto Mendoza, Matthew Miau and Sir Christopher ODonnell
(chairman).
 The audit committee meets four times a year. Time is set aside at
two of these meetings for the committee to meet with the internal and
external auditors without executive management present. The committee
reviews the effectiveness of internal controls, matters raised by the
internal and external auditors in their regular reports to the
committee and the quarterly financial statements prior to their
release. The committee reviews the programme and effectiveness of risk
management within the Group as well as ensuring that an appropriate
relationship between BOC and the external auditors is maintained. The
audit committee terms of reference are available on the companys
website (www. boc. com).
 Andrew Bonfield, an independent non-executive director, is
considered by the board to be the audit committee financial expert. He
is considered to be independent in accordance with a definition of that
term by the New York Stock Exchange. The qualifications of all members
of the committee are given on pages 8 and 9.
 A report from the audit committee on its activities during 2003 is given on
page 55.
 Nomination committee Members: Fabiola Arredondo, Julie Baddeley, Andrew Bonfield,
Tony Isaac, Rob Margetts (chairman), Roberto Mendoza, Matthew
Miau and Sir Christopher ODonnell.
 The nomination committee meets periodically as required, and in
the year ended 30 September 2003 met six times. The committee
primarily monitors the composition and balance of the board and its
committees and identifies and recommends to the board the appointment
of new directors. Whilst the chairman of the board chairs this
committee he is not permitted to chair meetings when the appointment of
his successor is being reviewed. The nomination committee terms of
reference are available on the companys website (www. boc. com).
 Following developments in corporate governance during the year,
the committee reviewed the terms of reference of each of the
principal board committees. It recommended changes which were
approved and implemented by the board.
 The committee carries out, on an annual basis, a review of the
board and executive management board, monitoring the succession plans
for the board. This is complemented by an annual board evaluation
which in 2002 was an internal review and in 2003 has been a more
comprehensive review conducted by an external facilitator. The
results of the evaluation assist the committee in its consideration of
the opportunities for improvement in the performance of directors
generally and in the reappointment of non-executive directors upon
expiry of their term of office and also on their proposed re-election
as directors retiring by rotation at the Annual General Meeting.
 The results of the 2003 evaluation were very positive. In
particular, the evaluation confirmed that the board and each of the
principal board committees worked effectively. The contributions by
individual directors to board and committee discussions were also
considered to be high. The review did highlight the need for
continuing improvement in the overall efficiency of board and committee
meetings in order to maintain the focus of discussions on key strategic
and policy matters.
 In the appointment of new directors the committee reviews the
current balance of skills on the board. It draws up a specification
to include any specific knowledge or expertise it considers of future
benefit to the board having regard to the
business throughout the Group and the overall strategy. It
recruits using external search agents who would put forward a short
list of candidates for the committee to review before submitting its
recommendation to the board as a whole.




54   The BOC Group plcAnnual report and accounts 2003






---



##### 









During the year the committee assessed the time commitment it
considers appropriate for each non-executive director to devote to
BOC to ensure that they have enough time in addition to their
existing commitments. This agreed time commitment is taken into
account when considering new appointees to the board.
 Remuneration committee Members: Fabiola Arredondo, Julie Baddeley (chairman), Andrew Bonfield,
Roberto Mendoza, Matthew Miau and Sir Christopher ODonnell.
 The remuneration committee meets six times a year. The committee
recommends to the board the policy on executive directors remuneration
and the specific remuneration, benefits and terms of employment of each
executive director. The remuneration committee terms of reference are
available on the companys website (www. boc. com).
 The committees report on directors remuneration is set out on pages 60 to
69.
 Pensions committee Members: Julie Baddeley (chairman), Tony Isaac, Rob Margetts, René Médori,
Roberto Mendoza.
 The pensions committee meets twice a year and oversees the review
of governance and control procedures applying to all employee
retirement benefit plans and reviews and makes recommendations on the
investment policies and strategies applied to the Groups retirement
benefit plans.
 Executive management board The members of the executive management board are detailed on pages
10 and 11. The executive management board is chaired by Tony Isaac.
 The executive management board meets regularly having primary
authority for the day-to-day management of the Groups operations and
policy implementation pursuant to the Groups strategy agreed by the
board.
 Investment committee Members: John Bevan, Tony Isaac (chairman), René Médori, Raj
Rajagopal, Greg Sedgwick, John Walsh and representatives from the
finance function.
 The investment committee meets regularly and reviews and approves
Group commitments up to certain levels set by the board.
 Accountability and audit Statements of the respective responsibilities of the directors and
auditors for these accounts are set out on pages 70 and 71.
 To enhance further the confidence of investors in the
independence of the independent auditors and their report, the board
of BOC has introduced a policy that defines which other services
PricewaterhouseCoopers LLP may or may not provide to BOC. The policy
requires the provision of these services to be approved in advance by
the audit committee of the board. A full statement of the fees paid
for audit and non-audit services is provided in note 2 c) to the
financial statements.
 Audit committee report The audit committee meetings in 2003 reviewed the following issues:
 i)
    
    interim financial results.
 ii)
    
    interim report from the internal audit function of progress against the 2003 audit plan.
 iii)
    
    corporate governance issues arising in the US under the Sarbanes-Oxley Act and in the UK in the revised Combined Code.
The audit committee reviewed the Groups actions and disclosure items in response to these matters designed to enhance the
Groups corporate governance practices.
 iv)
    
    the external 2003 audit plan for the Groups auditors, PricewaterhouseCoopers LLP (PwC). This review included the audit
objectives, auditor independence and objectivity policies managed by PwC, partner rotation, audit scope, team, timetable,
deliverables and fee proposal.
 v)
    
    the Groups risk management process, including progress on the management
of key risks identified by the Group, and within the Groups lines of
business.
 vi)
    
    the 2003 full year results. vii)
    
    the annual report disclosure items relevant to the audit committee.
 viii)
    
    full year report on internal audit and effectiveness of internal control.
 ix)
    
    the external auditors year end report.
 x)
    
    the independence and objectivity of the external auditors, including a
review of non-audit fees. During this period the audit committee met with the Groups external auditors
without the presence of management.
 Regular attendees to audit committee meetings, at the invitation
of the chairman of the committee, include: the chairman, chief
executive, Group finance director, company secretary (or his
designate), director of risk management and head of business assurance
audit.
 During 2003 the audit committee has reviewed the arrangements for
staff to report, in confidence, financial reporting, financial control
issues or other matters. The committee has also reviewed the Groups
policy on the hiring of former external auditor personnel and has
received reports from management on changes in accounting requirements
and accounting policies relevant to the Group.
 The audit committee has reviewed its terms of reference and
amended them in accordance with the policies and procedures introduced
by BOC to enhance corporate governance practices.




55   The BOC Group plcAnnual report and accounts 2003






---



##### 



Corporate governance continued







The audit committee has reviewed and approved a policy for the
provision of non-audit services by the auditor. This policy defines
services which can be provided by the auditor and specifies services
which cannot be provided. The policy requires all non-audit services
to be approved in advance by the audit committee, which has delegated
this task to the chairman of the audit committee. The approval process
requires full disclosure of the objectives and scope of the services to
be performed and fee structure. The audit committee reviews all
approved services at subsequent meetings.
  The audit committee has reviewed and approved a policy to safeguard
auditor objectivity and independence. This policy requires annual
review of:
 i)
    
    policies and procedures adopted by the auditor.
 ii)
    
    policies implemented by the Group to manage non-audit services,
employment of former auditor employees, audit partner rotation and
influence on the conduct or objectivity of the audit.
 The audit committee concludes that, based on the foregoing, it has
discharged its responsibilities as set out in the terms of reference
and is satisfied that auditor independence and objectivity have been
maintained. Risk management and internal controls This statement of compliance with the Combined Code on Corporate
Governance in respect of risk management and internal controls is in
line with the arrangements set out by the UK Listing Authority.
 The board has overall responsibility for the Groups system of risk
management and internal controls.
 The schedule of matters reserved to the board ensures that the
directors maintain full and effective control over all significant
strategic, financial, organisational and compliance issues.
 Risk management in BOCThe BOC risk management programme assists
management throughout the Group to identify, assess and manage
business risk. The risk management programme is supported by a dedicated central
team of risk specialists. To ensure all parts of the Group have a firm
understanding of risk, the central team has led over 170 risk workshops
and reviews around the world in the past three years. These risk
assessments have been broad, covering: risks in strategy; risks to
achieving commitments contained in performance contracts; risks in
organisational change; risks associated with major projects and risks
involving acquisitions. The risk management process operates
throughout BOC and is applied equally to the global lines of business,
the business units and corporate functions.
 The output from each assessment is a list of prioritised risks
with associated action plans to mitigate them. Line managers are
responsible for these action plans and their progress is reported,
as required, as part of their performance contract reviews.
 A report is made to the board twice a year. The relevant
business executives presented to the board in May and November 2003,
covering actions which had been completed and the status of
continuing action plans to manage the Groups key risks.
 BOC views risk management as integral to good business practice.
The programme is designed to support managements decision making and
to improve the reliability of business performance. BOC will continue
to embed the management of risk into all its management processes.
 Internal controls in BOCThe directors have delegated to executive
management the establishment and implementation of a system of
internal controls appropriate to the various business environments in
which it operates. The Group operates under a system of controls that
has been developed and refined over time to meet its current and
future needs and the risks and opportunities to which it is exposed.
These controls, which are communicated through various operating and
procedural manuals and processes, include but are not limited to: 
    
    the definition of the organisational structure and the appropriate delegation of authorities to operational management.
 
    
    procedures for the review and authorisation of capital investments through the investment committee including post-acquisition reviews
and appraisals.
 
    
    strategic planning and the related annual planning process including the ongoing review by the board of the Groups strategies.
 
    
    the establishment of individual business unit annual performance targets and the quarterly business review of actual performance.
 
    
    the monthly financial reporting and review of financial results and other operating statistics such as the health and safety reports as
well as the Groups published quarterly financial statements, which are based on a standardised reporting process.
 
    
    accounting and financial reporting policies to ensure the consistency, integrity and accuracy of the Groups accounting records.
 
    
    specific treasury policies and objectives and the ongoing reporting and review of all significant transactions and financing operations.
 The internal control system is monitored and supported by an internal
audit function that operates on a global basis and reports its results
to management and the audit committee on the Groups operations. The
work of the internal auditors is focused on the areas of greatest risk
to the Group determined on the basis of a risk management approach to
audit. There have been regular reviews by the audit committee of the
board of the effectiveness of the Groups overall internal control
processes throughout the year.
 The directors therefore believe that the Groups system of risk
management and internal controls provides reasonable but not absolute
assurance that assets are safeguarded, transactions are authorised and
recorded properly and that material errors and irregularities are
either prevented or would be detected within a timely period.




56   The BOC Group plcAnnual report and accounts 2003






---



##### 









Having reviewed its effectiveness, the directors are not aware of any
significant weakness or deficiency in the Groups system of internal
controls during the period covered by this report and accounts. There
were no changes in the Groups internal control over financial
reporting that occurred during the year ended 30 September 2003 that
have materially affected, or are reasonably likely to materially
affect, the Groups internal control over financial reporting.
 Disclosure controls and procedures The chief executive and Group finance director, after evaluating the
effectiveness of the Groups disclosure controls and procedures as at
the end of the period covered by this annual report and accounts, have
concluded that, as at such date, the Groups disclosure controls and
procedures were effective.
 Going concern The directors report on going concern is included in the financial review on
page 52.
 Communications with shareholders The board considers communications with shareholders, whether
institutional investors, private or employee shareholders, to be
extremely important. Results are published quarterly, and half year
and annual reviews are sent to all shareholders. A copy of the full
report and accounts is available by election or on request. The Annual
General Meeting provides an opportunity for shareholders to question
directors about the companys activities and prospects. The chairmen
of each of the principal board committees are normally present. During
the year responses are given to letters received from shareholders on a
variety of subjects. There is a programme of regular dialogue with
major institutional shareholders and fund managers and summaries of
these discussions and meetings are provided to the board. In addition
the board receives copies of most analyst and broker reports issued on
the company. These summaries and reports enable the directors to gain
an understanding of the views and opinions of those with an interest in
the company.
 The companys website (www. boc. com) provides financial and
other business information about The BOC Group. It contains an
archive of past announcements and annual reports, share price
information and a calendar of events as well as BOCs social
responsibility policies, including the companys Code of Conduct.
 Compliance The board has applied the principles contained in Section 1 of the
Combined Code on Corporate Governance appended to the UK Listing
Authority Listing Rules and has complied throughout the year, with the
exception that Dick Grant, a director who resigned with effect from 31
December 2002, had a service contract that could be terminated by the
company on two years notice.
 Directors submit themselves for re-election at regular intervals
and at least every three years in accordance with the companys
Articles of Association and the Combined Code.
 Although the new Combined Code is only effective for reporting
years beginning on or after 1 November 2003, BOC has already made
changes to its corporate governance procedures such that at this time
the company is significantly advanced towards compliance with the new
code.
 US corporate governance compliance BOC has securities registered in the US and, as a result, is required
to comply with those provisions of the Sarbanes-Oxley Act 2002 (the
Act) as it applies to foreign issuers. Whilst the company believes
its corporate governance structure to be robust and in line with best
practice, changes have been made in order to ensure compliance with
the Act as far as it applies to BOC. The board continues to monitor
the new rules being issued pursuant to the Act and will comply with
any new legal and regulatory requirements as they are introduced.
 As recommended by the US Securities and Exchange Commission (SEC)
BOC has established a disclosure committee comprising the Group finance
director, Group legal director and representatives from the finance,
company secretarial, treasury, investor relations, risk management and
human resources functions. The committee meets regularly and is
responsible for performing an oversight and advisory role in the
disclosure process for the quarterly announcements and the content and
form of the annual report and Form 20-F. The committee makes
recommendations to the chief executive, Group finance director and
executive management board on the adequacy of processes to permit
signing of the certifications required by the Act.
 In November 2003, the SEC approved changes to the listing
standards of the New York Stock Exchange (NYSE) related to the
corporate governance practices of listed companies. Under these rules,
listed foreign private issuers, like BOC, must disclose any significant
ways in which their corporate governance practices differ from those
followed by US domestic companies under the NYSE listing standards.
There are no significant differences in the corporate governance
practices followed by BOC, as compared to those followed by US domestic
companies under the NYSE listing standards, except that BOC follows the
recommendations contained in the Combined Code with respect to the
membership of its nomination committee which permits membership of this
committee to be composed of a majority of independent non-executive
directors. The NYSE listing standards require that the nomination
committee be composed entirely of independent directors.
 Corporate social investment BOCs social investment programme has four key objectives:
 i)
    
    to continue to focus on projects to improve environmental stewardship;
 ii)
    
    to strengthen BOCs educational support in selected areas;
 iii)
    
    to continue to devolve the choices of charitable donations to employees through matched giving and volunteering schemes; and
 iv)
    
    to broaden the organisations involvement in social programmes around the world.




57   The BOC Group plcAnnual report and accounts 2003






---



##### 



Corporate governance continued







These objectives were accompanied by the launch of BOCs global Code of
Conduct, which underpins the Groups commitment to high legal and ethical
standards in business. The code is being transmitted to the organisation
through an extensive communication, training and change management process. It
details and builds on many of the Groups existing social, environmental, legal
and ethical standards as well as improving areas where there were perceived
gaps or deficiencies. The code includes many standards: safe working
practices; sound environmental management; fair competition and trade
practices; rejection of corrupt practices; respect for the principles of human
rights; and community engagement and support. The code can be accessed on the
companys website at www.boc.com
 The code is reinforced by a supporting programme, including clear channels
for employees to lodge questions, concerns or complaints. The BOC helpline
operates 24 hours a day, seven days a week. Translators are available to
handle concerns in every major business language. Using the helpline,
employees can post, e-mail, fax or telephone concerns to be handled
confidentially by an independent helpline administrator or by BOCs global
compliance department.
 BOC operates a wide-ranging social investment and charitable donations
programme, directing resources at areas where the organisation feels it can
make a difference or where employees have a direct involvement.
 In 2003, BOC
made charitable donations totalling £1.12 million including £476,000 to
UK-registered charities through direct donations from the Group and matched
giving. As in previous years, no political donations were made in the European
Union.
 Supporting the environment The Groups environmental flagship remains the UK-based BOC Foundation
for the Environment, which was established with an initial injection of
£1 million in 1990. The Foundation has supported over 120 projects.
This year, the Group contributed £180,000 to Foundation projects and
saw eight new initiatives come on stream. Since the Foundations
inception BOC has donated £3. 7 million. Combined funding from BOC and
its co-sponsoring partners now exceeds £12 million. This year the
Foundation was reorganised to concentrate on projects that improve air
and water quality and to increase the proportion of its environmental
spending that goes in direct support of selected projects.
 BOC made a number of positive contributions to other
environmental projects including the BOC New Zealand community
environmental grants programme, which provides assistance to schools
and local community groups. Together with the New Zealand Water
Environment Research Foundation, BOC manages a scheme providing
funding to help communities maintain, protect and improve their water
resources.
 Charitable programmes At a local level, BOC employees have continued to involve themselves in
charitable fundraising and voluntary support. To this end, BOCs
matched giving scheme again proved its worth as a way of aligning
corporate funding with the personal generosity of BOC employees.
Matched giving schemes have been operating in the UK, the Americas and
the south Pacific for some time. In the course of 2003, BOC in the UK
donated £201,000 (included in the UK total above) through the Charities
Aid Foundation to match employee beneficence.
 In addition to the numerous causes supported through matched
giving, BOC also supported a number of Group causes, including the
Royal British Legion, Thrive, St Johns Ambulance, Macmillan Cancer
Relief and ProShare. BOC ran the second year of the BOC Emerging
Artist Award to encourage and support a committed UK-based artist for a
year. The 2003 award was won by Manchester Metropolitan University
graduate Tom Hackney who emerged as the overall winner of the £20,000
bursary from 200 applicants.
 The Groups logistics business, Gist, has formed a partnership
with FareShare, adopting the cause as its headline charity. FareShare
is a national network that redistributes surplus food to homeless and
vulnerable people around the UK. Food that is nearing its expiry date
is delivered to the FareShare depots from big retailers. Volunteers at
the depots then sort, grade, refrigerate and deliver the food to day
centres. Money saved on food is then used to provide other support
services such as training, medical services and counselling to help
people rebuild their lives.
 Community involvement Outside the UK, the development of community activities rests in the
hands of local BOC businesses, each one being responsible for its own
project selection and funding. This devolved approach has resulted in
the funding of a rich variety of programmes that are truly relevant to
the communities in which BOC companies operate.
 In the US, through a combination of financial support and many
hours of volunteer involvement, BOC and its employees continued to
assist the United Way charitable appeal, helping to make a difference
in many deprived sectors of the community. BOC in the US also pursued
a number of other projects including support for local arts and
educational causes.
 In the south Pacific, the company matches employeesfundraising
for three charities a year. In Australia, employees once again chose
the Salvation Armys Red Shield Appeal, Daffodil Day, a fundraising
event for cancer research, education and patient support, and Jeans for
Genes, an international campaign that raises funds for research into
genetic disorders. In New Zealand, employees selected Daffodil Day,
the Westpac Rescue Helicopter and the Society for the Prevention of
Cruelty to Animals. BOC in Australia continues a long-established
relationship with the Malcolm Sargent Cancer Fund for Children. BOC
employees support this cause with financial contributions and employee
support through volunteering and fundraising activities.
 In South Africa, BOCs subsidiary Afrox and its staff continued to
support the companys community involvement process (CIP), which
includes the management of 125 projects to improve the lives of
disadvantaged young people. Once more, the highlight of the year was
Bumbanani (meaning lets build together) Day when 13,500 children
attended events hosted by BOC staff. This year, Afroxs CIP was
identified by the United Nations as a model community programme and the
Springs Parkland clinic received the presidents merit award for
outstanding social commitment.




58   The
BOC Group plcAnnual report and accounts 2003






---



##### 









In addition, Afrox hospitals engage in a wide range of health care and
safety initiatives, including sponsorship of the South African Heart
Foundation. A Mended Hearts support group and cardiac rehabilitation
team, supporting people in their recuperation and rehabilitation after
heart surgery, continued to roll out their programmes on an
increasingly national basis. Some Afrox hospitals have a special
outreach service in the form of rape crisis centres. Medical
examinations are conducted in a non-threatening environment with the
emphasis placed on maintaining the dignity of the victim. Preventive
medication and antiretroviral drugs are given against sexually
transmitted diseases.
 BOC and its employees have been active in many other markets.
BOC in China has embarked on a support programme to facilitate
screened blood donations to local hospitals. In Thailand, BOC
sponsored a sports programme helping to discourage drug use. BOC in
Pakistan, continued to provide support to community organisations
dealing with poverty alleviation, education and health care. This
year, support continued for: the Layton Rehmatulla Benevolent Trust,
an organisation dedicated to providing free eye care; the Marie
Adelaide Leprosy Centre; the Shaukat Khanum Memorial Cancer Hospital,
the first institution in Pakistan dedicated to cancer treatment; and
the Aga Khan Medical Hospital and Foundation. BOC was one of the
founding contributors to the Aga Khan Foundation which runs a world
class university hospital affiliated to the Harvard Medical School.
 In Chile, BOC supported the Catholic University of Chile with
sponsorship of part of the expenses for a new engineering school and
the establishment of departments of mining investigations,
environmental management and teaching through the Internet. In
Venezuela, BOC donated funds and helium balloons to schools and
orphanages and breathing oxygen to local fire stations. In Curacao,
the organisation channels support through the local Rotary Club and
contributed to various youth education and care for the elderly
projects. In India, BOC made a number of contributions across a range
of poverty alleviation and community welfare initiatives.
 Investing in education Several BOC businesses initiated or strengthened their educational
contributions. For example, in southern Africa, BOC companies
supported education and training with external and employee bursaries,
grants, in-house vocational courses and incidental donations as well as
continued support for a welding school and the Afrox College of
Nursing. In Thailand, employees adopted a local primary school and
supported it with books and stationery. It also supported several
establishments with equipment and scholarships for employee dependants.
In the UK, BOC launched an education website entitled Inspiring Gases,
which is designed to help students and their teachers understand more
about gases and their uses. The website will be developed further as a
focal point for other educational activities.
 Where appropriate, BOC continues to play an active part in local
communities by harnessing its educational capabilities through school
tours, lessons in the properties of gases, technical support and
academic research. It also funds programmes and events such as the BOC
Gases Challenge, which encourages UK secondary school students to
develop chemical engineering ideas based on the uses of helium and
carbon dioxide, sponsorship of the UKs Council for Industry and Higher
Education, the annual Institute of Chemical Engineers environment
award, and the Salters Festivals of Chemistry for the propagation of
science amongst the young. BOC signed a five year deal in 2001 to
support the Salters festival season. Last year, 34 festivals of
chemistry involving 500 different schools took place at universities
across the UK and Ireland.
 Annual General Meeting The Annual General Meeting will be held at the Institution of
Electrical Engineers (Lecture Theatre), Savoy Place, London WC2R 0BL
on Friday 23 January 2004 commencing at 11.00 am. The Notice of the
Annual General Meeting, which includes explanations of all
resolutions, is contained in a separate circular which is being sent
to all shareholders more than 20 working days before the meeting.
 Resolutions will seek approval to the following: a)
    
    receipt of the report and accounts;
 b)
    
    approval of the directors remuneration report;
 c)
    
    reappointment of Andrew Bonfield, Sir Christopher ODonnell, Julie
Baddeley and John Walsh as directors;
 d)
    
    reappointment of PricewaterhouseCoopers LLP as auditors and granting
authority to the directors to fix their remuneration. Following the
change in legal status of the auditors PricewaterhouseCoopers to a Limited
Liability Partnership (LLP) from 1 January 2003, PricewaterhouseCoopers
resigned on 13 February 2003 and the directors appointed
PricewaterhouseCoopers LLP to fill the casual vacancy until the next
Annual General Meeting. Special notice of this resolution has been
received;
 e)
    
    the dividend policy;
 f)
    
    political donations and expenditure pursuant to the Political Parties,
Elections and Referendums Act 2000;
 g)
    
    renewal of the authority of the directors to allot shares;
 h)
    
    renewal of the authority for the directors to allot shares for cash other
than to existing shareholders in proportion to their holdings;
 i)
    
    granting of general authority for the company to purchase its own shares
up to a maximum of ten per cent of issued share capital. No purchases
were made following last years authority; and
 j)
    
    amendments to the Articles of Association.
 The report of the directors has been approved by the board and signed on its
behalf by: Nick DeemingSecretary
21 November 2003




59   The BOC Group plcAnnual report and accounts 2003






---



##### 



Report on remuneration





The remuneration committee The remuneration committee comprises, with the exception of the Group
chairman, Rob Margetts, all the independent non-executive directors
namely Julie Baddeley (chairman), Fabiola Arredondo, Andrew Bonfield
(appointed July 2003), Roberto Mendoza (appointed October 2002),
Matthew Miau and Sir Christopher ODonnell. Göran Lundberg had been the
chairman of the remuneration committee until his retirement on 4 March
2003. Whilst neither the Group chairman nor the chief executive are
members of the remuneration committee they both attend the meetings by
invitation but are not present when their personal remuneration is
discussed and reviewed. The human resources director acts as secretary
to the committee and provides it with information and data from
national and international surveys. In addition, during the year the
remuneration committee appointed Towers Perrin to review the
remuneration arrangements for senior executives. No other services are
provided by this adviser.
 The remuneration committee sets the overall remuneration policy of
the Group and makes recommendations to the board on the framework of
executive remuneration. It meets six times a year. Individual member
attendance at the meetings is shown on page 53. The terms of reference
are reviewed annually to ensure that they conform with best practice.
Specifically, the remuneration committee determines, on behalf of the
board, the detailed terms of service of the executive directors and
other members of the executive management team including basic salary,
performance related bonus arrangements, benefits in kind, long-term
incentives and pension benefits. The remuneration committee also
reviews the remuneration of the chairman, following a recommendation
from the chief executive and the senior independent director. The board
as a whole determines the non-executive directors fees.
 Remuneration policy BOCs remuneration policy for executive directors and other executive
management is designed to attract and retain executives of the highest
calibre so that the Group is managed successfully to the benefit of its
stakeholders. In setting remuneration levels the remuneration committee
takes into account the remuneration practices found in other UK-listed
companies of similar size, internationality and complexity and seeks to
benchmark executive remuneration at about the median level for this
group.
 During 2002 the remuneration committee reviewed the executive
remuneration packages and decided that a realignment was necessary to
support the companys business strategy to improve both earnings growth
and capital efficiency and to ensure that the packages were market
competitive. To this end, a proposal to adopt new long-term incentive
arrangements was put to shareholders and approved at the 2003 Annual
General Meeting. These arrangements comprise a long-term incentive plan
and an executive share option scheme. They are intended to encourage
innovation and value-added growth and strengthen the link between
short-term performance and sustainable improvement in shareholder value
over the longer term. It is the view of the remuneration committee that
performance-related remuneration should form a substantial element of
total remuneration. As such, these arrangements together with the
variable compensation plan, which is a performance related cash plan,
form the variable elements of executive remuneration. It is expected
that the achievement of on target performance of these variable
elements will amount to about 60 per cent of total executive
remuneration.
 No changes to the framework of executive remuneration are
proposed for 2004. The remuneration committee will, however, review
the policy on a regular basis and make any amendments it deems
appropriate to ensure that it meets the objectives of recruiting,
retaining and motivating high performing individuals and ensuring that
the Group is market competitive.
 Remuneration components Basic salarySalaries for executive directors and executive
management board members are based on median market rates drawn from
two external market data sources and take account of an executives
experience, responsibilities and performance. Performance is
assessed both from an individual and business perspective. Executive
salaries are normally reviewed annually by the remuneration
committee. Remuneration for those executives of businesses outside
the UK is denominated in the local currency.
 Benefits in kindBenefits in kind comprise company car benefits and
membership of BOCs health care insurance scheme. Where appropriate,
directors on international assignment receive overseas allowances such
as housing and childrens education fees. These allowances are on
similar terms to those applying to other employees on the
international programme. Such benefits are in line with those offered
by peer group companies. Benefits in kind do not form part of
pensionable earnings.
 Variable compensation planThe executive directors and senior
management participate in the variable compensation bonus plan. The
plan focuses on annual objectives and links individual performance with
business plans. The financial targets for the executive directors and
other executive management board members are set on an annual basis by
the remuneration committee and performance against these targets is
reviewed by the remuneration committee on a six-monthly basis. The
remuneration committee considers that a six-monthly review acts as a
significant incentive and is conducive to sustaining performance
throughout the year. The financial targets are based equally on
adjusted earnings per share (EPS) and adjusted return on capital
employed (ROCE) at Group level. Adjusted means excluding exceptional
items. Bonuses are assessed two-thirds on these financial targets with
the remaining third based on personal objectives derived from BOCs
strategic priorities, including safety and growth initiatives. During
2002 the remuneration committee reviewed the plan and agreed the
maximum bonus payable for the achievement of financial and personal
objectives would be 80 per cent of salary. There is a threshold
performance level below which no bonus is paid.
 The bonuses for the executive directors and other members of the
executive management board are paid half yearly following the
remuneration committee review. Details of the payments to directors
are included in the directors remuneration for the year on page 64.




60   The BOC Group plcAnnual report and accounts 2003





---



##### 







Current long-term incentive arrangements Long-Term Incentive Plan (LTIP)Executive directors, members of the
executive management board and a number of other key executives
selected from the companys global operations participate in the LTIP.
The remuneration committee has the discretion to grant awards up to a
maximum of two times salary. The award made in February 2003 to the
chief executive was based on 1.5 times salary and for other board
directors one times salary. There are three performance conditions:
total shareholder return (TSR), adjusted earning per share (EPS) and
adjusted return on capital employed (ROCE). Up to one third of the
award could vest in respect of each performance conditionThe TSR performance condition compares BOCs TSR performance with
two separate comparator groups, a UK comparator group comprising 31
industrial and manufacturing companies and a global industrial gases
group of six leading companies as follows:UK groupAggregate Industries
    
    BPB
    
    Invensys
    
    Scottish & Southern EnergyAMEC
    
    Centrica
    
    Johnson Matthey
    
    Scottish PowerAnglo American
    
    Corus Group
    
    Kelda Group
    
    Severn TrentAWG
    
    FKI
    
    National Grid Transco
    
    Shell Transport & TradingBAE Systems
    
    Hanson
    
    Pilkington
    
    Smiths GroupBG Group
    
    IMI
    
    Rio Tinto
    
    TomkinsBHP Billiton
    
    ICI
    
    RMC Group
    
    United UtilitiesBP
    
    International Power
    
    Rolls-RoyceWhen determining BOCs performance relative to the global gases group,
the TSR for BOC and the comparator companies will be amended (amended
TSR) so that it reflects the excess (or shortfall) in returns relative
to the local stockmarket index where each company has its primary
listing. The nationality and the local stockmarket index that will be
used to calculate the amended TSR for each company is shown in
parentheses belowGlobal gases groupAirgas
    
    (US  S&P 500 Index)Air Liquide
    
    (France  CAC 40 Index)Air Products & Chemicals
    
    (US  S&P 500 Index)Linde
    
    (Germany  DAX 30 Index)Nippon Sanso
    
    (Japan  NIKKEI 225 Index)Praxair
    
    (US  S&P 500 Index)The BOC Group
    
    (UK  FTSE 100 Index)
 For the awards made in 2003 the target set by the remuneration committee
is such that if the companys TSR position measured over a three year
period is median in respect of both comparator groups, then 40 per cent
of the shares in respect of the TSR part of the award will vest. If the
companys TSR position is upper quartile all of the shares in respect of
the TSR part of the award will vest. If the TSR performance is between
the median and upper quartile a proportion of between 40 per cent and
all of the shares in respect of the TSR part of the award will vest. If
the companys TSR position is below the median for both comparator
groups the TSR part of the award will lapse.
 The adjusted EPS performance condition is based on the companys
EPS before exceptional items relative to three year targets on a
sliding performance scale. For the award made in 2003 the target set by
the remuneration committee requires a five per cent per annum growth
rate over three years for minimum vesting. If this is achieved, 40 per
cent of the shares in respect of the EPS part of the award will vest.
All of the shares in respect of the EPS part of the award will vest if
the company achieves a ten per cent per annum growth rate over three
years. If the growth rate is between five per cent and ten per cent a
proportion of between 40 per cent and all of the shares in respect of
the EPS part of the award will vest. If the growth rate is less than
five per cent per annum over the three year period the EPS part of the
award will lapse.
 The adjusted ROCE performance condition is based on the companys
ROCE before exceptional items relative to three year targets on a
sliding performance scale. The minimum target set by the remuneration
committee for awards in 2003 is 13 per cent at the end of the three
year performance period. If this is achieved 40 per cent of the shares
in respect of the ROCE part of the award will vest. All of the shares
in respect of the ROCE part of the award will vest if the company
achieves a ROCE of 14. 5 per cent. If the ROCE performance is between
13 per cent and 14. 5 per cent a proportion of between 40 per cent and
all of the shares in respect of the ROCE part of the award will vest.
If the ROCE is less than 13 per cent the ROCE part of the award will
lapse.
 In setting three performance conditions for the LTIP award, the
remuneration committee took the view that these were the most important
measures that drive or measure sustainable improvements in shareholder
value  the TSR performance condition measures comparative performance
while EPS and ROCE reflect a core part of the companys business
strategy, which is to improve both earnings growth and capital
efficiency.
 Executive Share Option Scheme 2003(ESOS 2003) Executive directors,
members of the executive management board and other selected middle and
senior management throughout the companys global operations participate
in the ESOS 2003. The remuneration committee have the discretion to grant awards up
to a maximum of two times salary. The awards made in February 2003 to
the chief executive and other members of the board were based on 1.75
times salary. The performance condition set for the ESOS 2003 by the
remuneration committee is that the growth in the adjusted EPS over a
three year performance period must be equal to or greater than the
growth in the UK retail prices index (RPI) plus three per cent per annum
over the three year performance period. The performance is assessed on
the companys published results. If the performance condition is
satisfied at the end of the performance period then the awards would be
exercisable in full. In the event that the performance condition is not
satisfied over




61   The BOC Group plcAnnual report and accounts 2003





---



##### 



Report on remuneration continued





the original three year period then the remuneration committee has the
discretion to re-test performance after five years, but only where the
remuneration committee believes the extension to be a fair and
reasonable basis for assessing the sustained underlying performance of
the company. In line with current corporate governance best practice
there is no rolling re-testing of performance. The remuneration
committee considers this performance condition to be a challenging
performance hurdle when compared to the companys adjusted EPS compound
annual growth rate over the last ten years of around four per cent.
 Awards under the LTIP and ESOS 2003 may be satisfied in cash or
other assets, for example, where it is necessary for legal or tax
reasons. The amount to be paid will, in the case of share options, be
equal to the participants gain on the exercise of the share option.
Also, the remuneration committee may decide, prior to grant, that an
award shall be expressed to be a right to acquire a cash sum rather
than shares. This type of award, known as a phantom award, will
normally only be granted to participants in jurisdictions where,
because of local security laws or exchange control provisions, it is
difficult to issue or transfer shares to employees. The LTIP and ESOS
2003 awards may be satisfied by using existing shares purchased in the
market through The BOC Group plc Employee Share Trust or by issuing new
shares.
 Awards under the LTIP and ESOS 2003 are not pensionable.
 Savings Related Share Option SchemeUK based directors are eligible
to participate in the BOC Savings Related Share Option Scheme. The
scheme is approved by the Inland Revenue and it is open to all UK
employees with one years service or more.
 Former long-term incentive arrangements Executive Share Option Scheme 1995The last grant of options to the
executive directors and members of the executive management board took
place in February 2002 and the last award to other Group employees took
place in December 2002. No further awards will be made under this
scheme. The options vest when the companys adjusted EPS growth is
equal to, or exceeds, the growth in the retail prices index (RPI) by
three per cent per annum over any three year performance period.
 Senior Executive Share Option Scheme, 1994 Executive Share Option Scheme,
Executive Share Purchase Plan
The last grants under these schemes took place in November 1994,
February 1994 and August 1994 respectively. In line with market
practice at the time when these schemes were introduced the vesting of
these awards was not subject to performance conditions.
 Share Incentive Unit Plan Between 1989 and 1995 awards were made to
executives under an incentive arrangement linked to the growth in
the companys share price. No awards have been made under the plan
since 1995. The final payment was made in November 2002.
 Retirement benefits Pension arrangements for executive directors are in line with those
of comparable executives in the countries in which the directors are
located.
 In the UK, the BOC Senior Executive Pension Scheme is a funded,
tax-approved, defined benefit pension arrangement. Where necessary, the
directors pensionable pay is limited by the earnings cap provisions
of the Finance Act 1989. In such cases, the company pays the director a
salary supplement on earnings above the earnings cap to reflect the
loss of pension coverage. This supplement is recorded in the directors
emoluments and is not taken into account in calculating bonuses or any
other form of remuneration.
 BOC closed its UK defined benefit pension arrangements to all
new employees on 30 June 2003. Pension arrangements for new employees
will be provided for under a defined contribution Retirement Savings
Plan. The company will make contributions to the plan equal to two
times the employees core contributions which can be three, four or
five per cent of salary.
 In the US, the BOC Top-Hat Pension Plan is an unfunded,
non-tax-qualified, defined benefit pension arrangement.
 In Australia,
the BOC Gases Superannuation Fund is a defined contribution arrangement
underpinned by a defined benefit guarantee for long-serving employees
who were members under a prior benefit structure.
 Shareholding guidelines The remuneration committee encourages executive management to grow
personal shareholding in the business over time. It is anticipated
that each executive would build towards a shareholding of one times
salary. The remuneration committee believes that the vehicle of the
long-term incentive arrangements will facilitate the building of such
a shareholding over a period of time.
 Details of directors individual remuneration, share options, LTIP
awards, share incentive units and share holdings are given on pages 64
to 68. As set out in the remuneration policy statement performance
related remuneration is expected to amount to about 60 per cent for
each of the executive directors. The performance conditions for each
current and former share option and long-term incentive plan are set
out above.
 Non-executive directors Non-executive directors are generally appointed for an initial period
to the next Annual General Meeting and subject to reappointment at the
meeting, for a further three year term. Subsequent reappointment is
with the agreement of the board and approval of shareholders. The fees
are set at a level which will attract individuals with the necessary
experience and ability to make a significant contribution to the
Groups affairs. The responsibilities of, and the time commitment
expected from, non-executive directors have increased in recent times
and fees paid to non-executives are increasing to reflect this. As a
result, from 1 January 2004 the non-executive directors fees will
increase from £37,000 to £40,000 per annum, £10,000 of which, less
tax, will be invested in BOC shares. The fees for chairing a




62   The BOC Group plcAnnual report and accounts 2003





---



##### 







committee will increase from £8,000 to £10,000 per annum, £5,000
of which, less tax, will be invested in BOC shares. The fee for the
chairman, Rob Margetts, is set at £225,000.
 The non-executive directors do not have contracts of service nor
do they participate in the Groups variable compensation arrangements,
its long-term incentive arrangements or its pension arrangements, nor
do they receive any benefits in kind.
 (BOC's TSR PERFORMANCE GRAPH) The graph above has been included to meet the requirement set out in
the Directors Remuneration Report Regulations 2002. It shows BOCs TSR
performance, assuming dividends are reinvested, compared with all FTSE
100 companies. This has been chosen because it provides a basis for
comparison against companies in a relevant, broad based equity index of
which BOC is a constituent member. The remuneration committee decided
that other comparator groups were more appropriate as performance
measurement for the LTIP. A graph showing BOCs TSR performance
compared with the six major gases companies relative to respective
local indices, which is one of the comparator groups chosen for the
LTIP, is shown in the chairmans statement on page 5.
 Service contracts The companys policy is for all executive directors to have contracts
of employment that terminate on the attainment of retirement age. In
order to mitigate its liability on early termination, the companys
policy is that it should be able to terminate such contracts on no more
than 12 months notice, and that payments on termination are restricted
to the value of salary, car benefit and bonus entitlement (calculated
on the basis of the average of actual payments over the preceding two
years) for the unexpired portion of the notice period. Pension
provisions on termination are detailed in the individual service
contracts below.
 Individual service contractsMr Bevan has a contract dated 5 December
2002 that can be terminated by the company on 12 months notice. In the
event of early termination, the contract provides for the payment of
compensation based on the value of salary, car benefit and bonus
entitlement (calculated on the basis of the average of actual payments
over the preceding two years) for the unexpired portion of the notice
period. Mr Bevan would also be entitled to his deferred pension, with
the unexpired portion of the notice period being added to his
pensionable service in the calculation of his pension entitlement.
 Mr Isaac has a contract which expires on 30 June 2005 subject to
possible extension by mutual agreement. The contract can be terminated
by the company on 12 months notice. In the event of early termination,
the contract provides for the payment of compensation based on the
value of salary, car benefit and bonus entitlement (calculated on the
basis of the average of actual payments over the preceding two years)
for the unexpired portion of the notice period. Mr Isaac would also be
entitled to a special contribution to his funded unapproved retirement
benefit scheme amounting to the sum of 40 per cent of his pay above the
earnings cap imposed by the Finance Act 1989 and 50 per cent (58. 33
per cent from 6 April 2003) of his pay up to the cap for the unexpired
portion of his notice period.
 Mr Médori has a contract dated 19 November 2002 that can be
terminated by the company on 12 months notice. In the event of early
termination, the contract provides for the payment of compensation
based on the value of salary, car benefit and bonus entitlement
(calculated on the basis of the average of actual payments over the
preceding two years) for the unexpired portion of the notice period. Mr
Médori would also be entitled (a) to have his deferred pension from the
UK senior executive pension scheme paid without actuarial reduction
from age 55; and (b) to an immediate payment representing the
discounted value of the difference in the capital values of a pension
calculated as in (a) and a pension calculated as in (a) but with the
addition of the unexpired portion of his notice period in the
calculation of pensionable service.
 Dr Rajagopal has a contract dated 1 May 1999, amended 22 November
2002, that can be terminated by the company on 12 months notice. In
the event of early termination, the contract provides for the payment
of compensation based on the value of salary, car benefit and bonus
entitlement (calculated on the basis of the average of actual payments
over the preceding two years) for the unexpired portion of the notice
period. Dr Rajagopal would also be entitled to have his deferred
pension from the UK senior executive pension scheme (a) calculated with
the inclusion of the unexpired portion of his notice period in the
calculation of pensionable service; and (b) paid without actuarial
reduction from age 55.
 Mr Walsh has a contract dated 21 November 2002 that can be
terminated by the company on 12 months notice. In the event of early
termination, the contract provides for the payment of compensation
based on the value of salary, car benefit and bonus entitlement
(calculated on the basis of the average of actual payments over the
preceding two years) for the unexpired portion of the notice period.
Additionally, the unexpired portion of Mr Walshs notice period would
be added to his pensionable service in the calculation of his pension
entitlement.
 All the above contracts can be terminated by the individual director on six
months notice.




63   The BOC Group plcAnnual report and accounts 2003





---



##### 



Report on remuneration continued





Directors' emoluments and compensation2003
    
    2002Charged against profit in the year
    

£000
    
    £000Salaries and benefits
    
    
    2,665
    
    
    
    2,586Annual bonuses payable for the year
    
    
    1,123
    
    
    
    1,631Termination
payments6
    
    
    1,507
    
    
    
    Other emoluments
    
    
    
    
    
    
    500Fees to non-executive directors
    
    
    443
    
    
    
    3525,738
    
    
    
    5,069Company pension contributions to money purchase plans
    
    
    279
    
    
    
    184Company pension contributions to lump sum benefit plans
    
    
    196
    
    
    
    927Provision for share incentive schemes1
    
    
    387
    
    
    
    194Payments to former directors and their dependants2
    
    
    461
    
    
    
    527,061
    
    
    
    6,426
 Year ended 30 September 2003
    
    2002Allowances
    
    
    
    
    
    
    
    
    
    TotalBasic
    
    and
    
    Termination
    
    Bonus
    
    remunera-
    
    Totalsalary/fees
    
    benefits3
    
    payments
    
    payable
    
    tion
    
    remunerationIndividual remuneration
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000
    
    £000ChairmanR J Margetts
    
    
    225
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    225
    
    
    
    180Executive directorsJ A Bevan5
    
    
    243
    
    
    
    136
    
    
    
    
    
    
    
    117
    
    
    
    496
    
    
    
    A E Isaac4
    
    
    654
    
    
    
    122
    
    
    
    
    
    
    
    367
    
    
    
    1,143
    
    
    
    1,806R Médori
    
    
    342
    
    
    
    276
    
    
    
    
    
    
    
    192
    
    
    
    810
    
    
    
    862Dr K Rajagopal
    
    
    327
    
    
    
    15
    
    
    
    
    
    
    
    184
    
    
    
    526
    
    
    
    590J L Walsh
    
    
    319
    
    
    
    144
    
    
    
    
    
    
    
    178
    
    
    
    641
    
    
    
    657Non-executive directorsF R Arredondo
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    27J M Baddeley
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    34A R J Bonfield5
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    R G Mendoza5
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    M F C Miau
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    21Sir Christopher
ODonnell7
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    34Directors retiring in the yearR S Grant6
    
    
    83
    
    
    
    4
    
    
    
    1,507
    
    
    
    85
    
    
    
    1,679
    
    
    
    726G U U Lundberg6
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    34Directors retiring in 2002Sir David John
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76H C Groome
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11J H Macdonald
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Total
    
    
    2,411
    
    
    
    697
    
    
    
    1, 507
    
    
    
    1,123
    
    
    
    5,738
    
    
    
    5,069
 1.
    
    This represents the amount charged to operating profit during the year
for those elements of the various share incentive schemes relating to
directors.2.
    
    This represents payments to former directors and/or their dependants
which were not provided for in previous years, as well as salary, benefits
and pension costs, amounting to £410, 000, relating to Mr Grant from the
date of his resignation from the board to 30 June 2003.3.
    
    Includes overseas and relocation expenses.4.
    
    Mr Isaac was the highest paid director in 2003.5.
    
    Mr Mendoza was appointed to the board on 9 October 2002, Mr Bevan was
appointed to the board on 5 December 2002 and Mr Bonfield was appointed to
the board on 29 July 2003. The remuneration above is the total
remuneration earned since their appointment.6.
    
    Mr Grant resigned from the board on 31 December 2002, and Mr Lundberg
resigned from the board on 4 March 2003. The remuneration above, excluding
termination payments, is the total remuneration earned to their date of
resignation. Details of Mr Grants termination payment are given on page
69.7.
    
    Fees in respect of Sir Christopher ODonnell are paid to Smith & Nephew
plc.8.
    
    The aggregate remuneration charged against profits for directors and
members of the executive management board in the year was £9. 5 million.
Remuneration of members of the executive management board other than
directors is given on page 65.




64   The BOC Group plcAnnual report and accounts 2003





---



##### 







Executive officers The aggregate remuneration of members of the executive management board, other than directors, for services in all capacities during 2003 was as follows:2003Charged against profit in the year
    

£000Salaries and benefits
    
    
    1,593Annual bonuses payable for the year
    
    
    638Provision for share incentive schemes1
    
    
    212Company pension contributions
    
    
    392,482
 1.
    
    This represents the amount charged to operating profit for those elements
of the various share incentive schemes relating to executive officers. Directors' share interests at 30 September 2003 The directors of the company and their families had the following beneficial interests in the company's securities and rights under the share incentive schemes:At 30 September 2003
    
    At 1 October 2002 (or at date of appointment if later)Long-term
    
    Share
    
    
    
    
    
    
    
    
    
    Long-term
    
    ShareOrdinary
    
    Share
    
    incentive
    
    incentive
    
    Ordinary
    
    Share
    
    incentive
    
    incentiveshares
    
    options
    
    plan awards
    
    units
    
    shares
    
    options
    
    plan awards
    
    unitsF R Arredondo
    
    
    991
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    J M Baddeley
    
    
    1,254
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    J A Bevan
    
    
    16,070
    
    
    
    269,993
    
    
    
    38,659
    
    
    
    
    
    
    
    16,070
    
    
    
    202,339
    
    
    
    
    
    
    
    A R J Bonfield
    
    
    500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    A E Isaac
    
    
    5,700
    
    
    
    1,096,535
    
    
    
    127,867
    
    
    
    
    
    
    
    5,700
    
    
    
    947,357
    
    
    
    
    
    
    
    45,000R J Margetts
    
    
    17,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    R Médori
    
    
    16,772
    
    
    
    435,253
    
    
    
    44,652
    
    
    
    
    
    
    
    16,772
    
    
    
    367,112
    
    
    
    
    
    
    
    R G Mendoza
    
    
    10,763
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    M F C Miau
    
    
    2,772
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,281
    
    
    
    
    
    
    
    
    
    
    
    Sir Christopher
ODonnell
    
    
    2,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,081
    
    
    
    
    
    
    
    
    
    
    
    Dr K Rajagopal
    
    
    14,416
    
    
    
    526,589
    
    
    
    42,622
    
    
    
    
    
    
    
    14,416
    
    
    
    460,009
    
    
    
    
    
    
    
    J L Walsh
    
    
    13,175
    
    
    
    452,089
    
    
    
    42,622
    
    
    
    
    
    
    
    8,175
    
    
    
    387,500
    
    
    
    
    
    
    
    Directors retiring in the yearR S Grant
    
    
    62,803
    
    
    
    542,697
    
    
    
    
    
    
    
    
    
    
    
    62,803
    
    
    
    542,697
    
    
    
    
    
    
    
    G U U Lundberg
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
 There has been no change in the interest of any of the directors
between 1 October 2003 and 13 November 2003, except for the following.
On 31 October 2003, Mr Isaac exercised an option over 2,357 shares
held in the Savings Related Share Option Scheme. On 13 November 2003,
Mr Isaac held 8,057 Ordinary shares and 1,094,178 share options in
the company. On 31 October 2003, Dr Rajagopal lapsed two options held
in the Savings Related Share Option Scheme over a total of 2,147
Ordinary shares. On 13 November 2003, Dr Rajagopal held 524,442 share
options in the company.
 No director had a non-beneficial interest at 30 September 2003
or between 1 October 2003 and 13 November 2003. Options are granted
over Ordinary shares of 25p each under senior executive and general
employee share option schemes.
 Apart from the above and service agreements, no director has had
any material interest in any contract with the company or its
subsidiaries requiring disclosure under the Companies Act 1985.
 At 30 September 2003, members of the executive management board,
other than directors, had the following aggregate beneficial interests
in the companys securities: 39,425 Ordinary shares; 1,266,397 share
options and 149,811 long-term incentive plan awards. The cumulative
shareholdings of the companys directors and members of the executive
management board represent less than one per cent of the companys
outstanding Ordinary shares.




65   The BOC Group plcAnnual report and accounts 2003





---



##### 



Report on remuneration continued





Directors share interests  movements during the yearShare optionsAt1 October
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    price(or at date of
    
    
    
    
    
    
    
    
    
    
    
    
    
    At
    
    Exercise
    
    at date
    
    Earliest
    
    Latestappointment
    
    
    
    
    
    
    
    
    
    
    
    
    
    30 September
    
    price
    
    of exercise
    
    exercise
    
    exerciseif later)
    
    Granted
    
    Exercised
    
    Lapsed
    
    2003
    
    pence
    
    pence
    
    date
    
    date
    
    NotesJ A Bevan6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    722
    
    
    
    
    
    
    
    10/02/98
    
    
    
    10/02/05
    
    
    
    c.10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    919
    
    
    
    
    
    
    
    14/02/99
    
    
    
    14/02/06
    
    
    
    c.10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    980
    
    
    
    
    
    
    
    21/02/00
    
    
    
    21/02/07
    
    
    
    c.10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    914
    
    
    
    
    
    
    
    11/02/01
    
    
    
    11/02/08
    
    
    
    c.30,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    894
    
    
    
    
    
    
    
    18/11/01
    
    
    
    18/11/08
    
    
    
    c.45,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,000
    
    
    
    937
    
    
    
    
    
    
    
    26/05/03
    
    
    
    26/05/10301
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    301
    
    
    
    870
    
    
    
    
    
    
    
    01/07/03
    
    
    
    31/12/03
    
    
    
    a. b.35,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,000
    
    
    
    993
    
    
    
    
    
    
    
    07/02/04
    
    
    
    07/02/11619
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    619
    
    
    
    766
    
    
    
    
    
    
    
    01/04/04
    
    
    
    30/09/04
    
    
    
    a. b.419
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    419
    
    
    
    894
    
    
    
    
    
    
    
    01/04/04
    
    
    
    30/09/04
    
    
    
    a. b.55,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,000
    
    
    
    1016
    
    
    
    
    
    
    
    06/02/05
    
    
    
    06/02/12
    
    
    
    67,654
    
    
    
    
    
    
    
    
    
    
    
    67,654
    
    
    
    776
    
    
    
    
    
    
    
    06/02/06
    
    
    
    06/02/13202,339
    
    
    
    67,654
    
    
    
    
    
    
    
    
    
    
    
    269,993A E Isaac45,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,000
    
    
    
    716
    
    
    
    
    
    
    
    16/11/98
    
    
    
    16/11/04
    
    
    
    b.50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    722
    
    
    
    
    
    
    
    10/02/98
    
    
    
    10/02/05
    
    
    
    c.50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    919
    
    
    
    
    
    
    
    14/02/99
    
    
    
    14/02/06
    
    
    
    c.2,357
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,357
    
    
    
    827
    
    
    
    
    
    
    
    01/05/03
    
    
    
    31/10/03
    
    
    
    a. b.50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    980
    
    
    
    
    
    
    
    21/02/00
    
    
    
    21/02/07
    
    
    
    c.50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    914
    
    
    
    
    
    
    
    11/02/01
    
    
    
    11/02/08
    
    
    
    c.50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    851
    
    
    
    
    
    
    
    10/02/02
    
    
    
    10/02/09
    
    
    
    c.250,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    937
    
    
    
    
    
    
    
    26/05/03
    
    
    
    26/05/10200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    993
    
    
    
    
    
    
    
    07/02/04
    
    
    
    07/02/11200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    1016
    
    
    
    
    
    
    
    06/02/05
    
    
    
    06/02/12
    
    
    
    149,178
    
    
    
    
    
    
    
    
    
    
    
    149,178
    
    
    
    776
    
    
    
    
    
    
    
    06/02/06
    
    
    
    06/02/13947,357
    
    
    
    149,178
    
    
    
    
    
    
    
    
    
    
    
    1,096,535R Médori10,000
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    742
    
    
    
    75020,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    677
    
    
    
    
    
    
    
    11/02/98
    
    
    
    11/02/04
    
    
    
    b.15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    722
    
    
    
    
    
    
    
    10/02/98
    
    
    
    10/02/05
    
    
    
    c.15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    919
    
    
    
    
    
    
    
    14/02/99
    
    
    
    14/02/06
    
    
    
    c.15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    980
    
    
    
    
    
    
    
    21/02/00
    
    
    
    21/02/07
    
    
    
    c.30,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    914
    
    
    
    
    
    
    
    11/02/01
    
    
    
    11/02/08
    
    
    
    c.30,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    851
    
    
    
    
    
    
    
    10/02/02
    
    
    
    10/02/09
    
    
    
    c.100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    937
    
    
    
    
    
    
    
    26/05/03
    
    
    
    26/05/102,112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,112
    
    
    
    870
    
    
    
    
    
    
    
    01/08/07
    
    
    
    31/01/08
    
    
    
    a. b.50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    993
    
    
    
    
    
    
    
    07/02/04
    
    
    
    07/02/1180,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    1016
    
    
    
    
    
    
    
    06/02/05
    
    
    
    06/02/12
    
    
    
    78,141
    
    
    
    
    
    
    
    
    
    
    
    78,141
    
    
    
    776
    
    
    
    
    
    
    
    06/02/06
    
    
    
    06/02/13367,112
    
    
    
    78,141
    
    
    
    10,000
    
    
    
    
    
    
    
    435,253Dr K Rajagopal10,000
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    677
    
    
    
    
    
    
    
    11/02/98
    
    
    
    11/02/04
    
    
    
    b.25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    722
    
    
    
    
    
    
    
    10/02/98
    
    
    
    10/02/05
    
    
    
    c.35,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,000
    
    
    
    919
    
    
    
    
    
    
    
    14/02/99
    
    
    
    14/02/06
    
    
    
    c.471
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    471
    
    
    
    827
    
    
    
    
    
    
    
    01/05/03
    
    
    
    31/10/03
    
    
    
    a. b.20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    848
    
    
    
    
    
    
    
    14/08/99
    
    
    
    14/08/06
    
    
    
    c.35,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,000
    
    
    
    980
    
    
    
    
    
    
    
    21/02/00
    
    
    
    21/02/07
    
    
    
    c.50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    914
    
    
    
    
    
    
    
    11/02/01
    
    
    
    11/02/08
    
    
    
    c.1,676
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,676
    
    
    
    823
    
    
    
    
    
    
    
    01/05/02
    
    
    
    31/10/03
    
    
    
    a. b.50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    851
    
    
    
    
    
    
    
    10/02/02
    
    
    
    10/02/09
    
    
    
    c.87,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,500
    
    
    
    937
    
    
    
    
    
    
    
    26/05/03
    
    
    
    26/05/1050,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    993
    
    
    
    
    
    
    
    07/02/04
    
    
    
    07/02/1180,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    1016
    
    
    
    
    
    
    
    06/02/05
    
    
    
    06/02/12362
    
    
    
    
    
    
    
    
    
    
    
    362
    
    
    
    
    
    
    
    74,589
    
    
    
    
    
    
    
    
    
    
    
    74,589
    
    
    
    776
    
    
    
    
    
    
    
    06/02/06
    
    
    
    06/02/13
    
    
    
    2,353
    
    
    
    
    
    
    
    
    
    
    
    2,353
    
    
    
    698
    
    
    
    
    
    
    
    01/05/08
    
    
    
    31/10/08
    
    
    
    a. b.460,009
    
    
    
    76,942
    
    
    
    
    
    
    
    10,362
    
    
    
    526,589




66   The BOC Group plcAnnual report and accounts 2003





---



##### 







At1 October
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    price(or at date of
    
    
    
    
    
    
    
    
    
    
    
    
    
    At
    
    Exercise
    
    at date
    
    Earliest
    
    Latestappointment
    
    
    
    
    
    
    
    
    
    
    
    
    
    30 September
    
    price
    
    of exercise
    
    exercise
    
    exerciseif later)
    
    Granted
    
    Exercised
    
    Lapsed
    
    2003
    
    pence
    
    pence
    
    date
    
    date
    
    NotesJ L Walsh10,000
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    742
    
    
    
    74915,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    677
    
    
    
    
    
    
    
    11/02/98
    
    
    
    11/02/04
    
    
    
    b.10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    722
    
    
    
    
    
    
    
    10/02/98
    
    
    
    10/02/05
    
    
    
    c.10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    919
    
    
    
    
    
    
    
    14/02/99
    
    
    
    14/02/06
    
    
    
    c.12,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,500
    
    
    
    980
    
    
    
    
    
    
    
    21/02/00
    
    
    
    21/02/07
    
    
    
    c.30,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    914
    
    
    
    
    
    
    
    11/02/01
    
    
    
    11/02/08
    
    
    
    c.70,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,000
    
    
    
    851
    
    
    
    
    
    
    
    10/02/02
    
    
    
    10/02/09
    
    
    
    c.100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    937
    
    
    
    
    
    
    
    26/05/03
    
    
    
    26/05/1050,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    993
    
    
    
    
    
    
    
    07/02/04
    
    
    
    07/02/1180,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    1016
    
    
    
    
    
    
    
    06/02/05
    
    
    
    06/02/12
    
    
    
    74,589
    
    
    
    
    
    
    
    
    
    
    
    74,589
    
    
    
    776
    
    
    
    
    
    
    
    06/02/06
    
    
    
    06/02/13387,500
    
    
    
    74,589
    
    
    
    10,000
    
    
    
    
    
    
    
    452,089Former directorR S Grant19,896
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,896
    
    
    
    677
    
    
    
    
    
    
    
    11/02/98
    
    
    
    11/02/04
    
    
    
    b.25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    722
    
    
    
    
    
    
    
    10/02/98
    
    
    
    30/12/04
    
    
    
    c. d.25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    919
    
    
    
    
    
    
    
    14/02/99
    
    
    
    30/12/04
    
    
    
    c. d.20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    848
    
    
    
    
    
    
    
    14/08/99
    
    
    
    30/12/04
    
    
    
    c. d.35,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,000
    
    
    
    980
    
    
    
    
    
    
    
    21/02/00
    
    
    
    30/12/04
    
    
    
    c. d.75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    914
    
    
    
    
    
    
    
    11/02/01
    
    
    
    30/12/04
    
    
    
    c. d.67,801
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,801
    
    
    
    851
    
    
    
    
    
    
    
    10/02/02
    
    
    
    30/12/04
    
    
    
    c. d.120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120,000
    
    
    
    937
    
    
    
    
    
    
    
    26/05/03
    
    
    
    30/12/04
    
    
    
    d.75,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    993
    
    
    
    
    
    
    
    07/02/04
    
    
    
    30/12/04
    
    
    
    d.80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    1016
    
    
    
    
    
    
    
    
    
    
    
    30/09/04
    
    
    
    d.542,697
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    542,697
 a.
    
    Options granted under the Savings Related Share Option scheme. All other
options shown above are granted under the executive share option schemes. b.
    
    Options with no performance conditions attached. All other options shown
above have performance related conditions attached to them.
These conditions are described on pages 61 and 62. c.
    
    The performance conditions attaching to these options have been
satisfied. d.
    
    Option exercise period in accordance with severance agreement and scheme
rules. The total gains made by directors on options exercised during the year were £1,500 (2002: £354,000).
 At 30 September 2003, there were 2,628,461 options outstanding
where the exercise price exceeded the market price of 826p. During
the year, the share price ranged from a high of 947p to a low of 670 p.




67   The BOC Group plcAnnual report and accounts 2003





---



##### 



Report on remuneration continued





Long-Term Incentive Plan The following awards were made to directors during the year under the Long-Term Incentive Plan:Market priceof shares atdate of grant
    
    
    
    
    
    Earliest
    
    LatestDate of award
    
    Number
    
    pence
    
    Performance period
    
    exercise date
    
    exercise dateJ A Bevan
    
    
    06/02/03
    
    
    
    38,659
    
    
    
    776
    
    
    
    01/10/02  30/09/05
    
    
    
    06/02/06
    
    
    
    06/02/13A E Isaac
    
    
    06/02/03
    
    
    
    127,867
    
    
    
    776
    
    
    
    01/10/02  30/09/05
    
    
    
    06/02/06
    
    
    
    06/02/13R Médori
    
    
    06/02/03
    
    
    
    44,652
    
    
    
    776
    
    
    
    01/10/02  30/09/05
    
    
    
    06/02/06
    
    
    
    06/02/13Dr K Rajagopal
    
    
    06/02/03
    
    
    
    42,622
    
    
    
    776
    
    
    
    01/10/02  30/09/05
    
    
    
    06/02/06
    
    
    
    06/02/13J L Walsh
    
    
    06/02/03
    
    
    
    42,622
    
    
    
    776
    
    
    
    01/10/02  30/09/05
    
    
    
    06/02/06
    
    
    
    06/02/13
 The performance conditions attaching to the above awards are shown on
page 61. Awards take the form of nil cost options.
 Share incentive units  exercised during the yearMarket priceat dateExercise price
    
    of exerciseDate of grant
    
    Number
    
    pence
    
    penceA E Isaac
    
    
    16/11/94
    
    
    
    45,000
    
    
    
    716
    
    
    
    856
 The share incentive unit plan provided for cash payments to executives
based on the increase in the share price over a period of up to eight
years from the date of grant. No grants have been made under the plan
since 1995 and there are no further share incentive units outstanding.
 Pensions The pension arrangements for each individual director are as follows:
 Mr Bevans pension is provided under the Australian
superannuation fund. On retirement at age 60 he will be entitled to
the accumulated value of his defined contribution fund subject to that
not being less than the guaranteed lump sum of approximately six times
his final 12 months salary.
 Mr Isaacs pension is being funded in the UK through a
combination of a tax-approved personal pension plan and a funded
unapproved retirement benefit scheme.
 Mr Médoris pension benefits are funded under the UK senior
executive pension scheme on earnings up to the earnings cap imposed
by the Finance Act 1989. On retirement at age 60, he will be entitled
to a pension of 57. 5 per cent of capped earnings. In addition, he has
a vested deferred benefit, under the US cash balance retirement plan,
which he will be entitled to take as a lump sum on retirement at age
60.
 Dr Rajagopals pension benefits are funded under the UK senior
executive pension scheme. On retirement at age 60, he will be entitled
to a pension of two-thirds of his final 12 months salary.
 Mr Walshs pension is provided for under the US cash balance
retirement plan and the US top-hat pension plan, which, in combination,
entitle Mr Walsh to a lump sum benefit on retirement at age 65
equivalent to an annual pension of approximately 55 per cent of final
base salary. In accordance with local competitive practices existing in
his country of operation prior to his appointment as a director, Mr
Walshs bonus is pensionable.
 Further details of the pension plans for executive directors are given below.
 Defined benefit plansTransfervalue ofDeferred
    
    Increase in
    
    Transfer
    
    Transfer
    
    Change in
    
    Increase in
    
    increase inbenefit at
    
    deferred
    
    value at
    
    value at
    
    transfer value
    
    deferred
    
    deferred30 September
    
    benefit in
    
    1 October
    
    30 September
    
    less member's
    
    benefit (net
    
    benefit (net2003
    
    year
    
    2002
    
    2003
    
    contributions
    
    of inflation)
    
    of inflation)Annual pensionR Médori (£000)
    
    
    11
    
    
    
    4
    
    
    
    50
    
    
    
    100
    
    
    
    45
    
    
    
    3
    
    
    
    30Dr K Rajagopal (£000)
    
    
    150
    
    
    
    13
    
    
    
    1,103
    
    
    
    1,667
    
    
    
    548
    
    
    
    11
    
    
    
    126Lump sum benefitJ A Bevan (A$000)
    
    
    2,755
    
    
    
    1,071
    
    
    
    1,684
    
    
    
    2,755
    
    
    
    1,071
    
    
    
    1,043
    
    
    
    1,043R Médori (US$000)
    
    
    261
    
    
    
    20
    
    
    
    241
    
    
    
    261
    
    
    
    20
    
    
    
    17
    
    
    
    17J L Walsh (US$000)
    
    
    703
    
    
    
    113
    
    
    
    590
    
    
    
    703
    
    
    
    113
    
    
    
    103
    
    
    
    103R S Grant (US$000)1
    
    
    4,199
    
    
    
    1,676
    
    
    
    2,523
    
    
    
    4,199
    
    
    
    1,676
    
    
    
    1,633
    
    
    
    1,633
 1.
    
    Former director All transfer values have been calculated in accordance with Actuarial Guidance Note GN11.




68   The BOC Group plcAnnual report and accounts 2003





---



##### 







Money purchase plans The company made contributions in the year to money purchase plans in respect of the following directors:2003
    
    2002£000
    

£000A E Isaac
    
    
    252
    
    
    
    155J L Walsh
    
    
    13
    
    
    
    13Former director:R S Grant
    
    
    14
    
    
    
    16279
    
    
    
    184
 Excess retirement benefits No person who has served as a director at any time during the
financial year has received retirement benefits in excess of those
to which he or she was entitled on the date that the benefits first
became payable.
 Compensation for past director Mr Grant, former chief executive Process Gas Solutions, had a contract
dated 1 May 1999. The contract could be terminated by the company on
two years notice, and provided for the payment of the value of base
salary for the unexpired portion of the notice period. Additionally,
the contract provided for the addition of Mr Grants notice period to
his pensionable service in the calculation of his pension entitlement.
 Mr Grant resigned as a director on 31 December 2002 and he left
the company on 30 June 2003. His termination entitlements were mitigated
by an agreement that his contractual notice period would be treated as
expiring on 30 September 2004. He accordingly received a payment of
£448,000, representing salary and compensation for benefits in respect
of the agreed 15-month notice period. Mr Grant was also entitled to
purchase his company car for a nominal amount. In addition, Mr Grants
benefit in the US top-hat pension plan was credited with 15 additional
months of pensionable service in respect of his notional notice period.
The top-hat pension plan was also adjusted to meet Mr Grants accrued
entitlement. Additionally, he received the sum of £13, 400 being the
equivalent of the companys contribution which would have been credited
to Mr Grants US cash balance retirement plan during the period of his
agreed notice period. These amounts are disclosed on page 64 as
Termination payments and have been charged against profit in 2003.
 Details of Mr Grants share options are given on page 67, and
details of his pension entitlements are given on page 68.
 Sums paid to third parties Except for fees paid to Smith & Nephew plc for the services of Sir
Christopher ODonnell as noted on page 64, no consideration was paid to
or receivable by any third party in respect of any person who served as
a director during 2003.
 Auditable section of the report on remuneration The following sections and tables constitute the auditable part of the
report on remuneration, as defined in Part 3, Schedule 7A of the
Companies Act 1985:
 Sections relating to Long-Term Incentive Plan,
Executive Share Option Scheme 2003, Pensions, Excess retirement
benefits, Compensation for past director and Sums paid to third
parties.
 Tables headed Individual remuneration, Directors share
interests at 30 September 2003, Directors share interests 
movements during the year, Long-Term Incentive Plan, Share
incentive units  exercised during the year, Defined benefit plans
and Money purchase plans.
 The report on remuneration has been approved by the board and signed on its
behalf by:
 Julie BaddeleyRemuneration committee chairman
21 November 2003




69   The BOC Group plcAnnual report and accounts 2003





---



##### 



Responsibility of the directors

For preparation of the financial statements






Company law requires the directors to prepare financial statements for
each financial year which give a true and fair view of the state of
affairs of the company and of the Group at the end of the year and of
the profit or loss for the year. In preparing those financial
statements, the directors are required to:
 
    
    select suitable accounting policies and then apply them consistently. 
    
    make judgements and estimates that are reasonable and prudent. 
    
    state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements. 
    
    prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the company and the Group will
continue in business. The directors confirm that the financial statements comply with the above
requirements.
 The directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the company and the Group and enable them to
ensure that the financial statements comply with the Companies Act
1985. The directors also have general responsibility for taking
reasonable steps to safeguard the assets of the company and the Group
and to prevent and detect fraud and other irregularities.
 A copy of the financial statements of the company is placed on the
website of The BOC Group plc. The directors are responsible for the
maintenance and integrity of statutory and audited information on the
companys website. Information published on the Internet is accessible
in many countries with different legal requirements. Legislation in the
United Kingdom governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.




70   The BOC Group plcAnnual report and accounts 2003





---



##### 



Report by the independent auditors

To the members of The BOC Group plc






We have audited the financial statements which comprise the Group
profit and loss account, the Group balance sheet, the Group cash flow
statement, the total recognised gains and losses, the movement in
shareholders funds, the balance sheet of The BOC Group plc, Group
undertakings, accounting policies and the related notes. We have also
audited the disclosures required by Part 3 of Schedule 7A to the
United Kingdom Companies Act 1985 contained in the report on
remuneration (the auditable part).
 Respective responsibilities of directors and auditors The directors responsibilities for preparing the Annual Report, Form
20-F and the financial statements in accordance with applicable United
Kingdom law and accounting standards and the requirements of the United
States of America Securities and Exchange Commission are set out in the
statement of directors responsibilities. The directors are also
responsible for preparing the report on remuneration.
 Our responsibility is to audit the financial statements and the
auditable part of the report on remuneration in accordance with
relevant legal and regulatory requirements and United Kingdom Auditing
Standards issued by the Auditing Practices Board and Auditing
Standards generally accepted in the United States of America.
 We report to you our opinion as to whether the financial
statements give a true and fair view and whether the financial
statements and the auditable part of the report on remuneration have
been properly prepared in accordance with the United Kingdom Companies
Act 1985. We also report to you if, in our opinion, the directors
report is not consistent with the financial statements, if the company
has not kept proper accounting records, if we have not received all
the information and explanations we require for our audit, or if
information specified by law regarding directors remuneration and
transactions is not disclosed.
 We read the other information contained in the Annual Report and
consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the financial
statements. The other information comprises only the financial
highlights, chairmans statement, chief executives review, board of
directors, executive management board, Group five year record, Group
profile, employees, safety, health and the environment, research,
development and information technology, risk factors, operating review,
financial review, the unaudited part of the report on remuneration,
responsibility of the directors, dividends, nature of trading market,
analysis of shareholdings, taxation, financial calendar, key contacts
information, cross reference to Form 20-F and glossary of terms.
 We review whether the corporate governance statement reflects the
companys compliance with the seven provisions of the Combined Code
specified for our review by the Listing Rules, and we report if it does
not. We are not required to consider whether the boards statements on
internal control cover all risks and controls, or to form an opinion on
the effectiveness of the companys or Groups corporate governance
procedures or its risk and control procedures.
 Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued
by the United Kingdom Auditing Practices Board and with Auditing
Standards generally accepted in the United States of America. An
audit includes examination, on a test basis, of evidence relevant to
the amounts and disclosures in the financial statements and the
auditable part of the report on remuneration. It also includes an
assessment of the significant estimates and judgements made by the
directors in the preparation of the financial statements, and of
whether the accounting policies are appropriate to the companys
circumstances, consistently applied and adequately disclosed.
 We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary in order to
provide us with sufficient evidence to give reasonable assurance that
the financial statements and the auditable part of the report on
remuneration are free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion we also
evaluated the overall adequacy of the presentation of information in
the financial statements.
 United Kingdom opinionIn our opinion the financial statements give a
true and fair view of the state of affairs of the company and the Group
at 30 September 2003 and of the profit and cash flows of the Group for
the year then ended; the financial statements have been properly
prepared in accordance with the United Kingdom Companies Act 1985; and
those parts of the report on remuneration required by Part 3 of
Schedule 7A to the United Kingdom Companies Act 1985 have been properly
prepared in accordance with the United Kingdom Companies Act 1985.
 United States opinionIn our opinion the financial statements referred
to above present fairly, in all material respects, the consolidated
financial position of the Group at 30 September 2003 and 2002, and the
results of its operations and its cash flows for each of the three
years in the period ended 30 September 2003, in conformity with
accounting principles generally accepted in the United Kingdom.
 Accounting principles generally accepted in the United Kingdom
vary in certain significant respects from accounting principles
generally accepted in the United States of America. The application
of the latter would have affected results of operations for each of
the three years in the period ended 30 September 2003 and the
consolidated shareholders funds at 30 September 2003 and 2002, to
the extent summarised in note 30 to the financial statements.
 PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London, England
21 November 2003




71   The BOC Group plcAnnual report and accounts 2003





---



##### 



Group profit and loss account

Years ended 30 September


2003
    
    2002
    
    2001Before
    
    
    
    
    
    After
    
    Before
    
    
    
    
    
    After
    
    Before
    
    
    
    
    
    Afterexceptional
    
    Exceptional
    
    exceptional
    
    exceptional
    
    Exceptional
    
    exceptional
    
    exceptional
    
    Exceptional
    
    exceptionalitems
    
    items
    
    items
    
    items
    
    items
    
    items
    
    items
    
    items
    
    itemsNotes
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionTurnoverContinuing operations
    
    
    
    
    
    
    4,253.0
    
    
    
    
    
    
    
    4,253.0
    
    
    
    4,017.9
    
    
    
    
    
    
    
    4,017.9
    
    
    
    4,159.2
    
    
    
    
    
    
    
    4,159.2Acquisitions
    
    
    
    
    
    
    70.2
    
    
    
    
    
    
    
    70.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Turnover, including share of
joint ventures and associates
    
    
    1
    
    
    
    4,323.2
    
    
    
    
    
    
    
    4,323.2
    
    
    
    4,017.9
    
    
    
    
    
    
    
    4,017.9
    
    
    
    4,159.2
    
    
    
    
    
    
    
    4,159.2Less:Share of turnover of joint ventures
    
    
    
    
    
    
    544.3
    
    
    
    
    
    
    
    544.3
    
    
    
    324.1
    
    
    
    
    
    
    
    324.1
    
    
    
    340.0
    
    
    
    
    
    
    
    340.0Share of turnover of associates
    
    
    
    
    
    
    60.6
    
    
    
    
    
    
    
    60.6
    
    
    
    36.1
    
    
    
    
    
    
    
    36.1
    
    
    
    46.3
    
    
    
    
    
    
    
    46.3Turnover of subsidiary undertakings
    
    
    
    
    
    
    3,718.3
    
    
    
    
    
    
    
    3,718.3
    
    
    
    3,657.7
    
    
    
    
    
    
    
    3,657.7
    
    
    
    3,772.9
    
    
    
    
    
    
    
    3,772.9Cost of sales
    
    
    2
    (a)
    
    
    (2,136.2
    )
    
    
    (1.7
    )
    
    
    (2,137.9
    )
    
    
    (2,089.7
    )
    
    
    (15.1
    )
    
    
    (2,104.8
    )
    
    
    (2,164.2
    )
    
    
    (44.6
    )
    
    
    (2,208.8
    )Gross profit
    
    
    
    
    
    
    1,582.1
    
    
    
    (1.7
    )
    
    
    1,580.4
    
    
    
    1,568.0
    
    
    
    (15.1
    )
    
    
    1,552.9
    
    
    
    1,608.7
    
    
    
    (44.6
    )
    
    
    1,564.1Net operating expenses
    
    
    2
    (a)
    
    
    (1,174.7
    )
    
    
    (58.5
    )
    
    
    (1,233.2
    )
    
    
    (1,142.4
    )
    
    
    (58.9
    )
    
    
    (1,201.3
    )
    
    
    (1,150.3
    )
    
    
    (61.1
    )
    
    
    (1,211.4
    )Operating profitContinuing operations
    
    
    
    
    
    
    403.1
    
    
    
    (60.2
    )
    
    
    342.9
    
    
    
    425.6
    
    
    
    (74.0
    )
    
    
    351.6
    
    
    
    458.4
    
    
    
    (105.7
    )
    
    
    352.7Acquisitions
    
    
    
    
    
    
    4.3
    
    
    
    
    
    
    
    4.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating profit of subsidiary undertakings
    
    
    
    
    
    
    407.4
    
    
    
    (60.2
    )
    
    
    347.2
    
    
    
    425.6
    
    
    
    (74.0
    )
    
    
    351.6
    
    
    
    458.4
    
    
    
    (105.7
    )
    
    
    352.7Share of operating profit of joint ventures
    
    
    
    
    
    
    86.8
    
    
    
    (6.8
    )
    
    
    80.0
    
    
    
    63.8
    
    
    
    (0.5
    )
    
    
    63.3
    
    
    
    59.0
    
    
    
    (2.2
    )
    
    
    56.8Share of operating profit of associates
    
    
    
    
    
    
    11.4
    
    
    
    
    
    
    
    11.4
    
    
    
    10.7
    
    
    
    
    
    
    
    10.7
    
    
    
    13.2
    
    
    
    (0.4
    )
    
    
    12.8Total operating profit including
share of joint ventures and associates
    
    
    1
    
    
    
    505.6
    
    
    
    (67.0
    )
    
    
    438.6
    
    
    
    500.1
    
    
    
    (74.5
    )
    
    
    425.6
    
    
    
    530.6
    
    
    
    (108.3
    )
    
    
    422.3Loss on termination/disposal of businesses
 continuing operations
    
    
    2
    (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20.2
    )
    
    
    (20.2
    )
    
    
    
    
    
    
    
    
    
    
    Profit on disposal of fixed assets
 continuing operations
    
    
    2
    (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6
    
    
    
    3.6Profit on ordinary activities before interest
    
    
    
    
    
    
    505.6
    
    
    
    (67.0
    )
    
    
    438.6
    
    
    
    500.1
    
    
    
    (94.7
    )
    
    
    405.4
    
    
    
    530.6
    
    
    
    (104.7
    )
    
    
    425.9Interest on net debt
    
    
    3
    
    
    
    (96.1
    )
    
    
    
    
    
    
    (96.1
    )
    
    
    (103.1
    )
    
    
    
    
    
    
    (103.1
    )
    
    
    (123.4
    )
    
    
    
    
    
    
    (123.4
    )Interest on pension scheme liabilities
    
    
    8
    (a)
    
    
    (110.2
    )
    
    
    
    
    
    
    (110.2
    )
    
    
    (106.1
    )
    
    
    
    
    
    
    (106.1
    )
    
    
    (107.2
    )
    
    
    
    
    
    
    (107.2
    )Expected return on pension scheme assets
    
    
    8
    (a)
    
    
    119.6
    
    
    
    
    
    
    
    119.6
    
    
    
    139.1
    
    
    
    
    
    
    
    139.1
    
    
    
    166.9
    
    
    
    
    
    
    
    166.9Other net financing income
    
    
    
    
    
    
    9.4
    
    
    
    
    
    
    
    9.4
    
    
    
    33.0
    
    
    
    
    
    
    
    33.0
    
    
    
    59.7
    
    
    
    
    
    
    
    59.7Profit on ordinary activities before tax
    
    
    
    
    
    
    418.9
    
    
    
    (67.0
    )
    
    
    351.9
    
    
    
    430.0
    
    
    
    (94.7
    )
    
    
    335.3
    
    
    
    466.9
    
    
    
    (104.7
    )
    
    
    362.2Tax on profit on ordinary activities
    
    
    4
    (a)
    
    
    (121.4
    )
    
    
    25.0
    
    
    
    (96.4
    )
    
    
    (129.0
    )
    
    
    22.8
    
    
    
    (106.2
    )
    
    
    (151.5
    )
    
    
    46.9
    
    
    
    (104.6
    )Profit on ordinary activities after tax
    
    
    
    
    
    
    297.5
    
    
    
    (42.0
    )
    
    
    255.5
    
    
    
    301.0
    
    
    
    (71.9
    )
    
    
    229.1
    
    
    
    315.4
    
    
    
    (57.8
    )
    
    
    257.6Minority interests  equity
    
    
    
    
    
    
    (36.8
    )
    
    
    0.4
    
    
    
    (36.4
    )
    
    
    (26.7
    )
    
    
    0.5
    
    
    
    (26.2
    )
    
    
    (35.4
    )
    
    
    1.9
    
    
    
    (33.5
    )Profit for the financial year
    
    
    
    
    
    
    260.7
    
    
    
    (41.6
    )
    
    
    219.1
    
    
    
    274.3
    
    
    
    (71.4
    )
    
    
    202.9
    
    
    
    280.0
    
    
    
    (55.9
    )
    
    
    224.1Dividends
    
    
    9
    
    
    
    (192.1
    )
    
    
    
    
    
    
    (192.1
    )
    
    
    (186.6
    )
    
    
    
    
    
    
    (186.6
    )
    
    
    (180.3
    )
    
    
    
    
    
    
    (180.3
    )Retained profit for the financial year
    
    
    
    
    
    
    68.6
    
    
    
    (41.6
    )
    
    
    27.0
    
    
    
    87.7
    
    
    
    (71.4
    )
    
    
    16.3
    
    
    
    99.7
    
    
    
    (55.9
    )
    
    
    43.8Earnings per 25p Ordinary share
    
    
    10 basic
    
    
    
    
    
    
    52.9
    p
    
    
    (8.4
    )p
    
    
    44.5
    p
    
    
    55.9
    p
    
    
    (14.5
    )p
    
    
    41.4
    p
    
    
    57.5
    p
    
    
    (11.5
    )p
    
    
    46.0
    p diluted
    
    
    
    
    
    
    52.9
    p
    
    
    (8.4
    )p
    
    
    44.5
    p
    
    
    55.7
    p
    
    
    (14.5
    )p
    
    
    41.2
    p
    
    
    57.3
    p
    
    
    (11.4
    )p
    
    
    45.9
    p


All turnover and operating profit arose from continuing operations.


72   The BOC Group plcAnnual report and accounts 2003





---



##### 



Group balance sheet

At 30 September


2003
    
    2002Notes
    
    £ million
    
    £ millionFixed assetsIntangible assets
    
    
    11
    
    
    
    206.1
    
    
    
    150.7Tangible assets
    
    
    12
    
    
    
    2,913.4
    
    
    
    3,027.4Investment in joint ventures share of gross assets
    
    
    
    
    
    
    870.3
    
    
    
    616.2 share of gross liabilities
    
    
    
    
    
    
    (468.0
    )
    
    
    (410.7
    )402.3
    
    
    
    205.5 loans to joint ventures
    
    
    
    
    
    
    103.0
    
    
    
    111.8Investment in associates share of net assets
    
    
    
    
    
    
    59.6
    
    
    
    57.5 loans to associates
    
    
    
    
    
    
    4.9
    
    
    
    6.2Investment in own shares
    
    
    
    
    
    
    48.1
    
    
    
    42.5Other investments
    
    
    
    
    
    
    38.8
    
    
    
    45.1Investments
    
    
    13
    
    
    
    656.7
    
    
    
    468.63,776.2
    
    
    
    3,646.7Current assetsStocks
    
    
    14
    
    
    
    284.2
    
    
    
    260.0Debtors falling due within one year
    
    
    15
    (a)
    
    
    697.8
    
    
    
    733.8Debtors falling due after more than one year
    
    
    15
    (b)
    
    
    23.6
    
    
    
    28.3Investments
    
    
    16
    
    
    
    21.8
    
    
    
    38.8Cash at bank and in hand
    
    
    17
    
    
    
    77.5
    
    
    
    185.51,104.9
    
    
    
    1,246.4Current liabilitiesCreditors: amounts falling due within one yearBorrowings and finance leases
    
    
    18
    (a)
    
    
    (360.9
    )
    
    
    (390.1
    )Other creditors
    
    
    18
    (b)
    
    
    (807.3
    )
    
    
    (857.8
    )(1,168.2
    )
    
    
    (1,247.9
    )Net current liabilities
    
    
    
    
    
    
    (63.3
    )
    
    
    (1.5
    )Total assets less current liabilities
    
    
    
    
    
    
    3,712.9
    
    
    
    3,645.2Long-term liabilitiesCreditors: amounts falling due after more than one yearBorrowings and finance leases
    
    
    19
    (a)
    
    
    (1,084.7
    )
    
    
    (1,121.0
    )Other creditors
    
    
    19
    (b)
    
    
    (48.4
    )
    
    
    (58.0
    )(1,133.1
    )
    
    
    (1,179.0
    )Provisions for liabilities and charges
    
    
    22
    
    
    
    (376.6
    )
    
    
    (407.5
    )Total net assets excluding pension assets and liabilities
    
    
    
    
    
    
    2,203.2
    
    
    
    2,058.7Pension assets
    
    
    8
    (a)
    
    
    50.7
    
    
    
    54.3Pension liabilities
    
    
    8
    (a)
    
    
    (341.8
    )
    
    
    (311.0
    )Total net assets including pension assets and liabilities
    
    
    
    
    
    
    1,912.1
    
    
    
    1,802.0Capital and reservesEquity called up share capital
    
    
    23
    
    
    
    124.4
    
    
    
    124.3Share premium account
    
    
    24
    (a)
    
    
    366.0
    
    
    
    362.1Revaluation reserves
    
    
    24
    (a)
    
    
    30.8
    
    
    
    27.8Profit and loss account
    
    
    24
    (a)
    
    
    1,198.4
    
    
    
    1,304.8Pensions reserves
    
    
    24
    (a)
    
    
    (291.1
    )
    
    
    (256.5
    )Joint ventures reserves
    
    
    24
    (a)
    
    
    273.3
    
    
    
    88.1Associates reserves
    
    
    24
    (a)
    
    
    33.0
    
    
    
    33.5Equity shareholders funds
    
    
    
    
    
    
    1,734.8
    
    
    
    1,684.1Minority shareholders equity interests
    
    
    
    
    
    
    177.3
    
    
    
    117.9Total capital and reserves
    
    
    
    
    
    
    1,912.1
    
    
    
    1,802.0


The financial statements were approved by the board of directors on 21 November 2003 and are signed on its behalf by:

A E IsaacDirector R MédoriDirector

73   The BOC Group plcAnnual report and accounts 2003





---



##### 



Group cash flow statement

Years ended 30 September


2003
    
    2002
    
    2001Notes
    
    £ million
    
    £ million
    
    £ millionNet cash inflow from operating activities
    
    
    27
    (a)
    
    
    700.1
    
    
    
    759.3
    
    
    
    787.8Dividends from joint ventures and associatesDividends from joint ventures
    
    
    
    
    
    
    31.7
    
    
    
    30.5
    
    
    
    19.4Dividends from associates
    
    
    
    
    
    
    3.3
    
    
    
    3.4
    
    
    
    4.1Dividends from joint ventures and associates
    
    
    
    
    
    
    35.0
    
    
    
    33.9
    
    
    
    23.5Returns on investments and servicing of financeInterest paid
    
    
    
    
    
    
    (94.4
    )
    
    
    (89.6
    )
    
    
    (95.4
    )Interest received
    
    
    
    
    
    
    16.6
    
    
    
    18.5
    
    
    
    23.1Dividends paid to minorities in subsidiaries
    
    
    
    
    
    
    (12.4
    )
    
    
    (13.9
    )
    
    
    (7.7
    )Interest element of finance lease rental payments
    
    
    
    
    
    
    (4.2
    )
    
    
    (5.7
    )
    
    
    (7.2
    )Returns on investments and servicing of finance
    
    
    
    
    
    
    (94.4
    )
    
    
    (90.7
    )
    
    
    (87.2
    )Tax paid
    
    
    
    
    
    
    (90.7
    )
    
    
    (96.2
    )
    
    
    (100.6
    )Capital expenditure and financial investmentPurchases of tangible fixed assets
    
    
    
    
    
    
    (281.4
    )
    
    
    (352.1
    )
    
    
    (349.8
    )Sales of tangible fixed assets
    
    
    
    
    
    
    37.0
    
    
    
    31.6
    
    
    
    47.1Purchases of intangible fixed assets
    
    
    
    
    
    
    (1.2
    )
    
    
    (0.1
    )
    
    
    (0.3
    )Net sales/(purchases) of current asset investments
    
    
    
    
    
    
    16.6
    
    
    
    4.3
    
    
    
    (6.5
    )Purchases of trade and other investments
    
    
    
    
    
    
    (10.8
    )
    
    
    (19.7
    )
    
    
    (10.2
    )Sales of trade and other investments
    
    
    
    
    
    
    6.5
    
    
    
    11.5
    
    
    
    7.8Capital expenditure and financial investment
    
    
    
    
    
    
    (233.3
    )
    
    
    (324.5
    )
    
    
    (311.9
    )Acquisitions and disposalsAcquisitions of businesses
    
    
    28
    (a)
    
    
    (135.5
    )
    
    
    (207.3
    )
    
    
    (145.9
    )Net overdrafts acquired with subsidiaries
    
    
    
    
    
    
    
    
    
    
    (7.4
    )
    
    
    Disposals of businesses
    
    
    28
    (a)
    
    
    3.9
    
    
    
    10.6
    
    
    
    2.7Net cash disposed of with subsidiaries
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    Investments in joint ventures
    
    
    
    
    
    
    
    
    
    
    (12.6
    )
    
    
    Divestments/repayments from joint ventures
    
    
    
    
    
    
    12.4
    
    
    
    
    
    
    
    10.8Investments in associates
    
    
    
    
    
    
    (8.4
    )
    
    
    (0.5
    )
    
    
    (2.7
    )Divestments/repayments from associates
    
    
    
    
    
    
    9.4
    
    
    
    1.7
    
    
    
    1.5Acquisitions and disposals
    
    
    
    
    
    
    (118.3
    )
    
    
    (215.5
    )
    
    
    (133.6
    )Equity dividends paid
    
    
    
    
    
    
    (192.1
    )
    
    
    (186.6
    )
    
    
    (180.3
    )Net cash inflow/(outflow) before use of liquid resources
and financing
    
    
    
    
    
    
    6.3
    
    
    
    (120.3
    )
    
    
    (2.3
    )Management of liquid resourcesNet sales of short-term investments
    
    
    
    
    
    
    16.2
    
    
    
    52.6
    
    
    
    102.8FinancingIssue of shares
    
    
    
    
    
    
    3.7
    
    
    
    25.0
    
    
    
    16.9(Decrease)/increase in debt
    
    
    27
    (d)
    
    
    (128.7
    )
    
    
    64.1
    
    
    
    (51.3
    )Net cash (outflow)/inflow from financing
    
    
    
    
    
    
    (125.0
    )
    
    
    89.1
    
    
    
    (34.4
    )(Decrease)/increase in cash
    
    
    
    
    
    
    (102.5
    )
    
    
    21.4
    
    
    
    66.1


A reconciliation of the movement in cash to the movement in net debt in the
year is given in note 27(b).


Liquid resources are defined as short-term deposits.

74   The BOC Group plcAnnual report and accounts 2003





---



##### 



Total recognised gains and losses

Years ended 30 September


2003
    
    2002
    
    2001Notes
    
    £ million
    
    £ million
    
    £ millionParent1
    
    
    
    
    
    
    218.6
    
    
    
    26.2
    
    
    
    12.1Subsidiary undertakings
    
    
    
    
    
    
    (0.4
    )
    
    
    170.1
    
    
    
    199.8Joint ventures
    
    
    
    
    
    
    (0.2
    )
    
    
    4.5
    
    
    
    10.3Associates
    
    
    
    
    
    
    1.1
    
    
    
    2.1
    
    
    
    1.9Profit for the financial year
    
    
    
    
    
    
    219.1
    
    
    
    202.9
    
    
    
    224.1Actuarial loss recognised on the pension schemes
    
    
    
    
    
    
    (17.5
    )
    
    
    (431.2
    )
    
    
    (464.9
    )Movement on deferred tax relating to actuarial loss on pensions
    
    
    
    
    
    
    2.0
    
    
    
    134.0
    
    
    
    154.5Unrealised loss on write down of revaluation reserve
    
    
    
    
    
    
    
    
    
    
    (11.5
    )
    
    
    Unrealised profit on disposal of a subsidiary
    
    
    
    
    
    
    8.2
    
    
    
    
    
    
    
    Exchange translation effect on: results for the year of subsidiaries
    
    
    
    
    
    
    8.0
    
    
    
    (5.2
    )
    
    
    (3.9
    ) results for the year of joint ventures
    
    
    
    
    
    
    0.2
    
    
    
    (2.6
    )
    
    
    (1.5
    ) results for the year of associates
    
    
    
    
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    (0.1
    ) foreign currency net investments in subsidiaries
    
    
    
    
    
    
    15.3
    
    
    
    (114.6
    )
    
    
    (55.8
    ) foreign currency net investments in joint ventures
    
    
    
    
    
    
    9.6
    
    
    
    (11.9
    )
    
    
    (1.6
    ) foreign currency net investments in associates
    
    
    
    
    
    
    (1.4
    )
    
    
    (1.7
    )
    
    
    0.4Total recognised gains and losses for the financial year
    
    
    24
    (a)
    
    
    243.3
    
    
    
    (242.1
    )
    
    
    (148.8
    )


|1. |  | In accordance with the concession granted under the Companies Act 1985,
the profit and loss account of The BOC Group plc has not been presented
separately in these financial statements.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | There were no material differences between reported profits and losses
and historical cost profits and losses on ordinary activities before tax
for 2003, 2002 and 2001.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | Profit attributable to the parent company includes dividends received
from subsidiaries, joint ventures and associates, often through
intermediate holding companies. These dividends may include the
distribution of earnings of previous periods. As a result, the
relationship of profit between parent, subsidiaries, joint ventures and
associates may show fluctuations from year to year.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | A current tax release/(charge) of £9.7 million (2002: £(13.5) million,
2001: £nil) has been recognised directly in the Group reserves.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------

Movement in shareholders funds

Years ended 30 September


2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ millionProfit for the financial year
    
    
    219.1
    
    
    
    202.9
    
    
    
    224.1Dividends
    
    
    (192.1
    )
    
    
    (186.6
    )
    
    
    (180.3
    )27.0
    
    
    
    16.3
    
    
    
    43.8Other recognised gains and losses
    
    
    24.2
    
    
    
    (445.0
    )
    
    
    (372.9
    )Reversal of goodwill credit in total recognised gains and losses on disposal of subsidiaries
    
    
    (4.2
    )
    
    
    
    
    
    
    Shares issued
    
    
    3.7
    
    
    
    24.6
    
    
    
    16.9Credit in relation to share options
    
    
    
    
    
    
    2.0
    
    
    
    4.4Net increase/(decrease) in shareholders funds for the financial year
    
    
    50.7
    
    
    
    (402.1
    )
    
    
    (307.8
    )Shareholders funds at 1 October
    
    
    1,684.1
    
    
    
    2,086.2
    
    
    
    2,394.0Shareholders funds at 30 September
    
    
    1,734.8
    
    
    
    1,684.1
    
    
    
    2,086.2


75   The BOC Group plcAnnual report and accounts 2003





---



##### 



Balance sheet of The BOC Group plc

At 30 September


2003
    
    2002Notes
    
    £ million
    
    £ millionFixed assetsTangible assets
    
    
    12(e)
    
    
    15.7
    
    
    
    14.0Investments
    
    
    13(e)
    
    
    3,100.5
    
    
    
    2,844.43,116.2
    
    
    
    2,858.4Current assetsDebtors falling due within one year
    
    
    15(a)
    
    
    694.4
    
    
    
    515.6Current liabilitiesCreditors: amounts falling due within one yearBorrowings and finance leases
    
    
    18(a)
    
    
    (303.6
    )
    
    
    (178.9
    )Other creditors
    
    
    18(b)
    
    
    (1,049.9
    )
    
    
    (953.8
    )(1,353.5
    )
    
    
    (1,132.7
    )Net current liabilities
    
    
    
    
    
    
    (659.1
    )
    
    
    (617.1
    )Total assetslesscurrent liabilities
    
    
    
    
    
    
    2,457.1
    
    
    
    2,241.3Long-term liabilitiesCreditors: amounts falling due after more than one yearBorrowings and finance leases
    
    
    19(a)
    
    
    (766.6
    )
    
    
    (801.0
    )Other creditors
    
    
    19(b)
    
    
    (10.4
    )
    
    
    (13.0
    )(777.0
    )
    
    
    (814.0
    )Total net assets
    
    
    
    
    
    
    1,680.1
    
    
    
    1,427.3Capital and reservesEquity called up share capital
    
    
    23
    
    
    124.4
    
    
    
    124.3Share premium account
    
    
    24(b)
    
    
    366.0
    
    
    
    362.1Other reserves
    
    
    24(b)
    
    
    336.4
    
    
    
    113.7Profit and loss account
    
    
    24(b)
    
    
    853.3
    
    
    
    827.2Total capital and reserves
    
    
    
    
    
    
    1,680.1
    
    
    
    1,427.3


The financial statements were approved by the board of directors on 21 November 2003 and are signed on its behalf by:

A E IsaacDirector R MédoriDirector

76   The BOC Group plcAnnual report and accounts 2003





---



##### 



Accounting policies

General



| |  | Basis of preparationThese accounts are based on the historical cost
accounting convention and comply with all applicable UK accounting
standards.     UK
accounting standards differ in certain respects from those generally
accepted in the US and the major effects of these differences in the
determination of net income and shareholders funds are shown in note 30 to
the financial statements. Disclosure requirements of both the UK and US are
incorporated throughout the notes to these financial statements.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Basis of consolidationThe Group accounts include the accounts of the
parent undertaking and of all subsidiaries, joint ventures and associates.     The
results of businesses acquired during the year are included from the
effective date of acquisition. The results of businesses disposed of during
the year are included up to the date of relinquishing control. Material,
separately identifiable business segments disposed of are analysed as
discontinued operations and prior years analyses are restated to reflect
those businesses as discontinued.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Accounting policiesThese accounts have been prepared on an accounting
basis consistent with that applied in the financial year ended 30
September 2002.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | ExchangeProfit and loss and other period statements of the Groups
overseas operations are translated at average rates of exchange. Assets
and liabilities denominated in foreign currencies are translated at the
rates of exchange ruling at the financial year end. Assets or liabilities
swapped into other currencies are accounted for in those currencies.
Exchange differences are dealt with as a movement in reserves where they
arise from:
i)   the translation of the opening net assets of overseas
operations;
ii)  the retranslation of retained earnings of overseas
operations from average to closing rates of exchange; and
iii) the translation or conversion of foreign currency borrowings
taken to hedge overseas assets.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | All other exchange differences are taken to the profit and loss account. The
principal exchange rates affecting the Group are shown in the financial review
on page 52.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Revenue recognition

Turnover is based on the invoiced value of the sale of goods and services, and
includes the sales value of long-term contracts appropriate to the state of
completion. It excludes sales between Group undertakings, VAT and similar
sales-based taxes. Turnover for goods and services is recognised when delivery
has occurred, title of the goods has passed to the purchaser, and where the
price is fixed or determinable and reflects the commercial substance of the
transaction.


Profit on contracts is only recognised close to contract completion and
when profits can be reasonably determined. Provision is made for all losses
incurred together with any foreseeable future losses.


Retirement benefits

Retirement benefits are accounted for under FRS17. The regular service cost of
providing retirement benefits to employees during the year is charged to
operating profit in the year. The full cost of providing amendments to benefits
in respect of past service is also charged to operating profit in the year.


A credit representing the expected return on the assets of the retirement
benefit schemes during the year is included within other net financing income.
This is based on the market value of the assets of the schemes at the start of
the financial year.


A charge representing the expected increase in the liabilities of the
retirement benefit schemes during the year is included within other net
financing income. This arises from the liabilities of the schemes being one
year closer to payment.


Differences between actual and expected returns on assets during the year
are recognised in the statement of total recognised gains and losses in the
year, together with differences arising from changes in assumptions.


Research and development

Revenue expenditure on research and development is written off when incurred.


Operating leases

The cost of operating leases is written off on the straight line basis over the
period of the lease.


Intangible fixed assets



| |  | GoodwillGoodwill arising on the acquisition of a business, being the
excess of the fair value of the purchase price over the fair value of the
net assets acquired, is capitalised and amortised on a straight line basis
over its useful economic life, generally up to a maximum period of 20
years. An impairment review is carried out at the end of the first full
financial year following acquisition. Any impairment in the value of
goodwill, calculated by discounting estimated future cash flows, is dealt
with in the profit and loss account in the period in which it arises.
Negative goodwill, being the excess of the fair value of the net assets
acquired over the fair value of the purchase price, is capitalised and
amortised on a straight line basis, generally over a period equivalent to
the realisation of the non-monetary assets acquired.
     Goodwill,
both positive and negative, arising on acquisitions before 30
September 1998 was taken to reserves and has not been reinstated on the
balance sheet. This is in line with the relevant accounting standard on
goodwill, FRS10. This goodwill will remain in reserves until such time as it
becomes impaired or the business or businesses to which it relates are
disposed of, at which time it will be taken to the profit and loss account or
statement of total recognised gains and losses where appropriate.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | IntangiblesOther material intangible assets acquired, such as patents
and trademarks, are capitalised and written off on the straight line basis
over their effective economic lives.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

77   The BOC Group plcAnnual report and accounts 2003





---



##### 



Accounting policies continued

Tangible fixed assets

Tangible fixed assets are stated at cost less accumulated depreciation. No
depreciation is charged on freehold land or construction in progress.
Depreciation is charged on all other fixed assets on the straight line basis
over the effective lives. Straight line depreciation rates vary according to
the class of asset, but are typically:


Per annumFreehold property
    
    
    2%  4
    %Leasehold property (or at higher rates based on the life of the lease)
    
    
    2%  4
    %Plant and machinery
    
    
    3%  10
    %Cylinders
    
    
    4%  10
    %Motor vehicles
    
    
    7%  20
    %Computer hardware and major software
    
    
    15%  25
    %




| |  | Until 30 September 1999, land and buildings were revalued periodically.
Following the adoption of FRS15, land and buildings are no longer
revalued. At 1 October 1999, the net book value of assets previously
revalued is regarded as the historical cost.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Interest costs on major fixed asset additions are capitalised during the
construction period and written off as part of the total cost.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  | Where finance leases have been entered into, the capital element of the
obligations to the lessor are shown as part of borrowings and the rights
in the corresponding assets are treated in the same way as owned fixed
assets.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Any impairment in the value of fixed assets, calculated by comparing the
carrying value against the higher of the net realisable value or value in
use, is dealt with in the profit and loss account in the period in which
it arises.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investments

Investments which are held for the long term and in which the Group has a
participating interest and exercises joint control with one or more other
parties are treated as joint ventures and accounted for on the gross equity
method. Investments which are held for the long term and in which the Group has
a participating interest and exercises significant influence are treated as
associates and accounted for on the equity method. In both cases, the Groups
share of the results of the investment is included in the profit and loss
account, and the Groups share of the net assets is included in investments in
the balance sheet. Other investments are shown on the balance sheet at cost
less any provision for impairment.


Stocks

Stocks and work in progress are valued at the lower of cost and net realisable
value. Cost where appropriate includes a proportion of overhead expenses. Work
in progress is stated at cost less progress payments received or receivable.
Cost is arrived at principally on the average and first-in,
first-out (FIFO) basis. The amount of long-term contracts, net of amounts
transferred to cost of sales and after deducting foreseeable losses and
payments on account, is included in stocks as long-term contract amounts.


Deferred tax

The Group provides for deferred tax assets and liabilities arising from timing
differences between the recognition of gains and losses in the financial
statements and their recognition for tax purposes. Deferred tax assets are only
recognised where it is more likely than not that they will be recovered.
Deferred tax assets and liabilities are not discounted.


Provisions

Provisions are made when an obligation exists for a future liability in respect
of a past event and where the amount of the obligation can be reliably
estimated. Restructuring provisions are made for direct expenditures of a
business reorganisation where the plans are sufficiently detailed and well
advanced, and where appropriate communication to those affected has been
undertaken at the balance sheet date.


Financial instruments

The Group uses financial instruments, including interest rate and currency
swaps, to raise finance for its operations and to manage the risks arising from
those operations. All transactions are undertaken only to manage interest and
currency risk associated with the Groups underlying business activities and
the financing of those activities. The Group does not undertake any trading
activity in financial instruments.




| |  | Foreign exchange transaction exposuresThe Group generally hedges actual
and forecast foreign exchange exposures up to two years ahead. Forward
contracts are used to hedge the forecast exposure and any gains or losses
resulting from changes in exchange rates on contracts designated as hedges
of forecast foreign exchange are deferred until the financial period in
which they are realised. If the contract ceases to be a hedge, any
subsequent gains and losses are recognised through the profit and loss
account.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Balance sheet translation exposuresA large proportion of the Groups net
assets are denominated in currencies other than sterling. Where
practicable and cost effective the Group hedges these balance sheet
translation exposures by borrowing in relevant currencies and markets and
by the use of currency swaps. Currency swaps are used only as balance
sheet hedging instruments, and the Group does not hedge the currency translation of its profit and loss
account. Exchange gains and losses arising on the notional principal of these
currency swaps during their life and at termination or maturity are dealt
with as a movement in reserves. If the swap ceases to be a hedge of the
underlying transaction, any subsequent gains or losses are recognised in the
profit and loss account.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Interest rate risk exposuresThe Group hedges its exposure to movements
in interest rates associated with its borrowings primarily by means of
interest rate swaps and forward rate agreements. Interest payments and
receipts on these agreements are included with net interest payable. They
are not revalued to fair value or shown on the Group balance sheet at the
balance sheet date.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

78   The BOC Group plcAnnual report and accounts 2003





---



##### 



Notes to the financial statements

1. Segmental information

a) Turnover (including share of joint ventures and associates)Continuing operationsIndustrialProcess Gas
    
    and Special
    
    BOC
    
    Afrox
    
    
    
    
    
    Total Group
    
    Total GroupSolutions
    
    Products
    
    Edwards
    
    hospitals
    
    Gist
    
    by origin
    
    by destination£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million2003Europe
    
    
    278.3
    
    
    
    430.0
    
    
    
    154.3
    
    
    
    
    
    
    
    291.8
    
    
    
    1,154.4
    
    
    
    1,137.4Americas
    
    
    517.5
    
    
    
    461.7
    
    
    
    259.6
    
    
    
    
    
    
    
    
    
    
    
    1,238.8
    
    
    
    1,191.5Africa
    
    
    30.8
    
    
    
    201.3
    
    
    
    
    
    
    
    353.4
    
    
    
    
    
    
    
    585.5
    
    
    
    588.0Asia/Pacific
    
    
    416.1
    
    
    
    658.2
    
    
    
    270.2
    
    
    
    
    
    
    
    
    
    
    
    1,344.5
    
    
    
    1,406.3Turnover
    
    
    1,242.7
    
    
    
    1,751.2
    
    
    
    684.1
    
    
    
    353.4
    
    
    
    291.8
    
    
    
    4,323.2
    
    
    
    4,323.22002Europe
    
    
    257.1
    
    
    
    399.3
    
    
    
    150.0
    
    
    
    
    
    
    
    263.2
    
    
    
    1,069.6
    
    
    
    1,055.3Americas
    
    
    528.1
    
    
    
    464.8
    
    
    
    298.9
    
    
    
    
    
    
    
    
    
    
    
    1,291.8
    
    
    
    1,240.1Africa
    
    
    23.6
    
    
    
    158.4
    
    
    
    
    
    
    
    259.0
    
    
    
    
    
    
    
    441.0
    
    
    
    443.3Asia/Pacific
    
    
    391.8
    
    
    
    582.8
    
    
    
    239.3
    
    
    
    
    
    
    
    1.6
    
    
    
    1,215.5
    
    
    
    1,279.2Turnover
    
    
    1,200.6
    
    
    
    1,605.3
    
    
    
    688.2
    
    
    
    259.0
    
    
    
    264.8
    
    
    
    4,017.9
    
    
    
    4,017.92001Europe
    
    
    240.2
    
    
    
    375.3
    
    
    
    157.4
    
    
    
    
    
    
    
    229.6
    
    
    
    1,002.5
    
    
    
    979.6Americas
    
    
    529.7
    
    
    
    464.5
    
    
    
    393.3
    
    
    
    
    
    
    
    
    
    
    
    1,387.5
    
    
    
    1,326.1Africa
    
    
    25.6
    
    
    
    192.2
    
    
    
    
    
    
    
    287.8
    
    
    
    
    
    
    
    505.6
    
    
    
    504.9Asia/Pacific
    
    
    397.5
    
    
    
    541.9
    
    
    
    322.4
    
    
    
    
    
    
    
    1.8
    
    
    
    1,263.6
    
    
    
    1,348.6Turnover
    
    
    1,193.0
    
    
    
    1,573.9
    
    
    
    873.1
    
    
    
    287.8
    
    
    
    231.4
    
    
    
    4,159.2
    
    
    
    4,159.2


Inter segment turnover is not material.

b) Business analysisContinuing operationsIndustrialProcess Gas
    
    and Special
    
    BOC
    
    AfroxSolutions
    
    Products
    
    Edwards
    
    hospitals
    
    Gist
    
    Corporate
    
    Total Group£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million2003Total operating profit before exceptional items1
    
    
    184.0
    
    
    
    242.7
    
    
    
    18.5
    
    
    
    46.1
    
    
    
    29.2
    
    
    
    (14.9
    )
    
    
    505.6Operating exceptional items1
    
    
    (6.9
    )
    
    
    (4.5
    )
    
    
    (10.6
    )
    
    
    
    
    
    
    
    
    
    
    (45.0
    )
    
    
    (67.0
    )Operating profit
    
    
    177.1
    
    
    
    238.2
    
    
    
    7.9
    
    
    
    46.1
    
    
    
    29.2
    
    
    
    (59.9
    )
    
    
    438.6Capital employed2
    
    
    1,822.9
    
    
    
    1,158.1
    
    
    
    596.1
    
    
    
    167.2
    
    
    
    0.8
    
    
    
    (39.9
    )
    
    
    3,705.2Capital expenditure3
    
    
    93.1
    
    
    
    105.2
    
    
    
    37.6
    
    
    
    17.8
    
    
    
    22.3
    
    
    
    5.2
    
    
    
    281.2Depreciation and amortisation3
    
    
    165.8
    
    
    
    101.2
    
    
    
    39.1
    
    
    
    9.8
    
    
    
    15.8
    
    
    
    1.7
    
    
    
    333.42002Total operating profit before exceptional items1
    
    
    185.2
    
    
    
    248.0
    
    
    
    26.1
    
    
    
    29.7
    
    
    
    25.5
    
    
    
    (14.4
    )
    
    
    500.1Operating exceptional items1
    
    
    (24.0
    )
    
    
    (18.7
    )
    
    
    (27.5
    )
    
    
    
    
    
    
    
    
    
    
    (4.3
    )
    
    
    (74.5
    )Operating profit
    
    
    161.2
    
    
    
    229.3
    
    
    
    (1.4
    )
    
    
    29.7
    
    
    
    25.5
    
    
    
    (18.7
    )
    
    
    425.6(Loss)/profit on termination/disposal of businesses1
    
    
    (21.3
    )
    
    
    
    
    
    
    1.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20.2
    )Capital employed2
    
    
    1,831.3
    
    
    
    1,058.1
    
    
    
    595.3
    
    
    
    105.0
    
    
    
    22.8
    
    
    
    (19.4
    )
    
    
    3,593.1Capital expenditure3
    
    
    157.3
    
    
    
    123.6
    
    
    
    42.0
    
    
    
    9.2
    
    
    
    19.0
    
    
    
    3.2
    
    
    
    354.3Depreciation and amortisation3
    
    
    167.7
    
    
    
    96.8
    
    
    
    41.1
    
    
    
    7.2
    
    
    
    16.1
    
    
    
    2.0
    
    
    
    330.92001Total operating profit before exceptional items1
    
    
    156.5
    
    
    
    248.8
    
    
    
    78.8
    
    
    
    32.3
    
    
    
    21.3
    
    
    
    (7.1
    )
    
    
    530.6Operating exceptional items1
    
    
    (52.8
    )
    
    
    (21.8
    )
    
    
    (16.1
    )
    
    
    
    
    
    
    (0.7
    )
    
    
    (16.9
    )
    
    
    (108.3
    )Operating profit
    
    
    103.7
    
    
    
    227.0
    
    
    
    62.7
    
    
    
    32.3
    
    
    
    20.6
    
    
    
    (24.0
    )
    
    
    422.3(Loss)/profit on disposal of fixed assets1
    
    
    (0.3
    )
    
    
    (3.1
    )
    
    
    (1.3
    )
    
    
    0.9
    
    
    
    
    
    
    
    7.4
    
    
    
    3.6Capital employed2
    
    
    2,004.9
    
    
    
    1,152.7
    
    
    
    589.9
    
    
    
    98.5
    
    
    
    81.4
    
    
    
    47.1
    
    
    
    3,974.5Capital expenditure3
    
    
    170.6
    
    
    
    95.5
    
    
    
    53.8
    
    
    
    10.3
    
    
    
    17.9
    
    
    
    4.5
    
    
    
    352.6Depreciation and amortisation3
    
    
    169.4
    
    
    
    97.4
    
    
    
    37.2
    
    
    
    6.7
    
    
    
    15.6
    
    
    
    3.2
    
    
    
    329.5


79   The BOC Group plcAnnual report and accounts 2003





---



##### 



Notes to the financial statements continued

1. Segmental information continued

c) Regional analysisTotalEurope
    
    Americas
    
    Africa
    
    Asia/Pacific
    
    Group£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million2003Total operating profit before exceptional items1
    
    
    144.3
    
    
    
    91.8
    
    
    
    85.0
    
    
    
    184.5
    
    
    
    505.6Operating exceptional items1
    
    
    (7.3
    )
    
    
    (49.1
    )
    
    
    
    
    
    
    (10.6
    )
    
    
    (67.0
    )Operating profit
    
    
    137.0
    
    
    
    42.7
    
    
    
    85.0
    
    
    
    173.9
    
    
    
    438.6Capital employed2
    
    
    909.7
    
    
    
    1,226.7
    
    
    
    321.5
    
    
    
    1,247.3
    
    
    
    3,705.2Capital expenditure3
    
    
    102.7
    
    
    
    79.1
    
    
    
    36.7
    
    
    
    62.7
    
    
    
    281.22002Total operating profit before exceptional items1
    
    
    155.2
    
    
    
    121.3
    
    
    
    56.7
    
    
    
    166.9
    
    
    
    500.1Operating exceptional items1
    
    
    (38.4
    )
    
    
    (8.1
    )
    
    
    (0.4
    )
    
    
    (27.6
    )
    
    
    (74.5
    )Operating profit
    
    
    116.8
    
    
    
    113.2
    
    
    
    56.3
    
    
    
    139.3
    
    
    
    425.6(Loss)/profit on termination/disposal of businesses1
    
    
    (1.5
    )
    
    
    (18.7
    )
    
    
    
    
    
    
    
    
    
    
    (20.2
    )Capital employed2
    
    
    944.4
    
    
    
    1,244.0
    
    
    
    221.2
    
    
    
    1,183.5
    
    
    
    3,593.1Capital expenditure3
    
    
    121.4
    
    
    
    134.7
    
    
    
    25.6
    
    
    
    72.6
    
    
    
    354.32001Total operating profit before exceptional items1
    
    
    165.5
    
    
    
    137.2
    
    
    
    69.4
    
    
    
    158.5
    
    
    
    530.6Operating exceptional items1
    
    
    (42.9
    )
    
    
    (40.5
    )
    
    
    
    
    
    
    (24.9
    )
    
    
    (108.3
    )Operating profit
    
    
    122.6
    
    
    
    96.7
    
    
    
    69.4
    
    
    
    133.6
    
    
    
    422.3(Loss)/profit on disposal of fixed assets1
    
    
    (2.2
    )
    
    
    4.6
    
    
    
    2.6
    
    
    
    (1.4
    )
    
    
    3.6Capital employed2
    
    
    1,221.1
    
    
    
    1,305.5
    
    
    
    259.0
    
    
    
    1,188.9
    
    
    
    3,974.5Capital expenditure3
    
    
    134.6
    
    
    
    108.6
    
    
    
    26.4
    
    
    
    83.0
    
    
    
    352.6


d) Joint ventures and associates  business analysisJoint ventures
    
    AssociatesIndustrial
    
    
    
    
    
    
    
    
    
    IndustrialProcess Gas
    
    and Special
    
    BOC
    
    Process Gas
    
    and Special
    
    BOC
    
    AfroxSolutions
    
    Products
    
    Edwards
    
    Solutions
    
    Products
    
    Edwards
    
    hospitals£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million2003Turnover1
    
    
    191.9
    
    
    
    221.6
    
    
    
    130.8
    
    
    
    30.9
    
    
    
    8.6
    
    
    
    5.7
    
    
    
    15.4Operating profit before exceptional items1
    
    
    39.0
    
    
    
    25.6
    
    
    
    22.2
    
    
    
    5.8
    
    
    
    0.7
    
    
    
    1.4
    
    
    
    3.5Operating exceptional items1
    
    
    (2.5
    )
    
    
    (1.8
    )
    
    
    (2.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating profit
    
    
    36.5
    
    
    
    23.8
    
    
    
    19.7
    
    
    
    5.8
    
    
    
    0.7
    
    
    
    1.4
    
    
    
    3.5Capital employed2
    
    
    183.8
    
    
    
    108.2
    
    
    
    118.0
    
    
    
    40.8
    
    
    
    7.2
    
    
    
    3.3
    
    
    
    8.3Capital expenditure
    
    
    40.7
    
    
    
    10.5
    
    
    
    20.7
    
    
    
    8.0
    
    
    
    1.1
    
    
    
    0.4
    
    
    
    Group share
    
    
    17.7
    
    
    
    5.1
    
    
    
    10.3
    
    
    
    2.5
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    Other partners
    
    
    23.0
    
    
    
    5.4
    
    
    
    10.4
    
    
    
    5.5
    
    
    
    0.8
    
    
    
    0.2
    
    
    
    Depreciation and amortisation1
    
    
    28.0
    
    
    
    10.1
    
    
    
    9.6
    
    
    
    5.4
    
    
    
    1.2
    
    
    
    0.6
    
    
    
    0.72002Turnover1
    
    
    119.9
    
    
    
    142.7
    
    
    
    61.5
    
    
    
    10.6
    
    
    
    7.9
    
    
    
    7.1
    
    
    
    10.5Operating profit before exceptional items1
    
    
    30.9
    
    
    
    20.8
    
    
    
    12.1
    
    
    
    5.0
    
    
    
    1.9
    
    
    
    1.7
    
    
    
    2.1Operating exceptional items1
    
    
    (0.4
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating profit
    
    
    30.5
    
    
    
    20.7
    
    
    
    12.1
    
    
    
    5.0
    
    
    
    1.9
    
    
    
    1.7
    
    
    
    2.1Capital employed2
    
    
    93.6
    
    
    
    63.8
    
    
    
    48.1
    
    
    
    40.1
    
    
    
    11.9
    
    
    
    2.1
    
    
    
    3.4Capital expenditure
    
    
    46.5
    
    
    
    7.5
    
    
    
    8.0
    
    
    
    8.3
    
    
    
    1.8
    
    
    
    1.5
    
    
    
    0.6Group share
    
    
    23.0
    
    
    
    3.7
    
    
    
    4.0
    
    
    
    2.6
    
    
    
    0.6
    
    
    
    0.4
    
    
    
    0.2Other partners
    
    
    23.5
    
    
    
    3.8
    
    
    
    4.0
    
    
    
    5.7
    
    
    
    1.2
    
    
    
    1.1
    
    
    
    0.4Depreciation and amortisation1
    
    
    20.9
    
    
    
    8.2
    
    
    
    6.1
    
    
    
    2.9
    
    
    
    0.7
    
    
    
    0.1
    
    
    
    0.2


|1. |  | Group share.
|-- |  | ------------

|2. |  | Capital employed comprises the Groups share of the net assets of joint ventures or associates.
|-- |  | -----------------------------------------------------------------------------------------------

|3. |  | The increase in joint ventures in 2003 is principally due to the formation of the Japan Air Gases business in January 2003. Prior to that all of BOCs turnover in Japan was reported by subsidiary companies.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

80   The BOC Group plcAnnual report and accounts 2003





---



##### 



1. Segmental information continued

Joint ventures
    
    AssociatesIndustrial
    
    
    
    
    
    
    
    
    
    IndustrialProcess Gas
    
    and Special
    
    BOC
    
    Process Gas
    
    and Special
    
    BOC
    
    AfroxSolutions
    
    Products
    
    Edwards
    
    Solutions
    
    Products
    
    Edwards
    
    hospitals£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million2001Turnover1
    
    
    122.1
    
    
    
    144.4
    
    
    
    73.5
    
    
    
    9.2
    
    
    
    7.7
    
    
    
    8.0
    
    
    
    21.4Operating profit before exceptional items1
    
    
    28.2
    
    
    
    16.8
    
    
    
    14.0
    
    
    
    4.1
    
    
    
    3.0
    
    
    
    2.1
    
    
    
    4.0Operating exceptional items1
    
    
    (0.6
    )
    
    
    (1.6
    )
    
    
    
    
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    Operating profit
    
    
    27.6
    
    
    
    15.2
    
    
    
    14.0
    
    
    
    3.9
    
    
    
    2.9
    
    
    
    2.0
    
    
    
    4.0Capital employed2
    
    
    99.3
    
    
    
    61.6
    
    
    
    43.9
    
    
    
    27.4
    
    
    
    10.5
    
    
    
    2.4
    
    
    
    6.8Capital expenditure
    
    
    55.9
    
    
    
    12.0
    
    
    
    35.4
    
    
    
    2.5
    
    
    
    0.4
    
    
    
    0.2
    
    
    
    3.3Group share
    
    
    27.8
    
    
    
    5.9
    
    
    
    17.7
    
    
    
    0.7
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    1.0Other partners
    
    
    28.1
    
    
    
    6.1
    
    
    
    17.7
    
    
    
    1.8
    
    
    
    0.3
    
    
    
    0.1
    
    
    
    2.3Depreciation and amortisation1
    
    
    20.5
    
    
    
    7.9
    
    
    
    5.4
    
    
    
    2.5
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    0.6


|1. |  | Group share.                                                                                   
|-- |  | -----------------------------------------------------------------------------------------------
|2. |  | Capital employed comprises the Groups share of the net assets of joint ventures or associates.

e) Joint ventures and associates  regional analysis

Joint ventures
    
    AssociatesAmericas
    
    Asia/Pacific
    
    Americas
    
    Africa
    
    Asia/Pacific£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million2003Turnover1
    
    
    68.0
    
    
    
    476.3
    
    
    
    19.1
    
    
    
    15.4
    
    
    
    26.1Operating profit before exceptional items1
    
    
    19.1
    
    
    
    67.7
    
    
    
    (0.7
    )
    
    
    3.5
    
    
    
    8.6Operating exceptional items1
    
    
    
    
    
    
    (6.8
    )
    
    
    
    
    
    
    
    
    
    
    Operating profit
    
    
    19.1
    
    
    
    60.9
    
    
    
    (0.7
    )
    
    
    3.5
    
    
    
    8.6Capital employed2
    
    
    26.5
    
    
    
    383.5
    
    
    
    13.1
    
    
    
    8.3
    
    
    
    38.2Capital expenditure
    
    
    13.8
    
    
    
    58.1
    
    
    
    6.0
    
    
    
    
    
    
    
    3.5Group share
    
    
    5.4
    
    
    
    27.7
    
    
    
    1.8
    
    
    
    
    
    
    
    1.2Other partners
    
    
    8.4
    
    
    
    30.4
    
    
    
    4.2
    
    
    
    
    
    
    
    2.3Depreciation and amortisation1
    
    
    14.0
    
    
    
    33.7
    
    
    
    3.3
    
    
    
    0.6
    
    
    
    4.02002Turnover1
    
    
    85.4
    
    
    
    238.7
    
    
    
    
    
    
    
    10.5
    
    
    
    25.6Operating profit before exceptional items1
    
    
    21.9
    
    
    
    41.9
    
    
    
    
    
    
    
    2.1
    
    
    
    8.6Operating exceptional items1
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    Operating profit
    
    
    21.9
    
    
    
    41.4
    
    
    
    
    
    
    
    2.1
    
    
    
    8.6Capital employed2
    
    
    25.2
    
    
    
    180.3
    
    
    
    13.7
    
    
    
    3.4
    
    
    
    40.4Capital expenditure
    
    
    3.4
    
    
    
    58.6
    
    
    
    5.5
    
    
    
    0.6
    
    
    
    6.1Group share
    
    
    1.4
    
    
    
    29.3
    
    
    
    1.7
    
    
    
    0.2
    
    
    
    1.9Other partners
    
    
    2.0
    
    
    
    29.3
    
    
    
    3.8
    
    
    
    0.4
    
    
    
    4.2Depreciation and amortisation1
    
    
    14.6
    
    
    
    20.6
    
    
    
    
    
    
    
    0.2
    
    
    
    3.72001Turnover1
    
    
    88.5
    
    
    
    251.5
    
    
    
    
    
    
    
    21.4
    
    
    
    24.9Operating profit before exceptional items1
    
    
    18.5
    
    
    
    40.5
    
    
    
    
    
    
    
    4.0
    
    
    
    9.2Operating exceptional items1
    
    
    
    
    
    
    (2.2
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Operating profit
    
    
    18.5
    
    
    
    38.3
    
    
    
    
    
    
    
    4.0
    
    
    
    8.8Capital employed2
    
    
    27.7
    
    
    
    177.1
    
    
    
    
    
    
    
    6.8
    
    
    
    40.3Capital expenditure
    
    
    35.2
    
    
    
    68.1
    
    
    
    
    
    
    
    3.3
    
    
    
    3.1Group share
    
    
    17.4
    
    
    
    34.0
    
    
    
    
    
    
    
    1.0
    
    
    
    0.9Other partners
    
    
    17.8
    
    
    
    34.1
    
    
    
    
    
    
    
    2.3
    
    
    
    2.2Depreciation and amortisation1
    
    
    14.7
    
    
    
    19.1
    
    
    
    
    
    
    
    0.6
    
    
    
    3.1


|1. |  | Group share.                                                                                                                                                                                                  
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. |  | Capital employed comprises the Groups share of the net assets of joint ventures or associates.                                                                                                               
|3. |  | The increase in joint ventures in 2003 is principally due to the formation of the Japan Air Gases business in January 2003. Prior to that all of BOCs turnover in Japan was reported by subsidiary companies.

81   The BOC Group plcAnnual report and accounts 2003





---



##### 



Notes to the financial statements continued

1. Segmental information continued

f) Significant country analysis

UK
    
    US2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionTurnover
    
    
    914.3
    
    
    
    868.7
    
    
    
    837.2
    
    
    
    1,013.5
    
    
    
    1,065.6
    
    
    
    1,167.7Total operating profit before exceptional items
    
    
    110.4
    
    
    
    115.2
    
    
    
    125.5
    
    
    
    31.3
    
    
    
    50.5
    
    
    
    66.9Operating exceptional items
    
    
    (5.0
    )
    
    
    (36.5
    )
    
    
    (41.9
    )
    
    
    (48.9
    )
    
    
    (25.7
    )
    
    
    (34.5
    )Operating profit
    
    
    105.4
    
    
    
    78.7
    
    
    
    83.6
    
    
    
    (17.6
    )
    
    
    24.8
    
    
    
    32.4Exceptional (loss)/profit on disposal of fixed assets
    
    
    
    
    
    
    
    
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    4.6Capital
employed1
    
    
    673.0
    
    
    
    733.9
    
    
    
    928.6
    
    
    
    1,041.2
    
    
    
    1,091.6
    
    
    
    1,231.0Capital expenditure
    
    
    92.4
    
    
    
    110.0
    
    
    
    126.3
    
    
    
    71.0
    
    
    
    124.8
    
    
    
    99.8


|1. |  | Capital employed comprises the capital and reserves of the Group, its long-term liabilities and all current borrowings net of cash and deposits.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

2. Profit and loss

a) Analysis of costs

2003
    
    2002
    
    2001i) Expense category
    
    £ million
    
    £ million
    
    £ millionCost of sales
    
    
    (2,137.9
    )
    
    
    (2,104.8
    )
    
    
    (2,208.8
    )Distribution costs
    
    
    (321.7
    )
    
    
    (344.1
    )
    
    
    (339.3
    )Administrative expenses1
    
    
    (913.2
    )
    
    
    (861.4
    )
    
    
    (874.1
    )Income from other fixed asset investments
    
    
    1.7
    
    
    
    4.2
    
    
    
    2.0Net operating expenses
    
    
    (1,233.2
    )
    
    
    (1,201.3
    )
    
    
    (1,211.4
    )


|1. |  | Included in total
administrative expenses is research and development expenditure of £39.9 million (2002: £47.0 million, 2001: £59.7 million).
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

TotalbeforeContinuing
    
    
    
    
    
    exceptional
    
    Exceptionaloperations
    
    Acquisitions
    
    items
    
    items
    
    Totalii) 2003 analysis
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionCost of sales
    
    
    (2,090.8
    )
    
    
    (45.4
    )
    
    
    (2,136.2
    )
    
    
    (1.7
    )
    
    
    (2,137.9
    )Distribution costs
    
    
    (316.2
    )
    
    
    (2.4
    )
    
    
    (318.6
    )
    
    
    (3.1
    )
    
    
    (321.7
    )Administrative expenses1
    
    
    (839.7
    )
    
    
    (18.1
    )
    
    
    (857.8
    )
    
    
    (55.4
    )
    
    
    (913.2
    )Income from other fixed asset investments
    
    
    1.7
    
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    1.7Net operating expenses
    
    
    (1,154.2
    )
    
    
    (20.5
    )
    
    
    (1,174.7
    )
    
    
    (58.5
    )
    
    
    (1,233.2
    )


All exceptional items arose in continuing operations.


Continuingoperationsbeforeexceptional
    
    Exceptionalitems
    
    items
    
    Totaliii) 2002 analysis
    
    £ million
    
    £ million
    
    £ millionCost of sales
    
    
    (2,089.7
    )
    
    
    (15.1
    )
    
    
    (2,104.8
    )Distribution costs
    
    
    (341.9
    )
    
    
    (2.2
    )
    
    
    (344.1
    )Administrative expenses1
    
    
    (804.7
    )
    
    
    (56.7
    )
    
    
    (861.4
    )Income from other fixed asset investments
    
    
    4.2
    
    
    
    
    
    
    
    4.2Net operating expenses
    
    
    (1,142.4
    )
    
    
    (58.9
    )
    
    
    (1,201.3
    )iv) 2001 analysisCost of sales
    
    
    (2,164.2
    )
    
    
    (44.6
    )
    
    
    (2,208.8
    )Distribution costs
    
    
    (338.1
    )
    
    
    (1.2
    )
    
    
    (339.3
    )Administrative expenses1
    
    
    (814.2
    )
    
    
    (59.9
    )
    
    
    (874.1
    )Income from other fixed asset investments
    
    
    2.0
    
    
    
    
    
    
    
    2.0Net operating expenses
    
    
    (1,150.3
    )
    
    
    (61.1
    )
    
    
    (1,211.4
    )


|1. |  | Included in total
administrative expenses is research and development expenditure of £39.9 million (2002: £47.0 million, 2001: £59.7 million).
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

82   The BOC Group plcAnnual report and accounts 2003





---



##### 



2. Profit and loss continued

b) Exceptional items analysis

2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ millionCharged in arriving at operating profitLitigation settlement
    
    
    (43.2
    )
    
    
    
    
    
    
    Restructuring costs
    
    
    (23.8
    )
    
    
    (47.2
    )
    
    
    (35.8
    )Write-down and impairment of assets
    
    
    
    
    
    
    (21.2
    )
    
    
    (24.5
    )Write-down of unproductive assets identified for disposal
    
    
    
    
    
    
    
    
    
    
    (21.0
    )FRS17 retirement plan benefit amendments
    
    
    
    
    
    
    
    
    
    
    (16.7
    )Costs of proposed takeover
    
    
    
    
    
    
    (6.1
    )
    
    
    (10.3
    )Total operating exceptional items
    
    
    (67.0
    )
    
    
    (74.5
    )
    
    
    (108.3
    )


i) Litigation settlement

An action was filed in the US District Court for the Southern District of
Illinois against The BOC Group Cash Balance Retirement Plan (the Plan). The
plaintiffs brought this action on behalf of themselves and all others similarly
affected, alleging that the Plan improperly calculated lump sum distributions
from the Plan in violation of the Employee Retirement Income Security Act. The
parties have reached an agreement in principle to settle at US$69 million. The
settlement documents are being prepared. The settlement is subject to approval
by the court at a fairness hearing. A provision of US$69 million has been made
in the year. Under UK accounting principles (FRS17), this has been recognised
as a charge in the profit and loss account of the Group. It has been shown as
an exceptional item. The settlement will be paid out of Plan assets.


ii) Restructuring costs

Restructuring costs were incurred for various programmes including programmes
under the business initiative announced in August 2001. All of these programmes
have now been completed. The major restructuring programmes included the
restructuring of BOC Edwards manufacturing capacity, investments in information
management systems and restructuring to deliver operational efficiencies in
Process Gas Solutions and Industrial and Special Products. Cash flow from
operating activities includes an outflow of £28.3 million
in 2003 (2002: £48.0 million, 2001: £22.4 million) in respect of these restructuring costs.
Restructuring costs also include a charge of £8.3 million (2002 and 2001: £nil)
relating to the integration of BOCs gases business and part of the Air Liquide
business in Japan to form Japan Air Gases.


iii) Write-downs of assets

The write-down in 2002 related to the merger of BOCs gases business and part
of the Air Liquide business in Japan to form Japan Air Gases. The net assets of
OSK (the existing BOC gases business in Japan), which had included an increase
in the value of fixed assets through property revaluations in the 1980s and
early 1990s, were reduced to an appropriate amount based on valuations
performed ahead of the merger. This resulted in a write-down of £32.7 million,
of which £11.5 million was taken against the revaluation reserve and the
balance of £21.2 million was charged as an exceptional item in 2002.


The write-downs in 2001 related to the business initiative announced in
August 2001 with the objective of releasing cash tied up in unproductive assets
and improving cash generation.


iv) Costs of proposed takeover

No costs were incurred in 2003 in respect of the proposed takeover. The final
costs associated with the pre-conditional offer for the Group were incurred in
2002 in respect of share options and other costs related to the retention of
key employees.


2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ million(Charged)/credited after operating profitClosure of businesses  continuing operations
    
    
    
    
    
    
    (21.3
    )
    
    
    Profit on disposal of businesses  continuing operations
    
    
    
    
    
    
    1.1
    
    
    
    Profit on disposal of fixed assets  continuing operations
    
    
    
    
    
    
    
    
    
    
    13.6Loss on disposal of fixed assets  continuing operations
    
    
    
    
    
    
    
    
    
    
    (10.0
    )Total non-operating exceptional items
    
    
    
    
    
    
    (20.2
    )
    
    
    3.6


v)In March 2002 BOC announced plans to merge its Process Plants business with
Linde Engineering in the US to form a new company, Linde BOC Process Plants
LLC. The costs of £21.3 million for closing BOCs Process Plants business were
charged as an exceptional item in 2002. This included severance costs for 215
employees, the write-down of assets and the costs of winding down the business.
Cash flow from operating activities above includes an outflow of £4.1 million
(2002: £12.5 million, 2001: £nil) in respect of these exceptional costs.

In April 2002 BOC Edwards agreed the sale of its US glass coating business,
resulting in a profit on disposal of £1.1 million.


vi)In 2001, proceeds from the disposal of fixed assets were £41.2 million. Of
this, £39.0 million was from those assets which were sold at a profit and £2.2
million was from those assets which were sold at a loss.

c) Fees to auditors

2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ millionAudit fees (Parent: £0.3 million, 2002: £0.3 million, 2001: £0.3 million)
    
    
    2.0
    
    
    
    1.9
    
    
    
    2.0Non audit feesTax services
    
    
    1.6
    
    
    
    2.5
    
    
    
    1.6Audit related services
    
    
    0.5
    
    
    
    0.8
    
    
    
    Other services (principally expatriate tax and administration services)
    
    
    1.4
    
    
    
    1.8
    
    
    
    0.6Total non audit fees
    
    
    3.5
    
    
    
    5.1
    
    
    
    2.2Total fees paid to auditors
    
    
    5.5
    
    
    
    7.0
    
    
    
    4.2


Tax services includes corporate tax compliance, tax planning and advice. The
tax compliance and expatriate tax and administration work was outsourced
following competitive tender processes. The expatriate administration contract
was signed in June 2001 for a five year period. See also page 55 of the
corporate governance report.


83   The BOC Group plcAnnual report and accounts 2003





---



##### 



Notes to the financial statements continued

3. Interest on net debt

2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ millionInterest payable on borrowings totally repayable within five years
    
    
    48.0
    
    
    
    47.5
    
    
    
    75.1Interest payable on all other borrowings
    
    
    46.5
    
    
    
    55.7
    
    
    
    50.1Interest payable and similar charges
    
    
    94.5
    
    
    
    103.2
    
    
    
    125.2Interest capitalised
    
    
    (0.8
    )
    
    
    (2.0
    )
    
    
    (2.5
    )Interest payable (net of interest capitalised)
    
    
    93.7
    
    
    
    101.2
    
    
    
    122.7Interest receivable and similar income
    
    
    (17.9
    )
    
    
    (22.6
    )
    
    
    (24.2
    )Interest (net)
    
    
    75.8
    
    
    
    78.6
    
    
    
    98.5Share of interest of joint ventures (net)
    
    
    19.3
    
    
    
    23.2
    
    
    
    22.6Share of interest of associates (net)
    
    
    1.0
    
    
    
    1.3
    
    
    
    2.3Total interest on net debt
    
    
    96.1
    
    
    
    103.1
    
    
    
    123.4Interest payable on finance leases
    
    
    3.5
    
    
    
    5.3
    
    
    
    6.9Interest payable on borrowings repayable by instalments
    
    
    14.1
    
    
    
    19.5
    
    
    
    29.1


Share of interest
of joint ventures and associates is after deducting capitalised interest of £0.1 million (2002: £nil, 2001: £1.0 million).


4. Tax

a) Tax on profit on ordinary activities

2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ millionCurrent tax:Payable in the UKCorporation tax at 30% (2002: 30%, 2001: 30%)
    
    
    85.7
    
    
    
    51.7
    
    
    
    60.4Double tax relief
    
    
    (57.5
    )
    
    
    (19.7
    )
    
    
    (17.0
    )28.2
    
    
    
    32.0
    
    
    
    43.4Payable overseasUS
 Federal tax at 35% (2002: 35%, 2001: 35%)
    
    
    0.2
    
    
    
    (1.0
    )
    
    
    (2.2
    ) State and local taxes
    
    
    (0.3
    )
    
    
    0.6
    
    
    
    1.3Australia at 30% (2002: 30%, 2001: 34%)
    
    
    16.4
    
    
    
    14.6
    
    
    
    14.0South Africa at 30% (2002: 30%, 2001: 30%)
    
    
    26.0
    
    
    
    18.0
    
    
    
    15.2Japan at 42% (2002: 42%, 2001: 42%)
    
    
    11.3
    
    
    
    8.3
    
    
    
    12.7Other countries
    
    
    35.6
    
    
    
    30.9
    
    
    
    27.389.2
    
    
    
    71.4
    
    
    
    68.3Total current tax
    
    
    117.4
    
    
    
    103.4
    
    
    
    111.7Deferred tax:Origination and reversal of timing differences
    
    
    (20.9
    )
    
    
    3.4
    
    
    
    (7.1
    )Effect of change in tax rate on opening liability
    
    
    (0.1
    )
    
    
    (0.6
    )
    
    
    Total deferred tax1
    
    
    (21.0
    )
    
    
    2.8
    
    
    
    (7.1
    )Tax on profit on ordinary activities
    
    
    96.4
    
    
    
    106.2
    
    
    
    104.6Analysis of charge in the period by entity typeSubsidiary undertakings
    
    
    77.9
    
    
    
    100.3
    
    
    
    97.6Share of joint ventures
    
    
    16.0
    
    
    
    3.6
    
    
    
    4.3Share of associates
    
    
    2.5
    
    
    
    2.3
    
    
    
    2.7Tax on profit on ordinary activities
    
    
    96.4
    
    
    
    106.2
    
    
    
    104.6


|1. |  | The deferred tax includes a credit of £18.5 million (2002: £9.5 million charge, 2001: £3.1 million credit) relating to subsidiary undertakings. The balance relates to the Groups share of joint ventures and associates.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The tax charge includes a credit of £25.0 million for the operating exceptional
charges (2002: £15.3 million, 2001: £48.8 million) and a credit of £nil for the
non-operating exceptional charges (2002: £7.5 million, 2001: £1.9 million
charge). The effective rate of tax on adjusted profit was 29.0 per cent (2002:
30.0 per cent, 2001: 32.5 per cent). The total rate of tax was 27.4 per cent
(2002: 31.7 per cent, 2001: 28.9 per cent).

84   The BOC Group plcAnnual report and accounts 2003





---



##### 



4. Tax continued

b) Deferred tax

2003
    
    2002
    
    2001i) Deferred tax  UK GAAP
    
    £ million
    
    £ million
    
    £ millionAnalysisArising from accelerated depreciation allowances
    
    
    346.5
    
    
    
    362.1
    
    
    
    344.8Other timing differences
    
    
    (43.7
    )
    
    
    (53.5
    )
    
    
    (32.5
    )Tax losses and other credits available
    
    
    (30.2
    )
    
    
    (24.7
    )
    
    
    (26.4
    )272.6
    
    
    
    283.9
    
    
    
    285.9Movement during the year1At 1 October 2002
    
    
    283.9
    
    
    
    285.9
    
    
    
    287.3Exchange adjustment
    
    
    5.7
    
    
    
    (8.6
    )
    
    
    (7.3
    )Arising during the year
    
    
    (18.5
    )
    
    
    9.5
    
    
    
    (3.1
    )Transfers (to)/from current tax
    
    
    (1.0
    )
    
    
    0.8
    
    
    
    3.3Acquisitions/(disposals) of businesses
    
    
    (18.7
    )
    
    
    
    
    
    
    Other movements
    
    
    21.2
    
    
    
    (3.7
    )
    
    
    5.7At 30 September 20032
    
    
    272.6
    
    
    
    283.9
    
    
    
    285.9


|1. |  | Subsidiary undertakings only.                                                                                                                                                                                        
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. |  | The balance at 30 September 2003 represents deferred tax assets of £6.6 million (2002: £7.9 million, 2001: £8.4 million) and deferred tax liabilities of £279.2 million (2002: £291.8 million, 2001: £294.3 million).

ii) Deferred tax  US GAAP

For US GAAP reporting, the Group follows SFAS109, Accounting for Income Taxes,
in respect of deferred taxation. SFAS109 requires deferred tax to be fully
provided on all temporary differences.


The table below provides a reconciliation of deferred taxes from a UK GAAP
basis to a US GAAP basis at 30 September 2003.

AdjustmentsUK GAAP
    
    to US GAAP
    
    US GAAP£ million
    
    £ million
    
    £ millionAccelerated capital allowances
    
    
    346.5
    
    
    
    
    
    
    
    346.5Other temporary differences
    
    
    (43.7
    )
    
    
    (49.6
    )
    
    
    (93.3
    )Tax losses and other credits available
    
    
    (30.2
    )
    
    
    
    
    
    
    (30.2
    )272.6
    1
    
    
    (49.6
    )
    
    
    223.0


|1. |  | The UK deferred tax balance of £272.6 million does not include the deferred tax asset of £121.0 million relating to the Groups net pension liabilities. As required by the applicable UK GAAP accounting standard, FRS17, this asset is set against the relevant retirement benefit liability to show the net position (see note 8a)). If it was included above, it would be wholly reversed in the adjustments to US GAAP.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

US GAAP£ millionMovement during the yearAt 1 October 2002
    
    
    356.6Exchange adjustment
    
    
    7.4Arising during the year
    
    
    3.1Transfers to current tax
    
    
    (1.0
    )Acquisitions/(disposals) of businesses
    
    
    (18.7
    )Other movements2
    
    
    (124.4
    )At 30 September 2003
    
    
    223.0


|2. |  | This mainly relates to the deferred tax on an additional minimum pension liability under US GAAP. See note 8 c) and 30 c).
|-- |  | --------------------------------------------------------------------------------------------------------------------------

The components of deferred tax assets/(liabilities) at 30 September 2003 were:

2003
    
    2002£ million
    
    £ millionLong-termAsset
    
    
    188.0
    
    
    
    130.4Liability
    
    
    (431.8
    )
    
    
    (507.0
    )Net liability
    
    
    (243.8
    )
    
    
    (376.6
    )Short-termAsset
    
    
    25.8
    
    
    
    25.5Liability
    
    
    (5.0
    )
    
    
    (5.5
    )Net asset
    
    
    20.8
    
    
    
    20.0Total deferred tax assets
    
    
    213.8
    
    
    
    155.9Total deferred tax liabilities
    
    
    (436.8
    )
    
    
    (512.5
    )(223.0
    )
    
    
    (356.6
    )


85   The BOC Group plcAnnual report and accounts 2003





---



##### 



Notes to the financial statements continued

4. Tax continued

c) Factors affecting the current and total tax charge for the period

The table set out below provides a reconciliation between the UK corporation
tax rate and the Groups total tax rate, and between the UK corporation tax
rate and the effective tax rate on adjusted profit, computed by taking the
various elements of the tax reconciliation as a percentage of the profit before
tax and the adjusted profit before tax.


Reconciliation of total tax rate
    
    Reconciliation of effective tax rate on adjusted profit2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001%
    
    %
    
    %
    
    %
    
    %
    
    %UK corporation tax rate
    
    
    30.0
    
    
    
    30.0
    
    
    
    30.0
    
    
    
    30.0
    
    
    
    30.0
    
    
    
    30.0Difference in tax rates of overseas subsidiaries, joint
ventures and associates
    
    
    0.5
    
    
    
    0.6
    
    
    
    1.7
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    1.3Excess of tax depreciation over book depreciation
    
    
    (3.3
    )
    
    
    (5.2
    )
    
    
    (4.8
    )
    
    
    (2.8
    )
    
    
    (3.9
    )
    
    
    (3.7
    )Other timing differences
    
    
    2.1
    
    
    
    3.5
    
    
    
    (1.1
    )
    
    
    1.8
    
    
    
    2.7
    
    
    
    (1.5
    )State and local taxes
    
    
    0.3
    
    
    
    0.6
    
    
    
    0.9
    
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.7Net creation/(utilisation) of losses
    
    
    0.9
    
    
    
    (1.4
    )
    
    
    (0.9
    )
    
    
    0.7
    
    
    
    (1.1
    )
    
    
    (0.7
    )Investment tax credits
    
    
    (0.1
    )
    
    
    (3.0
    )
    
    
    (1.4
    )
    
    
    (0.1
    )
    
    
    (2.4
    )
    
    
    (1.1
    )Prior year tax
    
    
    (0.1
    )
    
    
    1.2
    
    
    
    (0.8
    )
    
    
    
    
    
    
    0.9
    
    
    
    (0.6
    )Tax effect of exceptional items
    
    
    4.4
    
    
    
    4.4
    
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    Permanent items and other items with less than a 5% net effect
    
    
    (1.3
    )
    
    
    0.1
    
    
    
    1.4
    
    
    
    (1.1
    )
    
    
    0.1
    
    
    
    1.1Effective current tax rate
    
    
    33.4
    
    
    
    30.8
    
    
    
    30.9
    
    
    
    29.2
    
    
    
    27.3
    
    
    
    25.5Deferred tax timing differences
    
    
    (6.0
    )
    
    
    0.9
    
    
    
    (2.0
    )
    
    
    (0.2
    )
    
    
    2.7
    
    
    
    7.0Total tax rate/effective tax rate
    
    
    27.4
    
    
    
    31.7
    
    
    
    28.9
    
    
    
    29.0
    
    
    
    30.0
    
    
    
    32.5


Profit on ordinary activities before tax, as shown in the consolidated profit
and loss account, is analysed over its component parts as follows:


2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ millionUK
    
    
    67.0
    
    
    
    66.6
    
    
    
    86.4Overseas
    
    
    284.9
    
    
    
    268.7
    
    
    
    275.8351.9
    
    
    
    335.3
    
    
    
    362.2


d) Factors that may affect future tax charges

The total charge in future periods will be affected by any changes to the
corporation tax rates in force in the countries in which the Group operates.
The current tax charges will also be affected by changes in the excess of tax
depreciation over book depreciation and the use of tax credits.


e) Unused tax credits

On a consolidated basis, the Group has net operating loss carryforwards of
£51.7 million. If not offset against taxable income, these losses will expire
as follows:


Netoperating lossYear
    
    £ million2004
    
    
    8.42005
    
    
    2006
    
    
    0.42007
    
    
    2008
    
    
    Thereafter, or no expiry date
    
    
    42.9


For US Federal tax purposes, the Group has investment tax credits and general
business tax credits to carry forward of approximately £12.9 million, which are
available to reduce income taxes otherwise payable. These do not expire until
2004 or thereafter.


In addition, the Group has alternative minimum tax credits for US Federal
income tax purposes of approximately £24.8 million which can be carried forward
to reduce regular tax liabilities of future years. There is no expiration date
on these credits.


Investment tax credits are accounted for by the flow-through method
whereby they reduce income taxes currently payable and the provision for income
taxes in the period in which the assets giving rise to such credits are placed
in service. Deferred tax assets, subject to the need for a valuation allowance,
are recognised to the extent that the investment tax credits are not currently
utilised.


86   The BOC Group plcAnnual report and accounts 2003





---



##### 



5. Directors

Directors remuneration and interests are given in the report on remuneration on
pages 60 to 69.


6. Employee numbers

a) Subsidiaries

2003
    
    2002Year end
    
    Average
    
    Year end
    
    Averagei) Employees by businessProcess Gas Solutions
    
    
    5,730
    
    
    
    5,837
    
    
    
    5,806
    
    
    
    5,979Industrial and Special Products
    
    
    15,267
    
    
    
    15,142
    
    
    
    15,266
    
    
    
    14,681BOC Edwards
    
    
    4,790
    
    
    
    4,931
    
    
    
    5,367
    
    
    
    5,186Afrox hospitals
    
    
    13,694
    
    
    
    13,804
    
    
    
    14,152
    
    
    
    13,934Gist
    
    
    4,613
    
    
    
    5,343
    
    
    
    5,302
    
    
    
    5,100Corporate
    
    
    413
    
    
    
    405
    
    
    
    387
    
    
    
    37644,507
    
    
    
    45,462
    
    
    
    46,280
    
    
    
    45,256ii) Employees by regionEurope
    
    
    12,353
    
    
    
    13,101
    
    
    
    13,213
    
    
    
    12,739Americas
    
    
    7,451
    
    
    
    7,411
    
    
    
    7,243
    
    
    
    7,312Africa
    
    
    17,138
    
    
    
    17,178
    
    
    
    17,435
    
    
    
    17,213Asia/Pacific
    
    
    7,565
    
    
    
    7,772
    
    
    
    8,389
    
    
    
    7,99244,507
    
    
    
    45,462
    
    
    
    46,280
    
    
    
    45,256b) Joint ventures and associatesJoint ventures
    
    
    6,064
    
    
    
    5,626
    
    
    
    3,570
    
    
    
    3,596Associates
    
    
    878
    
    
    
    877
    
    
    
    742
    
    
    
    7286,942
    
    
    
    6,503
    
    
    
    4,312
    
    
    
    4,324


c) Employment costs

2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ millionWages and salaries
    
    
    844.7
    
    
    
    813.9
    
    
    
    758.8Social security costs
    
    
    77.7
    
    
    
    77.7
    
    
    
    74.0Other pension costs
    
    
    115.4
    
    
    
    66.3
    
    
    
    76.01,037.8
    
    
    
    957.9
    
    
    
    908.8


Other pension costs includes an exceptional charge of £43.2 million (2002:
£nil, 2001: £16.7 million). See also note 2 b).


87   The BOC Group plcAnnual report and accounts 2003





---



##### 



Notes to the financial statements continued

7. Options and incentive schemes

a) Policy

Executive options that are granted at the market price of the companys shares
at the time of the grant do not attract a compensation expense under UK GAAP.
For those executive options, including the Long-Term Incentive Plan, that are
granted at a discount to the market price of the companys shares at the time
of the grant, the compensation expense is charged to the profit and loss
account over the life of the option. The Group takes advantage of the exemption
granted under UITF17, Employee Share Schemes, whereby no compensation expense
need be recorded for employee schemes that are granted at a discount.


b) Summary of movements

BOC operates share option schemes for both executives and employees. The
features of these are given in the report on remuneration and the employees
report.


Long-term
    
    Executiveincentive
    
    share awardEmployee options
    
    Executive options
    
    plan1
    
    plan1Number of
    
    
    
    
    
    Weighted
    
    Number of
    
    
    
    
    
    Weighted
    
    Number of
    
    Number ofshares
    
    Range of
    
    average
    
    shares
    
    Range of
    
    average
    
    shares
    
    sharesmillion
    
    option prices
    
    option price
    
    million
    
    option prices
    
    option price
    
    million
    
    millionOutstanding at 1 October 2000
    
    
    5.9
    
    
    
    610p-882p
    
    
    
    810p
    
    
    
    21.6
    
    
    
    532p-1119p
    
    
    
    877p
    
    
    
    
    
    
    
    0.8Granted
    
    
    1.2
    
    
    
    894p
    
    
    
    894p
    
    
    
    4.4
    
    
    
    986p-1034p
    
    
    
    994p
    
    
    
    
    
    
    
    Exercised
    
    
    (0.4
    )
    
    
    610p-894p
    
    
    
    765p
    
    
    
    (2.5
    )
    
    
    532p-980p
    
    
    
    740p
    
    
    
    
    
    
    
    Lapsed
    
    
    (1.0
    )
    
    
    610p-894p
    
    
    
    830p
    
    
    
    (1.8
    )
    
    
    722p-993p
    
    
    
    929p
    
    
    
    
    
    
    
    (0.1
    )Outstanding at 30 September 2001
    
    
    5.7
    
    
    
    610p-894p
    
    
    
    835p
    
    
    
    21.7
    
    
    
    627p-1119p
    
    
    
    914p
    
    
    
    
    
    
    
    0.7Granted
    
    
    1.2
    
    
    
    914p
    
    
    
    914p
    
    
    
    5.5
    
    
    
    1016p-1079p
    
    
    
    1016p
    
    
    
    
    
    
    
    Exercised
    
    
    (1.0
    )
    
    
    610p-914p
    
    
    
    787p
    
    
    
    (3.1
    )
    
    
    627p-980p
    
    
    
    868p
    
    
    
    
    
    
    
    (0.7
    )Lapsed
    
    
    (0.5
    )
    
    
    610p-914p
    
    
    
    857p
    
    
    
    (0.6
    )
    
    
    742p-1119p
    
    
    
    957p
    
    
    
    
    
    
    
    Outstanding at 30 September 2002
    
    
    5.4
    
    
    
    650p-914p
    
    
    
    855p
    
    
    
    23.5
    
    
    
    677p-1119p
    
    
    
    943p
    
    
    
    
    
    
    
    Granted
    
    
    2.3
    
    
    
    698p
    
    
    
    698p
    
    
    
    4.9
    
    
    
    776p-873p
    
    
    
    837p
    
    
    
    1.2
    
    
    
    Exercised
    
    
    (0.3
    )
    
    
    650p-914p
    
    
    
    826p
    
    
    
    (0.4
    )
    
    
    677p-851p
    
    
    
    751p
    
    
    
    
    
    
    
    Lapsed
    
    
    (1.1
    )
    
    
    650p-914p
    
    
    
    868p
    
    
    
    (1.6
    )
    
    
    677p-1016p
    
    
    
    937p
    
    
    
    
    
    
    
    Outstanding at 30 September 2003
    
    
    6.3
    
    
    
    698p-914p
    
    
    
    801p
    
    
    
    26.4
    
    
    
    677p-1119p
    
    
    
    926p
    
    
    
    1.2
    
    
    
    Number of participants at 30 September 2003
    
    
    6,102
    
    
    
    
    
    
    
    
    
    
    
    1,172
    
    
    
    
    
    
    
    
    
    
    
    77
    
    
    
    Options exercisable:At 30 September 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.5
    
    
    
    677p-1119p
    
    
    
    880p
    
    
    
    
    
    
    
    At 30 September 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.6
    
    
    
    677p-1119p
    
    
    
    877p
    
    
    
    
    
    
    
    Fair value of options granted during:Year ended 30 September 2003
    
    
    174p
    
    
    
    
    
    
    
    
    
    
    
    177p
    
    
    
    
    
    
    
    
    
    
    
    609pYear ended 30 September 2002
    
    
    289p
    
    
    
    
    
    
    
    
    
    
    
    242p
    
    
    
    
    
    
    
    
    
    
    
    


|1. |  | The long-term incentive and executive share award plans were granted at an option price of £nil.
|-- |  | ------------------------------------------------------------------------------------------------

The weighted average fair value of options granted during the year was
calculated using the Black-Scholes option pricing model. Details of the
assumptions used are given in note 30 g).

c) Analysis of options outstanding

Employee options
    
    Executive optionsNumber of
    
    Weighted
    
    Normal
    
    Number of
    
    Weighted
    
    Normalshares
    
    average
    
    exercisable
    
    shares
    
    average
    
    exercisablethousand
    
    option price
    
    date
    
    thousand
    
    option price
    
    dateOutstanding at 30 September 2003Date of grant1994
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    315
    
    
    
    678p
    
    
    
    1997-20041995
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    605
    
    
    
    722p
    
    
    
    1998-20051996
    
    
    173
    
    
    
    827p
    
    
    
    2003-2004
    
    
    
    981
    
    
    
    915p
    
    
    
    1999-20061997
    
    
    210
    
    
    
    882p
    
    
    
    2004-2005
    
    
    
    1,111
    
    
    
    981p
    
    
    
    2000-20071998
    
    
    648
    
    
    
    823p
    
    
    
    2003-2006
    
    
    
    1,894
    
    
    
    915p
    
    
    
    2001-20081999
    
    
    670
    
    
    
    766p
    
    
    
    2004-2007
    
    
    
    2,594
    
    
    
    860p
    
    
    
    2002-20092000
    
    
    844
    
    
    
    870p
    
    
    
    2003-2008
    
    
    
    5,032
    
    
    
    937p
    
    
    
    2003-20102001
    
    
    752
    
    
    
    894p
    
    
    
    2004-2009
    
    
    
    3,945
    
    
    
    994p
    
    
    
    2004-20112002
    
    
    765
    
    
    
    914p
    
    
    
    2005-2010
    
    
    
    5,080
    
    
    
    1016p
    
    
    
    2005-20122003
    
    
    2,227
    
    
    
    698p
    
    
    
    2006-2011
    
    
    
    4,800
    
    
    
    836p
    
    
    
    2006-20136,289
    
    
    
    
    
    
    
    
    
    
    
    26,357


88   The BOC Group plcAnnual report and accounts 2003





---



##### 



8. Pensions and other retirement benefits

a) UK GAAP Group

The Group operates a number of pension schemes throughout the world. The larger
schemes are self-administered and the schemes assets are held independently of
the Groups finances. Pension costs are assessed in accordance with the advice
of independent, professionally qualified actuaries.


The UK defined benefit pension schemes were closed to new members with
effect from 30 June 2003 and replaced with a new defined contribution plan.


On the advice of the actuaries, company contributions to the main UK
scheme were resumed at a rate of 14.4 per cent of payroll on 1 October 2002.
Normal company contributions in respect of current service will reduce to 13.8 per cent from 1 October 2003 but, from that date, the company will make
additional contributions in order to reduce the funding valuation deficit. For
the year to 30 September 2004, these additional contributions to the main UK
scheme will be £30 million.


In the US, company contributions to the pension plan remain suspended as the
plan continues to be in surplus.


In Australia, company contributions recommenced on 1 October 2001 at rates
ranging from 11 per cent to 17 per cent of payroll.


In South Africa, in accordance with legislation, company contributions
were resumed on 7 December 2001. They were increased in June 2003, and currently
range from 14.7 per cent to 21.2 per cent of payroll. Under the Pension Funds
Second Amendment Act 2001, surpluses in pension funds have to be used in a
manner specified in Regulations to the Act to improve current and former
members benefits before the employer can obtain any benefit from the
surpluses. Consequently, it is considered unlikely that the company will obtain
any benefit from the surpluses in the South African schemes. Therefore, in
accordance with FRS17, the surpluses at 30 September 2003 have been written off
in the statement of total recognised gains and losses.


The current cost of defined benefit pension arrangements is calculated
using an actuarial methodology known as projected unit credit. Under this
methodology, as the UK and South African defined benefit schemes, and the
defined benefit guarantee of the Australian scheme, are closed to new members,
the current cost expressed as a percentage of pensionable salaries will tend to
increase as members approach retirement.


The most recent actuarial funding valuations have been updated by
independent qualified actuaries, in order to assess the liabilities of the
schemes at 30 September 2003 for the purposes of FRS17. Scheme assets are stated
at their market value at 30 September 2003.


Main assumptions for FRS17 purposes
    
    Europe
    
    Americas
    
    Africa
    
    Asia/PacificDate of latest actuarial funding valuation
    
    31 Mar 02
    
    1 Jan 02
    
    30 Jun 03
    
    31 Dec 002003Rate of increase in salaries
    
    
    4.1
    %
    
    
    3.75
    %
    
    
    7.5
    %
    
    
    3.5
    %Rate of increase in pensions in payment
    
    
    2.6
    %
    
    
    
    
    
    4.8
    %
    
    
    2.5
    %Discount rate
    
    
    5.3
    %
    
    
    5.9
    %
    
    
    10.0
    %
    
    
    6.2
    %Inflation
    
    
    2.6
    %
    
    
    2.5
    %
    
    
    5.0
    %
    
    
    2.5
    %2002Rate of increase in salaries
    
    
    3.9
    %
    
    
    3.75
    %
    
    
    9.5
    %
    
    
    3.5
    %Rate of increase in pensions in payment
    
    
    2.4
    %
    
    
    
    
    
    6.8
    %
    
    
    2.5
    %Discount rate
    
    
    5.5
    %
    
    
    6.5
    %
    
    
    12.0
    %
    
    
    6.1
    %Inflation
    
    
    2.4
    %
    
    
    2.5
    %
    
    
    7.0
    %
    
    
    2.5
    %2001Rate of increase in salaries
    
    
    4.55
    %
    
    
    4.75
    %
    
    
    7.5
    %
    
    
    4.0
    %Rate of increase in pensions in payment
    
    
    2.5
    %
    
    
    
    
    
    4.8
    %
    
    
    3.0
    %Discount rate
    
    
    6.1
    %
    
    
    7.25
    %
    
    
    10.0
    %
    
    
    5.75
    %Inflation
    
    
    2.5
    %
    
    
    3.75
    %
    
    
    7.5
    %
    
    
    3.0
    %


The assumptions used for the US health care benefits for FRS17 purposes are a
discount rate of 5.9 per cent (2002: 6.5 per cent, 2001: 7.25 per cent) and an
ultimate health care cost trend rate of 4.5 per cent (2002: 4.5 per
cent, 2001: 4.75 per cent).


Contributions to non defined benefit schemes in the year were £12.0 million
(2002: £9.6 million, 2001: £6.3 million) and are included in note 6 c).




89   The BOC Group plcAnnual report and accounts 2003





---



##### 



Notes to the financial statements continued

8. Pensions and other retirement benefitscontinued
The assets in the schemes and the expected rates of return were:Equities
    
    Bonds
    
    Other
    
    TotalLong-term rate of return expected at 30 September 2003Europe
    
    
    8.5
    %
    
    
    5.0
    %
    
    
    6.4
    %
    
    
    Americas
    
    
    9.5
    %
    
    
    4.1
    %
    
    
    
    
    
    Africa
    
    
    13.0
    %
    
    
    10.0
    %
    
    
    8.1
    %
    
    
    Asia/Pacific
    
    
    8.5
    %
    
    
    4.8
    %
    
    
    5.2
    %
    
    
    Value at 30 September 2003 (£ million)Europe
    
    
    793.9
    
    
    216.1
    
    
    62.3
    
    
    1,072.3Americas
    
    
    307.0
    
    
    66.2
    
    
    
    
    
    373.2Africa
    
    
    73.6
    
    
    16.8
    
    
    7.9
    
    
    98.3Asia/Pacific
    
    
    105.6
    
    
    15.1
    
    
    25.2
    
    
    145.9Total
    
    
    1,280.1
    
    
    314.2
    
    
    95.4
    
    
    1,689.7Long-term rate of return expected at 30 September 2002Europe
    
    
    8.5
    %
    
    
    4.9
    %
    
    
    4.0
    %
    
    
    Americas
    
    
    9.5
    %
    
    
    6.0
    %
    
    
    
    
    
    Africa
    
    
    14.0
    %
    
    
    12.0
    %
    
    
    8.5
    %
    
    
    Asia/Pacific
    
    
    7.7
    %
    
    
    4.7
    %
    
    
    5.7
    %
    
    
    Value at 30 September 2002 (£ million)Europe
    
    
    686.2
    
    
    235.0
    
    
    18.8
    
    
    940.0Americas
    
    
    289.2
    
    
    51.0
    
    
    
    
    
    340.2Africa
    
    
    49.6
    
    
    15.3
    
    
    5.4
    
    
    70.3Asia/Pacific
    
    
    89.8
    
    
    16.3
    
    
    16.7
    
    
    122.8Total
    
    
    1,114.8
    
    
    317.6
    
    
    40.9
    
    
    1,473.3Long-term rate of return expected at 30 September 2001Europe
    
    
    8.5
    %
    
    
    5.2
    %
    
    
    4.6
    %
    
    
    Americas
    
    
    9.5
    %
    
    
    6.0
    %
    
    
    
    
    
    Africa
    
    
    12.0
    %
    
    
    10.0
    %
    
    
    8.4
    %
    
    
    Asia/Pacific
    
    
    7.4
    %
    
    
    5.1
    %
    
    
    6.1
    %
    
    
    Value at 30 September 2001 (£ million)Europe
    
    
    897.6
    
    
    226.8
    
    
    18.8
    
    
    1,143.2Americas
    
    
    345.0
    
    
    70.7
    
    
    
    
    
    415.7Africa
    
    
    54.7
    
    
    18.2
    
    
    6.3
    
    
    79.2Asia/Pacific
    
    
    92.3
    
    
    18.0
    
    
    17.3
    
    
    127.6Total
    
    
    1,389.6
    
    
    333.7
    
    
    42.4
    
    
    1,765.7





The following amounts at 30 September 2003 were measured in accordance with the requirements of FRS17:Americas
    
    AmericasEurope
    
    pensions
    
    health care
    
    Africa
    
    Asia/Pacific
    
    Total£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million2003Total market value of assets
    
    
    1,072.3
    
    
    
    373.2
    
    
    
    
    
    
    
    98.3
    
    
    
    145.9
    
    
    
    1,689.7Present value of scheme liabilities
    
    
    (1,516.9
    )
    
    
    (294.0
    )
    
    
    (50.5
    )
    
    
    (92.5
    )
    
    
    (142.1
    )
    
    
    (2,096.0
    )Irrecoverable surplus
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5.8
    )
    
    
    
    
    
    
    (5.8
    )(Deficit)/surplus in the scheme
    
    
    (444.6
    )
    
    
    79.2
    
    
    
    (50.5
    )
    
    
    
    
    
    
    3.8
    
    
    
    (412.1
    )Related deferred tax asset/(liability)
    
    
    133.4
    
    
    
    (31.2
    )
    
    
    19.9
    
    
    
    
    
    
    
    (1.1
    )
    
    
    121.0Net pension (liabilities)/assets1
    
    
    (311.2
    )
    
    
    48.0
    
    
    
    (30.6
    )
    
    
    
    
    
    
    2.7
    
    
    
    (291.1
    )2002Total market value of assets
    
    
    940.0
    
    
    
    340.2
    
    
    
    
    
    
    
    70.3
    
    
    
    122.8
    
    
    
    1,473.3Present value of scheme liabilities
    
    
    (1,331.6
    )
    
    
    (250.4
    )
    
    
    (50.1
    )
    
    
    (59.3
    )
    
    
    (134.0
    )
    
    
    (1,825.4
    )Irrecoverable surplus
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11.0
    )
    
    
    
    
    
    
    (11.0
    )(Deficit)/surplus in the scheme
    
    
    (391.6
    )
    
    
    89.8
    
    
    
    (50.1
    )
    
    
    
    
    
    
    (11.2
    )
    
    
    (363.1
    )Related deferred tax asset/(liability)
    
    
    117.5
    
    
    
    (35.5
    )
    
    
    19.8
    
    
    
    
    
    
    
    4.6
    
    
    
    106.4Net pension (liabilities)/assets1
    
    
    (274.1
    )
    
    
    54.3
    
    
    
    (30.3
    )
    
    
    
    
    
    
    (6.6
    )
    
    
    (256.7
    )2001Total market value of assets
    
    
    1,143.2
    
    
    
    415.7
    
    
    
    
    
    
    
    79.2
    
    
    
    127.6
    
    
    
    1,765.7Present value of scheme liabilities
    
    
    (1,172.0
    )
    
    
    (258.2
    )
    
    
    (52.0
    )
    
    
    (66.4
    )
    
    
    (130.8
    )
    
    
    (1,679.4
    )(Deficit)/surplus in the scheme
    
    
    (28.8
    )
    
    
    157.5
    
    
    
    (52.0
    )
    
    
    12.8
    
    
    
    (3.2
    )
    
    
    86.3Related deferred tax asset/(liability)
    
    
    8.6
    
    
    
    (62.2
    )
    
    
    20.5
    
    
    
    (3.9
    )
    
    
    1.7
    
    
    
    (35.3
    )Net pension (liabilities)/assets1
    
    
    (20.2
    )
    
    
    95.3
    
    
    
    (31.5
    )
    
    
    8.9
    
    
    
    (1.5
    )
    
    
    51.0


|1. |  | Included in the net pension (liabilities)/assets are assets of £50.7 million (2002: £54.3 million, 2001: £107.0 million) and liabilities of £341.8 million (2002: £311.0 million, 2001: £56.0 million).
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

90   The BOC Group plc Annual report and accounts 2003





---



##### 



8. Pensions and other retirement benefitscontinuedAmericas
    
    AmericasEurope
    
    pensions
    
    health care
    
    Africa
    
    Asia/Pacific
    
    TotalAnalysis of the amount charged to operating profit
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionYear to 30 September 2003Current service cost
    
    
    (39.4
    )
    
    
    (12.3
    )
    
    
    (1.6
    )
    
    
    (2.1
    )
    
    
    (7.9
    )
    
    
    (63.3
    )Past service cost2
    
    
    (0.4
    )
    
    
    (43.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43.6
    )Curtailments/settlements
    
    
    3.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.5Total operating charge
    
    
    (36.3
    )
    
    
    (55.5
    )
    
    
    (1.6
    )
    
    
    (2.1
    )
    
    
    (7.9
    )
    
    
    (103.4
    )Year to 30 September 2002Current service cost
    
    
    (33.5
    )
    
    
    (12.8
    )
    
    
    (1.6
    )
    
    
    (1.7
    )
    
    
    (7.2
    )
    
    
    (56.8
    )Past service cost2
    
    
    (0.6
    )
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Total operating charge
    
    
    (34.1
    )
    
    
    (12.1
    )
    
    
    (1.6
    )
    
    
    (1.7
    )
    
    
    (7.2
    )
    
    
    (56.7
    )Year to 30 September 2001Current service cost
    
    
    (35.8
    )
    
    
    (8.6
    )
    
    
    (1.3
    )
    
    
    (2.2
    )
    
    
    (4.7
    )
    
    
    (52.6
    )Past service cost2
    
    
    (0.4
    )
    
    
    (16.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17.1
    )Total operating charge
    
    
    (36.2
    )
    
    
    (25.3
    )
    
    
    (1.3
    )
    
    
    (2.2
    )
    
    
    (4.7
    )
    
    
    (69.7
    )


|2. |  | The past service cost amounts in Americas pensions in 2003 and 2001 were
accounted for as exceptional items (see note 2 b)). Two amendments were
made to the US pension plan in 2002 relating to the allocation of the
interest credit to plan members, both retrospectively and in the future.
The net impact of the amendments was a £0.7 million credit against past
service cost in the year.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Americas
    
    AmericasEurope
    
    pensions
    
    health care
    
    Africa
    
    Asia/Pacific
    
    TotalAnalysis of the amount included in other net financing income
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionYear to 30 September 2003Expected return on pension scheme assets3
    
    
    70.2
    
    
    
    29.1
    
    
    
    
    
    
    
    10.8
    
    
    
    9.4
    
    
    
    119.5Interest on pension scheme liabilities3
    
    
    (72.9
    )
    
    
    (15.8
    )
    
    
    (3.1
    )
    
    
    (8.8
    )
    
    
    (9.2
    )
    
    
    (109.8
    )Net interest on FRS17 pension schemes
    
    
    (2.7
    )
    
    
    13.3
    
    
    
    (3.1
    )
    
    
    2.0
    
    
    
    0.2
    
    
    
    9.7Year to 30 September 2002Expected return on pension scheme assets
    
    
    87.4
    
    
    
    36.2
    
    
    
    
    
    
    
    7.2
    
    
    
    8.3
    
    
    
    139.1Interest on pension scheme liabilities
    
    
    (71.1
    )
    
    
    (18.6
    )
    
    
    (3.7
    )
    
    
    (5.6
    )
    
    
    (7.1
    )
    
    
    (106.1
    )Net interest on FRS17 pension schemes
    
    
    16.3
    
    
    
    17.6
    
    
    
    (3.7
    )
    
    
    1.6
    
    
    
    1.2
    
    
    
    33.0Year to 30 September 2001Expected return on pension scheme assets
    
    
    99.3
    
    
    
    46.7
    
    
    
    
    
    
    
    11.9
    
    
    
    9.0
    
    
    
    166.9Interest on pension scheme liabilities
    
    
    (71.9
    )
    
    
    (18.1
    )
    
    
    
    
    
    
    (9.7
    )
    
    
    (7.5
    )
    
    
    (107.2
    )Net interest on FRS17 pension schemes
    
    
    27.4
    
    
    
    28.6
    
    
    
    
    
    
    
    2.2
    
    
    
    1.5
    
    
    
    59.7


|3. |  | The profit and loss account includes amounts relating to joint ventures
and associates of £0.1 million and £(0.4) million in respect of expected
return on pension scheme assets and interest on pension scheme liabilities
respectively. There were no corresponding amounts for joint ventures and
associates in 2002 and 2001.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



91   The BOC Group plc Annual report and accounts 2003





---



##### 



Notes to the financial statements continued

8. Pensions and other retirement benefits continuedAmericas
    
    AmericasAnalysis of the amount recognised in the statement
    
    Europe
    
    pensions
    
    health care
    
    Africa
    
    Asia/Pacific
    
    Totalof total recognised gains and losses
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionYear to 30 September 2003Actual return less expected return on pension scheme assets
    
    
    73.7
    
    
    
    44.2
    
    
    
    
    
    
    
    (10.8
    )
    
    
    4.7
    
    
    
    111.8Experience gains and losses arising on the scheme liabilities
    
    
    8.3
    
    
    
    (1.7
    )
    
    
    0.1
    
    
    
    0.1
    
    
    
    (2.6
    )
    
    
    4.2Changes in assumptions underlying the present value of the
scheme liabilities
    
    
    (134.8
    )
    
    
    (6.3
    )
    
    
    (2.0
    )
    
    
    
    
    
    
    
    
    
    
    (143.1
    )Irrecoverable surplus
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.7
    
    
    
    
    
    
    
    8.7Actuarial (loss)/gain recognised in the statement
of total recognised gains and losses4
    
    
    (52.8
    )
    
    
    36.2
    
    
    
    (1.9
    )
    
    
    (2.0
    )
    
    
    2.1
    
    
    
    (18.4
    )Year to 30 September 2002Actual return less expected return on pension scheme assets
    
    
    (246.4
    )
    
    
    (71.6
    )
    
    
    
    
    
    
    3.0
    
    
    
    (13.6
    )
    
    
    (328.6
    )Experience gains and losses arising on the scheme liabilities
    
    
    (9.7
    )
    
    
    6.7
    
    
    
    5.8
    
    
    
    (3.9
    )
    
    
    (1.3
    )
    
    
    (2.4
    )Changes in assumptions underlying the present value of the
scheme liabilities
    
    
    (91.7
    )
    
    
    (2.2
    )
    
    
    (5.9
    )
    
    
    
    
    
    
    5.5
    
    
    
    (94.3
    )Irrecoverable surplus
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11.6
    )
    
    
    
    
    
    
    (11.6
    )Actuarial (loss) recognised in the statement
of total recognised gains and losses4
    
    
    (347.8
    )
    
    
    (67.1
    )
    
    
    (0.1
    )
    
    
    (12.5
    )
    
    
    (9.4
    )
    
    
    (436.9
    )Year to 30 September 2001Actual return less expected return on pension scheme assets
    
    
    (346.2
    )
    
    
    (156.4
    )
    
    
    
    
    
    
    (11.9
    )
    
    
    (13.3
    )
    
    
    (527.8
    )Experience gains and losses arising on the scheme liabilities
    
    
    (7.6
    )
    
    
    (0.9
    )
    
    
    (6.9
    )
    
    
    (0.3
    )
    
    
    10.7
    
    
    
    (5.0
    )Changes in assumptions underlying the present value of the
scheme liabilities
    
    
    64.0
    
    
    
    
    
    
    
    
    
    
    
    (2.9
    )
    
    
    
    
    
    
    61.1Actuarial (loss) recognised in the statement
of total recognised gains and losses4
    
    
    (289.8
    )
    
    
    (157.3
    )
    
    
    (6.9
    )
    
    
    (15.1
    )
    
    
    (2.6
    )
    
    
    (471.7
    )


|4. |  | Included in the actuarial (loss)/gain for the year is £(0.9) million in
respect of minority interests (2002: £(5.7) million, 2001: £(6.8) million).
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

Americas
    
    AmericasEurope
    
    pensions
    
    health care
    
    Africa
    
    Asia/Pacific
    
    TotalMovement in (deficit)/surplus during the year
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionYear to 30 September 2003(Deficit)/surplus in scheme at 1 October
    
    
    (391.6
    )
    
    
    89.8
    
    
    
    (50.1
    )
    
    
    
    
    
    
    (11.2
    )
    
    
    (363.1
    )Movement in the year:Current service cost
    
    
    (39.4
    )
    
    
    (12.3
    )
    
    
    (1.6
    )
    
    
    (2.1
    )
    
    
    (7.9
    )
    
    
    (63.3
    )Past service cost
    
    
    (0.4
    )
    
    
    (43.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (43.6
    )Curtailments/settlements
    
    
    3.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.5Contributions
    
    
    38.8
    
    
    
    
    
    
    
    3.5
    
    
    
    2.1
    
    
    
    10.2
    
    
    
    54.6Disposals of businesses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.4
    
    
    
    10.4Other finance income
    
    
    (2.7
    )
    
    
    13.3
    
    
    
    (3.1
    )
    
    
    2.0
    
    
    
    0.2
    
    
    
    9.7Actuarial (loss)/gain
    
    
    (52.8
    )
    
    
    36.2
    
    
    
    (1.9
    )
    
    
    (2.0
    )
    
    
    2.1
    
    
    
    (18.4
    )Exchange adjustment
    
    
    
    
    
    
    (4.6
    )
    
    
    2.7
    
    
    
    
    
    
    
    
    
    
    
    (1.9
    )(Deficit)/surplus in scheme at 30 September
    
    
    (444.6
    )
    
    
    79.2
    
    
    
    (50.5
    )
    
    
    
    
    
    
    3.8
    
    
    
    (412.1
    )Year to 30 September 2002(Deficit)/surplus in scheme at 1 October
    
    
    (28.8
    )
    
    
    157.5
    
    
    
    (52.0
    )
    
    
    12.8
    
    
    
    (3.2
    )
    
    
    86.3Movement in the year:Current service cost
    
    
    (33.5
    )
    
    
    (12.8
    )
    
    
    (1.6
    )
    
    
    (1.7
    )
    
    
    (7.2
    )
    
    
    (56.8
    )Past service cost
    
    
    (0.6
    )
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Contributions
    
    
    2.8
    
    
    
    
    
    
    
    3.9
    
    
    
    1.8
    
    
    
    6.3
    
    
    
    14.8Other finance income
    
    
    16.3
    
    
    
    17.6
    
    
    
    (3.7
    )
    
    
    1.6
    
    
    
    1.2
    
    
    
    33.0Actuarial (loss)
    
    
    (347.8
    )
    
    
    (67.1
    )
    
    
    (0.1
    )
    
    
    (12.5
    )
    
    
    (9.4
    )
    
    
    (436.9
    )Exchange adjustment
    
    
    
    
    
    
    (6.1
    )
    
    
    3.4
    
    
    
    (2.0
    )
    
    
    1.1
    
    
    
    (3.6
    )(Deficit)/surplus in scheme at 30 September
    
    
    (391.6
    )
    
    
    89.8
    
    
    
    (50.1
    )
    
    
    
    
    
    
    (11.2
    )
    
    
    (363.1
    )








92   The BOC Group plc Annual report and accounts 2003






---



##### 



8. Pensions and other retirement benefits continuedAmericas
    
    AmericasHistory of experience gains and losses
    
    Europe
    
    pensions
    
    health care
    
    Africa
    
    Asia/Pacific
    
    TotalYear to 30 September 2003Difference between the expected and actual return on scheme assetsAmount (£ million)
    
    
    73.7
    
    
    
    44.2
    
    
    
    
    
    
    
    (10.8
    )
    
    
    4.7
    
    
    
    111.8Percentage of scheme assets
    
    
    6.9
    %
    
    
    11.8
    %
    
    
    
    
    
    
    (11.0
    %)
    
    
    3.2
    %
    
    
    6.6
    %Experience gains and losses on scheme liabilitiesAmount (£ million)
    
    
    8.3
    
    
    
    (1.7
    )
    
    
    0.1
    
    
    
    0.1
    
    
    
    (2.6
    )
    
    
    4.2Percentage of the present value of scheme liabilities
    
    
    0.5
    %
    
    
    (0.6
    %)
    
    
    0.2
    %
    
    
    0.1
    %
    
    
    (1.8
    %)
    
    
    0.2
    %Total amount recognised in the statement of total recognised gains and lossesAmount (£ million)
    
    
    (52.8
    )
    
    
    36.2
    
    
    
    (1.9
    )
    
    
    (2.0
    )
    
    
    2.1
    
    
    
    (18.4
    )Percentage of the present value of scheme liabilities
    
    
    (3.5
    %)
    
    
    12.3
    %
    
    
    (3.8
    %)
    
    
    (2.2
    %)
    
    
    1.5
    %
    
    
    (0.9
    %)Year to 30 September 2002Difference between the expected and actual return on scheme assetsAmount (£ million)
    
    
    (246.4
    )
    
    
    (71.6
    )
    
    
    
    
    
    
    3.0
    
    
    
    (13.6
    )
    
    
    (328.6
    )Percentage of scheme assets
    
    
    (26.2
    %)
    
    
    (21.0
    %)
    
    
    
    
    
    
    4.3
    %
    
    
    (11.1
    %)
    
    
    (22.3
    %)Experience gains and losses on scheme liabilitiesAmount (£ million)
    
    
    (9.7
    )
    
    
    6.7
    
    
    
    5.8
    
    
    
    (3.9
    )
    
    
    (1.3
    )
    
    
    (2.4
    )Percentage of the present value of scheme liabilities
    
    
    (0.7
    %)
    
    
    2.7
    %
    
    
    11.6
    %
    
    
    (6.6
    %)
    
    
    (1.0
    %)
    
    
    (0.1
    %)Total amount recognised in the statement of total recognised gains and lossesAmount (£ million)
    
    
    (347.8
    )
    
    
    (67.1
    )
    
    
    (0.1
    )
    
    
    (12.5
    )
    
    
    (9.4
    )
    
    
    (436.9
    )Percentage of the present value of scheme liabilities
    
    
    (26.1
    %)
    
    
    (26.8
    %)
    
    
    (0.2
    %)
    
    
    (21.1
    %)
    
    
    (7.0
    %)
    
    
    (23.9
    %)Year to 30 September 2001Difference between the expected and actual return on scheme assetsAmount (£ million)
    
    
    (346.2
    )
    
    
    (156.4
    )
    
    
    
    
    
    
    (11.9
    )
    
    
    (13.3
    )
    
    
    (527.8
    )Percentage of scheme assets
    
    
    (30.3
    %)
    
    
    (37.6
    %)
    
    
    
    
    
    
    (15.0
    %)
    
    
    (10.4
    %)
    
    
    (29.9
    %)Experience gains and losses on scheme liabilitiesAmount (£ million)
    
    
    (7.6
    )
    
    
    (0.9
    )
    
    
    (6.9
    )
    
    
    (0.3
    )
    
    
    10.7
    
    
    
    (5.0
    )Percentage of the present value of scheme liabilities
    
    
    (0.6
    %)
    
    
    (0.3
    %)
    
    
    (13.3
    %)
    
    
    (0.4
    %)
    
    
    8.2
    %
    
    
    (0.3
    %)Total amount recognised in the statement of total recognised gains and lossesAmount (£ million)
    
    
    (289.8
    )
    
    
    (157.3
    )
    
    
    (6.9
    )
    
    
    (15.1
    )
    
    
    (2.6
    )
    
    
    (471.7
    )Percentage of the present value of scheme liabilities
    
    
    (24.7
    %)
    
    
    (60.9
    %)
    
    
    (13.3
    %)
    
    
    (22.7
    %)
    
    
    (2.0
    %)
    
    
    (28.1
    %)Year to 30 September 2000Difference between the expected and actual return on scheme assetsAmount (£ million)
    
    
    109.0
    
    
    
    57.2
    
    
    
    
    
    
    
    8.5
    
    
    
    9.0
    
    
    
    183.7Percentage of scheme assets
    
    
    7.6
    %
    
    
    10.6
    %
    
    
    
    
    
    
    8.3
    %
    
    
    6.0
    %
    
    
    8.3
    %Experience gains and losses on scheme liabilitiesAmount (£ million)
    
    
    22.2
    
    
    
    (30.9
    )
    
    
    (17.8
    )
    
    
    3.9
    
    
    
    (11.8
    )
    
    
    (34.4
    )Percentage of the present value of scheme liabilities
    
    
    1.9
    %
    
    
    (13.3
    %)
    
    
    (40.7
    %)
    
    
    5.5
    %
    
    
    (8.0
    %)
    
    
    (2.1
    %)Total amount recognised in the statement of total recognised gains and lossesAmount (£ million)
    
    
    98.8
    
    
    
    26.3
    
    
    
    (14.8
    )
    
    
    12.4
    
    
    
    (2.8
    )
    
    
    119.9Percentage of the present value of scheme liabilities
    
    
    8.5
    %
    
    
    11.3
    %
    
    
    (33.9
    %)
    
    
    17.5
    %
    
    
    (1.9
    %)
    
    
    7.2
    %





b) UK GAAP parent company


The company accounts for pension costs in accordance with FRS17 on retirement
benefits. In accordance with the standard, the company treats contributions to
defined benefit schemes as if they were contributions to a defined contribution
plan. This is because the underlying assets and liabilities of the defined
benefit schemes cover a number of the Groups UK undertakings and cannot
readily be split between each undertaking on a consistent and reliable basis.


The pension cost recognised in the companys accounts is the total of
company contributions payable to Group UK pension schemes in the year.


The assets of all Group UK pension schemes are held independently of the Groups
finances. The largest schemes are self-administered.


93   The BOC Group plc Annual report and accounts 2003






---



##### 



Notes to the financial statements continued

8. Pensions and other retirement benefits continued

c) US GAAP
For the purposes of US GAAP, the pension costs of the largest schemes have been
restated in the following tables in accordance with the requirement of
SFAS 132. The changes in projected benefit obligation, plan assets and details of
the funded status of these retirement plans, together with the changes in the
accumulated other post-retirement benefit obligations of the Groups US
business, are given below. The measurement date for UK and US pension plans is
30 June and the measurement date for the Australian and South African plans is
30 September. The difference between the UK and US GAAP information disclosed
in note 8a) and c) is included in note 30.

Pension benefits
    
    Other benefits12003
    
    2002
    
    2003
    
    2002£ million
    
    £ million
    
    £ million
    
    £ millionChange in benefit obligationProjected benefit obligation at 1 October 2002
    
    
    1,695.9
    
    
    
    1,599.5
    
    
    
    50.1
    
    
    
    52.0Exchange adjustment
    
    
    31.3
    
    
    
    (27.3
    )
    
    
    (2.8
    )
    
    
    (3.4
    )Service cost
    
    
    53.0
    
    
    
    54.6
    
    
    
    1.8
    
    
    
    1.6Interest cost
    
    
    108.7
    
    
    
    102.9
    
    
    
    3.1
    
    
    
    3.6Plan participants contributions
    
    
    13.9
    
    
    
    12.9
    
    
    
    
    
    
    
    Actuarial losses
    
    
    242.9
    
    
    
    44.7
    
    
    
    1.8
    
    
    
    0.2Benefits paid
    
    
    (96.1
    )
    
    
    (91.9
    )
    
    
    (3.5
    )
    
    
    (3.9
    )Other (income) less expenses
    
    
    (0.4
    )
    
    
    0.6
    
    
    
    
    
    
    
    Curtailments, settlements, termination benefits
    
    
    (3.1
    )
    
    
    0.6
    
    
    
    
    
    
    
    Plan amendments2
    
    
    43.2
    
    
    
    (0.7
    )
    
    
    
    
    
    
    Projected benefit obligation at 30 September 2003
    
    
    2,089.3
    
    
    
    1,695.9
    
    
    
    50.5
    
    
    
    50.1Change in fair value of assetsFair value of assets at 1 October 2002
    
    
    1,706.0
    
    
    
    1,995.7
    
    
    
    
    
    
    
    Exchange adjustment
    
    
    29.5
    
    
    
    (39.8
    )
    
    
    
    
    
    
    Actual return on plan assets
    
    
    (57.1
    )
    
    
    (180.4
    )
    
    
    
    
    
    
    Employer contributions
    
    
    44.7
    
    
    
    8.9
    
    
    
    
    
    
    
    Plan participants contributions
    
    
    13.9
    
    
    
    12.9
    
    
    
    
    
    
    
    Other income less (expenses)
    
    
    (0.4
    )
    
    
    0.6
    
    
    
    
    
    
    
    Benefits paid
    
    
    (96.1
    )
    
    
    (91.9
    )
    
    
    
    
    
    
    Fair value of assets at 30 September 2003
    
    
    1,640.5
    
    
    
    1,706.0
    
    
    
    
    
    
    
    Funded status and unrecognised (gains)/lossesFunded status
    
    
    (448.8
    )
    
    
    10.1
    
    
    
    (50.5
    )
    
    
    (50.1
    )Unrecognised net transition asset
    
    
    (14.3
    )
    
    
    (26.1
    )
    
    
    
    
    
    
    Unrecognised prior service cost/(credit)
    
    
    19.5
    
    
    
    23.9
    
    
    
    (2.8
    )
    
    
    (3.4
    )Unrecognised net loss
    
    
    669.6
    
    
    
    195.5
    
    
    
    10.2
    
    
    
    9.3Adjustment for post measurement date contributions
    
    
    9.5
    
    
    
    
    
    
    
    
    
    
    
    Prepaid/(accrued) pension cost
    
    
    235.5
    
    
    
    203.4
    
    
    
    (43.1
    )
    
    
    (44.2
    )Amounts recognised in the statement of financial position consist of:Prepaid benefit cost
    
    
    165.0
    
    
    
    183.0Accrued benefit liability
    
    
    (383.6
    )
    
    
    (1.5
    )Intangible asset
    
    
    6.9
    
    
    
    0.7Accumulated other comprehensive income
    
    
    447.2
    
    
    
    21.2Prepaid pension cost
    
    
    235.5
    
    
    
    203.4


1.    Other benefits relate to post retirement medical benefits.


2.    In 2003 the pension plan amendment relates to the settlement of litigation in the US against The BOC Group Cash Balance Retirement Plan (see note 2 b)).


The fair value of plan assets exceeds the accumulated benefit obligation for
all plans except the UK plans, where the accumulated benefit obligation,
projected benefit obligation and fair value of plan assets were £1,305.1
million, £1,560.6 million and £1,037.3 million
respectively (2002: £1,278.0
million, £1,278.0 million and £1,123.9 million).

At
30 September 2002, the accumulated benefit obligation of the Australian
plan exceeded the fair value of plan assets. This situation had reversed by 30
September 2003.


The main assumptions are as follows:

Europe
    
    Americas
    
    Africa
    
    Asia/PacificAt 30 September 2003Discount rate
    
    
    5.2
    %
    
    
    5.8
    %
    
    
    10.0
    %
    
    
    6.2
    %Expected return on all plan assets
    
    
    7.6
    %
    
    
    8.0
    %
    
    
    12.0
    %
    
    
    7.6
    %Rate of compensation increase
    
    
    4.0
    %
    
    
    3.75
    %
    
    
    7.5
    %
    
    
    3.5
    %At 30 September 2002Discount rate
    
    
    5.8
    %
    
    
    7.0
    %
    
    
    12.0
    %
    
    
    7.0
    %Expected return on all plan assets
    
    
    7.7
    %
    
    
    9.0
    %
    
    
    12.0
    %
    
    
    8.0
    %Rate of compensation increase
    
    
    3.9
    %
    
    
    3.75
    %
    
    
    9.5
    %
    
    
    3.5
    %


94   The BOC Group plc Annual report and accounts 2003






---



##### 



8. Pensions and other retirement benefits continued

For the post
retirement medical benefits plan at 30 September 2003, the initial
health care cost trend rates for valuing the medical benefits and drug benefits
were 9.0 per cent (2002: 10.0 per cent) and 3.5 per cent (2002: 2.4 per cent)
respectively. The rates for valuing medical benefits are assumed to reduce
gradually to 4.5 per cent in 2009 (2002: 4.5 per cent in 2009). The rates for
valuing drug benefits are assumed to reduce gradually to 1.1 per cent in 2010
(2002: 0.9 per cent in 2010).


Pensionable benefits
    
    Other benefits32003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionService cost net of employees contributions
    
    
    53.0
    
    
    
    54.6
    
    
    
    54.0
    
    
    
    1.8
    
    
    
    1.6
    
    
    
    1.2Interest cost on projected benefits obligation
    
    
    108.7
    
    
    
    102.9
    
    
    
    107.5
    
    
    
    3.1
    
    
    
    3.6
    
    
    
    3.3Expected return on assets
    
    
    (166.2
    )
    
    
    (156.7
    )
    
    
    (158.8
    )
    
    
    
    
    
    
    
    
    
    
    Amortisation of net transition asset
    
    
    (14.8
    )
    
    
    (14.7
    )
    
    
    (15.2
    )
    
    
    
    
    
    
    
    
    
    
    Amortisation of prior service cost/(credit)4
    
    
    46.4
    
    
    
    3.5
    
    
    
    2.6
    
    
    
    (0.5
    )
    
    
    (0.5
    )
    
    
    (0.5
    )Amortisation of net (gain)/loss
    
    
    (1.6
    )
    
    
    (7.2
    )
    
    
    (2.7
    )
    
    
    0.3
    
    
    
    0.3
    
    
    
    Cost of special termination benefits
    
    
    0.9
    
    
    
    0.6
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    Net periodic pension cost/(credit)
    
    
    26.4
    
    
    
    (17.0
    )
    
    
    (12.2
    )
    
    
    4.7
    
    
    
    5.0
    
    
    
    4.0


3.    Other benefits relate to post retirement medical benefits.
4.    In 2003 the amortisation of pension prior service cost includes £43.2 million in respect of a settlement of litigation from which the company will derive
       no future economic benefit.


It is estimated that a one per cent change in the weighted average health care
costs trend would have the following effects on the accumulated benefit
obligation and net periodic pension cost at 30 September 2003:

One percentage pointIncrease
    
    DecreaseAccumulated benefit obligation
    
    
    4.6
    
    
    
    (4.3
    )Net periodic pension cost
    
    
    0.5
    
    
    
    (0.5
    )


9. DividendsPer share2003
    
    2002
    
    2001
    
    2003
    
    2002
    
    2001pence
    
    pence
    
    pence
    
    £ million
    
    £ million
    
    £ millionOrdinaryFirst interim
    
    
    15.5
    
    
    
    15.5
    
    
    
    15.5
    
    
    
    76.4
    
    
    
    75.8
    
    
    
    75.5Second interim
    
    
    23.5
    
    
    
    22.5
    
    
    
    21.5
    
    
    
    115.7
    
    
    
    110.8
    
    
    
    104.839.0
    
    
    
    38.0
    
    
    
    37.0
    
    
    
    192.1
    
    
    
    186.6
    
    
    
    180.3


10. Earnings per share

Basic earnings per share are calculated by dividing the earnings attributable
to Ordinary shareholders by the weighted average number of shares in issue
during the year.


For diluted earnings per share, the weighted average number of shares in
issue is adjusted to assume conversion of all dilutive potential shares. The
company has only one category of dilutive potential shares: those share options
granted to employees where the exercise price is less than the average market
price of the companys shares during the year and where any performance
conditions have been met at the balance sheet date.


Adjusted earnings per share (excluding exceptional items) are presented in
order to show the underlying earnings performance of the Group.


2003
    
    2002
    
    2001i) Earnings
    
    £ million
    
    £ million
    
    £ millionAmounts used in computing the earnings per shareEarnings attributable to Ordinary shareholders for the financial year
    
    
    219.1
    
    
    
    202.9
    
    
    
    224.1Adjustment
for exceptional items1
    
    
    41.6
    
    
    
    71.4
    
    
    
    55.9Adjusted earnings
    
    
    260.7
    
    
    
    274.3
    
    
    
    280.0


|1. |  | This comprises the exceptional items before interest of £(67.0) million
(2002: £(94.7) million, 2001: £(104.7) million) adjusted for the impact of
tax of £25.0 million (2002: £22.8 million, 2001: £46.9 million) and minority
interests of £0.4 million (2002:
£0.5 million, 2001: £1.9 million).
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2003
    
    2002
    
    2001ii) Average number of 25p Ordinary shares
    
    million
    
    million
    
    millionAverage issued share capital
    
    
    497.5
    
    
    
    496.0
    
    
    
    493.3Less:Average own shares held in trust
    
    
    5.0
    
    
    
    5.6
    
    
    
    6.4Basic
    
    
    492.5
    
    
    
    490.4
    
    
    
    486.9Add:Dilutive share options
    
    
    0.2
    
    
    
    1.8
    
    
    
    1.7Diluted
    
    
    492.7
    
    
    
    492.2
    
    
    
    488.6


95   The BOC Group plc Annual report and accounts 2003






---



##### 



Notes to the financial statements continued

11. Fixed assets  intangible assets


a) Group summaryNegative
    
    
    OtherGoodwill
    
    
    goodwill
    
    
    intangibles
    
    
    Total£ million
    
    
    £ million
    
    
    £ million
    
    
    £ millionGross book valueAt 1 October 2002
    
    
    183.7
    
    
    
    (26.2
    )
    
    
    6.5
    
    
    
    164.0Exchange adjustment
    
    
    2.9
    
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    3.0Acquired during the year
    
    
    47.3
    
    
    
    
    
    
    
    3.6
    
    
    
    50.9Adjustments relating to prior year acquisitions
    
    
    (1.3
    )
    
    
    
    
    
    
    (4.1
    )
    
    
    (5.4
    )Transfers
    
    
    
    
    
    
    11.6
    
    
    
    
    
    
    
    11.6Disposed of during the year
    
    
    (0.3
    )
    
    
    14.7
    
    
    
    
    
    
    
    14.4At 30 September 2003
    
    
    232.3
    
    
    
    
    
    
    
    6.2
    
    
    
    238.5AmortisationAt 1 October 2002
    
    
    16.8
    
    
    
    (6.9
    )
    
    
    3.4
    
    
    
    13.3Exchange adjustment
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    0.4Provided during the year
    
    
    13.9
    
    
    
    (1.1
    )
    
    
    0.8
    
    
    
    13.6Adjustments relating to prior year acquisitions
    
    
    
    
    
    
    
    
    
    
    (2.9
    )
    
    
    (2.9
    )Transfers
    
    
    
    
    
    
    3.8
    
    
    
    
    
    
    
    3.8Disposed of during the year
    
    
    
    
    
    
    4.2
    
    
    
    
    
    
    
    4.2At 30 September 2003
    
    
    31.1
    
    
    
    
    
    
    
    1.3
    
    
    
    32.4Net book valueAt 1 October 2002
    
    
    166.9
    
    
    
    (19.3
    )
    
    
    3.1
    
    
    
    150.7At 30 September 2003
    
    
    201.2
    
    
    
    
    
    
    
    4.9
    
    
    
    206.1


The adjustments relating to the prior year acquisitions reflect the
finalisation of the fair values of the net assets of businesses acquired
reported as provisional at 30 September 2002.


b) Analysis of acquisitions and disposals
The increase in positive goodwill represents the excess of the fair value of
the purchase price over the provisional fair value of the net assets of
businesses acquired. The most significant amounts are as follows:Positive
    
    
    Negative
    
    
    Amortisationgoodwill
    
    
    goodwill
    
    
    periodi) Businesses acquired
    
    £ million
    
    
    £ million
    
    
    Years22003Praxair Polska
    
    
    10.1
    
    
    
    
    
    
    
    20Environmental Management Corporation
    
    
    31.5
    
    
    
    
    
    
    
    152002Seiko Instruments Inc  turbomolecular pumps business1
    
    
    59.4
    
    
    
    
    
    
    
    20Unique Gas and Petrochemicals Public Company Limited
    
    
    17.5
    
    
    
    
    
    
    
    20Enron Teesside Operations Limited  industrial assets
    
    
    9.6
    
    
    
    
    
    
    
    15Hydromatix Inc
    
    
    5.6
    
    
    
    
    
    
    
    15Semco1
    
    
    3.8
    
    
    
    
    
    
    
    15Minorities in Osaka Sanso Kogyo KK
    
    
    
    
    
    
    (5.0
    )
    
    
    102001Remaining 50 per cent of joint ventures in Venezuela and Chile
    
    
    7.5
    
    
    
    
    
    
    
    12UK Fluorogas
    
    
    8.2
    
    
    
    
    
    
    
    15Minorities in Osaka Sanso Kogyo KK
    
    
    
    
    
    
    (20.4
    )
    
    
    102000Kachina Semiconductor Services
    
    
    7.9
    
    
    
    
    
    
    
    15


|1. |  | Restated to reflect final adjustments to provisional fair value of net
assets. The adjustment to Seiko Instruments Inc reflects the finalisation
of the fair value of the net assets. The adjustment to Semco reflects a
cash adjustment of £0.6 million to the consideration.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | Amortisation periods are those over which it is estimated that the value
of the business acquired will exceed the value of the identifiable net
assets of the business acquired.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Negativegoodwillii) Businesses disposed of
    
    £ million2003Osaka Sanso Kogyo KK1
    
    
    10.5


|1. |  | Under UK GAAP (UITF31) the combination of Osaka Sanso Kogyo KK with the
industrial and medical gases businesses of Air Liquide Japan to form Japan
Air Gases Limited has been accounted for as a part disposal. BOCs
Japanese subsidiary retained a 45 per cent interest in Japan Air Gases
Limited. Accordingly, 55 per cent of any previously recognised goodwill
relating to Osaka Sanso Kogyo KK has been deemed to have been disposed.
The remaining 45 per cent has been transferred to fixed asset investments
as part of the Group share of the net assets of the Japan Air Gases joint
venture.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

96   The BOC Group plc Annual report and accounts 2003





---



##### 



12. Fixed assets  tangible assets

a) Group summaryPlant,Land and
    
    
    machinery
    
    
    
    
    
    
    Constructionbuildings
    
    
    and vehicles
    
    
    Cylinders
    
    
    in progress
    
    
    Total£ million
    
    
    £ million
    
    
    £ million
    
    
    £ million
    
    
    £ millionGross book valueAt 1 October 2002
    
    
    714.7
    
    
    
    4,489.6
    
    
    
    620.1
    
    
    
    200.9
    
    
    
    6,025.3Exchange adjustment
    
    
    22.3
    
    
    
    10.3
    
    
    
    37.5
    
    
    
    (5.6
    )
    
    
    64.5Capital expenditure2
    
    
    32.7
    
    
    
    127.4
    
    
    
    23.3
    
    
    
    97.8
    
    
    
    281.2Disposals
    
    
    (18.3
    )
    
    
    (98.2
    )
    
    
    (15.0
    )
    
    
    (3.8
    )
    
    
    (135.3
    )Transfers
    
    
    7.3
    
    
    
    107.9
    
    
    
    11.5
    
    
    
    (126.7
    )
    
    
    Acquisitions of businesses
    
    
    8.0
    
    
    
    36.8
    
    
    
    16.5
    
    
    
    0.2
    
    
    
    61.5Disposals of businesses
    
    
    (126.3
    )
    
    
    (281.5
    )
    
    
    (3.9
    )
    
    
    (4.4
    )
    
    
    (416.1
    )At 30 September 2003
    
    
    640.4
    
    
    
    4,392.3
    
    
    
    690.0
    
    
    
    158.4
    
    
    
    5,881.1DepreciationAt 1 October 2002
    
    
    276.2
    
    
    
    2,433.3
    
    
    
    288.4
    
    
    
    
    
    
    
    2,997.9Exchange adjustment
    
    
    (14.0
    )
    
    
    (7.1
    )
    
    
    16.7
    
    
    
    
    
    
    
    (4.4
    )Provided during the year
    
    
    20.1
    
    
    
    268.8
    
    
    
    30.9
    
    
    
    
    
    
    
    319.8Disposals
    
    
    (5.9
    )
    
    
    (80.1
    )
    
    
    (13.6
    )
    
    
    
    
    
    
    (99.6
    )Disposals of businesses
    
    
    (68.7
    )
    
    
    (174.5
    )
    
    
    (2.8
    )
    
    
    
    
    
    
    (246.0
    )At 30 September 2003
    
    
    207.7
    
    
    
    2,440.4
    
    
    
    319.6
    
    
    
    
    
    
    
    2,967.7Net book value at 1 October 2002Owned assets
    
    
    407.4
    
    
    
    2,047.8
    
    
    
    299.8
    
    
    
    200.9
    
    
    
    2,955.9Leased assets
    
    
    31.1
    
    
    
    8.5
    
    
    
    31.9
    
    
    
    
    
    
    
    71.5438.5
    
    
    
    2,056.3
    
    
    
    331.7
    
    
    
    200.9
    
    
    
    3,027.4Net book value at 30 September 20033Owned assets
    
    
    395.2
    
    
    
    1,945.1
    
    
    
    342.0
    
    
    
    158.4
    
    
    
    2,840.7Leased assets4
    
    
    37.5
    
    
    
    6.8
    
    
    
    28.4
    
    
    
    
    
    
    
    72.7432.7
    
    
    
    1,951.9
    
    
    
    370.4
    
    
    
    158.4
    
    
    
    2,913.4


|1. |  | Net book value of land and buildings at cost was £395.0 million
(2002: £405.4 million).
|-- |  | ---------------------------------------------------------------------------------------

|2. |  | Subsidiary undertakings only. Capital expenditure of joint ventures and
associates is given in note 1.
|-- |  | ------------------------------------------------------------------------------------------------------

|3. |  | Net book value includes net interest capitalised of £56.4 million
(2002: £63.8 million).The tax effect of this is included in the deferred
tax provision.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | Leased assets are shown net of accumulated depreciation of £119.1 million
(2002: £111.0 million).
|-- |  | -------------------------------------------------------------------------------------------------

b) Depreciation and operating lease rentals2003
    
    
    2002
    
    
    2001£ million
    
    
    £ million
    
    
    £ millionDepreciation on leased assets included above
    
    
    8.1
    
    
    
    8.5
    
    
    
    6.8Amortisation of capitalised interest included above
    
    
    4.0
    
    
    
    4.2
    
    
    
    3.0Operating lease rentals hire of plant and machinery
    
    
    19.7
    
    
    
    7.7
    
    
    
    15.0 property rent
    
    
    34.3
    
    
    
    23.1
    
    
    
    25.0 other
    
    
    17.6
    
    
    
    14.0
    
    
    
    11.9


c) Regional analysis
The Group has numerous manufacturing, distribution and office facilities which
are located in some 50 countries. At 30 September 2003, the Groups property,
plant and equipment, comprising land and buildings, plant, machinery, vehicles
and cylinders were located regionally as follows:£ million
    
    
    %Europe (mainly the UK)
    
    
    1,003.3
    
    
    
    34Americas (mainly the US)
    
    
    945.9
    
    
    
    33Africa
    
    
    260.0
    
    
    
    9Asia/Pacific
    
    
    704.2
    
    
    
    242,913.4
    
    
    
    100


The above amounts are stated at cost net of accumulated depreciation.


97   The BOC Group plc Annual report and accounts 2003





---



##### 



Notes to the financial statements continued

12. Fixed assets  tangible assets continued

d) Asset revaluations
Following the adoption of FRS15  Tangible fixed assets in 2000, land and
buildings are no longer revalued (see Accounting policies on page
78). The net
book value of properties revalued in earlier years was £156.1 million.
Properties not revalued were £276.6 million.


e) Parent summaryPlant,Land and
    
    
    machinerybuildings
    
    
    and vehicles
    
    
    Total£ million
    
    
    £ million
    
    
    £ millionGross book valueAt 1 October 2002
    
    
    14.3
    
    
    
    15.7
    
    
    
    30.0Capital expenditure
    
    
    
    
    
    
    3.4
    
    
    
    3.4Disposals
    
    
    
    
    
    
    (0.6
    )
    
    
    (0.6
    )At 30 September 2003
    
    
    14.3
    
    
    
    18.5
    
    
    
    32.8DepreciationAt 1 October 2002
    
    
    3.7
    
    
    
    12.3
    
    
    
    16.0Provided during the year
    
    
    0.5
    
    
    
    0.9
    
    
    
    1.4Disposals
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.3
    )At 30 September 2003
    
    
    4.2
    
    
    
    12.9
    
    
    
    17.1Net book valueAt 1 October 2002
    
    
    10.6
    
    
    
    3.4
    
    
    
    14.0At 30 September 2003
    
    
    10.1
    
    
    
    5.6
    
    
    
    15.7


f) Net book value of land and buildings at 30 September 2003Group
    
    
    Parent2003
    
    
    2002
    
    
    2003
    
    
    2002£ million
    
    
    £ million
    
    
    £ million
    
    
    £ millionFreehold property
    
    
    395.2
    
    
    
    407.4
    
    
    
    10.1
    
    
    
    10.6Leasehold property
     long-term
    
    
    34.2
    
    
    
    27.4
    
    
    
    
    
    
    
     short-term
    
    
    3.3
    
    
    
    3.7
    
    
    
    
    
    
    
    432.7
    
    
    
    438.5
    
    
    
    10.1
    
    
    
    10.6


g) Capital commitmentsGroup
    
    
    Parent2003
    
    
    2002
    
    
    2003
    
    
    2002£ million
    
    
    £ million
    
    
    £ million
    
    
    £ millionAgainst which orders had been placed
    
    
    20.9
    
    
    
    33.3
    
    
    
    
    
    
    
    Authorised but not committed
    
    
    101.9
    
    
    
    66.7
    
    
    
    
    
    
    
    122.8
    
    
    
    100.0
    
    
    
    
    
    
    
    


The Groups share of its joint ventures and
associates capital commitments was:2003
    
    
    2002£ million
    
    
    £ millionAgainst which orders had been placed
    
    
    14.5
    
    
    
    3.1Authorised but not committed
    
    
    12.2
    
    
    
    8.626.7
    
    
    
    11.7


98   The BOC Group plc Annual report and accounts 2003



---



##### 



13. Fixed assets  investments

a) Group summaryGroup
    
    
    Group
    
    
    Group
    
    
    
    
    
    
    
    
    
    
    Provisionsshare of
    
    
    share of
    
    
    loans to
    
    
    Other
    
    
    
    
    
    
    againstGoodwill
    
    
    net assets of
    
    
    net assets of
    
    
    joint ventures
    
    
    investments
    
    
    Own
    
    
    otherof associates
    
    
    joint ventures
    
    
    associates
    
    
    and associates
    
    
    at cost
    
    
    shares
    
    
    investments
    
    
    Total£ million
    
    
    £ million
    
    
    £ million
    
    
    £ million
    
    
    £ million
    
    
    £ million
    
    
    £ million
    
    
    £ millionAt 1 October 2002
    
    
    8.1
    
    
    
    205.5
    
    
    
    49.4
    
    
    
    118.0
    
    
    
    47.2
    
    
    
    42.5
    
    
    
    (2.1
    )
    
    
    468.6Exchange adjustment
    
    
    (0.3
    )
    
    
    9.9
    
    
    
    0.2
    
    
    
    (3.3
    )
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    7.0Acquisitions/additions
    
    
    
    
    
    
    192.4
    
    
    
    2.6
    
    
    
    14.0
    
    
    
    5.9
    
    
    
    7.5
    
    
    
    
    
    
    
    222.4Charged to profit
    
    
    (0.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    (0.1
    )
    
    
    (1.6
    )Disposals/repayments/transfers
    
    
    
    
    
    
    
    
    
    
    (5.2
    )
    
    
    (20.8
    )
    
    
    (13.7
    )
    
    
    (1.2
    )
    
    
    1.2
    
    
    
    (39.7
    )Increase in net assets
    
    
    
    
    
    
    2.3
    
    
    
    5.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.8Other
    
    
    
    
    
    
    (7.8
    )
    
    
    0.1
    
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    0.4
    
    
    
    (7.8
    )At 30 September 2003
    
    
    7.0
    
    
    
    402.3
    
    
    
    52.6
    
    
    
    107.9
    
    
    
    39.4
    
    
    
    48.1
    
    
    
    (0.6
    )
    
    
    656.7


Own shares are
shown at cost less a provision in accordance with UK GAAP UITF17.i) Joint ventures
The cost of investment in joint ventures was £308.6 million
(2002: £116.9
million) and the attributable profit before tax was
£60.4 million (2002: £40.1
million, 2001: £34.2 million).
     The Groups share of net assets of joint ventures
at 30 September 2003 can be analysed as follows:


£ millionShare of fixed assets
    
    
    658.4Share of current assets
    
    
    211.9870.3Share of liabilities due within one year
    
    
    (167.8
    )Share of liabilities due after more than one year
    
    
    (300.2
    )(468.0
    )Share of net assets
    
    
    402.3


The Groups share of the net borrowings of joint ventures was £191.9 million
(2002: £201.9 million). Of this amount,
£189.1 million (2002: £82.6 million) was
non-recourse. Of these net borrowings £139.6 million (2002: £149.4 million)
relates to the Cantarell joint venture in Mexico.ii) Associates
The cost of investment in associates was £26.6 million
(2002: £15.1 million) and
the attributable profit before tax was £10.4 million (2002: £9.4 million,
2001: £10.5 million).


The Groups share of the net borrowings of associates was £2.8 million
(2002: £5.4 million). All of this was non-recourse.


iii) Own shares
For share-based incentive schemes which do not use new issue shares, options
are satisfied by the transfer of shares held in trust for the purpose. At 30
September 2003, options over 5.9 million shares were outstanding under these
schemes, for which 5.6 million shares in the company were held pending
exercise.


Loans and advances for the purchase of shares in trust have been made
either by the company or its subsidiaries. If the value of shares in trust is
insufficient to cover the loans, the company and its subsidiaries will bear any
loss. The company also bears administrative costs on an accruals basis.


Based
on the companys share price at 30 September 2003 of 826p, the market
value of own shares held in trust was £46.6 million. This compares with the
acquisition cost shown above.


Own shares are shown as fixed asset investments for accounting purposes,
in accordance with FRS5 and UITF13. Information on share option schemes appears
in the report on remuneration and in notes 7 and 23.


Dividends waived on the shares held in trust amounted to £1.8 million
(2002: £1.8 million, 2001: £1.2 million).


99   The BOC Group plc Annual report and accounts 2003



---



##### 



Notes to the financial statements continued

13. Fixed assets  investments continued

b) Valuation2003
    
    
    2002£ million
    
    
    £ millionListed on stock exchanges in the UK and overseas
    
    
    92.6
    
    
    
    91.1Unlisted
     equity at directors valuation
    
    
    441.5
    
    
    
    244.9 other at directors valuation
    
    
    122.6
    
    
    
    132.6Total book value
    
    
    656.7
    
    
    
    468.6Market value of listed investments
    
    
    130.9
    
    
    
    123.1


c) Income2003
    
    
    2002
    
    
    2001£ million
    
    
    £ million
    
    
    £ millionListed securities
    
    
    4.7
    
    
    
    7.5
    
    
    
    6.0Unlisted securities
    
    
    32.0
    
    
    
    30.6
    
    
    
    19.536.7
    
    
    
    38.1
    
    
    
    25.5Less:
    Dividends receivable from joint ventures
    
    
    31.7
    
    
    
    30.5
    
    
    
    19.4Dividends receivable from associates
    
    
    3.3
    
    
    
    3.4
    
    
    
    4.1Income from other fixed asset investments
    
    
    1.7
    
    
    
    4.2
    
    
    
    2.0


d) ParentAmountsInvestments
    
    
    Investments
    
    
    due fromin subsidiary
    
    
    in related
    
    
    subsidiary
    
    
    Own
    
    
    Otherundertakings
    
    
    undertakings
    
    
    undertakings
    
    
    shares
    
    
    investments
    
    
    Provisions
    
    
    Total£ million
    
    
    £ million
    
    
    £ million
    
    
    £ million
    
    
    £ million
    
    
    £ million
    
    
    £ millionAt 1 October 2002
    
    
    1,470.1
    
    
    
    8.7
    
    
    
    1,331.9
    
    
    
    36.3
    
    
    
    13.9
    
    
    
    (16.5
    )
    
    
    2,844.4Additions
    
    
    234.4
    
    
    
    
    
    
    
    
    
    
    
    7.5
    
    
    
    
    
    
    
    
    
    
    
    241.9Charged to profit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    (0.5
    )Disposals
    
    
    (1.5
    )
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    (2.8
    )
    
    
    
    
    
    
    (5.1
    )Advances/repayments (net)
    
    
    
    
    
    
    
    
    
    
    19.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19.8At 30 September 2003
    
    
    1,703.0
    
    
    
    8.7
    
    
    
    1,351.7
    
    
    
    42.5
    
    
    
    11.1
    
    
    
    (16.5
    )
    
    
    3,100.5


Own shares are shown at cost less a provision in accordance with UK GAAP
UITF17. Provisions relate to investments in subsidiary undertakings (£10.5
million), amounts due from subsidiary undertakings (£5.5 million) and other
investments (£0.5 million).


14. StocksGroup2003
    
    
    2002£ million
    
    
    £ millionRaw materials
    
    
    81.3
    
    
    
    67.8Work in progress
    
    
    51.1
    
    
    
    47.8Gases and other finished goods
    
    
    172.0
    
    
    
    159.0Payments on account
    
    
    (20.2
    )
    
    
    (14.6
    )284.2
    
    
    
    260.0


Amounts relating to long-term contracts included in work in progress were £0.8
million (2002: £0.2 million). There were no stocks on the balance sheet of The
BOC Group plc at either 30 September 2003 or 30 September 2002.


100   The BOC Group plc Annual report and accounts 2003



---



##### 



15.
Debtors

a) Debtors falling due within one yearGroup
    
    
    
    
    
    Parent2003
    
    2002
    
    2003
    
    2002£ million
    
    £ million
    
    £ million
    
    £ millionTrade debtors
    
    
    569.8
    
    
    
    601.2
    
    
    
    
    
    
    
    Amounts due from subsidiary undertakings
    
    
    
    
    
    
    
    
    
    
    669.4
    
    
    
    485.8Amounts due from joint ventures and associates
    
    
    5.7
    
    
    
    1.4
    
    
    
    5.0
    
    
    
    1.4Other debtors
    
    
    93.5
    
    
    
    100.0
    
    
    
    15.0
    
    
    
    21.7Prepayments and accrued income
    
    
    28.8
    
    
    
    31.2
    
    
    
    5.0
    
    
    
    6.7697.8
    
    
    
    733.8
    
    
    
    694.4
    
    
    
    515.6


Trade debtors are shown net of provisions for bad and doubtful debts of £31.6
million (2002:£31.2 million).


At
30 September 2003, trade debtors of £nil million (2002:£23.8 million) in
subsidiary undertakings had been factored to third parties with limited
recourse.


b) Debtors falling due after more than one yearGroup2003
    
    2002£ million
    
    £ millionDeferred tax
    
    
    6.6
    
    
    
    7.9Other debtors
    
    
    17.0
    
    
    
    20.423.6
    
    
    
    28.3


There were no debtors falling due after more than one year on the balance sheet
of The BOC Group plc at either 30 September 2003 or
30 September 2002.


16. Current asset investmentsGroup2003
    
    2002£ million
    
    £ millionListed investments
    
    
    21.8
    
    
    
    38.3Unlisted investments
    
    
    
    
    
    
    0.5Total current asset investments
    
    
    21.8
    
    
    
    38.8Market value of listed investments
    
    
    21.8
    
    
    
    39.0


There were no current asset investments on the balance sheet of The BOC Group
plc at either 30 September 2003 or 30 September 2002.


17. Cash at bank and in handGroup2003
    
    2002£ million
    
    £ millionDeposits
    
    
    4.7
    
    
    
    20.5Cash at bank and in hand
    
    
    72.8
    
    
    
    165.077.5
    
    
    
    185.5


There was no cash at bank and in hand on the balance sheet of The BOC Group plc
at either 30 September 2003 or 30 September 2002.


101   The BOC Group plc Annual report and accounts 2003



---



##### 



Notes to the financial statements continued

18.
Creditors: amounts falling due within one year

a)
Borrowings and finance leases1Group
    
    Parent2003
    
    2002
    
    2003
    
    2002£ million
    
    £ million
    
    £ million
    
    £ millionBank loans and overdrafts
    
    
    164.6
    
    
    
    196.7
    
    
    
    178.6
    
    
    
    178.9Loans other than from banks
    
    
    182.0
    
    
    
    182.3
    
    
    
    125.0
    
    
    
    Finance leases
    
    
    14.3
    
    
    
    11.1
    
    
    
    
    
    
    
    360.9
    
    
    
    390.1
    
    
    
    303.6
    
    
    
    178.9


|1. |  | Details of borrowings and finance leases are given in note 20.
|-- |  | --------------------------------------------------------------

b) Other creditorsDeposits and advance payments by customers
    
    
    62.8
    
    
    
    41.5
    
    
    
    
    
    
    
    Trade creditors
    
    
    308.9
    
    
    
    367.3
    
    
    
    
    
    
    
    Amounts due to subsidiary undertakings
    
    
    
    
    
    
    
    
    
    
    992.3
    
    
    
    906.6Taxation  UK
    
    
    58.4
    
    
    
    69.0
    
    
    
    
    
    
    
     Overseas
    
    
    74.3
    
    
    
    78.5
    
    
    
    
    
    
    
    Other taxes and social security payable
    
    
    34.8
    
    
    
    27.3
    
    
    
    
    
    
    
    Other creditors
    
    
    117.3
    
    
    
    130.0
    
    
    
    2.6
    
    
    
    2.0Accruals and deferred income
    
    
    150.8
    
    
    
    144.2
    
    
    
    55.0
    
    
    
    45.2807.3
    
    
    
    857.8
    
    
    
    1,049.9
    
    
    
    953.8


19.
Creditors: amounts falling due after more than one year

a)
Borrowings and finance leases1Group
    
    
    
    
    
    Parent2003
    
    2002
    
    2003
    
    2002£ million
    
    £ million
    
    £ million
    
    £ millionLoans other than from banks
    
    
    968.2
    
    
    
    1,008.1
    
    
    
    787.3
    
    
    
    808.9Bank loans
    
    
    108.9
    
    
    
    90.2
    
    
    
    (20.7
    )
    
    
    (7.9
    )Finance leases
    
    
    7.6
    
    
    
    22.7
    
    
    
    
    
    
    
    1,084.7
    
    
    
    1,121.0
    
    
    
    766.6
    
    
    
    801.0


|1. |  | Details of borrowings and finance leases are given in note 20.
|-- |  | --------------------------------------------------------------

b) Other creditorsDeposits and advance payments by customers
    
    
    25.2
    
    
    
    28.7
    
    
    
    
    
    
    
    Other creditors
    
    
    13.1
    
    
    
    15.7
    
    
    
    4.3
    
    
    
    3.9Accruals and deferred income
    
    
    10.1
    
    
    
    13.6
    
    
    
    6.1
    
    
    
    9.148.4
    
    
    
    58.0
    
    
    
    10.4
    
    
    
    13.0


102   The
BOC Group plc Annual report and accounts 2003



---



##### 



20.
Net borrowings and finance leases

a) AnalysisGroup
    
    Parent2003
    
    2002
    
    2003
    
    2002£ million
    
    £ million
    
    £ million
    
    £ millionSecuredFinance leases
    
    
    21.9
    
    
    
    33.8
    
    
    
    
    
    
    
    Other secured borrowings
    
    
    64.9
    
    
    
    68.0
    
    
    
    
    
    
    
    Unsecured12 1/4% Unsecured Loan Stock 2012/2017
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.06 1/4% Notes 2002
    
    
    
    
    
    
    34.6
    
    
    
    
    
    
    
    7.45% Guaranteed Notes 2006
    
    
    150.6
    
    
    
    159.2
    
    
    
    
    
    
    
    Pollution Control and Industrial Bonds
    
    
    18.3
    
    
    
    19.3
    
    
    
    
    
    
    
    European Investment Bank loans
    
    
    15.3
    
    
    
    82.8
    
    
    
    
    
    
    
    6.75% Bonds 2004
    
    
    125.0
    
    
    
    125.0
    
    
    
    125.0
    
    
    
    125.01.00% Euroyen Bond 2006
    
    
    134.7
    
    
    
    130.6
    
    
    
    134.7
    
    
    
    130.65 7/8% Bonds 2009
    
    
    200.0
    
    
    
    200.0
    
    
    
    200.0
    
    
    
    200.06.50% Bonds 2016
    
    
    200.0
    
    
    
    200.0
    
    
    
    200.0
    
    
    
    200.0Medium-term notes
    
    
    156.1
    
    
    
    57.4
    
    
    
    156.1
    
    
    
    57.4Commercial paper
    
    
    55.2
    
    
    
    147.0
    
    
    
    
    
    
    
    Other borrowings
    
    
    203.6
    
    
    
    153.4
    
    
    
    154.4
    
    
    
    166.9Total borrowings and finance leases
    
    
    1,445.6
    
    
    
    1,511.1
    
    
    
    1,070.2
    
    
    
    979.9Less:Cash at bank and in hand
    
    
    77.5
    
    
    
    185.5
    
    
    
    
    
    
    
    Net borrowings and finance leases
    
    
    1,368.1
    
    
    
    1,325.6
    
    
    
    1,070.2
    
    
    
    979.9


A reconciliation of net cash flow to the movement in net debt is given in note
27 b).


b) MaturityGroup
    
    Parent2003
    
    2002
    
    2003
    
    2002£ million
    
    £ million
    
    £ million
    
    £ millionLong and medium-term bank loansRepayable  beyond five years
    
    
    19.1
    
    
    
    11.5
    
    
    
    
    
    
    
     two to five years
    
    
    59.1
    
    
    
    41.8
    
    
    
    (2.9
    )
    
    
    (7.9
    ) one to two years
    
    
    30.7
    
    
    
    36.9
    
    
    
    (17.8
    )
    
    
    Loans other than from banksRepayable  beyond five years
    
    
    502.2
    
    
    
    536.0
    
    
    
    496.6
    
    
    
    531.3 two to five years
    
    
    352.1
    
    
    
    342.7
    
    
    
    193.4
    
    
    
    156.7 one to two years
    
    
    113.9
    
    
    
    129.4
    
    
    
    97.3
    
    
    
    120.9Finance leases repayable beyond one year
    
    
    7.6
    
    
    
    22.7
    
    
    
    
    
    
    
    Borrowings and finance leases (note 19 a))
    
    
    1,084.7
    
    
    
    1,121.0
    
    
    
    766.6
    
    
    
    801.0Short-term  repayable within one yearBank loans and overdrafts
    
    
    164.6
    
    
    
    196.7
    
    
    
    178.6
    
    
    
    178.9Loans other than from banks
    
    
    182.0
    
    
    
    182.3
    
    
    
    125.0
    
    
    
    Finance leases
    
    
    14.3
    
    
    
    11.1
    
    
    
    
    
    
    
    Total borrowings and finance leases
    
    
    1,445.6
    
    
    
    1,511.1
    
    
    
    1,070.2
    
    
    
    979.9Less:Cash at bank and in hand
    
    
    77.5
    
    
    
    185.5
    
    
    
    
    
    
    
    Net borrowings and finance leases
    
    
    1,368.1
    
    
    
    1,325.6
    
    
    
    1,070.2
    
    
    
    979.9


2003
    
    2002Finance
    
    Other
    
    
    
    
    
    Finance
    
    Otherleases
    
    borrowings
    
    Total
    
    leases
    
    borrowings
    
    Total£ million
    

£ million
    

£ million
    
    £ million
    
    £ million
    
    £ millionRepayment profile of borrowings and finance leasesLong-term repayable beyond five years
    
    0.5
    
    
    
    521.3
    
    
    
    521.8
    
    
    
    2.0
    
    
    
    547.5
    
    
    
    549.5 four to five years
    
    
    0.2
    
    
    
    62.6
    
    
    
    62.8
    
    
    
    2.0
    
    
    
    142.5
    
    
    
    144.5 three to four years
    
    
    2.3
    
    
    
    149.3
    
    
    
    151.6
    
    
    
    2.4
    
    
    
    179.7
    
    
    
    182.1 two to three years
    
    
    2.7
    
    
    
    199.3
    
    
    
    202.0
    
    
    
    1.7
    
    
    
    62.3
    
    
    
    64.0 one to two years
    
    
    1.9
    
    
    
    144.6
    
    
    
    146.5
    
    
    
    14.6
    
    
    
    166.3
    
    
    
    180.9Total
    
    
    7.6
    
    
    
    1,077.1
    
    
    
    1,084.7
    
    
    
    22.7
    
    
    
    1,098.3
    
    
    
    1,121.0


103   The BOC Group plc Annual report and accounts 2003



---



##### 



Notes to the financial statements continued

20.
Net borrowings and finance leases continued

c) Short-term interest rates

The average interest rate on commercial paper for the year to 30 September 2003
was 2.5 per cent (2002: 3.4 per cent) and on other short-term borrowings was 8.7 per cent (2002: 9.0 per cent).


d) Facilities

The Group maintains a number of short and medium-term committed lines of
credit. The main medium-term facilities are multi-currency agreements with a
group of relationship banks, under which the Group may borrow up to US$450.0 million (£271 million) (2002: US$420.0 million (£268 million)) for general
corporate purposes. These facilities were undrawn both at 30 September 2003 and
30 September 2002. The following table shows the maturity profile of these
facilities.


2003
    
    2002$ million
    
    $ millionFour to five years
    
    
    450.0
    
    
    
    Three to four years
    
    
    
    
    
    
    Two to three years
    
    
    
    
    
    
    One to two years
    
    
    
    
    
    
    220.0Within one year
    
    
    
    
    
    
    200.0450.0
    
    
    
    420.0


Additional committed facilities are maintained by the principal operating units
in the Group.


e) Security

The secured loans,
maturing between 2003 and 2017, are principally secured by
charges over the property, plant and machinery, stocks and trade debtors of
certain overseas subsidiaries.


21.
Financial instruments

a) Interest rate, currency and counterparty exposure

The Groups approach to managing currency and interest rate risk and its use of
swaps in that process is described on pages 47 and 48 in the financial review
under the heading management of financial risks.


Interest rate swaps

At 30 September 2003, the Group had entered into six interest rate swap
agreements (2002: six) with its main relationship banks with notional principal
amounts of £417.6 million (2002: £420.0 million). The swaps underlying
currencies are sterling, US dollars and Japanese yen. The following table shows
the maturity profile and weighted average interest rates payable and receivable
on interest rate swaps at 30 September:


2003
    
    2002Maturity profile
    
    £ million
    
    £ millionBeyond five years
    
    
    200.0
    
    
    
    295.0Four to five years
    
    
    92.6
    
    
    
    Three to four years
    
    
    
    
    
    
    Two to three years
    
    
    
    
    
    
    One to two years
    
    
    
    
    
    
    125.0Within one year
    
    
    125.0
    
    
    
    417.6
    
    
    
    420.0%
    
    
    
    %Weighted average receivable swap rate
    
    
    5.2
    
    
    
    5.5Weighted average payable swap rate
    
    
    4.0
    
    
    
    4.8


The weighted average receivable/payable swap interest rate is calculated by
applying the notional swap interest received or paid, using rates applicable at
the financial year end, to the notional principal of outstanding swaps at the
financial year end.


104   The BOC Group plc Annual report and accounts 2003



---



##### 



21. Financial instruments continued

Currency swaps

At 30
September 2003, the Group had entered into 13 currency swap agreements
(2002:eight) with its main relationship banks with notional principal amounts
of £474.7 million (2002:£360.7 million). The maturity dates range between one
month and 56 months from the balance sheet date (2002:between one month and 33
months). The following table illustrates the impact of the currency swaps on the
Groups net debt at 30 September:


2003
    
    2002Net
    
    
    
    
    
    NetCash at
    
    
    
    
    
    borrowings
    
    
    
    
    
    borrowingsCapital
    
    Gross
    
    bank and
    
    Currency
    
    and finance
    
    Capital
    
    and financeemployed
    
    borrowings
    
    in hand
    
    swaps
    
    leases
    
    employed
    
    leases£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionSterling
    
    
    674.7
    
    
    
    (671.1
    )
    
    
    1.7
    
    
    
    384.1
    
    
    
    (285.3
    )
    
    
    781.7
    
    
    
    (345.2
    )US dollar
    
    
    1,152.0
    
    
    
    (231.4
    )
    
    
    3.6
    
    
    
    (216.6
    )
    
    
    (444.4
    )
    
    
    1,190.5
    
    
    
    (504.4
    )Australian dollar
    
    
    333.7
    
    
    
    (4.8
    )
    
    
    3.0
    
    
    
    (93.9
    )
    
    
    (95.7
    )
    
    
    263.1
    
    
    
    (44.0
    )South African rand
    
    
    306.4
    
    
    
    (65.1
    )
    
    
    26.0
    
    
    
    (8.6
    )
    
    
    (47.7
    )
    
    
    202.5
    
    
    
    (42.2
    )Japanese yen
    
    
    265.6
    
    
    
    (220.6
    )
    
    
    0.8
    
    
    
    (18.1
    )
    
    
    (237.9
    )
    
    
    237.4
    
    
    
    (206.9
    )Canadian dollar
    
    
    115.1
    
    
    
    (33.9
    )
    
    
    0.2
    
    
    
    (22.3
    )
    
    
    (56.0
    )
    
    
    85.8
    
    
    
    (40.1
    )Thai baht
    
    
    134.2
    
    
    
    (69.3
    )
    
    
    2.1
    
    
    
    
    
    
    
    (67.2
    )
    
    
    120.6
    
    
    
    (57.7
    )Other
    
    
    723.5
    
    
    
    (149.4
    )
    
    
    40.1
    
    
    
    (24.6
    )
    
    
    (133.9
    )
    
    
    711.5
    
    
    
    (85.1
    )Total
    
    
    3,705.2
    
    
    
    (1,445.6
    )
    
    
    77.5
    
    
    
    
    
    
    
    (1,368.1
    )
    
    
    3,593.1
    
    
    
    (1,325.6
    )


The weighted average receivable interest rate on currency swaps was 3.4 per
cent (2002:4.0 per cent) and the weighted average payable interest rate was 2.9
per cent (2002:2.8 per cent). The weighted average receivable/payable swap
interest rate is calculated by applying the notional swap interest received or
paid, using rates applicable at the financial year end, to the notional
principal of outstanding swaps at the financial year end.


The currency and interest rate exposure of the net borrowings of the Group
at 30 September, after taking into account interest rate and currency swaps
entered into by the Group, is given in the table below.


2003
    
    2002Fixed rate
    
    Floating rate
    
    Total
    
    Fixed rate
    
    Floating rate
    
    Total£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionSterling
    
    
    300.2
    
    
    
    (14.9
    )
    
    
    285.3
    
    
    
    300.0
    
    
    
    45.2
    
    
    
    345.2US dollar
    
    
    303.6
    
    
    
    140.8
    
    
    
    444.4
    
    
    
    225.5
    
    
    
    278.9
    
    
    
    504.4Australian dollar
    
    
    1.1
    
    
    
    94.6
    
    
    
    95.7
    
    
    
    35.6
    
    
    
    8.4
    
    
    
    44.0South African rand
    
    
    40.7
    
    
    
    7.0
    
    
    
    47.7
    
    
    
    23.7
    
    
    
    18.5
    
    
    
    42.2Japanese yen
    
    
    163.3
    
    
    
    74.6
    
    
    
    237.9
    
    
    
    165.9
    
    
    
    41.0
    
    
    
    206.9Canadian dollar
    
    
    22.3
    
    
    
    33.7
    
    
    
    56.0
    
    
    
    
    
    
    
    40.1
    
    
    
    40.1Thai baht
    
    
    58.3
    
    
    
    8.9
    
    
    
    67.2
    
    
    
    52.1
    
    
    
    5.6
    
    
    
    57.7Other
    
    
    42.3
    
    
    
    91.6
    
    
    
    133.9
    
    
    
    25.5
    
    
    
    59.6
    
    
    
    85.1Total
    
    
    931.8
    
    
    
    436.3
    
    
    
    1,368.1
    
    
    
    828.3
    
    
    
    497.3
    
    
    
    1,325.6


Counterparty risk

The Group is exposed to credit-related losses in the event of non-performance
by counterparties to financial instruments, but does not expect any
counterparties to fail to meet their obligations. There are procedures and
policies in place limiting the Groups exposure to concentrations of credit or
country risk.


105   The BOC Group plc Annual report and accounts 2003



---



##### 



Notes to the financial statements continued

21.
Financial instruments continued

b) Fair value
information
i) Fair values of financial instruments

Set out below is a comparison of the carrying amount and the fair value of the
Groups financial instruments (excluding short-term debtors and creditors) at
30 September 2003. Further details of the Groups financial instruments are
given in note 21 d).


2003
    
    2002Carrying
    
    
    
    
    
    Carryingamount
    
    Fair value
    
    amount
    
    Fair valueNotes
    
    £ million
    
    £ million
    
    £ million
    
    £ millionPrimary financial instrumentsLoans to joint ventures and associates
    
    
    1
    
    
    
    107.9
    
    
    
    107.9
    
    
    
    118.0
    
    
    
    118.0Other fixed asset investments
    
    
    2
    
    
    
    38.8
    
    
    
    39.7
    
    
    
    45.1
    
    
    
    44.0Current asset investments
    
    
    3
    
    
    
    21.8
    
    
    
    21.8
    
    
    
    38.8
    
    
    
    39.5Cash at bank and in hand
    
    
    4
    
    
    
    77.5
    
    
    
    77.5
    
    
    
    185.5
    
    
    
    185.5Borrowings and finance leases (excluding swap agreements)
    
    
    5
    
    
    
    (1,463.3
    )
    
    
    (1,559.4
    )
    
    
    (1,530.6
    )
    
    
    (1,635.7
    )Other creditors: amounts falling due after more than one year
    
    
    6
    
    
    
    (37.1
    )
    
    
    (37.1
    )
    
    
    (41.4
    )
    
    
    (41.4
    )Provisions for liabilities and charges
    
    
    6
    
    
    
    (10.6
    )
    
    
    (10.6
    )
    
    
    (16.9
    )
    
    
    (16.9
    )Derivative financial instruments held to manage the Groups interest rate and
currency risk profileForeign currency and interest rate swap agreements
    
    
    7
    
    
    
    17.7
    
    
    
    25.6
    
    
    
    19.5
    
    
    
    31.1Forward foreign exchange contracts
    
    
    8
    
    
    
    
    
    
    
    5.8
    
    
    
    
    
    
    
    4.9Net financial instruments
    
    
    
    
    
    
    (1,247.3
    )
    
    
    (1,328.8
    )
    
    
    (1,182.0
    )
    
    
    (1,271.0
    )Financial assets
    
    
    
    
    
    
    246.0
    
    
    
    
    
    
    
    387.4Financial liabilities
    
    
    9
    
    
    
    (1,493.3
    )
    
    
    
    
    
    
    (1,569.4
    )Net financial instruments
    
    
    
    
    
    
    (1,247.3
    )
    
    
    
    
    
    
    (1,182.0
    )


|1. |  | For those bearing either no interest or a floating rate of interest it is
deemed that the carrying amount approximates to the fair value. For those
bearing a fixed rate of interest an assessment of the interest rate at
which the Group could make the same loan under current conditions has been
made. Unless this differs significantly from the fixed rate it is also
deemed that the carrying amount approximates to the fair value. Where this
does differ significantly, the fair value is based on the discounted value
of future cash flows.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | For equity instruments listed on a recognised stock exchange the fair
value is the quoted market price. For other equity instruments it is
deemed that the carrying amount approximates to the fair value.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. |  | The fair value is the quoted market price. Where no quoted market price
exists, it is deemed that the carrying amount approximates to the fair
value.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|4. |  | As all bear either no interest or a floating rate of interest it is
deemed that the carrying amount approximates to the fair value.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------

|5. |  | For those bearing a floating rate of interest it is deemed that the
carrying amount approximates to the fair value. For those bearing a fixed
rate of interest the fair value is either the quoted market price where a
liquid market exists or has been calculated using well established pricing
models.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|6. |  | The carrying amount is deemed to approximate to the fair value.
|-- |  | ---------------------------------------------------------------

|7. |  | The fair value is the estimated amount the Group would receive or pay to
terminate the agreements.
|-- |  | --------------------------------------------------------------------------------------------------

|8. |  | The fair value represents the net effect on the Group of closing out all
outstanding contracts.
|-- |  | -----------------------------------------------------------------------------------------------

|9. |  | Includes foreign currency and interest rate swap agreements.
|-- |  | ------------------------------------------------------------

ii) Hedges

As explained on pages 47 and 48 of the financial review under the heading
management of financial risks, the Groups policies are to use forward
foreign exchange contracts to hedge transactional currency exposures
(principally arising through anticipated sales and purchase transactions) and
swap agreements to manage interest rate risks and hedge structural currency
exposures.


Currency swaps are only held to change the currency of the Groups
borrowings to match better its net investments in its overseas subsidiaries. In
accordance with the Groups accounting policies, the assets and liabilities
arising from these swap agreements are translated into sterling at the spot
rate ruling at the balance sheet date. The resulting exchange gains or losses
are recognised in the statement of total recognised gains and losses (to match
the exchange gains or losses on the net investments in the overseas
subsidiaries).


The carrying amount of the swap agreements (as shown in note 21 b) i)) is
the result of the exchange gains and losses recognised in the statement of
total recognised gains and losses, and is analysed in the deferred gains and
losses table shown below.


Swap agreementsGains
    
    Losses
    
    Net£ million
    
    £ million
    
    £ millionDeferred gains and lossesDeferred gains and losses on hedges at 1 October 2002
    
    
    25.9
    
    
    
    (6.4
    )
    
    
    19.5Gains and losses on hedges maturing in 2003
    
    
    (18.1
    )
    
    
    6.4
    
    
    
    (11.7
    )Deferred gains and losses on hedges recognised in the
statement of total recognised gains and losses in 2003
    
    
    15.6
    
    
    
    (5.7
    )
    
    
    9.9Deferred gains and losses on hedges at 30 September 2003
    
    
    23.4
    
    
    
    (5.7
    )
    
    
    17.7


106   The BOC Group plc Annual report and accounts 2003





---



##### 



21. Financial instruments continued

The unrecognised difference between the carrying amount and the fair value of
the forward foreign exchange contracts and the swap agreements (as shown in
note 21 b) i)) is analysed in the unrecognised gains and losses table below.


Forward foreignexchange contracts
    
    Swap agreementsGains
    
    Losses
    
    Gains
    
    Losses
    
    Net total£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionUnrecognised gains and lossesUnrecognised gains and losses on hedges at 1 October 2002
    
    
    5.6
    
    
    
    (0.7
    )
    
    
    22.1
    
    
    
    (10.5
    )
    
    
    16.5Gains and losses arising in previous years that were recognised in 2003
    
    
    (5.2
    )
    
    
    0.7
    
    
    
    (0.8
    )
    
    
    0.5
    
    
    
    (4.8
    )Gains and losses arising before 2003 that were not recognised in 2003
    
    
    0.4
    
    
    
    
    
    
    
    21.3
    
    
    
    (10.0
    )
    
    
    11.7Gains and losses arising in 2003 that were not recognised in 2003
    
    
    6.5
    
    
    
    (1.1
    )
    
    
    (2.4
    )
    
    
    (1.0
    )
    
    
    2.0Unrecognised gains and losses on hedges at 30 September 2003
    
    
    6.9
    
    
    
    (1.1
    )
    
    
    18.9
    
    
    
    (11.0
    )
    
    
    13.7Of whichGains and losses expected to be recognised in 2004
    
    
    5.1
    
    
    
    (0.7
    )
    
    
    6.5
    
    
    
    (0.5
    )
    
    
    10.4Gains and losses expected to be recognised in 2005 or later
    
    
    1.8
    
    
    
    (0.4
    )
    
    
    12.4
    
    
    
    (10.5
    )
    
    
    3.3


c) Currency exposures

As outlined on page 47 in the financial review under the heading currency
risk, it is the Groups policy to hedge against the potential impact on its
profit and loss account of the currency gains and losses arising from monetary
assets and liabilities not denominated in the operating or functional currency
of the operating unit involved.


After taking account of the hedging transactions, there was no significant
net profit and loss account exposure to currency gains and losses arising from
monetary assets and liabilities at 30 September 2003.


d) Financial
instrumentsi) Financial assets

The interest rate and currency profile of the Groups financial assets
(excluding short-term debtors) at 30 September 2003 is shown below. The
categories of the Groups financial assets are shown in note 21 b) i).


2003
    
    2002Financial
    
    
    
    
    
    
    
    
    
    
    
    
    
    Financialassets on
    
    
    
    
    
    
    
    
    
    
    
    
    
    assets onFloating rate
    
    Fixed rate
    
    which no
    
    Total
    
    Floating rate
    
    Fixed rate
    
    which no
    
    Totalfinancial
    
    financial
    
    interest is
    
    financial
    
    financial
    
    financial
    
    interest is
    
    financialassets
    
    assets
    
    received
    
    assets
    
    assets
    
    assets
    
    received
    
    assets£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionSterling
    
    
    14.7
    
    
    
    
    
    
    
    2.3
    
    
    
    17.0
    
    
    
    28.1
    
    
    
    11.5
    
    
    
    1.7
    
    
    
    41.3US dollar
    
    
    23.1
    
    
    
    100.7
    
    
    
    20.2
    
    
    
    144.0
    
    
    
    10.4
    
    
    
    123.4
    
    
    
    21.3
    
    
    
    155.1Australian dollar
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    3.0
    
    
    
    82.4
    
    
    
    
    
    
    
    
    
    
    
    82.4South African rand
    
    
    32.3
    
    
    
    
    
    
    
    3.1
    
    
    
    35.4
    
    
    
    9.0
    
    
    
    
    
    
    
    1.6
    
    
    
    10.6Japanese yen
    
    
    0.8
    
    
    
    
    
    
    
    
    
    
    
    0.8
    
    
    
    51.5
    
    
    
    
    
    
    
    6.7
    
    
    
    58.2Other
    
    
    45.0
    
    
    
    
    
    
    
    0.8
    
    
    
    45.8
    
    
    
    39.2
    
    
    
    
    
    
    
    0.6
    
    
    
    39.8Total
    
    
    118.9
    
    
    
    100.7
    
    
    
    26.4
    
    
    
    246.0
    
    
    
    220.6
    
    
    
    134.9
    
    
    
    31.9
    
    
    
    387.4


2003
    
    2002Fixed rate financial assets
    
    Fixed rate financial assetsWeighted
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    averageWeighted
    
    period for
    
    Weighted
    
    period foraverage
    
    which rate
    
    average
    
    which rateinterest rate
    
    is fixed
    
    interest rate
    
    is fixed%
    
    years
    
    %
    
    yearsSterling
    
    
    
    
    
    
    
    
    
    
    6.7
    
    
    
    2.1US dollar
    
    
    7.2
    
    
    
    4.5
    
    
    
    10.3
    
    
    
    4.8


Financial assets on which no interest is received comprise £24.2 million
(2002: £30.3 million) of non-redeemable equity instruments in other companies
and £2.2 million (2002: £1.6 million) of loans to joint ventures and associates
which have no fixed date of repayment.


The floating rate financial assets, which principally comprise cash and
deposits, current asset investments and loans to joint ventures and associates,
carry interest based on different benchmark rates depending on the currency of
the balance.


The principal benchmark rates for floating rate financial assets are LIBOR
for sterling balances, US LIBOR for US dollar balances, Australian bank bill
rate for Australian dollar balances, South African prime rate for South African
rand balances and Japanese yen LIBOR for Japanese yen balances.


107   The BOC Group plc Annual report and accounts 2003





---



##### 



Notes to the financial statements continued

21.
Financial instruments continued

ii) Financial liabilities

The interest rate and currency profile of the Groups financial liabilities
including swaps (excluding short-term creditors) at 30 September 2003 is shown
below. The categories of the Groups financial liabilities are shown in note 21
b) i).


2003
    
    2002Financial
    
    
    
    
    
    
    
    
    
    
    
    
    
    Financialliabilities on
    
    
    
    
    
    
    
    
    
    
    
    
    
    liabilities onFloating rate
    
    Fixed rate
    
    which no
    
    Total
    
    Floating rate
    
    Fixed rate
    
    which no
    
    Totalfinancial
    
    financial
    
    interest
    
    financial
    
    financial
    
    financial
    
    interest
    
    financialliabilities
    
    liabilities
    
    is paid
    
    liabilities
    
    liabilities
    
    liabilities
    
    is paid
    
    liabilities£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionSterling
    
    
    (13.2
    )
    
    
    300.2
    
    
    
    4.0
    
    
    
    291.0
    
    
    
    58.8
    
    
    
    300.0
    
    
    
    6.6
    
    
    
    365.4US dollar
    
    
    155.0
    
    
    
    303.6
    
    
    
    9.2
    
    
    
    467.8
    
    
    
    304.3
    
    
    
    225.5
    
    
    
    11.9
    
    
    
    541.7Australian dollar
    
    
    97.6
    
    
    
    1.1
    
    
    
    
    
    
    
    98.7
    
    
    
    79.6
    
    
    
    35.6
    
    
    
    
    
    
    
    115.2South African rand
    
    
    33.0
    
    
    
    40.7
    
    
    
    
    
    
    
    73.7
    
    
    
    22.9
    
    
    
    23.7
    
    
    
    
    
    
    
    46.6Japanese yen
    
    
    75.4
    
    
    
    163.3
    
    
    
    0.8
    
    
    
    239.5
    
    
    
    92.5
    
    
    
    165.9
    
    
    
    0.2
    
    
    
    258.6Canadian dollar
    
    
    33.9
    
    
    
    22.3
    
    
    
    0.9
    
    
    
    57.1
    
    
    
    41.1
    
    
    
    
    
    
    
    
    
    
    
    41.1Thai baht
    
    
    11.0
    
    
    
    58.3
    
    
    
    13.0
    
    
    
    82.3
    
    
    
    11.9
    
    
    
    52.1
    
    
    
    13.4
    
    
    
    77.4Other
    
    
    131.7
    
    
    
    42.3
    
    
    
    9.2
    
    
    
    183.2
    
    
    
    88.6
    
    
    
    25.5
    
    
    
    9.3
    
    
    
    123.4Total
    
    
    524.4
    
    
    
    931.8
    
    
    
    37.1
    
    
    
    1,493.3
    
    
    
    699.7
    
    
    
    828.3
    
    
    
    41.4
    
    
    
    1,569.4


2003
    
    2002Fixed rate financial liabilities
    
    Fixed rate financial liabilitiesWeighted
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    averageWeighted
    
    period for
    
    Weighted
    
    period foraverage
    
    which rate is
    
    average
    
    which rate isinterest rate
    
    fixed
    
    interest rate
    
    fixed%
    
    years
    
    %
    
    yearsSterling
    
    
    8.3
    
    
    
    12.9
    
    
    
    8.3
    
    
    
    13.9US dollar
    
    
    5.8
    
    
    
    3.0
    
    
    
    7.1
    
    
    
    4.2Australian dollar
    
    
    6.2
    
    
    
    3.0
    
    
    
    6.2
    
    
    
    0.2South African rand
    
    
    12.2
    
    
    
    4.9
    
    
    
    11.9
    
    
    
    3.9Japanese yen
    
    
    0.9
    
    
    
    2.9
    
    
    
    0.9
    
    
    
    3.8Canadian dollar
    
    
    4.7
    
    
    
    1.0
    
    
    
    
    
    
    
    Thai baht
    
    
    3.9
    
    
    
    1.8
    
    
    
    4.0
    
    
    
    1.8Other
    
    
    6.9
    
    
    
    3.0
    
    
    
    9.7
    
    
    
    2.8


The floating rate financial liabilities principally comprise debt which carries
interest based on different benchmark rates depending on the currency of the
balance.


The principal benchmark rates for floating rate financial liabilities are
LIBOR for sterling balances, US LIBOR for US dollar balances, Australian bank
bill rate for Australian dollar balances, South African prime rate for South
African rand balances and Japanese yen LIBOR for Japanese yen balances.


The maturity profile of borrowings is set out in note 20 b).Floating rate
financial liabilities other than borrowings are mainly employee incentive
provisions. These are expected to be utilised over the period to 2011 depending
on the future choices of the relevant employees. Financial liabilities on which
no interest is paid principally relate to creditors due after more than one
year. The majority of the amount relates to deposits for cylinder rentals. It
is not anticipated that this balance will reduce significantly in the short to
medium term. The remaining balances falling due after more than one year are
expected to be paid or utilised by 2006.


22. Provisions for liabilities and chargesIncentiveand otherDeferred
    
    employee
    
    Uninsured
    
    Restructuringtax
    
    provisions
    
    losses
    
    provisions
    
    Environmental
    
    Other
    
    Total£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionAt 1 October 2002
    
    
    291.8
    
    
    
    37.1
    
    
    
    19.4
    
    
    
    7.7
    
    
    
    22.8
    
    
    
    28.7
    
    
    
    407.5Exchange adjustment
    
    
    5.7
    
    
    
    0.4
    
    
    
    (0.8
    )
    
    
    0.2
    
    
    
    (1.1
    )
    
    
    
    
    
    
    4.4Provided in the year
    
    
    
    
    
    
    1.5
    
    
    
    3.4
    
    
    
    2.0
    
    
    
    2.3
    
    
    
    13.6
    
    
    
    22.8Released in the year
    
    
    (18.5
    )
    
    
    (1.5
    )
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (3.3
    )
    
    
    (23.6
    )Utilised in the year
    
    
    
    
    
    
    (12.7
    )
    
    
    (0.2
    )
    
    
    (5.1
    )
    
    
    (4.2
    )
    
    
    (14.8
    )
    
    
    (37.0
    )Acquisitions/(disposals) of businesses
    
    
    (18.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18.7
    )Other movements1
    
    
    18.9
    
    
    
    1.3
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    1.4
    
    
    
    21.2At 30 September 2003
    
    
    279.2
    
    
    
    26.1
    
    
    
    21.8
    
    
    
    4.2
    
    
    
    19.7
    
    
    
    25.6
    
    
    
    376.6


|1. |  | The other movements in deferred tax relate mainly to the net profit and
loss credit on pensions which, for balance sheet purposes, is included
within the corresponding net pension asset/(liability) in accordance with
FRS17.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

108   The BOC Group plc Annual report and accounts 2003





---



##### 



22. Provisions for liabilities and charges continued

Incentive and other employee provisions include long-term share incentive units
and deferred compensation plans. Note 7 contains further details of the
long-term share incentive units.


Provision for uninsured losses covers third party liabilities or claims.
Due to the time frame that is often involved in such claims, a significant part
of this provision is subject to actuarial valuation. Where this is not
appropriate, other external assessments are used.


The restructuring provisions represent expenditure to be incurred on major
reorganisations. In 2003 £28.3 million was spent of which £4.3 million was
provided for at 30 September 2002 and £0.8 million was provided for at 30
September 2001. The provisions remaining at 30 September 2003 consist mainly of
redundancy costs and will be spent during 2004.


Environmental provisions have been set aside to cover the costs of
remediation for a number of hazardous waste sites. The costs are expected to be
incurred between 2003 and 2030. Due to the period over which this expenditure is
likely to be incurred, the provision has been discounted at a rate of four per
cent. The effect of discounting is £6 million.


Other provisions are principally for
warranty and legal costs.


Further
information on deferred tax is disclosed in
note 4.


23. Share capitalNumber of shares2003
    
    2002
    

2003
    
    2002i) Analysis at 30 September
    
    million
    
    million
    

£ million
    
    £ millionEquity capital:Issued
capital  Ordinary shares of 25p each, called up and fully paid
    
    
    497.7
    
    
    
    497.3
    
    
    
    124.4
    
    
    
    124.3Unissued
capital  unclassified shares of 25p each
    
    
    92.3
    
    
    
    92.7
    
    
    
    23.1
    
    
    
    23.2Authorised
    
    
    
    
    
    
    
    
    
    
    147.5
    
    
    
    147.5


Numberii) Share issues
    
    millionIssues of Ordinary shares of 25p each during the year were:Under the savings related share option scheme
    
    
    0.2Under the senior executives share option scheme
    
    
    0.2


24.
Reserves

a) Group

Share
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jointpremium
    
    Revaluation
    
    Profit and
    

Pensions
    
    ventures
    
    Associatesaccount
    
    reserves
    
    loss account
    
    reserves
    
    reserves
    
    reserves
    
    Total£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionAt 1 October 2002
    
    
    362.1
    
    
    
    27.8
    
    
    
    1,304.8
    
    
    
    (256.5
    )
    
    
    88.1
    
    
    
    33.5
    
    
    
    1,559.8Total recognised gains and losses for the year
    
    
    
    
    
    
    3.0
    
    
    
    271.8
    
    
    
    (40.6
    )
    
    
    9.6
    
    
    
    (0.5
    )
    
    
    243.3Reversal of goodwill credit on disposal of a subsidiary
    
    
    
    
    
    
    
    
    
    
    (4.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.2
    )Subsidiary interest disposed of for interest in joint venture
    
    
    
    
    
    
    
    
    
    
    (192.6
    )
    
    
    6.0
    
    
    
    186.6
    
    
    
    
    
    
    
    Goodwill on subsidiary interest disposed of for interest
in joint venture
    
    
    
    
    
    
    
    
    
    
    7.8
    
    
    
    
    
    
    
    (7.8
    )
    
    
    
    
    
    
    Goodwill previously written off to reserves reclassified
on subsidiary interest disposed of for interest in joint venture
    
    
    
    
    
    
    
    
    
    
    3.2
    
    
    
    
    
    
    
    (3.2
    )
    
    
    
    
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    (192.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (192.1
    )Premium on share issues (net)
    
    
    3.9
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6At 30 September 2003
    
    
    366.0
    
    
    
    30.8
    
    
    
    1,198.4
    
    
    
    (291.1
    )
    
    
    273.3
    
    
    
    33.0
    
    
    
    1,610.4


The undistributed profits of Group undertakings may be liable to overseas
and/or UK tax (after allowing for double tax relief) if distributed as
dividends.


There are no material exchange control restrictions on the remittance of
funds to the UK.


Goodwill written off against reserves in respect of continuing businesses
acquired prior to 30 September 1998 amounts to £178.3 million (2002: £166.2
million). The increase in the year principally reflects movements in exchange
rates.


In accordance with the Groups accounting policy, unrealised exchange
gains (net of losses) on net borrowings at 30 September 2003 included in
reserves amounted to £20.4 million (2002: £10.2 million).


There are no non-equity shareholders interests in the share capital and
reserves of the Group.


109   The BOC Group plc Annual report and accounts 2003





---



##### 



Notes to the financial statements continued

24.
Reserves continued

b) Parent companyShare
    
    
    
    
    
    Profitpremium
    
    Other
    
    and lossaccount
    
    reserves
    
    account
    
    Total£ million
    
    £ million
    
    £ million
    
    £ millionAt 1 October 2002
    
    
    362.1
    
    
    
    113.7
    
    
    
    827.2
    
    
    
    1,303.0Profit for the financial year
    
    
    
    
    
    
    
    
    
    
    218.6
    
    
    
    218.6Unrealised profit on intra-Group disposal of subsidiary company
    
    
    
    
    
    
    222.7
    
    
    
    
    
    
    
    222.7Dividends
    
    
    
    
    
    
    
    
    
    
    (192.2
    )
    
    
    (192.2
    )Premium on share issues (net)
    
    
    3.9
    
    
    
    
    
    
    
    (0.3
    )
    
    
    3.6At 30 September 2003
    
    
    366.0
    
    
    
    336.4
    
    
    
    853.3
    
    
    
    1,555.7


The premium on share issues represents amounts paid to The BOC Group plc for
the issue of shares under the Groups share option schemes. Employees paid £3.6
million. The Group paid the balance of £0.3 million to a qualifying employee
share ownership trust (Quest).


25.
Financial commitments

a) Annual operating lease commitments2003
    
    2002Other
    
    
    
    
    
    OtherProperty
    
    operating
    
    Property
    
    operatingleases
    
    leases
    
    leases
    
    leases£ million
    
    £ million
    
    £ million
    
    £ millionOn leases expiring:Within one year
    
    
    2.3
    
    
    
    3.3
    
    
    
    2.9
    
    
    
    1.3Between one and two years
    
    
    1.8
    
    
    
    5.6
    
    
    
    1.8
    
    
    
    6.5Between two and five years
    
    
    6.3
    
    
    
    10.7
    
    
    
    5.7
    
    
    
    8.5Over five years
    
    
    16.5
    
    
    
    8.9
    
    
    
    7.0
    
    
    
    1.926.9
    
    
    
    28.5
    
    
    
    17.4
    
    
    
    18.2


Operatingleases£ millionRentals are due under operating leases from
1 October 2003 to completion as follows:Year to 30 September 2004
    
    
    55.4Year to 30 September 2005
    
    
    46.6Year to 30 September 2006
    
    
    38.3Year to 30 September 2007
    
    
    30.4Year to 30 September 2008
    
    
    24.6Thereafter
    
    
    120.7316.0


b) Other commitments

The Group is committed to make future purchases under take-or-pay contracts.
Obligations under such contracts in effect at 30 September 2003 are as follows:


Year ending 30 September
    
    £ million2004
    
    
    70.12005
    
    
    69.32006
    
    
    81.32007
    
    
    82.52008
    
    
    83.6Thereafter
    
    
    575.7962.5


For the year ended 30 September 2003 total purchases made relating to these
contracts amounted to £65.8 million
(2002: £58.2 million, 2001: £53.5 million).


110   The BOC Group plc Annual report and accounts 2003





---



##### 



26. Contingent liabilities and legal proceedings

a) Contingent liabilitiesGroup
    
    Parent2003
    
    2002
    

2003
    
    2002£ million
    
    £ million
    

£ million
    
    £ millionGuarantees of joint ventures borrowings
    
    
    2.8
    
    
    
    119.3
    
    
    
    2.8
    
    
    
    119.3Guarantees of subsidiaries borrowings
    
    
    
    
    
    
    
    
    
    
    387.6
    
    
    
    558.1Other guarantees
    
    
    24.0
    
    
    
    38.7
    
    
    
    10.5
    
    
    
    22.326.8
    
    
    
    158.0
    
    
    
    400.9
    
    
    
    699.7


The reduction in guarantees of joint ventures borrowings and other guarantees
in 2003 relates to BOCs joint venture in Mexico. In
March 2003, the joint
venture fulfilled a series of operational and contractual tests that resulted
in the release of the parental guarantee of third party borrowings and a
reduction in an operational performance bond.


b) Legal proceedings

Group companies are parties to various legal proceedings, including some in
which claims for damages in large amounts have been asserted.


The outcome of litigation to which Group companies are party cannot be
readily foreseen, but the directors believe that such litigation should be
disposed of without material adverse effect on the Groups financial condition
or profitability.


Welding fumes litigation

BOC has been named in numerous lawsuits in the US alleging injury from exposure
to welding fumes. Many of these cases were filed during 2003. Certain of these
cases have been either filed in, or transferred for pre-trial purposes to, the
federal district court in the Northern District of Ohio, where a multi-district
litigation (MDL) proceeding has been commenced. The MDL proceeding is still at
an early stage. The MDL proceeding is a vehicle for coordinating pre-trial
proceedings in cases pending in different federal district courts in the US. In
addition to the cases in federal court, BOC is a defendant in a number of
similar cases pending in state courts. These cases are in different stages of
procedural development, and certain cases are scheduled for trial from time to
time.


From the time it purchased Airco in 1978 until this year, BOC had never
had an adverse jury verdict returned against it in a case alleging injury from
exposure to welding fumes. On 28 October 2003, a jury in Madison County,
Illinois, rendered a verdict against BOC and two co-defendants. The jury
awarded US$1 million to Mr Elam, a former labourer who asserted that his
idiopathic Parkinsons disease was attributable to his exposure to welding
fumes over a period of years. BOC believes that the verdict is inconsistent
with the decisions rendered by juries in previous cases, is not supported by
the existing scientific evidence and intends to pursue vigorously its
post-trial and appeal rights.


BOC believes that it has strong defences to the claims asserted in these
various proceedings related to alleged injury from exposure to welding fumes
and intends to defend vigorously such claims. Based on BOCs experience to
date, together with BOCs current assessment of the merits of the claims being
asserted, and applicable insurance, BOC believes that continued defence and
resolution of these proceedings will not have a material adverse effect on its
financial condition or profitability and no provision has been made.


Fluorogas litigation

In February 2003, the company was notified that a jury verdict in the US
District Court for the Western District of Texas was obtained for US$132
million against Fluorogas Limited, The BOC Group Inc and The BOC Group plc. The
verdict arises primarily out of an alleged breach of a memorandum of
understanding by Fluorogas Limited before it was acquired by The BOC Group plc
in September 2001. In March 2003, the court also awarded interest and costs
against the defendants, making them jointly and severally liable for a total of
US$174 million. A bond for the full amount has been posted with the Court as
part of the normal appeals process.


The company believes that the jurys verdict reflects a misunderstanding
of the law and does not reflect the facts of any loss that may have been
suffered by the plaintiff. The company is challenging the verdict through the
appropriate appeals process in the US and hence no provision has been made. In
addition, Fluorogas Limited was placed in administration under the Insolvency
Act of 1986 pursuant to an order of the English Courts. In a related proceeding
in a US Bankruptcy Court, the UK administrators have obtained injunctive relief
preventing the plaintiff in the Fluorogas litigation from commencing or
continuing any action or proceeding enforcing any judgement against Fluorogas
Limited in the US.


ERISA Litigation

An action was filed in the US District Court for the Southern District of
Illinois against The BOC Group Cash Balance Retirement Plan (the
Plan). The
plaintiffs brought this action on behalf of themselves and all others similarly
affected, alleging that the Plan improperly calculated lump sum distributions
from the Plan in violation of the Employee Retirement Income Security Act. The
maximum potential liability could have reached US$116 million and any award
would be paid out of Plan assets.


The parties have reached an agreement in principle to settle at US$69
million. The settlement documents are being prepared. The settlement is subject
to approval by the court at a fairness hearing. A provision of US$69 million
has been made in the financial statements. Under UK accounting principles
(FRS17), this has been recognised as a charge in the profit and loss account of
the Group. It has been shown as an exceptional item.


111   The BOC Group plc Annual report and accounts 2003





---



##### 



Notes to the financial statements continued

27. Cash flowa) Net cash inflow from operating activities2003
    
    2002
    
    2001Notes
    
    £ million
    
    £ million
    
    £ millionTotal operating profit before exceptional items
    
    
    
    
    
    
    505.6
    
    
    
    500.1
    
    
    
    530.6Depreciation and amortisation
    
    
    
    
    
    
    333.4
    
    
    
    330.9
    
    
    
    329.5Net retirement benefits charge less contributions
    
    
    
    
    
    
    5.6
    
    
    
    49.9
    
    
    
    53.0Operating profit before exceptional items of joint ventures
    
    
    
    
    
    
    (86.8
    )
    
    
    (63.8
    )
    
    
    (59.0
    )Operating profit before exceptional items of associates
    
    
    
    
    
    
    (11.4
    )
    
    
    (10.7
    )
    
    
    (13.2
    )Change in stocks
    
    
    
    
    
    
    (16.6
    )
    
    
    13.7
    
    
    
    8.8Change in debtors
    
    
    
    
    
    
    2.5
    
    
    
    (38.4
    )
    
    
    39.5Change in creditors
    
    
    
    
    
    
    10.8
    
    
    
    57.3
    
    
    
    (20.9
    )Exceptional cash flows
    
    
    
    
    
    
    (28.3
    )
    
    
    (67.3
    )
    
    
    (51.8
    )Other
    
    
    
    
    
    
    (14.7
    )
    
    
    (12.4
    )
    
    
    (28.7
    )Net cash inflow from operating activities
    
    
    
    
    
    
    700.1
    
    
    
    759.3
    
    
    
    787.8b) Reconciliation of net cash flow to movement in net debtDecrease/(increase) in cash
    
    
    
    
    
    
    102.5
    
    
    
    (21.4
    )
    
    
    (66.1
    )(Decrease)/increase in debt
    
    
    27
    (d)
    
    
    (128.7
    )
    
    
    64.1
    
    
    
    (51.3
    )Decrease in liquid resources
    
    
    
    
    
    
    16.2
    
    
    
    52.6
    
    
    
    102.8Change in net debt resulting from cash flows
    
    
    
    
    
    
    (10.0
    )
    
    
    95.3
    
    
    
    (14.6
    )Net borrowings assumed at acquisition
    
    
    
    
    
    
    0.8
    
    
    
    0.5
    
    
    
    Net liquid resources eliminated on disposal
    
    
    
    
    
    
    31.0
    
    
    
    
    
    
    
    Inception of finance leases
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    0.5Exchange adjustment
    
    
    
    
    
    
    20.7
    
    
    
    (42.7
    )
    
    
    (22.2
    )Movement in net debt in the year
    
    
    
    
    
    
    42.5
    
    
    
    53.5
    
    
    
    (36.3
    )Net debt at 1 October
    
    
    
    
    
    
    1,325.6
    
    
    
    1,272.1
    
    
    
    1,308.4Net debt at 30 September
    
    
    
    
    
    
    1,368.1
    
    
    
    1,325.6
    
    
    
    1,272.1


c) Analysis of net debtAcquisitions/disposalsAt
    
    
    
    
    
    (excluding
    
    Other
    
    
    
    
    
    At1 October
    
    
    
    
    
    cash and
    
    non-cash
    
    Exchange
    
    30 September2002
    
    Cash flow
    
    overdrafts)
    
    changes
    
    adjustment
    
    2003£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionCash at bank and in hand due within one year
    
    
    185.5
    
    
    
    (76.4
    )
    
    
    (44.0
    )
    
    
    
    
    
    
    12.4
    
    
    
    77.5Borrowings and finance leases due within one year
    
    
    (390.1
    )
    
    
    197.3
    
    
    
    9.8
    
    
    
    (171.5
    )
    
    
    (6.4
    )
    
    
    (360.9
    )Borrowings and finance leases due beyond one year
    
    
    (1,121.0
    )
    
    
    (110.9
    )
    
    
    2.4
    
    
    
    171.5
    
    
    
    (26.7
    )
    
    
    (1,084.7
    )Net borrowings and finance leases
    
    
    (1,325.6
    )
    
    
    10.0
    
    
    
    (31.8
    )
    
    
    
    
    
    
    (20.7
    )
    
    
    (1,368.1
    )


d) (Decrease)/increase in debt2003
    
    2002
    
    2001£
million
    
    £ million
    
    £ million6 1/4% Notes 2002
    
    
    (38.2
    )
    
    
    
    
    
    
    5 7/8% Bonds 2009
    
    
    
    
    
    
    200.0
    
    
    
    7 1/4% Notes 2002
    
    
    
    
    
    
    (150.0
    )
    
    
    Medium-term notes
    
    
    93.7
    
    
    
    59.7
    
    
    
    6.50% Bonds 2016
    
    
    
    
    
    
    
    
    
    
    200.01.00% Euroyen Bond 2006
    
    
    
    
    
    
    
    
    
    
    147.05 7/8% Notes 2001
    
    
    
    
    
    
    
    
    
    
    (138.9
    )European Investment Bank loans
    
    
    (72.4
    )
    
    
    (5.0
    )
    
    
    10.3Pollution Control and Industrial Bonds
    
    
    
    
    
    
    (18.5
    )
    
    
    (2.4
    )(Repayment)/net issues of commercial paper
    
    
    (90.7
    )
    
    
    59.5
    
    
    
    (212.5
    )Other (net)
    
    
    (21.1
    )
    
    
    (81.6
    )
    
    
    (54.8
    )(Decrease)/increase in debt
    
    
    (128.7
    )
    
    
    64.1
    
    
    
    (51.3
    )


112   The BOC Group plc Annual report and accounts 2003






---



##### 



28. Acquisitions and disposalsa) Cash flow2003
    
    2002
    
    2001Acquisitions
    
    Disposals
    
    Acquisitions
    
    Disposals
    
    Acquisitions
    
    Disposals£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionCash flow arising on the acquisition and disposal of businessesIntangible fixed assets
    
    
    (2.4
    )
    
    
    
    
    
    
    (0.5
    )
    
    
    0.2
    
    
    
    
    
    
    
    Tangible fixed assets
    
    
    (61.5
    )
    
    
    0.8
    
    
    
    (85.7
    )
    
    
    1.3
    
    
    
    (34.8
    )
    
    
    1.1Joint ventures, associates and other investments
    
    
    (4.8
    )
    
    
    1.1
    
    
    
    (12.4
    )
    
    
    0.2
    
    
    
    20.7
    
    
    
    0.4Stocks
    
    
    (2.7
    )
    
    
    0.1
    
    
    
    (20.9
    )
    
    
    2.4
    
    
    
    (2.4
    )
    
    
    0.5Debtors
    
    
    (15.3
    )
    
    
    0.1
    
    
    
    (37.5
    )
    
    
    0.7
    
    
    
    (16.7
    )
    
    
    1.1Cash at bank and in hand
    
    
    
    
    
    
    0.2
    
    
    
    (13.5
    )
    
    
    
    
    
    
    
    
    
    
    Creditors including taxation
    
    
    7.8
    
    
    
    (0.1
    )
    
    
    55.7
    
    
    
    (1.2
    )
    
    
    4.7
    
    
    
    (0.4
    )Borrowings
    
    
    0.8
    
    
    
    
    
    
    
    21.4
    
    
    
    
    
    
    
    
    
    
    
    Minorities
    
    
    (2.2
    )
    
    
    0.3
    
    
    
    (8.6
    )
    
    
    7.8
    
    
    
    (117.5
    )
    
    
    Net assets (acquired)/disposed of
    
    
    (80.3
    )
    
    
    2.5
    
    
    
    (102.0
    )
    
    
    11.4
    
    
    
    (146.0
    )
    
    
    2.7Goodwill
on acquisitions of subsidiaries1
    
    
    (46.7
    )
    
    
    
    
    
    
    (112.3
    )
    
    
    
    
    
    
    (3.3
    )
    
    
    Goodwill
on acquisitions of joint ventures and associates2
    
    
    (8.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Surplus over book value on disposals
    
    
    
    
    
    
    (0.7
    )
    
    
    
    
    
    
    2.5
    
    
    
    
    
    
    
    (Acquisition)/disposal price
    
    
    (135.0
    )
    
    
    1.8
    
    
    
    (214.3
    )
    
    
    13.9
    
    
    
    (149.3
    )
    
    
    2.7Deferred
(payments)/receipts3
    
    
    (0.5
    )
    
    
    2.1
    
    
    
    7.0
    
    
    
    (3.3
    )
    
    
    3.4
    
    
    
    (135.5
    )
    
    
    3.9
    
    
    
    (207.3
    )
    
    
    10.6
    
    
    
    (145.9
    )
    
    
    2.7


|1. |  | Goodwill on acquisition of subsidiaries comprises £47.3 million in
respect of acquisitions in 2003 and a cash adjustment of £0.6 million to
the consideration for a prior year acquisition. See note 11 b).
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2. |  | This represents goodwill arising in 2002 for which the cash consideration
was not paid until 2003.
|-- |  | --------------------------------------------------------------------------------------------------

|3. |  | Deferred payments and receipts include amounts for current years and
payments and/or receipts in respect of prior years.
|-- |  | ------------------------------------------------------------------------------------------------------------------------




The table above excludes amounts relating to the merger of BOCs gases business
in Japan, OSK, with part of Air Liquide Japan as it was a non-cash transaction.
This transaction has been described in more detail in note 28 c).


On 30 September 2002 BOC Process Plants signed an agreement for the
formation of a joint venture with Linde Process Plant Inc. The Group holds a 30
per cent equity stake in the new joint venture, Linde BOC Process Plants LLC.


In October 2002 the Group acquired Environmental Management Corporation, a
privately held US water services company. In January 2003 the Group acquired
business assets from Celanese to supply industrial gases to the Celanese
chemicals facility at Clear Lake, Texas.


At
the end of January 2003, BOC purchased Praxairs Polish gases business.
In April 2003 BOC purchased the Canadian packaged gas and related welding
equipment business of Air Products.


Of
the total acquisition expenditure, £80.8 million was in the Process Gas
Solutions line of business, £47.3 million was in the Industrial and Special
Products line of business, £2.1 million was in the BOC Edwards line of business
and £5.3 million was in Afrox hospitals.


Businesses acquired in 2003 contributed £70.2 million to 2003 reported
turnover (Process Gas Solutions £38.4 million, Industrial and Special Products
£22.5 million, Afrox hospitals £9.3 million) and £4.3 million to operating
profit (Process Gas Solutions £(0.2) million, Industrial and Special Products
£3.2 million, Afrox hospitals £1.3 million).


b) Fair value of acquisitionsAir ProductsCanada
    
    
    
    
    
    Total book
    
    
    
    
    
    Total fairEMC
    
    Praxair
    
    packaged
    
    
    
    
    
    value of
    
    
    
    
    
    value ofWater Services
    
    Polska
    
    gases business
    
    Other
    
    businesses
    
    Total
    
    businessesbook value
    
    book value
    
    book value
    
    book value
    
    acquired
    
    adjustments
    
    acquired£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionIntangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.4
    )
    
    
    (2.4
    )
    
    
    
    
    
    
    (2.4
    )Tangible fixed assets
    
    
    (0.6
    )
    
    
    (17.1
    )
    
    
    (13.3
    )
    
    
    (24.6
    )
    
    
    (55.6
    )
    
    
    (5.9
    )
    
    
    (61.5
    )Joint ventures, associates and other investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.8
    )
    
    
    (4.8
    )
    
    
    
    
    
    
    (4.8
    )Stocks
    
    
    
    
    
    
    (0.6
    )
    
    
    (1.9
    )
    
    
    (0.2
    )
    
    
    (2.7
    )
    
    
    
    
    
    
    (2.7
    )Debtors
    
    
    (3.9
    )
    
    
    (3.4
    )
    
    
    (6.0
    )
    
    
    (2.0
    )
    
    
    (15.3
    )
    
    
    
    
    
    
    (15.3
    )Creditors including taxation
    
    
    3.8
    
    
    
    2.0
    
    
    
    0.6
    
    
    
    1.4
    
    
    
    7.8
    
    
    
    
    
    
    
    7.8Borrowings
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    0.8
    
    
    
    
    
    
    
    0.8Minorities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2.2
    )
    
    
    (2.2
    )
    
    
    
    
    
    
    (2.2
    )Net (assets) acquired
    
    
    (0.6
    )
    
    
    (19.1
    )
    
    
    (20.6
    )
    
    
    (34.1
    )
    
    
    (74.4
    )
    
    
    (5.9
    )
    
    
    (80.3
    )Payment
    
    
    31.1
    
    
    
    29.2
    
    
    
    25.6
    
    
    
    49.6
    
    
    
    135.5
    
    
    
    
    
    
    
    135.5Deferred payment
    
    
    1.0
    
    
    
    
    
    
    
    0.9
    
    
    
    (2.4
    )
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )Consideration
    
    
    32.1
    
    
    
    29.2
    
    
    
    26.5
    
    
    
    47.2
    
    
    
    135.0
    
    
    
    
    
    
    
    135.0Goodwill on acquisitions of subsidiaries
    
    
    (31.5
    )
    
    
    (10.1
    )
    
    
    
    
    
    
    (5.1
    )
    
    
    (46.7
    )
    
    
    
    
    
    
    (46.7
    )Goodwill on acquisitions of joint ventures and associates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8.0
    )
    
    
    (8.0
    )
    
    
    
    
    
    
    (8.0
    )0.6
    
    
    
    19.1
    
    
    
    26.5
    
    
    
    34.1
    
    
    
    80.3
    
    
    
    
    
    
    
    80.3


Fair value adjustments include some amounts which are provisional.


The fair value adjustments were all in respect of the acquisition of the
Canadian packaged gases business of Air Products.


113   The BOC Group plc Annual report and accounts 2003






---



##### 



Notes to the financial statements continued

28. Acquisitions and disposals continuedThe fair value of acquisitions in 2002 were:UniqueGas andPetrochemicals
    
    Seiko
    
    
    
    
    
    Total book
    
    
    
    
    
    Total fairSmiths
    
    Public
    
    Instruments
    
    
    
    
    
    value of
    
    
    
    
    
    value ofGroup
    
    Company Ltd
    
    Inc
    
    Other
    
    businesses
    
    Total
    
    businessesbook value
    
    book value
    
    book value
    
    book value
    
    acquired
    
    adjustments
    
    acquired£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionIntangible assets
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )Tangible fixed assets
    
    
    (9.0
    )
    
    
    (25.3
    )
    
    
    (2.9
    )
    
    
    (44.9
    )
    
    
    (82.1
    )
    
    
    (3.6
    )
    
    
    (85.7
    )Joint ventures, associates and other investments
    
    
    
    
    
    
    (0.6
    )
    
    
    (0.1
    )
    
    
    (12.3
    )
    
    
    (13.0
    )
    
    
    0.6
    
    
    
    (12.4
    )Stocks
    
    
    (11.5
    )
    
    
    (1.5
    )
    
    
    (9.2
    )
    
    
    (3.8
    )
    
    
    (26.0
    )
    
    
    5.1
    
    
    
    (20.9
    )Debtors
    
    
    (12.6
    )
    
    
    (9.7
    )
    
    
    (4.6
    )
    
    
    (11.1
    )
    
    
    (38.0
    )
    
    
    0.5
    
    
    
    (37.5
    )Cash at bank and in hand
    
    
    
    
    
    
    (11.7
    )
    
    
    (1.3
    )
    
    
    (0.5
    )
    
    
    (13.5
    )
    
    
    
    
    
    
    (13.5
    )Creditors including taxation
    
    
    12.4
    
    
    
    35.8
    
    
    
    3.8
    
    
    
    9.2
    
    
    
    61.2
    
    
    
    (5.5
    )
    
    
    55.7Borrowings
    
    
    7.7
    
    
    
    0.3
    
    
    
    0.1
    
    
    
    13.3
    
    
    
    21.4
    
    
    
    
    
    
    
    21.4Minorities
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    (8.8
    )
    
    
    (8.6
    )
    
    
    
    
    
    
    (8.6
    )Net (assets) acquired
    
    
    (13.0
    )
    
    
    (12.5
    )
    
    
    (14.7
    )
    
    
    (58.9
    )
    
    
    (99.1
    )
    
    
    (2.9
    )
    
    
    (102.0
    )Payment
    
    
    6.6
    
    
    
    39.7
    
    
    
    72.1
    
    
    
    88.9
    
    
    
    207.3
    
    
    
    
    
    
    
    207.3Deferred payment
    
    
    
    
    
    
    
    
    
    
    2.4
    
    
    
    4.6
    
    
    
    7.0
    
    
    
    
    
    
    
    7.0Consideration
    
    
    6.6
    
    
    
    39.7
    
    
    
    74.5
    
    
    
    93.5
    
    
    
    214.3
    
    
    
    
    
    
    
    214.3Goodwill on acquisitions of subsidiaries
    
    
    
    
    
    
    (17.5
    )
    
    
    (60.2
    )
    
    
    (34.6
    )
    
    
    (112.3
    )
    
    
    
    
    
    
    (112.3
    )6.6
    
    
    
    22.2
    
    
    
    14.3
    
    
    
    58.9
    
    
    
    102.0
    
    
    
    
    
    
    
    102.0





The following fair value adjustments were made to the book value of the assets
and liabilities of the businesses acquired in 2002:UniqueGas andPetrochemicals
    
    SeikoSmiths
    
    Public
    
    Instruments
    
    TotalGroup
    
    Company Ltd
    
    Inc
    
    adjustments£ million
    
    £ million
    
    £ million
    
    £ millionValuationsTangible fixed assets
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    (0.6
    )Joint ventures, associates and other investments
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    0.6Alignment of accounting policiesTangible fixed assets
    
    
    1.5
    
    
    
    (4.5
    )
    
    
    
    
    
    
    (3.0
    )Stocks
    
    
    4.8
    
    
    
    
    
    
    
    0.3
    
    
    
    5.1Debtors
    
    
    0.1
    
    
    
    0.4
    
    
    
    
    
    
    
    0.5Taxation
    
    
    
    
    
    
    2.2
    
    
    
    
    
    
    
    2.2OtherCreditors
    
    
    
    
    
    
    (7.8
    )
    
    
    0.1
    
    
    
    (7.7
    )6.4
    
    
    
    (9.7
    )
    
    
    0.4
    
    
    
    (2.9
    )


No significant fair value adjustments were required in 2001.


114   The BOC Group plc Annual report and accounts 2003






---



##### 



28. Acquisitions and disposals continued

c) Exchange of business

In January 2003, the Group combined its Japanese gases business Osaka Sanso
Kogyo KK (OSK) with part of Air Liquide Japan to form Japan Air Gases Limited.
The net effect of the transaction was to exchange 55 per cent of the OSK
business for a 45 per cent equity share in Japan Air Gases Limited.
This transaction has been accounted for in accordance with UK GAAP
(UITF31 
Exchange of businesses or other non-monetary assets for an interest in a
subsidiary, joint venture or associate).


The unrealised profit of £8.2 million on the disposal of OSK has been
recognised in the statement of total recognised gains and losses.


Totalbook valueof businessdisposedValue of assets disposed
    
    £ millionTangible fixed assets
    
    
    169.3Joint ventures, associates and other investments
    
    
    3.0Stocks
    
    
    10.3Debtors
    
    
    69.2Net liquid resources
    
    
    30.9Creditors including taxation
    
    
    (86.5
    )Minorities
    
    
    (3.1
    )193.1Adjustment to reflect retention of 45 per cent share
    
    
    (86.9
    )Net assets disposed
    
    
    106.2


Air Liquide
    
    
    
    
    
    Air LiquideJapan
    
    
    
    
    
    Japan
    
    OSK
    
    Total fairassets
    
    
    
    
    
    assets
    
    assets
    
    value ofcontributed
    
    Valuation
    
    contributed
    
    contributed
    
    combinedbook value
    
    adjustments
    
    at fair value
    
    at fair value
    
    businessValue of assets acquired
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionTangible fixed assets
    
    
    185.0
    
    
    
    40.8
    
    
    
    225.8
    
    
    
    169.3
    
    
    
    395.1Joint ventures, associates and other investments
    
    
    10.7
    
    
    
    
    
    
    
    10.7
    
    
    
    3.0
    
    
    
    13.7Stocks
    
    
    19.4
    
    
    
    
    
    
    
    19.4
    
    
    
    10.3
    
    
    
    29.7Debtors
    
    
    141.6
    
    
    
    
    
    
    
    141.6
    
    
    
    69.2
    
    
    
    210.8Net (borrowings)/liquid resources
    
    
    (37.9
    )
    
    
    
    
    
    
    (37.9
    )
    
    
    30.9
    
    
    
    (7.0
    )Creditors including taxation
    
    
    (129.0
    )
    
    
    0.2
    
    
    
    (128.8
    )
    
    
    (86.5
    )
    
    
    (215.3
    )Minorities
    
    
    (9.2
    )
    
    
    
    
    
    
    (9.2
    )
    
    
    (3.1
    )
    
    
    (12.3
    )180.6
    
    
    
    41.0
    
    
    
    221.6
    
    
    
    193.1
    
    
    
    414.7BOC Group share of assets (45 per cent)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186.6Value of OSK retained by the Group (45 per cent)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (86.9
    )Fair value of assets acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99.7


The following fair value adjustments were made to the book value of the assets
and liabilities of the Air Liquide Japan business acquired:


Totaladjustments£ millionValuations
Tangible fixed assets
    
    
    40.8Provisions
    
    
    9.3Alignment of accounting policies
Pension liabilities
    
    
    (9.1
    )41.0


Unrealised gain on disposal
    
    £ millionConsideration, fair value of assets acquired
    
    
    99.7Net assets disposed
    
    
    (106.2
    )(6.5
    )Negative goodwill credited on disposal of a subsidiary
    
    
    14.7Unrealised profit on disposal of a subsidiary
    
    
    8.2


115   The BOC Group plc Annual report and accounts 2003





---



##### 



Notes to the financial statements continued

29. Related party transactions

During the year,
interest income of £7.6 million (2002:£8.3 million, 2001:£6.9
million) was received from the Cantarell joint venture in Mexico. The Group had
no other material related party transactions that might reasonably be expected
to influence decisions made by the users of these accounts.


30. US accounting information

a) Summary of differences between UK and US generally accepted accounting
principles and other US accounting information

The financial statements of The BOC Group plc are prepared in accordance with
accounting principles generally accepted in the UK (UK GAAP), which differ in
certain significant respects from accounting principles generally accepted in
the US (US GAAP).


Set out below is a summary of the more significant adjustments which would
be required if US GAAP had been applied, together with reconciliations of net
profit, other comprehensive income and shareholders funds from a UK GAAP to a
US GAAP basis. Also presented on a US GAAP basis are a movement in
shareholders funds, a consolidated cash flow statement, information on
earnings per share, information on stock based compensation and details of
recently issued US accounting pronouncements.


Goodwill and other intangible assets

Under UK GAAP, goodwill arising on acquisitions before 1998 accounted for under
the purchase method has been eliminated against shareholders funds.
Additionally, UK GAAP requires that on subsequent disposal or closure of a
business, any goodwill previously taken directly to shareholders funds is then
charged against income. The Group adopted FRS10 in 1999, which requires goodwill
on subsequent acquisitions to be capitalised and amortised over a period not
exceeding 20 years.


Under US GAAP, following the adoption of SFAS142 (Goodwill and other
Intangible Assets), which was effective for the Group from 1 October 2002,
goodwill continues to be capitalised, although amortisation is no longer
charged to the income statement. Instead, an annual impairment test is carried
out, with any identified impairment loss recorded in the income statement.
Other intangible assets with a finite life continue to be amortised under both
UK and US GAAP. UK GAAP is highly prescriptive with regard to the recognition of
intangible assets, although US GAAP rules result in the recognition of a greater
amount of intangible assets. Therefore, differences arise in the classification
of some intangible assets and goodwill between UK and US GAAP. Amortisation
that has been charged against goodwill under UK GAAP is added back in the
reconciliation to net income on a US GAAP basis.


Impairment of goodwill

Under UK GAAP, goodwill impairment reviews are carried out at the end of the
first financial year following an acquisition, and also when an indicator of
impairment exists. The impairment is measured by comparing the carrying value
of the goodwill with the higher of the net realisable value and the value in
use.


Under US GAAP, goodwill impairment reviews are also conducted when an
indicator of impairment exists, in addition to an annual goodwill impairment
test, as required by SFAS142. The impairment is measured by comparing the
carrying value of a reporting unit to its fair value. Where the carrying value
is greater than the fair value, the impairment loss is based on the excess of
the carrying value of goodwill in the reporting unit over the implied fair
value of the goodwill.


Profit or loss on the partial disposal of Group companies

Under UK GAAP (UITF 31), gains on the partial disposal of Group companies
involving non-monetary consideration are recorded in the statement of total
recognised gains and losses. Under US GAAP, such gains and losses are recorded
in the income statement.


Deferred tax

The Group adopted FRS19 (Deferred tax) in 2002 for UK GAAP purposes. This
requires that full provision for deferred tax is recognised in the financial
statements. The adoption of FRS19 has eliminated most of the differences that
previously existed between UK GAAP and US GAAP in the accounting for deferred
tax. As a result, the tax adjustment now primarily relates to the deferred tax
effect of other US GAAP adjustments.


Revaluation of fixed assets

UK GAAP allowed for the periodic revaluation of land and buildings with
depreciation then being calculated on the revalued amount. Any surplus or
deficit (to the extent that the revaluation reserve was in surplus) on the
revaluation was then taken directly to shareholders funds. With the Groups
adoption of FRS15 in 2000, the Group no longer revalues fixed assets. Under US
GAAP, revaluations of fixed assets are not permitted and, as a result, the
reconciliation restates fixed assets to historical cost. The depreciation
charge and any write downs of previously revalued assets are adjusted
accordingly.


Impairment of tangible fixed assets

Under UK GAAP, a tangible fixed asset is reviewed for impairment if an
indication exists that the asset may be impaired. If necessary, an impairment
loss is recorded. A value in use calculation is carried out, based on
discounted pre-tax future cash flows from the asset (or income generating unit
to which the asset belongs).


Under US GAAP, a preliminary review of the tangible fixed asset is carried
out using undiscounted future cash flows. If the undiscounted future cash flows
are less than the assets carrying value, an impairment loss is required. The
impairment loss will be calculated using discounted future cash flows, or the
assets market value.


Under US GAAP, the reversal of previously recognised impairment losses is
not permitted.


Restructuring costs

Under UK GAAP, when a decision has been taken to restructure, supported by a
detailed formal plan and the creation of a valid expectation in those affected
that the restructuring will take place, the necessary provisions are made for
impairment of asset values together with severance and other costs.


Under US GAAP (SFAS146), the requirements for charging restructuring costs
to income are more prescriptive and all significant actions arising from the
restructuring plan and their completion dates must be identified by the balance
sheet date.


116   The BOC Group plc Annual report and accounts 2003





---



##### 



30. US accounting information continued

Pensions

For UK GAAP
reporting (FRS17  Retirement benefits), the pension asset or
liability in the balance sheet represents the difference between the market
value of pension scheme assets at the balance sheet date and the present value
of pension scheme liabilities at that date, net of deferred tax.


Under US GAAP (SFAS87), plan assets are valued by reference to
market-related value at the date of the financial statements. Liabilities are
assessed using the rate of return obtainable on fixed or inflation-linked
bonds.


FRS17 requires that past service costs are recognised in full in the
period in which they become vested. SFAS87 requires past service costs to be
amortised over the remaining service lives of the employees to whom the
amendments relate.


There is a significant difference in the treatment of actuarial gains and
losses arising during the accounting period. UK GAAP recognises the actuarial
gains and losses in full in the year in which they arise in the statement of
total recognised gains and losses. Under US GAAP, the actuarial gains and
losses which exceed ten per cent of the value of the assets or liabilities at
the start of the accounting period are amortised over the remaining service
lives of scheme members.


Where
an additional minimum liability exists under US GAAP, (ie where the
amount provided for any scheme does not cover the unfunded accumulated benefit
obligation for that scheme), this must be recognised in the balance sheet under
SFAS87. The adjustment resulting from the recognition of an additional minimum
liability is reported as an intangible asset to the extent of the unrecognised
prior service cost, after eliminating amounts previously shown as a prepaid
benefit cost. Any excess above these amounts is reported in comprehensive
income.


Post retirement medical costs

For UK GAAP
reporting (FRS17  Retirement benefits), the post retirement medical
liability is discounted using the bond yield on suitable high quality corporate
bonds, and disclosed net of related deferred tax.


For US GAAP (SFAS106), the liabilities are assessed and discounted using the
rates of return obtainable on high quality fixed income investments.


Differences between the UK and US GAAP figures arise largely from the
treatment of actuarial gains and losses.


Securities investments

Under UK GAAP, current asset investments (of all types) are stated at the lower
of cost and net realisable value. Fixed asset investments are stated at cost,
or alternatively, at market value or at directors valuation.


Under US GAAP, securities which are determined to be available-for-sale
are stated at fair value and any unrealised gains or losses included as a
separate component of shareholders funds. The deferred tax consequences of
unrealised gains or losses are also charged or credited to shareholders funds.


Employee share option plans (ESOPs) and other share options

Under UK GAAP, shares held by the ESOPs are recorded as fixed asset investments
at cost, less a provision in accordance with UITF17. No cost is accrued for
share options awarded under employee share schemes where the price of the
options is below the market value at the date of grant because they are
considered non-compensatory.


Under US GAAP, these shares and other shares held in trust are recorded
as treasury stock at cost in the balance sheet as a deduction from
shareholders funds. A charge is made against net income where options in
executive share option plans become vested in accordance with APB Opinion 25.


Contingent consideration

Under UK GAAP, contingent consideration is provided for as a liability when the
likelihood of payment is considered to be probable.


Under US GAAP, contingent consideration is not recognised until the
liability is determined beyond reasonable doubt. The elimination of contingent
consideration for US GAAP purposes also impacts on the value of goodwill
arising on acquisitions, therefore there is no net impact on shareholders
funds.


Financial instruments

The Group enters into a number of currency swaps, interest rate swaps and
forward foreign exchange contracts to hedge its exposure to currency and
interest rate risks. Under UK GAAP, such instruments are shown at their
carrying value.


Under US GAAP, these instruments are marked to market and any change in
value is recognised in either the income statement or through comprehensive
income in accordance with SFAS133 depending on whether a derivative is
designated as part of a hedge transaction, and if it is, the type of hedge
transaction.


Accounting for swaps

Under UK GAAP, gains or losses on closing out interest rate swap contracts
taken to hedge the Groups fixed/floating interest rate position can be taken
to profit immediately.


US GAAP requires any gain or loss to be deferred over the remaining hedge
period.


Share of results and net assets of joint ventures and associates

The Groups share of the results and net assets of its joint ventures and
associates (as calculated under UK GAAP) is shown within fixed asset
investments. For the purposes of the reconciliations set out below, the Groups
share of the results and net assets of its joint ventures and associates has
been adjusted to recognise a difference in the method of reporting profits
under US GAAP.


Sale and leaseback transactions

Under UK GAAP, any profit or loss on the sale and operating leaseback of fixed
assets can generally be taken to profit immediately.


US GAAP requires any gain or loss to be deferred over the contract lease
period.


Comprehensive income

Under US GAAP, SFAS130 establishes requirements for the reporting of
comprehensive income and its components (revenue, expenses, gains and losses)
in a full set of general purpose financial statements. Components of
comprehensive income for the Group determined on a UK GAAP basis include profit
for the financial year, pension actuarial gains and losses, and foreign
currency translation gains and losses. Information regarding the Groups
foreign currency translation gains and losses is included in the statement of
total recognised gains and losses under UK GAAP on page 75.


117   The
BOC Group plc Annual report and accounts 2003





---



##### 



Notes to the financial statements continued

30. US accounting information continued

b) Reconciliation of net profit

2003
    
    2002
    
    2001Years ended 30 September
    
    £ million
    
    £ million
    
    £ millionNet profit as reported in the Group profit and loss account under UK GAAP
    
    
    219.1
    
    
    
    202.9
    
    
    
    224.1Pensions
    
    
    62.5
    
    
    
    35.4
    
    
    
    24.9Post retirement medical costs
    
    
    
    
    
    
    0.3
    
    
    
    (2.7
    )Revaluations realised on asset disposals
    
    
    1.1
    
    
    
    5.8
    
    
    
    1.1Write-down of previously revalued assets
    
    
    
    
    
    
    20.5
    
    
    
    Depreciation of revalued fixed assets
    
    
    0.1
    
    
    
    0.7
    
    
    
    3.8Amortisation of goodwill previously charged to reserves
    
    
    
    
    
    
    (7.2
    )
    
    
    (7.9
    )Non-amortisation of goodwill under SFAS142
    
    
    13.9
    
    
    
    3.5
    
    
    
    Amortisation of other intangibles
    
    
    (0.5
    )
    
    
    
    
    
    
    Unrealised profit on disposal of subsidiary
    
    
    8.2
    
    
    
    
    
    
    
    Other adjustments on profit on disposal of subsidiary
    
    
    (20.7
    )
    
    
    
    
    
    
    Share of results of joint ventures and associates
    
    
    0.6
    
    
    
    
    
    
    
    (4.8
    )Interest rate swaps
    
    
    1.7
    
    
    
    1.9
    
    
    
    1.9Financial instruments
    
    
    (2.8
    )
    
    
    19.5
    
    
    
    8.5Restructuring costs
    
    
    
    
    
    
    
    
    
    
    (6.5
    )ESOPs and other share options
    
    
    1.7
    
    
    
    (3.4
    )
    
    
    (2.0
    )Sale and leaseback
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1Taxation effect of above adjustments
    
    
    (20.7
    )
    
    
    (24.7
    )
    
    
    (6.3
    )Net income under US GAAP
    
    
    264.3
    
    
    
    255.4
    
    
    
    234.2


All net income arose from continuing operations.


2003
    
    2002
    
    2001Average number of 25p Ordinary shares
    
    million
    
    million
    
    millionBasic
    
    
    492.5
    
    
    
    490.4
    
    
    
    486.9Diluted
    
    
    492.7
    
    
    
    492.2
    
    
    
    488.6


2003
    
    2002
    
    2001pence
    
    pence
    
    penceEarnings per shareBasic
    
    
    53.7
    
    
    
    52.1
    
    
    
    48.1Diluted
    
    
    53.6
    
    
    
    51.9
    
    
    
    47.9


c) Reconciliation of other comprehensive income2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ millionOther recognised gains and losses, as reported under UK GAAP
    
    
    24.2
    
    
    
    (445.0
    )
    
    
    (372.9
    )UK pensions accounting
    
    
    15.5
    
    
    
    297.2
    
    
    
    310.4Additional US GAAP pension liability
    
    
    (291.8
    )
    
    
    (21.2
    )
    
    
    Unrealised profit on disposal of subsidiary
    
    
    (8.2
    )
    
    
    
    
    
    
    Credit in relation to share options
    
    
    
    
    
    
    2.0
    
    
    
    4.4Write-down of revaluation reserve
    
    
    
    
    
    
    11.5
    
    
    
    Securities investments
    
    
    3.8
    
    
    
    (4.0
    )
    
    
    (15.9
    )Exchange adjustment
    
    
    (1.0
    )
    
    
    (4.1
    )
    
    
    (1.4
    )Other movements
    
    
    (0.6
    )
    
    
    (24.7
    )
    
    
    2.6Other comprehensive income under US GAAP
    
    
    (258.1
    )
    
    
    (188.3
    )
    
    
    (72.8
    )


118   The BOC Group plc Annual report and accounts 2003





---



##### 



30. US accounting information continued

d) Reconciliation of shareholders funds2003
    
    2002At 30 September
    
    £ million
    
    £ millionShareholders funds reported in the Group balance sheet under UK GAAP
    
    
    1,734.8
    
    
    
    1,684.1UK minority interests
    
    
    177.3
    
    
    
    117.91,912.1
    
    
    
    1,802.0Pensions
    
    
    48.8
    
    
    
    408.6Post retirement medical costs
    
    
    (12.5
    )
    
    
    (13.9
    )Revaluations of fixed assets
    
    
    (37.7
    )
    
    
    (33.1
    )Goodwill previously charged to reserves
    
    
    65.7
    
    
    
    80.4Non-amortisation of goodwill under SFAS142
    
    
    16.9
    
    
    
    3.5Goodwill on fair value adjustments
    
    
    1.8
    
    
    
    Write-down of previously revalued assets
    
    
    
    
    
    
    21.2Interest rate swaps
    
    
    (4.6
    )
    
    
    (6.6
    )Share of net assets of joint ventures and associates
    
    
    4.5
    
    
    
    (14.4
    )Securities investments  gross unrealised gains
    
    
    39.8
    
    
    
    36.7 gross unrealised losses
    
    
    
    
    
    
    (1.7
    )Financial instruments
    
    
    13.7
    
    
    
    16.5ESOPs and other shares held in trust
    
    
    (48.1
    )
    
    
    (42.5
    )Provision for executive share schemes
    
    
    0.9
    
    
    
    (3.6
    )Sale and leaseback
    
    
    (2.2
    )
    
    
    (2.5
    )Deferred tax
    
    
    49.6
    
    
    
    (72.7
    )Minority interests
    
    
    (176.2
    )
    
    
    (116.9
    )Shareholders funds under US GAAP
    
    
    1,872.5
    
    
    
    2,061.0


e) Movements in shareholders funds on a US GAAP basisShareholders funds at 1 October
    
    
    2,061.0
    
    
    
    2,138.9Net income for the year
    
    
    264.3
    
    
    
    255.4Dividends
    
    
    (192.1
    )
    
    
    (186.6
    )Shares issued
    
    
    3.7
    
    
    
    24.6Movement in treasury stock
    
    
    (6.3
    )
    
    
    17.0Other comprehensive income
    
    
    (258.1
    )
    
    
    (188.3
    )Shareholders funds at 30 September
    
    
    1,872.5
    
    
    
    2,061.0


f) Consolidated cash flow statement

The Group cash flow statement on page 74 has been prepared in accordance with
UK accounting standard FRS1, the objectives and principles of which are similar
to those set out in US accounting principle SFAS95, Statement of Cash Flows. The
principal differences between the standards relate to classification of items
within the cash flow statement and with regard to the definition of cash and
cash equivalents.


Under FRS1, cash flows are presented separately for: a) operating
activities; b) dividends from joint ventures and associates; c) returns on
investments and servicing of finance; d) tax paid; e) capital expenditure and
financial investment; f) acquisitions and disposals; g) equity dividends paid;
h) management of liquid resources; and i) financing. Under SFAS95, however, only
three categories of cash flow activity are reported: a) operating activities;
b) investing activities; and c) financing activities. Dividends from joint
ventures and associates, cash flows from returns on investments and servicing
of finance (excluding dividends paid to minorities) and tax paid under FRS1
would be included in operating activities under SFAS95; capital expenditure and
acquisitions and disposals would be included in investing activities under
SFAS95; equity dividends would be included as a financing activity under SFAS95.


Under FRS1, cash is defined as cash in hand and deposits repayable on
demand with any qualifying financial institution, less overdrafts from any
qualifying financial institution repayable on demand. Under SFAS95, cash is
defined as cash in hand and deposits but also includes cash equivalents which
are short-term, highly liquid investments. Generally only investments with
original maturities of three months or less come within this definition.


Set out below, for illustrative purposes, is a summary consolidated
statement of cash flows under SFAS95.


2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ millionNet cash provided by operating activities
    
    
    562.4
    
    
    
    620.2
    
    
    
    631.2Net cash used by investing activities
    
    
    (395.5
    )
    
    
    (540.0
    )
    
    
    (445.5
    )Net cash used by financing activities
    
    
    (286.4
    )
    
    
    (122.7
    )
    
    
    (225.6
    )Net decrease in cash and cash equivalents
    
    
    (119.5
    )
    
    
    (42.5
    )
    
    
    (39.9
    )Cash and cash equivalents at 1 October
    
    
    181.9
    
    
    
    259.0
    
    
    
    305.6Exchange and other movements
    
    
    14.0
    
    
    
    (34.6
    )
    
    
    (6.7
    )Cash and cash equivalents at 30 September
    
    
    76.4
    
    
    
    181.9
    
    
    
    259.0


119   The BOC Group plc Annual report and accounts 2003





---



##### 



Notes to the financial statements continued

30. US accounting information continued

g) Stock-based compensation

For US reporting purposes the company applies APB Opinion 25, Accounting for
Stock Issued to Employees and related interpretations, in accounting for its
share option plans. By applying this statement the employee share schemes are
deemed non-compensatory and therefore do not result in an expense for financial
reporting purposes. With the exception of the Long-Term Incentive Plan, grants
of share options under executive schemes are at the market price of the
companys shares at the time of grant. The schemes are deemed compensatory and
a charge is only recognised when certain performance conditions are met.


If compensation cost for the Groups share option plans had been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS123, Accounting for Stock-Based
Compensation, the Groups net income under US GAAP would have been:


2003
    
    2002
    
    2001£ million
    
    £ million
    
    £ millionReported net income
    
    
    264.3
    
    
    
    255.4
    
    
    
    234.2Add stock compensation expense recognised in accordance with APB25 (net of related tax)
    
    
    
    
    
    
    2.5
    
    
    
    Deduct stock compensation expense determined in accordance with SFAS123 (net of related tax)
    
    
    (7.1
    )
    
    
    (6.9
    )
    
    
    (6.8
    )Pro forma net income
    
    
    257.2
    
    
    
    251.0
    
    
    
    227.4


2003
    
    2002
    
    2001pence
    
    pence
    
    penceEarnings per share:Basic  as reported
    
    
    53.7
    
    
    
    52.1
    
    
    
    48.1Basic  pro forma
    
    
    52.2
    
    
    
    51.2
    
    
    
    46.7Diluted  as reported
    
    
    53.6
    
    
    
    51.9
    
    
    
    47.9Diluted  pro forma
    
    
    52.2
    
    
    
    51.0
    
    
    
    46.5


The Black-Scholes model was used to measure the compensation expense under
SFAS123. The assumptions used for grants in 2003 included a dividend yield of
4.5 per cent (2002:4.0 per cent, 2001:4.0 per cent), expected share price
volatility of 30.6 per cent (2002:31.0 per cent, 2001:30.0 per cent), a weighted
average expected life of 5.0 years (2002:5.0 years, 2001:4.2 years) and a
weighted average interest rate of 4.0 per cent (2002:4.9 per cent, 2001:5.1 per
cent).The weighted average interest rate is based on UK Gilts on the date of
grant with a maturity similar to the related options.


h) Recently issued accounting pronouncements implemented in the year

SFAS142  Goodwill and other intangible assets


SFAS142 became
effective for the Group on 1 October 2002. The statement removes
the requirement to amortise goodwill and certain other intangible assets, and
instead, requires an annual impairment review to be carried out on these items.
The impact of this standard is reflected in the US accounting information for
the year to 30 September 2003.


The following table reflects net income for comparative periods prior to
the adoption of SFAS142 as if the statements non-amortisation provisions had
been adopted at the beginning of the respective periods.


2002
    
    2001£ million
    
    £ millionReported US GAAP net income
    
    
    255.4
    
    
    
    234.2Add
back: amortisation of goodwill charged against profit under both UK and US GAAP
    
    
    3.7
    
    
    
    3.4 charged against profit under US GAAP
    
    
    7.2
    
    
    
    7.9US GAAP net income on SFAS142 basis
    
    
    266.3
    
    
    
    245.5


The changes in the carrying amount of goodwill for the year ended 30 September
2003 are as follows:IndustrialProcess
    
    and Special
    
    BOC
    
    AfroxGas Solutions
    
    Products
    
    Edwards
    
    hospitals
    
    Gist
    
    Corporate
    
    Total£ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ million
    
    £ millionBalance at 1 October
    
    
    34.3
    
    
    
    86.4
    
    
    
    120.3
    
    
    
    6.1
    
    
    
    0.7
    
    
    
    3.0
    
    
    
    250.8Acquired during year
    
    
    26.0
    
    
    
    11.0
    
    
    
    1.8
    
    
    
    3.1
    
    
    
    
    
    
    
    
    
    
    
    41.9Disposed of during year
    
    
    
    
    
    
    (17.0
    )
    
    
    (1.2
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    (18.5
    )Exchange adjustment
    
    
    (0.8
    )
    
    
    2.3
    
    
    
    0.1
    
    
    
    2.7
    
    
    
    
    
    
    
    (0.3
    )
    
    
    4.0Balance at 30 September
    
    
    59.5
    
    
    
    82.7
    
    
    
    121.0
    
    
    
    11.6
    
    
    
    0.7
    
    
    
    2.7
    
    
    
    278.2


There were no impairments of goodwill during the year.


SFAS143  Accounting for asset retirement obligations

SFAS143 became
effective for the Group on 1 October 2002. The statement requires
that the fair value of a liability for an asset retirement obligation be
recognised in the period in which it is incurred if a reasonable estimate of
the fair value can be made. The associated asset retirement costs are
capitalised as part of the carrying amount of the long-lived asset. The
standard has not had a material impact on the results or financial position of
the Group in the year.


SFAS144  Accounting for the impairment or disposal of long-lived assets

SFAS144 became
effective for the Group on 1 October 2002. The statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets, and it establishes a single accounting model for long-lived
assets to be disposed of. The standard has not had a material impact on the
results or financial position of the Group in the year.


120   The BOC Group plc Annual report and accounts 2003





---



##### 



30. US accounting information continued

SFAS146  Accounting for costs associated with exit or disposal activities
SFAS146 is effective for all exit or disposal activities initiated after 31
December 2002. The statement addresses financial accounting and reporting for
costs associated with exit or disposal activities. It requires that a liability
for a cost associated with an exit or disposal activity are recognised when the
liability is incurred, rather than the date at which a commitment is made to an
exit or disposal plan. The impact of the standard is reflected in restructuring
costs in the US GAAP reconciliation statements.


SFAS148  Accounting for stock-based compensation  transition and disclosure
 an amendment to SFAS123
In December 2002, the US Financial Accounting Standards Board issued
SFAS148. This statement provides alternative methods of transition for companies
electing to adopt a fair value method of accounting for stock-based employee
compensation. It also amends the disclosure requirements of SFAS123 Accounting
for Stock-Based Compensation, but makes no changes to the fair value principles
of SFAS123.


The Group has complied with the disclosure requirements of SFAS148 in note
30 g) in the current year. There is no impact on the results or financial
position of the Group, as the Group applies APB Opinion 25 for the treatment of
stock-based compensation.


SFAS149  Amendment of Statement 133 on derivative instruments and hedging activities
In April 2003, the US Financial Accounting Standards Board
issued SFAS149. This statement amends and clarifies financial reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. This statement is effective for contracts entered into or
modified after 30 June 2003, and has not had a material effect on the results or
financial position in the current period. Management does not believe that this
statement will have a material effect on the Groups results and financial
position under US GAAP in future periods.


SFAS150  Accounting for certain financial instruments with characteristics of
both debt and equity
In May 2003, the US Financial Accounting Standards Board issued
SFAS150. This
statement establishes how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. Some financial
instruments will be classified as a liability, and others will be classified as
equity. This statement is effective for financial instruments entered into or
modified after 31 May 2003 and has not had a material effect on the results or
financial position in the current period. Management does not believe that this
statement will have a material effect on the Groups results and financial
position under US GAAP in future periods.


EITF 00-21  Accounting for revenue arrangements with multiple deliverables
In May 2003, the Emerging Issues Task Force (EITF) finalised amendments made to
Issue 00-21 following a consensus being reached in November 2002. Issue 00-21
addresses certain aspects of accounting by a seller, especially relating to the
identification of single units of accounting for arrangements where the company
will perform multiple revenue-generating activities. Issue 00-21 is effective
prospectively for arrangements initiated on or after 1 July 2003. Issue 00-21
has not had a material impact on the Groups results and financial position in
the current period. Management does not believe that this issue will have a
material effect on the results and financial position under US GAAP in future
periods.


EITF 01-8  Determining whether an arrangement contains a lease
In May 2003, the Emerging Issues Task Force (EITF) reached a consensus on EITF
Issue 01-8. Issue 01-8 provides guidance for determining whether an arrangement
contains a lease that is within the scope of SFAS13 Accounting for Leases. If
it is determined that a lease exists, the lease and non-lease components of a
combined sales arrangement must be accounted for separately. Issue 01-8 is
effective prospectively for arrangements initiated, modified, or acquired after
1 July 2003.


Management is currently evaluating the impact of EITF Issue 01-8 on its
on-site supply agreements, and assessing the impact that this issue is likely
to have in future periods. Issue 01-8 has not had a material impact on the
Groups results and financial position in respect of new or modified
arrangements in the current period under US GAAP.


i) Recently issued accounting pronouncements not yet implemented
FIN46  Consolidation of variable interest entities
In January 2003, the US Financial Accounting Standards Board issued FASB
Interpretation Number (FIN) 46. In the current period, this interpretation is
applicable to all variable interest entities created after 31
January 2003. It
will apply to all variable interest entities for accounting periods beginning
after 31 December 2003. This interpretation requires the primary beneficiary to
consolidate a variable interest entity if it holds a variable interest that
will absorb a majority of the entitys expected losses if they occur, receive a
majority of the entitys expected residual returns if they occur, or both. This
interpretation has not had a material effect on the results or financial
position in the current period. Management is currently assessing whether this
interpretation is likely to have a material effect on the Groups results and
financial position under US GAAP in future periods.


j) Other informationUse of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make significant estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.


31. Post balance sheet events

a)On 17
November 2003, the Groups South African subsidiary company African
Oxygen Limited announced that it had agreed to sell its entire holding in Afrox
Healthcare Limited. At that date, the estimated impact of the transaction was a
reduction of a maximum of 1.5p in Group earnings per share for the year to 30
September 2003. The sale remains subject to certain conditions, including
clearance from the relevant competition and other regulatory authorities.
b)An action was filed against The BOC Group Cash Balance Retirement Plan (the
Plan) in the US. At the time of the preliminary announcement of the Groups
results on 13 November 2003, no provision was made in respect of this case, as
at that time the outcome of the litigation was uncertain and the amount of any
loss could not be reliably estimated. Subsequently, the parties have reached an
agreement in principle to settle at US$69 million, subject to approval by the
court at a fairness hearing. Under UK accounting principles (FRS17) this amount
has been recognised as a charge in the profit and loss account of the Group. It
has been shown as an exceptional item. The settlement will be paid out of Plan
assets.


121 The BOC Group plcAnnual report and accounts 2003





---



##### 



Group undertakings


A list of the Groups major operating undertakings, certain financing
undertakings and undertakings in which the Group has a material interest is
detailed below. All holdings shown are Ordinary shares. Undertakings are held
either by The BOC Group plc directly (where indicated by*) or through other
operating undertakings or through undertakings formed for the convenient
holding of shares in certain subsidiaries, joint ventures or associates. The
Group holding percentages shown below represent the ultimate interest of The
BOC Group plc. All companies are incorporated and registered in the country in
which they operate as listed below.

Principal
    
    Group holdingactivity
    
    %ArubaBOC Gases Aruba NV
    
    m
    
    
    100AustraliaBOC Ltd3
    
    nm
    
    
    100Elgas Ltd5
    
    m
    
    
    50BangladeshBOC Bangladesh Ltd
    
    m
    
    
    60
    *BelgiumSA BOC Edwards NV5
    
    l
    
    
    100BermudaPriestley Company Ltd
    
    u
    
    
    100The Hydrogen Company of
ParaguanaLtd
    
    n
    
    
    100BrazilBOC Edwards Brasil Ltda
    
    lu
    
    
    100BOC Gases do Brasil Ltda
    
    n
    
    
    100BruneiBrunei Oxygen Sdn Bhd(a),5
    
    m
    
    
    25CanadaBOC Canada Ltd3
    
    m
    
    
    100Hibon Inc
    
    l
    
    
    100ChileCompania de Hidrogeno de
TalcahuanoLtda5
    
    n
    
    
    100Indura S.A., Industria y Comercio5
    
    m
    
    
    41ColombiaGases Industriales de Colombia SA5
    
    nm
    
    
    74Czech RepublicBOC Edwards s.r.o
    
    l
    
    
    100Gist Czech Republic s.r.o.5
    
    4
    
    
    100EnglandBOC Edwards Chemical
ManagementEurope Ltd
    
    l
    
    
    100
    *BOC Holdings1,3
    
    u
    
    
    100
    *BOC Ltd3
    
    nml
    
    
    100BOC Netherlands Holdings Ltd3
    
    u
    
    
    100
    *BOC Overseas Finance Ltd
    
    u
    
    
    100
    *Edwards High Vacuum International Ltd
    
    l
    
    
    100Fluorogas Ltd8
    
    l
    
    
    100
    *Gist Ltd
    
    4
    
    
    100Leengate Welding Group Ltd
    
    m
    
    
    100Welding Products Holdings Ltd
    
    m
    
    
    100
    *FijiBOC Fiji Ltd
    
    m
    
    
    90


Principal
    
    Group holdingactivity
    
    %FranceCryostar-France SA
    
    n
    
    
    100Edwards SA
    
    l
    
    
    100Hibon International SA5
    
    l
    
    
    100Hibon SAS5
    
    l
    
    
    100Société de Mécanique Magnétique
    
    l
    
    
    87GermanyBOC Edwards GmbH
    
    l
    
    
    100Wilhelm Klein GmbH
    
    l
    
    
    100Hong KongHong Kong Oxygen & Acetylene Co Ltd
    
    nm
    
    
    50The BOC Group Ltd
    
    lu
    
    
    100IndiaBOC India Ltd5
    
    nm
    
    
    55
    *IndonesiaPT BOC Gases Indonesia
    
    nm
    
    
    100PT Gresik Gases Indonesia
    
    n
    
    
    90PT Gresik Power Indonesia
    
    n
    
    
    90IrelandBOC Gases Ireland Ltd3
    
    nm
    
    
    100Priestley Dublin Reinsurance
CompanyLtd
    
    u
    
    
    100ItalyBOC Edwards SpA
    
    l
    
    
    100JapanBOC Edwards Technologies KK
    
    l
    
    
    100BOC Japan Ltd
    
    u
    
    
    98Edwards Japan Ltd
    
    l
    
    
    100Japan Air Gases Ltd9
    
    nml
    
    
    44KenyaBOC Kenya Ltd
    
    m
    
    
    65KoreaBOC Gases Korea Co Ltd
    
    n
    
    
    100Songwon Edwards Ltd
    
    l
    
    
    97LuxembourgBOC Luxembourg No.1 Sarl
    
    u
    
    
    100BOC Luxembourg No.2 Sarl
    
    u
    
    
    100MalawiBOC Malawi Ltd(c)
    
    m
    
    
    42MalaysiaMalaysian Oxygen
Bhd(a),3,4
    
    nml
    
    
    23MOX Gases Bhd (formerly NIOI)
    
    m
    
    
    23MauritiusLes Gaz Industriels Ltee(b)
    
    m
    
    
    21MexicoCompania de Nitrogeno de
Cantarell,SA de CV5
    
    n
    
    
    35




122   The BOC Group plcAnnual report and accounts 2003





---



##### 





Principal
    
    Group holdingactivity
    
    %NamibiaIGL Properties (Pty) Ltd
    
    m
    
    
    56NetherlandsBOC Edwards Pharmaceutical
SystemsBV
    
    l
    
    
    100Gist BV
    
    4
    
    
    100The BOC Group BV3
    
    u
    
    
    100Netherlands Antilles
BOC Gases Curaçao NV
    
    m
    
    
    100New ZealandBOC Ltd
    
    nm
    
    
    100NigeriaBOC Gases Nigeria plc
    
    m
    
    
    60PakistanBOC Pakistan Ltd
    
    nm
    
    
    60
    *Papua New GuineaBOC Papua New Guinea Pty Ltd
    
    m
    
    
    74Peoples Republic of ChinaBOC (China) Holdings Co Ltd3,5
    
    n
    
    
    100BOC Gases (North) Co Ltd5
    
    n
    
    
    100BOC Gases (Shanghai) Corporation Ltd5
    
    n
    
    
    100BOC Gases (Suzhou) Co Ltd5
    
    n
    
    
    100BOC Gases (Tianjin) Co Ltd5
    
    n
    
    
    100
    *BOC Gases (Wuhan) Co Ltd5
    
    n
    
    
    100BOC TISCO Gases Co Ltd5
    
    n
    
    
    50
    *BOC Trading (Shanghai) Co Ltd5
    
    l
    
    
    100Nanjing BOC-YPC Gases Co Ltd5
    
    n
    
    
    50Shanghai BOC Industrial Gases Co Ltd5
    
    n
    
    
    50
    *PhilippinesConsolidated Industrial Gases Inc
    
    nml
    
    
    100Southern Industrial Gases Philippines Inc
    
    m
    
    
    100PolandBOC Gazy Sp.z o.o.3
    
    nm
    
    
    98Samoa
BOC Gases (Samoa) Ltd
    
    m
    
    
    96SingaporeBOC Gases Pte Ltd
    
    u
    
    
    100
    *Singapore Oxygen Air Liquide Pte Ltd
    
    nml
    
    
    50Solomon IslandsBOC Gases Solomon Islands Ltd
    
    m
    
    
    100


Principal
    
    Group holdingactivity
    
    %South AfricaAfrican Oxygen Ltd3
    
    nmo
    
    
    56Afrox Healthcare Ltd(c),3
    
    o
    
    
    39Afrox Ltd
    
    nm
    
    
    56BOC Edwards South Africa (Pty) Ltd
    
    l
    
    
    100SwitzerlandBOC AG
    
    n
    
    
    100TaiwanBOC Lienhwa Industrial Gases Co Ltd
    
    nml
    
    
    50ThailandThai Industrial Gases Public Co Ltd3
    
    nml
    
    
    99TIG HyCO Ltd
    
    n
    
    
    99Unique Gas and Petrochemical
PublicCo Ltd
    
    m
    
    
    99TurkeyBirlesik Oksijen Sanayi AS
    
    nm
    
    
    50
    *USBOC, Inc
    
    u
    
    
    100Environmental Management Corporation
    
    n
    
    
    100Linde BOC Process Plants LLC(a)
    
    n
    
    
    30The BOC Group, Inc3
    
    nmlu
    
    
    100US Virgin IslandsBOC Gases Virgin Islands Inc5
    
    n
    
    
    100VenezuelaBOC Gases de Venezuela, C.A.
    
    nm
    
    
    100VietnamNorth Vietnam Industrial Gases Ltd5
    
    n
    
    
    40ZambiaBOC Gases Zambia plc(c)
    
    m
    
    
    39ZimbabweBOC Zimbabwe (Pvt) Ltd
    
    m
    
    
    100
 1.
    
    Unlimited company having share capital with registered office at
the same address as The BOC Group plc. 2.
    
    Businesses where the Group percentage ownership is 50 per cent or less are
accounted for as joint ventures, except as follows: (a) accounted for as
associates, (b) accounted for as investment or (c) accounted for as
subsidiary (controlled through partly owned intermediate
undertaking). See also
accounting policies on pages 77 and 78. 3.
    
    Group undertakings which made acquisitions or investments during the
year. 4.
    
    Group holding for dividend purposes is 28 per cent. 5.
    
    Group undertakings with financial year ends other than 30 September. 6.
    
    The principal activity of each undertaking is indicated as follows: n
    
    Process Gas Solutions m
    
    Industrial and Special
Products l
    
    BOC Edwards o
    
    Afrox hospitals 4
    
    Gist u
    
    Corporate/holding company 7.
    
    *
    
    Indicates where investment is held directly by The BOC Group plc. 8.
    
    In administration. 9.
    
    BOC Japan Ltd holds 45 per cent of Japan Air Gases Ltd.




123   The BOC Group plcAnnual report and accounts 2003





---



##### 



Shareholder information

Dividends


Ordinary shares
The company has paid cash dividends on its Ordinary shares in every year since
1899. Since 1988, the dividend policy has been to pay two interim dividends, one
in February and one in August. The dividends are reported in the accounts in
the year in which they are paid.


Two
dividends were paid in 2003. A first interim dividend of 15.5p (net)
per share was paid in February and a second interim dividend of 23.5p (net) per
share was paid in August. Future dividends of the company will be dependent
upon future earnings, the financial position of the company and other factors.
A first interim dividend of 15.5p (net) per share has been declared for payment
on 2 February 2004.


The table below sets out, in UK pence, the total of the cash amounts of the
dividends per share.Pence per Ordinary share$ perFirst
    
    
    Second
    
    
    
    
    
    
    Ordinaryinterim paid
    
    
    interim paid
    
    
    Total
    
    
    share total11999
    
    
    15.70
    
    
    
    17.00
    
    
    
    32.70
    
    
    
    0.582000
    
    
    15.50
    
    
    
    19.50
    
    
    
    35.00
    
    
    
    0.602001
    
    
    15.50
    
    
    
    21.50
    
    
    
    37.00
    
    
    
    0.592002
    
    
    15.50
    
    
    
    22.50
    
    
    
    38.00
    
    
    
    0.632003
    
    
    15.50
    
    
    
    23.50
    
    
    
    39.00
    
    
    
    0.66


|1. |  | The dollar equivalents of the dividend per Ordinary share are based on
the exchange rate at the date of payment of the dividend.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------

121⁄4% Unsecured Loan Stock 2012/2017
Interest payments are made twice each year on 2 April and 2 October at such amounts as will result in an annual rate of 121⁄4 per cent.


American Depositary Shares
Since listing on the New York Stock Exchange on 18 September 1996 the gross
dividends applicable to an American Depositary Share representing two Ordinary
shares, before deduction of withholding tax but including the UK imputed tax
credit, where applicable, are as follows:2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999$
    
    
    $
    
    
    $
    
    
    $
    
    
    $First interim
    
    
    0.56
    
    
    
    0.48
    
    
    
    0.50
    
    
    
    0.55
    
    
    
    0.55Second interim
    
    
    0.75
    
    
    
    0.77
    
    
    
    0.68
    
    
    
    0.65
    
    
    
    0.60


Nature of trading market

The companys Ordinary shares and 121⁄4% Unsecured Loan Stock 2012/2017 are
listed on the London Stock Exchange.


The company listed American Depositary Shares (ADS) on the New York Stock
Exchange (NYSE) on 18 September 1996 trading under the symbol BOX. Each ADS
represents two Ordinary shares and is evidenced by an American Depositary
Receipt (ADR). The ADR depositary, JPMorgan Chase Bank, holds Ordinary shares in
the company through Guaranty Nominees Limited.


At
13 November 2003, there were 253 US registered holders who held 237,144
of the companys Ordinary shares and 61 registered ADS holders representing
40,980 ADSs. In addition, 3,189,473 ADSs were held by and through the Depository
Trust Company.


The table below sets out the reported highest and lowest middle market
quotations for the companys Ordinary shares on the London Stock Exchange as
notified by the companys stockbrokers for the periods indicated.


2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999Financial year
    
    High
    
    
    Low
    
    
    High
    
    
    Low
    
    
    High
    
    
    Low
    
    
    High
    
    
    Low
    
    
    High
    
    
    Lowquarter
    
    pence
    
    
    pence
    
    
    pence
    
    
    pence
    
    
    pence
    
    
    pence
    
    
    pence
    
    
    pence
    
    
    pence
    
    
    penceFirst quarter
    
    
    947.0
    
    
    
    818.0
    
    
    
    1108.0
    
    
    
    907.0
    
    
    
    1050.0
    
    
    
    850.5
    
    
    
    1336.0
    
    
    
    1242.0
    
    
    
    927.0
    
    
    
    698.0Second quarter
    
    
    904.0
    
    
    
    670.0
    
    
    
    1100.0
    
    
    
    988.0
    
    
    
    1076.0
    
    
    
    909.0
    
    
    
    1376.0
    
    
    
    1132.0
    
    
    
    917.5
    
    
    
    801.0Third quarter
    
    
    828.5
    
    
    
    755.0
    
    
    
    1088.0
    
    
    
    999.0
    
    
    
    1114.0
    
    
    
    928.0
    
    
    
    1245.0
    
    
    
    901.0
    
    
    
    1262.0
    
    
    
    870.0Fourth quarter
    
    
    912.5
    
    
    
    767.5
    
    
    
    1035.0
    
    
    
    836.0
    
    
    
    1060.0
    
    
    
    780.0
    
    
    
    1020.0
    
    
    
    871.0
    
    
    
    1387.0
    
    
    
    1228.0


2003
    
    May
    
    
    June
    
    
    July
    
    
    August
    
    
    September
    
    
    OctoberHigh pence
    
    
    790.0
    
    
    
    809.0
    
    
    
    871.5
    
    
    
    889.5
    
    
    
    912.5
    
    
    
    906.5Low pence
    
    
    755.0
    
    
    
    755.5
    
    
    
    767.5
    
    
    
    824.0
    
    
    
    826.0
    
    
    
    803.5


124   The BOC Group plcAnnual report and accounts 2003





---



##### 



The table below sets out the highest and lowest reported sales prices for the
companys ADSs as reported on the NYSE as notified by the depositary for the
periods indicated.2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999Financial yearquarter
    
    High $
    
    
    Low $
    
    
    High $
    
    
    Low $
    
    
    High $
    
    
    Low $
    
    
    High $
    
    
    Low $
    
    
    High $
    
    
    Low $First quarter
    
    
    29.11
    
    
    
    25.69
    
    
    
    31.76
    
    
    
    26.60
    
    
    
    31.25
    
    
    
    24.31
    
    
    
    43.81
    
    
    
    41.00
    
    
    
    30.56
    
    
    
    22.75Second quarter
    
    
    29.31
    
    
    
    22.00
    
    
    
    31.60
    
    
    
    27.83
    
    
    
    32.75
    
    
    
    26.70
    
    
    
    44.75
    
    
    
    35.87
    
    
    
    29.12
    
    
    
    26.56Third quarter
    
    
    27.30
    
    
    
    24.19
    
    
    
    31.74
    
    
    
    29.75
    
    
    
    31.50
    
    
    
    26.05
    
    
    
    40.18
    
    
    
    26.81
    
    
    
    40.31
    
    
    
    27.25Fourth quarter
    
    
    29.63
    
    
    
    25.86
    
    
    
    31.80
    
    
    
    26.02
    
    
    
    30.24
    
    
    
    22.50
    
    
    
    30.00
    
    
    
    25.06
    
    
    
    43.56
    
    
    
    39.37


2003
    
    May
    
    
    June
    
    
    July
    
    
    August
    
    
    September
    
    
    OctoberHigh $
    
    
    25.90
    
    
    
    27.30
    
    
    
    28.48
    
    
    
    28.55
    
    
    
    29.63
    
    
    
    30.59Low $
    
    
    24.95
    
    
    
    25.50
    
    
    
    25.86
    
    
    
    26.80
    
    
    
    27.68
    
    
    
    27.95


Analysis of shareholdings


a)
Substantial holdings  at 13 November 2003Numberof shares
    
    

%
of issuedmillion
    
    
    capitalOrdinary shares of 25p eachFMR Corp and Fidelity International Limited
    
    
    15.30
    
    
    
    3.08Legal & General Investment Management Limited
    
    
    15.00
    
    
    
    3.02


At 13 November 2003 no person or company is known to hold more than five per
cent of the Ordinary shares.


The company is not directly or indirectly owned or controlled by any other
company or any government.


b) By size of holding  at 30 September 2003% of
    
    
    
    
    
    
    Number of
    
    
    %Number of
    
    
    total number
    
    
    
    
    
    
    25p shares
    
    
    of ordinaryaccounts
    
    
    of accounts
    
    
    Size of holding 25p shares
    
    
    million
    
    
    capital19,936
    
    
    
    44
    
    
    
    1  500
    
    
    
    5.2
    
    
    
    112,002
    
    
    
    27
    
    
    
    501  1,000
    
    
    
    9.0
    
    
    
    211,087
    
    
    
    25
    
    
    

1,001  5,000
    
    
    21.7
    
    
    
    41,478
    
    
    
    3
    
    
    
    5,001  50,000
    
    
    
    21.3
    
    
    
    4601
    
    
    
    1
    
    
    
    50,001  1,000,000
    
    
    
    139.3
    
    
    
    2885
    
    
    
    0
    
    
    
    Over 1,000,000
    
    
    
    301.2
    
    
    
    6145,189
    
    
    
    100
    
    
    
    
    
    
    
    497.7
    
    
    
    100


c)
By investor type  at 30 September 2003% of
    
    
    
    
    
    
    Number of
    
    
    %Number of
    
    
    total number
    
    
    
    
    
    
    25p shares
    
    
    of ordinaryaccounts
    
    
    of accounts
    
    
    Type of investor
    
    
    million
    
    
    capital32,828
    
    
    
    73
    
    
    
    Individuals
    
    
    
    29.2
    
    
    
    611,412
    
    
    
    25
    
    
    
    Institutional investors
    
    
    
    455.1
    
    
    
    91949
    
    
    
    2
    
    
    
    Other corporate investors
    
    
    
    13.4
    
    
    
    345,189
    
    
    
    100
    
    
    
    
    
    
    
    497.7
    
    
    
    100


d) Close company status
The company is not a close company within the meaning of the Income and
Corporation Taxes Act 1988. There has been no change in that status since 30
September 2003.


e) Stock ownership of management
The interests of the directors and officers of the company in the shares and
options of the company are given in the report on remuneration on pages 60 to
69.


125   The BOC Group plcAnnual report and accounts 2003





---



##### 



Shareholder information continued

Taxation

A summary of the principal tax consequences for certain beneficial holders of
Ordinary shares of BOC and ADSs representing Ordinary shares is set out below.
This summary applies to citizens or residents of the UK or US, or otherwise who
are subject to UK tax or US federal income tax on a net income basis in respect
of such securities. It is not intended to be a comprehensive analysis of all of
the potential tax consequences of holding Ordinary shares or ADSs and does not
purport to deal with persons who hold their Ordinary shares or ADSs in special
circumstances, such as financial institutions, tax exempt organisations,
insurance companies, dealers in securities, persons who own, directly or
indirectly or by attribution, ten per cent or more of the outstanding share
capital or voting stock of BOC, persons holding Ordinary shares or ADSs as part
of a hedge, straddle or other risk reduction transaction, or who acquired
such Ordinary shares or ADSs through the exercise of an employee stock option
or otherwise as compensation. All holders and investors are advised to consult
their tax advisors on the tax implications of their particular holdings,
including the consequences under applicable state and local law.


The statements of tax laws set out below are based on the laws in force at
the date of this report unless otherwise noted, and are subject to any
subsequent changes in UK and US law, or in any double tax convention between
the UK and the US.


UK shareholders
The following information applies to individuals who hold Ordinary shares and
who are resident or ordinarily resident in the UK for UK tax purposes (UK
resident holders).


Taxation of capital gains
A UK resident holder will be liable to UK tax on the gain from the disposal of
Ordinary shares. For the purposes of calculating the gain from the disposal of
Ordinary shares, a UK resident holder who held Ordinary shares prior to 31
March 1982 may substitute the market value of such shares as at that date for
the original cost of such shares. The market value of Ordinary shares on 31
March 1982 was 168.75p per Ordinary share.


A UK resident holder may also be entitled to indexation relief and taper
relief when selling shares. Indexation relief is calculated on the market value
of shares held at 31 March 1982 and on the cost of any subsequent purchases
from that date. Indexation relief is not available for periods after 1 April
1998. Taper relief provides UK resident holders with relief from tax on gains
accrued on the disposal of Ordinary shares held or acquired after 5 April
1998. The amount of taper relief available depends on the length of time such
shares have been held and on the UK resident holders individual facts and
circumstances.


Taxation of dividends
A UK resident holder is entitled to a tax credit on receipt of a cash dividend.
The tax credit is a fixed proportion of the dividend and is currently 1/9th of
the cash dividend received.


The income subject to UK income tax is the sum of the dividend and the
attached tax credit, with the tax credit being available as a deduction against
any resulting tax liability.


Special rates of tax apply to dividend income: the ordinary rate is ten
per cent and applies to individuals liable to tax at the basic or lower rates
of tax; the upper rate is 32.5 per cent which applies to the extent that
income exceeds the basic rate band.


For a UK resident holder liable to income tax only at the basic or lower
rates of tax, there will thus be no further tax liability in respect of the
dividend received. If, however, the UK resident holder is subject to income tax
at the higher rate there will be a further tax liability on the sum of the cash
dividend received and the associated tax credit. Where a UK resident holders
tax liability is less than the associated tax credit, no refund is available.


By way of example, the payment by BOC of a cash dividend of £90 would have
an associated tax credit of £10 and a UK resident holder is treated as
receiving a gross dividend of £100. The upper rate tax of 32.5 per cent on the
gross dividend is £32.50. Therefore the UK resident holder liable to tax at the
upper rate will have a tax liability of £22.50, being the tax liability on the
gross dividend of £32.50 less the tax credit of £10.


Stamp duty
Stamp duty or stamp duty reserve tax at the rate of 0.5 per cent of
consideration payable is normally payable on the purchase price of shares.


Inheritance tax
Individual shareholders may be liable to inheritance tax on the transfer of
Ordinary shares. Inheritance tax may be charged on the amount by which the
value of a shareholders estate is reduced as a result of any transfer by way
of gift or other gratuitous transaction made by them or treated as made by
them.


US holders
For the purposes of this summary, a US holder is a beneficial owner of ADSs who
is an individual citizen or resident of the US, a corporation or other entity
organised under the laws of the US or any state thereof, an estate whose income
is subject to US federal income tax regardless of its source, or a trust if a
court within the US is able to exercise primary supervision over the
administration of the trust and one or more US persons have the authority to
control all substantial decisions of the trust.


US holders should be aware that a new UK-US Income Tax Convention, as
amended by a Protocol to the Convention signed on 19 July 2002, came into force
on 31 March 2003 (the New Convention). The New Convention generally will have
effect in respect of dividends paid on or after 1 May 2003. However, a US
holder entitled to benefits under the US-UK Income Tax Convention that came
into force on 25 April 1980, as amended by Protocols (the 1980 Convention) may
elect to have the provisions of the 1980 Convention continue in their entirety
for an additional 12 months if the election to apply the 1980 Convention would
result in greater benefits to the holder. If a US holder were to make an
effective election, the discussion below with respect to dividend payments made
pursuant to the 1980 Convention would continue to apply to dividends paid by
the company prior to 1 May 2004. The discussion below notes the instances where
the relevant provisions of the New Convention will produce a materially
different result for a US holder. US holders should note that certain articles
in the New Convention limit or restrict the ability of a US holder to claim
benefits under the New Convention and that similar provisions were not
contained in the 1980 Convention. US holders should consult their own tax
advisors concerning the applicability of both Conventions.


US holders of ADSs are treated as owners of underlying Ordinary shares for
the purposes of the New Convention, the 1980 Convention and the convention
relating to estate and gift tax (the Estate Tax Convention) and for the
purposes of the US Internal Revenue Code of 1986, as amended (the Code).


126   The BOC Group plcAnnual report and accounts 2003





---



##### 



Taxation of dividends
Under current UK tax legislation, no tax will be withheld from dividend
payments made by BOC. Under the 1980 Convention US holders of ADSs are treated
as receiving dividend income equal to the sum of the dividend and the
associated tax credit, reduced by UK withholding tax at a rate not exceeding 15
per cent of the amount of the dividend and the associated tax credit. As the
tax credit is equal to 1/9th of the dividend the withholding tax is equal to the
tax credit.


This will be the case where the holding is not effectively connected with
a permanent establishment or fixed base in the UK and provided that the
shareholder is not subject to the special rules of the 1980 Convention such as
those applying to US tax-exempt entities and certain investment or holding
companies where 25 per cent of the capital is held directly or indirectly by
persons who are not individual residents or nationals of the US.


Thus, under the 1980 Convention, a US holder receiving a dividend of £90
will be treated as receiving taxable income of £100 less UK withholding tax of
£10. No refund of UK tax is available.


Dividends received by a US holder will be foreign source income for US
federal income tax purposes in the amount equal to the US dollar value of the
gross dividend (that is the sum of the dividend and the associated tax
credit), on the date of such payment. Generally dividends will not be eligible
for the dividends received deduction allowed to US corporations under the
Code. Subject to certain limitations, the UK tax treated as withheld from
payments will be available as a credit against US tax.


Under the New Convention which generally applies with respect to dividends
paid on or after 1 May 2003 (unless an effective election is made to extend the
applicability of the 1980 Convention) a US holder has no right to receive the
associated tax credit with the dividend payment made by BOC.


US holders should consult their own tax advisors to determine whether they
are eligible for benefits under the 1980 Convention and the New Convention,
whether, and to what extent, a foreign tax credit will be available with
respect to dividends received from BOC, and whether it may be advisable in
light of the holders particular circumstances to elect to have the provisions
of the 1980 Convention continue in force until 1 May 2004.


Recent United States tax law changes applicable to individuals
Recent US tax legislation (the 2003 Tax Act) generally has reduced the rates of
tax payable by individuals (as well as certain trusts and estates) on many
items of income. Under the 2003 Tax Act, the marginal tax rates applicable to
ordinary income generally have been lowered with effect from 1 January 2003. In
addition, for capital assets held for over one year and sold or exchanged on or
after 6 May 2003 but in taxable years beginning before 1
January 2009, the
maximum applicable US federal rate of tax generally will be 15 per cent (rather
than the higher rates of tax generally applicable to items of ordinary income).
Furthermore, qualified dividend income received by individuals in taxable
years beginning after 31 December 2002 and beginning before 1 January 2009,
generally will be taxed at a maximum US federal rate of 15 per cent (rather
than the higher rates of tax generally applicable to other items of ordinary
income) provided certain holding period requirements are met. For this purpose,
qualified dividend income generally includes dividends paid on stock in US
corporations as well as dividends paid on stock in certain non-US corporations
if, among other things, (i) the shares of the non-US corporation (including
ADSs) are readily tradable on an established securities market in the US, or
(ii) the non-US corporation is eligible with respect to substantially all of
its income for the benefits of a comprehensive income tax treaty with the US
which contains an exchange of information program. The New Convention has been
identified by the US Treasury as a qualifying treaty. BOC currently anticipates
that dividends paid with respect to Ordinary shares and ADSs should constitute
qualified dividend income for US federal income tax purposes and that US
holders who are individuals should be entitled to the reduced rates of tax, as
applicable. However, the precise extent to which dividends paid by non-US
corporations will constitute qualified dividend income and the effect of such
status on the ability of a taxpayer to utilise any associated foreign tax
credits is not entirely clear at present. It is anticipated that there will be
administrative pronouncements concerning these provisions in the future. In the
meantime, US holders are urged to consult their own tax advisers regarding the
impact of the provisions of the 2003 Tax Act on their particular situation.


Taxation of capital gains
Generally, a US holder who is not resident or ordinarily resident in the UK for
tax purposes should not be subject to UK tax on any gain from the disposal of
ADSs, but will be subject to US tax on any capital gain realised on the sale or
other disposal of ADSs.


US information reporting and backup withholding
Dividend payments with respect to ADSs and proceeds from the sale or other
disposal of ADSs may be subject to information reporting to the US Internal
Revenue Service and backup withholding at a current rate of 28 per cent.
Holders should consult their own advisors as to the application to them of the
information reporting and backup withholding rules.


Stamp duty
In practice no UK stamp duty is payable on the transfer of an ADS, provided
that the separate instrument of transfer is not executed in, and always remains
outside of, the UK. No stamp duty reserve tax is payable on an agreement to
transfer ADSs.


Estate and gift tax
Under the Estate Tax Convention, a US holder generally is not subject to UK
inheritance tax.


Exchange controls and other limitations affecting security holders
There are currently no exchange controls or other limitations in the UK
affecting security holders.


127   The BOC Group plcAnnual report and accounts 2003





---



##### 



Payment of dividends
Ordinary shareholders and loan stock holders may arrange to have their
dividends or interest paid directly into a bank or building society account
through the Bankers Automated Clearing System (BACS). Mandate forms are
available from Lloyds TSB Registrars whose details appear on page 128 or
alternatively you can set up a new, or change an existing, dividend mandate via
the Lloyds TSB Registrars shareview website at www.shareview.co.uk Tax vouchers
relating to any dividend or interest payments made via BACS will be mailed
directly to the registered address of the share or loan stock holder.


Share dealing services
For Internet and telephone share dealing services contact Lloyds TSB Registrars
by either logging on to www.shareview.co.uk/dealing or by calling 0870 850 0852
between 8.30 am and 4.30 pm on any business day (excluding bank holidays).


Details of a postal share dealing service can be obtained from:
Cazenove & Co. Ltd
20 Moorgate, London EC2R 6DA, England
Telephone: 020 7155 5155


American Depositary Shares
The BOC Group plc American Depositary Shares (ADS) are listed on the New York
Stock Exchange and trade under the symbol BOX. One ADS represents two The BOC
Group plc Ordinary shares. JPMorgan Chase Bank is the depositary and their
address for enquiries is:


JPMorgan Chase Bank
JPMorgan Service Center, PO Box 43013, Providence, RI 02940-3013, USA
Telephone: +1 781 575 4328
Website: www.adr.com/shareholder


A dividend reinvestment plan is available through JPMorgan Chase Bank as
depositary for holders of ADSs. All enquiries regarding this plan should be
addressed to:


Global Invest Direct, JPMorgan Chase Bank
PO Box 43013, Providence, RI 02940-3013, USA
Telephone, toll free: JPMorgan Service Center on +1 800 749 1687 or +1 800 428 4237


US report filings
All reports and other information filed with the US Securities and Exchange
Commission (SEC) may be inspected at the public reference facilities maintained
by the SEC at 450 Fifth Street, NW, Washington DC 20549, USA. These reports may
also be accessed via the SECs website at www.sec.gov


Agent for service of process in the US
J Blake, General Counsel
The BOC Group, 575 Mountain Avenue, Murray Hill, New Jersey 07974-2082,USA.


ShareGift
Shareholders with a small number of shares, the value of which makes it
uneconomic to sell them, may wish to consider donating them to charity through
ShareGift, a registered charity administered by The Orr Mackintosh Foundation.
A ShareGift donation form can be obtained from Lloyds TSB Registrars whose
details appear on page 128. Further information about ShareGift is available at
www.sharegift.org or by writing to: ShareGift, The Orr Mackintosh
Foundation, 46
Grosvenor Street, London W1K 3HN, England. Telephone: 020 7337 0501.


Unsolicited mail
The company is obliged by law to make its share register publicly available and
as a consequence some shareholders may receive unsolicited mail. If you wish to
limit the amount of unsolicited mail you receive, contact: The Mailing
Preference Service, FREEPOST 29 (LON.20771), London W1E 0ZT, England.
Telephone: 020 7291 3310 or register on-line at www.mpsonline.org.uk


The Mailing
Preference Service is an independent organisation which offers a free service
to the public. Registering with them will stop most unsolicited consumer
advertising material.


Special needs
If you would like to receive this report in an appropriate alternative format,
such as large print, Braille, or audio cassette, please contact Lloyds TSB
Registrars on 0870 600 3958 or for shareholders with hearing difficulties on
Teltex 0870 600 3950.


129   The BOC Group plcAnnual report and accounts 2003





---



##### 



Cross reference to Form 20-F

The information in this document that is referred to in the following table
shall be deemed to be filed with the US Securities and Exchange Commission for
all purposes.



Item
    
    
    
    Page1
    
    
    
    Identity of directors, senior management and advisors
    
    
    n/a2
    
    
    
    Offer statistics and expected timetable
    
    
    n/a3
    
    
    
    Key informationSelected financial data
    
    
    12-13, 52Capitalization and indebtedness
    
    
    n/aReasons for the offer and use of proceeds
    
    
    n/aRisk factors
    
    
    29-30, 47-484
    
    
    
    Information on the companyHistory and development
of the company
    1, 14-22, 31-45, outside back coverBusiness overview
    
    
    1, 14-22, 25-28, 31-45Organizational structure
    
    
    122-123Property plants and equipment
    
    
    14-22, 97-985
    
    
    
    Operating and financial review and prospectsOperating results
    
    
    1, 31-52Critical accounting policies
    
    
    50-51Liquidity andcapital resources
    
    
    46-52, 84, 102-108Research and development, patents
and licenses, etc
    
    
    28Trend information
    
    
    31-45Off-balance sheet arrangements
    
    
    49, 110-111Contractual obligations
    
    
    49, 1106
    
    
    
    Directors, senior management and employeesDirectors and senior management
    
    
    8-11Compensation
    
    
    60-69Board practices
    
    
    8-11, 53-59, 63, 70Employees
    
    
    23-24, 87Share ownership
    
    
    60-697
    
    
    
    Major shareholders and related party transactionsMajor shareholders
    
    
    125Related party transactions
    
    
    99, 111, 116Interests of experts and counsel
    
    
    n/a




Item
    
    
    
    Page8
    
    
    
    Financial informationConsolidated statements and other
financial information
    
    
    49-51,
71-121, 124Significant changes
    
    
    46,1219
    
    
    
    The offer and listingOffer and listing details
    
    
    124-125Plan of distribution
    
    
    n/aMarkets
    
    
    124Selling shareholders
    
    
    n/aDilution
    
    
    n/aExpenses of the issue
    
    
    n/a10
    
    
    
    Additional informationShare capital
    
    
    n/aMemorandum and articles of association
    
    
    n/aMaterial contracts
    
    
    n/aExchange controls
    
    
    127Taxation
    
    
    126-127Dividends and paying agents
    
    
    n/aStatement by experts
    
    
    n/aDocuments on display
    
    
    129Subsidiary information
    
    
    122-12311
    
    
    
    Quantitative and qualitative disclosures
about market risk
    
    
    46-52,
78, 104-10812
    
    
    
    Description of securities other than equity securities
    
    
    n/a13
    
    
    
    Defaults, dividend arrearages and delinquencies
    
    
    n/a14
    
    
    
    Material modifications to the rights of security holders
and use of proceeds
    
    
    n/a15
    
    
    
    Controls and procedures
    
    
    56-5716A
    
    
    
    Audit committee financial expert
    
    
    5416B
    
    
    
    Code of ethics
    
    
    57-5816C
    
    
    
    Principal accountant fees and services
    
    
    55, 8316D
    
    
    
    Exemptions from Listings Standards for audit committees
    
    
    n/a17
    
    
    
    Financial statements
    
    
    n/a18
    
    
    
    Financial statements
    
    
    71-12119
    
    
    
    Exhibits
    
    
    n/a




130   The BOC Group plcAnnual report and accounts 2003





---



##### 



Glossary of terms

Terms used in the report and accounts
    
    US equivalent or brief descriptionAcquisition accounting
    
    Purchase accountingAssociate
    
    Equity investmentCapital allowances
    
    Tax term equivalent to US tax depreciation allowancesCash at bank
    
    CashCreditors
    
    PayablesDebtors
    
    ReceivablesFinance lease
    
    Capital leaseFinancial year
    
    Fiscal yearFreehold
    
    Ownership with absolute rights in perpetuityInterest receivable
    
    Interest incomeInterest payable
    
    Interest expenseJoint venture
    
    Equity investmentNet asset value
    
    Book valueOwn shares
    
    Treasury stockProfit
    
    IncomeProfit and loss account
    
    Income statementProfit and loss account reserves
    
    Retained earningsProfit for the financial year
    
    Net incomeProvisions
    
    ReservesCalled up share capital
    
    Ordinary shares, capital stock or common stock issued and fully paidScrip dividend
    
    Stock dividendSecured loan
    
    Collateralised loanShareholders funds
    
    Shareholders equityShare premium account
    
    Additional paid-up capital or paid-in capital (not distributable)Share issues
    
    Stock outstandingStocks
    
    InventoriesTangible fixed assets
    
    Property, plant and equipmentTurnover
    
    Revenue


131   The BOC Group plcAnnual report and accounts 2003





---



##### 



Index



Item
    
    PageAAccounting policies
    
    
    77Acquisitions
    
    
    113American Depositary Shares (ADSs)
    
    
    124Annual General Meeting
    
    
    59Auditors remuneration
    
    
    83Auditors report
    
    
    71Audit committee
    
    
    54BBalance sheets
    
    
    73, 76Board committees
    
    
    54Board of directors
    
    
    8Borrowings facilities
    
    
    47, 104CCapital expenditure
    
    
    33Cash flow statement
    
    
    74Cautionary statement
    
    
    1Chairmans statement
    
    
    4Charitable donations
    
    
    58Chief executives review
    
    
    6Commitments
    
    
    49, 110Contact information
    
    
    128Contingent liabilities
    
    
    49, 111Corporate governance
    
    
    53Creditors
    
    
    102Critical accounting policies
    
    
    50Cross reference to Form 20-F
    
    
    130DDebtors
    
    
    101Depreciation
    
    
    97Directors interests
    
    
    65Directors remuneration (see Remuneration)
    
    
    87Directors report
    
    
    2Directors responsibilities statement
    
    
    70Directors service contracts
    
    
    63Disposals
    
    
    113Dividend reinvestment plan (DRIP)
    
    
    128Dividends
    
    
    95Donations (see Charitable donations)
    
    
    58EEarnings per share
    
    
    95Employees
    
    
    23, 87Employment policies and principles
    
    
    23Environment (see Safety, health and the environment)
    
    
    25Exceptional items
    
    
    31, 46, 83Exchange rates
    
    
    52Executive management board
    
    
    10FFair value of acquisitions
    
    
    113Financial calendar
    
    
    128Financial highlights
    
    
    2Financial instruments
    
    
    104Financial review
    
    
    46Five year record
    
    
    12GGlossary of terms
    
    
    131Going concern
    
    
    52Goodwill
    
    
    96Group profile
    
    
    14Group undertakings
    
    
    122




Item
    
    PageHHealth (see Safety, health and the environment)
    
    
    25IInformation technology
    
    
    28Intangible fixed assets
    
    
    96Interest
    
    
    84Internal controls
    
    
    56JJoint ventures and associates
    
    
    99LLeases
    
    
    97, 102Legal proceedings
    
    
    49, 111Liquid resources
    
    
    74MMinority interests
    
    
    72Movement in shareholders funds
    
    
    75NNotes to the financial statements
    
    
    79OOperating review
    
    
    31Operating review  Process Gas Solutions
    
    
    33Operating review  Industrial and Special Products
    
    
    36Operating review  BOC Edwards
    
    
    37Operating review  Afrox hospitals
    
    
    38Operating review  Gist
    
    
    38PPensions and retirement benefits
    
    
    89Profit and loss account
    
    
    72Provisions for liabilities and charges
    
    
    108RRatios
    
    
    46Registered office
    outside back coverRegistrars
    
    
    128Related party transactions
    
    
    116Remuneration
    
    
    87Research and development
    
    
    28Reserves
    
    
    109Risk
    
    
    29SSafety, health and the environment
    
    
    25Segmental information
    
    
    79Share option and incentive schemes
    
    
    88Share price
    
    
    124Shareholder analysis
    
    
    125Shareholder information
    
    
    124Statement of total recognised gains and losses
    
    
    75Stocks
    
    
    100Substantial shareholdings
    
    
    125Supplier payment policy
    
    
    52TTangible fixed assets
    
    
    97Taxation
    
    
    84Total shareholder return
    
    
    61, 63UUS GAAP information and reconciliations
    
    
    116US investor information
    
    
    126WWebsite
    
    
    128




132   The BOC Group plcAnnual report and accounts 2003





---



##### 























































©The BOC Group plc 2003.
Designed and produced by Radley Yeldar (London) using RingMaster®.
Photography by George Brooks.
Printed by CTD Capita.





---



##### 



(BACK COVER)